Chegg, Inc. (CHGG) Q1 2020 Earnings Report, Transcript and Summary

Greetings. And welcome to the Chegg, Inc. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tracey Ford, Investor Relations for Chegg. Please go ahead, Ms. Ford.

Good afternoon. Thank you for joining Chegg's first 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 also 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 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 and Form 10-K filed with the Securities and Exchange Commission on February 20, 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 in 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 in our IR website. Now, I will turn the call over to Dan.

Thank you, Tracy, and welcome everyone to Chegg's Q1 2020 earnings call. We're living through an unprecedented time and we want to take a moment to acknowledge the tremendous challenges that our society is facing. First, we want to give our heartfelt thanks to all the frontline workers, first responders, and caregivers, who are putting themselves in harm's way for all of us. I also want to thank the institutions, professors and administrators, who were able to rapidly shift the curriculum online to continue supporting their students. All of us have been impacted by COVID-19, some much more adversely than others. With the many ripple effects now impacting our economy and our education system, we feel fortunate to be able to report that our Chegg employees and their families are healthy, and that our business is performing at an accelerated level. We also hope that all of you listening in today are healthy, safe and well. In mid-March, as we started navigating the impact of COVID-19, we prioritize the health and wellbeing of our employees and their families. We then move quickly to set up our teams to work remotely and we're able to seamlessly continue providing Chegg products and services to our students. The fact that we were able to execute this transition so effectively is a testament to the adaptability of our employees and the investments we have made in our technology infrastructure. More importantly, due to the strength of our business and our balance sheet, we have been able to retain our staff, meet the increased needs of our business as it grows, and continue to make important investments in our future. As a student first company, we can appreciate that there are many underserved students, who depend on their institutions for support and now must seek help elsewhere. Our goal during this crisis is to do all we can to help the most students, which is why we partnered with Verizon, where together, we are providing the most in need students in their network free access to our Chegg study path to help them finish their semester. However, for many students, the impact of COVID-19 goes beyond just affecting their academics. Some have lost their jobs, some fear of losing them and many may not be able to find the jobs when they graduate. So we are ramping up our efforts through Thinkful as we recognize our responsibility to help as many students as possible get the skills they need to prepare them for the post-COVID-19 workforce. Specifically, we are expanding our curriculum, substantially increasing access to our scholarship and we are working to reduce prices even further, which we plan to roll out later this summer. Our goal is to help more students of more diverse backgrounds to get the in-demand skills they need to compete in today's economy. Chegg’s vision has always been to increase access to high quality learning content with on demand support, all while lowering the financial risk to our students. We are a global company and our teams around the world are committed to investing in their community. So along with our employees, we are proud to have stepped up our support for non-profits, who are focusing on issues like food insecurity during this crisis. As so many students lost access to on campus food bags when their schools had to close, we feel fortunate that we can provide this help. To-date, we have already committed approximately $1 million to help students and our local communities impacted by the effects of COVID-19. Clearly, the education industry was hit hard and schools had to act immediately without any precedent for moving exclusively online. As students were required to leave campus and learn from home, we began to see some remarkable trends. We saw a substantial increase in new subscribers both domestically and globally. We saw a marked increase in engagement from our existing subscribers and we're seeing a meaningful increase in the take rate of our new Chegg Study Pack much early than we expected. The financial impact on our business is quite meaningful. So I want to turn it over to Andy to walk you through the detail and our guidance. Andy?

Thanks, Dan, and good afternoon, everyone. As Dan mentioned, our hope is that you and your families remain healthy and safe during this unusual time. This is clearly a global situation. Along with the pandemic, economies are slowing at unprecedented rates and unemployment destroying, having a profound impact on people's lives. While many traditional companies are unfortunately being hurt as a result, we believe the direct-to-consumer companies like Chegg that are digital and serve an essential need are experiencing increased levels of growth since the outbreak of the COVID-19 virus. Since mid-March, we have seen a mix shift in our business, as advertising revenue has decreased from an industry-wide slowdown, while at the same time we evolved to see a substantial increase in our subscription services driven by new U.S. and international subscribers to our platform, as well as increased success with our account sharing efforts and we see these trends continuing into Q2. The first two months of the quarter started strong, subscriber growth at 33%. The acceleration of growth since mid-March, there's an additional 2 points in the quarter increasing growth to 35%. This continued acceleration is having a profound impact on Q2. As we now expect, Q2 subscriber growth to be greater than 45%. While we are comfortable providing guidance for Q2, there are many unknown, such as school start date, enrollment trends and whether schools will be taught on campus, online or both. As such, it is difficult to predict how much if any Chegg first half momentum will continue. Therefore, we believe it is premature to update our guide for the second half of the year. With that as a backdrop, let me walk you through the Q1 result and our guidance for Q2. For Q1, total revenue grew 35% to $132 million. This was primarily driven by subscriber growth of 35% resulting in Chegg Services revenue of $100 million. Required Materials had a very strong spring rush as the transition to textbook ownership and to our new logistics partner FedEx has done exceedingly well. This strong topline growth drove adjusted EBITDA $32 million ahead of what we expected. Looking at the balance sheet, we ended the quarter with $1 billion of cash and investments. 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 for a post COVID-19 education environment. Moving to Q2, which incorporates the changes to the environment we discussed earlier. We expect total revenue to be between $135 million and $137 million, with Chegg Services revenue between $115 million and $117 million, gross margin between 74% and 75%, and adjusted EBITDA between $48 million and $50 million. Before I turn the call back over to Dan, I want to give a big shout out to my finance team, because it's the first time our company has had to close the books, produce financials, get statements reviewed by our auditors and do an earnings call all from our home and outside our offices. The level of detail coordination and nights and weekends it took to do this was extraordinary and I want to thank everyone on my team. You guys rock. With that, here is Dan

Thank you, Andy, and thank you our finance team, you do rock. As you can see from our numbers, Chegg is experiencing dramatic growth during this time and because we serve millions of students across the globe, many people have asked us what the lessons from COVID-19 are and its impact on the future of higher education. Our belief is that, in every industry, a crisis often accelerates the inevitable and that is what we are seeing happening now in higher education. The reality is students who are already learning online, were under supported by their schools who had diminishing budgets, so that the need for virtual learning support was already expanding. But, almost overnight, when schools around the world had to move 100% online, that trend accelerated and has revealed the true potential and the value of what Chegg has to offer. The numbers say it best, and what they reflect is that students have an even greater need for high-quality, low-cost, personalized, and adaptive online education to help them learn and master their curriculum. As we think about the lasting impact on the future of higher education globally, we see these trends continuing. The student population is more diverse and more global. They have different socio-economic backgrounds and are of many different ages. They also come with various skills and experiences, but what they have in common is the need for more online support because, the fact is, they are increasingly learning on their own, with less support from their schools. We also believe more students are going to need to learn a variety of new skills over the course of their careers and will need to access – will need access to low cost, on-demand, high quality skills online. Our ability to meet students’ needs is due to the incredible work of our Chegg team. We are grateful for the dedication of our employees, as they take on many new responsibilities at home and still maintain their focus on our student-first mission. It is their passion and commitment that has built our culture, which has permeated from our physical offices to our virtual offices around the world. So I want to thank them all. I also want to encourage everyone to continue to do your job and do your part to keep our communities safe by staying home and staying well. As a company, and as a society, we know we will get through this together and I look forward to updating you on our progress this summer. At this time, I will turn the call over to the operator for questions. Thank you.

[Operator Instructions] Our first question today is coming from Doug Anmuth from JPMorgan. Your line is now live.

Great. Thanks for taking the questions. So, maybe two questions. First, I realized there are a lot of unknowns just around schools for the fall, but can you talk about how you're preparing across a range of on- and off-campus learning scenarios, and does the product shifts at all to meet the different needs of students? And then, I guess, related to that, just curious more about your comments on Thinkful around how the integration is going and just how you're expanding the curriculum there? Thank you.

Yeah. Hey, Doug. I hope you're well. Hopefully we passed. So, what I would say is, the only part of our business that on-campus, off-campus can affect would be textbooks. And honestly, it feels as if off-campus affected in a good way, on-campus we continue to take market share. So I don't know that it really matters. What we've done is, we prepared to own fewer textbooks for the time being, because there'll be very inexpensive to buy and we'll just meet demand if we need to. But our Chegg Services business will continue to grow, whether it's on-campus, off-campus, whether they do a hybrid. What we believe is you're going to see a hybrid, probably, more so in the blue states than the red states. The red states will probably be more on-campus. All the schools will open because if they don't, they will run out of money. So the real issue is, how many students will come to campus. And what we're seeing is a real surge in online curriculum, whether they're going to community colleges or any other source and Chegg is benefiting from that. So, we're prepared regardless of which way it goes. But it shouldn't have a meaningful impact one way or the other given the momentum that we're seeing. So on Thinkful, Thinkful is experiencing what you would think it would experienced. We knew when we bought it that we wanted one that was only online, not offline or offline and online. It turns out that during this period, having an offline business is leads to zero. So Thinkful is benefiting from the fact that more people are taking online classes. The second thing is, we recognize that our responsibility is because students may not get jobs that they thought they have. People have been furloughed, people have lost their jobs, that they are now moving as rapidly as they can to learn the necessary technology skills to be able to get the jobs more for the post-COVID environment and we're seeing that in Thinkful. Our view is now is the time to really establish Thinkful as the primary player. We believe the one with the biggest brand name, the highest quality content, the greatest amount of support, the lowest cost and the least risk to the students is the one that's going to win and win big. And so we're doubling down on the amount of content that we provide. We're going to double the amount of content by the third quarter and fourth quarter that we offer. We are going to continue to add scholarships and lower prices, because we want students to see Thinkful the same way they see Chegg as student first. So they right now need to get these classes, they need to pay less, they need to have fewer risks and we think we're just going to continue to pick up significant market share if we do it. And so, we want to be the company that does these things for students and we think will win both in the short-term and the long-term as a result of it.

Great. Thank you, Dan.

Thanks, Doug.

Thanks. Our next question today is coming from Jeff Silber from BMO Capital Markets. Your line is now live.

Thank you so much. I'm just wondering if we could just drill down a bit within Chegg Services beyond Thinkful, if you can just tell us what the impact has been on some of the different products, whether it's Chegg Study, Chegg Tutor or your writing tool, your math tool, any color would be great?

Sure. So everything is accelerated and so we're seeing with the exception of ad, which is a small part of that business. And we talked about it once before as quarter came down in March, they stabilized in April and we'll see whether or not they pick up through the course of the year. But if you look at Chegg Services, Chegg Study accelerated growth. Second is the Chegg bundle has accelerated two to three quarters ahead of where we expected it to be at this point. As you may recall, we said that we were really going to see the impact of it beginning in Q4, but the demand has been significantly higher than we anticipated. International is growing. We are always going at record rates because it was coming from a small base. But it has really accelerated and not just for the English speaking countries for countries all around the world, the rest of the world business is about the size of England, France, England, U.K. and Australia. So we're seeing a pickup from everywhere. On the engagement side, we've seen more students overall subscribed as you can tell by the numbers. We've seen renewals go up, cancels go down, and utilization of this services themselves pick up quite significantly. So every metric that we look at that we would want to bet on for the future is going up into the right.

Okay. That's great to hear. Let me just push back a little bit on the engagement metrics.

Sure.

Do you think it's sustainable? I know it's going to take some time to kind of, quote-unquote, normalize, but as you know, higher education goes back to where it was maybe you never thought. Do you think the type of interest in engagement that you've seen is sustainable if we kind of return to some kind of normalcy?

I do. And the reason I do is because our product is great and we continue to invest significantly in it. We expand the number of subjects. We expand the way people can learn. We kept the price at $14.95 for nearly 10 years. It's on demand. You can do step-by-step solution. You can watch videos on the subjects that you want to master, you can ask expert Q&A, which now has access to 40 million questions. We're seeing a record number of questions and a record number of subjects from a record number of countries. And so once you've experienced the power of Chegg's learning tools, there is no reason not to use it more. If the question is on the subscriber growth, what we believe is that we've hit another inflection point in our business particularly internationally, which is the way we built the business in the U.S. as it was a very carefully crafted by word of mouth school-by-school. And what this situation has presented to us is when international also closed all their schools, their students for the first time started to look for online tools. They just covered Chegg and they're using it at the same level that domestic students are using it. So my belief is as we add more subjects, as we add more content, as we go for higher grade, lower grades, as where response time continues to go up, our quality is topnotch, there's be no reason for the engagement to go down. Now, there are students that we believe that we picked up who used to use on-campus services like labs, tutors and other things. Unfortunately, if you look at the state of higher education, every budget is being cut and sadly those will be amongst the first services that will be cut. But even if they weren't, once you've used the experience Chegg and once you've learned how it can help you, and once it really teaches you and you master the subject, there's really no reason given the price is only $14.95 or $19.95, if you bought the bundle, which gets you writing and math on top of that for you to stop using it. And every indication that we see suggest that they the more they experience it, the more they use it and the better results they get.

Okay. That's very helpful. Thanks so much.

Yeah.

Thank you. Next question today is coming from Ryan MacDonald from Needham & Company. Your line is now live.

Good afternoon, everyone. Congrats on the excellent quarter.

Thank you.

Dan, first one for you, you mentioned recently on an ASU/GSV webcast that online tutoring was growing quite fast. I think it was around 4,000%, I think, is that what you said? I'm just…

Yeah.

…curious to see, what sort of initiatives you've put in place to maybe that driving students more of the tutoring solution and any changes that you're making I guess that solution to prepare for the fall if we -- in the event that we do stay online?

Yeah. And again, it's not even in the event if we stay more online. We are an online support service. It's not, whether the curriculum is taught offline or online by the tools, Chegg is the beneficiary, in fact that more and more students need more and more help. And there is only one service that has incredibly high quality and the integrity is on demand, is low cost and covers every conceivable subject that you can imagine, whether it's by step-by-step solution video and those things. So the challenge that we're experiencing now is a great one to experience, which is how do we make sure that our infrastructure can scale with the demand that we're experiencing, because as Andy pointed out in his prepared remarks, we saw a significant pick up the last few weeks of March, but that has continued. And so we're seeing record data that questions asked, the response time and so for us the challenge is making sure that we have enough tutors in the system that we can be responsive within five minutes of any request in any subject, in any language and we're distance from that. So it's not going to be a demand problem as much as there's going to be supply problems for a while. But what happens in any good two-sided marketplace is when the demand comes in then the supply follows it and we're beginning to see that. So what we've done is we've expanded chat based tutoring, which means that students can at any time ask any question and actually have a live interaction, if they prefer to do that versus search the database, which has nearly 40 million questions already asked. So I don't know what else to say except we believe that Chegg has been -- I mean, look, we've been growing this business for nearly 30% for over six years. It is another inflection point for us because people really value it, they understand it and those who may have been reluctant are now trying it and they're trying it at the same level. They're renewing at the same level. So we're very pleased with all the results and I think the addition of the bundle rolling it out faster when students needed it. Even the engagement there, I mean, you see that those people who use the bundle actually asked more questions, no people who don't use the bundle. So it's attracting the right kind of people and we're seeing that same response globally.

Excellent. And then just in terms of the follow-up, I'm talking about Thinkful, obviously, there's some favorable demand trends there. Can you just kind of talk through what that's looked like as we went through sort of late March and into April, and what demand you're seeing there? And then as you're thinking about expanding the curriculum, what are the few topics or subjects that you're looking to expand for that business? Thanks.

Yeah. I -- we don't break out the business specifically. So I'll be sort of careful there and I don't want to pre-announce our plan. So that competitors can try to match us or try to get there sooner. But what I would say is, of the five courses that we teach, they are attracting higher top end of the funnel and higher conversion rates than we've experienced since we've owned it, which has only been since last October. But this is we're seeing trends that are ahead of what we expected to see at this point in our ownership. What we're also seeing though is there's demand for probably at least two times as many kinds of classes because people need to learn these skills now in order to be employable and so we're seeing crossover from the Chegg audience for the first time. Now, remember, Thinkful is more expensive, so that fewer customers, but our belief is, as we integrate in expert Q&A and chat based tutor to support the students, we can lower the cost and actually increase our margin. So it's one of those businesses that we're just doing everything we can to move up the timeline demand.

Excellent. Thank you very much.

Yeah.

Thanks. Next question today is coming from Stephen Sheldon from William Blair. Your line is now live.

Hi. Thanks. It's great to hear about the uptake of the bundle. I was curious if there's any way to quantify what the uptake could look like for the Chegg's study pack this year both with the Verizon offer and then maybe excluding it? And has there been anything notable about the types of students that are maybe signing up for the bundle so far?

I'll take the last one and then turn it over to Andy in terms of characterizing it, because he is more straight down the middle. So what we can tell you is, we can't tell you that the demographics are different. But on the upside to the surprise, the take rate has been higher than we expected at this point. The take rate has been global, which was better than we expected at this point and the customers that use the bundles so far. Remember, it's only through couple of months now. So we'll have to see whether it sustains itself. But their engagement is as good and in some cases slightly better on the Q&A side, and that with math and writing, math seems to be the first thing that they move into and then writing it the second thing that they move into. And I don't know if that's because that's when things get assigned or there is more people that need math and writing. It's way too early to know any of that. But what we see are the trends are better than we expected them to be at this point, we were expecting these to be the trend as we sort of got towards the end of the year, but it's been really just surprisingly good.

Yeah. I mean, Steven, yeah, I mean, to Dan's point, we thought we'd have like a moderate contribution to the financial performance in the first half of the year is clearly better than that. So we starting to see the type of contribution that we would have expected maybe in Q3 or Q4 kind of accelerating into the first half, particularly as we get into Q2.

Got it. Good to hear. And then just as a follow-up, has the traction that you seen internationally, I guess, changed how you plan to invest in those countries. I mean, you'd talk about the three initial countries that you make those kind of three different types of investments and then expanding it, so I think seven others. I guess, are you maybe and a push that a little bit more just given the traction you're seeing?

So, I'll do the first part, I'll let Andy talk about sort of the actual investment dollars. What I would say that that, I think, those investors that follow us most closely understand is that we have a very unique content model, which is we're fortunate that overwhelmingly the same top five publishers that published for the U.S. are also the major publishers in South America, in Europe and in parts of Asia. So we don't have to reinvent the wheel with the core base of content to begin with. STEM is STEM and the major publishers are the same around the world where we have also – so that's a benefit to us in terms of the time and the cost it takes to invest. The second thing is we have been working on localized content. We have a map and we know parts of content that we want to add over the next few years and we will continue to do that country-by-country. What's changed a little bit is that certain countries have gotten on the radar faster than other countries and so we will just adjust our efforts to meet the demands of countries that are growing faster than we ever would have expected at this point. The third thing and the real magic to our model is the overwhelming content investment is in response to expert Q&A. And so we don't have to guess what the questions are, the question gets asked first and then we respond to it. So it's an incredibly economic -- strong economic model of efficiency. And then each of those questions in those countries just like they are in the U.S. get indexed in search and drive more customers. And so, if you look at the guidance for Q2, it's not only the revenue went up, but the EBITDA went up. Because this is – model has really outstanding leverage. So Andy, I don't know if you want to talk about changing the priorities of investment capital.

No. I mean, Dan, I think, you've made it. I think you -- clearly you're seeing the leverage in the model of the scale. The other thing that we're doing, Dan's point is, is to the extent that we can accelerate investments in international we’re doing that, because we believe we have the room in the model to do it and why not take advantage of bringing more and more countries and students online. And so – those are the things that we're looking at and that's baked into the guidance for Q2.

Right. Thank you. Congrats on the results.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question is coming from Brent Thill from Jefferies. Your line is now live.

Hey, Dan. You've always run a strong offence, but do you feel that you can double down here on hiring M&A and make some bigger investments to continue this? At this point, I know next quarter, you're guiding to close to 300 basis points of op margin improvement. I understand you can't make move that quite impact the margins for this current quarter? But any thoughts in terms of how you think about this impact hinting, which obviously we don't want to see but there's a great opportunity. Do you think it reshapes how you think about the investments back into the business?

So what I would say is, what it doesn't change is our vision and our mission and our strategy. In that we want to be primarily if not, as long as we can direct it to students, that we look for the highest quality asset. And if our brand and our reach and our data and our commerce technology can accelerate its growth and increase its margin and it's an asset that unfortunately for them, and fortunately for us has been under invested or undercapitalized. And then, we spent a lot of time with them with the hope to ultimately acquire them. And as our market cap got bigger and Andy and Tracy have arranged to have a $1 billion on our balance sheet, you've seen we've been very patient and not gone outside those lines. Still to this day, I think, the most expensive acquisition we made is $100 million. And so as a result of that, we're not looking to grow the company non-organically by buying large companies that are in slower growth or don't have our margin because part of the reason they don't have it is because we think that they're in the wrong part of the of the value creation channel. So, we're more likely in the short-term to continue to do what we've been doing, which is looking for A plus assets that haven't yet really flushed out their business model to the degree that we can do it and can accelerate their growth. So I think we'll continue to be smart and careful, and we don't see a reason. We looked at every conceivable asset. You saw that some of them have put themselves up for sale, some didn’t trade, some traded, we chose not to do those things. The momentum, we have in our core business is one where, we're not looking for reasons to change what we do. We're looking for reasons to bolters what we do and add more value to our students. Andy, I don't know if you want to add to that.

No. I mean, I think, we're like Dan said – we're patience buyers, right? If something comes and like Dan says, but specific needs we'll do it. But we just don't need anything to meet our financial objectives, as we've outlined them. So, but if a great asset comes along. Yeah, we'll use the balance sheet as appropriate.

Just a quick follow-up the acceleration, Dan, you mentioned you saw. Did you see that accelerate evenly through the month of April or do you see a spike and it's kind of tapered off?

I will do my best to not pay more than I should. What I would say is, we saw an immediate uptick in March. And I think what we say in our prepared remarks is that sustained at least through April, and which has allowed us to take our guidance up. Well, we didn't take it up. So we didn't have guidance, but versus consensus, it's up nearly $10 million, which is a reflection of the fact that the growth has been quite remarkable during the month of April?

Yeah.

Thanks for the color.

Yeah.

Thank you. Our next question today is coming from Mike Grondahl from Northland Capital Markets. Your line is now live.

Yeah. Thank you congratulations, guys.

Thanks, Mike.

With the Chegg Bundle and Study Pack was that strength through the whole quarter or did that kind of just start in March?

No. I mean, so I will take that, Dan. Yeah. We really started to strength before March in the bundle. And in fact, you can see that when you look at our overall numbers we were 32. Our -- even before the uptick that we saw at the end of the middle of March, we had 33% year-over-year growth of sub. And so -- and that also reflected itself in the bundle. So we we've seen strength in the bundle throughout the quarter that's continued into – and that's continued into April.

Okay. Great. Thanks a lot.

Thanks. The next question is coming from Alex Fuhrman from Craig-Hallum. Your line is now live.

Great. Thanks very much for taking my question. Just wanted to ask about the marketing strategy as you approach a new semester of education in the fall, presumably if there's a good chunk of students who aren't on-campus and might not have the opportunity to hear about Chegg through word of mouth, what's your strategy to reach out to those new students who might not hear about you otherwise?

Yeah. Look, there – if anybody wants to get an understanding of how we see the education market evolving right now and where it is. And given the volume of customers that we have, I think we have a pretty good insight into at least a student perspective of it. And we of course track every school by every announcement they make and start dates and on- and off-campus. But I recently had an article published in Fortune Magazine, which sort of gives the lay of the land of how we see it. So, I think, what I just forgot that – just lost the track on your key question. Do you want to re-ask it?

Yeah. The -- my key question was, just from a marketing perspective, how?

Yeah.

How do you plan to – exactly, yeah?

Yeah. No. So the reason I said that is because, we have been focusing as you know, because you've asked questions on previous calls. We've been focused on community colleges. We've been focused on not for profit online and your national growth. And so, we're not – we don't have to make a special effort starting today because we made that effort starting in the middle of last year to build a relationship where we can start to get better and bigger word of mouth, because as you point out when students are not on-campus, they don't all see each other using it. But we are – the Verizon deal was extraordinarily helpful for that. There are other opportunities of school systems we're working with to give their neediest customers, who have no money opportunity to see what we've done. We are working with a lot of the environment in terms of what we think is going to happen is online community colleges where their cost per credit is so much lower. I think you're going to start to see a price war with online school. So we are positioned well with all of those environments in building relationships with students on those campuses to actually be acts sort of like brand ambassadors, but that's not something we've just started now. It's something we started the end of last year.

Great. That's really helpful. Thank you very much.

Thank you. The next question is coming from Josh Baer from Morgan Stanley. Your line is now live.

Hi. Thanks for the question and congrats on a strong quarter. Question is on account sharing, you mentioned that some of those efforts were successful. I was hoping you could expand a bit, to what extent has the focus been on all the new subscribers that have come in or are you actually making changes to existing accounts?

Okay. So we have been investing heavily in understanding the impact of account sharing for the better part of a year and really at the end of last year, and we have made significant improvements in identifying all the different array of ways that people can take advantage of the system and we have successfully blocked many of those things. And actually prior to COVID, we were on a path to have an extraordinary first quarter anyway and a lot of that is because of the power of the product international growth and our efforts, as Andy pointed out in his prepared remarks against account sharing. What this identifies though is that there -- that we can now accelerate going to two-step authentification and other areas where we were focusing first on new customers, then we were focusing on really abusive customers. And now, this moment in time gives us an opportunity to accelerate and our efforts to block it from existing customers as well.

That's great. Thanks. And I'm just wondering if there's any more color you could give on the Verizon partnership. Know what that means for Verizon's customers, but not from Chegg's perspective around the…

You know.

…economics of the pipeline or the KPIs?

Yeah. It's one of those things where it's a rare situation where a company of our size gets contacted or has a relationship and it can do something in less than 48 hours, which is where I credit Verizon for wanting to acknowledge that they have -- what they do is essential to everybody who was going to be quarantined at home, you get access to the Internet and they were looking for a series of things to be able to do for their customers. We agreed immediately what we wanted them to do was focused on their most needy customers, the one that even have trouble paying for broadband, because you've probably seen in a lot of state, there's a lot of issue getting technology out to students. So the economics of the deal weren't going to be one that was we didn't do it for the economics, we did it for to be able to offer students who needed our help immediately the opportunity to do so and build our brands against any of those students that was mentioned earlier, online schools, students going online, community college students, those things. And so it's obviously way too early to tell. It's going to always be a net positive. There is no reason that it wouldn't be. But I think collectively, every channel that we've been working with has just accelerated faster than anticipated and so it's going to be hard for any one particular channel to make that much more of a meaningful impact right now.

Got it. Thanks.

Yeah.

Thank you. Our next question today is coming from Brett Knoblauch from Berenberg Capital. Your line is now live.

Hi, guys. Just wondering if you could touch on gross margins a bit and how we should think about improvements from here. I know this year's kind of a transition year as you guys reentered that textbook business. And that will be it.

Yeah. So when you think about gross margin, we talked about this on the last call, just for the whole year, we anticipated approximately about 5 percentage point change and but more importantly, the seasonality, right? So you see -- you're likely to see more seasonality in gross margins in Q1 and Q3, where it is to be slightly lower, whereas in Q2 and Q4 and be slightly higher because you've got a bigger percentage of overall services revenue associated with those quarters, but nothing has changed from what we talked about on the last call.

Perfect. Thanks, guys. Thank you.

Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.

Listen, I want to thank everybody. These are complicated times for families, for people and for all of you, it affects all of us differently. We've kept our focus on the students and they have rewarded us by being great customers. We believe in what we said in our prepared remarks that we're seeing another acceleration of an industry trend. Chegg has focused on putting students first, having on demand, low cost, high quality, multi-modality ways for students to learn. And I think for the first time a subset of investors are seeing just how big this can be and how global this could be. And our dedication and focus is going to be on making sure that we can meet the demand that we keep our prices well, our quality high and deliver on the needs of students, who unfortunately no matter whether they go back to campus are not going to have the support systems even though they had before, which were already diminishing. So we wish none of this had happened. This is just accelerated what we always believe what's going to happen in our business and we're just going to get back to work. And Andy and I look forward to updating you on how we think about the second half as we know more on the next earnings call. So thank you all, stay safe and we'll see in July or August. Bye.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.