SEC Form 10-Q filed by Nerdy Inc.

11/7/24 4:10:48 PM ET

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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 September 30, 2024


☐			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 in its charter)


Delaware		98-1499860
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	8001 Forsyth Blvd., Suite 1050
	St. Louis, Missouri 63105
(Address of Principal Executive Offices) (Zip Code)

(314) 412-1227

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

NRDY

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the numbers of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class A common stock, par value $0.0001 per share - 115,431,656 shares of common stock as of October 31, 2024

Class B common stock, par value $0.0001 per share - 64,946,009 shares of common stock as of October 31, 2024

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NERDY INC.

QUARTERLY REPORT ON FORM 10-Q

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		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited).	1

	Condensed Consolidated Statements of Operations (Unaudited).	1

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited).	2

	Condensed Consolidated Balance Sheets (Unaudited).	3

	Condensed Consolidated Statements of Cash Flows (Unaudited).	4

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited).	5

	Notes to Condensed Consolidated Financial Statements (Unaudited).	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	20

Item 4.	Controls and Procedures.	20

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	20

Item 1A.	Risk Factors.	21

Item 5.	Other Information.	21

Item 6.	Exhibits.	21

	SIGNATURES	22

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PART I. FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).

NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue	$	37,530	$	40,296	$	142,241	$	138,315
Cost of revenue	11,077		11,108		45,786		41,138
Gross Profit	26,453		29,188		96,455		97,177
Sales and marketing expenses	20,315		19,233		53,244		49,652
General and administrative expenses	31,862		35,508		97,017		94,921


Operating Loss	(25,724)		(25,553)		(53,806)		(47,396)
Unrealized (gain) loss on derivatives, net	—		(4,099)		—		13,385
Interest income	(768)		(844)		(2,533)		(2,460)
Other (income) expense, net	(27)		(5)		8		11

Loss before Income Taxes	(24,929)		(20,605)		(51,281)		(58,332)
Income tax expense	29		21		90		97
Net Loss	(24,958)		(20,626)		(51,371)		(58,429)

Net loss attributable to noncontrolling interests	(9,058)		(8,336)		(18,932)		(23,910)
Net Loss Attributable to Class A Common Stockholders	$	(15,900)	$	(12,290)	$	(32,439)	$	(34,519)

Loss per share of Class A Common Stock:
Basic and Diluted	$	(0.14)	$	(0.13)	$	(0.29)	$	(0.37)


Weighted-Average Shares of Class A Common Stock Outstanding:
Basic and Diluted	113,287		97,077		110,267		94,453

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net Loss	$	(24,958)	$	(20,626)	$	(51,371)	$	(58,429)
Foreign currency translation adjustments	66		(39)		58		26
Total Comprehensive Loss	(24,892)		(20,665)		(51,313)		(58,403)

Comprehensive loss attributable to noncontrolling interests	(9,034)		(8,351)		(18,911)		(23,898)
Total Comprehensive Loss Attributable to Class A Common Stockholders	$	(15,858)	$	(12,314)	$	(32,402)	$	(34,505)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands)


	September 30, 2024		December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents	$	65,002	$	74,824
Accounts receivable, net	7,424		15,398
Other current assets	5,653		4,815
Total Current Assets	78,079		95,037
Fixed assets, net	17,498		16,388
Goodwill	5,717		5,717
Intangible assets, net	2,676		3,061
Other assets	2,789		4,541
Total Assets	$	106,759	$	124,744

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	5,808	$	3,443
Deferred revenue	15,687		20,480


Other current liabilities	14,347		11,682
Total Current Liabilities	35,842		35,605
Other liabilities	3,111		3,533

Total Liabilities	38,953		39,138
Stockholders’ Equity
Class A common stock	11		11
Class B common stock	7		7
Additional paid-in capital	590,962		567,709
Accumulated deficit	(547,720)		(515,281)
Accumulated other comprehensive income	68		31
Total Stockholders’ Equity Excluding Noncontrolling Interests	43,328		52,477
Noncontrolling interests	24,478		33,129
Total Stockholders’ Equity	67,806		85,606
Total Liabilities and Stockholders’ Equity	$	106,759	$	124,744

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2024		2023
Cash Flows From Operating Activities
Net Loss	$	(51,371)	$	(58,429)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization	5,137		4,609
Amortization of intangibles	460		454
Unrealized loss on derivatives, net	—		13,385

Non-cash stock-based compensation expense	32,238		32,802




Warrant and earnout transaction costs paid	—		567
Other changes in operating assets and liabilities:
Decrease in accounts receivable, net	7,974		3,359
Increase in other current assets	(893)		(646)
Decrease in other assets	1,598		28
Increase in accounts payable	3,084		4,195
Decrease in deferred revenue	(4,793)		(6,890)
Increase in other current liabilities	2,577		5,485
Decrease in other liabilities	(299)		(1,434)
Net Cash Used in Operating Activities	(4,288)		(2,515)
Cash Flows From Investing Activities
Capital expenditures	(5,700)		(3,923)
Net Cash Used In Investing Activities	(5,700)		(3,923)
Cash Flows From Financing Activities

Payments of warrant and earnout transaction costs	—		(567)









Net Cash Used In Financing Activities	—		(567)
Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash	(18)		5
Net Decrease in Cash, Cash Equivalents, and Restricted Cash	(10,006)		(7,000)
Cash, Cash equivalents, and Restricted Cash, Beginning of Year	75,140		91,547
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	65,134	$	84,547

Supplemental Cash Flow Information
Non-cash stock-based compensation included in capitalized internal use software	$	1,275	$	1,815
Purchase of fixed assets included in accounts payable	—		22

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands)


	As Of and For The Three Months Ended September 30,		As Of and For The Nine Months Ended September 30,
	2024	2023	2024		2023
Class A Common Stock
Beginning of period	11	10	$	11	$	9
Activity under stock compensation plans	—	—	—		1
End of period	11	10	11		10
Class B Common Stock


Beginning and end of period	7	7	7		7
Additional Paid-In Capital
Beginning of period	583,948	536,073	567,709		522,031
Non-cash stock-based compensation	10,069	12,221	33,224		33,980
Activity under stock compensation plans	—	—	—		(1)
Conversion of combined interests into Class A common stock	135	181	976		485
Warrant transactions	—	14,602	—		14,602
Earnout transaction	—	5,691	—		5,691
Rebalancing of ownership percentage between controlling and the noncontrolling interests	(3,190)	(8,876)	(10,947)		(16,896)
End of period	590,962	559,892	590,962		559,892
Accumulated Deficit
Beginning of period	(531,820)	(497,336)	(515,281)		(475,107)
Net loss	(15,900)	(12,290)	(32,439)		(34,519)
End of period	(547,720)	(509,626)	(547,720)		(509,626)
Accumulated Other Comprehensive Income
Beginning of period	26	26	31		(12)
Foreign currency translation adjustments	42	(24)	37		14
End of period	68	2	68		2
Total Stockholders’ Equity Excluding Noncontrolling Interests	43,328	50,285	43,328		50,285
Noncontrolling Interests
Beginning of period	30,378	26,727	33,129		34,122
Net loss	(9,058)	(8,336)	(18,932)		(23,910)
Non-cash stock-based compensation	79	201	289		637
Foreign currency translation adjustments	24	(15)	21		12
Conversion of combined interests into Class A common stock	(135)	(181)	(976)		(485)
Warrant transactions	—	887	—		887
Earnout transaction	—	4,261	—		4,261
Rebalancing of ownership percentage between controlling and the noncontrolling interests	3,190	8,876	10,947		16,896
End of period	24,478	32,420	24,478		32,420
Total Stockholders’ Equity	67,806	82,705	$	67,806	$	82,705
Class A Common Stock - Shares
Beginning of period	112,245	100,158	106,416		95,296
Activity under stock compensation plans	2,227	2,218	6,130		6,387
Conversion of combined interests into Class A common stock	500	500	2,426		1,193
Warrant transactions	—	4,306	—		4,306
Earnout transaction	—	(2,767)	—		(2,767)
End of period	114,972	104,415	114,972		104,415
Class B Common Stock - Shares
Beginning of period	65,427	69,161	67,256		69,306
Activity under stock compensation plans	16	48	113		596
Conversion of combined interests into Class A common stock	(500)	(500)	(2,426)		(1,193)
Warrant transactions	—	513	—		513
Earnout transaction	—	(2,015)	—		(2,015)
End of period	64,943	67,207	64,943		67,207

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share information and where indicated otherwise)

NOTE 1 — BASIS OF PRESENTATION AND BACKGROUND

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), under the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (the “SEC”), and on a basis substantially consistent with the audited consolidated financial statements of Nerdy Inc. (herein referred to as “Nerdy,” the “Company,” “us,” “our,” or “we,” and unless otherwise stated or context otherwise indicates, all such references herein mean Nerdy and its consolidated subsidiaries) as of and for the year ended December 31, 2023. These unaudited condensed consolidated financial statements should be read in conjunction with such audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

These unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair statement of the Company’s results of operations, comprehensive income (loss), financial condition, cash flows, and stockholders’ equity (deficit) for the interim periods presented. Interim results are not necessarily indicative of the results for any other interim period or for the entire year.

Nerdy Inc., a member of Nerdy LLC (as defined below), has the right to appoint a majority of the managers of Nerdy LLC and therefore, controls Nerdy LLC. As a result, the financial results of Nerdy LLC and its wholly-owned subsidiaries are consolidated with and into Nerdy Inc., and a portion of the consolidated net earnings (loss) of Nerdy LLC, which the Legacy Nerdy Holders (as defined below) are entitled to or are required to absorb, are allocated to the noncontrolling interests (the “NCI”).

Background

Nerdy Inc. was formed on September 20, 2021 in connection with a business combination between TPG Pace Tech Opportunities (“TPG Pace”) and Live Learning Technologies LLC (along with its wholly-owned subsidiaries, “Nerdy LLC”). Nerdy LLC is a holding company that is the sole owner of multiple operating companies, including Varsity Tutors LLC (“Varsity Tutors”) and Varsity Tutors for Schools LLC (“Varsity Tutors for Schools”). As a result of the business combination and related transactions, Nerdy LLC merged with a wholly-owned subsidiary of Nerdy Inc., with Nerdy LLC surviving such merger. Nerdy Inc. is a holding company that has no material assets other than its ownership interests in Nerdy LLC and its indirect interests in the subsidiaries of Nerdy LLC, and has no independent means of generating revenue or cash flow.

Nerdy Inc. has the following classes of securities issued and outstanding: (i) Class A common stock, par value $0.0001 per share (the “Class A Common Stock”) and (ii) Class B common stock, par value $0.0001 per share (the “Class B Common Stock”). The shares of Class B Common Stock are owned by the Legacy Nerdy Holders (as defined below), have voting rights only, and have no dividend or economic rights. The Company does not intend to list its Class B Common Stock on any stock exchange. Nerdy LLC has units issued and outstanding (the “OpCo Units”) to its members, the legacy holders of Nerdy LLC (the “Legacy Nerdy Holder(s)”) and Nerdy Inc. Nerdy Inc. and Nerdy LLC will at all times maintain a one-to-one ratio between the number of shares of Class A and Class B Common Stock issued by Nerdy Inc. and the number of OpCo Units issued by Nerdy LLC.

The Public and FPA Warrant Exchange, the Private Warrant Transaction, and the Earnout Transaction

Prior to the Public and FPA Warrant Exchange and the Private Warrant Transaction (both terms defined below), Nerdy Inc. had warrants that consisted of TPG Pace’s previously outstanding private placement warrants and public warrants to purchase Class A ordinary shares that were converted into corresponding private placement warrants to purchase Class A Common Stock (the “Private Placement Warrant(s)”) and public warrants to purchase Class A Common Stock (the “Public Warrant(s)”). Each Private Placement Warrant and Public Warrant allowed for the purchase of one share of Class A Common Stock at an exercise price of $11.50 per share. Additionally, Nerdy Inc. also issued warrants to purchase Class A Common Stock in connection with a forward purchase agreement (the “FPA Warrant(s)”). Each FPA Warrant allowed for the purchase of one share of Class A Common Stock at an exercise price of $11.50 per share. Nerdy LLC had previously outstanding warrants to purchase OpCo Units at an exercise price of $11.50 (the exercise of which would also result in the issuance of one corresponding share of Class B Common Stock) (the “OpCo Warrant(s)”). The Private Placement Warrants, the Public Warrants, the FPA Warrants, and the OpCo Warrants are collectively referred to herein as the “Warrant(s).”

Prior to the Earnout Transaction (as defined below), of the total shares and units issued and outstanding, there were 8,000 shares or units of (i) Class A Common Stock or (ii) OpCo Units (and a corresponding number of Class B Common Stock), as

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applicable, that were subject to forfeiture if the achievement of certain stock price thresholds of the Class A Common Stock were not met within five years of the reverse recapitalization (assuming there was no change in control event) (the “Earnout(s)”).

Public and FPA Warrant Exchange

On September 25, 2023, the Company concluded an offer to holders of its then outstanding Public Warrants and FPA Warrants, which provided such holders the opportunity to receive 0.25 shares of Nerdy Inc.’s Class A Common Stock (the “Public Offer exchange rate”) in exchange for each Public Warrant and FPA Warrant tendered by such holders (the “Offer”). This Offer included a solicitation of consents from holders of the Public Warrants and FPA Warrants to amend the warrant agreement with respect to certain terms of the Public Warrants and the FPA Warrants (the “Public and FPA Warrant Amendment”, together with the Offer, the “Public and FPA Warrant Exchange”). At the closing of the Offer, all remaining outstanding Public and FPA warrants that were not exchanged at the election of the holder were converted into 0.225 shares of Class A Common Stock, pursuant to the Public and FPA Warrant Amendment. As a result of the Public and FPA Warrant Exchange, 12,000 Public Warrants and FPA Warrants were exchanged for 2,992 shares of Nerdy Inc.’s Class A Common Stock, with a nominal cash settlement in lieu of fractional shares. No Public Warrants and FPA Warrants remained outstanding after the Public and FPA Warrant Exchange.

Private Warrant Transaction

Concurrently with the Offer, holders of the then outstanding Private Placement Warrants and the OpCo Warrants agreed to amend the warrant agreement with respect to certain terms of the Private Placement Warrants and OpCo Warrants (the “Private Placement Warrant Amendment”, together with the Public and FPA Warrant Amendment, the “Warrant Amendment”). The Warrant Amendment, among other provisions, required that upon the closing of the Offer that (a) each Private Placement Warrant be automatically exchanged or exercised on a cashless basis into shares of Class A Common Stock and (b) each OpCo Warrant that was outstanding be automatically exercised on a cashless basis into OpCo Units with an equivalent number of shares of Class B Common Stock being issued, in each case, at the same ratio as the Public Offer exchange rate (the “Private Warrant Transaction”, together with the Public and FPA Warrant Exchange, the “Warrant Transactions”). As a result of the Private Warrant Transaction, 5,281 Private Placement Warrants were exchanged or exercised on a cashless basis for 1,314 shares of the Company’s Class A Common Stock, with a nominal cash settlement in lieu of fractional shares and 2,052 OpCo Warrants were exchanged or exercised on a cashless basis for 513 OpCo Units (with an equivalent number of shares of Class B Common Stock), with a nominal cash settlement in lieu of fractional shares. No Private Placement Warrants and OpCo Warrants remained outstanding after the Private Warrant Transaction.

Earnout Transaction

Concurrently with the Offer, holders of the then outstanding Earnouts agreed to forfeit (and thus surrender for cancellation) 60% of the Earnouts they held and agreed that the remaining 40% of the Earnouts would no longer be subject to potential forfeiture and would be either regular shares of Class A Common Stock or regular OpCo Units (with an equivalent number of regular shares of Class B Common Stock) (the “Earnout Transaction”). As a result of the Earnout Transaction, 2,764 shares of Class A Common Stock and 2,015 OpCo Units (with an equivalent number of shares of Class B Common Stock) were cancelled and 1,842 shares of Class A Common Stock and 1,343 OpCo Units (with an equivalent number of shares of Class B Common Stock) remained outstanding after the Earnout Transaction and were no longer subject to forfeiture. The 36 Earnouts held by the Company were now regular shares of Class A Common Stock and are no longer subject to forfeiture.

Transaction Expenses

In connection with these transactions, the Company incurred expenses of $1,940 during three and nine months ended September 30, 2023, of which $567 was paid during the nine months ended September 30, 2023. These expenses were included in “General and administrative expenses” in the Condensed Consolidated Statements of Operations as the transactions did not generate any proceeds to the Company, and therefore, the costs did not qualify to be deferred or charged as a reduction to additional paid-in capital under Accounting Standards Codification (“ASC”) Topic 340, “Other Assets and Deferred Costs.”

NOTE 2 — RECENTLY ISSUED ACCOUNTING STANDARDS

The Company has considered all new accounting pronouncements and based on current information, has concluded that there are no new pronouncements (other than the ones described below) that had or will have an impact on its results of operations, comprehensive income (loss), financial condition, cash flows, and stockholders’ equity (deficit).

In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in

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certain expense captions presented on the face of the income statement. This ASU is effective for annual periods beginning after December 15, 2026 (i.e., Nerdy’s financial statements for the year ending December 31, 2027), and for interim periods within fiscal years beginning after December 15, 2027. Early adoption permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this ASU on its disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information on income taxes paid. This ASU is effective for annual periods beginning after December 15, 2024 (i.e., Nerdy’s financial statements for the year ending December 31, 2025), with early adoption permitted. This ASU requires a prospective method of adoption, but allows for a retrospective method of adoption. The Company’s adoption of this ASU will result in expanded disclosures related to income taxes but will not have a material impact on the Company’s financial statements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 updates reportable segment disclosure primarily by requiring disclosures of significant segment expenses, while also aligning interim and annual disclosure requirements under ASC Topic 280. Additionally, this requires a public entity that has a single reportable segment to provide all the disclosures required by this ASU and all existing segment disclosures in ASC Topic 280. This ASU is effective for Nerdy’s financial statements for the year ending December 31, 2024 and interim periods within fiscal years beginning after December 15, 2024. This ASU requires a retrospective method of adoption. The Company’s adoption of this ASU will result in new disclosures related to segments (as the Company has been and continues to be an entity with a single reportable segment) but will not have a material impact on the Company’s financial statements.

NOTE 3 — NONCONTROLLING INTERESTS

As of September 30, 2024, Legacy Nerdy Holders owned 64,943 OpCo Units, equal to 36.1% of the economic interest in Nerdy LLC, and 64,943 shares of Class B Common Stock. As of December 31, 2023, Legacy Nerdy Holders owned 67,256 OpCo Units equal to 38.7% of the economic interest in Nerdy LLC, and 67,256 shares of Class B Common Stock.

Nerdy Inc. owned 63.9% and 61.3% of the outstanding OpCo Units as of September 30, 2024 and December 31, 2023, respectively. The financial results of Nerdy LLC and its subsidiaries were consolidated with and into Nerdy Inc., and the portions of the consolidated net earnings (loss) of Nerdy LLC, which the Legacy Nerdy Holders were entitled to or required to absorb, was allocated to NCI. At the end of each reporting period, Nerdy LLC equity attributable to Nerdy Inc. and the Legacy Nerdy Holders was rebalanced to reflect Nerdy Inc.’s and the Legacy Nerdy Holders’ ownership in Nerdy LLC. Prior to the Earnout Transaction (see Note 1), the Company excluded Earnouts in the calculation of the ownership interests in Nerdy LLC as the Earnouts were subject to forfeiture.

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The following table summarizes the changes in ownership of OpCo Units in Nerdy LLC, excluding Earnouts, for the periods presented.


	As Of and For The Three Months Ended September 30,				As Of and For The Nine Months Ended September 30,
	2024		2023		2024		2023
OpCo Units
Nerdy Inc.
Beginning of period	112,245		95,516		106,416		90,654
Vesting or exercise of equity awards	2,227		2,218		6,130		6,387
Conversion of Combined Interests into Class A Common Stock	500		500		2,426		1,193

Issuance of OpCo units as a result of the Warrant Transactions	—		4,306		—		4,306
Inclusion of OpCo units as a result of the Earnout Transaction	—		1,875		—		1,875
End of period	114,972		104,415		114,972		104,415
Legacy Nerdy Holders
Beginning of period	65,427		65,803		67,256		65,948
Vesting or exercise of equity awards	16		48		113		596
Conversion of Combined Interests into Class A Common Stock	(500)		(500)		(2,426)		(1,193)

Issuance of OpCo units as a result of the Warrant Transactions	—		513		—		513
Inclusion of OpCo units as a result of the Earnout Transaction	—		1,343		—		1,343
End of period	64,943		67,207		64,943		67,207
Total
Beginning of period	177,672		161,319		173,672		156,602
Vesting or exercise of equity awards	2,243		2,266		6,243		6,983


Issuance of OpCo units as a result of the Warrant Transactions	—		4,819		—		4,819
Inclusion of OpCo units as a result of the Earnout Transaction	—		3,218		—		3,218
End of period	179,915		171,622		179,915		171,622
Ownership Percentage
Nerdy Inc.
Beginning of period	63.2	%	59.2	%	61.3	%	57.9	%
End of period	63.9	%	60.8	%	63.9	%	60.8	%
Legacy Nerdy Holders
Beginning of period	36.8	%	40.8	%	38.7	%	42.1	%
End of period	36.1	%	39.2	%	36.1	%	39.2	%

NOTE 4 — REVENUE

The following table presents the Company’s revenue by business category for the periods presented.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024		%		2023		%		2024		%		2023		%
Consumer	$	31,919	85	%	$	34,494	85	%	$	113,237	79	%	$	115,125	83	%
Institutional	5,429		14	%	5,580		14	%	28,451		20	%	22,474		16	%
Other (a)	182		1	%	222		1	%	553		1	%	716		1	%
Revenue	$	37,530	100	%	$	40,296	100	%	$	142,241	100	%	$	138,315	100	%

(a)Other consists of EduNation Limited, a company incorporated in England and Wales, and other services.

Contract liabilities are reported within “Deferred revenue” on the Company’s Condensed Consolidated Balance Sheets. Deferred revenue consists of advanced payments from customers for performance obligations that have not been satisfied. Deferred revenue is recognized when the performance obligations have been completed. The Company expects to recognize substantially all of the deferred revenue balance in the next twelve months. The following table presents the Company’s

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“Accounts receivable, net” and “Deferred revenue” reported on the Condensed Consolidated Balance Sheets for the periods presented.


	September 30, 2024		December 31, 2023
Accounts receivable, net	$	7,424	$	15,398
Deferred revenue	$	15,687	$	20,480

“Accounts receivable, net” is reported net of reserves of $643 and $544 as of September 30, 2024 and December 31, 2023, respectively.

NOTE 5 — RESTRUCTURING

In July 2023, the Company communicated workforce reductions primarily to certain variable hourly employees in tutor operations and IT customer support roles. The workforce reductions were the result of efficiencies gained through new recurring revenue relationships with higher lifetime value customers that simplify the Company’s operating model, as well as ongoing automation efforts involving self-service capabilities, the application of artificial intelligence, and other efficiency efforts. The Company incurred and paid employee-related restructuring charges of $841 during the three and nine months ended September 30, 2023, which were included in “General and administrative expenses” in the Condensed Consolidated Statements of Operations. The restructuring charges incurred during the three and nine months ended September 30, 2023 equaled the total restructuring charges for this event. No restructuring charges were incurred during the three or nine months ended September 30, 2024.

NOTE 6 — INCOME TAXES

Nerdy Inc. holds an economic interest in Nerdy LLC (see Notes 1 and 3), which is treated as a partnership for U.S. federal income tax purposes. As a partnership, Nerdy LLC is generally not subject to U.S. federal income tax under current U.S. tax laws as its net taxable income (loss) and any related tax credits are passed through to its members and included in their tax returns, even though such net taxable income (loss) or tax credits may not have actually been distributed. Nerdy Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its distributive share of the net taxable income (loss) and any related tax credits of Nerdy LLC. The Company continues to maintain a full valuation allowance against the deferred tax assets at Nerdy Inc. as of September 30, 2024.

The effective income tax rate was (0.12)% and (0.18)% for the three and nine months ended September 30, 2024, respectively, and (0.10)% and (0.17)% for the three and nine months ended September 30, 2023, respectively. The effective income tax rates differed significantly from the statutory rates in both the current and prior year periods, primarily as a result of changes in the valuation allowance and income tax benefit attributable to the NCI. Income tax expense reported in both current and prior year periods represents amounts owed to state authorities.

NOTE 7 — LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share of Class A Common Stock.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net Loss Attributable to Class A Common Stockholders	$	(15,900)	$	(12,290)	$	(32,439)	$	(34,519)
Less: Undistributed net earnings attributable to participating securities	—		—		—		—
Net loss attributable to Class A Common Stockholders for basic and diluted loss per share	$	(15,900)	$	(12,290)	$	(32,439)	$	(34,519)
















Weighted-average shares of Class A Common Stock for basic and diluted loss per share	113,287		97,077		110,267		94,453

Basic and Diluted loss per share of Class A Common Stock	$	(0.14)	$	(0.13)	$	(0.29)	$	(0.37)

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The following table details the securities that have been excluded from the calculation of weighted-average shares for diluted loss per share of Class A Common Stock for the periods presented as they were anti-dilutive.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Stock options	1,919	1,394	1,919	1,394
Stock appreciation rights	5,713	5,776	5,713	5,776
Restricted stock awards	6	168	6	168
Restricted stock units	16,832	16,147	16,832	16,147
Restricted stock units - founder’s award	9,258	9,258	9,258	9,258


Combined Interests that can be converted into shares of Class A Common Stock	64,943	67,207	64,943	67,207

NOTE 8 — CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash Flows for the periods presented.


	September 30, 2024		December 31, 2023		September 30, 2023		December 31, 2022
Cash and cash equivalents	$	65,002	$	74,824	$	84,031	$	90,715
Restricted cash included in Other current assets	132		184		384		516
Restricted cash included in Other assets	—		132		132		316
Total Cash, Cash Equivalents, and Restricted Cash shown in the Condensed Consolidated Statements of Cash Flows	$	65,134	$	75,140	$	84,547	$	91,547

The Company includes amounts in restricted cash required to be set aside by contractual agreement. Restricted cash consists of cash collateralized letters of credit in support of its office leases in Tempe, Arizona.

NOTE 9 — FIXED ASSETS, NET

The following table presents fixed assets and accumulated depreciation reported on the Condensed Consolidated Balance Sheets for the periods presented.


	September 30, 2024		December 31, 2023
Fixed assets	$	49,739	$	43,494
Accumulated depreciation	(32,241)		(27,106)
	$	17,498	$	16,388

The following table presents amortization expense related to capitalized internal use software and depreciation expense reported in the Condensed Consolidated Statements of Operations for the periods presented.


		Three Months Ended September 30,				Nine Months Ended September 30,
	Statement of Operations Location	2024		2023		2024		2023
Amortization expense related to capitalized internal use software	Cost of revenue	$	1,562	$	1,299	$	4,444	$	3,891
Depreciation expense	General and administrative expenses	217		219		693		718

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NOTE 10 — INTANGIBLE ASSETS, NET

The Company’s intangible assets consist entirely of trade names. The following table presents the carrying amount and accumulated amortization related to trade names reported on the Condensed Consolidated Balance Sheets for the periods presented.


	September 30, 2024		December 31, 2023
Carrying amount	$	6,298	$	6,122
Accumulated amortization	(3,622)		(3,061)
	$	2,676	$	3,061

The following table presents amortization expense related to intangible assets reported in the Condensed Consolidated Statements of Operations for the periods presented.


		Three Months Ended September 30,				Nine Months Ended September 30,
	Statement of Operations Location	2024		2023		2024		2023
Amortization expense related to intangible assets	General and administrative expenses	$	155	$	152	$	460	$	454

NOTE 11 — DERIVATIVE FINANCIAL INSTRUMENTS

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company does not hold or issue financial instruments for speculative or trading purposes.

Prior to the Warrant and Earnout Transactions (see Note 1), the Company had issued and outstanding Warrants and Earnouts to non-employees. The Warrants and Earnouts held by non-employees were not in the scope of Accounting Standards Codification (“ASC”) Topic 718, “Compensation—Stock Compensation” and were classified as derivative liabilities under ASC Topic 480, “Distinguishing Liabilities from Equity” or ASC Topic 815, “Derivatives and Hedging.”

As a result of the Warrant Transactions and Earnout Transaction, the Warrants held by non-employees were exchanged or exercised for shares of Class A Common Stock or OpCo Units (with an equivalent number of shares of Class B Common Stock) and the portion of the Earnouts held by non-employees that remained outstanding were no longer subject to forfeiture. As such, the Company reviewed the classification of the Warrants and Earnouts issued to non-employees under ASC 815 and concluded the fair value of the Warrant and Earnout liabilities should be reclassified to stockholders’ equity. Immediately prior to closing of the transactions, the Company recorded the Warrants and Earnouts issued to non-employees at their fair values, and included these fair value adjustments in “Unrealized (gain) loss on derivatives, net” in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023. At the closing of the transactions, the Company reclassified the fair values of the Warrants and Earnouts issued to non-employees to additional paid-in capital and noncontrolling interests within stockholders’ equity from other liabilities, which resulted in a decrease to other liabilities and a corresponding increase to additional paid-in capital and noncontrolling interests on the condensed consolidated balance sheet. At September 30, 2024 and December 31, 2023, no Warrant and Earnout contracts issued to non-employees were outstanding.

The following table presents the effects of the Company’s derivative instruments in the Condensed Consolidated Statements of Operations for the periods presented.


		Three Months Ended September 30,				Nine Months Ended September 30,
	Statement of Operations Location	2024		2023		2024		2023
Non-employee Warrants	Unrealized (gain) loss on derivatives, net	$	—	$	5,010	$	—	$	11,091
Non-employee Earnouts	Unrealized (gain) loss on derivatives, net	—		(9,109)		—		2,294
		$	—	$	(4,099)	$	—	$	13,385

NOTE 12 — FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities include cash and cash equivalents, restricted cash, receivables, and accounts payable for which the carrying value approximates fair value due to their short maturities (less than 12 months). Certain assets and liabilities, including definite-lived assets and goodwill, are measured at fair value on a non-recurring basis. There were no fair value measurement adjustments recognized related to definite-lived assets or goodwill during the three and nine months ended September 30, 2024 or 2023.

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NOTE 13 — RELATED PARTIES

Tax Receivable Agreement

Nerdy Inc. has a tax receivable agreement with certain Legacy Nerdy Holders (the “TRA Holder(s)”) (the “Tax Receivable Agreement”). The Tax Receivable Agreement generally provides for the payment by Nerdy Inc. to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state, and local income tax that Nerdy Inc. actually realizes (or is deemed to realize in certain circumstances) as a result of: (i) certain increases in tax basis that occur as a result of (A) the reverse recapitalization (including as a result of cash received in the reverse recapitalization and debt repayment occurring in connection with the reverse recapitalization) or (B) exercises of the redemption or call rights set forth in the Nerdy LLC operating agreement; and (ii) imputed interest deemed to be paid by Nerdy Inc. as a result of, and additional basis arising from, any payments Nerdy Inc. makes under the Tax Receivable Agreement. Nerdy Inc. will retain the benefit of the remaining 15% of these net cash savings.

As of September 30, 2024, Nerdy Inc. has not recognized a liability of $117,864 under the Tax Receivable Agreement after concluding it was not probable that such Tax Receivable Agreement payments would be paid based on its estimates of Nerdy’s LLC future taxable income. Nerdy Inc. did not make any payments to the TRA Holders under the Tax Receivable Agreement during the three and nine months ended September 30, 2024 or 2023. The amounts payable under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future. If the valuation allowance recorded against the deferred tax assets applicable to the tax attributes referenced above is released in a future period, the Tax Receivable Agreement liability may be considered probable at that time and recorded within the statement of operations.

NOTE 14 — COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Independent Contractor Classification Matters

The Company, through its consolidated subsidiaries, is subject to various legal and regulatory proceedings at the federal, state, and municipal levels challenging the classification of third-party Experts on its platform as independent contractors, and claims that, by the alleged misclassification, it has violated various labor and other laws that would apply to employees. The Company disputes any allegations of wrongdoing and intends to continue to defend itself vigorously in these matters.

In 2019, a Complaint was filed in a Superior California Court against Varsity Tutors alleging that Varsity Tutors misclassified California tutors as independent contractors as opposed to employees in violation of the California Labor Code and seeking penalties and other remedies under California’s Private Attorneys General Act (“PAGA”). In October 2023, Varsity Tutors agreed to a tentative settlement in this matter that remains subject to Court approval (as required by PAGA), which is expected in the fourth quarter of 2024 or early 2025. No expense was recorded in the Condensed Consolidated Statements of Operations related to these matters for the three and nine months ended September 30, 2024. The Company expensed $1,250 and $1,700 in the three and nine months ended September 30, 2023, which was included in “General and administrative expenses” in the Condensed Consolidated Statements of Operations, related to this matter. At September 30, 2024 and December 31, 2023, the Company had accrued $2,000 for this matter, which was included in “Other current liabilities” on the Condensed Consolidated Balance Sheets, respectively.

Other

The Company is subject to various other legal proceedings and actions in the normal course of business. In the opinion of management, based upon the information presently known, the ultimate liability, if any, arising from such pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are likely to be asserted, taking into account established accrual for estimated liabilities (if any), are not expected to be material individually or in the aggregate to the consolidated financial condition, result of operations, or cash flows of the Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and capital resources of Nerdy Inc. and its consolidated subsidiaries. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein and our audited consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), filed with the United States Securities and Exchange Commission (the “SEC”) on February 27, 2024. In addition, the following discussion and analysis of Nerdy Inc.’s financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth in the sections entitled “Item 1A. Risk Factors” in Part I of the 2023 Annual Report and “Item 1A. Risk Factors” in Part II of this report, as well as under the section “Cautionary Note On Forward-Looking Statements” below. Unless otherwise stated or the context otherwise indicates, all references in the succeeding paragraphs to “Nerdy,” “the Company,” “us,” “our” or “we” mean Nerdy Inc. and its consolidated subsidiaries.

OVERVIEW

We operate a platform for live online learning. Our mission is to transform the way people learn through technology. Our purpose-built proprietary platform leverages technology, including artificial intelligence (“AI”), to connect students, users, parents, guardians, and purchasers (“Learner(s)”) of all ages to tutors, instructors, subject matter experts, educators, and other professionals (“Expert(s)”), delivering superior value on both sides of the network. Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats, including Learning Memberships, one-on-one instruction, small group tutoring, large format classes, tutor chat, essay review, adaptive assessments, and self-study tools. Our flagship business, Varsity Tutors LLC (“Varsity Tutors”), is one of the nation’s largest platforms for live online tutoring and classes. Our solutions are available directly to Learners (“Consumer(s)”), as well as through education systems (“Institution(s)”). Our platform offers Experts the opportunity to generate income from the convenience of home, while also increasing access for Learners by removing barriers to high-quality live online learning. Our offerings include Varsity Tutors for Schools, a product suite that leverages our platform capabilities to offer high-dosage tutoring and our online learning solutions to Institutions. We have built a diversified business across the following audiences: K-8, High School, College, Graduate School, and Professional.

KEY OPERATING METRICS

We monitor the following key operating metrics to evaluate the growth of our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

“Active Member(s)” is defined as the number of Learners with an active paid Learning Membership as of the date presented. Variations in the number of Active Members are due to changes in demand for our solutions, seasonality, testing schedules, and the launch of new membership options. As a result, we believe Active Members is a key indicator of our ability to attract, engage, and retain Learners. Active Members exclude EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”), as well as our Institutional business.


Active Members in thousands	September 30, 2024	June 30, 2024	March 31, 2024	December 31, 2023	September 30, 2023	June 30, 2023
Active Members	39.7	35.5	46.1	40.7	39.5	31.0
YoY change	1%	15%	40%	101%	250%	1,450%

“Active Experts” is defined as the number of Experts who have instructed one or more sessions in a given period. We believe Active Experts is a key indicator of our ability to service Learners and provide Experts with revenue-generating opportunities. Active Experts also includes our Institutional business, but excludes First Tutors UK. The following table summarizes Active Experts for the periods presented. Our Active Expert count during the three and nine months ended September 30, 2024 was primarily driven by higher Institutional active Experts when compared to the prior year periods, which reflects the continued scaling of our Institutional business.


	Three Months Ended September 30,		Change	Nine Months Ended September 30,		Change
Active Experts in thousands	2024	2023	%	2024	2023	%
Active Experts	9.5	9.0	6%	17.3	14.1	23%

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RESULTS OF OPERATIONS


	Three Months Ended September 30,								Nine Months Ended September 30,
dollars in thousands	2024		%		2023		%		2024		%		2023		%
Revenue	$	37,530	100	%	$	40,296	100	%	$	142,241	100	%	$	138,315	100	%
Cost of revenue	11,077		30	%	11,108		28	%	45,786		32	%	41,138		30	%
Gross Profit	26,453		70	%	29,188		72	%	96,455		68	%	97,177		70	%
Sales and marketing expenses	20,315		54	%	19,233		47	%	53,244		38	%	49,652		36	%
General and administrative expenses	31,862		85	%	35,508		88	%	97,017		68	%	94,921		68	%


Operating Loss	(25,724)		(69)	%	(25,553)		(63)	%	(53,806)		(38)	%	(47,396)		(34)	%
Unrealized (gain) loss on derivatives, net	—		—	%	(4,099)		(10)	%	—		—	%	13,385		10	%
Interest income	(768)		(3)	%	(844)		(2)	%	(2,533)		(2)	%	(2,460)		(2)	%
Other (income) expense, net	(27)		—	%	(5)		—	%	8		—	%	11		—	%

Loss before Income Taxes	(24,929)		(66)	%	(20,605)		(51)	%	(51,281)		(36)	%	(58,332)		(42)	%
Income tax expense	29		—	%	21		—	%	90		—	%	97		—	%
Net Loss	(24,958)		(66)	%	(20,626)		(51)	%	(51,371)		(36)	%	(58,429)		(42)	%

Net loss attributable to noncontrolling interests	(9,058)		(24)	%	(8,336)		(20)	%	(18,932)		(13)	%	(23,910)		(17)	%
Net Loss Attributable to Class A Common Stockholders	$	(15,900)	(42)	%	$	(12,290)	(31)	%	$	(32,439)	(23)	%	$	(34,519)	(25)	%

Revenue

Revenue for the three months ended September 30, 2024 declined when compared to the prior year period primarily due to lower average revenue per member per month (“ARPM”) in our Consumer business. Revenue growth for the nine months ended September 30, 2024 when compared to the prior year period was driven by the continued scaling of our Institutional business, partially offset by lower ARPM in our Consumer business. ARPM was lower in both current year periods due to a higher mix of lower frequency Learning Memberships when compared to the prior year periods. Revenue for the nine months ended September 30, 2023 included legacy Package revenue of $15,850 thousand that did not recur in the current year period due to the completion of the transition to Learning Memberships in our Consumer business.

The following table presents our revenue by business category for the periods presented.


	Three Months Ended September 30,								Change
dollars in thousands	2024		%		2023		%		$		%
Consumer	$	31,919	85	%	$	34,494	85	%	$	(2,575)	(7)	%
Institutional	5,429		14	%	5,580		14	%	(151)		(3)	%
Other (a)	182		1	%	222		1	%	(40)		(18)	%
Revenue	$	37,530	100	%	$	40,296	100	%	$	(2,766)	(7)	%


	Nine Months Ended September 30,			Change
dollars in thousands		2024		%		2023		%		$		%
Consumer		$	113,237	79	%	$	115,125	83	%	$	(1,888)	(2)	%
Institutional		28,451		20	%	22,474		16	%	5,977		27	%
Other (a)		553		1	%	716		1	%	(163)		(23)	%
Revenue		$	142,241	100	%	$	138,315	100	%	$	3,926	3	%

(a)Other consists of First Tutors UK and other services.

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Cost of Revenue and Gross Profit

The following table sets forth our cost of revenue and gross profit for the periods presented.


	Three Months Ended September 30,						Change			Nine Months Ended September 30,						Change
dollars in thousands	2024			2023			$		%	2024			2023			$		%
Revenue	$	37,530		$	40,296		$	(2,766)	(7)%	$	142,241		$	138,315		$	3,926	3%
Cost of revenue	11,077			11,108			31		—%	45,786			41,138			(4,648)		(11)%
Gross Profit	$	26,453		$	29,188		$	(2,735)	(9)%	$	96,455		$	97,177		$	(722)	(1)%
% Margin	70		%	72		%				68		%	70		%

Cost of revenue for the three months ended September 30, 2024 was flat year over year. Cost of revenue for the nine months ended September 30, 2024 increased due to higher Expert costs of $4,095 thousand, primarily related to higher utilization of tutoring sessions across Learning Memberships in our Consumer business and the continued scaling of our Institutional business.

Gross profit for the three months ended September 30, 2024 of $26,453 thousand decreased by $2,735 thousand, or 9%, compared to the same period in 2023. Gross margin was 70% for the three months ended September 30, 2024, compared to gross margin of 72% for the three months ended September 30, 2023. Gross profit for the nine months ended September 30, 2024 of $96,455 thousand decreased by $722 thousand, or 1%, compared to the same period in 2023. Gross margin was 68% for the nine months ended September 30, 2024, compared to gross margin of 70% for the nine months ended September 30, 2023.

The decrease in gross margin for the three months ended September 30, 2024 was primarily due to lower ARPM coupled with higher utilization of tutoring sessions across Learning Memberships in our Consumer business, partially offset by lower seasonal utilization of our access-based products in our Institutional business. The decrease in gross margin for the nine months ended September 30, 2024 was primarily due to lower ARPM coupled with higher utilization of tutoring sessions across Learning Memberships in our Consumer business and higher substitution costs in our Institutional business. Recently introduced improvements to our marketplace infrastructure systems, including session scheduling enhancements, invoice automation improvements, and changes to the tutor substitution program logic, collectively are expected to drive gross margin improvement on a go-forward basis, while simultaneously improving the customer experience due to the higher reliability level of our marketplace infrastructure systems.

Operating Expenses

The following table sets forth our operating expenses for the periods presented.


	Three Months Ended September 30,				Change			Nine Months Ended September 30,				Change
dollars in thousands	2024		2023		$		%	2024		2023		$		%
Sales and marketing expenses	$	20,315	$	19,233	$	1,082	6%	$	53,244	$	49,652	$	3,592	7%
General and administrative expenses	31,862		35,508		(3,646)		(10)%	97,017		94,921		2,096		2%
Total operating expenses	$	52,177	$	54,741	$	(2,564)	(5)%	$	150,261	$	144,573	$	5,688	4%

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2024 and 2023 included stock-based compensation of $556 thousand and $695 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses increased $1,221 thousand, or 7%. Sales and marketing expenses for the nine months ended September 30, 2024 and 2023 included stock-based compensation of $1,729 thousand and $2,224 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses increased $4,087 thousand, or 9%.

Sales and marketing increases were driven by investments in our Institutional sales organization which were made to drive customer acquisition, brand awareness, and reach, including through signing up school districts with free access to the Varsity Tutors platform, which is a strategy to introduce school districts to the platform and ultimately convert them to our fee-based offerings. These investments were partially offset by Consumer marketing efficiency gains.

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General and Administrative

General and administrative expenses include compensation for certain employees, support services, product and development expenses intended to support continued innovation, and other operating expenses. Product and development costs were $11,273 thousand and $10,085 thousand for the three months ended September 30, 2024 and 2023, respectively, an increase of $1,188 thousand. Product and development costs were $33,505 thousand and $26,907 thousand for the nine months ended September 30, 2024 and 2023, respectively, an increase of $6,598 thousand. Product and development costs include compensation for employees on our product and engineering teams who are responsible for developing new and improving existing offerings, maintaining our website, improving efficiencies across our organization, and third-party expenses.

General and administrative expenses for the three months ended September 30, 2024 included non-cash stock based compensation of $9,256 thousand. General and administrative expenses for the three months ended September 30, 2023 included non-cash stock based compensation, costs related to the warrant and earnout transactions, restructuring costs, and a provision for legal settlement of $10,927 thousand, $1,940 thousand, $841 thousand, and $1,250 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $2,056 thousand, or 10%.

General and administrative expenses for the nine months ended September 30, 2024 included non-cash stock based compensation of $30,509 thousand. General and administrative expenses for the nine months ended September 30, 2023 included non-cash stock based compensation, costs related to the warrant and earnout transactions, restructuring costs, and a provision for legal settlement of $30,578 thousand, $1,940 thousand, $841 thousand, and $1,250 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $6,196 thousand, or 10%.

We believe our investments in product development and our platform-oriented approach to growth have allowed us to launch and continuously improve our suite of ‘always on’ subscription products, including Learning Memberships for Consumers, and our District, Teacher, and Parent Assigned offerings for Institutional customers. We believe these subscription and access-based offerings simplify our operating model needed to support the organization, which allows us to maximize our investment in our unified platform.

Unrealized (Gain) Loss on Derivatives, Net

During the three and nine months ended September 30, 2023, we recognized a (gain) loss of $(4,099) thousand and $13,385 thousand, respectively, related to non-cash mark-to-market adjustments on our warrants and earnouts prior to the warrant and earnout transactions. Of the net gain recognized in the three months ended September 30, 2023, $5,010 thousand and $(9,109) thousand related to warrants and earnouts, respectively. Of the loss recognized in the nine months ended September 30, 2023, $11,091 thousand and $2,294 thousand related to warrants and earnouts, respectively.

Interest Income

Interest income for the three months ended September 30, 2024 was $768 thousand, a decrease from $844 thousand in the same period in 2023, driven by lower interest income on our cash balances during the current year period. Interest income for the nine months ended September 30, 2024 was $2,533 thousand, an increase from $2,460 thousand in the same period in 2023, driven by higher interest income on our cash balances during the current year period.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents totaling $65,002 thousand and $74,824 thousand, respectively. We have incurred cumulative losses from our operations, and we may incur additional losses in the future. Our operations have historically been financed primarily through cash on hand and capital contributions. To the extent we generate negative operating cash flows, it is possible that we may have to finance future operations primarily or in part from cash on hand.

Cash Requirements

Our cash requirements within the next twelve months include working capital requirements, sales and marketing activities, and capital expenditures. We believe our cash on hand will be sufficient to satisfy these future requirements.

As of September 30, 2024, we had no debt obligations. Our cash requirements under our contractual obligations and commitments consist primarily of lease arrangements. For information on our lease obligations and the amount and timing of future payments, see Note 17 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of our 2023 Annual Report. There have been no material changes to our leasing arrangements previously disclosed in our 2023 Annual Report.

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The following table sets forth our cash flows for the periods presented.


	Nine Months Ended September 30,
dollars in thousands	2024		2023
Cash used in:
Operating activities	$	(4,288)	$	(2,515)
Investing activities	(5,700)		(3,923)
Financing activities	—		(567)
Effect of Exchange Rate Change on Cash, Cash equivalents, and Restricted Cash	(18)		5
Net Decrease in Cash, Cash Equivalents, and Restricted Cash	$	(10,006)	$	(7,000)

Operating Activities

Cash used in operating activities for the nine months ended September 30, 2024 increased $1,773 thousand when compared to the same period in 2023 as investments in our Institutional sales organization and product development to drive innovation and support our continued growth were partially offset by favorable changes in working capital primarily related to fluctuations in the timing of sales and collections of receivables and the payments of other current liabilities.

Investing Activities

Cash used in investing activities was $5,700 thousand and $3,923 thousand for the nine months ended September 30, 2024 and 2023, respectively. Cash used in investing activities for both periods related to capital expenditures primarily for the development of internal use software and IT equipment.

Financing Activities

Cash used in financing activities for the nine months ended September 30, 2023 was $567 thousand, which related to transaction costs paid in connection with the warrant and earnout transactions. We did not have any financing activities in the nine months ended September 30, 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies and estimates are more fully described in our 2023 Annual Report. There have been no material changes to our critical accounting policies and estimates previously disclosed in our 2023 Annual Report.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 within “Notes to Condensed Consolidated Financial Statements (Unaudited)” in Part 1, Item 1 of this report for a discussion regarding recently issued accounting standards.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future, including our expectations with respect to: enhancing the Learning Membership experience; continued improvements in sales and marketing leverage; the growth of our Institutional business; changes to our marketplace infrastructure systems; simplifying our operations model while growing our business; and the sufficiency of our cash to fund future operations. Any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “approximately,” “believes,” “contemplates,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “outlook,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “seeks,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Our financial condition, results of operations, and cash flows may differ materially from those in the forward-looking statements as a result of various factors, including:

•our limited operating history, which makes it difficult to predict our future financial and operating results;

•our history of net losses;

•risks associated with our ability to acquire and retain customers, operate, and scale up our Consumer and Institutional businesses;

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•risks associated with our intellectual property, including claims that we infringe on a third party’s intellectual property rights;

•risks associated with our classification of some individuals and entities we contract with as independent contractors;

•risks associated with the liquidity and trading of our securities;

•risks associated with payments that we may be required to make under the tax receivable agreement;

•litigation, regulatory, and reputational risks arising from the fact that many of our Learners are minors;

•changes in applicable laws or regulations;

•the possibility of cyber-related incidents and their related impacts on our business and results of operations;

•risks associated with the development and use of artificial intelligence and related regulatory uncertainty;

•the possibility that we may be adversely affected by other economic, business, and/or competitive factors;

•risks associated with managing our rapid growth; and

•other risks and uncertainties included under “Risk Factors” within Part II, Item 1A of this report and in our 2023 Annual Report filed with the SEC on February 27, 2024.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” elsewhere in this report. Readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

EMERGING GROWTH COMPANY STATUS

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

We expect to remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of TPG Pace Tech Opportunities’ initial public offering, (b) in which we have total annual gross revenue of at least $1,235,000 thousand, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our shares of common stock that are held by non-affiliates equals or exceeds $700,000 thousand as of the prior June 30 or (2) the date on which we have issued more than $1,000,000 thousand in non-convertible debt securities during the prior three-year period.

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SMALLER REPORTING COMPANY STATUS

As of December 31, 2023, we were no longer a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. An entity is a “smaller reporting company” based upon the following criteria: (i) the market value of our shares of common stock held by non-affiliates is less than $250,000 thousand as of the prior June 30, or (ii) our annual revenues are less than $100,000 thousand during the prior fiscal year and the market value of our shares of common stock held by non-affiliates is less than $700,000 thousand as of the prior June 30.

According to 5120.1b of the SEC Financial Reporting Manual, once we fail to qualify for smaller reporting company status, we will remain unqualified until making a subsequent determination either: (i) our public float falls below $200,000 thousand as of the last business day of our most recently completed second fiscal quarter or (ii) our public float and annual revenues meet certain other requirements for subsequent qualification as of the last business day of our most recently completed second fiscal quarter. Based upon the facts and circumstances that existed as of June 30, 2024, we have re-entered smaller reporting company status and will use scaled disclosures in future reports, as applicable, permitted for a smaller reporting company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our exposure to market risk, foreign currency exchange rates, and interest rates are immaterial.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Company, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2024. Based on that evaluation, the Company’s CEO and CFO concluded that, as of September 30, 2024, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Limitations on Effectiveness of Controls and Procedures

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS.

For information regarding our legal proceedings, refer to Note 14 within “Notes to Condensed Consolidated Financial Statements (Unaudited)” in Part I, Item 1 of this report, which is incorporated herein by reference.

For disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, we have elected to disclose matters where we reasonably believe such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1,000 thousand or more. Applying this threshold, there are no such environmental proceedings to disclose as of and for the three months ended September 30, 2024.

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ITEM 1A. RISK FACTORS.

In addition to the information set forth elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), you should carefully consider the risk factors we previously disclosed in our Annual Report on Form 10-K as of and for the year ended December 31, 2023 (the “2023 Annual Report”), filed with the SEC on February 27, 2024. As of the date of the Quarterly Report, there have been no material changes to the risk factors previously disclosed in our 2023 Annual Report. These risks could materially and adversely affect our business, financial condition, results of operations, and cash flows. However, these risks are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations, and cash flows.

ITEM 5. OTHER INFORMATION.

Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements

During the three months ended September 30, 2024, the adoption or termination of contracts, instructions, or written plans for the purchase or sale of our securities by a director or “officer,” as defined in Rule 16a-1(f) under the Exchange Act, each of which is intended to satisfy the affirmative defense conditions of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, were as follows:

Name

Title

Action

Date Adopted

Expiration
Date

Aggregate Number of Securities to be Purchased or Sold

Christopher Swenson (a)

Chief Legal Officer

Termination

6/14/2024

9/12/2024

167,758

(a)Christopher Swenson, the Company's Chief Legal Officer, terminated a Rule 10b5-1 Plan on September 12, 2024. Mr. Swenson’s plan provided for the potential sale of up to 167,758 shares of the Company's Class A Common Stock. The plan was adopted on June 14, 2024, and was set to expire on February 2, 2025.

No other director or “officer,” as defined in Rule 16a-1(f) under the Exchange Act, of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K during the three months ended September 30, 2024.

ITEM 6. EXHIBITS.

The following exhibits are either provided with this Form 10-Q or are incorporated herein by reference.


Exhibit No.						Description

3.1						Certificate of Incorporation of Nerdy Inc. (incorporated by reference to Exhibit 3.1 filed with the Company’s Form 8-K filed on September 24, 2021 (File No. 001-39595)).

3.2						Bylaws of Nerdy Inc. (incorporated by reference to Exhibit 3.2 filed with the Company’s Form 8-K filed on September 24, 2021 (File No. 001-39595)).

31.1						Certification of Charles Cohn pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 7, 2024.

31.2						Certification of Jason Pello pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 7, 2024.

* 32.1						Certification of Charles Cohn and Jason Pello, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 7, 2024.

101						Interactive Data File (Form 10-Q for the quarterly period ended September 30, 2024 filed in iXBRL (Inline eXtensible Business Reporting Language)). The financial information contained in the iXBRL-related documents is “unaudited” and “unreviewed.”

104						The cover page from the Company’s Form 10-Q for the quarterly period ended September 30, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.

* These certifications are deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Nerdy Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Nerdy Inc.

Date: November 7, 2024	By:	/s/ Jason Pello
		Name: Jason Pello
		Title: Chief Financial Officer

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Date	Price Target	Rating	Analyst
8/9/2024	$5.00 → $3.00	Buy → Hold	Canaccord Genuity
8/9/2024		Overweight → Neutral	JP Morgan
8/9/2024		Outperform → Market Perform	Northland Capital
8/9/2024		Outperform → Mkt Perform	Raymond James
3/11/2024	$5.00	Overweight	JP Morgan
10/9/2023	$5.00	Equal Weight	Barclays
8/28/2023	$5.50	Outperform	Raymond James
5/17/2022	$8.00 → $3.00	Buy → Neutral	Goldman

SEC Form 10-Q filed by Nerdy Inc.

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