Nerdy Inc. (NRDY) — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial amounts below are in millions unless otherwise noted. Nerdy operates a live online learning platform, including consumer tutoring and institutional offerings through Varsity Tutors.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $48.8 | $42.2 | $98.0 | $89.1 |
| Gross profit / margin | $34.1 / 70% | $28.8 / 68% | $68.0 / 69% | $61.5 / 69% |
| Operating loss | $(10.5) | $(22.0) | $(21.8) | $(42.7) |
| Net income (loss) | $(5.6) | $15.3 | $(37.8) | $(16.5) |
| Net income (loss) attributable to Class A holders | $(3.3) | $8.7 | $(22.2) | $(8.2) |
| Basic and diluted EPS | $(0.03) | $0.10 / $0.09 | $(0.24) | $(0.10) |
- Q2 revenue rose 16% year over year; six-month revenue increased 10%. Consumer revenue was $40.3 million in Q2 (+13%), while Institutional revenue was $8.4 million (+43%).
- Q2 gross margin improved 166 basis points to 70%; six-month margin was flat at 69%.
- Operating expenses declined: Q2 sales and marketing fell 18% and general and administrative expenses fell 9%; six-month declines were 26% and 6%, respectively. Management attributed efficiencies to Learning Memberships, marketing optimization, institutional scale, automation and cost oversight.
- Reported earnings were materially affected by non-cash warrant and earnout remeasurement. Q2 included a $4.2 million gain, versus a $37.3 million gain in Q2 2022. The six-month period included a $17.5 million loss, versus a $26.3 million gain in 2022.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $90.9 million at June 30, 2023, compared with $90.7 million at year-end 2022. The company reported no debt obligations.
- For the first six months, operating cash flow was positive $2.3 million, compared with cash used of $20.2 million a year earlier. Capital expenditures were $2.0 million; cash, cash equivalents and restricted cash increased $0.2 million to $91.8 million.
- Management said cash on hand should be sufficient for requirements over the next 12 months, including working capital, marketing and capital expenditures. It cautioned that continued losses could require future operations to be financed from cash on hand.
- Deferred revenue fell to $15.7 million from $25.5 million at year-end, primarily in the context of the transition from prepaid packages to Learning Memberships. The company expects substantially all deferred revenue to be recognized within 12 months.
- Other liabilities rose to $31.0 million from $14.3 million, including $29.5 million of non-employee warrant and earnout derivative liabilities, up from $12.1 million. Total stockholders’ equity was $65.5 million, down from $81.1 million.
Operating trends, outlook and notable items
- Nerdy completed the transition to Learning Memberships for all new consumer customers during Q2. Active Members were 31,000 at June 30, compared with 32,900 at March 31 and 20,200 at December 31; management cited normal summer seasonality. Active Experts declined 17% year over year to 10,000 in Q2.
- Management expects sales and marketing leverage to improve as memberships and the Institutional business scale, and expects sequential year-over-year revenue growth in each remaining quarter of 2023. The filing provides no specific numerical revenue, earnings or cash-flow guidance.
- In July, Nerdy communicated workforce reductions affecting certain variable hourly employees in expert vetting and matching and IT customer support. It estimated one-time Q3 charges of $0.7–$0.9 million, primarily severance and benefits, with implementation expected to be substantially complete by quarter-end.
- The tax receivable agreement generally entitles certain legacy holders to 85% of specified realized tax savings. Nerdy had not recognized a potential $110.8 million liability because payment was not considered probable based on estimated future taxable income; that assessment could change.
- Management identified risks including the Learning Membership transition, scaling the Institutional business, persistent losses, contractor classification, intellectual property, cybersecurity, regulation and legal or reputational exposure involving minors. It reported no material changes to previously disclosed risk factors and stated disclosure controls were effective.
Most important facts for investors to verify
- Whether Learning Membership adoption and customer retention sustain revenue growth, particularly given summer seasonality and lower Active Experts.
- Whether operating cash generation continues as deferred revenue declines and working-capital timing changes.
- Progress toward profitable operations, including the durability of expense reductions and the impact of stock-based compensation.
- Potential dilution: substantial equity awards, warrants, earnouts and convertible combined interests were excluded from diluted EPS as anti-dilutive during loss periods.
- Future valuation changes in warrant and earnout liabilities, the potential recognition or payment of the tax receivable agreement, and the costs and savings from workforce reductions.