Nerdy Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Nerdy operates a live online learning platform, including its Varsity Tutors consumer and institutional offerings. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $40.3 | $31.8 | $138.3 | $120.9 |
| Gross profit / margin | $29.2 / 72% | $21.9 / 69% | $97.2 / 70% | $83.4 / 69% |
| Operating loss | $(25.6) | $(27.7) | $(47.4) | $(70.4) |
| Net loss | $(20.6) | $(32.3) | $(58.4) | $(48.8) |
| Net loss attributable to Class A stockholders | $(12.3) | $(18.5) | $(34.5) | $(26.7) |
| Class A diluted loss per share | $(0.13) | $(0.21) | $(0.37) | $(0.32) |
Q3 revenue increased 27% year over year; nine-month revenue increased 14%. Consumer revenue was $34.5 million in Q3, up from $29.1 million, while Institutional revenue rose to $5.6 million from $2.4 million. Gross margin improved in both comparisons.
For the nine months, operating cash use was $2.5 million, versus $33.5 million in 2022. Investing cash use was $3.9 million, primarily for internal-use software and IT equipment; financing cash use was $0.6 million. Cash, cash equivalents and restricted cash were $84.5 million at September 30, including $84.0 million of unrestricted cash, compared with $91.5 million and $90.7 million, respectively, at year-end 2022. The company reported no debt obligations. Current assets were $98.1 million and current liabilities $39.8 million.
Changes and operating indicators
- Q3 operating loss narrowed by $2.1 million year over year, and nine-month operating loss narrowed by $23.0 million. However, nine-month net loss increased, mainly reflecting the change in non-cash derivative remeasurement results: a $13.4 million loss in 2023 versus a $21.8 million gain in 2022.
- Sales and marketing expense rose 19% in Q3 but fell 13% for the nine-month period. Management attributed improved spending efficiency to Learning Memberships and growth in Varsity Tutors for Schools. General and administrative expenses rose 6% in Q3 and decreased 2% year to date; reported amounts included stock compensation and other items.
- Active Members were 39,500 at September 30, versus 11,300 a year earlier. Active Experts averaged 9,000 in Q3, down 16% year over year; the nine-month measure was down 23% to 14,100.
Outlook, unusual items and risks
- No quantified financial guidance is provided. Management expects further operating-model simplification and cost efficiencies while growing revenue and Active Members, and believes cash on hand will cover requirements for the next 12 months. These are forward-looking expectations, not assurances.
- In September, warrant exchanges and exercises eliminated all outstanding warrants; earnout holders forfeited 60% of their earnouts and the remaining 40% became unconditional. The transactions’ combined net effect was an increase of less than 0.1% in common shares outstanding. Related transaction costs were $1.9 million. Derivative fair-value changes affected reported earnings but were non-cash; no warrants or earnouts remained outstanding at quarter-end.
- A July workforce reduction generated $0.8 million of restructuring charges, all paid by September 30. A California tutor-classification case reached a tentative settlement in October, subject to court approval; the company accrued $2.0 million at quarter-end and recorded related expense during 2023. Other proceedings also challenge the classification of Experts as independent contractors.
- The company disclosed an estimated $111.9 million of potential Tax Receivable Agreement payments but did not recognize a liability because payment was not considered probable based on estimated future taxable income. Payments, if due, generally equal 85% of specified realized tax savings.
- Key disclosed risks include continued losses, the transition to Learning Memberships, scaling the Institutional business, contractor classification, litigation and regulatory matters, cybersecurity, and future tax-receivable obligations. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether membership growth and Institutional revenue translate into durable growth, retention and improved cash generation.
- How much of the improvement in operating cash flow reflects sustainable operating progress versus working-capital timing.
- The final court-approved California settlement terms and exposure from other worker-classification proceedings.
- Future taxable income assumptions and the potential timing and amount of Tax Receivable Agreement payments.
- Share-based compensation, dilution and the impact of the warrant and earnout transactions on ownership and reported results.