Nerdy Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide a clear standalone Q4 income statement or other separate quarterly financial results.
Business context
Nerdy operates an online learning platform, primarily through Varsity Tutors, connecting learners with tutors and instructors. Offerings include one-to-one instruction, paid small-group classes, free large-group classes and adaptive self-study resources. In August 2021, the company launched Varsity Tutors for Schools for education systems.
Nerdy completed its reverse recapitalization with TPG Pace on September 20, 2021. Accordingly, FY2021 results combine Nerdy LLC results before closing and Nerdy Inc. consolidated results after closing; FY2020 is Nerdy LLC. Nerdy reports one operating segment.
Key financial and operating metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $140.664 million | $103.968 million | +35% |
| Online revenue | $140.664 million | $97.440 million | +44% |
| Gross profit | $93.964 million | $69.134 million | +36% |
| Gross margin | 66.8% | 66.5% | +0.3 percentage points |
| Operating loss | $(96.454) million | $(17.935) million | Loss widened |
| Net loss | $(30.679) million | $(24.663) million | Loss widened |
| Cash used in operating activities | $(38.891) million | $(6.654) million | Cash use increased |
| Capital expenditures | $5.163 million | $2.874 million | Increased |
- Active Learners rose 46% to 126,519; paid online sessions rose 73% to 1.921 million. Sessions taught per active Expert increased 19% to 80.
- Revenue per Active Learner was $1,112, down 1% from $1,125.
- Sales and marketing expense increased to $65.441 million from $43.838 million. General and administrative expense increased to $121.968 million from $43.231 million.
- FY2021 net loss includes a $71.041 million non-cash unrealized gain on warrants and earnouts. Excluding this gain, the reported net loss would have been substantially larger; the filing does not present an adjusted net loss measure.
Financial position and liquidity
- At December 31, 2021, cash and cash equivalents were $143.964 million, versus $29.265 million a year earlier. Current assets were $155.450 million and current liabilities $41.909 million.
- Total liabilities were $81.340 million and stockholders’ equity was $95.805 million. Debt was zero at year-end, following repayment of the loan and security agreement and promissory note.
- Operating cash outflow was $38.891 million; financing activities provided $159.250 million, including proceeds from the reverse recapitalization. Cash, cash equivalents and restricted cash totaled $145.879 million at year-end.
- The company said cash on hand, operating cash flows and possible future financing were expected to meet cash requirements. It also stated that existing cash, including recapitalization proceeds, was expected to cover minimum anticipated cash needs for at least the next 12 months.
Material changes and unusual items
- All FY2021 revenue was online, following completion of the transition to 100% online live instruction in April 2020; in-person revenue was $6.528 million in FY2020.
- The company raised $150 million through a PIPE and $150 million through forward purchase financing as part of the recapitalization. Proceeds also included trust-account cash. Funds were used in part for $336.079 million of cash consideration to legacy holders, transaction costs and debt repayment.
- General and administrative expense included $51.039 million of stock-based compensation and $9.602 million of transaction costs, compared with $1.730 million and $1.288 million, respectively, in FY2020. Total non-cash stock-based compensation costs were $54.960 million, including capitalized software costs.
- In December 2021, Nerdy abandoned the Veritas Prep trade name and recorded a $3.009 million write-off of intangible assets.
- The company recorded a $7.117 million net gain on debt extinguishment. A $8.395 million gain from forgiveness of its CARES Act promissory note was offset by a corresponding loss when Nerdy elected to repay the previously forgiven note.
Outlook, risks and contingencies
- No specific revenue, earnings or margin guidance is provided. Management described institutional sales as a long-term opportunity but cautioned that the new school offering may not scale or become profitable. School contracts are often subject to annual renewal and may involve lengthy approval processes.
- Management cited continued investment in marketing, product development, institutional sales and hiring. It expects general and administrative expenses to rise as the business grows and as public-company costs continue.
- Key risks include continued losses and cash burn; uncertain post-pandemic demand; competition and learner retention; seasonality; independent-contractor classification; privacy, cybersecurity and risks involving minor learners; and the execution and renewal risks of institutional contracts.
- Varsity Tutors faces legal and regulatory proceedings concerning Expert classification. Management assessed a loss as reasonably possible but not probable; no accrual was recorded, and the potential loss could not be reasonably estimated.
- The company disclosed material weaknesses in financial reporting controls, including insufficient accounting and IT-control resources and deficiencies in risk assessment, segregation of duties, reconciliations and IT general controls. Disclosure controls were deemed ineffective at year-end; management had begun remediation but had not concluded that the weaknesses were remediated.
- The tax receivable agreement generally entitles certain legacy holders to 85% of qualifying tax savings. Early termination or a change of control could accelerate substantial payments. The filing’s estimates vary with assumptions; one risk-factor scenario estimates aggregate early termination payments of approximately $163.9 million as of December 31, 2021.
- The auditor gave an unqualified opinion on the consolidated financial statements. Management did not provide an assessment of internal control over financial reporting for year-end, citing the reverse acquisition and the impracticability of completing an assessment in the period.
Important facts for investors to verify
- Whether revenue and learner growth persist as pandemic-related conditions ease, and how customer retention and revenue per learner develop.
- Whether increased operating expenses and cash use can be brought under control while the company pursues institutional growth.
- Progress in remediating internal-control material weaknesses and whether future filings report effective controls.
- Updates on contractor-classification proceedings and any resulting financial exposure.
- The assumptions, potential timing and liquidity impact of Tax Receivable Agreement payments, particularly in a change of control.
- Institutional contract growth, usage, renewal rates and profitability; FY2021 filing data does not provide a clear standalone Q4 performance breakdown.