Nerdy Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results. Nerdy operates a live online learning platform, including its Varsity Tutors business. The September 2021 business combination means Q1 2022 results include public-company and noncontrolling-interest accounting that differs from the pre-combination 2021 presentation.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $46.9 million | $34.6 million |
| Gross profit / margin | $32.8 million / 70% | $23.4 million / 68% |
| Operating loss | $20.7 million | $4.5 million |
| Net loss | $31.7 million | $5.7 million |
| Net loss attributable to Class A stockholders | $16.8 million; $0.21 per share | Not presented on a comparable basis |
| Operating cash flow | $(0.9) million | $(2.4) million |
| Cash and cash equivalents at period-end | $141.7 million | Not provided here for the comparable period |
Revenue grew 36%. One-on-one instruction generated $39.0 million (83% of revenue), while classes and group offerings generated $6.4 million (14%). Gross margin improved by about 2 percentage points. Active learners increased 56% to 73,578 and sessions rose 57% to 748,000, while revenue per active learner declined 13% to $638.
Sales and marketing expense rose 57% to $22.9 million. General and administrative expense rose 130% to $30.5 million, including $11.4 million of stock-based compensation. Total stock-based compensation was $12.5 million. The $11.0 million unrealized derivative loss was a non-cash mark-to-market charge related to warrants and earnouts. Interest expense fell after the prior debt was repaid in connection with the 2021 business combination.
Balance sheet, liquidity, and cash flow
At March 31, 2022, total assets were $176.7 million and total liabilities were $99.7 million. Current assets were $151.0 million versus current liabilities of $46.8 million; deferred revenue was $30.8 million. Nerdy reported no debt obligations. Cash and cash equivalents declined $2.2 million from December 31, 2021. Cash, cash equivalents, and restricted cash totaled $142.9 million at quarter-end.
Cash used in investing activities was $1.3 million, primarily for internal-use software and IT equipment. Cash used in financing activities was $0.8 million, primarily payments to legacy holders. Management said available cash, operating cash flows, and potential future equity or debt financing were expected to fund near-term needs; the company also expects to use business-combination proceeds to fund growth and pursue profitability by the end of 2023.
Material changes, outlook, and risks
- Management attributed revenue growth to consumer one-on-one demand, growth in group formats, and new offerings, including Varsity Tutors for Schools. It increased investment in marketing, institutional sales, product development, engineering, and public-company finance, accounting, and legal functions.
- Management cited wage inflation and other inflationary pressures, and said it would consider pricing actions. The company expects seasonal revenue softness in summer when schools are out of session. It also discussed continuing uncertainty from COVID-19 and related changes in education demand.
- The company adopted lease accounting on January 1, 2022, recognizing $4.2 million of right-of-use assets and $4.9 million of lease liabilities; management reported no material impact on operations or cash flows.
- Warrants and earnouts were recorded as derivative liabilities totaling $49.7 million, up from $38.7 million at year-end. The tax receivable agreement (TRA) may require payments equal to 85% of specified realized tax savings. No TRA liability was recognized because management concluded payment was not probable based on estimated future taxable income; amounts could change if assumptions or tax-asset valuation change.
- Disclosure controls and procedures were deemed ineffective at March 31, 2022. Management reported material weaknesses involving accounting resources and expertise, risk assessment and financial-reporting controls, and IT general controls. Remediation was underway, but management could not estimate its completion cost or timing.
- The filing reported no material changes to the risk factors in the 2021 Form 10-K. Risks discussed include the company’s history of losses, growth execution, competition, cybersecurity, legal and regulatory exposure involving learners who may be minors, contractor classification, and potential TRA payments.
Important facts for investors to verify
- Whether learner and session growth can translate into improving revenue per learner and sustainable margins as marketing and product-development spending increase.
- Progress toward management’s stated goal of profitability by the end of 2023, including cash burn and any need for additional financing.
- Remediation of the disclosed material weaknesses, and whether controls are operating effectively after sufficient testing.
- Potential changes in the fair value of warrant and earnout liabilities and the resulting non-cash earnings volatility.
- Future taxable income assumptions underlying the unrecognized TRA liability and any resulting payment obligations.
- Class structure and noncontrolling interests: legacy holders owned 47% of Nerdy LLC’s economic interest at quarter-end, and specified units may be redeemed for Class A shares or cash equivalent.