Nerdy Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Nerdy operates a live online learning platform serving consumers and educational institutions, including through Varsity Tutors. Financial figures below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $53.7 | $49.2 |
| Gross profit / margin | $36.5 / 68% | $33.9 / 69% |
| Operating loss / margin | $(12.9) / (24)% | $(11.4) / (23)% |
| Net loss | $(12.0) | $(32.3) |
| Net loss attributable to Class A stockholders | $(7.4) | $(18.9) |
| Class A loss per share, basic and diluted | $(0.07) | $(0.21) |
| Cash provided by operating activities | $4.4 | $6.8 |
| Capital expenditures / investing cash outflow | $2.2 | $1.0 |
Revenue grew 9%. Consumer revenue increased 3% to $41.6 million; Institutional revenue rose 39% to $11.9 million. Consumer represented 77% of revenue and Institutional 22%. Active Members were 46,100 at March 31, up 40% year over year; Active Experts were 12,300, up 21%.
Financial position and liquidity
- Cash and cash equivalents were $77.0 million at March 31, 2024, versus $74.8 million at December 31, 2023. Cash, cash equivalents, and restricted cash totaled $77.3 million.
- Current assets were $92.0 million and current liabilities were $33.0 million. Deferred revenue was $16.3 million, down from $20.5 million at year-end; the company expects to recognize substantially all of it within 12 months.
- Total liabilities were $36.2 million; Nerdy reported no debt obligations. Equity was $85.2 million.
- Operating cash flow was positive but declined by $2.4 million year over year. Cash increased by $2.1 million during the quarter; there were no financing cash flows.
Changes, outlook, and key risks
- Net loss narrowed substantially, mainly because Q1 2023 included a $21.7 million non-cash unrealized loss on warrants and earnouts; no such loss was recorded in Q1 2024. Operating loss nevertheless widened by $1.5 million.
- Gross margin declined one percentage point to 68%. Management attributed this to higher tutor utilization in Institutional access-based products during a seasonally high school-year period. Higher expert costs contributed to the increase in cost of revenue.
- Management cited continued Consumer and Institutional scaling, lower average Consumer revenue per member per month, investment in Institutional sales and product development, and marketing efficiencies from Learning Memberships. Product development costs rose to $10.7 million from $8.4 million.
- No specific revenue or earnings guidance was provided. Management believes cash on hand will meet cash requirements for the next 12 months, while noting the company’s history of operating losses and the possibility of future losses.
- A California tutor independent-contractor classification case has a tentative settlement awaiting court approval, expected in mid-2024. The company had accrued $2.0 million for the matter. It disputes other classification allegations and intends to defend itself.
- The Tax Receivable Agreement generally entitles certain legacy holders to 85% of specified realized tax savings. A potential $116.0 million liability was not recognized because payment was not considered probable; future taxable income and any release of the deferred-tax valuation allowance could affect recognition.
- Other disclosed risks include scaling the Institutional business, customer acquisition and retention, contractor classification, litigation and regulatory matters, cybersecurity, and risks involving learners who are minors. Management reported no material changes to previously disclosed risk factors; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether Institutional growth and higher Active Member counts translate into sustainable revenue and improved operating margins.
- Whether sales, marketing, and product-development investment produces operating leverage, given the wider operating loss and lower gross margin.
- Cash conversion and working-capital trends, including the decline in deferred revenue and operating cash flow.
- Outcome and final cost of the California classification settlement and other contractor-related proceedings.
- Potential future recognition or payment under the Tax Receivable Agreement, and the assumptions supporting management’s 12-month liquidity assessment.