Chegg Inc (CHGG) 2020 Q4 法說會逐字稿

Greetings. Welcome to Chegg, Inc. Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this conference call is being recorded.

I will now turn the conference over to your host, Tracey Ford, Vice President of Investor Relations for Chegg. You may begin.

Good afternoon. Thank you for joining Chegg's Fourth Quarter 2020 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 at 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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission on October 26, 2020, 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 on 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, Tracey, and welcome, everyone, to our 2020 Q4 earnings call. Last year was a complicated time for the world, for our country, and particularly for students who are navigating the pandemic, rising social issues and school closings. It was also an unprecedented time for Chegg as we transitioned 1,900 employees out of our offices and into a remote working environment overnight. It was a year in which we increased our community support, committing over $1 million to local organizations, including food banks who are rising to meet the increased need from students across the country. Like many, we had to meet these challenges head on, but we never lost sight of putting students first, and we are proud of our results and that we outperformed even our most enthusiastic expectations.

It has always been our operating assumption that the transition to online learning was inevitable, but we certainly didn't know the catalyst would be COVID-19. We believe this massive shift to learning online accelerated by the pandemic is an irreversible trend and is actually more student centric. With increased access to digital learning and support, more learners can learn more subjects on any device, anywhere and any time with incredibly high-quality content and tools.

Whenever there is a major platform disruption, there are new leaders that redefine a category. And as the largest direct-to-student online learning platform, Chegg's products and services are increasingly critical to student success. Our results reflect the growing importance of Chegg's learning support services to millions of students around the world. In 2020, we saw year-over-year annual subscriber growth of 67%, representing over 6.6 million subscribers, and total revenue growth of 57%. The trends towards online learning are continuing. And as a result, it gives us the confidence to raise our guidance in 2021, which Andy will walk you through in more detail shortly.

At the start of last year, we laid out our key objectives with no idea that a global pandemic was about to hit and the dramatic impact it would have on our employees, students, our business and the entire world. We entered 2020 with 3 core priorities: To deliver on our financial goals and to continue to provide services that create overwhelming value for academic and professional learners; second, to continue investing in opportunities that leverage the strength of our brand, reach, customer base, and provide opportunities for meaningful growth in future years; and third, to continue to invest in content and our technical infrastructure to allow us to take advantage of those opportunities, not only faster but also at greater global scale.

But within the first quarter, the world changed. Thankfully, as a software company that was built to scale online, we were able to meet the increased demand without missing a beat. However, the massive shift to online learning around the world did prompt us to reprioritize and accelerate efforts that weren't on our road map at the start of the year, including our global e-commerce infrastructure, new and expanded international content, and our account sharing initiatives. We believe that our decision to expand our areas of focus in 2020 has set us up for continued strong growth in 2021 and beyond.

As we think about the future of higher education, it is clear that the trends have accelerated, what we have been talking about for years, and will have a permanent impact on the future of education. This last year has reaffirmed that platform companies that serve the needs of their primary constituents; that own their customer, the data, the channel of distribution and the content will outperform their peer groups and disproportionately benefit their customers and shareholders.

The pandemic has also revealed that there are 2 economies: The service economy, which was dramatically impacted by COVID-19 as 25 million people lost their jobs; and the technology economy, which saw dramatic gains. It is clear that the need to reskill for the modern workforce is here, and this represents a tremendous opportunity for Chegg. Skills-based training and support is emerging as a very large category, especially when you consider the number of people globally that need to be upskilled and reskilled for the current job market. The reality is that the majority of college-aged students don't get a college degree. There is a real demand right now for students to find programs that are far less expensive, are more skills-based, and deliver a greater return on their investment. While we are still early in building out this part of our business, we expect to be a prominent player in skills-based learning and expect to expand our footprint in this space going forward.

This is a highly disruptive moment in higher education's history, and it has been anything but smooth. As institutions had to make the transition to virtual learning overnight, it became clear that schools were underinvested in technology, online assessment and digital support for students. And we believe it's only going to get more challenging in the years ahead as the shift to hybrid and online learning will be permanent. We also believe that higher education must acknowledge that the Internet is here and is a permanent part of learning. As a result, educators must reimagine how they teach, what the curriculum needs to be, how students are assessed and how best to support them. And if that doesn't happen, ultimately it is the students that will suffer.

As a leader in education, we take our role in this transition very seriously. That is why we invest millions of dollars every year building content, personalized learning experiences and technology systems to support learning at scale. As part of our responsibility, we are also working with institutions as they make this transition, including introducing new technology and tools that limit students' ability to use Chegg during designated exam periods. We accelerated our efforts in this area due to the pandemic and recently launched Honor Shield, a free tool available to institutions and professors. And we will continue to find ways to support the millions of hard-working students and educators who use online resources to enhance their learning experience. In fact, in a blind study of students who used Chegg for more than 2 months, they found that 90% reported that Chegg Study helps them better understand their school work.

As we enter 2021, we have expanded our priorities to include an increased investment in international growth as for the first time, we anticipate over more than 1 million subscribers outside the U.S. Because of its popularity, we will continue to invest in the Chegg Study Pack; by expanding our offerings to create even more overwhelming value for students; and we are significantly increasing investments in our skills offering as we believe there will be a lot of activity in this industry and see a huge opportunity to be a significant player and a leader in this space. We have important and ambitious priorities this year. And despite the ongoing pandemic, I have never been more confident about the opportunities ahead of us.

And with that, I will turn it over to Andy. Andy?

Thanks, Dan, and good afternoon, everyone. Today, I will discuss our financial performance for the fourth quarter and full year 2020 as well as our increased outlook for 2021.

By any measure, 2020 was our best year as a company. We far exceeded our initial expectations for revenue, adjusted EBITDA and all key operating metrics. In addition, we significantly increased investments in our future growth opportunities, such as international expansion and skills, we pulled forward technological investments such as device management and MFA to combat account sharing, and we purchased Mathway to expand our presence in the math category. And finally, we took advantage of favorable market conditions to raise capital, which creates additional opportunities for future growth.

As such, we enter 2021 in an even stronger position than we entered 2020. And as a result, we expect to extend our position as the leader in the direct-to-student market.

Moving on to 2020 performance, total revenue grew 57% to $644 million. This was driven by an almost $200 million year-over-year increase in Chegg Services revenue, which grew to $521 million, and subscriber growth of 67% to 6.6 million for the year. This resulted in adjusted EBITDA margin of 32% or $207 million, up 66% year-over-year, demonstrating the continued leverage and power of our subscription model, which allowed us to increase our investments for future growth while improving our adjusted EBITDA margin.

We ended the year on a high note, with Q4 total revenue growing 64% to $206 million, with Chegg Services growing to $176 million, which was above the high end of our expectations and more Chegg Services revenue than we achieved for all of 2016. Subscribers grew 74% in Q4, driven across all our subscription services as students continued to rely on Chegg for help to better understand their subject matter. This strong subscription services growth resulted in adjusted EBITDA of $88 million, an 87% increase over what we achieved in Q4 of 2019 and exceeded our adjusted EBITDA for all of 2018.

Looking at the balance sheet, we ended the year with cash and investments of $1.7 billion. This was bolstered during the year by free cash flow of $104 million or 50% of adjusted EBITDA, and the capital raise I mentioned earlier. We expect free cash flow to increase to 50% to 60% of adjusted EBITDA in 2021 as a result of increased profitability and a planned decrease in textbook purchases.

Moving to guidance for 2021. Based on the momentum we experienced exiting Q4 and the strength we are seeing in subscriber growth in early Q1, we are raising our guidance.

We expect continued strong growth in the U.S. and increased contribution internationally, where we expect to surpass 1 million subscribers in 2021. This will be slightly offset by reduced Required Materials revenue due to lower enrollments.

We are increasing our 2021 adjusted EBITDA margin by 200 basis points despite the fact we are experiencing increased shipping and logistic surcharges for Required Materials from our third-party logistics provider. While we hope these costs will improve, we are currently forecasting this to continue into the fall semester, costing us approximately 200 basis points of gross and adjusted EBITDA margin for 2021. We have provided a guide for seasonality in the investor deck that incorporates this change.

As such, for 2021, we now expect total revenue to be between $780 million and $790 million, with Chegg Services revenue between $665 million and $675 million, gross margin to be between 68% and 69%, adjusted EBITDA to be between $265 million and $270 million, and finally, we expect Capex excluding textbook purchases to be between $90 million and $100 million, growing approximately 17% from $81 million in 2020, with the vast majority for content that fuels our global growth.

Moving to Q1, we expect total revenue between $182 million and $185 million, with Chegg Services between $152 million and $155 million, gross margin between 65% and 66%, and adjusted EBITDA between $48 million and $50 million.

In closing, 2020 has been our best year as a company. The trends we anticipated many years ago and built the foundation of our company on have accelerated: That is online, on demand and affordable services that have resulted in tens of millions of students globally using Chegg as a trusted partner for their academic and skills-based needs. We couldn't be more thankful to those students for trusting Chegg on their educational journey, and to our employees who executed on our vision of being a company that puts students first.

With that, I'll turn the call over to the operator for your questions.

(Operator Instructions) Our first question is from Jeff Silber with BMO Capital Markets.

Let me congratulate you guys on a really stellar year in a tough environment. The numbers are really phenomenal.

You spoke a bit about the international strength and expectations for that to continue. Can you give us a little bit more color where are these international students coming from? Where do you expect them to come from over the next few years?

Yes. Look, thank you very much. It's really a credit to our team. And I think people are pretty excited about just how positive we are on '21 even this early in the year and even though -- despite the pandemic continues. Because we're going to come out of the pandemic stronger than we went in, and we were strong going in.

And international is one of the reasons, frankly. It's interesting. We're in over 190 countries already. You can imagine that the big ones are the English-speaking ones first, Canada, Australia, U.K. And then frankly, we're seeing consistent growth from all countries that we're in. They're just starting from different baselines. Canada started first, and then Australia second, U.K. third, but we see incredible growth from the Middle East. We see incredible growth from Asia. We are staying out of China to the best of our ability.

But we -- so it's hard for us to predict one country over the other in terms of growth rates. What we would say is the bigger countries will be bigger for us. Collectively, it's our belief that the international opportunity is actually bigger than the domestic opportunity, so we're pretty excited about what we see.

And for those who don't follow us that closely, we have a different model than, say, a Netflix or a Spotify where they either need to create content or license the content. We have this unique model where our content is ubiquitous across the world because STEM is STEM and business is business. And there are some nuances, and those nuances get asked and then answered by us afterwards. And so the model is incredibly high growth, extraordinarily efficient, and that's why you continue to see growth in our margins.

So international has been just a real positive surprise for us, and it's -- we're not picking winners right now. We're just -- we're going after all of it.

All right. That's great to hear.

My follow-up question is a different topic. About a month ago, you guys launched Honor Shield, a way to support the integrity of online exams. I know there's been some negative media stories about how students might have been abusing the Chegg product. Can you talk to us a little bit about this product and how you're going to offset that issue going forward?

Yes. Look, it's fascinating. I think once again, reporters don't understand what Chegg does and the way we do it. And it's sort of like traditional media defending traditional media actually, versus actually looking at the changes and the advancements that are happening in every industry.

Look, the Internet is here to stay. Technology is here to stay. What happened for the schools unfortunately is they were woefully underinvested in technology. They didn't prepare to teach online. They tried not to teach online. And then when push came to shove, they gave take-home tests of -- often those tests were old questions or they're auto generated. Many of you may not know this, a lot of tests are auto generated by tools that they license from the publishers. They don't even develop their own test questions.

And so they were not prepared for it. So we stepped in and we said, look, that's not what Chegg was built for. That's not what we want it for. The overwhelming majority, I mean overwhelming majority of students use us every week, whether they have a test or have a quiz or not, because they have no scalable support from their institutions. And frankly, overwhelmingly none of them ever had it in high school. So we're the first high-quality, affordable on-demand support that they can use to master the subject, which is why we shared that research about just how much smarter and how much more comfortable they get with the data.

But we said, look, we have a role to play here, too. And so the first thing is we doubled the number of people that we have that handle these kinds of issues almost overnight. Because we saw our subscriber base double almost overnight, and not just domestically, outside the U.S. So that's the first thing. So if we ever got contacted by schools, our policy is we take it down first, and then we investigate it. And then if we shift it, put it back up, we do. That's the first thing.

The second thing is we use technology and AI to actually build technology that blocks people from asking multiple questions. So you can't submit a test all at once. There are other sites that do that. We're not one of the ones that does that because that's not what we're for. So actually if you submit it either in text or you submit it in photos, we now use technology, AI and machine learning to actually block it, ask which specific question you want to ask.

And then the last thing we did was launch Honor Shield, which is what you asked about. In the case of Honor Shield, we said look, what we want to do is provide a free tool that's really robust, that can scale, that any professor, any school in the world can presubmit their tests and give us the specific time that those tests happen. And then we block the ability for that question to be answered during that test time. And then we store them on a segregated server, and then the plan is to delete them all, and then they go back to the professor.

So we stepped up and did that all within 90 days because we saw the possibility for this, and fortunately, despite press that -- one of the articles was written by somebody who works for one of our competitors. So I think everybody understands that this was an unexpected time, that everybody has a role to play. But it's been our belief for years that if schools don't realize the Internet is here; they don't invest in technology; if they don't reimagine what they teach, how they teach it and how they assess students; then the student is going to continue to suffer.

And so we're all in this together, including Chegg. And we're pleased that hundreds of institutions have already reached out, and we're already working with them. So we're excited about those things, but it's going to be a never-ending battle. And we'll continue to take it on because that's what leaders do.

(Operator Instructions) And our next question will come from Stephen Sheldon with William Blair.

Great to see the increased revenue guidance for 2021, but I just wanted to ask about assumptions for the second half of the year in particular. It seems to assume, based on the quarterly cadence that you guys laid out, a pretty big slowdown in year-over-year revenue growth. I think you'd noted some assumed headwinds in Required Materials.

So can you help roughly frame what you've maybe assumed between the 2 segments in the second half of 2021? I'm just curious about what you're expecting in particular for Chegg Services revenue growth.

Yes. So first thing is we aren't in segments. That's just a dirty word for me. So we are one business segment.

But the way we're viewing the 2021 is not a lot different than as we looked at it in November. There are, as you are aware, some uncertainties as we come through COVID, and we believe we've accounted for those appropriately.

But as Dan said, we recognize that education has fundamentally changed. It's accelerated the trends that we've been talking about for literally years. And we believe that the tailwinds that we have seen over the last, call it, 12 months or so will continue.

The question, the open question is how strong are they going to be? It's not are they going to be there. And we think when we put our forecast and our guidance together, we incorporated that into the thought process.

Yes. And so I guess within Required Materials, I guess, are you assuming that revenue in the second half is down a decent amount year-over-year?

Not really. I mean if you kind of go back to Required Materials, what we've been saying for many years, it's kind of a flattish type business from both. And that's kind of where we're at. I mean Required Materials if you take a look at the guide that we provided, it's within a range of what we've seen in prior years. Clearly, we had the transition year last year when we went from Ingram, where they were owning the textbooks to us owning them.

But the net-net of this is Required Materials is kind of a plus or minus-type business. Don't expect any significant growth and don't expect any significant decline. It will plus or minus 5 million or so.

And our next question is from Ryan MacDonald with Needham & Company.

Congrats on an excellent quarter. Dan, I guess the first one for you, you've made a lot of investments on the technology front to work on account sharing. Can you just talk about some of the early returns you're seeing from that? Or any sort of differences in conversion activity from students that might have been abusing or using -- sharing an account, that might have looked to now start paying for the solution since you put those investments and technologies into place?

Yes. It's a fantastic question. It's a little bit complicated to answer, but the news is all good. So a lot of people ask what happens post-COVID. And I think Andy just articulated where Chegg's success in the U.S. is not a result of people being on campus or not being on campus. It is the reality that we're great at what we do.

But we also had an extraordinary number of people who were sharing accounts. And we were working on that technology, as you know, several quarters before and we were beginning to make significant headway. There's 3 buckets of people. There's people that steal them, there's people that sell them, and there's people that share them. And the biggest category by far were the people that share them, but we focused on the stealers and the resellers first because that's just a different kind of technology. And as Andy mentioned, we moved up investments that we planned actually for '21 into '20.

Because when students got off-campus, the proximity sharing, which is I'm in your dorm or in your room, I see you in the library, they couldn't do it anymore. And that really just highlighted for everybody, including us, just how big the opportunity was for us if we blocked it faster. So we took 2 significant steps, one in August and one in October.

And based on what we can tell, a lot of people don't realize that even though a lot of people are taking classes online, they still were asked to come back to campus, which is crazy in higher education, and you saw the outcome of that. But nonetheless we feel that it made a significant impact, and that's why we continue to see extraordinary growth in Chegg Study because the value proposition is overwhelming for the student. It helps them learn, they can get it anytime day or night, and for the $14.95, they just feel it's worth it now because they weren't able to share it anymore. So I can't give a specific number because it just was coincidental with when COVID happened.

And then outside the U.S., we obviously didn't have that problem, but what COVID did for us was it allowed students for the first time to go to the Internet and look for help, and they found us, and it is sustained. Because outside the U.S., in most countries, they went back to school, and you could see the growth continuing -- going on.

So I would say it's been an extraordinary win for Chegg and our investors. And I think we're seeing it because those people that we believe were sharing that now are buying their own, they're using it the same as the original account. They're staying on as long. They're engaged with it as frequently as the subscribers that came before them. They're renewing at the same rate. So that's all good. So we're very happy with the results so far.

Excellent. And then for a follow-up question, I wanted to ask about Thinkful. You recently announced a partnership with ASU to offer boot camps to those students.

Can you discuss the structure of the partnership? And do you expect to continue to look for additional universities to partner with, or be more focused on sort of direct to student going forward?

Yes, so great question. So we did not go seek that partnership. What has happened is Chegg, when we acquired Thinkful, we expanded the curriculum, we lowered the prices, we increased ISAs to give people a diverse background, the opportunity to take advantage of these things and change their lives. And on top of that, we did something that no other competitor in the market has, which is we have 24/7 on-demand support from our chat-based tutoring.

And as a result of that, we put ourselves in a position where we're the best priced and the greatest support and the relevant curriculum, and that got noticed by a number of institutions who want students to finish and to graduate. And so we've been contacted by a number of them. We're testing it with ASU to see whether or not these are the kinds of partnerships that we want. ASU is a phenomenal university. They're forward-thinking. And they see us as a great partner to be able to accelerate their path into what Chegg has been talking about for years, which is learning to earning is here.

75% of college age students never get a degree. 43% of those that go on to colleges don't get a degree. And so somebody's got to make them employable. And ASU sees that opportunity, and Chegg sees that opportunity, so it was a terrific partnership. I wouldn't be surprised if you see a few more of them, but even there, we're going direct to the student. It's just in partnership with ASU marketing it.

And the way the deal works is we do the content and we do the teaching. They use their brand and they use their marketing. And then there's a revenue split that's to both sides' benefit, but it eliminates the cost of marketing for us and eliminates the cost of curriculum creation for them.

And we'll see. I mean, we just announced it. So it's too early to say whether or not this is a model we want to extend to other places. But it's very clear that institutions see this as an opportunity and are interested in working with Chegg.

And our next question is from Douglas Anmuth with JPMorgan.

Dan, I just wanted to follow up on skills-based, obviously elevated with the pandemic, and a top priority into 2021. Just curious if you could talk more about how the product suite is going to expand, both organically and then potentially through M&A? And I guess how do you think about ranking kind of skills-based priority relative to the core, more college-focused experience?

Yes, that is a phenomenal question, Doug. And that's the right way to think about it in our mind, and that's how we've been thinking about it.

And what's very clear is in the academic support role, that business is doing phenomenally well. It's seeing accelerated growth. It's expanding globally. It's getting more profitable each and every day and kicks off a lot of cash flow, and we'll see a lot of growth for a lot of years.

But what's also clear is the modern student doesn't want to take on debt, that 50% of the world's population is below the age of 30, that students around the world are trying to empower themselves and pay for themselves so that needs to be affordable. And so our view is, have the highest quality with the greatest support so that students are more likely to learn it and pass and become employable. And that allows us to lower our prices, and it allows us to do other kind of financing methods for the students. So they take less of a risk, which institutions unfortunately don't do on behalf of students.

So when we look at the market, and you realize that it's actually a bigger market than the academic support, and the academic support market is a massive market. And we look at the overlap and we say our brand is trusted. When you think about the number of years, I just passed my 11-year anniversary at Chegg. And when you think about the number of students that have come through and used our brand, it's probably in excess of 70 million students have used our brand and subscribed to something or used something over the course of that period of time. So they like us and they trust us. So we think there's an opportunity to promote to the students that are currently in school, to students that have left us, and to the 25 million people who realize that if you don't take a tech-enabled job, you're in a potential for a great deal of difficulty.

So for us organically, it's working great in that we can expand the content, and we can build our support at scale, which again no one else, in our opinion, has tried to do or is able to do, and we spend a lot of time and energy and money to do that.

But the second thing is it's going to be one of those opportunities that there'll be 1, 2 or 3 players that win big. As a platform company, with our brand and our reach and our e-commerce capabilities and our technology and our balance sheet, we think we're in the best position to do to skills what we've done with academic support, which is really define the space, grow it, make it very large and very profitable.

And so we're positioned to grow organically and non-organically if there's an opportunity to find the right asset at the right price, like we've always done. And I think if you look at the return on things that we've acquired, they've returned quite handsomely to our investors. And we think those opportunities in the next few years will be available, and we are in a position to do that if that's the right decision to make.

That's great. Can I just follow-up with one on Honor Shield. I mean historically, you're a DTC company working directly with students and consumers basically. But with Honor Shield, I mean this is a product targeted toward institutions and professors. Just curious if we'll see more along those lines going forward.

Yes. No, it's a fair question. And what's interesting though, Doug, is if you think about higher education, there's really 4,500, 5,000 institutions. But they're made up of millions of professors, and each professor makes their own rules. It's one of the blessings of higher education and one of the real problems with higher education, which is there's no consistency, there's no opportunity to push people to change the curriculum or force them to use technology. You actually have to do hand-to-hand combat with each professor.

So to us, we're treating it like a direct-to-consumer opportunity, which is we've communicated to as many of them as we can. We put it in the press. They work through our SAT group, which is you can call customer service, student advocacy team or the SAT because of colleges. And we built a technology that's super easy to use. You can go look at the site now. They can list anything. And then if they want, need to make a phone call, they can do it. If they want to do chat, they can do it.

So we're treating it like we're going direct to each professor rather than to a specific school by themselves. Because in higher education really, no school except the for-profits can make a decision from the top down.

(Operator Instructions) And our next question is from Josh Baer with Morgan Stanley.

This is Chris on for Josh. I wanted to ask on the various growth levers you have right now, because obviously international, the bundles, skills and account sharing. Should any of these initiatives and their contribution to the model, let's say, peak in the next 2 years? Or should all of these -- should we be taking a longer-term view on all these 4 growth drivers?

I'll start -- this is Dan, then I'll turn it over to Andy because I think there's modeling questions that are probably inherent in that. I would say the one that has had the most immediate impact is account sharing. And I think people are confusing that domestically as if they're -- we're a stay-home company or not a stay-home company.

That's completely irrelevant to Chegg. What's relevant is that students know who we are. They want us. We provide an unbelievable service and the numbers reflect that. So that's the one that probably catches up first.

International, it's as Andy articulated, this is something we only started talking about 2 years ago. And we're estimating that this year, we'll have over 1 million non-U.S. subscribers. So I think that gives you an indication of 2 things: How quickly it's growing and how large it's likely to get. And that -- so that's one that's just really, really early.

Skills is even earlier than that, right? Thinkful was a small acquisition to give us a sense of how the market works, how to do pricing, what's the content that it needs, how to support a student. It's been an incredible learning experience, and it's doing really, really well for us. So that one is also very, very early in our existence.

The bundle, it depends on how you look at it. And I think Andy can walk you through how we think about it as a model. But we've been marketing the bundle really exclusively only to new customers. And the take rate has been much higher than we expected and has been similar outside the U.S. to inside the U.S., which both have been really pleasant surprises.

And so that means in years to come, we'll actually start to reap the benefit of all of those starting to renew. So a higher percentage of our renewal base -- which is very high, it's higher than our newer customer base, will renew at even higher numbers. So that one builds over time.

So I don't really know how to explain it to you except we're thrilled that we have all of those factors to go after right now. Andy, I don't know if you want to add anything to that.

No. I think Dan nailed it. I mean, when you think about where we are as a company today versus where we were just a couple of years ago where we were primarily U.S. college-based opportunity, I mean, we've vastly expanded. And truth be told, the academic side has allowed us to do that.

So we've got both the domestic side that continues to grow at a very fast pace. And then we've added on the other 2 growth vectors that are, as Dan said, super early, right? International, we started those investments in early 2019 and then more recently in the skills-based. So I think when I think about our future, it's much brighter than our past, and our past has been pretty darn good.

And our next question is from Brent Thill with Jefferies.

Dan, you've grown extremely well while having great bottom line growth as well. It's pretty rare in tech, as you know. Many have asked, can you continue that pace and the cadence of top line growth and bottom line growth? Or is there some point where you kind of have to hit the brakes a little bit, make some bigger investments, and take a pause? Just curious on your thoughts on the overall trajectory.

Yes, it's a very fair question, and I think any operator would ask those kinds of questions. And what's interesting, and we sort of alluded to it in our prepared remarks, but we declared for our employee base, 2020 is the year of plumbing, which is we actually made significant investments in systems, in analytics, in the ability to do A/B testing outside the U.S., not just inside the U.S., to do e-commerce, to do local pricing. These were all things that we planned on 2020 being the year of that kind of investment. And we did it.

I mean we still have a few more things to do obviously. And platform companies that stop investing in their platform, lose over time. And so I've learned that lesson. We're not going to do that.

But what's fascinating is -- so for us, we don't have to do like going for maintenance. We did that in 2020. But at the same time, because of account sharing and those things, which the team was able to do faster than we thought because the opportunity presented itself, we've done a lot of those things that we needed to do to be able to accept this level of growth.

And so there's nothing technologically in front of us right now for us to not handle this level of growth. And that's -- we were very fortunate in that 2020 was going to be that year, and we were able to do it and handle that growth.

The question over the growth rates, I'll let Andy handle that because there's lapping and those kinds of things. But we feel really good. I mean, you saw us, we were one of the few companies that had the courage in November to give out not only Q4 but a '21 plan. And then we feel comfortable enough only 5 weeks into the year to elevate even that one. So I think we're not seeing the wall that other companies might see, but I'll let Andy handle the rest of that question.

Yes, I mean, I think Dan actually kind of nailed it. I mean, the fact of the matter is we've got a very scalable model. Lots of leverage in our model.

And Dan mentioned earlier, I mean STEM is STEM. It doesn't matter whether you're a U.S. college student or a college student in Turkey, STEM is STEM. And so we got a lot of leverage in our model from our content.

And so yes, we don't see ourselves anywhere close to a steady state from a margin perspective at this point. We think there's a lot more leverage in the model as we continue to scale the top line. And we believe the top line will continue to grow at a very fast pace. So we're, like I said, like I commented on the last call, I'm much more excited about the future than the past, and the past has been really good.

And our next question is from Jason Celino with KeyBanc Capital Markets.

The 1 million international subs by the end of the year, that's a big number. How should we think about seasonality of this ramp? And then maybe quickly, are you adjusting the price of your products per country?

I'll take this. Andy, I'll take the second part first, and then you could talk about seasonality.

Okay. Go for it, yes.

So -- yes. So at the moment, what we're doing is presenting the pricing in local currency and in local language. And we are now able to -- we are starting to be able to answer questions asked not in English and returning the answers not in English. That's a big -- that's part of the investment we made in technology last year, which is the beginning of translation. And we have a lot more to go there, but we've started that effort.

So to that degree, I think we are in good shape. And I think what Andy said was we'll cross 1 million. I think it will be even larger than that, but we shall see.

And so as it relates to seasonality, I'll let Andy explain it, but it is interesting. Different -- they do have different start dates. Australia has completely different start dates. They have different times of year which they do things. They have different holidays. So that's a little bit of a work in progress, but I'll let Andy explain how we're thinking about it.

Yes, Dan nailed it, right? I mean, my brother lives in Australia, and they just came out of their summer break. So -- which is very different than the U.S. and some other parts of the world.

But the net-net of this rule is -- and just as a reminder, I think I've mentioned this in the prepared remarks. There is a seasonality chart in the Investor Relations deck. I think it's Slide 17, if I recall correctly. And that's all -- so all of the seasonality that we're anticipating, even though it's a work in progress like Dan said, is included in that slide. So reference that.

And our next question is from Mike Grondahl with Northland Securities.

Congrats on the quarter. And if you just look at your CapEx ex the textbooks of $90 million to $100 million, is there any way you can kind of give us a rough range kind of by major growth driver, sort of where that's going? Or just sort of ranked by major growth driver?

Yes. I mean, it's real simple. A vast majority of our CapEx actually goes to expert Q&A, right? We've got over 50 million questions asked and answered and archived on our platform today, and 90% of those are expert Q&A. And so that's where the -- most of the dollars go. I mean, obviously we invest in some other things. As you know, we have some publisher contracts and things like that, but the vast majority is expert Q&A.

Our next question is from Alex Fuhrman with Craig Hallum Capital Group.

I just wanted to ask about the tutors business, if you can tell us a little bit about why that business was unwound. And just can you give us a general sense of what that was contributing to the business? Obviously, it was lower margin, but from a revenue perspective, if you can give us a sense of what that was contributing? And maybe any more insight in that decision would be great.

Yes. I'll start with the decision. If Andy wants to talk about the numbers, he can.

Actually, we -- so it was very interesting. So what does tutoring do the way we were doing it, which is it's real-time academic support. And Chegg Study has become so robust. We have over 50 million questions in there. We're able to answer the questions. We have an SLA of 4 hours, but most of them under an hour at this point. We're able to do it increasingly in multiple languages. You can do it by text, you can do it by your camera phone. I mean, it's just -- and we use AI to do matches better. And we have a lot of technology that allow -- eliminates duplication of questions and grouping of questions that...

And so it's become so robust that it replaced what our consumer tutor product was actually trying to do, which is real-time support. But what we were building is chat-based tutoring, which allows for multiple students to be tutored by the same tutor without being in the same class. So instead of pointing it to consumers where we were doing a couple of hundred thousand sessions, we're able to point them towards Chegg Study because it does that and more. And what we've done is we've redeployed our chat-based tutoring into Thinkful.

So that was what I was talking about earlier is one of the biggest differentiators that students are looking for is when they're trying to learn a job skill, and they don't understand it, there's nobody to call when you're doing it online. And we now have the ability to just click a button inside exactly where you are in the course, and we have now redeployed those tutors to real-time tutoring support of job-based skills. And that is making a difference in our growth rates. It's making a difference in the number of students that graduate. It's making a difference in the number of students that become employable.

And that needs to scale. And that's a better use of that technology than the consumer business, which was really not generating that much revenue because we were charging so little. Remember, we were charging $0.50 a minute. So we can do hundreds and we can do millions of sessions, and it still won't generate a lot of revenue. It was more of something to do for students that would never get access to those kinds of things.

But Chegg Study has just become so robust, so much faster than we imagined that it actually takes that role. So that's why we made the decision, and we feel really good about it.

Our next question is from Brett Knoblauch with Berenberg Capital Markets.

Congrats on the good quarter. You ended the year with, I guess, a rather big cash position. Obviously, the acquisitions of past have been relatively small to that cash position.

What is your capital allocation plan going forward? Is M&A still going to be the #1 priority there? And if that is the priority, I guess where would you look to further expand? Would it be mostly on the Thinkful side now that you have a taste for that market?

Yes, so yes, a good question. We do have a great capital structure that would include our stock and our cash combined. And that's intentional, right? Dan mentioned earlier, there's areas where we can either organically or inorganically potentially move into other areas, particularly in the skills area. So this gives us the ability potentially to do that.

Having said that, our -- keeping with us for a while, and our -- the way we handle acquisitions, whether it's small or large, is not any different. We play in the fairway, as I call it, being a golfer, and we will continue to do that.

The other thing, and we've mentioned this when we did the last capital raise, is part of what we did was kind of prefund potentially calling or buying back some of our outstanding bonds that were deep in the money and were being a little dilutive to shareholders. So that was the other thing that we -- the reason we went after the capital back in August. So it gives us the ultimate flexibility as far as whether or not we're financing future opportunities or reducing dilution, and therefore costs to our shareholders.

Perfect. And maybe if I can just ask one more, just regarding maybe the international subscriber count that you guys put out there. Is there any way for you guys to provide a growth rate for that? Should we expect international to account for more than 10% of revenues in 2021?

Yes. So once again, we talked about 1 million subscribers in 2021, or at least 1 million subscribers in 2021. We're not breaking out revenue at this point in time. But needless to say, international is important. It is growing extremely fast. And like Dan said, we're in 190 countries at this point. And many of those companies -- countries, excuse me, countries have some fairly significant scale.

Our next question is from Eric Martinuzzi with Lake Street Capital Markets.

Yes. Just curious to hear where the head count finished up for the end of 2020. And then looking at the Chegg Services growth for '21, you're calling for about 29% growth there. Wondering where you think the head count will need to get to support that by the end of '21?

Yes. So from a head count standpoint, as we exited the year, it's approximately 1,900 employees worldwide, a significant contingent of that being outside the U.S. in India and Israel. We don't anticipate growing that base significantly during the year. We made some very large additions in the middle of last year when we saw the opportunity to invest incrementally more in international.

We went after some -- we pulled in -- that we talked about I think on the last call, we pulled in development of things like the device management and MFA technologies. And so we made a lot of those investments in -- that we would have made in 2021, in 2020. Obviously, they continue into 2021, but I don't see us making as big an investment in head count as we did this year.

So would you say it grows, but just nowhere near the level of revenue? Or it doesn't grow at all?

It grows -- no. We see leverage. Clearly, you see that already in the model, we're forecasting a 200 bps increase in our overall margins. And a big part of our cost structure is head count. So we certainly don't anticipate that will grow, it certainly won't grow any faster than revenue, no.

Our next question is from Arvind Ramnani with Piper Sandler.

Congrats on a terrific quarter. My first question is around international, which is incredibly exciting. You've provided some color on international. But I wanted to ask, is there anything unique you're doing on international to win against competitors in terms of customer acquisition or product? I mean, what kind of -- what's the unique angle to international that's enabling you to see this level of success?

Yes. Look, it's a great question. And unless you're deep in this space, it's hard to know this, but we don't really have any competition. We have very little competition in the U.S. Nobody is growing as fast as we are. Nobody has our balance sheet. And really, very few people that -- maybe 1 or 2 are profitable at all. And we're increasing our profitability and generate a lot of free cash flow.

So what we do is hard to replicate even under the best of circumstances because you'd have to come up with something better and less expensive. And we haven't raised our prices for 10 years, and we have over 50 million Q&As already in our database, and it's growing. We've already invested in the ability to start to do translations, so you can ask in any language, it could be translated into any language of any expert.

So I -- there really aren't any competitors of any significance on a global scale that we're coming up against, including in the U.S. And then on a country-by-country basis, most of them are bootstrap start-ups, all of who are reaching out. But what makes us different, I think, is our quality, the depth of what we have, the speed in which we do it, the ability to charge such a low price, and for it to be something that continues to expand. So whatever subject you're in, there's always going to be more subjects and more content. And it's a network effect that builds on itself.

So what's interesting, Andy alluded to it earlier, which is the content that we've created and spent a lot of years doing and a lot of money doing, it's really about translating it to the non-English-speaking people. We're getting a lot of the English-speaking people first, and now we're starting to get the non-English-speaking people who are taking STEM. And then the goal is to get the non-English-speaking people who are not taking STEM.

So I think our comprehensiveness, the quality, the price, even the brand now, I mean we're a great word-of-mouth product. We don't spend that much in advertising anywhere in the world, let alone collectively across the world. So it's -- we're very fortunate to be in a position where the content is almost ubiquitous in most of the world. It's the same 5 publishers who developed the curriculum for most institutions. So we're not reinventing the wheel, like other companies who have to move into those countries have to do. It's just a unique opportunity, and we're capitalizing on it.

Great. Great. Yes, I mean it looks like international conceivably can -- over the medium term could become even a bigger portion of your overall revenue?

It will.

Yes. Great. That's exciting.

And then from a tech perspective, you'll have really been making some good strides using your AI and analytics to improve your overall product, and of course ensuring kind of a product gets monetized appropriately.

Are there any sort of factors from a tech perspective that are kind of limiting kind of the speed you're moving at? Do you need to hire more of these kind of specialized technology skills? Or do you need to form partnerships? Or you feel you're sort of pretty well resourced from an overall tech perspective?

Look, I think every engineer, every data scientist will say they're never fully resourced, but CEOs say you're over-resourced. So we always have that debate, and that always makes for a fun budget meeting.

But I mean, what -- the beauty of our model is that kind of effort is centralized. You don't need different technologies in different countries. You don't need different data science.

Concepts and algorithms in different countries, they need to be written in a different code obviously, in different local languages. And those things, and as we mentioned earlier on the call, we've made significant investments in the ability to onboard people, to support them to do the data, the analytics, the AI. There will always be new and better technology that will make us even more efficient, and we have an extraordinary team that works on all of those things.

I would say from our standpoint, translation is the one we're focused on a lot this year just because international is growing so fast. And there's a lot of -- we don't have to invent translation. Others have done a really good job, and we work with them on those kinds of things.

And we have reached the end of the question-and-answer session. And I will now turn the call over to Dan Rosensweig for closing remarks.

Yes. Thank you, everybody, for joining us. And thank you for your consistent support. It's been a really complex year for everybody, and we just keep trying to focus and execute. So I want to thank you all for joining us.

I also want to say that I've honestly never been more excited about the impact that Chegg can have. The business is obviously great, but it's the impact that it has that drives the employees of Chegg and the ability to affect so many more students on a global scale now than we've ever been able to do before. And it's clear that we're able to do that because what we do is more important than ever. And as I think many of you are beginning to realize as we have -- that it's a bigger opportunity than even we imagined. We are confident that we can deliver on our priorities and the promise of our mission because of the tremendous Chegg team.

And I want to take a moment to acknowledge and thank them as they continue to be celebrated with leading industry awards for culture, diversity and the company they have built and are building. Over the last few months, they have been recognized by Fortune Magazine as a Great Place to Work and received multiple awards from Comparably, including the Best Culture and the Best Company for Diversity. We are committed to building an inclusive company and environment that fosters innovation, celebrates each of our unique perspectives, and creates a culture of belonging.

So thank you to our entire team for all they did over the past year to support each other and our students. And it's not been easy, and they've been great.

Thank you to all the customers around the world that continue to turn to Chegg to be a part of their learning journey. And thank you to all of you on the call, those of you who may have been -- who may have just joined us on this journey, and those who have been on the journey with us for many years. We are excited for all that is ahead and look forward to talking to you again next quarter and really grateful for your continued interest in the company. So thank you, and stay healthy.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.