Earnings Call: Q1 2021

May 3, 2021

Good afternoon. Thank you for joining Chegg's First Quarter 2021 Conference Call. On today's call are Dan Rosensweig, Co Chairperson and CEO and Andy Brown, Chief Financial Officer. A copy of our earnings press release along with our investor presentation is available on our Investor Relations website, investor. Chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward looking statements regarding future events, including the future financial and operating performance of the company. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's Annual Report on Form 10 ks filed with the Securities and Exchange Commission on February 22, 2021, as well as our other filings with the SEC. Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non GAAP Financial Measures. Our GAAP results and GAAP to non GAAP reconciliations can be found in our earnings press release and the investor slide deck found on our IR website, investor. Chegg.com. We also recommend you review the Investor Data sheet, which is also posted on our IR website. Now, I will turn the call over to Dan. Thank you, Tracy, and welcome everyone to Chegg's Q1 2021 earnings call. Even as COVID is receding in the United States, we know many are still dealing with real challenges. So we hope all of you and your families are healthy and well. And despite the ongoing global uncertainty, Chegg has had a tremendous start to the year. I want to thank our team for their focus and execution to deliver on our student first mission to ensure learners around the world have the support and the resources they need. And while our U. S. Business remains incredibly strong. We are very excited about our significant international growth and are on our way to exceeding our 1,000,000 subscriber goal. We continue to fire on all cylinders and our Q1 results reflect the popularity and importance of Chegg Services, which experienced 64% subscriber growth, reaching a record 4,800,000 subscribers in the quarter. To put that in perspective, It is almost 1,000,000 more subscribers than we had in all of 2019. And our overall year over year revenue grew by 51%. These results and continued momentum give us the confidence to once again raise our full year guidance and Andy will walk you through the financial details shortly. Direct to consumer platforms like Chegg, who own the relationship with their customer, own the data, their channels of distribution and their content are in the best position to serve their customers, Grow faster and be more profitable at scale. Having that relationship and data allows Chegg to more Effectively and immediately differentiate our services and respond faster to our students' evolving needs. We believe our ability to invest in our existing services and add new and better services while increasing margins puts Chegg in a unique position to impact the future of the higher education ecosystem. Our market is only getting bigger and more important. We are excited about Chegg's position to lead and capture these new growth areas. Content quality, Comprehensiveness and effectiveness are the moat that allows Chegg to provide overwhelming value to students. This quarter, we added 6,000,000 new solutions to our expert Q and A database, which now has more than 59,000,000 solutions and 33% of the new questions came from our international subscribers. The more expert generated content we offer And the higher the quality, the better our growth, renewals and retention for students in the U. S. And around the world. This supports our view that Chegg services are truly global in nature. This also applies to newly added services like Mathway, which we acquired last year and invested in, which led to accelerated growth due to the strength of the Chegg brand, outreach and our platform. Our vision of offering overwhelming value to students is exemplified by the introduction of our Chegg Study Pack Bundle, which more and more of our customers are subscribing to. And with our continued efforts around limiting account sharing, we are seeing positive impact in customer acquisition and an increased lifetime value. COVID-nineteen was a wake up call for of Education Industry, with many now trying to rapidly transition online. For those of you who are new to our story, Segg Services were built from the beginning to support students online, on demand with high quality differentiated content in multiple modalities on every device, whether they are on campus or off campus. Chegg is focused on providing world class academic services that help students master their subjects, better understand their course material and have better outcomes on their learning journey. In addition, we have expanded our offerings to include skills based learning As it is clear, more people will have to learn more things over the course of their careers, particularly for tech enabled jobs. Although the skills category is early for us, we believe it represents an enormous opportunity for Chegg on a global basis in the coming years. We believe education must evolve to meet the changing needs of modern students. Students today are older, Many have children, have jobs, have less time and they need and deserve more support. The learner economy supports them by helping more learners access more subjects, more modalities and more content from expert educators to help them take their education and careers into their own hands. Both the number of students and the length of time they will spend learning are dramatically expanding, which is why Chegg will meet this opportunity by continuing to invest in expert high quality content of all types from even more sources to become a unified global learning platform for academic support and skills. As we look ahead, I could not be prouder of the Chegg team, who continue to over perform in very difficult circumstances. And I want to share my appreciation as we once again were named 1 of Fortune Magazine's Best Technology Companies to Work For and we won 8 awards from Comparably, including being named on the list for Best Company Culture and Best Company Outlook. We are fortunate to be a mission driven company at a time when what we provide is more important than ever. We see the learner economy only getting bigger and more We believe Chegg's core business of academic support and skills has significant growth ahead of it. And with a strong balance sheet, we will always look for opportunities to better serve the student. Chegg will continue to lead the transition from learning to earning and support students no matter the path they take in their academic and professional careers. And with that, I will turn it over to Andy. Andy? Thanks, Dan, and good afternoon, everyone. Q1 was a great quarter for Chegg. We entered the year with momentum that continued through the quarter with our financials and business metrics exceeding our expectations, giving us the confidence to increase our guidance for full year 2021. We also completed a capital raise, giving us the additional balance sheet flexibility and capacity to continue to invest in growth areas, while remaining opportunistic with external opportunities to fuel growth. With that as a backdrop, let me walk you through the Q1 results. For Q1, total revenue grew 51 percent to $198,000,000 This was primarily driven by subscriber growth of 64%, which includes a 12% contribution from Macquarie, which we acquired in Q2 of 2020. This resulted in Chegg Services revenue of $162,000,000 or 62% growth over Q1 of 2020. We experienced strong growth across our subscription services in the U. S. And around the world. Required materials revenue exceeded our expectations during the quarter as we saw increased demand for textbook sales versus rentals, which increases in period revenue versus rentals that are recognized ratably over the semester, resulting in moderated gross margins for the quarter. All of this resulted in an 80% year over year increase in adjusted EBITDA to 57,000,000 demonstrating the continued leverage and power of our subscription model, which allows us to invest for future growth while improving our adjusted EBITDA margin. Our business model inherently supports operating leverage as we scale. The majority of our subscribers are acquired through unpaid channels. Our content is created once and then used many times by learners across the globe and much of our learning content we offer is relevant globally. We have a proven history of expanding our adjusted EBITDA margin while investing in future growth and we believe Chegg's brand, reach and balance sheet will allow us to continue to do so. Looking at the balance sheet, we ended the quarter with $2,600,000,000 of cash and investments. This includes a capital raise we completed in February of $1,100,000,000 We believe the combination of our direct to student model, Balance sheet and cash flows are the strongest in the education industry and put us in the best position to grow organically and should opportunities become available through acquisition. We continue to believe consolidation is likely in our industry and as such the strength of our balance sheet puts us in the pole position should opportunities present themselves. Moving on to guidance. As a result of our strong Q1 results and continued momentum, we are raising our guidance for the year. For 2021, we now expect total revenue to be between $790,000,000 $800,000,000 with Chegg Services revenue between $675,000,000 68 5,000,000 Gross margin between 68% 69% and adjusted EBITDA between $275,000,000 280,000,000 or a 35% adjusted EBITDA margin, which is up 100 basis points from our prior guidance. For Q2, we expect Total revenue to be between $188,000,000 $190,000,000 with Chegg Services revenue between $166,000,000 $168,000,000 gross margin between 69% 70% and adjusted EBITDA between $72,000,000 $74,000,000 In closing, we had another strong quarter. We delivered above the high end of our expectations, giving us confidence to increase full year guidance. We continue to believe that we will be a high growth company with expanding margins for the foreseeable future, even after lapping the extraordinary growth we experienced over the last year, which reflects the importance of Chegg Services to our students and the strength of our operating model. With that, I'll turn the call over to the operator for your questions. Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer Our first question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question. Thank you so much. At the beginning of your prepared remarks, Dan, you talked about the significant international growth. I just was wondering if we can get a little bit more color, where are you seeing the growth And how should we think about that going forward? Thanks. Yes. Thank you for asking. And look, We are seeing great growth everywhere, to be honest with you. Obviously, domestically, it's stronger than even we would have imagined. Internationally, we're seeing similar levels of growth, just some are off larger basis and some are off smaller basis. So in the English speaking countries, particularly Canada, Australia, we're seeing, what you'd expect us to see. And then there are the surprises that adjust Keep doing really well like Turkey or Asia. So it's not limited. It's if you have a country that A large enough subset of your students are learning STEM and speak English. They are discovering Chegg in significant ways And that will benefit our growth for years to come and it validates as I did put in my prepared remarks that what we built really is a global learning tool. There's more for us to do. We're really just at the beginning. We have a lot more investment in the infrastructure to do, but it's an exciting time for growth. Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Please proceed with your question. Hey, guys. Thanks for taking my question. Maybe just one clarification on MathWave, because I think, Andy, you mentioned it contributed 12 points Good morning. Good morning. In the quarter, if I annualize this, it's roughly a $48,000,000 run rate. I think when you acquired it, it was Like a $20,000,000 run rate. So for the run rate to more than double in less than a year since you acquired it, is it fair to think the sub base also followed trends For this magnitude? Thank you. Well, yes. And what we talked about in the prepared remarks was that it was approximately 12% of the growth. So it's not $12,000,000 I just want to be clear with that. But the important fact here is that when we acquire businesses, They typically accelerate under our management. And it's not just our management, it's the brand. It's all of the things that Chegg brings to an acquired company. And if you kind of replay back what we said, what, about a year ago when we acquired Math way, we said it was 9%. We saw they contributed 9% of the subscribers and now it's 12%. So it is accelerating the way we would expect. And truth be told, it's done much better than we'd originally expected and it's contributing really nice to Subscribers, as I just mentioned, but likewise with revenue. So yes, we're super happy with the acquisition of Mathway. Thank you. And you should also just remember numerically that math weighs in $9.95 sub versus $14.95 per Chegg Study and $19.95 per Chegg Study Pack. And so, but as Andy points out, it's seeing acceleration beyond any of our expectations, Frankly, the whole business is. Our next question comes from the line of Josh Bair with Morgan Stanley. Please proceed with your question. Thanks. Just on that point on the Twelve Point contribution, that was on subscribers, right? Just want to make sure not on subscription not on services revenue? Exactly. That was on subscribers. So when you looked at the revenue when you looked at our Scribe of growth, toll points of that was attributable to Mathway. That is correct. Right. And then To count as a subscriber for MathWave, is that paid subscribers? Anytime we talk about a subscriber on any one of our Products that means somebody has paid for a subscription. That is correct. Okay. Perfect. Thank you. Wanted to ask just get your update on bundle adoption and ARPU uplift. I guess with Mathaway and Thinkful and some of the other revenue lines and services. Sometimes it's hard to unpack. So just checking in on What you're seeing for new subscribers, existing subscribers, if there's any big differences in rolling that out domestically Conversely and like underlying everything, how's the ARPU uplift tracking? Okay. This is Dan. I'll try my best. There was a lot in that question. The good news is all of the answers will be positive Because everything is frankly positive. So if we were and we don't to break out each of the services business, You would see that the ARPU for Chegg Study and Chegg Study Pack are in fact up. That was the desired goal because a larger percentage of Chegg Study, Chegg Study PAC customers that are new to us are opting for Chegg Study PAC, which is great. So this is it's really just a little it's a year old since we've launched it. So we're seeing higher Take rate domestically, we're seeing higher take rate and similar take rates surprisingly in a positive way to us. Internationally. We're seeing engagement similarly domestically and internationally, and we're seeing the same types of ramp for renewals. So what I would say is across the board, it's a very big win for what our expectations were and is obviously already contributing, but will contribute significantly in the out years because remember, we're only really marketing this to new customers, Which means our existing customers, they could upgrade, but we're not really trying to do that. So they're staying where they are. And that means next year and the year after, Our base that we'll be renewing, we'll be renewing at the $19.95 number versus the $14.95 number. So this is a long term plan to give students more value, more overwhelming value for their money. They're opting for it at a higher clip and they're engaging and renewing at it at a really strong rate. It's so far really good. Great. Thank you for the question. Our next question comes from the line of Ryan MacDonald with Needham and Company. Please proceed with your question. Hi, thanks for taking my questions. Congrats on a nice quarter. Andy, I guess the question is For you here, can you talk us walk us through some of the assumptions on the full year updated full year guide? Obviously, a very strong Q1, but perhaps not all of that being Flowing through to the updated full year outlook. Is there something one time there on the required material side Or perhaps conservatism around retention rates as students go back to campus. Can you just walk us through those assumptions? Thanks. Yes. Well, Yisai, thanks for the question. Yes. So real simply, it's super early. And I think as you are aware, we've now updated or increased our guidance twice, since giving really early guidance in November. So it's super early. And there are some things that are happening as we're there's certain what I'll call uncertainties that we want to we don't want to get ahead of our skis. Things like as we lap through COVID, as we lap through some of the account sharing, as we're lapping math way. And so that's what's gone into the thought. And once again, not a significant change from what we've seen, how we've done things in the past. And so on top of that, if you think about this, at the high end of our guidance range, we're almost 2x where we were 2 years ago, so on a much bigger base. So all of those went into consideration, and we believe it's a strong guide up. And if I could just answer one of the questions that you asked. There's a lot of people that I think are confusing whether Chegg is a back to Work back to not work, we are neither of those things. We as long as students are in school, They want, they need and they're using Chegg. It doesn't matter the geography, physical location. So we have looked at all of the data. If you were back at school and in classroom, if you were back at school and in classroom sometime but not the rest or if you were at home, your conversion levels, your engagement levels, your renewal levels are almost identical. So we are not affected by whether schools Teach online or offline or teach hybrid. The only thing that could affect us, which isn't the case, is if there was no school. And that is not what happened. It's not what's happening. And so as we come to an end of COVID, it's not going to affect us negatively at all. And a lot of the people have said our growth last year had a lot to do with COVID. The reason it had to do with COVID was 2 things. 1, internationally, Students around the world discovered us for the first time and as they went back to campus, it didn't affect their growth rates or their engagement or their renewals in any negative way. So that's great. Second is in the U. S, we had been working on account sharing efforts and those account sharing efforts We're benefited from the fact that students left campus and couldn't proximity share, sit next to somebody and share. But as you know, We have done a lot of work to block all those things. So as students went back to school and they lived in pods or they went to classrooms And most of their pods were people in the same class. So, we saw only the positive impact of what we've done in account sharing. We are not a COVID case in any way in terms of going back or staying home. If you're in school, you want Chegg. And it's and we have the numbers that back that up. Yes. That strong usage and retention data certainly shows up in our work as well. Congrats again. Thanks. Yes. Thanks. Thank you. Great quarter for us. Our next question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question. Thanks for taking the questions. Andy, you mentioned, just In regards to the guidance, some of the uncertainties, since you're lapping COVID and then account sharing and math way, I just hope you could talk a little bit more on account sharing. I think in your comments, Dan, you just talked about how it's helping customer acquisition and Increased LTV. Can you just talk about add a little bit more color on that? And then if there's any next steps Kind of following the multifactor authentication implementation and just, I guess, How do you think about lapping account sharing or what the timing is of that? Thanks. Yes. I'll start, Doug. So it's very difficult to know Where we are, people have asked what inning are you in? And our answer is, I think it's more like cricket, which is the game never ends. That we are going to be working on account sharing. We're going to be working on account fraud. We're going to be working on all of the things Anybody who has a cyber business needs to do. But what we know is its impact is positive and it's forever in that As that base gets bigger, since they already knew Chegg, our renewal rates are going up because they already knew it and they wanted it. So that helps everything from subscriber growth to revenue to LTV. And so it's just been very, very positive. It's difficult to know like how to value it in terms of lapping or not lapping. I think what we're seeing is continued outstanding growth. And just to go back to something that Andy pointed out earlier, we've grown 100% in 2 years And we're still seeing our growth rates are going to be what we expected them to be 2 years ago on top of a much smaller base. That is a result of doing better, providing even more value, adding the bundle, growing internationally and account sharing. How much we Ascribe to each one is difficult to do, but overall, it is clearly working. Okay. And maybe Andy, just a follow-up. Just On 2Q, it looks like just from a sequential perspective, TEG Services is up some, required materials is down sequentially. Is that basically what you pointed out in terms of the 1Q benefit of more sales in the quarter? Can you just clarify that? Yes. Well, that's exactly it, Doug. When we do a sale, we recognize the revenue immediately. When we do a rental, we recognize it over the period of the semester, which is basically call it 5 months for sake of argument. And so we got much more a much larger Contribution in Q1 as a result of that and we're getting a less of a contribution because there was less there were less rentals during this rush period. So that's exactly it. And any idea why it skewed more towards sales maybe than you expect? Well, it can vary semester by semester, Right. Some of that can be the pricing, some of the habits that students have, but this semester we just saw kind of Right in the middle of Rush where we saw more sales and we're ambivalent one way or another. All we want to do is service the student Whatever the student wants, we're willing to service them with. And like I said, as a result, we saw a bigger contribution In Q1 from required materials, it will be slightly less in Q2, but either way, it kind of washes itself out over this course of the semester, which is 2 quarters. Yes. And if I Doug, if I would just add one small point to that, I do think it's because students are home and it's harder for them to find a place to ship them back, because they didn't want to go out for COVID. So just buying the book and not having to ship it back was probably easier for them. But as Andy points out, financially, we're sort of agnostic over time. Yes. Great. Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question. Hi, thanks for taking the question and congrats on the strong results. So maybe a higher level one for me. Just understanding the Success that you've had both domestically and internationally. I'm curious, your appetite to really hit the gas on sales and marketing investments, just Just think about the balance between growth and profitability, especially given the success you've had, especially in international markets. Thanks. Yes. This is Dan. And I'll as Andy is the Controller of the purse strings, I'll let him add some color to this. But we have look, I've been around a long time. I've just turned 60 and I've never really seen with the exception of maybe Google search a business like this one. Meaning, its growth rates, its gross margins, its EBITDA margins, its ratio of EBITDA margins to free cash flow. We are not trying to manage to any particular number except growth. So when we see an opportunity to invest, We do it. We are not holding back anything. We're not concerned about those things. It's just it's a model that yields Credible profitability and at scale it even gets better. And I'm not even sure anybody else in EdTech is profitable and look how profitable we are in total, let alone any direct to consumer subscription company. So it's not like we're holding back putting money down. If we most of our investment and we've upped that investment significantly is in content, because content ultimately is what attracts and keeps This is Steve. So we will continue to invest in the quality of content, in the integrity of that content, in the modalities of that content, in Volume of that content and the language of that content. And honestly, that is the single greatest investment that we can make on behalf of the students, our investors, us. And it also happens to have just a great ROI. Our next question comes from the line of Stephen Sheldon with William Blair. Please proceed with your question. Hi, thanks. On international, can you talk more about how international subs are finding your platform? I would think most are Finding it through SEO efforts. But have you started to notice or track, I guess, any positive word-of-mouth referral dynamics In international markets, and is that something that could pick up here over the next couple of years similar to what you've seen over the last 4 to 5 in U. S. Markets? Yes, great question. And the answer is yes and yes. And what do I mean by that, which is of the investments we've been making for years is SEO. And as I mentioned in the response to the previous question, which was also the one which is can you put throw the gas down on it, the answer is we have And we can and we will and it really comes down to content. So you're right. Overwhelmingly people discover us through SEO. We're blessed in that we have 59,000,000 questions and answers in our database of which we own the And it's growing at about 17,000,000 new ones, which come directly from students that have already paid us, which means That question then gets indexed into search and more students from that same class discover us. So that's actually one interesting version of word-of-mouth. But you're right, when we look at how we grow, first we grow through search, then it starts to happen on a per campus basis. And most of that is the virality of word-of-mouth, which is roommate says to roommate or friend says to friend. Then what happens is they go home during the holidays And then they whatever their holiday is, and then they tell the rest of the people in their community, and then we start to grow at other places. So it's a lot like how the original Facebook It's grown campus by campus, and we're planting seeds in every campus through search and then it does blossom and we do See it because we do track not only by the country, we do track by the school and by the subject in the school. So we've seen that already start to happen. Great. Thank you. Yes. Our next question comes from the line of Alex Fuhrman with Craig Hallum Capital Group. Please proceed with your question. Great. Thanks very much for taking my question. Now that international is becoming such a bigger Part of the business and you have so many more students in your subscriber base. I'm curious if you can talk a little bit about how they Compare to your U. S. Students in terms of demographics or how long they're staying with Chegg or their proclivity to password share or anything else you think would be relevant will be very helpful? Thanks. Yes. As we mentioned in the prepared remarks and an answer to one of the other questions, Here's what we're seeing that's just really, really great, which is we're seeing take rates for the bundle being similar U. S, non U. S. We're seeing engagement in CS and engagement in CSP looking the same globally and internationally. And then we are seeing renewal rates. So in each of those areas, We're beginning to see the growth that we would have expected, maybe just a little bit earlier than we expected it. But all the signs are that what we have built, at least for the English speaking STEM audience that we're currently working with is a global product. They're using the same textbooks by the way for the most part all through the world. There's 5 publishers, which essentially control most of the curriculum and content that is taught and whether it's in Africa or whether it's in New Jersey. That's great. Thank you very much. Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Please proceed with your question. Yes, I was curious on the headcount, where we finished The headcount for the company at the end of March and then what you're targeting for year end. And then a follow-up to that, I assume you're going to be adding heads and then just curious to know what areas where are the growth investments in human capital taking place at Chegg? Yes. So I'll take a stab at the first one there. First thing is we don't actually give out quarterly headcount information. We did exit the year with full time and part time employees that were on a payroll of approximately 1900 employees And at least about 50% of those employees are overseas. So As far as adding headcounts, are we hiring? The answer is absolutely yes, we are hiring. We're hiring into many positions across the company, particularly in technical positions. And we would anticipate that our headcount as we exit this year is likely is going to be is likely to be higher. Do you want to add anything on that Dan or not? Yes. I think, look, in the categories, I think you can guess what they are, which is we're investing Across the board, but it's always in content, content matching, search, AI, machine learning, Data Science. So those are the areas. What is our objective? Our objective is how do we get all 59,000,000 pieces of content to be discovered by the person that wants to discover them faster than they otherwise would have. And as we get deeper and deeper and deeper into the next chapter of the user experience, which will be personalization, We'll start programming for students in advance before they even know what it is they're coming to look for. So It's always around things that have to do with improving the user experience and the quality. The good news is the rest of the business is able to scale with the amount of employees that we have and that's why our margins keep getting better. Just specificity on A number that $1900,000,000 at the end of December of 2020. Andy, is there a target number or is there a plan number that's been discussed That it grows 10%, 15%. We discussed that internally. We don't discuss it externally. So yes, Do we have a headcount plan internally? The answer is absolutely yes. They're clearly targeting areas where we can continue to grow our company, Whether it's technical, whether it's in content development, whatever it may be, but as far as discussing that externally, the answer is no. But yes, we do have an internal plan. Our next question comes from the line of Mike Grondahl with Northland Securities. Just on the password sharing, Was there anything new or incremental that was sort of launched or kind of put forth during the quarter? I wouldn't say that there was anything new in terms of we laid out for you all what we've been doing for a year and a half The quarters that we're doing and in the launch dates. But what happens is you use technology and use data science and use AI to improve upon it. So, every day we learn more about what the wrong behavior looks like and we're able to continue To eliminate it in advance. So I would say that incrementally, there's I mean, it's incremental every hour of every day because as we learn more, That's the beauty of technology and machine learning. We use that to our advantage. And as we grow internationally, we apply that same thing internationally. So I don't believe we had some significantly big new launch, just a lot better at the launches that we did Last August and last October. Great. Thank you. Yes. Our next question comes from the line of Brett Knoblauch with Berenberg Capital Markets. Please proceed with your question. Hi, guys. Thanks for taking my question. I want to focus a bit more on the scale of opportunity. In your prepared remarks, you talked a good bit about it. Can you Maybe just provide a little more color on your approach. Is this going to be maybe an offshoot to the Chegg platform, keep that direct to student model? Is this going to make Thinkful bigger in terms of expanding the Thinkful content or would it be likely to pursue kind of an opportunistic acquisition in this space to really expand into the skills market a bit more. Yes. All these questions have been thoughtful. This one, I think the answer is going to be all of the above, which means, when we enter a market, the goal is to win. And when we see something like the skills market, which we believe over time will be larger than the academic support market, which you can see how fast the academic support market is growing and how we continue to capture market share and expand, expand our TAM and grow internationally. So for us, We prefer and we focus on direct model. And in the direct model, ThinkFlo is a direct model. We do have a partner with ASU and we might have other partners. But overwhelmingly, we like to go directly to the person who needs to pay because they value it the most, they completed the highest, they're the most employable. And so we focused a great deal on that. Now what is our strategy without giving too much away and we've talked about most of this before, which is we want to continue to expand the content categories to the ones that are the fastest growing segments of the market. We like the people that go through our platform to become employable in 3 to 6 months with little or no debt in a tech enabled job or a better tech enabled job. And we intend to differentiate on not just the quality of the curriculum, but I think for us more unique on two things. 1, we have the ability to do a lower price than anybody and still make money because of going direct and because of leverage we have at our scale. And then second, is our support, our ability to support the student through the process. So everything we've invested in for 11 years in terms of a support platform for academic study applies directly to what people are doing through the Thinkful platform. And so we've already begun to enable all of the classes now with instant direct Q and A. From there, we're building databases Similar to Chegg Study and then we keep the live Q and A in it. And that helps people finish and it helps people get jobs better because They get rewarded for really understanding the concepts and then getting employed. And so that is our vision for it, whether or not we go Something other than direct to student, I think it's just is something we can determine over time, but it's not a priority for us. Perfect, understood. And if you had to rank over 5 years the growth opportunity, where would This sit versus the international opportunity. Well, I'm probably one of the few CEOs that truly gets to say they're both huge. And I don't want to have Because I'm not going to pick, meaning we're going to invest in both, we are investing in both. And I think international will come faster than and be more profitable significantly more profitable sooner than skills. But I think over Time when you look at how many people need to be upskilled or reskilled or skilled and you look at the cost of that versus $14.95 or $19.95 a month. I think you see revenue opportunities that will be bigger, but I think if you rank them all, you would say domestic, international and skills, with skills over time potentially having the largest dollar TAM and international support being as large, if not larger than the U. S. Andy has pointed that out before, you just do the physical number of people. And then but the U. S. Still has a lot of growth ahead of it. I mean, we were very specific about saying that the U. S. Growth Has not at all moderated yet. And I think people just underestimate how large this market is. And the growth that you don't see because most people focus on the 4 year schools and all that kind of stuff is the growth of online not which I think was like $500,000 So I mean this is the future of online learning. It's just such a big opportunity for Chegg regardless of where it is in the world. Understood. Thanks so much. Appreciate it. Yes. Thank you. Our next question comes from the line of Brent Thill with Jefferies. It's Avi on for Brent. Thanks for the question and congrats on a great quarter. Given you guys guided to 35 percent EBITDA margin for the year, what are some of the key drivers of expanding margins? And where do you ultimately think the ceiling is? Do you foresee a 40% plus bottom line story in the future given such strong unit economics? Thanks. Okay. So first thing is, and I get this question a lot that we're not at a steady state of check and we're not close to a steady state. We're continuing to grow and as you can see from our historical results, the significant leverage in the model And how do we get that leverage? We talked about it a little bit in the prepared remarks, right? You've got 85% or more of our Scribe has come on through unpaid sources. So we're not paying a lot we're not paying jobs for marketing. We've got content now almost 60,000,000 pieces of content that are all relevant Mostly relevant across the globe. So that allows us to scale and get leverage. And so There's a ton left on us that we don't we haven't set ourselves we haven't set EBITDA margin targets. They're certainly higher than they are today. We just added another 100 bps to our guidance. That gets us 300 bps over where we were last year and that was up 200 bps from the year before. So You can see there's a lot of leverage in the model and we're not founding it. We think that leverage continues for many, many years. Great. Thanks. There are no further questions in the queue. I'd like to hand the call back over to Dan Rosensweig for closing remarks. Thank you, everyone. Look, as you can see, the opportunity for Chegg is just enormous, and we are executing against it. But even while this is happening for us and I think everybody, it's more important to recognize that well, we may be slowly recovering of the global pandemic here in the U. S. She continues to have a terrible impact in many regions of the world, especially in India, where we have so many employees that live and work and are helping drive this incredible growth that you're seeing. Despite what they're dealing with, the team has continued to stay focused on our student first mission and has supported one another. And I really could not be more grateful or proud of them. So I want to take a moment to send our thoughts and well wishes to all our Chegg family in India and on behalf of Chegg management team and our Board. We are one team now more than ever. And because of that, I know that just as the world comes through this period and our history is stronger than ever, So will the Chegg team. And for our investors, you can tell we are fired up and excited about what's ahead of us. We just see enormous opportunities for continued growth, increased profitability, but more importantly for all of us here at Chegg, The impact of millions of students lives around the world who are increasingly depending on Chegg to help them supplement what they learn or aren't able to learn in the classroom. So we're going to continue to execute, stay focused on our student First Mission, and we really appreciate you all for joining the call. We're proud of our results, and we look forward to talking to you again in a quarter. Thanks, everybody. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.