Nerdy Inc. current report, 20 September 2021

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Nerdy Inc. Form 8-K Summary

Business context and reporting period

Nerdy Inc. filed this Form 8-K on September 24, 2021, reporting events occurring primarily on September 20, 2021. On that date, TPG Pace Tech Opportunities Corp. completed its business combination with Live Learning Technologies LLC, doing business as Nerdy, and changed its name to Nerdy Inc. The transaction converted the former SPAC into a holding company whose principal asset is its equity interest in Nerdy LLC.

Nerdy became the operating business, and its Class A common stock and warrants began trading on the NYSE on September 21, 2021 under the symbols NRDY and NRDY WS.

Key financial and capital structure information

  • Legacy Nerdy equity holders received $336.8 million in cash, 18,583,264 shares of Class A common stock, 76,732,173 Class B common shares, an equivalent number of OpCo units, 392,580 Company warrants and 2,051,864 OpCo warrants.
  • The PIPE Financing raised approximately $150 million through the issuance of 15,000,000 Class A shares.
  • The FPA Financing raised $150 million through the issuance of 16,116,750 Class A shares and 3,000,000 Company warrants.
  • Former TPG Pace stockholders redeemed 16,316,683 shares for approximately $163.2 million, or approximately $10.00 per share.
  • Cash sources were used for merger consideration, transaction expenses, repayment of certain Nerdy debt and funding the post-closing balance sheet.
  • The Company repaid the Live Learning Technologies PPP loan, including principal and interest, totaling approximately $8.4 million.
  • Immediately after closing, the Company had 90,266,581 Class A shares, 76,732,173 Class B shares, 17,281,469 warrants exercisable for Class A shares and 2,051,864 warrants exercisable for OpCo units, generally at $11.50 per share or unit.
  • If all Class B shares and corresponding OpCo units were exchanged, the Company would have 166,998,755 Class A shares outstanding.
  • The filing does not provide a clear current-period value for revenue, net income or loss, operating cash flow, margins, cash and cash equivalents, or total debt. Historical and pro forma financial information is incorporated by reference from the proxy statement and Exhibit 99.1.

Material changes versus the prior comparable period

  • The Company transitioned from a shell SPAC with no operations to the successor public company of Nerdy.
  • TPG Pace’s former Class A ordinary shares, Class F shares, warrants and units were converted or separated in connection with the domestication and business combination.
  • The former TPG Pace units ceased trading as separate securities; Class A shares and warrants now trade separately on the NYSE.
  • Management and the board were reconstituted. Charles Cohn became Chief Executive Officer and Chairman, with Ian Clarkson as President and Chief Operating Officer, Jason Pello as Chief Financial Officer, Heidi Robinson as Chief Product Officer and Chris Swenson as Chief Legal Officer.
  • PricewaterhouseCoopers LLP replaced KPMG LLP as the Company’s independent registered public accounting firm. KPMG previously reported a material weakness involving accounting for complex financial instruments; management concluded that weakness was remediated as of August 11, 2021.
  • The Company adopted a new registration rights agreement, OpCo LLC agreement, tax receivable agreement, certificate of incorporation, bylaws and 2021 Equity Incentive Plan.

Guidance, outlook, risks and unusual items

  • The filing does not provide new operating guidance or a quantified outlook. It refers investors to projections and market opportunity information in the proxy statement.
  • The tax receivable agreement generally requires the Company to pay eligible holders 85% of realized net cash tax savings attributable to specified tax benefits. An early termination could require a potentially significant accelerated payment based on the present value of anticipated future payments.
  • The Company reserved 27,774,924 Class A shares for issuance under its 2021 Equity Incentive Plan, creating potential future dilution.
  • Legacy holders retained a 57.1% aggregate voting and economic interest in the Company and OpCo immediately after closing. Their OpCo units and corresponding Class B shares are generally exchangeable one-for-one for Class A shares or cash after the six-month anniversary of closing, subject to the governing agreement.
  • Key disclosed risks include integration and execution of the business combination, competition, retaining key personnel, future financing needs, effective use of transaction proceeds, regulatory changes, COVID-19 effects, liquidity requirements and the ability to maintain NYSE listing.
  • The transaction included potential forfeiture provisions affecting 642,089 Class A shares and 3,357,911 OpCo units if specified trading price thresholds are not achieved.
  • The Company does not anticipate paying cash dividends in the foreseeable future and expects to retain future earnings, if any, to fund growth.

Important facts for investors to verify

  1. Review Exhibit 99.1 and the proxy statement for actual historical and pro forma revenue, profitability, cash flow, liquidity, debt and margin data, which are not clearly presented in the supplied 8-K text.
  2. Confirm post-closing cash, debt repayment, transaction expenses and remaining balance-sheet liquidity.
  3. Assess dilution from warrants, OpCo exchanges, the equity incentive plan and other equity awards.
  4. Review the tax receivable agreement for the estimated magnitude and timing of potential payments, including any early-termination obligation.
  5. Evaluate the effect of the six-month exchange feature for OpCo units and Class B shares on future ownership and voting control.
  6. Review the proxy statement’s risk factors, business projections and assumptions rather than relying on the 8-K’s forward-looking statements.