Nerdy (NRDY) - 2023 Q1 - Quarterly Report

Part I: Financial Information Item 1. Financial Statements (Unaudited) This section presents Nerdy Inc.'s unaudited condensed consolidated financial statements for Q1 2023, including operations, balance sheets, cash flows, and equity Condensed Consolidated Statements of Operations Q1 2023 revenue grew 4.8% to $49.2 million, with operating loss narrowing to $11.4 million from reduced marketing Consolidated Statements of Operations Highlights (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue | $49,180 | $46,925 | | Gross Profit | $33,890 | $32,773 | | Operating Loss | $(11,370) | $(20,682) | | Net Loss Attributable to Class A Common Stockholders | $(18,931) | $(16,845) | | Loss per share (Basic and Diluted) | $(0.21) | $(0.21) | - A significant contributor to the reduced operating loss was the decrease in Sales and Marketing expenses from $22.9 million in Q1 2022 to $15.6 million in Q1 2023[8] - The company recorded an unrealized loss on derivatives of $21.7 million in Q1 2023, nearly double the $11.0 million loss from Q1 2022, which significantly impacted the loss before income taxes[8] Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $131.6 million, cash $96.5 million, and liabilities $71.2 million from revaluation Balance Sheet Highlights (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $96,520 | $90,715 | | Total Assets | $131,557 | $132,692 | | Deferred revenue | $22,254 | $25,539 | | Total Liabilities | $71,153 | $51,642 | | Total Stockholders' Equity | $60,404 | $81,050 | Condensed Consolidated Statements of Cash Flows Q1 2023 generated $6.8 million in positive operating cash flow, a significant improvement from prior year Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $6,794 | $(931) | | Net Cash Used In Investing Activities | $(982) | $(1,264) | | Net Cash Used In Financing Activities | $0 | $(816) | | Net Increase (Decrease) in Cash | $5,805 | $(3,016) | - The positive operating cash flow was primarily driven by a net loss of $32.3 million, adjusted for non-cash items such as a $21.7 million unrealized loss on derivatives and $11.0 million in stock-based compensation[15] Notes to Condensed Consolidated Financial Statements Notes detail revenue breakdown, Institutional growth, derivative liabilities, and non-recognition of $110.6 million TRA liability Revenue by Business Category (in thousands) | Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Consumer | $40,335 | $38,918 | | Institutional | $8,540 | $6,475 | | Other | $305 | $1,532 | | Total Revenue | $49,180 | $46,925 | - The fair value of derivative liabilities (non-employee Warrants and Earnouts) increased significantly from $12.1 million at year-end 2022 to $33.7 million as of March 31, 2023, leading to a $21.7 million unrealized loss[59][60] - The company has not recognized a liability of $110.6 million under its Tax Receivable Agreement, concluding it was not probable that payments would be made based on estimates of future taxable income[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Learning Membership transition, 5% YoY revenue growth to $49.2 million, 1700 basis point sales and marketing efficiency, and $6.8 million positive cash flow - The company is making substantial progress in its transition from a 'Package' model to 'Learning Memberships' in its Consumer business, which is driving recurring revenue and lifetime value expansion[74][80] - As of March 31, 2023, the company had 32,900 Active Members in its Learning Membership program[76] - Sales and marketing expenses as a percentage of revenue improved by approximately 1700 basis points year-over-year, decreasing from 47% to 30% (excluding stock-based compensation)[87] - The company achieved positive cash flow from operations of $6.8 million for the quarter, a significant improvement from a $0.9 million use of cash in the prior year period[101] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk stems from warrant and earnout contracts, with a 10% adverse change in public warrant price increasing liabilities by $1.3 million - The company is exposed to market price sensitivity from its outstanding warrant and earnout contracts issued to non-employees[119] - As of March 31, 2023, a hypothetical 10% adverse change in the price of public warrants would increase the fair value of warrant liabilities by about $1.3 million A similar 10% adverse change in the fair value of earnouts would increase their liability by about $2.1 million[119] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no significant changes to internal control - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[121] - No significant changes were made to the company's internal control over financial reporting during the quarter ended March 31, 2023[123] Part II: Other Information Item 1. Legal Proceedings No material legal proceedings are reported for the three months ended March 31, 2023 - There are no environmental or other legal proceedings to disclose that are expected to result in monetary sanctions of $1 million or more[125] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the 2022 Annual Report on Form 10-K are reported - There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K[126] Item 6. Exhibits Exhibits filed with Form 10-Q include corporate governance documents, a consulting agreement, and CEO/CFO certifications - The exhibits filed include certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002[128]