Nerdy, Inc. (NYSE:NRDY) Q4 2022 Earnings Conference Call February 28, 2023 5:00 PM ET Company Participants Chuck Cohn - Founder, Chairman and Chief Executive Officer Jason Pello - Chief Financial Office Conference Call Participants Doug Anmuth - JPMorgan Matthew Shea - Needham Eric Sheridan - Goldman Sachs Brett Knoblauch - Cantor Fitzgerald Maria Ripps - Canaccord Mario Lu - Barclays Operator Good afternoon and welcome to Nerdy Inc. Q4 Earnings Call Annually. All lines have been placed on mute to prevent a ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________________ FORM 10-K _________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-39595 _________________________________________ NERDY INC. (Exact na ...

Nerdy Inc. (NYSE:NRDY) Q3 2022 Earnings Conference Call November 14, 2022 5:00 PM ET Company Participants Molly Sorg ??? Head-Investor Relations Chuck Cohn ??? Founder, Chairman and Chief Executive Officer Jason Pello ??? Chief Financial Office Conference Call Participants Eric Sheridan ??? Goldman Sachs Ryan MacDonald ??? Needham Aaron Kessler ??? Raymond James Maria Ripps ??? Canaccord Doug Anmuth ??? JPMorgan Brett Knoblauch ??? Fitzgerald Andrew Boone ??? JMP Mario Lu ??? Barclays Greg Gibas ??? Northla ...

PART I FINANCIAL INFORMATION This section presents unaudited financial statements and management's discussion of financial condition and operations [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited).) This section presents Nerdy Inc.'s unaudited condensed consolidated financial statements and notes for Q3 and YTD 2022 [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited)) Nerdy Inc. reported Q3 2022 revenue of **$31.8 million**, with reduced operating loss and improved net loss per share Consolidated Statements of Operations (in thousands) | | Three Months Ended September 30, | Nine Months Ended September 30, | | :--- | :--- | :--- | | | **2022** | **2021** | **2022** | **2021** | | **Revenue** | $31,752 | $31,298 | $120,863 | $98,649 | | **Gross Profit** | $21,917 | $20,659 | $83,445 | $65,305 | | **Operating Loss** | $(27,687) | $(58,016) | $(70,376) | $(69,889) | | **Net Loss** | $(32,298) | $(57,719) | $(48,768) | $(63,781) | | **Net Loss Attributable to Class A Common Stockholders** | $(18,516) | $(21,275) | $(26,666) | $(21,275) | | **Basic and Diluted Loss per share** | $(0.21) | $(0.27) | $(0.32) | $(0.27) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) As of September 30, 2022, total assets decreased to **$139.6 million**, primarily due to reduced cash and equivalents Consolidated Balance Sheet Highlights (in thousands) | | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $114,200 | $155,450 | | **Total Assets** | $139,619 | $177,145 | | **Total Current Liabilities** | $36,455 | $41,909 | | **Total Liabilities** | $55,702 | $81,340 | | **Total Stockholders' Equity** | $83,917 | $95,805 | - Cash and cash equivalents decreased from **$144.0 million** at the end of 2021 to **$106.4 million** as of **September 30, 2022**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash used in operating activities increased to **$33.5 million** for the nine months ended September 30, 2022 Cash Flow Summary (in thousands) | | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Net Cash Used In Operating Activities** | $(33,470) | $(19,949) | | **Net Cash Used In Investing Activities** | $(4,339) | $(3,769) | | **Net Cash (Used In) Provided By Financing Activities** | $(863) | $201,688 | | **Net (Decrease) Increase in Cash** | $(38,665) | $177,972 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes detail accounting policies, including Reverse Recapitalization, revenue recognition, noncontrolling interests, and lease accounting - The financial statements are prepared following the **Reverse Recapitalization** that occurred on **September 20, 2021**, where Nerdy Inc. became the public holding company for Nerdy LLC[20](index=20&type=chunk)[21](index=21&type=chunk) Revenue by Business Category (in thousands) | | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Consumer** | $103,640 (86%) | $92,930 (94%) | | **Institutional** | $14,693 (12%) | $1,340 (1%) | | **Other** | $2,530 (2%) | $4,379 (5%) | | **Total Revenue** | $120,863 (100%) | $98,649 (100%) | - As of **September 30, 2022**, Legacy Nerdy Holders held a **42.6% economic interest** in Nerdy LLC, accounted for as a noncontrolling interest[42](index=42&type=chunk) - The company adopted the new lease accounting standard (ASC 842) on **January 1, 2022**, recognizing right-of-use assets of **$4.2 million** and lease liabilities of **$4.9 million**[41](index=41&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the strategic shift to a 'Learning Membership' model, key operating metrics, revenue, and liquidity [Overview](index=23&type=section&id=OVERVIEW) Nerdy operates a live online learning platform, shifting to a 'Learning Membership' model for recurring customer relationships - The company's mission is to transform learning through its proprietary technology platform that connects learners with experts for live online instruction[113](index=113&type=chunk) - A key strategic initiative is the launch and expansion of Learning Memberships, designed to move from a package model to a recurring, 'always on' relationship with learners, expected to improve customer lifetime value and expert retention[114](index=114&type=chunk)[115](index=115&type=chunk) [Key Financial and Operating Metrics](index=24&type=section&id=KEY%20FINANCIAL%20AND%20OPERATING%20METRICS) Key metrics reflect the strategic shift, with Active Learners growing while Sessions decreased due to the new membership model - The company notes that the decrease in Session growth rates is an expected result of shifting its go-to-market strategy to focus on **higher-value Learning Membership customers**[129](index=129&type=chunk)[131](index=131&type=chunk) Key Operating Metrics | Metric | Q3 2022 | Q3 2021 | % Change | YTD 2022 | YTD 2021 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Active Learners** | 53,214 | 51,572 | 3% | 104,231 | 99,287 | 5% | | **Revenue per Active Learner** | $597 | $607 | (2)% | $1,160 | $994 | 17% | | **Sessions (thousands)** | 371 | 451 | (18)% | 1,378 | 1,396 | (1)% | [Results of Operations](index=26&type=section&id=RESULTS%20OF%20OPERATIONS) Q3 2022 revenue grew 1% to **$31.8 million**, with improved gross margin and reduced operating expenses - Revenue growth was muted in the near-term due to the shift to the **Learning Membership model**, where revenue is recognized linearly over the contract term[141](index=141&type=chunk) - Gross margin improved to **69%** for the three and nine months ended **September 30, 2022**, up from **66%** in the prior year periods[148](index=148&type=chunk) - Sales and marketing expenses for **Q3 2022** decreased by **$2.6 million (14%)** YoY, reflecting moderated marketing spend and increased efficiency[151](index=151&type=chunk) - General and administrative expenses for **Q3 2022** decreased by **$26.5 million (44%)** YoY, primarily due to the absence of **$34.9 million** in stock-based compensation and **$7.2 million** in transaction costs related to the **2021 Reverse Recapitalization**[154](index=154&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) As of September 30, 2022, Nerdy held **$106.4 million** in cash, with **$33.5 million** used in operations, targeting profitability by 2023 - The company held cash and cash equivalents of **$106.4 million** as of **September 30, 2022**[166](index=166&type=chunk) - Net cash used in operating activities increased to **$33.5 million** for the nine months ended **September 30, 2022**, compared to **$19.9 million** in the prior year[170](index=170&type=chunk) - The company is using proceeds from the **Reverse Recapitalization** to fund operations and investments, and expects to achieve **profitability by the end of 2023**[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company's market risk primarily stems from the fair value sensitivity of its warrant and earnout liabilities - The company is exposed to market risk from changes in the fair value of its **warrant and earnout contracts**. As of **September 30, 2022**, a hypothetical **10% adverse change** in public warrant prices would increase related liabilities by about **$765 thousand**, and a similar change in earnout fair value would increase liabilities by about **$925 thousand**[192](index=192&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded disclosure controls were ineffective as of September 30, 2022, due to material weaknesses, and is implementing a remediation plan - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of **September 30, 2022**, due to **material weaknesses** in internal control over financial reporting[194](index=194&type=chunk) - **Material weaknesses** identified include an **ineffective control environment**, **insufficient personnel** with appropriate accounting knowledge, and deficiencies in **risk assessment and IT general controls**[197](index=197&type=chunk)[198](index=198&type=chunk) - The company is undergoing a **remediation plan**, which includes hiring key finance and IT personnel, implementing an internal audit function, and designing and implementing a formal suite of **internal controls, policies, and procedures**[201](index=201&type=chunk)[203](index=203&type=chunk) PART II OTHER INFORMATION This section covers legal proceedings, updated risk factors, and a list of exhibits filed with the Form 10-Q [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings.) The company reports no material legal proceedings to disclose for the three months ended September 30, 2022 - There are **no environmental or other material legal proceedings** to disclose as of and for the three months ended **September 30, 2022**[202](index=202&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors.) This section updates risk factors, specifically highlighting risks associated with the new Learning Membership model's successful launch - A key risk factor is the success of the **new Learning Membership model**. The company warns that if it is not successful in launching and scaling this new business model, it may suffer **losses and adverse operational results**[205](index=205&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits.) This section lists exhibits filed with the Form 10-Q, including corporate governance documents and required CEO/CFO certifications - The exhibits filed with this report include **corporate governance documents** and required **CEO/CFO certifications** under the Sarbanes-Oxley Act[207](index=207&type=chunk)

Financial Data and Key Metrics Changes - Nerdy reported revenue of $42.2 million for Q2 2022, exceeding guidance of $37 million to $40 million, and representing a 29% increase compared to Q2 2021 [5][20][28] - Gross profit for the quarter was $28.8 million, a 35% increase year-over-year, with gross margins expanding to 68.2% from 64.9% in the same period last year [22] - Non-GAAP adjusted EBITDA loss was $9.6 million, within the guidance range of $9 million to $12 million, reflecting improvements from revenue outperformance and marketing efficiency gains [24][30] Business Line Data and Key Metrics Changes - Revenue from small class and group offerings increased 114% to $5.5 million, accounting for 13% of total revenue, up from 8% in the same period last year [21] - Varsity Tutors for Schools generated over $4.2 million in revenue, representing 10% of total revenue for the quarter, with 44 new contracts signed [21][29] Market Data and Key Metrics Changes - Active learners increased by 36%, online sessions rose by 35%, and the number of active experts on the platform grew by 42% compared to Q2 2021 [6] - The company observed no discernible macroeconomic pressures impacting demand, despite seasonal declines in consumption due to heightened travel and leisure activities [7][8] Company Strategy and Development Direction - The company is focusing on expanding its Learning Memberships, which provide comprehensive educational resources and are expected to enhance customer engagement and retention [10][13] - New products such as Varsity Tutors On Demand and Teacher Assigned are being developed to strengthen institutional partnerships and meet market needs [16][17] - The acquisition of Codeverse aims to enhance the value of Learning Memberships by integrating coding education into the platform [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the transition to Learning Memberships, anticipating that it will drive higher engagement and lifetime value relationships with learners [27] - The company expects revenue growth to accelerate in Q4 2022, driven by the Learning Membership subscriber base and the ramp-up of Varsity Tutors for Schools [29][30] - Management noted that the second and third quarters of 2022 represent the highest projected cash use quarters due to the transition to a membership model [31] Other Important Information - The company has $121 million in cash on its balance sheet and no debt, providing ample liquidity to fund growth initiatives [31] - Management is focused on balancing growth and profitability, with a measured approach to hiring and marketing spend [25][30] Q&A Session Summary Question: Can you provide insights on the membership model's traction and conversion rates? - Management noted favorable conversion rates for memberships compared to one-to-one tutoring, with membership customers engaging more consistently over time [37][39] Question: Can you elaborate on the J curve and its impact on revenue? - Management explained that the J curve reflects lower revenue recognition in the initial months of the membership model, with expectations for higher revenue recognition thereafter [48] Question: What is the expected contribution of Codeverse to revenue? - Management indicated that Codeverse will be integrated into Learning Memberships, with no immediate financial impact expected during Q2 [52] Question: How is the pipeline for Varsity Tutors for Schools developing? - Management reported a growing pipeline and expressed confidence in the momentum heading into the back-to-school season, with significant funding still available for schools [56][81] Question: How are marketing strategies evolving with the new membership model? - Management highlighted a shift towards long-term relationships with customers, focusing marketing efforts on high-value, recurring support rather than last-minute transactional relationships [62]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q _________________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ For the transition period from _______ to _______ Commission file number 1-39595 NERDY INC. (Exact name of registrant as specified ...

nerdy Q1 | 2022 Earnings Release tivebba (J) Varsity Tutors 自 回 7 k അ g do Q Virisc Hyaluronic acid Structural Formula of Hysleronic acid: HA (Hyaluronan) VESTOR ORUCCTS EPS 10 n Maleoular Formula Hyalunanic acid (C2+H21NO1)" & N Nitrogen @ C Carbon o Oxyers 66 My family's experience with Varsity Tutors has been excellent. We have worked with the same tutors in math, science, AP English, and Spanish for over a year. I'm just amazed at their ability to attract and retain such high quality educators in such a ...

Nerdy Inc. (NYSE:NRDY) Q1 2022 Results Conference Call May 16, 2022 5:00 PM ET Company Participants Molly Sorg - Head, IR Chuck Cohn - Founder, Chairman and CEO Jason Pello - CFO Conference Call Participants Ryan MacDonald - Needham Eric Sheridan - Goldman Sachs Maria Ripps - Canaccord Doug Anmuth - JP Morgan Andrew Boone - JMP Securities Aaron Kessler - Raymond James Brett Knoblauch - Cantor Fitzgerald Mario Lu - Barclays Greg Gibas - Northland Securities Operator Good afternoon. My name is Hannah, and I w ...

PART I. FINANCIAL INFORMATION. This part presents Nerdy Inc.'s unaudited condensed consolidated financial statements and notes for Q1 2022 and 2021 [Item 1. Financial Statements (Unaudited).](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited).) This section presents Nerdy Inc.'s unaudited condensed consolidated financial statements for Q1 2022 and 2021, with explanatory notes [Condensed Consolidated Statements of Operations (Unaudited).](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(Unaudited).) This statement details Nerdy Inc.'s revenues, expenses, and net loss for the three months ended March 31, 2022 and 2021 | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Revenue | $46,925 | $34,565 | +35.76% | | Cost of revenue | $14,152 | $11,192 | +26.45% | | Gross Profit | $32,773 | $23,373 | +40.21% | | Sales and marketing expenses | $22,946 | $14,582 | +57.32% | | General and administrative expenses | $30,509 | $13,245 | +130.34% | | Operating Loss | $(20,682) | $(4,454) | +364.36% | | Unrealized loss on derivatives | $11,042 | $0 | N/A | | Interest (income) expense, net | $(7) | $1,237 | -100.57% | | Loss before Income Taxes | $(31,734) | $(5,726) | +454.22% | | Income tax expense | $13 | $0 | N/A | | Net Loss | $(31,747) | $(5,726) | +454.47% | | Net Loss Attributable to Class A Common Stockholders | $(16,845) | $0 | N/A | | Basic and Diluted Loss per share of Class A Common Stock | $(0.21) | $0 | N/A | [Condensed Consolidated Statements of Comprehensive Loss (Unaudited).](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20(Unaudited).) This statement presents Nerdy Inc.'s net loss and other comprehensive income/loss items for Q1 2022 and 2021 | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :---------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Net Loss | $(31,747) | $(5,726) | +454.47% | | Unrealized foreign currency translation adjustments | $(73) | $34 | -314.71% | | Total Comprehensive Loss | $(31,820) | $(5,692) | +458.99% | | Total Comprehensive Loss Attributable to Class A Common Stockholders | $(16,884) | $0 | N/A | [Condensed Consolidated Balance Sheets (Unaudited).](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited).) This statement provides Nerdy Inc.'s financial position, including assets, liabilities, and equity, as of March 31, 2022, and December 31, 2021 | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (QoQ) | | :------------------------------------ | :---------------------------- | :------------------------------- | :----------- | | **ASSETS** | | | | | Cash and cash equivalents | $141,715 | $143,964 | -1.56% | | Total Current Assets | $150,970 | $155,450 | -2.90% | | Total Assets | $176,741 | $177,145 | -0.23% | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | | Accounts payable | $6,092 | $3,590 | +69.69% | | Deferred revenue | $30,809 | $30,005 | +2.68% | | Total Current Liabilities | $46,829 | $41,909 | +11.74% | | Total Liabilities | $99,704 | $81,340 | +22.57% | | Total Stockholders' Equity | $77,037 | $95,805 | -19.59% | | Total Liabilities and Stockholders' Equity | $176,741 | $177,145 | -0.23% | [Condensed Consolidated Statements of Cash Flows (Unaudited).](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited).) This statement summarizes Nerdy Inc.'s cash inflows and outflows from operating, investing, and financing activities for Q1 2022 and 2021 | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :---------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Net Cash Used In Operating Activities | $(931) | $(2,415) | +61.45% | | Net Cash Used In Investing Activities | $(1,264) | $(848) | -49.06% | | Net Cash Used In Financing Activities | $(816) | $(444) | -83.78% | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(3,016) | $(3,700) | +18.50% | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $142,863 | $26,982 | +429.40% | [Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited).](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)%20(Unaudited).) This statement details changes in Nerdy Inc.'s stockholders' equity (deficit) for the periods ended March 31, 2022, and December 31, 2021 | Metric (in thousands) | December 31, 2021 | March 31, 2022 | Change | | :------------------------------------ | :---------------- | :--------------- | :----- | | Total Stockholders' Equity | $95,805 | $77,037 | $(18,768) | | Net loss | $(31,747) | $(16,845) (attributable to Class A) | N/A | | Stock-based compensation | $13,101 | N/A | N/A | | Foreign currency translation | $(73) | N/A | N/A | [Notes to Condensed Consolidated Financial Statements (Unaudited).](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited).) These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements [NOTE 1 — BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201%20%E2%80%94%20BASIS%20OF%20PRESENTATION) This note details the basis of financial statement presentation, including the Reverse Recapitalization, capital structure, and allocation of net loss to noncontrolling interests - Unaudited condensed consolidated financial statements prepared in accordance with GAAP and SEC rules, consistent with the 2021 10-K[17](index=17&type=chunk) - Reverse Recapitalization completed on **September 20, 2021**, with TPG Pace (renamed Nerdy Inc.) merging with Nerdy LLC, establishing Nerdy Inc. as a holding company[19](index=19&type=chunk)[20](index=20&type=chunk) - Immediately following the Reverse Recapitalization, Nerdy Inc. had **83,875 thousand** shares of Class A Common Stock, **73,971 thousand** shares of Class B Common Stock, and **17,281 thousand** warrants outstanding[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - For the three months ended March 31, 2021, **$5,726 thousand** of consolidated net losses of Nerdy LLC were attributable to Legacy Nerdy Holders[32](index=32&type=chunk) [NOTE 2 — RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS](index=10&type=section&id=NOTE%202%20%E2%80%94%20RECENTLY%20ISSUED%20AND%20ADOPTED%20ACCOUNTING%20STANDARDS) This note discusses the adoption of ASU 2016-02 and ASU 2018-11 (Leases) and the ongoing assessment of ASU 2016-13 (Credit Losses) and ASU 2020-06 (Convertible Instruments) - Adopted ASU 2016-02 and ASU 2018-11 (Leases Topic 842) on **January 1, 2022**, recognizing ROU assets of **$4,154 thousand** and lease liabilities of **$4,870 thousand**, with no material impact on financial statements[38](index=38&type=chunk) - Assessing the impact of ASU 2016-13 (Credit Losses), effective **January 1, 2023**, which introduces a new model for recognizing expected credit losses[35](index=35&type=chunk)[36](index=36&type=chunk) - Assessing the impact of ASU 2020-06 (Convertible Instruments), effective **January 1, 2024**, which simplifies accounting for convertible instruments[37](index=37&type=chunk) [NOTE 3 — NONCONTROLLING INTERESTS](index=11&type=section&id=NOTE%203%20%E2%80%94%20NONCONTROLLING%20INTERESTS) This note details noncontrolling interests held by Legacy Nerdy Holders in Nerdy LLC, including ownership percentages and redemption options for OpCo Units and Class B Common Stock - As of March 31, 2022, Legacy Nerdy Holders owned **70,906 thousand** OpCo Units (**47.0%** economic interest in Nerdy LLC) and **70,906 thousand** shares of Class B Common Stock (**47.0%** combined voting power in Nerdy Inc.), excluding Earnouts[39](index=39&type=chunk) - Nerdy Inc. owned **53.0%** of the outstanding OpCo Units as of March 31, 2022[41](index=41&type=chunk) - OpCo Units and Class B Common Stock (Combined Interests) are redeemable for Class A Common Stock or cash equivalent at the option of Legacy Nerdy Holders[40](index=40&type=chunk) Ownership Metrics (in thousands) | Ownership Metric | Beginning of Period (12/31/2021) | End of Period (3/31/2022) | | :--------------- | :------------------------------- | :------------------------ | | Nerdy Inc. OpCo Units | 79,271 | 80,035 | | Legacy Nerdy Holders OpCo Units | 70,629 | 70,906 | | Nerdy Inc. Ownership Percentage | 52.9% | 53.0% | | Legacy Nerdy Holders Ownership Percentage | 47.1% | 47.0% | [NOTE 4 — REVENUE](index=12&type=section&id=NOTE%204%20%E2%80%94%20REVENUE) This note breaks down revenue by service category, showing total revenue of **$46.9 million** for Q1 2022, and details changes in deferred revenue Revenue by Service Category (in thousands) | Service Category | 2022 (in thousands) | % of Total (2022) | 2021 (in thousands) | % of Total (2021) | | :--------------- | :------------------ | :---------------- | :------------------ | :---------------- | | One-on-one | $39,039 | 83% | $30,860 | 90% | | Class and group | $6,354 | 14% | $1,850 | 5% | | Other | $1,532 | 3% | $1,855 | 5% | | **Total Revenue** | **$46,925** | **100%** | **$34,565** | **100%** | Accounts Receivable and Deferred Revenue (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------- | :---------------------------- | :------------------------------- | | Accounts receivable, net | $4,480 | $5,321 | | Deferred revenue | $30,809 | $30,005 | - Substantially all deferred revenue is expected to be recognized in the next twelve months[47](index=47&type=chunk) [NOTE 5 — INCOME TAXES](index=12&type=section&id=NOTE%205%20%E2%80%94%20INCOME%20TAXES) This note clarifies Nerdy Inc.'s income tax position, including its share of Nerdy LLC's taxable income/loss, valuation allowance against deferred tax assets, and the Q1 2022 effective tax rate - Nerdy LLC is treated as a partnership for U.S. federal income tax purposes; Nerdy Inc. is subject to U.S. federal, state, and local income taxes on its **53.0%** distributive share of Nerdy LLC's taxable income/loss[48](index=48&type=chunk) - The Company maintains a full valuation allowance against deferred tax assets at Nerdy Inc[48](index=48&type=chunk) - Effective tax rate for the three months ended March 31, 2022, was **(0.04)%**, differing from statutory rates primarily due to changes in valuation allowance and income tax benefit attributable to noncontrolling interests[49](index=49&type=chunk) [NOTE 6 — LOSS PER SHARE](index=13&type=section&id=NOTE%206%20%E2%80%94%20LOSS%20PER%20SHARE) This note details the computation of basic and diluted net loss per share for Class A Common Stock, including the impact of anti-dilutive securities Loss Per Share Metrics | Metric | Amount | | :---------------------------------------------------- | :------------- | | Net loss attributable to Class A Common Stockholders for basic and diluted loss per share | $(16,845) thousand | | Weighted-average shares of Class A Common Stock for basic and diluted loss per share | 79,619 thousand | | Basic and Diluted loss per share of Class A Common Stock | $(0.21) | - Securities excluded from diluted EPS calculation as anti-dilutive for Q1 2022 include: Stock options (**3,297 thousand**), Stock appreciation rights (**7,092 thousand**), Restricted stock awards (**2,238 thousand**), Restricted stock units (**9,585 thousand**), Restricted stock units - founder's award (**9,258 thousand**), Warrants (**19,311 thousand**), Earnouts (**7,964 thousand**), and Combined Interests convertible to Class A Common Stock (**70,906 thousand**)[55](index=55&type=chunk) - Basic and diluted loss per share for the three months ended March 31, 2021, was **zero** as **100%** of net losses were absorbed by Legacy Nerdy Holders prior to the Reverse Recapitalization[52](index=52&type=chunk) [NOTE 7 — CASH, CASH EQUIVALENTS, AND RESTRICTED CASH](index=13&type=section&id=NOTE%207%20%E2%80%94%20CASH,%20CASH%20EQUIVALENTS,%20AND%20RESTRICTED%20CASH) This note reconciles cash, cash equivalents, and restricted cash, detailing the total balance as of March 31, 2022, and the nature of restricted cash Cash, Cash Equivalents, and Restricted Cash (in thousands) | Metric (in thousands) | March 31, 2022 | December 31, 2021 | | :---------------------------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $141,715 | $143,964 | | Restricted cash included in Other current assets | $316 | $1,083 | | Restricted cash included in Other assets | $832 | $832 | | **Total Cash, Cash Equivalents, and Restricted Cash** | **$142,863** | **$145,879** | - Restricted cash consists of cash collateralized letters of credit in support of corporate office leases[58](index=58&type=chunk) [NOTE 8 — FIXED ASSETS, NET](index=14&type=section&id=NOTE%208%20%E2%80%94%20FIXED%20ASSETS,%20NET) This note presents the Company's net fixed assets, including capitalized internal use software and IT equipment, and related amortization and depreciation expenses Fixed Assets, Net (in thousands) | Metric (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Fixed assets | $30,372 | $28,467 | | Accumulated depreciation | $(19,162) | $(17,749) | | **Fixed assets, net** | **$11,210** | **$10,718** | Amortization and Depreciation Expense (in thousands) | Expense Type | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :-------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Amortization expense (capitalized internal use software) | $1,164 | $1,133 | | Depreciation expense | $258 | $184 | [NOTE 9 — INTANGIBLE ASSETS, NET](index=14&type=section&id=NOTE%209%20%E2%80%94%20INTANGIBLE%20ASSETS,%20NET) This note details the Company's net intangible assets, primarily trade names, and the associated amortization expense for Q1 2022 and 2021 Intangible Assets, Net (in thousands) | Metric (in thousands) | March 31, 2022 Net Amount | December 31, 2021 Net Amount | | :-------------------- | :------------------------ | :--------------------------- | | Trade names | $4,019 | $4,160 | | Foreign currency translation adjustment | $184 | $268 | | **Total Intangible assets, net** | **$4,203** | **$4,428** | Amortization Expense (in thousands) | Expense Type | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Amortization expense related to intangible assets | $157 | $268 | [NOTE 10 — DERIVATIVE FINANCIAL INSTRUMENTS](index=14&type=section&id=NOTE%2010%20%E2%80%94%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note discusses derivative financial instruments, including non-employee Warrants and Earnouts, their fair values, and the **$11.0 million** unrealized loss recognized in Q1 2022 Derivative Liabilities (in thousands) | Derivative Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------- | :---------------------------- | :------------------------------- | | Non-employee Warrants | $22,373 | $17,210 | | Non-employee Earnouts | $27,345 | $21,466 | | **Total** | **$49,718** | **$38,676** | Unrealized Loss on Derivatives (in thousands) | Statement of Operations Location | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------- | :--------------------------------------------- | | Unrealized loss on derivatives (Non-employee Warrants) | $5,163 | | Unrealized loss on derivatives (Non-employee Earnouts) | $5,879 | | **Total Unrealized loss on derivatives** | **$11,042** | - At both March 31, 2022 and December 31, 2021, the number of Warrants and Earnouts contracts issued and outstanding to non-employees was **19,122 thousand** and **7,655 thousand**, respectively[65](index=65&type=chunk) [NOTE 11 — FAIR VALUE MEASUREMENTS](index=15&type=section&id=NOTE%2011%20%E2%80%94%20FAIR%20VALUE%20MEASUREMENTS) This note outlines fair value measurements for derivative liabilities, classifying Warrants as Level 1/2 and Earnouts as Level 3, and details key assumptions for Earnout valuation Fair Value Measurements (in thousands) | Derivative Type | Total (3/31/22) | Level 1 (3/31/22) | Level 2 (3/31/22) | Level 3 (3/31/22) | Total (12/31/21) | Level 1 (12/31/21) | Level 2 (12/31/21) | Level 3 (12/31/21) | | :-------------------- | :-------------- | :---------------- | :---------------- | :---------------- | :--------------- | :----------------- | :----------------- | :----------------- | | Non-employee Warrants | $22,373 | $10,530 | $11,843 | $0 | $17,210 | $8,100 | $9,110 | $0 | | Non-employee Earnouts | $27,345 | $0 | $0 | $27,345 | $21,466 | $0 | $0 | $21,466 | | **Total** | **$49,718** | **$10,530** | **$11,843** | **$27,345** | **$38,676** | **$8,100** | **$9,110** | **$21,466** | Non-employee Earnouts Fair Value Rollforward (in thousands) | Metric | Amount (in thousands) | | :-------------------------- | :-------------------- | | Balance, December 31, 2021 | $21,466 | | Mark-to-market loss on non-employee Earnouts | $5,879 | | Balance, March 31, 2022 | $27,345 | Key Assumptions for Earnout Valuation | Assumption | March 31, 2022 | December 31, 2021 | | :------------------------ | :------------- | :---------------- | | Expected term (in years) | 4.48 | 4.72 | | Stock price | $5.09 | $4.50 | | Expected stock price volatility | 70.0% | 65.0% | | Risk-free interest rate | 2.4% | 1.2% | | Expected Dividends | —% | —% | | Fair Value (per earnout) | $3.57 | $2.80 | [NOTE 12 — LEASES](index=16&type=section&id=NOTE%2012%20%E2%80%94%20LEASES) This note details lease accounting under ASC Topic 842, including recognized ROU assets and lease liabilities, remaining lease terms, and the incremental borrowing rate - Adopted ASUs 2016-02 and 2018-11 (Leases Topic 842) on **January 1, 2022**, recognizing ROU assets of **$4,154 thousand** and lease liabilities of **$4,870 thousand**[79](index=79&type=chunk) Lease Liabilities (in thousands) | Metric | March 31, 2022 (in thousands) | | :---------------------- | :---------------------------- | | ROU assets (Other assets) | $3,809 | | Lease liabilities (Other current liabilities) | $1,648 | | Lease liabilities (Other liabilities) | $2,970 | | **Total lease liabilities** | **$4,618** | Future Minimum Lease Payments (in thousands) | Period | Amount (in thousands) | | :---------------- | :-------------------- | | Remaining 2022 | $1,334 | | 2023 | $1,622 | | 2024 | $1,273 | | 2025 | $644 | | Total future minimum payments | $4,873 | | Less: Implied interest | $255 | | **Total lease liabilities** | **$4,618** | - As of March 31, 2022, the weighted-average remaining lease term was approximately **2.65 years** and the weighted-average incremental borrowing rate (IBR) was **2.96%**[85](index=85&type=chunk) [NOTE 13 — RELATED PARTIES](index=18&type=section&id=NOTE%2013%20%E2%80%94%20RELATED%20PARTIES) This note addresses related party transactions, including payments to Legacy Nerdy Holders and the Tax Receivable Agreement, noting no TRA liability recognized due to unlikelihood of future taxable income - Paid **$841 thousand** due to Legacy Nerdy Holders during the three months ended March 31, 2022, resulting in no liability as of March 31, 2022[86](index=86&type=chunk) - Tax Receivable Agreement (TRA) provides for payment of **85%** of net cash tax savings to TRA Holders from certain tax basis increases[87](index=87&type=chunk) - Gross potential TRA liability of **$98.1 million** was estimated at the closing of the Reverse Recapitalization, but no liability has been recognized as of March 31, 2022, due to the conclusion that it was not probable that such payments would be made[88](index=88&type=chunk) - The TRA was amended during Q1 2022 to change applicable rates from LIBOR to SOFR, with no material impact on valuation or financial statements[87](index=87&type=chunk) [NOTE 14 — REDEEMABLE PREFERRED UNITS OF NERDY LLC](index=19&type=section&id=NOTE%2014%20%E2%80%94%20REDEEMABLE%20PREFERRED%20UNITS%20OF%20NERDY%20LLC) This note provides historical information on Nerdy LLC's Class B and Class C redeemable preferred units for Q1 2021, which were exchanged during the Reverse Recapitalization Redeemable Preferred Units of Nerdy LLC (in thousands) | Unit Type | As Of and For The Three Months Ended March 31, 2021 (in thousands) | | :------------ | :----------------------------------------------------------------- | | Class B Units, value | $259,638 | | Class C Units, value | $119,158 | | Class B Units, units | 25,920 | | Class C Units, units | 11,895 | - Historical Class B and Class C redeemable preferred units were exchanged for cash, Class A Common Stock, or Class B Common Stock, and OpCo Units in connection with the Reverse Recapitalization on **September 20, 2021**[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's analysis of Nerdy Inc.'s financial condition and results for Q1 2022, covering business overview, key metrics, and detailed financial performance [OVERVIEW](index=20&type=section&id=OVERVIEW) This overview describes Nerdy Inc.'s online learning platform, diverse service offerings, target audiences, and the impact of the Reverse Recapitalization - Operates a platform for live online learning, leveraging AI to connect Learners and Experts, with Varsity Tutors LLC as its flagship business[94](index=94&type=chunk) - Offers diverse learning experiences including one-on-one instruction, small/large group classes, adaptive self-study, Varsity Tutors for Schools, and StarCourses[94](index=94&type=chunk) - Serves K-8, High School, College, Graduate School, and Professional audiences[95](index=95&type=chunk) - Completed Reverse Recapitalization on **September 20, 2021**, with TPG Pace becoming Nerdy Inc., a holding company for Nerdy LLC[96](index=96&type=chunk)[97](index=97&type=chunk) [Seasonality of Our Business](index=21&type=section&id=Seasonality%20of%20Our%20Business) This section explains the seasonal fluctuations in revenues and earnings influenced by academic cycles and holiday periods - Experiences seasonal fluctuations in revenues and earnings due to Learner and institutional spending habits and the academic year[102](index=102&type=chunk) - Historically, lower revenues are observed during the summer when schools are out and people travel for vacations and holidays[102](index=102&type=chunk) [COVID-19 Pandemic](index=21&type=section&id=COVID-19%20Pandemic) This section discusses the short-term challenges and long-term acceleration of online learning adoption due to the COVID-19 pandemic - COVID-19 pandemic caused short-term challenges in the first half of 2020 due to school closures and suspended exams, reducing demand[104](index=104&type=chunk) - Company responded by completing its transition to **100%** online live instruction by **April 2020** and investing in product capabilities[104](index=104&type=chunk) - Believes the pandemic accelerated a long-term and durable shift in supplemental learning delivery, creating opportunities for new solutions[105](index=105&type=chunk) [Inflation](index=21&type=section&id=Inflation) This section addresses the impact of wage inflation and other inflationary pressures on financial results and potential pricing strategies - Financial results have been impacted by wage inflation and other inflationary pressures[106](index=106&type=chunk) - Company continuously explores pricing strategies and considers future pricing actions to offset inflationary pressures[106](index=106&type=chunk) [KEY FINANCIAL AND OPERATING METRICS](index=21&type=section&id=KEY%20FINANCIAL%20AND%20OPERATING%20METRICS) This section presents key financial and operating metrics, including active learners, revenue per learner, and session volumes for Q1 2022 and 2021 | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Active Learners | 73,578 | 47,231 | +56% | | Revenue per Active Learner | $638 | $732 | (13)% | | Sessions (in thousands) | 748 | 477 | +57% | | Sessions Taught per Active Expert | 42 | 43 | (2)% | | One-on-One Average Session Length (in hours) | 1.28 | 1.30 | (2)% | [RESULTS OF OPERATIONS](index=22&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the Company's revenue, cost of revenue, gross profit, and operating expenses for Q1 2022 and 2021 [Revenue](index=23&type=section&id=Revenue%20(MD%26A)) This section analyzes revenue growth drivers and provides a breakdown by service category for Q1 2022 and 2021 Total Revenue (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Revenue | $46,925 | $34,565 | +36% | Revenue by Service Category (in thousands) | Service Category | 2022 (in thousands) | % of Total (2022) | 2021 (in thousands) | % of Total (2021) | | :--------------- | :------------------ | :---------------- | :------------------ | :---------------- | | One-on-one | $39,039 | 83% | $30,860 | 90% | | Class and group | $6,354 | 14% | $1,850 | 5% | | Other | $1,532 | 3% | $1,855 | 5% | - Revenue growth driven by innovation, new products (Varsity Tutors for Schools), expansion into new audiences, and increased Expert engagement[117](index=117&type=chunk) [Cost of Revenue and Gross Profit](index=23&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit) This section analyzes changes in cost of revenue, gross profit, and gross margin, highlighting factors influencing profitability Cost of Revenue and Gross Profit (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Cost of revenue | $14,152 | $11,192 | +26% | | Gross Profit | $32,773 | $23,373 | +40% | | Gross Margin | 70% | 68% | +220 bps | - Increase in cost of revenue primarily due to higher expert costs from increased session volume and incremental tutor costs related to Varsity Tutors for Schools[122](index=122&type=chunk) - Gross profit increases driven by growth across consumer one-on-one audiences, small group class and tutoring formats, and new products[123](index=123&type=chunk) [Operating Expenses](index=23&type=section&id=Operating%20Expenses%20(MD%26A)) This section details the components and changes in operating expenses, including sales and marketing, and general and administrative costs [Sales and Marketing](index=23&type=section&id=Sales%20and%20Marketing) This section analyzes the increase in sales and marketing expenses, driven by investments in new audiences, advertising, and sales organization expansion Sales and Marketing Expenses (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Sales and marketing expenses | $22,946 | $14,582 | +57% | - Excluding stock-based compensation, sales and marketing expenses increased by **$7,289 thousand** (**+50%**) due to investments in marketing (new audiences, advertising formats) and building the sales organization for Varsity Tutors for Schools[126](index=126&type=chunk) - Sales and marketing expenses for Q1 2022 included **$1,075 thousand** in stock-based compensation[126](index=126&type=chunk) [General and Administrative](index=24&type=section&id=General%20and%20Administrative) This section analyzes the increase in general and administrative expenses, primarily due to investments in product development, talent acquisition, and public company costs General and Administrative Expenses (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | General and administrative expenses | $30,509 | $13,245 | +130% | - Excluding non-cash stock-based compensation and Reverse Recapitalization transaction costs, general and administrative expenses increased by **$8,397 thousand** (**+78%**) due to accelerated investments in new product development, talent acquisition (engineering and product), scaling the institutional team, and increased public company costs[128](index=128&type=chunk) - General and administrative expenses for Q1 2022 included **$11,415 thousand** in non-cash stock-based compensation[128](index=128&type=chunk) [Unrealized Loss on Derivatives](index=24&type=section&id=Unrealized%20Loss%20on%20Derivatives) This section explains the **$11.0 million** unrealized loss on derivatives for Q1 2022, resulting from mark-to-market adjustments on warrants and earnouts - Unrealized loss on derivatives was **$11,042 thousand** for the three months ended March 31, 2022, related to non-cash mark-to-market adjustments on warrants (**$5,163 thousand**) and earnouts (**$5,879 thousand**)[129](index=129&type=chunk) - No unrealized loss on derivatives was reported for the three months ended March 31, 2021[116](index=116&type=chunk) [Interest (Income) Expense, Net](index=24&type=section&id=Interest%20(Income)%20Expense,%20Net) This section details the net interest income/expense, highlighting the decrease in expense due to the repayment of outstanding loans post-Reverse Recapitalization Interest (Income) Expense, Net (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Interest (income) expense, net | $(7) | $1,237 | - The decrease in net interest expense was driven by the full repayment of the previously outstanding loan and security agreement balance in connection with the Reverse Recapitalization on **September 20, 2021**[130](index=130&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=24&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the Company's liquidity, capital resources, and strategies for financing future operations and growth [Sources and Uses of Cash](index=24&type=section&id=Sources%20and%20Uses%20of%20Cash) This section outlines the Company's cash and cash equivalents, historical financing methods, and future funding strategies post-Reverse Recapitalization Cash and Cash Equivalents (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------ | :---------------------------- | :------------------------------- | | Cash and cash equivalents | $141,715 | $143,964 | - Operations have historically been financed primarily through capital contributions and debt financings[132](index=132&type=chunk) - Future operations are expected to be financed by cash on hand, proceeds from the Reverse Recapitalization, and possible equity issuances and debt financings[132](index=132&type=chunk) - Proceeds from the Reverse Recapitalization are used to fund operating cash needs, growth strategies, and to achieve expected profitability by the end of **2023**[132](index=132&type=chunk) [Cash Requirements](index=24&type=section&id=Cash%20Requirements) This section identifies the Company's short-term cash requirements and its belief in sufficient resources to meet these obligations - Cash requirements within the next twelve months include working capital, sales and marketing activities, and capital expenditures[133](index=133&type=chunk) - The Company believes its cash on hand, cash flows from operations, and possible future equity issuances and debt financings will be sufficient to satisfy these requirements[133](index=133&type=chunk) - As of March 31, 2022, the Company had no debt obligations[134](index=134&type=chunk) [Operating Activities](index=25&type=section&id=Operating%20Activities) This section analyzes cash flows from operating activities, detailing the decrease in cash used due to increased bookings and lower interest payments Cash Used in Operating Activities (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Cash used in operating activities | $(931) | $(2,415) | - Cash used in operating activities decreased by **$1,484 thousand** compared to the prior year, driven by increased bookings and collections, lower interest paid (**$1,056 thousand**), and favorable changes in accounts payable timing[137](index=137&type=chunk) - Offsetting factors included targeted investments in new products (Varsity Tutors for Schools), marketing, new talent hires, and increased public company costs[137](index=137&type=chunk) [Investing Activities](index=25&type=section&id=Investing%20Activities) This section details cash flows from investing activities, primarily related to capital expenditures for software development and IT equipment Cash Used in Investing Activities (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Cash used in investing activities | $(1,264) | $(848) | - Cash used in investing activities primarily relates to capital expenditures for the development of internal use software and IT equipment[138](index=138&type=chunk) [Financing Activities](index=25&type=section&id=Financing%20Activities) This section analyzes cash flows from financing activities, including payments to Legacy Nerdy Holders and Reverse Recapitalization costs Cash Used in Financing Activities (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Cash used in financing activities | $(816) | $(444) | - Cash used in financing activities for Q1 2022 primarily related to payments made to Legacy Nerdy Holders in connection with the Reverse Recapitalization[139](index=139&type=chunk) - Cash used in financing activities for Q1 2021 related to the payment of Reverse Recapitalization costs[140](index=140&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=25&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section confirms no significant changes to critical accounting policies and estimates since the 2021 Annual Report on Form 10-K - No significant changes to critical accounting policies and estimates since **December 31, 2021**, as described in the Annual Report on Form 10-K[142](index=142&type=chunk) [RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS (MD&A)](index=25&type=section&id=RECENTLY%20ISSUED%20AND%20ADOPTED%20ACCOUNTING%20STANDARDS%20(MD%26A)) This section refers to Note 2 for details on recently issued and adopted accounting standards impacting the financial statements - Refers to Note 2 within 'Notes to Condensed Consolidated Financial Statements' for a discussion regarding recently issued accounting standards[144](index=144&type=chunk) [CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS](index=25&type=section&id=CAUTIONARY%20NOTE%20ON%20FORWARD-LOOKING%20STATEMENTS) This section provides a cautionary note regarding forward-looking statements, highlighting inherent risks and uncertainties that may cause actual results to differ - This section identifies forward-looking statements that involve risks and uncertainties, emphasizing that actual results may differ materially[146](index=146&type=chunk) - Readers are advised to review risk factors in the 2021 Annual Report and this Quarterly Report[148](index=148&type=chunk) - The Company undertakes no obligation to publicly update forward-looking statements[148](index=148&type=chunk) [EMERGING GROWTH COMPANY STATUS](index=26&type=section&id=EMERGING%20GROWTH%20COMPANY%20STATUS) This section explains Nerdy Inc.'s status as an 'emerging growth company' and the associated reduced reporting requirements under the JOBS Act - Nerdy Inc. is an 'emerging growth company' (EGC) as defined in Section 2(a) of the Securities Act, modified by the JOBS Act[150](index=150&type=chunk) - As an EGC, the Company is eligible for reduced reporting requirements, including exemption from auditor attestation for Section 404 of Sarbanes-Oxley and reduced executive compensation disclosures[150](index=150&type=chunk) - The Company intends to take advantage of the extended transition period for complying with new or revised accounting standards[151](index=151&type=chunk) [SMALLER REPORTING COMPANY STATUS](index=27&type=section&id=SMALLER%20REPORTING%20COMPANY%20STATUS) This section clarifies Nerdy Inc.'s status as a 'smaller reporting company' and the resulting reduced disclosure obligations - Nerdy Inc. is a 'smaller reporting company' (SRC) as defined in Item 10(f)(1) of Regulation S-K[155](index=155&type=chunk) - As an SRC, the Company can take advantage of reduced disclosure obligations, including providing only two years of audited financial statements[155](index=155&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk.](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section discusses the Company's exposure to market risk, primarily focusing on the sensitivity of its derivative liabilities to market price changes - As of March 31, 2022 and December 31, 2021, the Company had **19,122 thousand** Warrant and **7,655 thousand** Earnout contracts issued and outstanding to non-employees[156](index=156&type=chunk) - A hypothetical **10%** adverse change in the price of public warrants would increase the fair value of related liabilities by approximately **$2.2 million** as of March 31, 2022[156](index=156&type=chunk) - A hypothetical **10%** adverse change in the price of earnouts would increase the fair value of related liabilities by approximately **$2.7 million** as of March 31, 2022[156](index=156&type=chunk) [Item 4. Controls and Procedures.](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures.) This section reports on the effectiveness of the Company's disclosure controls and internal control over financial reporting, including identified material weaknesses and remediation plans [Evaluation of Disclosure Controls and Procedures](index=27&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports management's conclusion that disclosure controls and procedures were not effective as of March 31, 2022 - Management, with the CEO and CFO, concluded that the Company's disclosure controls and procedures were **not effective** as of March 31, 2022[158](index=158&type=chunk) [Changes in Internal Control Over Financial Reporting](index=27&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that there were no significant changes in internal control over financial reporting during Q1 2022 - There were no significant changes in the Company's internal control over financial reporting during the quarter ended March 31, 2022[159](index=159&type=chunk) [Material Weaknesses and Remediation Plans](index=27&type=section&id=Material%20Weaknesses%20and%20Remediation%20Plans) This section identifies material weaknesses in control environment, risk assessment, and IT general controls, and outlines the Company's comprehensive remediation plan - Identified material weaknesses include an ineffective control environment (insufficient accounting knowledge/experience), ineffective controls over risk assessment (lack of formal policies, segregation of duties), and ineffective IT general controls (program change management, user access, development controls)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) - Remediation plan includes expanding finance, accounting, and IT teams, implementing new policies and procedures, conducting risk assessments, designing enhanced internal controls, and establishing a dedicated internal audit function[164](index=164&type=chunk) - Remediation measures are time-consuming, incur significant costs, and place significant demands on financial and operational resources; material weaknesses are not yet remediated[164](index=164&type=chunk) PART II. OTHER INFORMATION. This part provides additional information, including legal proceedings, risk factors, exhibits, and required signatures [Item 1. Legal Proceedings.](index=28&type=section&id=Item%201.%20Legal%20Proceedings.) This section confirms no environmental legal proceedings requiring disclosure as of March 31, 2022, based on the Company's monetary sanctions threshold - No environmental legal proceedings to disclose as of March 31, 2022, based on a disclosure threshold of **$1.0 million** or more in monetary sanctions[165](index=165&type=chunk) [Item 1A. Risk Factors.](index=28&type=section&id=Item%201A.%20Risk%20Factors.) This section refers to previously disclosed risk factors in the 2021 Annual Report on Form 10-K, noting no material changes as of this report's date - Refers to risk factors previously disclosed in the Annual Report on Form 10-K filed **February 28, 2022**[166](index=166&type=chunk) - No material changes to the previously disclosed risk factors as of the date of this Quarterly Report[166](index=166&type=chunk) [Item 6. Exhibits.](index=28&type=section&id=Item%206.%20Exhibits.) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, agreement amendments, and executive certifications - Key exhibits include Certificate of Incorporation, Bylaws, Amendment No.1 to the Tax Receivable Agreement (**March 25, 2022**), Amendment No.1 to the Second Amended and Restated Limited Liability Company Agreement of Nerdy LLC (**March 14, 2022**), Certifications of Charles Cohn (CEO) and Jason H. Pello (CFO), and Interactive Data File (iXBRL)[168](index=168&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section contains the required signatures for the Form 10-Q, confirming its submission by the Chief Financial Officer on May 16, 2022 - The report is signed by Jason H. Pello, Chief Financial Officer of Nerdy Inc., on **May 16, 2022**[172](index=172&type=chunk)

Nerdy, Inc. (NYSE:NRDY) Q4 2021 Earnings Conference Call February 28, 2022 5:00 PM ET Company Participants Molly Sorg - Head of IR Chuck Cohn - Founder, Chairman and CEO Jason Pello - CFO Conference Call Participants Andrew Boone - JMP Securities Bryan Smilek - JPMorgan Ryan McDonald - Needham Eric Sheridan - Goldman Sachs Maria Ripps - Canaccord Mario Lu - Barclays Aaron Kessler - Raymond James Greg Gibas - Northland Securities Operator Good evening and thank you for attending today's Nerdy Fourth Quarter ...