Chegg Inc (CHGG) Q4 2018 Earnings Conference Call Transcript

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Chegg Inc  (NYSE: CHGG)
Q4 2018 Earnings Conference Call
Feb. 11, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Chegg's Fourth Quarter 2018 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.

I would now like to turn the conference over to your your host, Tracey Ford, Vice President of Investor Relations for Chegg.

Tracey Ford -- Vice President of Investor Relations

Good afternoon. Thank you for joining Chegg's Fouth Quarter and Full Year 2018 Conference Call. On today's call are Dan Rosensweig, Co-Chairman 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 29, 2018, as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is posted on our IR website.

Now, I will turn the call over to Dan.

Dan Rosensweig -- President and Chief Executive Officer

Thank you, Tracey and welcome everyone to our 2018 Q4 earnings call. It was another incredible year for Chegg, as we exceeded all of our expectations, realizing the benefits of being a high growth, high margin business with increasing leverage as we scale. We continue to believe that the education industry is in the midst of a necessary realignment, to more closely associate it with the needs of its most important constituent, the students. For years, we have been strategically building Chegg as an online, on-demand, personalized, and adaptive platform to serve the needs of the modern student; students whose average age is older than ever before, who often have children of their own, are working part-time or even full-time jobs, and juggling many priorities. And these students have grown where the world comes to them, on their devices, 24 hours a day. Chegg has been built, from day one, to serve the needs of this audience and that is why we are seeing such powerful results.

With 87% awareness of services on the Chegg platform, our brand recognition is at an all-time high. For 2018 we generated record revenues, record subscribers, record engagement, and record profitability, demonstrating the overwhelming value we bring to our students and our shareholders. This success wouldn't have happened without our incredible team around the globe and I couldn't be prouder of the recognition they received this past year, as we were acknowledged as one of Fortune's top 50 best workplaces in technology, top 100 best workplaces for women, and top 100 small and medium sized companies. Our team's focus, effort, and passion for improving student outcomes has made Chegg a truly great place to work because our north star continues to be putting the students first.

In 2018, we articulated three key objectives for Chegg: one, to meet our financial goals; two, to expand our TAM by making key investments in new content, adding new subjects, new formats, and new services; and three, to add new capabilities to the platform that leverage our brand, our reach, our student graph, and our balance sheet.

We successfully exceeded all of our objectives and we believe the results reflect the power of our model. For the full year we had 5.1 million paying customers and grew Chegg Services subscribers 38%, to a record 3.1 million; resulting in total revenue growth of 26% and Chegg Services revenue growth of 37%. All while we made important investments for continued growth. We enriched our content offering, added new subjects, strengthened our writing tools with advancements in AI, which improves our ability to help students go from citing to writing, and extended our flash tools offering with the acquisition of StudyBlue. We believe that the more we invest in different formats and modalities, and the more content we can offer students, the larger the opportunity gets and we will continue to focus on investments that increase our addressable market, by providing students an expanded platform of services to help them go from learning to earning.

The core of Chegg remains Chegg Study where we have made significant investments in content and capabilities throughout 2018. We now have a catalog of 26 million questions that have been answered by our proprietary network of subject matter experts, including textbook solutions for 35,000 ISBNs. We increased the number of modalities, to meet students needs at whatever level, in whatever format they learn best, including expanding our video offering by adding 15,000 new videos. We continue to invest deeper in STEM related subjects, however we also added ISBNs and Q&A content from outside of the STEM category. This increases our TAM and our value, and we are doing it to meet the increased student demand in subjects such as business, law, and nursing. The best indicator of the value of Chegg Study to our users is the significant increase in engagement every year, which we measure by content views. We reached 650 million views, which is a 48% increase from last year.

We also made important investments in our writing service, which included the integration of WriteLab, and the very exciting announcement of our exclusive agreement with Purdue OWL. For those of you who don't know, Purdue OWL is a world renowned online writing lab from one of the country's leading academic institutions. Through our partnership, Chegg's Writing Tools will be integrated in to Purdue OWL to support students on-demand, whenever and wherever they need it. We want to take a moment to thank the Purdue team and we believe, together, we are creating the world's premier writing service. The need for writing support is massive, as students continue to struggle in this subject, with 75% of high school seniors deficient in writing competencies. We see an enormous opportunity to help them develop writing skills and the earlier we can help the more impactful we can be. And, the more users that we have, and the more content users upload, the better the service gets. Last year alone we had 5 million papers submitted to Chegg and nearly half a billion citations were created on our platform.

Chegg was created to support the students at any school, in any subject, in any system to level the playing field, which is more important than ever, because of the changing demographics of our country. The people entering the education system today are from different backgrounds, cultures, socio-economic status, with different educational experiences and different educational goals; but all of them benefit from online learning tools that adapt to their needs, increasing their chances for success both academically and professionally. That's why we have built our platform online to serve students on-demand, in a personalized, adaptive, and more affordable way. This allows students to choose the way they learn best, because with Chegg Services they can access textbook solutions, expert Q&A, video content, or connect with a live subject matter expert, 24/7. We are always adapting our technology and our services to best serve the learner. Even with the many advancements in technology, many students still prefer, and benefit from, live help. So, we are excited about our continued investment in chat-based tutoring, which will allow students to get the additional support they need from live experts just one click away.

Education is a trillion-dollar industry where the pace of change is accelerating, and Chegg is a big part of that change. We are proud of all the accomplishments of our team in the past year and are even more excited about the year ahead. As we head in to 2019, our priorities remain the same: To deliver on our financial goals and to continue to provide services that create overwhelming value for our learners; To expand the subjects we cover and the modalities and formats of content we offer, including coverage of other countries; and To continue investing in opportunities that leverage the strength of our brand, reach, and customer base and provide opportunities for meaningful growth in future years.

Many believe that our country is at a crossroads, but the one thing almost everyone agrees on is the importance of improving our education system, making it more accessible, more affordable, and more relevant, for an increasingly diverse student body. This fuels us to put the student first and guides us on what we build, how we build it. We believe the momentum behind Chegg is accelerating, because we remain focused on serving the needs of the modern-day student and we are excited for what this new year will bring.

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

Andrew Brown -- Chief Financial Officer

Thanks, Dan, and good afternoon, everyone. Today, I will discuss our financial performance for the fourth quarter and full year 2018, as well as our increased outlook for 2019.

2018 was another great year for Chegg. We exceeded all of our financial targets, made key investments in our existing and future services, expanded our offerings organically and through acquisition, and strengthened our balance sheet with a very well received convertible debt offering early in the year. As such, we believe we enter 2019 in an even stronger position than we entered 2018 and expect to have another great year.

For full year 2018, total revenue grew to a record $321 million, a 26% increase over 2017. More importantly, Chegg Services revenue grew 37% to $254 million, and hit a record of 3.1 million subscribers for the year, a net increase of 850,000 or a 38% increase over 2017. This drove gross margin to 75%, up from 69% in 2017, resulting in adjusted EBITDA margin of 26% or $83 million, up 80% year-over-year, demonstrating the leverage of our subscription services model where the unit economics get better as we continue to scale.

Reflecting back for a minute, three years ago we laid out our long-term goals for 2018 of 30% Chegg Services revenue growth, 65% gross margin and 25% adjusted EBITDA margin. We are very proud we exceeded all of those expectations and believe our model will only get better as we continue to grow.

We also ended the year on a high note, with Q4 revenue of $96 million, which was driven primarily by 35% year-over-year growth of Chegg Services revenue to $82 million. And as you would expect, with that performance, gross margin exceeded our expectations at 77%.

This led to adjusted EBITDA of $35 million, an increase of 65% year-over-year.

Looking at the balance sheet, we ended the year with cash and investments of $484 million, more than double the balance we had at the end of 2017. This is the result of proceeds from the convertible debt offering we completed in Q2 and improved operating cash flows. Free cash flow for 2018 was $44 million, or 53% of adjusted EBITDA, exceeding our expectations due to higher adjusted EBITDA and the timing of cash outlays at year end.

For 2019, we are increasing our revenue guidance due to the fact that we exited the year with more momentum than expected; in addition, we are raising our adjusted EBITDA margin guidance to reflect our anticipated leverage as we scale.

As such, we now expect: Total revenue for 2019 to be between $390 million and $395 million, with Chegg Services revenue between $327 million and $331 million. And as similar to last year, we expect Chegg Services revenue and annual subscriber growth rates to be closely aligned; Gross margin to be between 75% and 76%; Adjusted EBITDA to be between $115 million and $118 million, an increase from our prior guidance of $112 million, or approximately 350 basis points higher than the 26% margin we achieved in 2018, as we continue to drive leverage in the model, while investing in both our current and future services; CapEx to be between $40 million and $50 million, which includes an upfront payment for a recently completed contract extension with a major publisher, where we increased the licensed content, doubled the timeframe, all for a similar annual cost. The increase in CapEx also includes investment in localizing content for our international customers, as well as expanding our video catalog. In addition, we expect non-content CapEx to be larger than it has historically been, because we are expanding several offices this year to accommodate our growth; And finally, we now expect adjusted EBITDA to free cash flow conversion to be a healthy 50% to 60%, ahead of our previous guidance of 40% to 60%, as we believe the model just gets better as we continue to scale.

Moving to Q1 2019 we expect: Total revenue between $93.5 million and $95.5 million, with Chegg Services revenue between $72.5 million and $74.5 million; Gross margin between 74% and 75%; And adjusted EBITDA between $22 million and $23 million.

In closing, 2018 was another great year for Chegg. Our team executed at a high level and we have positioned ourselves for more success in 2019. It's an exciting time at Chegg and we are glad you are with us for the journey.

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

Questions and Answers:

Operator

At this time, we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Jeff Silber with BMO Capital Market. Please proceed with your question.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Thank you so much. On the prior quarter's call, I believe you talked a bit about the strategy to bundle some of your products, I think in the upcoming fall, if I remember correctly. Can we revisit that are, how is that going, are you doing any pilots that I'm just curious if you can talk about the momentum we have? Thanks.

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So as you can see in the business, we have great momentum overall, and we continue to grow Chegg Study and Chegg Services quite nicely. We've been testing different configurations of the bundle as we said, we would and just as a reminder, we don't have any revenue associated with the bundles in 2019. We have cost associated with -- no revenues. So these are -- all numbers are all based on our current business. The concept of the bundles is, if we can package more things into Chegg Study with students pay more to be able to get Chegg Study, plus rating, plus map, plus other things.

So we have been testing, since the end of last year and into the first quarter. We really won't have much to report on it until the second half of this year, because we need to go through several iterations of quarters, we do it by every month, we do it by different messaging, different price points. But overall, you can see by just the demand for Chegg and what we offer that there's just a huge appetite for what we do. And so we feel very good about the future of Chegg and the ability to Chegg bundles. As we've said in the past, we also believe we have significant pricing power. But as long as we continue to grow like this, we want to continue to pick up as much market share as we can.

Jeffrey Silber -- BMO Capital Markets -- Analyst

Right, that's great. In the announcement of Purdue looks really interesting, I just was wondering if you can give us a bit more color on it.

Dan Rosensweig -- President and Chief Executive Officer

I'm sorry. Do you see the announcement with Purdue?

Jeffrey Silber -- BMO Capital Markets -- Analyst

Yes. We announced the Purdue OWL announcement.

Dan Rosensweig -- President and Chief Executive Officer

Yeah, no, -- look, it's pretty significant for a lot of reasons. And I'm glad you brought it up. First of all, produced one of the great institutions in the country. They've been one of the most advanced, they recognized what we have seen for years which is that there something like 88 million Americans in have partial degrees, so they bought capital and they now go online degrees, they go offline degrees, but one of the things that they proud of themselves in for a long time is having, we would argue, I think pretty easily that they have the best on online writing lab, which is what all stands for. And the opportunity to combine their information, their content, RAI technology that we are building and that we acquired, we think together we can build seriously the world's premier writing service, first in the US and that on a global basis.

So, if you look at the number of people that use Purdue OWL and you look at the number of people that use Easy bet for us, you're talking about 10s and 10s and 10s of millions of people. And so, as we said on the prepared remarks, the more content you get, the more users you get, the more -- you're able to read into machine learning and use the AI, but better we can teach people actually how to write, not just be able to help them site. So we couldn't be more excited, it's an endorsement of the quality of checking the quality of our services and the power of our education platform.

Jeffrey Silber -- BMO Capital Markets -- Analyst

All right, great. I'll jump in back in the queue. Thanks.

Dan Rosensweig -- President and Chief Executive Officer

Okay. Thanks.

Operator

Our next question comes from the line of Alex Paris with Barrington Research. Please proceed with your question.

Alex Paris -- Barrington Research -- Analyst

Hi, guys, congratulations on the quarter and the raise.

Dan Rosensweig -- President and Chief Executive Officer

Thanks, Alex.

Alex Paris -- Barrington Research -- Analyst

I have a follow-up question on OWL. So how does it work financially, are you going to combine your -- some elements of Chegg's Writing with Purdue OWL that bolsters the Purdue OWL offering, does that master also the Chegg Writing offering that you have the subscription service?

Dan Rosensweig -- President and Chief Executive Officer

Yes. Both services benefit will be integration on both sides, this will actually help Purdue OWL, monetize a system that they really haven't been able to monetize in the past. And for us remember that -- you see we continue to exceed our own expectations in our business, and particularly with textbooks. A lot of it is because we are continued to reach into high schools and writing is probably our largest product and math is the second one now going into high school. So the ability to get students younger with a high quality advanced writing tool allows us to grow our current core business as well as other monetization opportunities that really have to do with our programmatic ads. So we couldn't be more excited.

Alex Paris -- Barrington Research -- Analyst

Great. And correct me if I'm wrong. Historically the OWL offering was offered to produce students free of charge.

Dan Rosensweig -- President and Chief Executive Officer

Correct. And so we will continue to be -- what will happen is, you can now go from Purdue OWL into Chegg Writing, if you want to sell it creates another funnel for us, there is well as the fact that we are going to help them figure out how to monetize and so they can invest more inside of their own product and services, because as you know, institutions need revenue streams and this gives them the opportunity. So it will help us on the subscription site as well as the ad site and we will help them with revenue monetization through the programmatic advertising.

Alex Paris -- Barrington Research -- Analyst

Great. Thank you. That helps. And then a question about required materials, I guess, we have the Ingram arrangement for print textbooks. My question is eTextbooks and then consignment, are those outside of the Ingram relationship we are -- they push through the Ingram the great agreement.

Dan Rosensweig -- President and Chief Executive Officer

Well, there is above. And what I mean by that is, for those of you who aren't as familiar with the Ingram deal. When we sign a new deal several years ago, it's kind of another year and a half to go by the way, that we use Ingram to help finance for buying of textbooks and we only recognize the net revenue. And to that degree, Ingram is not involved in all, which is all books are come from consignment, there is no capital changes here, and so that's also the benefit of Chegg and Chegg Shareholders.

On eTextbooks, that's all on our own. So we do use vital source, but we pay them a small fee to be able to use vital sources. We don't have to build our own reader and there could be ubiquity and the readers that students use, because I think we would argue that between vital source B2B business in Chegg's consumer business, we're probably the largest on the consumer side, they're largest on the B2B side that gives students a ubiquitous reader platform to use, but other than that the only monetization that Ingram makes on our consignment business is just the fact that we pay them to pick, pack and ship, which is a pretty standard cost. So it's a lot cheaper for us to do it that way and have our own warehouse and do all the logistics, so it's been a phenomenal deal for both parties. But the more consignments more eTextbooks, the more of the business. The next term gets in the favor of Chegg, because we don't really need capital anymore.

Alex Paris -- Barrington Research -- Analyst

Great. And then, could you give us a little bit of an update on what's going on in the eTextbook business. I realize eTextbook was kind of slow to take off given the pricing model of the traditional text book publisher, has that been changing.

Dan Rosensweig -- President and Chief Executive Officer

It has, and we have now a great relationship with all the significant publishers. And as a result of that we've been working with them for several years to encourage them to move faster the eTextbooks. And their best way to do that is to give them data based on what the pricing should be for each one versus say a regular or a new textbook going. So we provide that pricing back to the publishers, so they can make better economic and business decisions, which has been good for the publishers, but more importantly, good for the students. So that's brought the price of everything down.

So, we've actually seen significant upswing in eTextbooks. We don't share with the number is, but obviously every quarter and every year, it's a record and it's pretty significant growth. Would you used to be way below 8% in terms of what eTextbook was now significantly above 10%. So directionally it's moving in that direction. So, every one of the eTextbooks we don't have to put our cash for, every consignment we don't have to put our cash flow, so the amount of money that Ingram used to have to put out when we first did the deal was like the $100 plus million a year, we expect by the time the deal and we assume that will continue working relationship, you're talking about maybe $15 million or $20 million a year. So it's really changed dramatically in the favor of Chegg's business model. And we've helped drive that and the publishers have been great.

Alex Paris -- Barrington Research -- Analyst

Great. Thanks so much for the additional color. I'll get back in the queue.

Dan Rosensweig -- President and Chief Executive Officer

Yeah.

Operator

Our next question comes from the line of Aaron Kessler with Raymond James. Please proceed with your question.

Aaron Kessler -- Raymond James & Associates -- Analyst

Yes, I guess, congrats on the quarter. A couple questions. One is on the international, I think you noted that in your shareholder letter, if you can talk or maybe the timing there, how we should expect to rollout. And second, just the brand awareness maybe among the middle school, high school, age groups and opportunities to further penetrate that category as well. Thank you.

Dan Rosensweig -- President and Chief Executive Officer

Yeah, so this is Dan. Let me talk about just the penetration numbers. So on our prepared -- in our prepared remarks, I think we've said we're now up to 87% brand recognition in college, it's lower than that, but significant -- very. I mean, it's almost doubled every year in the last couple of years into high school, a lot of that is because of the acquisition of easy base and now the launch of Chegg Math. Those two products and with the acquisition of StudyBlue, we now have three free products that can be used by students at any age. Don't expect us to put much of an effort into middle school. Of course, middle school parents and students can use it. It's much more difficult to target parents and students to have students use something. So we go directly to the student that's always going to see our model that's been our model.

And so with that in mind, what we're trying to do it's free services that students are likely to find, and so now with the leading flash cards service and a leading writing service and emerging leading map service, we feel really good about our penetration into those categories, also all of them are relevant on a global basis because math and writing and learning are all consistent every resort everywhere in the world. So the subject matter doesn't matter when use of (inaudible) you can use it for anyone if you want. And STEM products like Math or relevant everywhere. So the way we think about international as we've talked in the past that three first countries that we'll spend time on our Canada, UK and Australia for obvious reasons. The top publishers in the US are the top publishers in those countries. You won't see -- I've mentioned that several times in the past, you won't see us make any big splash or announcement, because what we're doing is we continue to add content that is relevant to those countries worked out improving the capability of our expert answers to not only be able to answer questions from books that are not from the US, but also in different languages and we're working on translation capabilities to be able to go even bigger global on other places. And so you'll see us start to launch mobile apps in those countries where they are more likely to use those and they are use the desktops and we'll continue to invest in the content, which is included in the CapEx that Andy mentioned earlier. And we believe that we continue to invest in those things you'll consistently see growth over 30% which is what our objective has been, and because those markets will just keep getting bigger for us and we're excited about it.

Aaron Kessler -- Raymond James & Associates -- Analyst

Got it. Great. Thank you.

Operator

Our next question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question.

Douglas Anmuth -- JPMorgan -- Analyst

Thanks for taking the questions. First, Dan, if you could talk a little bit, just curious about how you are thinking about expanding into other verticals and areas of education. I guess, more depth about how you think about kind of the build purchases by scenarios has really looking for things.

And then secondly, Andy, you talked about the higher free cash flow conversion going to 50% to 60%. Can you just elaborate on that a little bit and just give us a little more sense, what gives you the confidence there. Thanks.

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So -- Doug, I didn't catch the last part of your question. Could you just repeat it?

Douglas Anmuth -- JPMorgan -- Analyst

Just on free cash flow conversion that 50% to 60%. What gives you the confidence in the higher number there?

Dan Rosensweig -- President and Chief Executive Officer

I'll answer that one. I'll reanswer that one. Let me talk about, we thought that the first part of your question which is sort of the build by partner present and other verticals. So as you saw, we specifically called out in the prepared remarks, things like nursing, and this is well. What's happening is the students are driving us in the direction they want us to go. One of the great benefits of the giant moat we have with the expert Q&A in those 26 million question is -- there is no governor on what the student ask. So when they start asking questions in categories we're able to answer them. And then we know the kind of content to add whether it'd be video content or students in that category or step by step solution that we can add over time, what's really clearly happening at the community college level and at the boot camp level is they're looking for more job related skills, so for kids who are in the college -- four-year college is now, if you want to call them that their programing parallel to the curriculum they have in addition to using us for the curriculum that they're assigned, so you can see things. Then they're moving more into professional category. So we're just going to keep moving where the jobs are, where the students are, where the questions are, and so we don't actually have to guess, which is a nice part of the business. On the build by our partner, our philosophy has been that no matter where student goes to school, no matter where they choose to learn, we're going to be with them every step of the way. So we are programing to support them in the institutions that there in, as well as over time we're going to have content that their institutions should have and don't currently have because they can move fast enough.

So you will see us support a student, no matter where they go to school or where they're learning from with the kinds of products and services we have students in Chegg Study and Writing and Math and those things and we'll build out more professional content and then you're going to see us ultimately start to program courses that aren't necessarily in this institutions they're going through, but they need to get jobs.

As it relates to build by our partner. I think, we've been very judicious because of the success that are Andy and Tracey had raising of capital, we have nearly $0.5 billion to be able to buy things, should we see things at the right value that we could grow faster, leverage our brand, leverage our network and leverage our data. And so you'll see us still a balance of both over time, because we think there are certain things that we can build out data like content in areas and then there will be capabilities that we might acquire like we did with StudyBlue or like we did with Math.

So, I'll let Andy talk about the free cash flow conversion.

Andrew Brown -- Chief Financial Officer

Yeah, it does on the free cash flow. I mean, if you think about our model, as our topline scales and it's primarily scaling as a result of subscription business. The economics just get better for us, and as a reminder it's every incremental subscription is super high margin to us, we're kind of a -- when you think about our proprietary content it's right once and read many, and it's content that, that doesn't really doesn't get old.

And so our view is that as we continue to scale and as we continue to drive our EBITDA margins, which we talked about earlier on the call up again -- up 350 basis points this year 2019. We believe that will continue to drive free cash flow in that 50% to 60% range. And if you think about what we did this past year 2018, it was 53%. So we have a high degree of confidence that we can drive 50% to 60% and that's really driven by our subscription model that that's driving our growth.

Douglas Anmuth -- JPMorgan -- Analyst

Okay. Great. Thank you, both.

Dan Rosensweig -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.

Michael Grondahl -- Northland Securities -- Analyst

Yeah. Thanks guys, and congratulations on the quarter. Could you just kind of update us your thoughts on the Math subscription, how that's kind of performing against that expectation?

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So, Math, I -- we acquired an amazing team in Berlin, Germany, to help us build out Math, because it's a global language and whether you need Math just learn Math for Math sake and become professionated or whether you needed for the Scientists or whether you're going to be a Math Major, you're going to be at Engineer, Math is ubiquitous and global and that was a big part of our thinking.

The second thing is we acquired it in essence to create a value for us that we can put it inside of Chegg Study or the Chegg Study bundle. So the people would either pay more or we get higher conversion rates. We also do sell it as a standoff on the cart like we do for writing and it's super early because we've owned -- we haven't even had it for a year, but it's performing very well. Unexpectedly, meaning that we really didn't acquire to have stand-alone subscription. But it's a great product and people are really responding to a well. So we're seeing really good uptake early on, I mean, it's not big enough to affect the numbers, the way. Some of the other businesses are, but over time it will be.

Michael Grondahl -- Northland Securities -- Analyst

Great. Great. And then with Chegg Study, are you seeing any change in retention or duration of the students? Is that lengthening at all?

Dan Rosensweig -- President and Chief Executive Officer

Yes. So the best way to think about, it's been more difficult in the past to really look at our subscription businesses and our ARPU, because it's sort of been masked by other business is that we had that we no longer have like our enrollment business. And is that has worked its way off, you can get a much clear view of really what's going on with our subscription services. So you'll see that it's more clear that it's ever been that our ARPU actually went up.

So that's a reflection, since we haven't changed the pricing, that's the actual reflection of the more subscribers we get, they're coming on an earlier and they are staying longer, and then they are renewing faster. And so all of those are really positive signs and that's why you continue to see Andy authorizes to make really strong investments inside Chegg Study with more content, more modalities that earlier that come on the longer they stay, and so that's been a really great formula for us.

So you can actually see it in the subscription numbers now, which you haven't been able to see in the past or ARPU is actually rising and since it's not about price at this point, it's really a reflection of renewals and longevity.

Michael Grondahl -- Northland Securities -- Analyst

Great to hear. Great. Thanks, guys.

Dan Rosensweig -- President and Chief Executive Officer

You bet.

Andrew Brown -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Alex -- Jefferies -- Analyst

Thanks for taking the question. This is Alex (ph) on for Brent. Two questions. First for Dan. Can you just provide your updated thoughts on the three years business. We noticed the investment in way up last quarter, so just curious on the thought process there and how you see the careers business developing over the next few years. And then for Andy, similar to a previous question. But on the 19 guide in the 300 basis points of margin expansion.

You talked about the main puts and takes that are driving the expansion, whether it's anything other than the continued shift to subscription revenue that we should be aware of, especially given the investments you're making throughout the year on subjects and content. Thanks.

Dan Rosensweig -- President and Chief Executive Officer

I'll take the first one and turn it over to Andy. So on the question of careers. Look, the bigger the Chegg platform get, the more we become and educator, the more content that we're actually providing that around things that are not only academic, but our professional. The more logical it is for us to help students prepare for and then ultimately get and then stay with their jobs and improving their upscaling in their jobs. It's a long journey to do that, and we're making really good progress in our opinion. We have more data, we believe that anybody else. And part of the reason for the investment way up was of course they have a great team and a great brand and they have a great CEO. And it allows us to utilize our data to help match and improved skilled matching and platforms other than our own. And so we think the two of us working together will be very good. The goal really is just to get a student job and the right job and the job that they can get paid for and helping payback college loans, which will be a subject for another day.

And so that was the reason for the investment in way up and we're very proud of that. They're a great team and lose it's been terrific to work with. As it related to what we're doing is very clear that there are multiple steps along the way internships ends up first job and so we're taking a lot of the content and technology that we've been building a lot of the data, a lot of the skills matching and remember we read over 100 million resumes over the last 10 years to be able to predict where students -- given where they gone-to-school, given what they take with a major and where they're likely to end up working and what they're likely begin to end up getting paid. And then we want to be able to apply that helping students not only get a job, but also get an internship.

So you're going to see us continuing to make that investment, but also in the insurance shifts.com we are able to expand because we have millions of students to go through that and it's becoming increasingly clear the path of great job starts with an interest. We want to do both. And that's one of the reasons we acquired that asset. So we think it's a very big and important and necessary opportunity for Chegg and it's one of those that we're doing a combination of organic and through investment in acquisition and we'll continue to invest in it. We are making great progress in it.

Andrew Brown -- Chief Financial Officer

Yeah, so, Alex. Your question on the EBITDA margin expansion and the watches I want to make sure you're aware, it's 350 basis points -- not 300, that's the first thing, but nonetheless really what's driving our financial performance and has driven our financial performance for the last few years really has been Chegg Study and Chegg Writing.

Having said that, we've now, we're now at a point where when you look at our business modeling has great balance to it so well. While we continue to drive margin expansion, like we talked about in 2019. We're also making the necessary investments to continue to put ourselves in the continued growth path in 2020, '21, '22 things like Dan already talked about and talk about the investment in Math, flash tools, Chegg tutoring, the international investments that we're making this year for the future in the bundles and so we've got this great balance where we're making investments while continuing to deliver value to our shareholders.

Alex -- Jefferies -- Analyst

Great. Thank you, both.

Dan Rosensweig -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Please proceed with your question.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Yeah. My question on the seasonality, you didn't redo the slide that you put up in Q3, but in Q3 you talked about some seasonality to be revenue and adjusted EBITDA for 2019. I assume that remains unchanged?

Andrew Brown -- Chief Financial Officer

Yeah, Eric. Absolutely. We didn't see a reason that we needed to change the seasonality relative to what we had talked about in Q3 and so that would still be applicable based upon the new guidance.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Okay. And then just diving into the cash flow statement. The $10 million strategic equity investment, what was that?

Andrew Brown -- Chief Financial Officer

I think Dan just talked about it. That was the investments that we made in a company called WayUp. Dan just talked about that on the with the last with Alex on the last question.

Dan Rosensweig -- President and Chief Executive Officer

So what we're seeing is, Eric, is that a number of companies are coming to Chegg because of our scale. I mean, remember we have over 13 million registered users now combined last year in 2018. I think we had over 5 million people paying us for something, we become really large, we have a lot of data, we have the Sierra (ph) systems. We have the ability to message and communicate and build the relationships with students. And so, there's a number of companies that are approaching us about partnering, whether it's an investment in them or whether it's to leverage the Chegg platform like Sallie Mae deal. And so we're just seeing more opportunities like that and we want to make sure that we invest in our ecosystem whenever it's appropriate able to present the opportunities for students and Chegg.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Thank you.

Operator

Our next question comes from the line of Alex Fuhrman with Craig-Hallum. Please proceed with your question.

Alex Fuhrman -- Craig-Hallum -- Analyst

Great. Thanks very much for taking my question. Dan, I want to to ask a little bit about what you were talking about with moving into some of the poor skilled oriented subject. I think you'd mentioned that law and nursing on the call. Just wondering, is it fair to assume that most of that focus will be on post graduate students and then just thinking more broadly as where to demand from students tend to migrate more toward that skills as you said, is it possible that there could be an offering down the road, catering score, students who aren't necessarily customers of an accredited university, but maybe more self study or just don't starter getting out the job market?

Dan Rosensweig -- President and Chief Executive Officer

Yes to all of that. And what I mean by that, and you'll have to forgive me I'm in the New York office and the heat is starting to act up. So yeah, different coat, different heater. So look credited, non-accredited for profit, not for profit, all things are labels that may or may not matter anymore. And I really point you to read a great article on reads on a raft manual without had a changing education systems. So all it's whatever needs to learn or wants to learn, we're going to support them and the ability to do it. So we are either going to support them in the system there in or we are going to help them find the content and experiences that can help them learn it or we'll provide those services.

So in the case of nursing and business law and statistics and accounting, those are currently today to help people that are currently going in the accredited system. But you see increasingly a number of products and services being used at that -- I think, people have written off that years ago, but aren't which is moves in other categories. So you're beginning to see our students -- even our own employees are coming to us for non-accredited content, because it's just better sometimes, it's more relevant, it's been updated so Chegg's goal is to support new whenever you take from whomever you take it from, but also to provide you over time with content that will help you be better in getting a job, be better at your job and be better finding a new job. And also I just want to point out that that 70% to 80% of our students go to a state school, 43% of them don't finish, and so there's a whole lot of students out there with partial degrees that may or may not get a degree, but they absolutely need to get a scale and the 50% of high school students they graduate. But don't go on to further education, they also need skills and career pathing. So, the opportunities for Chegg to program to support people and the systems they go into or create content programming for the -- for them directly just keeps getting bigger for us.

So I think we're going to stop using the labels and full year and two year and community college in vocational. I think we're going to start just focusing on how does a student accelerate their path and learning to Ernie and that's been something Chegg's been on for nine years now, and I think we are driving the industry to move in that direction and we think that just creates great opportunities for students to more accessibility, lower cost, higher quality, more relevant on demand and then much more affordable and that's the role that Chegg is going to play.

Alex Fuhrman -- Craig-Hallum -- Analyst

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

Operator

Our next question comes from the line of Brian Essex from Morgan Stanley. Please proceed with your question.

Brian Essex -- Morgan Stanley -- Analyst

Hi, good evening, and thank you for taking the question. Congrats on the results, guys.

Dan Rosensweig -- President and Chief Executive Officer

Thank you.

Brian Essex -- Morgan Stanley -- Analyst

Again, I think, taking your prepared remarks, you noted an increase in engagement with students and maybe if you could unpack that a little bit in addition to absolute engagement. How is that on a per subscriber basis and then maybe rank order the contributors to that, whether it's content our tax rate or above.

Dan Rosensweig -- President and Chief Executive Officer

Yeah. So, it's not attach rate, meaning what we focus on is one-third in the service. Are they using the service, more or less than they have in the past. And the numbers are just staggering. When you take a look at the fact that in Q4 there was something like 224 million content view. And so when you take the number of subscribers we have in the quarter, you take the amount of use if they have, they're going steady or up. It's a little bit interesting for me is somebody who work together for a long time, the goal is to get them to consume as many patients as you could, because that was the business model. And Google came along with that consumers few pages you can click off the ads and that's how they make money in the case of us what we really look for is the content consumption, which is, are they using us to ask more questions they have in the past and I think using to consume more content -- more category they have in the past, because that really shows the expansive nature in the value and shows the pricing power Chegg Study and we think that's what we're seeing.

Brian Essex -- Morgan Stanley -- Analyst

That's super helpful. And then maybe just on the services revenue per subscriber. You inflected to positive growth in spite of some of the elements within that category there a headwinds, maybe a little bit of color on that. I mean are you seeing the kind of promotional related revenue deteriorate to levels that matter much less and now subscriptions growing faster and, is that sustainable the case going forward?

Dan Rosensweig -- President and Chief Executive Officer

Yeah, I mean, we've been and you guys have been great, but you guys, it's sort of join the story in the last year. So in previous years, we had assets that we ultimately shutdown or shut because they weren't right for the future. And so, while we've been referring to has been our enrollment business, which is a company that we had called rich and which we did a partnership and then we ship in that was revenue that we had that was beginning we believe was going to ultimately decline and so we've been rolling off that revenue and we are rolling off that revenue that we essentially have our subscription revenue in our programmatic advertising revenue are the two biggest part of that revenue stream.

And so, yes, you are seeing subscriptions to be worth a lot more. As Andy has pointed out in the past, there a lot easier to model. We know all the key levers, which is how many do we have with the cost to acquire, how long do they stay on, how much do they renew, how much can we charge them, what's the yield, all of those variables are moving up into the right and you're seeing that reflected in our business model. Look, it's not been easy, it's taken us nine years to get to this point. But you're really seeing since we did the Ingram deal changed our model to all digital and put ourselves in position to do this and the investments that we've made already showing that they have great leveraging great value to students.

Brian Essex -- Morgan Stanley -- Analyst

Helpful. Thank you very much.

Dan Rosensweig -- President and Chief Executive Officer

You bet.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Dan Rosensweig for closing remarks.

Dan Rosensweig -- President and Chief Executive Officer

Close enough. I'll take it. So first of all, happy New New year to anybody that celebrating. Second of all, I just want to have a shot out from my team to do Heather Morris, who just had a beautiful baby girl, and so we hope she takes a long valuable maternity leave. But we can't wait for her to come back. But on top of that look, check it off, we closed the year in a very strong position, we have a great relationship with students, we're known for creating extraordinary value for really low-cost and we found a way to be able to do that and create a high growth, high-margin business where we can continue to invest, but returned a lot in the form of free cash flow to our investors. And so we're really excited about the business model, the future of the business.

As we look out, we just see non-traditional becoming more traditional, which is, we believe the industry has got to move and is moving toward being able to be on demand, more affordable, more relevant, more contextual to the student personalized adaptive, and then ultimately help the students to accelerate from learning to earning. And we think we are in the best position of anybody in the ad-tech space to be able to support students in the current system, while at our own programming to help them if they're not able to complete those systems to be able to accelerate learning to earnings, and do so at a much lower cost than they've historically had to do it. We've got a $1.5 trillion (ph) in college debt and we've got M&A and check is in a position to really help millions and millions and millions of students and then expand on a global basis. So we're thrilled that all of your board for the ride, and for your support and we look forward to talking you on the next call. Thanks everybody.

Operator

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

Duration: 55 minutes

Call participants:

Tracey Ford -- Vice President of Investor Relations

Dan Rosensweig -- President and Chief Executive Officer

Andrew Brown -- Chief Financial Officer

Jeffrey Silber -- BMO Capital Markets -- Analyst

Alex Paris -- Barrington Research -- Analyst

Aaron Kessler -- Raymond James & Associates -- Analyst

Douglas Anmuth -- JPMorgan -- Analyst

Michael Grondahl -- Northland Securities -- Analyst

Alex -- Jefferies -- Analyst

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Alex Fuhrman -- Craig-Hallum -- Analyst

Brian Essex -- Morgan Stanley -- Analyst

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