What Nerdy (NRDY) Said on Its Q3 Earnings Call

Key Points

• Revenue and membership declined: Q3 revenue fell 10% year over year to $33.2 million, while active members dropped 7% to 31,800. Delayed self-service and other product launches hampered customer acquisition during the back-to-school season.
• Cost cuts narrowed losses: Adjusted EBITDA loss improved to $5.7 million from $10.2 million a year earlier, supported by lower expenses and a 44% reduction in headcount. Nerdy expects Q4 adjusted EBITDA to be approximately break-even.
• Acquisition remains key to the outlook: Nerdy forecast Q4 revenue of $37 million to $39 million, with the smaller member base limiting growth. It ended the quarter with $42.5 million in cash after borrowing an additional $10 million and expects year-end cash of $35 million to $37 million.

Nerdy NYSE: NRDY reported lower third-quarter revenue and active membership as delays in product launches limited customer acquisition during the back-to-school season. The online learning company said the smaller membership base will weigh on fourth-quarter revenue, even as cost reductions helped narrow its adjusted loss.

Revenue fell 10% year over year to $33.2 million, within the company’s guidance range of $32 million to $35 million. Its non-GAAP adjusted EBITDA loss narrowed to $5.7 million from $10.2 million a year earlier, coming in better than the guided loss of $6 million to $9 million.

Chief Financial Officer Atul Bagga said Nerdy’s priority is returning active members to growth while working toward positive free cash flow. “Member growth is where we have more work to do,” he said.

Launch Delays Weigh on Membership

Nerdy ended September with 31,800 active members, down 7% from a year earlier. Bagga attributed the decline primarily to lower new-member acquisition following delays in product launches, partially offset by improved retention.

Founder and CEO Chuck Cohn said the company’s self-service registration and checkout capabilities arrived later than planned, limiting their contribution during the back-to-school acquisition window. Historically, Nerdy has relied on generating leads and converting them through sales conversations. The new system lets customers register, purchase and begin a Learning Membership without speaking to a salesperson.

During the question-and-answer session, Cohn said several interdependent launches contributed to the delay, including a redesigned student experience, the e-commerce system and a change in payment providers from PayPal to Stripe. He also said Nerdy had under-hired on the sales side as a result of the delayed platform improvements, limiting its sales capacity.

Some features have launched, and the remaining features are expected to ship in the fourth quarter. Bagga said the company expects the year-over-year gap in new-client acquisition to narrow as the initiatives roll out.

Consumer Revenue Falls as Costs Decline

Third-quarter consumer revenue fell 7% to $30.7 million, accounting for 93% of total revenue. Institutional revenue declined 34% to $2.5 million, driven by the wind-down of Varsity Tutors for Schools. Average revenue per member per month declined 2% to $366.

Bagga said the wind-down of Varsity Tutors for Schools and the company’s exit from First Tutors in the U.K. were substantially complete. Nerdy recorded $4 million in exit-related costs during the quarter.

GAAP gross margin was 59.7%, including a $1.6 million non-cash charge for the abandonment of capitalized internal-use software related to the wind-down. Excluding that charge, non-GAAP gross margin was 64.5%, up 160 basis points from a year earlier.

Nerdy reduced its headcount to 525 at the end of the third quarter from 934 a year earlier, a decline of 44%. Bagga said artificial intelligence was handling work that previously required additional employees. Sales and marketing expenses fell 17% to $13.8 million, while general and administrative expenses declined 29% to $18.4 million.

AI spending fell to $1.5 million in the third quarter from $2 million in the second quarter. Bagga said the September spending run rate was more than 60% below its July peak, citing governance and model optimization without reduced employee adoption.

Outlook and Cash Position

For the fourth quarter, Nerdy forecast revenue of $37 million to $39 million and approximately break-even non-GAAP adjusted EBITDA. Bagga said the outlook reflects the smaller active-member base resulting from lower third-quarter customer acquisition, with cost discipline offsetting part of the effect on adjusted EBITDA.

Non-GAAP free cash flow was negative $5.9 million in the third quarter, compared with negative $4.1 million a year earlier. Bagga attributed the change to the absence of approximately $5.1 million in prepaid Varsity Tutors for Schools bookings collected in the prior-year quarter and $1.2 million in exit-related payments.

The company ended the quarter with $42.5 million in cash and cash equivalents after drawing the remaining $10 million available under the first tranche of its term loan, bringing total borrowings to $30 million. Nerdy expects to end the year with $35 million to $37 million in cash, inclusive of the loan proceeds, and said its existing liquidity should fund operations through free cash flow break-even under its current plan.

Asked what would be needed to reach that milestone, Bagga said the company felt good about its cost position but needed to improve customer acquisition. He also cited sustained retention improvements across 30-, 60- and 90-day measures.

About Nerdy (NYSE:NRDY)

Nerdy, Inc NYSE: NRDY is an education technology company that operates an online learning platform designed to connect learners with instructors and other educational resources. Its platform is primarily offered through the Varsity Tutors brand.

The company provides live, online instruction across a broad range of subjects and learning needs. Its offerings include one-on-one tutoring, small-group classes, test preparation, academic support, language learning, admissions assistance and professional development.

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