Nerdy Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. Nerdy operates an online learning platform, including one-on-one tutoring, group learning, and institutional offerings through Varsity Tutors for Schools.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $42.2 million | $32.8 million | $89.1 million | $67.4 million |
| Gross profit / margin | $28.8 million / 68% | $21.3 million / 65% | $61.5 million / 69% | $44.6 million / 66% |
| Operating loss | $(22.0) million | $(7.4) million | $(42.7) million | $(11.9) million |
| Net income (loss) | $15.3 million | $(0.3) million | $(16.5) million | $(6.1) million |
| Net income (loss) attributable to Class A shareholders | $8.7 million | Not presented | $(8.2) million | Not presented |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(20.2) million | $(10.8) million |
Q2 revenue increased 29% year over year; six-month revenue increased 32%. Active learners rose 36% in Q2 and 40% for the six months, while revenue per active learner declined 6% in both comparisons. Sessions increased 35% in Q2 and 45% for the six months. One-on-one instruction remained the largest revenue category, representing 85% of Q2 revenue; group and class revenue more than doubled from the prior-year quarter.
Operating costs grew faster than revenue. Q2 sales and marketing expense rose 27% to $18.0 million; general and administrative expense rose 125% to $32.8 million. For the first half, those expenses increased 42% and 128%, respectively. Stock-based compensation contributed substantially to G&A: $9.9 million in Q2 and $21.3 million for the six months.
Liquidity, debt, and balance sheet
Cash and cash equivalents were $121.0 million at June 30, down from $144.0 million at December 31, 2021. Cash, cash equivalents, and restricted cash totaled $122.1 million. The company reported no debt obligations. Six-month cash use was $20.2 million in operations, $2.7 million in investing, and $0.8 million in financing; total cash and restricted cash declined $23.8 million. Current assets were $127.9 million and current liabilities were $35.0 million. Deferred revenue declined to $22.6 million from $30.0 million. Operating lease liabilities totaled $4.2 million.
Changes, outlook, and notable items
- Gross margin improved by 3 percentage points in Q2 and 3 percentage points for the first half, as revenue growth outpaced cost of revenue.
- Reported Q2 net income included a $37.3 million noncash gain from remeasurement of warrant and earnout liabilities. The six-month noncash gain was $26.3 million. These gains offset part of the operating loss and should not be read as operating performance.
- The prior-year periods included an $8.4 million gain from forgiveness of a CARES Act promissory note; the note was fully forgiven in 2021.
- Management said it moderated third-party consumer marketing spend and corporate hiring during Q2, while continuing investment in institutional sales, product development, and Varsity Tutors for Schools. Management expects to grow into those investments as revenue grows faster than expenses heading into the 2022–2023 school year.
- Management stated that cash on hand, operating cash flows, and possible future financing should be sufficient for expected needs, and that it was using business-combination proceeds to fund growth and achieve profitability by the end of 2023. No specific revenue or earnings guidance was provided.
- Management cited seasonality, lower summer demand for enrichment classes, inflationary wage and other cost pressures, and uncertainty related to COVID-19. The company also reported that disclosure controls were not effective and identified material weaknesses in its control environment, risk assessment, and IT controls. Remediation was underway; timing and cost were not estimated.
- A potential $108.0 million Tax Receivable Agreement liability was not recorded because management concluded payment was not probable based on estimated future taxable income. A change in that assessment could affect future financial statements.
Important facts for investors to verify
- Whether growth in learners, sessions, and institutional offerings can translate into improved operating results, given rising operating expenses and first-half cash burn.
- The extent to which reported earnings depend on volatile, noncash warrant and earnout remeasurements rather than core operations.
- Cash runway and progress toward management’s end-of-2023 profitability objective, including the company’s definition of profitability.
- Progress in remediating the disclosed material weaknesses and restoring effective disclosure controls.
- Potential future Tax Receivable Agreement payments, redemption-related obligations, and dilution from warrants, earnouts, and convertible combined interests.