Nerdy (NRDY) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Nerdy Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2025, including statements of operations, comprehensive loss, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Statements of Operations (Unaudited) This section presents the unaudited condensed consolidated statements of operations, detailing revenue, gross profit, and net loss for the specified periods Condensed Consolidated Statements of Operations (Unaudited) - Key Figures (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $45,263 | $50,984 | $92,858 | $104,711 | | Gross Profit | $27,842 | $33,487 | $55,453 | $70,002 | | Operating Loss | $(12,288) | $(15,229) | $(28,873) | $(28,082) | | Net Loss | $(12,001) | $(14,398) | $(28,152) | $(26,413) | | Net Loss Attributable to Class A Common Stockholders | $(7,897) | $(9,093) | $(18,393) | $(16,539) | | Basic and Diluted Loss per share | $(0.07) | $(0.08) | $(0.15) | $(0.15) | - Revenue decreased by 11% for both the three and six months ended June 30, 2025, compared to the prior year periods[8] - Net Loss improved for the three months ended June 30, 2025, decreasing to $(12,001) thousand from $(14,398) thousand in the prior year, but worsened for the six months, increasing to $(28,152) thousand from $(26,413) thousand[8] Condensed Consolidated Statements of Comprehensive Loss (Unaudited) This section outlines the unaudited condensed consolidated statements of comprehensive loss, including net loss and other comprehensive income items Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Loss | $(12,001) | $(14,398) | $(28,152) | $(26,413) | | Foreign currency translation adjustments | 79 | 2 | 116 | (8) | | Total Comprehensive Loss | $(11,922) | $(14,396) | $(28,036) | $(26,421) | | Total Comprehensive Loss Attributable to Class A Common Stockholders | $(7,847) | $(9,092) | $(18,318) | $(16,544) | - Total Comprehensive Loss improved for the three months ended June 30, 2025, decreasing to $(11,922) thousand from $(14,396) thousand in the prior year, but worsened for the six months, increasing to $(28,036) thousand from $(26,421) thousand[10] Condensed Consolidated Balance Sheets (Unaudited) This section provides the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (Unaudited) - Key Figures (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $36,722 | $52,541 | | Total Current Assets | $47,639 | $64,714 | | Total Assets | $73,689 | $92,507 | | Total Current Liabilities | $22,411 | $28,327 | | Deferred revenue | $10,355 | $15,263 | | Total Liabilities | $24,949 | $31,394 | | Total Stockholders' Equity | $48,740 | $61,113 | - Cash and cash equivalents decreased by $15,819 thousand from December 31, 2024, to June 30, 2025[13] - Total assets decreased by $18,818 thousand, and total liabilities decreased by $6,445 thousand from December 31, 2024, to June 30, 2025[13] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net Cash Used in Operating Activities | $(13,489) | $(1,235) | | Net Cash Used In Investing Activities | $(2,333) | $(3,755) | | Net Cash Used In Financing Activities | $0 | $0 | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | $(15,819) | $(4,986) | - Net cash used in operating activities significantly increased to $(13,489) thousand for the six months ended June 30, 2025, compared to $(1,235) thousand in the prior year[15] - Capital expenditures, primarily for internal use software and IT equipment, decreased to $(2,333) thousand from $(3,755) thousand[15] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section details changes in stockholders' equity, including additional paid-in capital and accumulated deficit, for the specified periods Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - Key Changes (Six Months Ended June 30, 2025 vs. 2024) (in thousands) | Metric (in thousands) | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Additional Paid-In Capital (End of period) | $607,974 | $583,948 | | Accumulated Deficit (End of period) | $(576,259) | $(531,820) | | Total Stockholders' Equity (End of period) | $48,740 | $82,550 | | Class A Common Stock - Shares (End of period) | 121,027 | 112,245 | | Class B Common Stock - Shares (End of period) | 64,395 | 65,427 | - Additional Paid-In Capital increased due to non-cash stock-based compensation, while Accumulated Deficit worsened due to net losses[17] - Total Stockholders' Equity decreased significantly from $82,550 thousand in 2024 to $48,740 thousand in 2025 for the six months ended June 30[17] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items in the unaudited financial statements - Nerdy Inc. consolidates Nerdy LLC's financial results, with Legacy Nerdy Holders' portion allocated to noncontrolling interests (NCI). Nerdy Inc. is a holding company with no material assets other than its ownership in Nerdy LLC[20][21] - New accounting pronouncements (ASU 2024-03 and ASU 2023-09) will result in expanded disclosures for expense disaggregation and income tax information, but are not expected to materially impact financial statements[24][26] Revenue by Business Category (in thousands) | Category | Three Months Ended June 30, 2025 | % | Three Months Ended June 30, 2024 | % | | :------------ | :------------------------------- | :- | :------------------------------- | :- | | Consumer | $37,824 | 83% | $39,716 | 78% | | Institutional | $7,308 | 16% | $11,135 | 21% | | Other | $131 | 1% | $133 | 1% | | Total Revenue | $45,263 | 100% | $50,984 | 100% | | Category | Six Months Ended June 30, 2025 | % | Six Months Ended June 30, 2024 | % | | :------------ | :----------------------------- | :- | :----------------------------- | :- | | Consumer | $75,837 | 81% | $81,318 | 77% | | Institutional | $16,688 | 18% | $23,022 | 22% | | Other | $333 | 1% | $371 | 1% | | Total Revenue | $92,858 | 100% | $104,711 | 100% | - The effective income tax rate was (0.62)% and (0.36)% for the three and six months ended June 30, 2025, respectively, differing significantly from statutory rates due to valuation allowance changes and NCI income tax benefit[35] - Nerdy Inc. has not recognized a $117,228 thousand liability under the Tax Receivable Agreement as of June 30, 2025, as it was not probable that payments would be made based on future taxable income estimates[51] - The Company settled a PAGA lawsuit in Q1 2025 for $2,000 thousand related to independent contractor classification, with no new expense recorded in the current periods[53] - The Company operates in one reportable segment: Tutoring, generating revenue from services to Learners and Institutions fulfilled by Experts through its Live Learning Platform[55] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on Nerdy Inc.'s financial performance, condition, liquidity, and capital resources for the periods ended June 30, 2025. It highlights key operating metrics, revenue and expense trends, and the impact of strategic initiatives like AI-enabled productivity improvements and Expert incentives Overview This overview describes Nerdy's online learning platform, its AI-driven approach, and its service to both consumers and institutions - Nerdy operates a platform for live online learning, leveraging AI to connect Learners and Experts across various subjects and formats, including Learning Memberships, one-on-one instruction, and group tutoring[63] - The company's offerings serve both Consumers and Institutions, with its flagship business being Varsity Tutors LLC[63] Key Operating Metrics This section analyzes key operational performance indicators, including active members, average revenue per member, and active experts Active Members (in thousands) | Date | Active Members | | :--------- | :------------- | | June 30, 2025 | 30.6 | | June 30, 2024 | 35.5 | | YoY change | (14)% | - Active Members decreased by 14% year-over-year as of June 30, 2025, primarily due to lower retention in older customer cohorts with a higher proportion of lower frequency Learning Memberships[66][67] Average Revenue per Member per Month (ARPM) | Date | ARPM | | :--------- | :--- | | June 30, 2025 | $348 | | June 30, 2024 | $281 | | YoY change | 24% | - ARPM increased by 24% year-over-year as of June 30, 2025, driven by a mix shift to higher frequency Learning Memberships and price increases in Q1 2025[67][68] Active Experts (in thousands) | Period | Active Experts (2025) | Active Experts (2024) | Change % | | :----------- | :-------------------- | :-------------------- | :------- | | Three Months Ended June 30 | 9.7 | 11.6 | (16)% | | Six Months Ended June 30 | 12.1 | 14.4 | (16)% | - Active Experts decreased by 16% for both the three and six months ended June 30, 2025, due to lower Consumer Active Experts (driven by Expert incentives promoting higher utilization of top Experts) and lower Institutional business utilization[69][70] Results of Operations This section details the company's financial performance, analyzing revenue, gross margin, and operating expenses for the reporting periods Revenue by Business Category (in thousands) | Category | Three Months Ended June 30, 2025 | Change % | Six Months Ended June 30, 2025 | Change % | | :------------ | :------------------------------- | :------- | :----------------------------- | :------- | | Consumer | $37,824 | (5)% | $75,837 | (7)% | | Institutional | $7,308 | (34)% | $16,688 | (28)% | | Other | $131 | (2)% | $333 | (10)% | | Total Revenue | $45,263 | (11)% | $92,858 | (11)% | - Total revenue decreased by 11% for both the three and six months ended June 30, 2025, primarily due to lower Institutional revenue and the non-recurrence of a state-funded Consumer revenue program from 2024[73] - Gross margin decreased for both current year periods (62% vs 66% for Q2, 60% vs 67% for H1) due to Expert incentives, but Q2 2025 gross margin improved sequentially due to Consumer price increases[78][80] - Sales and marketing expenses decreased by 13% for Q2 2025 and 11% for H1 2025, driven by Consumer marketing efficiency gains and moderated investment in the Institutional business[82][83][84] - General and administrative expenses decreased by 20% for Q2 2025 and 16% for H1 2025, attributed to AI-enabled productivity improvements, new software processes, headcount reductions, and other cost reduction efforts[82][87][88] - Interest income decreased for both periods due to lower interest income on cash balances[89] Liquidity and Capital Resources This section assesses the company's cash position, operating cash flows, and ability to meet its financial obligations Cash and Cash Equivalents (in thousands) | Date | Cash and cash equivalents | | :--------- | :------------------------ | | June 30, 2025 | $36,722 | | Dec 31, 2024 | $52,541 | - The Company incurred cumulative losses and negative operating cash flows, relying on cash on hand for financing, and expects current cash to be sufficient for the next twelve months' requirements[91][92] Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(13,489) | $(1,235) | | Investing activities | $(2,333) | $(3,755) | | Financing activities | $0 | $0 | | Net Decrease in Cash | $(15,819) | $(4,986) | - Cash used in operating activities increased by $12,254 thousand year-over-year, primarily due to lower revenue, gross margin, a legal settlement payment, and working capital changes[96] Critical Accounting Policies and Estimates This section highlights the company's critical accounting policies and estimates, noting no material changes from prior disclosures - There have been no material changes to the Company's critical accounting policies and estimates previously disclosed in its 2024 Annual Report[100] Recently Issued Accounting Standards This section refers to Note 2 for details on recently issued accounting standards and their potential impact - Refer to Note 2 in the financial statements for a discussion of recently issued accounting standards[102] Cautionary Note on Forward-Looking Statements This section provides a cautionary note on forward-looking statements, outlining inherent risks and uncertainties that could affect future results - The report contains forward-looking statements regarding future expectations, including revenue growth, operational improvements, and the sufficiency of cash, which are subject to various risks and uncertainties[104] - Key risks include the evolving nature of offerings, history of net losses, ability to acquire and retain customers, intellectual property, independent contractor classification, and the development and use of AI[104][110] Emerging Growth Company Status This section clarifies the company's status as an emerging growth company and its implications for reporting requirements - Nerdy Inc. is an 'emerging growth company' and will remain so for its Q2 2025 report, but will lose this status starting with its Annual Report on Form 10-K for the year ended December 31, 2025, due to the fifth anniversary of TPG Pace Tech Opportunities' IPO[107][109] - As an emerging growth company, Nerdy has taken advantage of exemptions such as not complying with auditor attestation requirements and reduced executive compensation disclosures[107] Smaller Reporting Company Status This section confirms the company's status as a smaller reporting company and its continued eligibility for reduced disclosure requirements - Nerdy Inc. is a 'smaller reporting company' and will retain this status for its 2025 Annual Report and 2026 interim periods, based on market value and annual revenue criteria[112] Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company's exposure to market risk, including foreign currency exchange rates and interest rates, is deemed immaterial - The Company's exposure to market risk, foreign currency exchange rates, and interest rates is immaterial[113] Item 4. Controls and Procedures. Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for timely and accurate financial reporting. No significant changes in internal control over financial reporting occurred during the quarter - The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, and concluded they were effective[114] - Management acknowledges that controls provide only reasonable assurance and apply judgment in evaluating cost-benefit relationships[115] - No significant changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[116] PART II. OTHER INFORMATION Item 1. Legal Proceedings. This section refers to Note 12 in the financial statements for details on legal proceedings, including the settlement of an independent contractor classification matter. No environmental proceedings requiring disclosure were identified - Information regarding legal proceedings is incorporated by reference from Note 12 of the financial statements[117] - No environmental proceedings with monetary sanctions of $1,000 thousand or more were identified for disclosure[118] Item 1A. Risk Factors. The Company reiterates that there have been no material changes to the risk factors previously disclosed in its 2024 Annual Report. Readers are advised to consider these risks, as well as other unknown or immaterial risks, which could adversely affect the business - No material changes to the risk factors previously disclosed in the 2024 Annual Report have occurred as of the date of this Quarterly Report[119] - Additional risks and uncertainties not currently known or deemed immaterial may also impair the business[120] Item 5. Other Information. No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[121] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including the Certificate of Incorporation, Bylaws, certifications from the CEO and CFO, and Interactive Data Files - Exhibits include the Certificate of Incorporation, Bylaws, CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Interactive Data Files (iXBRL)[123] SIGNATURES The report is duly signed on behalf of Nerdy Inc. by Jason Pello, Chief Financial Officer, on August 7, 2025 - The report was signed by Jason Pello, Chief Financial Officer of Nerdy Inc., on August 7, 2025[126]