CHEGG, INCCHGG
CHEGG, INC Fair Value Disclosure
Fair Value Measurement
The carrying amount of the 2026 notes, 2025 notes and 2023 notes as of December 31, 2020 was net of unamortized debt discount of $226.7 million, $149.1 million and $10.0 million, respectively, and unamortized issuance costs of $11.3 million $10.2 million and $1.2 million, respectively. The carrying amount of the 2025 notes and 2023 notes as of December 31, 2019 was net of unamortized debt discount of $184.7 million and $42.3 million, respectively, and unamortized issuance costs of $12.7 million and $5.0 million, respectively.
We have established a fair value hierarchy used to determine the fair value of our financial instruments as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
Level 3—Inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value; the inputs require significant management judgment or estimation.
A financial instrument’s classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Financial instruments measured and recorded at fair value on a recurring basis as of December 31, 2020 and 2019 are classified based on the valuation technique level in the tables below (in thousands):
| December 31, 2020 | |||||||||||||||||
| Total | Level 1 | Level 2 | |||||||||||||||
| Assets: | |||||||||||||||||
| Cash equivalents: | |||||||||||||||||
| Money market funds | $ | 464,799 | $ | 464,799 | $ | — | |||||||||||
| Short-term investments: | |||||||||||||||||
| Commercial paper | 204,170 | — | 204,170 | ||||||||||||||
| Corporate debt securities | 461,397 | — | 461,397 | ||||||||||||||
| Long-term investments: | |||||||||||||||||
| Corporate debt securities | 484,597 | — | 484,597 | ||||||||||||||
| Agency bonds | 39,031 | — | 39,031 | ||||||||||||||
| Total assets measured and recorded at fair value | $ | 1,653,994 | $ | 464,799 | $ | 1,189,195 | |||||||||||
| December 31, 2019 | |||||||||||||||||
| Total | Level 1 | Level 2 | |||||||||||||||
| Assets: | |||||||||||||||||
| Cash equivalents: | |||||||||||||||||
| Money market funds | $ | 146,165 | $ | 146,165 | $ | — | |||||||||||
| Short-term investments: | |||||||||||||||||
| Commercial paper | 7,489 | — | 7,489 | ||||||||||||||
| Corporate securities | 319,293 | — | 319,293 | ||||||||||||||
| U.S. treasury securities | 44,286 | 44,286 | — | ||||||||||||||
| Agency bonds | 10,006 | — | 10,006 | ||||||||||||||
| Long-term investments: | |||||||||||||||||
| Corporate debt securities | 295,478 | — | 295,478 | ||||||||||||||
| Agency bonds | 15,005 | — | 15,005 | ||||||||||||||
| Total assets measured and recorded at fair value | $ | 837,722 | $ | 190,451 | $ | 647,271 | |||||||||||
We value our investments based on quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. Other than our money market funds and U.S. treasury securities, we classify our fixed income available-for-sale investments as having Level 2 inputs. The valuation techniques used to measure the fair value of our investments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. We do not hold any investments valued with a Level 3 input.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
We report our financial instruments at fair value with the exception of the notes. The estimated fair value of the notes was determined based on the trading price of the notes as of the last day of trading for the period. We consider the fair value of the notes to be a Level 2 measurement due to the limited trading activity. For further information on the notes see Note 10, “Convertible Senior Notes.”
The carrying amounts and estimated fair values of the notes as of December 31, 2020 and 2019 are as follows (in thousands):
| December 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||
| 2026 notes | $ | 761,930 | $ | 1,129,370 | $ | — | $ | — | |||||||||||||||
| 2025 notes | 640,614 | 1,456,800 | 602,611 | 831,000 | |||||||||||||||||||
| 2023 notes | 104,378 | 376,949 | 297,692 | 523,538 | |||||||||||||||||||
| Convertible senior notes, net | $ | 1,506,922 | $ | 2,963,119 | $ | 900,303 | $ | 1,354,538 | |||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2020 | Feb 22, 2021 | Showing above |
| 2019 | Feb 20, 2020 | |
| 2018 | Feb 25, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Mar 4, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.