Nerdy Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a complete standalone fourth-quarter income statement. Amounts below are in U.S. dollars unless otherwise noted.
Business context
Nerdy operates Varsity Tutors, an online learning platform connecting learners with tutors and other experts. Its offerings include one-to-one tutoring, group classes and self-study, sold directly to consumers and through educational institutions. In 2022, the company emphasized monthly Learning Memberships and expanded its Varsity Tutors for Schools products.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $162.7 million | $140.7 million |
| Gross profit / margin | $112.9 million / 69% | $94.0 million / 67% |
| Operating loss | $90.8 million | $96.5 million |
| Net loss | $63.9 million | $30.7 million |
| Net loss attributable to Class A stockholders | $35.4 million; $0.41 per share | $3.8 million; $0.05 per share |
| Cash used in operating activities | $48.0 million | $38.9 million |
| Cash and cash equivalents at year-end | $90.7 million | $144.0 million |
Revenue increased 16%. Consumer revenue was $140.8 million, up from $130.2 million; Institutional revenue grew to $19.1 million from $4.9 million. Gross margin improved by approximately 260 basis points. The operating loss narrowed, but net loss more than doubled, in part because the non-cash gain from revaluing warrants and earnouts fell to $26.6 million from $71.0 million.
Sales and marketing expense was $74.2 million and general and administrative expense was $129.6 million. FY2022 stock-based compensation totaled approximately $49.6 million, including $43.2 million in general and administrative expense. Capital expenditures were $5.3 million. The company reported no debt outstanding at year-end.
Year-end current assets were $107.7 million and current liabilities were $37.3 million. Deferred revenue was $25.5 million, down from $30.0 million, while accounts receivable rose to $11.6 million from $5.3 million. Total liabilities were $51.6 million.
Active Learners increased 24% to 157,509 and sessions increased 16% to 2.227 million. Revenue per Active Learner declined 7% to $1,030. The company attributes slower growth in these measures partly to its shift toward higher-value, longer-duration membership customers and a greater institutional mix.
Material changes and management outlook
- Learning Membership revenue is recognized over the membership term, unlike package revenue, which is generally recognized as sessions are delivered. Management said this transition reduced near-term revenue relative to the prior package model. Memberships generated more revenue than Packages in Q4 2022; management expected that trend to continue into 2023.
- The company completed workforce reductions of approximately 17% in December 2022, recording $1.5 million of restructuring charges. Management said the changes and other cost measures are intended to reduce future operating expenses.
- Management cited investment in new products, marketing, engineering and product hires, public-company costs, and unfavorable working-capital changes as drivers of increased operating cash use. Wage inflation and other inflationary pressures also affected results.
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management believes cash on hand will meet anticipated cash needs for at least the next 12 months.
Risks, contingencies and unusual items
- The company has a history of losses and negative operating cash flow. Its ability to scale Learning Memberships and the institutional business, retain learners, and achieve profitability remains uncertain; consumer spending, competition, seasonality and school funding cycles may affect demand.
- Varsity Tutors faces legal and regulatory proceedings challenging its classification of experts as independent contractors. The company assesses a loss as reasonably possible but not probable, says it cannot reasonably estimate the amount, and recorded no accrual at year-end.
- The company disclosed substantial data privacy, cybersecurity, child-safety, regulatory and litigation risks, including risks arising from serving minors and changing worker-classification rules.
- The Tax Receivable Agreement generally entitles legacy holders to 85% of specified tax savings. No liability was recognized at December 31, 2022 because payment was not considered probable. The filing estimates a $109.7 million undiscounted liability and approximately $67.2 million of early-termination payments under specified assumptions if terminated at year-end; actual amounts could differ materially.
- Approximately 19.3 million warrants are exercisable at $11.50 per share, potentially creating dilution. Non-cash warrant and earnout remeasurement gains materially affected reported results in both years.
- Management reported that disclosure controls and internal control over financial reporting were effective at year-end and that previously reported material weaknesses had been remediated. The auditor expressed an opinion on the financial statements, but did not provide an opinion on internal control over financial reporting.
Important facts for investors to verify
- Whether Learning Membership growth, retention and unit economics support the expected longer-term benefits despite lower near-term revenue recognition.
- Cash burn, working-capital trends and the company’s stated liquidity runway, particularly as cash declined during 2022.
- Progress toward reducing operating expenses and the effect of the workforce reduction on service quality and growth.
- Developments in independent-contractor proceedings, privacy and safety matters, and any related financial exposure.
- Potential dilution from outstanding warrants, equity awards and legacy-holder interests, and the possible cash impact of the Tax Receivable Agreement.