Nerdy Announces Third Quarter 2023 Financial Results

Nerdy Inc. (NYSE: NRDY) today announced financial results for the third quarter ended September 30, 2023.

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“In the third quarter, our strong first half of the year continued and we delivered revenue and profitability ahead of our expectations. Both our Consumer and Institutional businesses saw strong demand in the quarter as the school year ramped, which combined with the operating leverage that we are receiving from our new ‘always on’ recurring revenue models and investments in AI, to also drive bottom line outperformance. Adjusted EBITDA increased by 2,300 basis points year-over-year. The pace of innovation remained high, with continued enhancements to Learning Memberships and the launch of two Varsity Tutors for Schools subscription products. The first, District Assigned, enables school administrators to centrally oversee high-dosage tutoring programs with flexible assignment and allocation tools built in. The second, Parent Assigned, allows K12 school districts to purchase Learning Memberships on behalf of their students, solves an important problem for many schools, and enables parents to have control and ownership of their child’s learning,” said Chuck Cohn, Founder, Chairman and Chief Executive Officer of Nerdy Inc.

Please visit the Nerdy investor relations website https://www.nerdy.com/investors to view the Nerdy Q3 Shareholder Letter on the Quarterly Results Page.

Financial and Operating Highlights

• Revenue Growth Accelerates – In the third quarter, Nerdy delivered revenue of $40.3 million, above the top end of our guidance range of $38-40 million, and represented an increase of 27% from $31.8 million during the same period in 2022. Revenue growth was driven by the completion of our evolution towards ‘always on’ recurring revenue products, strong adoption of Learning Memberships during the back-to-school season; and lifetime value expansion in our Consumer business coupled with the continued scaling of our Institutional business.

• Membership Evolution Complete – 100% of Consumer customers are purchasing Learning Memberships. Revenue recognized in the third quarter from Learning Memberships was $33.2 million or 96% of Consumer and 82% of total Company recognized revenue in the third quarter, a substantial increase from one year ago, when Learning Membership subscriptions accounted for 20% of Consumer and 18% of total Company recognized revenue, respectively. Active Members of 39.5K as of September 30, 2023 increased 8.5K or 27% during the quarter, yielding a $164.0 million annualized run rate, more than 3X the level a year ago.

• Institutional Business Continues to Scale – In the third quarter, Varsity Tutors for Schools executed 80 contracts, yielding $10.6 million of bookings, an increase of 89% year-over-year. Institutional revenue of $5.6 million increased 133% year-over-year and represented 14% of total revenue in the third quarter.

• Record Quarterly Gross Margin – Gross profit of $29.2 million in the third quarter increased 33% year-over-year. Gross margin of 72.4% for the three months ended September 30, 2023, was a quarterly record and 340 bps higher than gross margin of 69.0% during the comparable period in 2022. Gross profit and gross margin increases primarily driven by growth in our Consumer business as a result of the strong adoption of Learning Memberships, which has led to lifetime value expansion and higher gross margin.

• Business Model Changes Deliver Substantial Operating Leverage – Net loss was $20.6 million in the third quarter versus a net loss of $32.3 million during the same period in 2022. Excluding non-cash stock compensation expenses, restructuring and transaction related costs, a provision for legal settlement, and mark-to-market derivative adjustments, non-GAAP adjusted net loss was $9.1 million for the third quarter of 2023 compared to a non-GAAP adjusted net loss of $15.6 million in the third quarter of 2022. We reported a non-GAAP adjusted EBITDA loss of $8.2 million, at the top end of our guidance range of a non-GAAP adjusted EBITDA loss of $8.0 million to $10.0 million. This compares to a non-GAAP adjusted EBITDA loss of $14.0 million in the same period one year ago. Non-GAAP Adjusted EBITDA and non-GAAP Adjusted EBITDA margin improvement of over 2,300 bps year-over-year was driven by higher revenues, gross margin expansion, sales and marketing efficiency gains, and continued variable labor productivity improvements stemming from automation efforts and our business model changes that streamline operations.

• Operating Cash Flow and Liquidity – Negative operating cash flow of $4.8 million in the third quarter of 2023 compared to negative operating cash flow of $13.3 million last year, an improvement of $8.5 million that reflects the substantial improvements from our evolution to Learning Memberships. With no debt and $84.0 million of cash on our balance sheet, we believe we have ample liquidity to fund the business and pursue growth initiatives.

• Full Year Revenue and Non-GAAP Adjusted EBITDA Guidance – For the fourth quarter and full year, we expect year-over-year revenue growth will be driven by the continued growth of recurring revenue streams in our Consumer business, the corresponding increase in the number of Learning Membership subscribers, and higher Institutional revenues.

- Revenue Guidance: For the fourth quarter of 2023, we expect revenue in a range of $54-56 million, representing 32% growth at the midpoint vs. our Q4 2022 revenue of $41.8 million. For the full year, we expect revenue in a range of $192-194 million; representing 19% growth at the midpoint vs. our 2022 revenue of $162.7 million. Fourth quarter and full year revenue guidance reflect higher revenues from Learning Memberships and Varsity Tutors for Schools when K12 schools and universities are in session. Our continued momentum provides us with confidence that we will deliver accelerating sequential year-over-year revenue growth each quarter throughout 2023.