Chegg, Inc. (NYSE:CHGG) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET
Company Participants
Tracey Ford – Vice President, Investor Relations and ESG
Dan Rosensweig – Co-Chairperson and Chief Executive Officer
Andy Brown – Chief Financial Officer
Conference Call Participants
Bryan Smilek – JPMorgan
Stephen Sheldon – William Blair
Ryan MacDonald – Needham
Josh Baer – Morgan Stanley
Brent Thill – Jefferies
Jason Celino – KeyBanc Capital Markets
Mike Grondahl – Northland Securities
Arvind Ramnani – Piper Sandler
Eric Sheridan – Goldman Sachs
Operator
Thank you for standing by. This is the conference operator. Welcome to the Chegg, Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference over to Tracey Ford, Vice President of Investor Relations and ESG. Please go ahead.
Tracey Ford
Good afternoon. Thank you for joining Chegg’s second quarter 2022 conference call. On today’s call are Dan Rosensweig, Co-Chairperson and CEO; and Andy Brown, Chief Financial Officer.
A copy of our earnings press release, along with our investor presentation, is available on our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our media center website at chegg.com/mediacenter. We encourage you to make use of these resources.
Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today’s earnings release and the risk factors described in Chegg’s annual report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2022, 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 the call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release on the investor slide deck found on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted in our IR website.
Now I will turn the call over to Dan.
Dan Rosensweig
Thank you, Tracy. And welcome everyone to our Q2 2022 earnings call. Chegg had a good second quarter with Chegg Services revenue growing 9% year-over-year, increasing to 5.3 million subscribers for the quarter.
Our team is doing an excellent job of executing on the current opportunities in front of us and with the impact of constant upgrades to our user experience, we are seeing continued strong conversion rates. as well as over a 100 basis point increase in our Chegg Study and Chegg Study Pack retention rate year-over-year.
We are executing very well on our services strategy, resulting in record high take rates for our Chegg Study Pack. This bodes very well for future increases in both ARPU and lifetime value of our growing customer base.
Our newer investments such as Chegg Skills and Busuu, are also starting to scale, which is contributing to improvements to our top and bottom lines now, and we believe even more so in the future. Given these positive trends, we are moderately raising our guidance for the year, which Andy will walk you through.
The last few years have been challenging for higher education ecosystem with impacts on enrollment, course load and the overall mental health of both students and faculty. At Chegg, we have always been focused on solving big student pain points and helping improve learning outcomes.
We help students master their subjects and better understand their course material, while increasingly providing them with high-quality, skills-based learning opportunities to make them more employable.
In doing so, we believe we substantially improved graduation rates and the ROI of their learning journey. The results speak for themselves, as 92% of students reported that Chegg helps them learn their course work better and 94% say they get better grades when they use Chegg to understand their course work.
As the learning leader in higher education, Chegg is constantly monitoring our industry, particularly through the lens of the student. We are seeing some very interesting new trends in our most recent survey, as the data suggest a significantly higher number of students are taking summer school this year compared to last year. The reasons are a direct result of the COVID experience and a significant number of them are taking summer school to accelerate the pace of getting their degree and catch up on their courses.
Our previous study showed that students were taking fewer and easier courses during the pandemic. So it’s no surprise that this summer, they are taking harder classes, specifically subjects in STEM-B.
What is also interesting is that we believe students are increasingly thinking about their academic journey as a 12-month endeavor in order to better balance work, course load, and family throughout the year. In fact, 38% of students surveyed are extending college so they can make more money now. They can do this because schools are going increasingly online, making summer school more convenient and accessible.
In addition, 85% of summer school students surveyed said they plan to attend or have already enrolled in school for the fall. Historically, higher summer attendance has indicated stronger student enrollment in the fall semester. If these trends continue, it is good for the higher education industry as a whole and Chegg in particular.
For the back-to-school season, our priorities in the US are the continued rollout of Learn with Chegg, our personalization platform, which we believe will expand our TAM to new users and increase our value to existing customers, both of which should improve conversion and retention over time. We are also rolling out the student-facing side of Uversity, significantly expanding the content, courses, and learning tools for students this fall.
As our value to students increases, so does our pricing power. In mid-July, we initiated a very moderate $1 price increase in our base Chegg Study service, going from 14.95 to 15.95 for our monthly subscription. All other pricing in the US remains the same. This has been rolled out initially to only new Chegg Study customers, but we will be expanding to include all existing subscribers in October.
According to our price tests over the past several months, we expect to see a minimal decrease in conversion while seeing an increased number of students choosing the Chegg Study Pack bundle because the price value relationship is even better.
Our ultimate goal is to have all students subscribe to the Chegg Study Pack, which is why we recently added Uversity content into the bundle making it even more attractive and valuable offering.
Through Uversity we are adding the content students have specifically been requesting, such as practice tests, quizzes, and study guides, from professors from some of the top universities in the world. And we are providing new content and new formats that we have previously not had on Chegg.
Over time, we believe Uversity will expand our TAM in the US and globally in both STEM and non-STEM subjects. We are very excited about the impact Uversity will have on student outcomes, as well as the traction we are already seeing from educators, as there are now more than 180,000 pieces of professor developed content on our platform and we have over 6,000 professors who have already been verified to participate, from almost 30 percent of all higher-education institutions in the US. And that number continues to increase. The student benefits are clear, and we are excited to see how faculty are leveraging Uversity as a new distribution channel to educate even more students around the world.
These efforts lead to increased dynamic learning and personalization for our students. And as learning shifts to classes and courses versus textbooks, so does Chegg. The more we personalize the user experience the more we can program individualized learning pathways around their needs, styles, and their preferred learning sources. All of this should improve engagement, retention, and ultimately their learning outcomes.
Outside North America, our goal is to rapidly increase our subscriber base by finding the optimal price-to-conversion relationship in each country, while also ensuring we have high-quality and relevant content that has been localized to serve those needs.
Due to our investments in infrastructure, price testing, and payments, Chegg is already serving more than a million students outside of North America. As we grow, we are increasing our focus on some of the biggest near-term opportunities, which include Australia, Turkey, South Korea, Saudi Arabia, India, and Mexico.
Students have made it clear that they need more than just academic support, which is why we are scaling our efforts in Chegg Skills, both direct-to-consumer and through our partnership with Guild. Guild is proving to be an excellent partner and we are experiencing early positive momentum. We continue to increase our catalog where we see the opportunity to meet more learner demand through our direct-to-student offering and through Guild as they expand their customer list.
Our programming strategy is to align our courses with the most in-demand skills in the market, and our most popular courses include Cyber Security, Software Engineering, Data Analytics, and Design/UX, with prices ranging between $1,250 and $9,500 per course.
Students are having positive experiences with our curriculum, resulting in both strong take-rates and course completion. We are very excited to be working with some of the biggest companies in the world through Guild and we continue to believe that by offering high-quality skills training through employer partnerships, and direct-to-students, Chegg Skills – including Busuu will be a significant player in a very large market in the future. Like our skills business, language learning is desired by both corporations and students, so our plan is to integrate Busuu into our Skills platform in the coming years.
As our audience expands so do the needs of students. As a result, we have recently launched new, high-quality, content in the categories of financial literacy, career soft skills, and mental health, which you can now find on Chegg and through large distribution channels such as Yahoo! and MSN, helping to extend the Chegg brand. In addition to content, you can expect to see us partner with leaders in these categories with product offerings to our students starting in 2023.
As always, the great work we have accomplished this last quarter would not be possible without our amazing employees. Their tireless work to put students first has, once again, resulted in continued recognition for our teams.
Over the past few months, we were proud to win Comparably awards for women, diversity, and our entire leadership team, as well as being named one of Fortune’s Best Places to Work for Millennials. So, I want to celebrate our incredible employees for this recognition.
And with that I will turn it over to Andy.
Andy Brown
Thanks Dan and good afternoon everyone. Q2 was another solid quarter for Chegg, with revenue and adjusted EBITDA coming in above the high end of the range, as summer school was stronger than we have experienced historically for reasons Dan mentioned earlier. While this is an encouraging sign, we believe it is prudent to wait and evaluate the fall semester trends before making any material change to our second half guidance.
With that backdrop, let me walk you through the Q2 results. For Q2, total revenue was $195 million. This was driven by Chegg Services revenue growth of 9% to $189 million, as subscribers grew to 5.3 million during the quarter. Gross margin also came in at the high end of our expectations at 77% resulting in adjusted EBITDA margin of 35% or $68 million.
Looking at the balance sheet, we ended the quarter with $1.6 billion of cash and investments. Late in the quarter we announced an increase in our securities buyback authorization by $1 billion, giving us the continued flexibility to buy back either outstanding debt or stock during times of market dislocation, at prices favorable to our shareholders. This is possible as we have a strong balance sheet, and have an operating model with one of the strongest free cash flow margins across the education industry.
Moving on to guidance. Given the strength of our Q2 results we are increasing the mid-point of our revenue and adjusted EBITDA guidance ranges for the year.
As a result, for 2022 we now expect, total revenue to be between $745 and $770 million, with Chegg Services revenue between $715 and $740 million, gross margin between 73% and 74%, and adjusted EBITDA between $225 and $235 million, or 30% adjusted EBITDA margin.
For Q3 we expect, total revenue to be between $156 and $160 million, with Chegg Services revenue between $152 and $155 million, gross margin between 70% and 72%, and adjusted EBITDA between $36 and $38 million.
In closing, we are operating very well despite concerns about inflation, the economy and challenges in the education industry. We believe we are positioned to emerge even stronger once these headwinds subside, due to our best in class offerings, beloved brand, a strong operating model that generates cash and a best-in-class balance sheet.
With that, I’ll turn the call over to the operator for your questions.
Question-and-Answer Session
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Doug Ennis [ph] from JPMorgan.
Q – Bryan Smilek
Hey. It’s Bryan Smilek on for Doug. And thanks for taking my questions. It’s good to see some enrollment trends are back on track and early fall semester is trying to seem encouraging However, just considering the macro backdrop, could you just provide any color of how that’s embedded in the guide? Just if any macro risk is in there? And then how do you feel Chegg is positioned in times of an economic downturn?
Dan Rosensweig
Well, historically, if there is a recession, then higher education enrollment goes up. If summer schools are strong, which it definitely is right now than usually that results in a strong fall. But to your question about what the risk and the guide is, we tried very hard not to get enthusiastic about the signs we’re seeing too early because we really won’t know for 4 to 6 weeks just how strong the fall session is.
So we are assuming at the moment that enrollment in the fall is no different than enrollment in the fall was last year. So we’re just being – we’re quietly confident, but we’re not being aggressive here. We’re just going wait and see what happens.
But our ability to take advantage of an upswing would be great. We’re obviously well positioned for that, and we like what we’re seeing right now.
Operator
The next question is from Stephen Sheldon from William Blair. Please go ahead.
Stephen Sheldon
Hey, thanks. It sounds like you’re getting great traction with Uversity content. I just wanted to ask about how you’re planning to leverage and monetize, it seems like based upon the commentary, content may only be available in the bundle and maybe essentially to serve as another part of the value proposition to drive upselling to Chegg Study Pack. So am I thinking about that right? And how are you thinking about the broader opportunity to attract non-STEM-B students to the platform?
Dan Rosensweig
Yeah, great question. So yes, to your first question, which is the way we’re going to monetize it first, our objective all along has been to get students to take the bundle over the base path. We’re seeing really amazing traction, to be honest with you, which we think reveals itself in ’23 and ’24.
The price increase that we took was very moderate in the base, but the goal for that price increase was, of course, to generate net revenue from those customers, but to encourage even a higher percentage of those student that take the Study Pack, at all the test indicated that and so far in July and the beginning of August, that’s exactly what we’re seeing. So we’re really bullish on that.
And the next part of that was to add Uversity content into the bundle to make it even more attractive. It makes it each customer worth about 33% more than it would be if they took the base. So it’s really a valuable opportunity for us to upgrade existing customers and then ultimately have everybody subscribed to the bundle all the time. So that is how we’re using it initially.
Now the second question is we are accumulating content for both STEM and non-STEM. And we are directing our experts to be able to provide solutions, step-by-step solutions for non-STEM subjects, which historically we haven’t done.
That category, that size of that STEM [ph] is equal to the size of the TAM that we’re going after with the existing business, which is another 10 million students in the U.S. So we think we have a tremendous amount of growth ahead of us. First, when students come back and hopefully this summer is a sign of that. And the fast numbers indicate that it’s up 4.6% from last year. That’s also a good sign, but we don’t want to get ahead of ourselves. I think that would be a mistake at this point.
And then we have this whole another category of 10 million students, of which about 20% of them subscribe to Chegg but episodic when they’re forced to take a STEM class. We want them to stay with us when they’re taking their other classes, political science, the other kinds of majors that people are in history and others.
So we’re very bullish on our future growth in the U.S. and Uversity will start by encouraging people to take the bundle. And then we will be using it and directing our expert Q&A to be able to accumulate content in the non-STEM area. So both are really big step forward for us, and this is a good time to take it.
Operator
The next question is from Ryan MacDonald from Needham. Please go ahead.
Ryan MacDonald
Hi, Dan and Andy. Thanks for taking my question and congrats on a nice quarter. I’m just curious what the progress you’re making on Busuu underneath the Chegg umbrella thus far? And what efforts perhaps have been made in terms of starting that – to drive that cross-sell activity within the core existing Chegg Day?
Dan Rosensweig
Yeah, also spot on question. So, we’re making very good progress with our strategy, and we’ll talk more about that strategy in the fall. But you can start to imagine that the U.S. where they’re not particularly penetrated, we have the opportunity to create a much more aggressive premium model, which we’re not prepared to talk about much detail today, but that will be really our first major effort to go after the U.S. market to be much more competitive in the U.S. market, and we have the resources to do it. And I imagine that for ’23, we’ll have a lot more to talk about as it relates to that. So it’s exciting.
Summer is difficult in Europe, as you can imagine, with everybody traveling and post-COVID. But the fall will be the beginning of those tests, and then we’ll talk more about it at the end of the year and in February.
Operator
The next question is from Josh Baer from Morgan Stanley. Please go ahead.
Josh Baer
Thanks for the question. Just wanted to check on the really positive summer school trends, sure had an impact at the end Q2. Like how should we think about the impact to Q3, kind of thinking about guidance, missing consensus, maybe consensus was just wrong. Maybe is part of it is the Q3 is into the next academic year and don’t want to get ahead of yourself. Just wondering like how the really strong summer school trends fit with expectations around Q3?
Dan Rosensweig
Yes, I’ll start then have Andy get into much more detail. But in Andy’s prepared remarks, I think he was very clear that we are taking what we see on the top line, but you’re seeing even more leverage on the bottom line.
So we believe we will continue to get a lot more profitable, as we scale, and we’re – and we’re very confident in that. We’re just being very cautious about the fall because we’ll know in 5 or 6 weeks. So there’s no reason for us at this point to get ahead of it.
All the signs are good. And so we’re banking the revenue upside that we experienced, but we’re not taking any other right now because it’s just not prudent at this moment. But if the trends continue, it’s an excellent
Andy Brown
Yeah. I mean, Josh, Dan nailed it. It’s really this simple. We are seeing – we did see positive trends during the summer. You saw that in our results for Q2. I said in my prepared remarks very clearly that we are not adjusting our expectations for the second half. You see that in the numbers on the revenue line at least.
We’re not about to get ahead of our skis. And as Dan said, we’re just a few weeks away from getting a sense for what the fall really looks like. And then we’ll make any adjustments that we think are necessary when we come to the next call, which is in early November.
Dan Rosensweig
But we are absolutely sending a signal about increased profitability because as was in the prepared remarks, as the Busuu who continues to grow, as skills continues to build and as more people take the bundle, and our renewals continue to be at record rates, and our conversions remain very high. This is all increased profitability. It’s just – its one point in a year where we just have to be cautious because we won’t know for sure for the next 4 to 5 weeks.
Speaker 0
Operator
The next question is from Brent Thill from Jefferies. Please go ahead.
Brent Thill
Good afternoon, Dan. If you can maybe just share a little bit of the playbook as you go into this year versus past years, how you’ve made some tweaks on that. And – as just a quick follow-up. If COVID oven was kind of the primary reason for the return back to summer school, I guess when you think about how you’re reading that and how confident you are that that’s not just maybe a onetime catch-up.
What are the signals that you’re seeing that, that may indicate what happen to summer school may actually continue into the fall. Can you give us a little more color what happened this summer and like why that would continue? Thank you.
Dan Rosensweig
Yeah. Again, fair questions and a reason for us to be very optimistic, but very cautious about changing anything until November. So there’s a couple of things that I think people should understand that perhaps we haven’t done the best job in communicating in the past.
Last fall, the market – the college market just dropped out. When you really take into consideration the fact that Chegg is growing now, even though 1.5 million students left higher education, the overwhelming majority of which were the Chegg type customers. The fact that we’re back to growth is a really good thing and really positive signs.
Second, about your specific question on summer school. History has shown that strong summer schools equals strong fall. The second thing, and it was in our prepared remarks as well, is we survey students regularly and we believe our surveys are projectable because we use them to do our own planning and to build out our products and add new things.
And we’ve asked the question what percentage took summer school this year versus last year. It’s substantially up, and we asked them why. And the overall reason are to accelerate the timing which it takes them to graduate and to catch up. That means that they’re going to continue into the fall. Then when asked, 83% of them said that they had already registered or trying to register for the fall. That’s an usually high number for the last 3 years.
But that – those are the reasons that we think we’re experiencing such a good summer. As to what that means for us, deeper down in the survey. And again, we mentioned this in the prepared remarks, if it holds as a trend, it’s an excellent trend for us. Which is they’re thinking of taking fewer classes during what you and I would consider the traditional semester by taking some classes over the course of the summer.
That means an extension of the number of months that we have relationships with. So when we say we’re having good summer, it’s not just that we’re seeing good top of the funnel, it means that people who historically would have either paused or stopped and then come back in the fall are still renewing over the course of the summer.
So those are all really good signs about the long-term value proposition if college is viewed as fewer classes during the traditional semesters, but the total number of classes in the course of the year, and they spread it over the summer, that’s really good for our business. That makes us a 12-month product for a larger subset of students than we’ve been before. Does that make sense?
Brent Thill
Thanks.
Operator
The next question is from Jason Celino from KeyBanc Capital Markets. Please go ahead.
Jason Celino
Great, thanks. One for Dan on international. So the pricing tests that you’re doing in those select your geographies. How are those efforts going? And I’m curious if you’re looking at toggling the list price in the 30s [ph] or if you’re doing it with discounts, promotions or both. Curious on how that’s going?
Dan Rosensweig
Yeah. Fair question. So there’s a lot of learning for us to do. We were the beneficiary of huge international growth all at once when students went out for COVID. And now we’re aligning the business in terms of the product, the content, local languages and local pricing. And we built that infrastructure over the course of the last year, which has allowed us to do a lot of price test.
The reality is, though, is a lot of those price tests were at the end of the semester and over the summer. So we have a lot more learning to do. We have what we said in the prepared remarks, with those six places, we have huge top-of-the-funnel interest. And we’re not at the conversion level that we feel really is representative of where we can get to.
So what we’re doing now, and we really use the fall and the winter to find out is where is that optimal pricing. And that will be more something that we could talk about in greater detail of what we learned in ’23.
But remember, we really only were prepared to start testing at the end of last quarter, and that’s the summer month. So the summer months are not as nearly as robust as the fall and particularly in Europe where they literally just take off.
So we still have a lot more learning to do. But what we have learned is those six places have very large top-of-the funnel, really big interest in what we’re doing. And we’re obviously growing there, but we want to grow a lot faster there. So we’re still trying to figure out the right messaging and the right pricing, and that will just take some time, but we’re very confident we’ll get there.
Operator
The next question is from Mike Grondahl from Northland Securities. Please go ahead.
Mike Grondahl
Hey, guys. Any chance you’ll maybe say what the strong summer school added incrementally to revenues or subs? And then maybe secondly, just how are you going to communicate the $1 price increase in October?
Dan Rosensweig
Andy, you want to…
Andy Brown
Yeah, yeah. Mike, I’ll take the first one. I think you see – when you talk about some school, a big part of summer school actually is in our Q2 numbers, excuse me, – and we had a nice beat even at the top end of the range that we gave you guys just 90 days ago. So I think that’s a clear indicator of the type of momentum that we saw in Q2 and some school. Dan, do you want to handle the next one?
Dan Rosensweig
Yes. So what we’ve done now is every new customer only sees the new price and there’s no messaging. What the next step is in October, and we picked October for a very specific reason, which is that’s the heart of midterms and the beginning of finals. And so we always have our best renewal percentages there anyway, as you can imagine. So it’s been very thoughtful.
We’ve been testing messaging, but we also have to send out a notice in advance, which just notified them that’s going to happen. So all of our testing, all of our messaging suggests it’s going to be really positive. But again, just being smart and cautious because the world keeps evolving in ways it historically hasn’t we’re just going to be patient and wait and see.
But the messaging is exactly what you can imagine. It’s very short. It’s very sweet. It’s no different than anybody else, Spotify or others have done. And it’s a very moderate, it’s a $1 increase and so the messaging is just – here’s all the value that we’ve added. Here are all the new assets in the product. And here’s your renewal pricing if you want to upgrade, here’s everything that’s now in Chegg Study Pack as well. And so we’ll get some upgrades.
Our forecast assumes again that the college market does not get any bigger, although signs are it could. And then second, that we have some loss in renewals during that period, but the overall revenue uptake of both the increase in the dollar for each one of them, plus the percentage of people all new customers, we’re seeing such a higher take rate of the bundle that this will be very accretive in 2023.
Andy Brown
Yeah. I mean, Mike, I think just for your information, I think given the fact that we’re just starting this with new customers just more recently and to Dan’s point, it doesn’t affect renewals until October. It’s very moderate in the second half of the year, but the big win for us for all the recent Dan set is really in 2023.
Operator
The next question is from Brian Pierson from Raymond James. Please go ahead.
Unidentified Analyst
Hi. This is Jessica on for Brian. I just wanted to ask as we look at tittering Chegg upside potential, what would you call out the key drivers for ARPU growth? How should we consider the mix between your subscription plans with fund international growth and other offerings and contributing towards ARPU? Thanks.
Dan Rosensweig
Yeah. Great question. And so you don’t usually break that out. So let’s just remind people that Chegg Services, which is now the company, post textbooks includes Chegg Study, Chegg Study Pack, our Skills business, as well as ads and writing tools and map and Busuu.
So if we take out Busuu, that the ARPU increase year-over-year is 8.6% already. So the way to think about it is the core of what drives the business is Chegg Study and Chegg Study Pack. That the ARPU on them are going up substantially. That’s a result of increased retention and increased percentage of people taking the bundle, which is what we’ve been saying all along has been our objective. That’s why we invest in content, user experience. It’s why we built the bundles, while we put writing a map in it, and it’s working better than we would have expected, particularly at these complicated times.
Over time, as more and more and more of our renewals moved from 14.95 to 15.95 or 15.95 to 19.95 [ph] time in to the bundle, you’ll see a tremendous amount of addition of profit and free cash flow. So we already sort of have sort of top marks on free cash flow, which I’ll have Andy describe to you again about last year, this year and what we expect for next year, not numbers, but just how the model works.
So we are seeing internally a nearly 9% increase in ARPU, on the core subscription products as in Busuu. Busuu brings it down because they have annual plans and two-year plans that are as low as $7 a month. But if you remove that, it’s going up quite nicely and very fast, and we’ll continue to do so over the next many years. And all of that is incremental profit. So Andy, do you want to sort of add to the cash flow thing.
Andy Brown
Yeah. I think we’re – I think could be told, we’re a unique company really in the – certainly in the education sector where we have a strong free cash flow. I mean, our free cash flow, and we’ve said this for many years, is 50% to 60% of our EBITDA and were strong EBITDA-generating company. I mean last year alone, we were above that range at over $170 million. We’re going to be deeply in that range this year. And to Dan’s point, without getting into numbers for next year, we believe that there will be actually even further in that range and increase free cash flow fairly significantly.
Next year, and just as a reminder here, I mean, one of the things we – I maybe have talked about enough is – and we talked about Uversity, but Uversity there was a big jump in CapEx this year with respect to us getting a critical mass of content, right? That’s kind of a – it’s not a – so the jump is a onetime thing that will be much more moderated next year. And as a result, we anticipate that we’ll see, like I said, a significant increase in our free cash flow.
Once again, I mean I can’t stress this no. This is – we’re very unique in this – in the industry where we’re, in many cases, generating more free cash flow than companies are generating EBITDA.
Operator
The next question is from Arvind Ramnani from Piper Sandler. Please go ahead.
Arvind Ramnani
Hi. Thanks for taking my question. Just had a couple of questions. I wanted to ask about Busuu and in particular, what has already been integrated and what’s still remaining? And then the second part to the same topic is, what are some of the benefits you already seeing with the integration? And what are you looking to kind of see over the next 6 to 12 months or so?
Dan Rosensweig
Yeah. I’m not sure I fully heard the first part of your question, but you said something about what have we degraded?
Arvind Ramnani
So what have you integrated with Busuu and what’s remaining? Because I know the multiple stages to this integration.
Dan Rosensweig
So the integration takes time. And remember, we only closed this in mid-January. So plus COVID has made traveling very difficult. So the integration is going as we expected because we knew those realities when we acquired the company.
What we’re going to see in the fall is a lot of integration into learn with Chegg and our personalization systems. So we already know through our surveys and research that over 50% of all existing U.S. Chegg customers have an interest or a need to learn language. So as they return in the fall, we will begin to be able to market to them.
Second, and we’ll be integrating all of the data, as you can imagine. And there are opportunities to add it to the bundle or to add as an upgrade to the bundle. And then, of course, as I mentioned earlier, we are looking at a much more aggressive. We have a tremendous amount of volume that comes in, that’s interested in Busuu, but we have a paywall on day one, whereas Duolingo has a premium model.
So we expect to be much more competitive in the premium space in the United States under our ownership than Busuu could do on our own. So we think that’s going to be an exciting move, and we’ll use our targeting inside of Chegg to notify – I mean, the brand recognition for Busuu when we acquired inside of Chegg U.S. was very low, almost zero, whereas Duolingo Dingo is very high.
We expect to turn those tables over the next couple of years because we have the opportunity to know everybody who’s taking the language or studying abroad and who might be interested in the language. That’s part of why we’re building such a robust personalization system, which is super exciting because when people do personalize and do it by course rather than textbook, they actually renew better and engage more. So we’ve got a lot of good growth, and it’s a lot of fun at a very difficult time, and we’ll see if the summer trends hold to the fall and if they do, that’s good news for us.
Operator
The next question is from Eric Sheridan from Goldman Sachs. Please go ahead.
Eric Sheridan
Thanks so much for taking the questions. Number one, as you continue to see spend per customer continuing to move up. Can you just help refresh philosophically how you think about reinvesting back in the business in real time versus sort of harvesting profit as you think out beyond just the ’22 environment on a multiyear view? That would be number one.
And I was interested with what you said on the call about moving into sort of soft skills, things like financial literacy and mental health. Can you talk a little bit about what investments make there and what do you think investing in those sort of skills, what that would do for the platform? Thank you.
Dan Rosensweig
Yeah. Phenomenal questions, and nice to meet you. So from our standpoint, I think Andy has made it clear and he’ll correct me if I’m wrong. But in the core products, Chegg Study and Chegg Study Pack, the gross margins are extraordinarily high, and the drop down to EBITDA and free cash flow are extraordinarily high.
That gives us a luxury that nobody else in the education space has, which is we produce a lot of EBITDA and a lot of cash flow. I think last year, we produced $170 million worth of free cash flow. So you can imagine, as Andy pointed out, the ‘23 will be better than this year, and you can imagine better than that year.
So we have a lot of cash. We also have $1.6 billion worth of cash on the balance sheet, and we’re growing. So all of those give us the freedom to make smart investments. What we really don’t break out is that our investment in Busuu loses money this year, and we’ll lose a lot less money next year, and that’s why we put in the prepared remarks that as these businesses get bigger, they lose less and ultimately make money, same with skills.
So the turn from what I think was into the partnership with Guild and our own ability to market to our own audience and the ability to market to partners. All of those things are investments that we have made substantially already that we’re now willing to – we plan to get the benefit of those investments and that a lot of our investment, as Andy pointed out, this year, was in Uversity and in Content.
And we wanted to get a critical mass of content and believe me, 180,000 pieces of content is a critical mass of content very, very quickly since we only started in October. And that will not need to be anywhere near the spend next year to this year because we’ll be adding incremental content. We don’t have to get the critical mass because we already have it.
So we feel like we have the ability to make significant investments, and we are. It’s just that even with those investments, the company is going to get more profitable. So we’re not holding back investments to be more profitable, which others have to do, we just have a model that is extraordinarily profitable. I’ll turn it over to Andy to give you a few more details on that.
Andy Brown
No, Dan, I think you nailed it. I think the way you need to think about this, Eric, is that as we scale, we’re going to do two things. We’re going to invest in our future growth and we’re going to leverage – we’re going seek leverage on the bottom line. So when you look at our EBITDA margin, we’ve got a lot of room to get leverage out of that as the top line scales, and we don’t have to start future investments.
So we’re somewhat – and once again, I used the word unique on what we talked about free cash flow, but I think we’re unique also in this area where our model inherently of the core part of our business drops a lot of profits and cash flow to the bottom line. And that gives us that optionality to go pull levers one way another, more investment or more profitability, and we believe we can do both over the next several years.
Dan Rosensweig
Yes. And just – because I know you’re new to the company now, and we’re grateful for that. So thank you. We have been making substantial investments in Content over many, many years, substantial investment in our technological platform, over the last couple of years, which we’re now getting the benefit of both in international pricing and presentation and localization and learn with Chegg, which is our personalization platform. So we have been investing, and now we’re going to get the benefit of those investments. And that’s really exciting
Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Dan for any closing remarks.
Dan Rosensweig
Yeah. Thank you, operator, and thank you, everybody, who joined the call. These are complicated times for everybody and particularly in the higher education industry, but the signs are strong, and we haven’t seen them in a while. We’re incredibly excited about the investments that we’re making in language and in international expansion and then getting people more people to take the study pack through Uversity and in our skills business. And we’re seeing momentum in all of them.
We are digging out of a big hole of 1.5 million students that last all at once, and yet we’re returning to revenue growth, which is very exciting for us, which just shows you the power and the strength of the business. And we’re very excited about the second half of the year.
So thanks, everybody, for joining. And congratulations to Gears [ph] who runs Chegg Study and Chegg Study Pack, at a brand new baby today named Laurie. So we’re excited about that as well, one more future Chegg customer. Anyway, thank you all. We’ll be in touch.
Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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