Nerdy Inc

Previous wording

“Active Member(s)” is defined as the number of Learners with an active paid Learning Membership as of the date presented. Variations in the number of Active Members are due to changes in demand for our solutions, seasonality, testing schedules, the extension of Learning Memberships to additional Consumer audiences, and the launch of new membership options. As a result, we believe Active Members is a key indicator of our ability to attract, engage, and retain Learners. Active Members exclude EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”), as well as our Institutional business.

Current wording

“Active Member(s)” is defined as the number of Learners with an active paid Learning Membership as of the date presented. Variations in the number of Active Members are due to changes in demand for our solutions, seasonality, testing schedules, and the launch of new membership options. As a result, we believe Active Members is a key indicator of our ability to attract, engage, and retain Learners. Active Members exclude EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”), as well as our Institutional business.

Previous wording

“Active Experts” is defined as the number of Experts who have instructed one or more sessions in a given period. Active Experts also includes our Institutional business, but excludes First Tutors UK. The following table summarizes Active Experts for the periods presented. Our Active Expert count during the three and six months ended June 30, 2024 was primarily driven by higher Institutional active Experts when compared to the prior year periods, which reflects the continued scaling of our Institutional business.

Current wording

“Active Experts” is defined as the number of Experts who have instructed one or more sessions in a given period. We believe Active Experts is a key indicator of our ability to service Learners and provide Experts with revenue-generating opportunities. Active Experts also includes our Institutional business, but excludes First Tutors UK. The following table summarizes Active Experts for the periods presented. Our Active Expert count during the three and nine months ended September 30, 2024 was primarily driven by higher Institutional active Experts when compared to the prior year periods, which reflects the continued scaling of our Institutional business.

Previous wording

Revenue growth in both current year periods was driven by the continued scaling of our Consumer and Institutional businesses, partially offset by lower average revenue per member per month in our Consumer business. Additionally, revenue for the three and six months ended June 30, 2023 included legacy Package revenue of $4,906 thousand and $15,850 thousand, respectively, that did not recur in the current year periods due to the completion of the transition to Learning Memberships in our Consumer business.

Current wording

Revenue for the three months ended September 30, 2024 declined when compared to the prior year period primarily due to lower average revenue per member per month (“ARPM”) in our Consumer business. Revenue growth for the nine months ended September 30, 2024 when compared to the prior year period was driven by the continued scaling of our Institutional business, partially offset by lower ARPM in our Consumer business. ARPM was lower in both current year periods due to a higher mix of lower frequency Learning Memberships when compared to the prior year periods. Revenue for the nine months ended September 30, 2023 included legacy Package revenue of $15,850 thousand that did not recur in the current year period due to the completion of the transition to Learning Memberships in our Consumer business.

Previous wording

Cost of revenue for the three and six months ended June 30, 2024, increased primarily due to higher Expert costs of $2,561 thousand and $4,388 thousand, respectively, related to the continued scaling of our Consumer and Institutional businesses.

Current wording

Cost of revenue for the three months ended September 30, 2024 was flat year over year. Cost of revenue for the nine months ended September 30, 2024 increased due to higher Expert costs of $4,095 thousand, primarily related to higher utilization of tutoring sessions across Learning Memberships in our Consumer business and the continued scaling of our Institutional business.

Previous wording

Gross profit for the three months ended June 30, 2024 of $33,487 thousand decreased by $612 thousand, or 2%, compared to the same period in 2023. Gross margin was 66% for the three months ended June 30, 2024, compared to gross margin of 70% for the three months ended June 30, 2023. Gross profit for the six months ended June 30, 2024 of $70,002 thousand increased by $2,013 thousand, or 3%, compared to the same period in 2023. Gross margin was 67% for the six months ended June 30, 2024, compared to gross margin of 69% for the six months ended June 30, 2023.

Current wording

Gross profit for the three months ended September 30, 2024 of $26,453 thousand decreased by $2,735 thousand, or 9%, compared to the same period in 2023. Gross margin was 70% for the three months ended September 30, 2024, compared to gross margin of 72% for the three months ended September 30, 2023. Gross profit for the nine months ended September 30, 2024 of $96,455 thousand decreased by $722 thousand, or 1%, compared to the same period in 2023. Gross margin was 68% for the nine months ended September 30, 2024, compared to gross margin of 70% for the nine months ended September 30, 2023.

Previous wording

The decrease in gross margin for both current year periods was a result of lower margins related to our Institutional offerings, primarily due to higher utilization of tutoring sessions across our new access-based products and higher substitution costs in a seasonally high period in the school year. We have recently introduced improvements to our marketplace infrastructure systems, including: session scheduling enhancements, invoice automation improvements, and changes to the tutor substitution program logic which collectively are expected to meaningfully improve gross margin during the back-to-school period and on a go-forward basis, while simultaneously improving the customer experience due to the higher reliability level of our marketplace infrastructure systems.

Current wording

The decrease in gross margin for the three months ended September 30, 2024 was primarily due to lower ARPM coupled with higher utilization of tutoring sessions across Learning Memberships in our Consumer business, partially offset by lower seasonal utilization of our access-based products in our Institutional business. The decrease in gross margin for the nine months ended September 30, 2024 was primarily due to lower ARPM coupled with higher utilization of tutoring sessions across Learning Memberships in our Consumer business and higher substitution costs in our Institutional business. Recently introduced improvements to our marketplace infrastructure systems, including session scheduling enhancements, invoice automation improvements, and changes to the tutor substitution program logic, collectively are expected to drive gross margin improvement on a go-forward basis, while simultaneously improving the customer experience due to the higher reliability level of our marketplace infrastructure systems.

Previous wording

Sales and marketing expenses for the three months ended June 30, 2024 and 2023 included stock-based compensation of $638 thousand and $691 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses increased $731 thousand, or 5%. Additionally, excluding these impacts in both periods, sales and marketing expenses for both the three months ended June 30, 2024 and 2023 were 29% of revenue.

Current wording

Sales and marketing expenses for the three months ended September 30, 2024 and 2023 included stock-based compensation of $556 thousand and $695 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses increased $1,221 thousand, or 7%. Sales and marketing expenses for the nine months ended September 30, 2024 and 2023 included stock-based compensation of $1,729 thousand and $2,224 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses increased $4,087 thousand, or 9%.

Previous wording

Sales and marketing increases were driven by investments in our Institutional sales organization in order to drive customer acquisition, brand awareness, and reach, including through signing up school districts with free access to the Varsity Tutors platform, which is a strategy to introduce school districts to the platform fee-based offerings. These investments were partially offset by Consumer marketing efficiency gains.

Current wording

Sales and marketing increases were driven by investments in our Institutional sales organization which were made to drive customer acquisition, brand awareness, and reach, including through signing up school districts with free access to the Varsity Tutors platform, which is a strategy to introduce school districts to the platform and ultimately convert them to our fee-based offerings. These investments were partially offset by Consumer marketing efficiency gains.

Previous wording

General and administrative expenses include compensation for certain employees, support services, product development expenses intended to support continued innovation, and other operating expenses. Product development costs were $11,569 thousand and $8,392 thousand for the three months ended June 30, 2024 and 2023, respectively, an increase of $3,177 thousand. Product development costs were $22,232 thousand and $16,822 thousand for the six months ended June 30, 2024 and 2023, respectively, an increase of $5,410 thousand. Product development costs include compensation for employees on our product and engineering teams who are responsible for developing new and improving existing offerings, maintaining our website, improving efficiencies across our organization, and third-party expenses.

Current wording

General and administrative expenses include compensation for certain employees, support services, product and development expenses intended to support continued innovation, and other operating expenses. Product and development costs were $11,273 thousand and $10,085 thousand for the three months ended September 30, 2024 and 2023, respectively, an increase of $1,188 thousand. Product and development costs were $33,505 thousand and $26,907 thousand for the nine months ended September 30, 2024 and 2023, respectively, an increase of $6,598 thousand. Product and development costs include compensation for employees on our product and engineering teams who are responsible for developing new and improving existing offerings, maintaining our website, improving efficiencies across our organization, and third-party expenses.

Previous wording

General and administrative expenses for the three months ended June 30, 2024 and 2023 included non-cash stock based compensation of $10,676 thousand and $9,440 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $2,230 thousand, or 11%. Additionally, excluding these impacts in both periods, general and administrative expenses for the three months ended June 30, 2024 were 44% of revenue compared to 42% during the same period in 2023.

Current wording

General and administrative expenses for the three months ended September 30, 2024 included non-cash stock based compensation of $9,256 thousand. General and administrative expenses for the three months ended September 30, 2023 included non-cash stock based compensation, costs related to the warrant and earnout transactions, restructuring costs, and a provision for legal settlement of $10,927 thousand, $1,940 thousand,$841 thousand, and $1,250 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $2,056 thousand, or 10%.

Previous wording

General and administrative expenses for the six months ended June 30, 2024 and 2023 included non-cash stock based compensation of $21,253 thousand and $19,651 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $4,140 thousand, or 10%. Additionally, excluding these impacts in both periods, general and administrative expenses for the six months ended June 30, 2024 were 42% of revenue compared to 41% during the same period in 2023.

Current wording

General and administrative expenses for the nine months ended September 30, 2024 included non-cash stock based compensation of $30,509 thousand. General and administrative expenses for the nine months ended September 30, 2023 included non-cash stock based compensation, costs related to the warrant and earnout transactions, restructuring costs, and a provision for legal settlement of $30,578 thousand, $1,940 thousand,$841 thousand, and $1,250 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $6,196 thousand, or 10%.

Previous wording

Our investments in product development and our platform-oriented approach to growth have allowed us to launch and continuously improve our suite of ‘always on’ subscription products, including Learning Memberships for Consumers, and our District, Teacher, and Parent Assigned offerings for Institutional customers. We believe these subscription and access-based offerings simplify our operating model needed to support the organization, which allows us to maximize our investment in our common platform.

Current wording

We believe our investments in product development and our platform-oriented approach to growth have allowed us to launch and continuously improve our suite of ‘always on’ subscription products, including Learning Memberships for Consumers, and our District, Teacher, and Parent Assigned offerings for Institutional customers. We believe these subscription and access-based offerings simplify our operating model needed to support the organization, which allows us to maximize our investment in our unified platform.

Previous wording

Unrealized Loss on Derivatives, Net

Current wording

Unrealized (Gain) Loss on Derivatives, Net

Previous wording

During the three and six months ended June 30, 2023, we recognized a (gain) loss of $(4,198) thousand and $17,484 thousand, respectively, related to non-cash mark-to-market adjustments on our warrants and earnouts prior to the warrant and earnout transactions in September 2023 (our third quarter). Of the gain recognized in the three months ended June 30, 2023, $2,333 thousand and $1,865 thousand related to warrants and earnouts, respectively. Of the loss recognized in the six months ended June 30, 2023, $6,081 thousand and $11,403 thousand related to warrants and earnouts, respectively.

Current wording

During the three and nine months ended September 30, 2023, we recognized a (gain) loss of $(4,099) thousand and $13,385 thousand, respectively, related to non-cash mark-to-market adjustments on our warrants and earnouts prior to the warrant and earnout transactions. Of the net gain recognized in the three months ended September 30, 2023, $5,010 thousand and $(9,109) thousand related to warrants and earnouts, respectively. Of the loss recognized in the nine months ended September 30, 2023, $11,091 thousand and $2,294 thousand related to warrants and earnouts, respectively.

Previous wording

Interest income for the three months ended June 30, 2024 was $879 thousand, an increase from $783 thousand in the same period in 2023. Interest income for the six months ended June 30, 2024 was $1,765 thousand, an increase from $1,616 thousand in the same period in 2023. These increases were driven by higher interest income on our cash balances during both current year periods.

Current wording

Interest income for the three months ended September 30, 2024 was $768 thousand, a decrease from $844 thousand in the same period in 2023, driven by lower interest income on our cash balances during the current year period. Interest income for the nine months ended September 30, 2024 was $2,533 thousand, an increase from $2,460 thousand in the same period in 2023, driven by higher interest income on our cash balances during the current year period.

Previous wording

As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents totaling $69,838 thousand and $74,824 thousand, respectively. We have incurred cumulative losses from our operations, and we may incur additional losses in the future. Our operations have historically been financed primarily through cash on hand, capital contributions, and debt financings. To the extent we generate negative operating cash flows, it is possible that we may have to finance future operations primarily or in part from cash on hand.

Current wording

As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents totaling $65,002 thousand and $74,824 thousand, respectively. We have incurred cumulative losses from our operations, and we may incur additional losses in the future. Our operations have historically been financed primarily through cash on hand and capital contributions. To the extent we generate negative operating cash flows, it is possible that we may have to finance future operations primarily or in part from cash on hand.

Previous wording

Cash used in operating activities for the six months ended June 30, 2024 was $1,235 thousand compared to cash provided by operating activities of $2,279 thousand in the same period in 2023 as higher gross profit and marketing efficiencies were more than offset by investments in our Institutional sales organization and product development to drive innovation and support our continued growth.

Current wording

Cash used in operating activities for the nine months ended September 30, 2024 increased $1,773 thousand when compared to the same period in 2023 as investments in our Institutional sales organization and product development to drive innovation and support our continued growth were partially offset by favorable changes in working capital primarily related to fluctuations in the timing of sales and collections of receivables and the payments of other current liabilities.

Previous wording

Cash used in investing activities was $3,755 thousand and $2,049 thousand for the six months ended June 30, 2024 and 2023, respectively. Cash used in investing activities for both periods related to capital expenditures primarily for the development of internal use software and IT equipment.

Current wording

Cash used in investing activities was $5,700 thousand and $3,923 thousand for the nine months ended September 30, 2024 and 2023, respectively. Cash used in investing activities for both periods related to capital expenditures primarily for the development of internal use software and IT equipment.

Previous wording

We did not have any financing activities in either the six months ended June 30, 2024 or 2023.

Current wording

Cash used in financing activities for the nine months ended September 30, 2023 was $567 thousand, which related to transaction costs paid in connection with the warrant and earnout transactions. We did not have any financing activities in the nine months ended September 30, 2024.

Previous wording

Certain statements in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future, including our expectations with respect to: enhancing the Learning Membership experience and on our expansion of freemium strategies; continued improvements in sales and marketing leverage; the growth of our Institutional business; simplifying our operations model while growing our business; and the sufficiency of our cash to fund future operations. Any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “approximately,” “believes,” “contemplates,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “outlook,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “seeks,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Our financial condition, results of operations, and cash flows may differ materially from those in the forward-looking statements as a result of various factors, including:

Current wording

Certain statements in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future, including our expectations with respect to: enhancing the Learning Membership experience; continued improvements in sales and marketing leverage; the growth of our Institutional business; changes to our marketplace infrastructure systems; simplifying our operations model while growing our business; and the sufficiency of our cash to fund future operations. Any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “approximately,” “believes,” “contemplates,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “outlook,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “seeks,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Our financial condition, results of operations, and cash flows may differ materially from those in the forward-looking statements as a result of various factors, including:

Previous wording

According to 5120.1b of the SEC Financial Reporting Manual, once we fail to qualify for smaller reporting company status, we will remain unqualified until making a subsequent determination either: (i) our public float falls below $200,000 thousand as of the last business day of our most recently completed second fiscal quarter or (ii) our public float and annual revenues meet certain other requirements for subsequent qualification as of the last business day of our most recently completed second fiscal quarter. Based upon the facts and circumstances that existed as of June 30, 2024, we have re-entered smaller reporting company status and will use scaled disclosures permitted for a smaller reporting company.

Current wording

According to 5120.1b of the SEC Financial Reporting Manual, once we fail to qualify for smaller reporting company status, we will remain unqualified until making a subsequent determination either: (i) our public float falls below $200,000 thousand as of the last business day of our most recently completed second fiscal quarter or (ii) our public float and annual revenues meet certain other requirements for subsequent qualification as of the last business day of our most recently completed second fiscal quarter. Based upon the facts and circumstances that existed as of June 30, 2024, we have re-entered smaller reporting company status and will use scaled disclosures in future reports, as applicable, permitted for a smaller reporting company.