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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________             
Commission file number 001-36180
CHEGG, INC.
(Exact name of registrant as specified in its charter)

Delaware 20-3237489
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
3990 Freedom Circle
Santa Clara, CA, 95054
(Address of principal executive offices)
(408) 855-5700
(Registrant’s telephone number, including area code)

Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareCHGGThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filer
 (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of April 30, 2021, the Registrant had 141,935,085 outstanding shares of Common Stock.





Table of Contents
TABLE OF CONTENTS
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Unless the context requires otherwise, the words “we,” “us,” “our,” “Company,” and “Chegg” refer to Chegg, Inc. and its subsidiaries taken as a whole.

Chegg, Chegg.com, Chegg Study, internships.com, Research Ready, EasyBib, the Chegg “C” logo, and Thinkful, are some of our trademarks used in this Quarterly Report on Form 10-Q. Solely for convenience, our trademarks, trade names, and service marks referred to in this Quarterly Report on Form 10-Q appear without the ®, ™ and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names. Other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and the impact of the ongoing coronavirus (COVID-19) pandemic on our financial condition and results of operations are forward-looking statements. The words “believe,” “may,” “will,” “would,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “endeavor,” “expect,” “plans to,” “if,” “future,” “likely,” “potentially,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, such as the COVID-19 global pandemic. Many of the risks and uncertainties are currently elevated by, and may or will continue to be elevated by, the current COVID-19 pandemic. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for number of shares and par value)
(unaudited)
 March 31, 2021December 31, 2020
Assets
Current assets  
Cash and cash equivalents$656,168 $479,853 
Short-term investments1,215,944 665,567 
Accounts receivable, net of allowance of $169 and $153 at March 31, 2021 and December 31, 2020, respectively
11,633 12,913 
Prepaid expenses25,256 12,776 
Other current assets26,625 11,846 
Total current assets1,935,626 1,182,955 
Long-term investments711,224 523,628 
Textbook library, net24,000 34,149 
Property and equipment, net134,093 125,807 
Goodwill290,601 285,214 
Intangible assets, net49,798 51,249 
Right of use assets22,617 24,226 
Other assets25,602 24,030 
Total assets$3,193,561 $2,251,258 
Liabilities and stockholders' equity  
Current liabilities  
Accounts payable$14,902 $8,547 
Deferred revenue48,608 32,620 
Accrued liabilities78,089 68,565 
Current portion of convertible senior notes, net109,494  
Total current liabilities251,093 109,732 
Long-term liabilities  
Long-term portion of convertible senior notes, net1,673,946 1,506,922 
Long-term operating lease liabilities17,551 19,264 
Other long-term liabilities7,628 5,705 
Total long-term liabilities1,699,125 1,531,891 
Total liabilities1,950,218 1,641,623 
Commitments and contingencies
Stockholders' equity:  
Preferred stock, 0.001 par value – 10,000,000 shares authorized, no shares issued and outstanding
  
Common stock, 0.001 par value 400,000,000 shares authorized; 141,317,066 and 129,343,524 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
141 129 
Additional paid-in capital1,645,352 1,030,577 
Accumulated other comprehensive (loss) income(1,238)1,530 
Accumulated deficit(400,912)(422,601)
Total stockholders' equity1,243,343 609,635 
Total liabilities and stockholders' equity$3,193,561 $2,251,258 
See Notes to Condensed Consolidated Financial Statements.
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CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended March 31,
 20212020
Net revenues$198,378 $131,590 
Cost of revenues71,384 42,390 
Gross profit126,994 89,200 
Operating expenses:
Research and development46,131 39,541 
Sales and marketing26,214 20,238 
General and administrative37,870 26,145 
Total operating expenses110,215 85,924 
Income from operations16,779 3,276 
Interest expense, net and other (expense) income, net:
Interest expense, net(1,929)(13,427)
Other (expense) income, net(77,208)4,960 
Total interest expense, net and other (expense) income, net(79,137)(8,467)
Loss before provision for income taxes(62,358)(5,191)
Provision for income taxes2,821 522 
Net loss$(65,179)$(5,713)
Net loss per share, basic and diluted$(0.49)$(0.05)
Weighted average shares used to compute net loss per share, basic and diluted134,352 122,428 
See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three Months Ended March 31,
20212020
Net loss$(65,179)$(5,713)
Other comprehensive loss
Change in net unrealized loss on available for sale investments, net of tax(1,894)(3,267)
Change in foreign currency translation adjustments, net of tax(874)(999)
Other comprehensive loss(2,768)(4,266)
Total comprehensive loss$(67,947)$(9,979)
See Notes to Condensed Consolidated Financial Statements.

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CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
Three Months Ended March 31, 2021
Common Stock 
SharesPar 
Value
Additional Paid-In
Capital
 Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit
 Total Stockholders’ Equity
Balances at December 31, 2020129,344 $129 $1,030,577 $1,530 $(422,601)$609,635 
Cumulative-effect adjustment related to adoption of ASU 2020-06— — (465,006)— 86,868 (378,138)
Issuance of common stock in connection with equity offering, net of offering costs10,975 11 1,091,455 — — 1,091,466 
Equity component on conversions of 2023 notes and 2025 notes— — (11,305)— — (11,305)
Issuance of common stock upon conversions of 2023 notes126  11,237 — — 11,237 
Net proceeds from capped call related to conversions and extinguishments of 2023 notes and 2025 notes— — 23,577 — — 23,577 
Issuance of common stock upon exercise of stock options and ESPP44  346 — — 346 
Net share settlement of equity awards828 1 (59,176)— — (59,175)
Share-based compensation expense— — 23,647 — — 23,647 
Other comprehensive loss— — — (2,768)— (2,768)
Net loss— — — — (65,179)(65,179)
Balances at March 31, 2021
141,317 $141 $1,645,352 $(1,238)$(400,912)$1,243,343 

Three Months Ended March 31, 2020
Common Stock 
SharesPar 
Value
Additional Paid-In
Capital
 Accumulated Other Comprehensive (Loss) Income Accumulated
Deficit
 Total Stockholders’ Equity
Balances at December 31, 2019121,584 $122 $916,095 $(1,096)$(416,292)$498,829 
Cumulative-effect adjustment related to adoption of ASU 2016-13— — — — (88)(88)
Issuance of common stock upon exercise of stock options and ESPP360  2,665 — — 2,665 
Net share settlement of equity awards1,599 2 (46,836)— — (46,834)
Share-based compensation expense— — 18,334 — — 18,334 
Other comprehensive loss— — — (4,266)— (4,266)
Net loss— — — — (5,713)(5,713)
Balances at March 31, 2020
123,543 $124 $890,258 $(5,362)$(422,093)$462,927 
See Notes to Condensed Consolidated Financial Statements.
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CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities 
Net loss$(65,179)$(5,713)
Adjustments to reconcile net loss to net cash provided by operating activities:
Print textbook depreciation expense3,760 3,527 
Other depreciation and amortization expense14,846 9,243 
Share-based compensation expense23,100 18,334 
Amortization of debt discount and issuance costs1,626 12,946 
Loss on early extinguishment of debt78,152  
Loss on change in fair value of derivative instruments, net7,148  
Loss from write-off of property and equipment757  
Gain on sale of strategic equity investment(5,338) 
Loss (gain) on textbook library, net4,028 (1,175)
Operating lease expense, net of accretion1,589 1,053 
Other non-cash items87 (312)
Change in assets and liabilities, net of effect of acquisition of business:  
Accounts receivable2,240 4,929 
Prepaid expenses and other current assets(25,075)(9,707)
Other assets1,058 (1,425)
Accounts payable6,597 (436)
Deferred revenue15,988 16,973 
Accrued liabilities9,386 15,972 
Other liabilities(1,197)(1,242)
Net cash provided by operating activities73,573 62,967 
Cash flows from investing activities  
Purchases of property and equipment(18,984)(19,965)
Purchases of textbooks(4,527)(36,830)
Proceeds from disposition of textbooks4,038 2,170 
Purchases of investments(925,748)(112,421)
Maturities of investments181,315 121,784 
Purchase of strategic equity investment (2,000)
Proceeds from sale of strategic equity investment6,845  
Acquisition of business, net of cash acquired(7,891) 
Net cash used in investing activities(764,952)(47,262)
Cash flows from financing activities  
Proceeds from common stock issued under stock plans, net347 2,667 
Payment of taxes related to the net share settlement of equity awards(59,176)(46,836)
Proceeds from equity offering, net of offering costs1,091,466  
Repayment of convertible senior notes(189,849) 
Proceeds from exercise of convertible senior notes capped call24,812  
Net cash provided by (used in) financing activities867,600 (44,169)
Net increase (decrease) in cash, cash equivalents and restricted cash176,221 (28,464)
Cash, cash equivalents and restricted cash, beginning of period481,715 389,432 
Cash, cash equivalents and restricted cash, end of period$657,936 $360,968 
 Three Months Ended March 31,
 20212020
Supplemental cash flow data:
Cash paid during the period for:  
Interest$502 $500 
Income taxes, net of refunds$3,063 $756 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,998 $1,572 
Non-cash investing and financing activities:  
Accrued purchases of long-lived assets$904 $8,020 
Issuance of common stock related to repayment of convertible senior notes$11,237 $ 

March 31,
20212020
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$656,168 $359,101 
Restricted cash included in other current assets38 306 
Restricted cash included in other assets1,730 1,561 
Total cash, cash equivalents and restricted cash$657,936 $360,968 
See Notes to Condensed Consolidated Financial Statements.
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CHEGG, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Background and Basis of Presentation

Company and Background

Chegg, Inc. (Chegg, the Company, we, us, or our), headquartered in Santa Clara, California, was incorporated as a Delaware corporation in July 2005. Chegg is A Smarter Way to Student®. We strive to improve educational outcomes by putting the student first. We support students on their journey from high school to college and into their career with tools designed to help them learn their course materials, succeed in their classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere.

Basis of Presentation

The accompanying condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, the condensed consolidated statements of stockholder's equity, and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and the related footnote disclosures are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2021, our results of operations, results of comprehensive loss, stockholder's equity, and cash flows for the three months ended March 31, 2021 and 2020. Our results of operations, results of comprehensive loss, stockholder's equity, and cash flows for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

We operate in a single segment. Our fiscal year ends on December 31 and in this report we refer to the year ended December 31, 2020 as 2020.

The condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the Annual Report on Form 10-K) filed with the U.S. Securities and Exchange Commission (SEC).

Except for our policies on convertible senior notes, net, share-based compensation expense, and net loss per share, there have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our Annual Report on Form 10-K. Our policies on convertible senior notes, net and net loss per share were updated as a result of our adoption of Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity on January 1, 2021 under the modified retrospective method. For further information on ASU 2020-06, see the section below titled “Recent Accounting Pronouncements” of this Note 1, “Background and Basis of Presentation.”

Convertible Senior Notes, net

In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). In March 2019, we issued $700 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $100 million of additional 2025 notes for aggregate total gross proceeds of $800 million. In April 2018, we issued $345 million in aggregate principal amount of 0.25% convertible senior notes due in 2023 (2023 notes). Collectively, the 2026 notes, 2025 notes, and the 2023 notes are referred to as the “notes.” The notes, including the embedded conversion features, are accounted for under the traditional convertible debt accounting model entirely as a liability net of unamortized issuance costs. The carrying amount of the liability is classified as a current liability if we have committed to settle with current assets; otherwise, we classify it as a long-term liability as we retain the election to settle conversion requests in shares of our common stock. The embedded conversion features are not remeasured as long as they do not meet the separation requirement of a derivative; otherwise, they are classified as derivative instruments and recorded at fair value with changes in fair value recorded in other (expense) income, net on our condensed consolidated statements of operations. The fair value of any derivative instruments related to the notes are determined utilizing Level 2 inputs. Issuance costs are amortized on a straight-line basis, which approximates the effective interest rate method, to interest expense over the term of the notes. In accounting for conversions of the notes, the carrying amount of the converted notes is reduced by the total consideration paid or issued for the respective converted notes and the difference is recorded to additional paid-in capital on our condensed consolidated balance sheets. In accounting for
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extinguishments of the notes, the reacquisition price of the extinguished notes is compared to the carrying amount of the respective extinguished notes and a gain or loss is recorded in other (expense) income, net on our condensed consolidated statements of operations.

Share-based Compensation Expense

Share-based compensation expense for restricted stock units (RSUs), performance-based restricted stock units (PSUs) with either a market-based condition or financial performance targets, and the employee stock purchase plan (ESPP) is accounted for under the fair value method based on the grant-date fair value of the award. Share-based compensation expense for RSUs and PSUs with financial performance targets is measured based on the closing fair market value of the Company’s common stock, PSUs with a market-based condition is estimated using a Monte Carlo simulation model, and the ESPP is estimated using the Black-Scholes-Merton option pricing model. We recognize share-based compensation expense, subject to continuing service over the requisite service period, which is generally the vesting period, on a straight-line basis for RSUs and the ESPP and on a graded basis for PSUs. Share-based compensation expense for PSUs with a market-based condition is recognized regardless of whether the market condition is satisfied whereas share-based compensation expense for PSUs with financial performance targets is recognized upon estimated or actual achievement of such targets. These amounts are reduced by estimated forfeitures, which are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options, PSUs, RSUs, and shares related to convertible senior notes, to the extent dilutive. Diluted net loss per share assumes that all stock options and dilutive convertible shares were exercised or converted and is computed by applying the treasury stock method for outstanding stock options, PSUs, and RSUs, and the if-converted method for outstanding convertible senior notes. Under the treasury stock method, options, PSUs, and RSUs are assumed to be exercised or vested at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible senior notes are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities; the disclosure of contingent liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience, knowledge of current business conditions, and various other factors we believe to be reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ from these estimates, and such differences could be material to our financial position and results of operations. Except for estimates related to the grant-date fair value of PSUs with a market-based condition, there have been no material changes in our use of estimates during the three months ended March 31, 2021 as compared to the use of estimates disclosed in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

Reclassification of Prior Period Presentation

In order to conform with current period presentation, $6.6 million of current operating lease liabilities have been reclassified to accrued liabilities on our condensed consolidated balance sheet as of December 31, 2020. This change in presentation does not affect previously reported results.

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Condensed Consolidated Statements of Operations Details

Other (expense) income, net consists of the following (in thousands):
Three Months Ended March 31,
20212020
Loss on early extinguishment of debt(1)
$(78,152)$ 
Loss on change in fair value of derivative instruments, net(1)
(7,148) 
Gain on sale of strategic equity investment(2)
5,338  
Interest income2,049 4,856 
Other705 104 
Total other (expense) income, net
$(77,208)$4,960 
(1) For further information, see Note 7, “Convertible Senior Notes.”
(2) For further information, see Note 4, “Cash and Cash Equivalents, and Investments.”

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

There were no accounting pronouncements issued during the three months ended March 31, 2021 that would have an impact on our financial statements.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. ASU 2020-06 simplifies the guidance in Accounting Standards Codification (ASC) 470-20, Debt - Debt with Conversion and Other Options. Under ASU 2020-06, convertible instruments with embedded conversion features, that are not required to be accounted for as a derivative or that do not result in a substantial premium, are no longer required to be separated from the host contract thereby eliminating the cash conversion feature model. Instead, these convertible debt instruments will be accounted for as a single liability measured at amortized cost under the traditional convertible debt accounting model. ASU 2020-06 also requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share.

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Adoption of ASU 2020-06 resulted in an increase to convertible senior notes of $378.1 million and a decrease to additional paid-in capital of $465.0 million due to the application of the traditional convertible debt model and no longer separating the embedded conversion feature. Accumulated deficit also decreased by $86.9 million due to the reduction in non-cash interest expense related to the debt discount and we expect interest expense to decrease in future periods. Refer to Note 7, “Convertible Senior Notes” for more information.

Note 2. Revenues

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our revenues are recognized over time as services are performed, with certain revenues being recognized at a point in time.

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The following table sets forth our total net revenues for the periods shown disaggregated for our Chegg Services and Required Materials product lines (in thousands, except percentages):
 Three Months Ended March 31,Change
 20212020$%
Chegg Services$162,351 $100,359 $61,992 62 %
Required Materials36,027 31,231 4,796 15 
Total net revenues$198,378 $131,590 $66,788 51 

During the three months ended March 31, 2021 and 2020, we recognized $29.5 million and $17.5 million, respectively, of revenues that were included in our deferred revenue balance at the beginning of each reporting period. During the three months ended March 31, 2021 and 2020, we recognized $10.7 million and $12.3 million, respectively, of operating lease income from print textbook rentals that we own.

Contract Balances

The following table presents our accounts receivable, net, deferred revenue, and contract assets balances (in thousands, except percentages):
 Change
 March 31, 2021December 31, 2020$%
Accounts receivable, net$11,633 $12,913 $(1,280)(10)%
Deferred revenue48,608 32,620 15,988 49 
Contract assets18,043 13,243 4,800 36 

During the three months ended March 31, 2021, our accounts receivable, net balance decreased by $1.3 million, or 10%, primarily due to timing of billings and seasonality of our business. During the three months ended March 31, 2021, our deferred revenue balance increased by $16.0 million, or 49%, primarily due to increased bookings driven by higher Chegg Services revenue. During the three months ended March 31, 2021, our contract assets balance increased by $4.8 million, or 36%, primarily due to the income sharing payment arrangements we offer to students for our Thinkful service.

Note 3. Net Loss Per Share

Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. ASU 2020-06 requires the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share. Under the if-converted method, shares related to our convertible senior notes, to the extent dilutive, are assumed to be converted into common stock at the beginning of the period.

During the three months ended March 31, 2021 and 2020, basic and diluted net loss per share was the same, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

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The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):
Three Months Ended March 31,
20212020
Numerator:
Net loss$(65,179)$(5,713)
Denominator:
Weighted average shares used to compute net loss per share, basic and diluted
134,352 122,428 
Net loss per share, basic and diluted
$(0.49)$(0.05)

The following potential weighted-average shares of common stock outstanding were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive (in thousands):
Three Months Ended March 31,
2021
2020(1)
Options to purchase common stock556 1,050 
PSUs and RSUs2,982 3,316 
Shares related to convertible senior notes28,818 3,968 
Employee stock purchase plan 25 10 
Total common stock equivalents32,381 8,344 
(1) As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method.

Note 4. Cash and Cash Equivalents, and Investments
 
The following tables show our cash and cash equivalents, and investments’ adjusted cost, unrealized gain, unrealized loss, and fair value as of March 31, 2021 and December 31, 2020 (in thousands):
 March 31, 2021
 Adjusted CostUnrealized GainUnrealized LossFair Value
Cash and cash equivalents:   
Cash$24,399 $ $ $24,399 
Money market funds532,493   532,493 
Commercial paper99,277 1 (2)99,276 
Total cash and cash equivalents$656,169 $1 $(2)$656,168 
Short-term investments:   
Commercial paper$605,318 $78 $(32)$605,364 
Corporate debt securities609,912 938 (270)610,580 
Total short-term investments$1,215,230 $1,016 $(302)$1,215,944 
Long-term investments:   
Corporate debt securities$673,029 $118 $(921)$672,226 
Agency bonds38,996 4 (2)38,998 
Total long-term investments$712,025 $122 $(923)$711,224 

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 December 31, 2020
 Adjusted CostUnrealized GainUnrealized LossFair Value
Cash and cash equivalents:   
Cash$15,054 $ $ $15,054 
Money market funds464,799   464,799 
Total cash and cash equivalents$479,853 $ $ $479,853 
Short-term investments:   
Commercial paper$204,152 $24 $(6)$204,170 
Corporate debt securities459,967 1,478 (48)461,397 
Total short-term investments$664,119 $1,502 $(54)$665,567 
Long-term investments:   
Corporate debt securities$484,275 $605 $(283)$484,597 
Agency bonds38,995 36  39,031 
Total long-term investments$523,270 $641 $(283)$523,628 

The following table shows our cash equivalents and investments' adjusted cost and fair value by contractual maturity as of March 31, 2021 (in thousands):
 Adjusted CostFair Value
Due in 1 year or less$1,314,507 $1,315,220 
Due in 1-2 years712,025 711,224 
Investments not due at a single maturity date532,493 532,493 
Total$2,559,025 $2,558,937 

Investments not due at a single maturity date in the preceding table consisted of money market funds.

As of March 31, 2021, we determined that the declines in the market value of our investment portfolio were not driven by credit related factors. When evaluating whether an investment's unrealized losses are related to credit factors, we review factors such as the extent to which fair value is below its cost basis, any changes to the credit rating of the security, adverse conditions specifically related to the security, changes in market interest rates and our intent to sell, or whether it is more likely than not we will be required to sell, before recovery of cost basis. We invest in highly rated securities with a minimum credit rating of A- and a weighted average maturity of less than twelve months. In addition, our investment policy limits the amount of our credit exposure to any one issuer or industry sector. The policy requires investments to be investment grade, with the primary objective of preserving capital and maintaining liquidity. Fair values were determined for each individual security in the investment portfolio. During the three months ended March 31, 2021 and 2020, we did not recognize any losses on our investments due to credit related factors.

Strategic Investments

In March 2020, we completed an investment of $2.0 million in TAPD, Inc., also known as Frank, a U.S.-based service that helps students access financial aid. Additionally, we previously invested $3.0 million in a foreign entity to explore expanding our reach internationally. During the three months ended March 31, 2021, we sold our investment in a foreign entity for total consideration of $8.3 million, resulting in a $5.3 million gain included within other (expense) income, net on our condensed consolidated statements of operations. We received a cash payment, net of taxes withheld, of $6.8 million included within cash flows from investing activities on our condensed consolidated statements of cash flows. We did not record any impairment charges on our strategic investments during the three months ended March 31, 2021 and 2020, as there were no significant identified events or changes in circumstances that would be considered an indicator for impairment. We considered general market conditions as a result of the COVID-19 pandemic in our impairment analysis. There were no observable price changes in orderly transactions for the identical or similar investments of the same issuers during the three months ended March 31, 2021 and 2020.

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Note 5. Fair Value Measurement

We have established a fair value hierarchy used to determine the fair value of our financial instruments as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value; the inputs require significant management judgment or estimation.

A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Financial instruments measured and recorded at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are classified based on the valuation technique level in the tables below (in thousands):
 March 31, 2021
 TotalLevel 1Level 2
Assets:   
Cash equivalents:   
Money market funds$532,493 $532,493 $ 
Commercial paper99,276  99,276 
Short-term investments: 
Commercial paper605,364  605,364 
Corporate debt securities610,580  610,580 
Long-term investments:
Corporate debt securities672,226  672,226 
Agency bonds38,998  38,998 
Total assets measured and recorded at fair value$2,558,937 $532,493 $2,026,444 

 December 31, 2020
 TotalLevel 1Level 2
Assets:   
Cash equivalents:   
Money market funds$464,799 $464,799 $ 
Short-term investments:
Commercial paper204,170  204,170 
Corporate debt securities461,397  461,397 
Long-term investments:
Corporate debt securities484,597  484,597 
Agency bonds39,031  39,031 
Total assets measured and recorded at fair value$1,653,994 $464,799 $1,189,195 
 
We value our investments based on quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. Other than our money market funds, we classify our fixed income available-for-sale investments as having Level 2 inputs. The valuation techniques used to measure the fair value of our investments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. We do not hold any investments valued with a Level 3 input.

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The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
 
Financial Instruments Not Recorded at Fair Value on a Recurring Basis

We report our financial instruments at fair value with the exception of the notes. The estimated fair value of the notes was determined based on the trading price of the notes as of the last day of trading for the period. We consider the fair value of the notes to be a Level 2 measurement due to the limited trading activity. For further information on the notes see Note 7, “Convertible Senior Notes.”

The carrying amounts and estimated fair values of the notes as of March 31, 2021 and December 31, 2020 are as follows (in thousands):
March 31, 2021
December 31, 2020 (1)
 Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
2026 notes$985,706 $1,054,020 $761,930 $1,129,370 
2025 notes688,240 1,202,129 640,614 1,456,800 
2023 notes109,494 377,186 104,378 376,949 
Convertible senior notes, net$1,783,440 $2,633,335 $1,506,922 $2,963,119 
(1) Prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method. Refer to Note 7, “Convertible Senior Notes” for more information.

The carrying amount of the 2026 notes, 2025 notes and 2023 notes as of March 31, 2021 was net of unamortized issuance costs of $14.3 million, $11.8 million and $1.4 million, respectively. The carrying amount of the 2026 notes, 2025 notes and 2023 notes as of December 31, 2020 was net of unamortized debt discount of $226.7 million, $149.1 million and $10.0 million, respectively, and unamortized issuance costs of $11.3 million, $10.2 million and $1.2 million, respectively.

Note 6. Acquisition

On February 22, 2021, we completed an acquisition, accounted for as a business combination, of 100% of the outstanding shares of a company for a technology that will strengthen our content creation abilities for a purchase consideration of $8.0 million in cash. Our preliminary total allocation of purchase consideration included acquired assets of $0.4 million, acquired developed technology intangible asset of $3.3 million and goodwill of $5.8 million less assumed liabilities of $1.5 million. This acquisition did not have a material impact on our condensed consolidated financial statements and is not expected to have a material impact in future periods.

Note 7. Convertible Senior Notes

Adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

We adopted ASU 2020-06 on January 1, 2021 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Under ASU 2020-06, convertible instruments with embedded conversion features, that are not required to be accounted for as a derivative or that do not result in a substantial premium, are no longer required to be separated from the host contract thereby eliminating the cash conversion feature model. Instead, these convertible debt instruments will be accounted for as a single liability measured at amortized cost under the traditional convertible debt accounting model.

In August 2020, we issued $1.0 billion in aggregate principal amount of 0% convertible senior notes due in 2026 (2026 notes). The aggregate principal amount of the 2026 notes includes $100 million from the initial purchasers fully exercising their option to purchase additional notes. In March 2019, we issued $700 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (2025 notes) and in April 2019, the initial purchasers fully exercised their option to purchase $100 million of additional 2025 notes for aggregate total principal amount of $800 million. In April 2018, we issued $345 million in aggregate principal amount of 0.25% convertible senior notes due in 2023 (2023 notes and together with the 2026 notes and the 2025 notes, the notes). The aggregate principal amount of the 2023 notes includes $45 million from the
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initial purchasers fully exercising their option to purchase additional notes. The notes were issued in private placements to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended.

The total net proceeds from the notes are as follows (in thousands):
2026 Notes2025 Notes2023 Notes
Principal amount$1,000,000 $800,000 $345,000 
Less initial purchasers’ discount(15,000)(18,998)(8,625)
Less other issuance costs(904)(822)(757)
Net proceeds$984,096 $780,180 $335,618 

During the three months ended March 31, 2021, in connection with our securities repurchase program, we extinguished $100.0 million aggregate principal amount of the 2025 notes in privately-negotiated transactions for aggregate consideration of $184.9 million, which was paid in cash. Upon execution, we concluded that the 2025 notes embedded conversion features no longer met the derivative scope exception and, as a result, initially recorded a derivative liability of $176.5 million, related to the fair value of extinguished 2025 notes. We settled the derivative liability for aggregate consideration of $184.9 million resulting in a $8.4 million loss on change in fair value. The carrying amount of the 2025 notes subject to the extinguishment was $98.3 million resulting in a $78.2 million loss on early extinguishment of debt. Additionally, during the three months ended March 31, 2021, we entered into 2025 notes capped call privately-negotiated transactions which terminated capped call transactions underlying 1,939,560 shares of our common stock and received aggregate cash proceeds of $23.9 million. Upon execution, we concluded that the capped call transactions no longer met the derivative scope exception and, as a result recorded a derivative liability of $22.6 million related to the fair value of terminated 2025 notes capped call transactions. We settled the capped call transactions for aggregate consideration of $23.9 million resulting in a $1.3 million gain on change in fair value.

The notes are our senior, unsecured obligations and are governed by indenture agreements by and between us and Wells Fargo Bank, National Association, as Trustee (the indentures). The 2026 notes bear no interest and will mature on September 1, 2026, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2025 notes bear interest of 0.125% per year which is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The 2025 notes will mature on March 15, 2025, unless repurchased, redeemed or converted in accordance with their terms prior to such date. The 2023 notes bear interest of 0.25% per year which is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018.

During the three months ended March 31, 2021, we elected our option to redeem the remaining outstanding principal amount of 2023 notes, and therefore the 2023 notes continue to be convertible until May 18, 2021. We intend to settle the 2023 notes converted pursuant to our election of our option to redeem such 2023 notes through a combination of cash and shares on May 20, 2021. As a result, we have classified the remaining net carrying amount of 2023 notes as a current liability. Additionally, we entered into 2023 notes capped call privately negotiated transactions underlying the remaining outstanding principal amount of 2023 notes.

Each $1,000 principal amount of the 2026 notes will initially be convertible into 9.2978 shares of our common stock. This is equivalent to an initial conversion price of approximately $107.55 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2025 notes will initially be convertible into 19.3956 shares of our common stock. This is equivalent to an initial conversion price of approximately $51.56 per share, which is subject to adjustment in certain circumstances. Each $1,000 principal amount of the 2023 notes will initially be convertible into 37.1051 shares of our common stock. This is equivalent to an initial conversion price of approximately $26.95 per share, which is subject to adjustment in certain circumstances.

Prior to the close of business on the business day immediately preceding June 1, 2026 for the 2026 notes, December 15, 2024 for the 2025 notes and February 15, 2023 for the 2023 notes, the notes are convertible at the option of holders only upon satisfaction of the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on December 31, 2020 for the 2026 notes, June 30, 2019 for the 2025 notes, and June 30, 2018 for the 2023 notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the respective conversion price for the notes on each applicable trading day;
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during the five-business day period after any 10 consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;
if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
upon the occurrence of certain specified corporate events described in the indentures.

On or after June 1, 2026 for the 2026 notes, December 15, 2024 for the 2025 notes and February 15, 2023 for the 2023 notes until the close of business on the second scheduled trading day immediately preceding the respective maturity dates, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, the notes may be settled in shares of our common stock, cash or a combination of cash and shares of our common stock, at our election.

If we undergo a fundamental change, as defined in the indentures, prior to the respective maturity dates, subject to certain conditions, holders of the notes may require us to repurchase for cash all or any portion of their notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if specific corporate events, described in the indentures, occur prior to the respective maturity dates, we will also increase the conversion rate for a holder who elects to convert their notes in connection with such specified corporate events.

The conditions allowing holders of the 2026 notes to convert were not met and therefore the 2026 notes are not convertible. The first circumstance noted above allowing holders of the 2025 notes to convert was met during the three months ended March 31, 2021, December 31, 2020 and September 30, 2020 and therefore, the 2025 notes were and are convertible starting October 1, 2020 through June 30, 2021. Aside from the extinguishment of $100.0 million aggregate principal amount of the 2025 notes discussed above, we received immaterial requests for conversion of the 2025 notes which we settled in cash during the three months ended March 31, 2021 or intend to settle during the three months ending June 30, 2021. The 2023 notes were and are convertible starting April 1, 2019 through September 30, 2019 and from January 1, 2020 through May 18, 2021. During the three months ended March 31, 2021, we received $24.7 million aggregate principal amount of requests for conversion of the 2023 notes. $4.7 million aggregate principal amount was settled during the three months ended March 31, 2021 for aggregate consideration of $15.9 million, consisting of $4.7 million in cash and 126,003 shares of our common stock with a value of $11.2 million. $20.0 million aggregate principal amount was settled in April 2021 for aggregate consideration of $67.1 million, consisting of $20.0 million in cash and 529,611 shares of our common stock with a value of $47.1 million. During the three months ended March 31, 2021, we terminated 2023 notes capped call transactions underlying 86,826 shares of our common stock and received cash proceeds of $0.9 million. During the year ended December 31, 2020, in connection with our issuance of the 2026 notes, we exchanged $172.0 million aggregate principal amount of the 2023 notes in privately-negotiated transactions for an aggregate consideration of $501.7 million, consisting of $174.6 million in cash and 4,182,320 shares of our common stock with a value of $327.1 million.

The net carrying amount of the notes is as follows (in thousands):
March 31, 2021
December 31, 2020 (1)
2026 Notes2025 Notes
2023 Notes(2)
2026 Notes2025 Notes2023 Notes
Principal$1,000,000 $699,995 $110,896 $1,000,000 $800,000 $115,576 
Unamortized debt discount   (226,732)(149,138)(9,953)
Unamortized issuance costs(14,294)(11,755)(1,402)(11,338)(10,248)(1,245)
Net carrying amount$985,706 $688,240 $109,494 $761,930 $640,614 $104,378 
(1) As noted above, prior period amounts have not been adjusted due to the adoption of ASU 2020-06 under the modified retrospective method.
(2) As noted above, during the three months ended March 31, 2021, we elected our option to redeem the remaining outstanding principal amount of 2023 notes and we have classified the remaining net carrying amount of 2023 notes as a current liability.

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The following table sets forth the total interest expense recognized related to the notes (in thousands):
Three Months Ended March 31,
2021
2020 (1)
2026 Notes2025 Notes2023 Notes2025 Notes2023 Notes
Contractual interest expense$ $237 $66 $249 $215 
Amortization of debt discount