Q2 2021 Tpg Pace Tech Opportunities Corp Earnings Call

Yeah.

Hello, and welcome to the <unk> second quarter 'twenty 'twenty one earnings call.

My name is media and there'll be coordinating Yoko today.

It is now my pleasure to hand, you over to hoist Marta Nichols of Investor Relations. Melissa. Please go ahead when you're ready.

Good afternoon.

Noon and thank you for joining us for <unk> second quarter 2021 earnings call with me are Chuck cone founder Chairman and Chief Executive Officer of Nerdy, and Jason Hello, Chief Financial Officer before I turn the presentation over to Chuck I'll remind everyone that this discussion contains forward looking statements, including but not limited to expectations with respect to <unk>.

Performance, including projected financial information, which is not audited or reviewed by auditors and certain anticipated financial impacts of the proposed transaction.

Satisfaction of the closing conditions to the proposed transaction and the timing of the completion of the transaction.

These forward looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results.

TPG pace check opportunities does not undertake or accept any obligation to release publicly any updates or revisions to.

Any forward looking statements to reflect any change in expectations or any change in events conditions or circumstances on which any such statement is based please refer to the disclaimer in today's press release announcing their these Q2 results and TPG. Please check opportunities filings with the SEC for a discussion of the risks that can affect the business combination with all that done let me.

Turn the call over to Chuck Chuck.

Thanks, Marta and thanks to all of you for joining us today to discuss our second quarter results.

We've had a strong start to the year and the second quarters financial results again significantly exceeded our targets.

We are seeing continued positive results stemming from our investments in technology and marketing that have driven innovation and growth.

Our key operating metrics were also ahead of our targets in Q2.

Highlight just a few metrics compared to Q2 of last year.

Acted warner's grew 80% year over year online sessions grew 109% and sessions taught per active expert rose, 31% versus a year ago that means we're bringing in more werner's those learners are utilizing more of our solutions for them.

One on one instruction the classes and our experts are continuing to become more productive with our help.

Improvements across these key operating metrics translated into strong financial performance for Q2, 2021 total revenue grew 52% to $32.8 million in the quarter driven by strong Werner and engagement growth I, just mentioned with more warner's adopting more services within our.

Multi format approach.

Gross profit expanded 51% compared to Q2.2020, driven by several factors, including increased adoption of our one on one online learning expansion across more subjects and audiences, including new offerings for students with learning differences and for professionals as well as continued growth.

In our small group classes, including summer camps.

Jason will spend more time on our financial results shortly but first I want to remind you of our strategy and differentiated approach to personalized online learning.

<unk> mission is to transform how people work, we believe that innovative technology can make all the difference at nerdy, we're aiming to seamlessly connect experts and learners in any subject anywhere anytime and then make learning more personalized and accessible.

Our primary brand varsity tutors is one of the largest platforms for one on one instruction and tutoring in United States is a proprietary platform that is purpose built for learning and enables us to deliver a deeply personalized experience.

In 2020, we conducted over $4.7 million hours of live instruction across more than 3000 subjects delivering high quality instruction at scale and providing superior value to both sides of our network.

We've been able to address the needs of essentially any lerner from preschool to accomplish professional because we've taken a platform based approach that the effective engaging and convenient we offer a wide range of subjects in our platform ranging from Phoenix to algebra to chemistry and into professionals.

Subjects like nursing and investment industry exams like the series 763.

We're at 3000 subjects and counting and we deliver personalized learning across multiple burning formats, including one on one instruction small group classes large group classes and adapt itself study.

What makes dirty and the way we deliver learning so different.

Research studies have shown again and again that personalized one on one instruction has a profound impact on learning outcomes and our aim is to deliver consistently exceptional well I've online personalized learning at scale I.

I like to say imagine your best teacher effort, and then imagine you could have that quality of instruction consistently all tailored to your needs your objectives and your wording style. We are building the ability to do that at significant scale.

To do this we utilized technology, including automation machine learning and AI to identify the best experts capable of providing high quality instruction.

We then take into account over 100 different variables, including expert in learner attributes adaptive diagnostic assessments and data for past learning experiences defined and match the right expert for awareness unique needs. This allows us to select the ideal expert for a specific one there's needs which is a very important.

And differentiator for us and something legacy offline models and all my directories struggled to do well.

Our platform allows the experts to more quickly and easily get to the heart of how to help a learner and results in an exceptional experience for our learners.

We've invested substantially in our product capabilities over time to continue to enhance the experience of our platform.

In 2020, we began moving beyond one on one instruction weaving together small group classes large format group glasses and adaptive self study with one on one instruction to create a comprehensive learning destination that allows us to deepen relationships with partners on our platform.

We launched star courses, which are free live large format online classes that are interactive and can accommodate 500 to over 50000 learners at the same time.

In June 2021, we completed our 150 is stark horse and since we created the offering a year ago. We've already provided millions of hours of free live online instruction to hundreds of thousands of learners.

Dark horses have already proven to be a powerful tool to build our brand expand reach within new audiences and drive repeat engagement across multiple formats, and we anticipate continuing to invest here throughout 2021 and beyond.

We've also expanded and enhanced our paid small group class offering over the last year, giving learners a more collaborative cost effective and social experience with groups of 5% to 25 students are small group classes allow us to significantly extend reach while offering learners the same personalized instruction.

<unk> benefits as one on one instruction by leveraging our technology platform to match the right expert with the right small group of learners.

We continued to build upon our previous multi format product innovations and designed the summer camp program to be a comprehensive learning solution that leverage multiple forms of live instruction, coupled with asynchronous content.

Historically, we had designed and marketed our wording formats as standalone products largely treated them as complementary but separate learning solutions within our experience.

As you'll recall from the Investor presentations, we observed that users who engaged across multiple formats would spend significantly more specifically, we saw an 89% increase in year, one net bookings per user for those who engaged in four formats versus users who only engaged in one on one instruction.

To build upon this insight and integrated the formats into a singular proposition for summer camps that wove together small group classes self study and larger glasses into a cohesive and engaging experience for our learners instead of separate standalone products.

While we are certainly happy to have built a solid summer camp business. We believe the bigger upside will be scaling the innovations to accelerate growth on new subjects and with new audiences.

As we launched all these learning formats and brought them together, we've seen that the net result is far greater than the sum of its parts.

Retention engagement and purchases from existing users have increased dramatically.

As a result, we significantly increased our investment in small group classes. This year and we're focused on shifting more and more cohorts of partners into these deeper relationships, which is shifting our LTV curves and a durable fairly dramatic way.

And the results speak for themselves the average session reading as a near perfect for nine out of five stars and we have an NPS score of 68, which is on par with the best consumer brands in the U S.

The platform, we've created allows us to address a huge market for academic tutoring professional certification and training enrichment and language learning within the U S.

Consumers increasingly recognize that they don't have to drive to a strip mall or a corporate office park when they can find high quality instruction with the click of a button.

And consumers are excited about online learning with research showing that consumers are 73% more likely to use online learning solutions than they were a year ago and 92% of them are planning to use it on a go forward basis.

The implication for the online learning market is considerable growth. It took 15 years for ecommerce adoption to grow by five X and research suggested online learning will grow to that size and less than half the amount of time of ecommerce representing a 30% compounded growth rate going forward.

We believe we're particularly well positioned to benefit from this secular shift and stand to gain disproportionately from this powerful trend in years to come.

We continue to grow quickly as we invested in new products and began weaving together small group classes large format group classes and adaptive self study with one on one to create a comprehensive learning destination.

We're also encouraged by star courses, which allow us to extend reach improved trust and improve credibility, which are critical in this segment and improved educational accessibility in a scalable way.

As reopening continues we're seeing more inquiries for our services and we believe increased funding to address Covid related learning loss has the potential to provide a further catalyst for our business.

The Federal American rescue plan or AARP as it's known.

Has provided over $120 billion to help K 12 schools reopen safely with at least 20% earmarked to address pandemic related learning loss over the next several years.

Along with the nearly $70 billion of emergency School aid provided last year. The American rescue plan provides huge educational stimulus to help get students back on track.

To help state educational agencies school districts and students overcome learning loss during Covid 19 and to maximize their use of federal funds. We recently launched varsity tutors for schools. The solution allows state educational agencies and school districts to leverage one on one tutoring and small group tutoring.

And groups of up to five students across their entire student population.

By working directly with schools and educators to find the right tutoring solutions for students needs. We believe we can help entire school districts and students achieve equitable student outcomes with personalized high dosage tutoring to closed covid related learning gaps.

With that I'll turn it over to Jason to discuss the financials in more detail Jason.

Thanks, Chuck and good afternoon, everyone as Chuck noted our momentum continued into the second quarter and strengthen we saw strong returns on our investments in product marketing and other areas, yielding better than expected operating and financial results.

First on the top line, our Q2 revenue grew 52% year over year coming in more than $4.5 million ahead of our forecast.

What is seasonally our lowest revenue and earnings quarter, when schools and universities are out of session and vacation travel peaks.

The growth in upside were driven by several factors, including year over year active learner growth.

Subject expansion into areas like professional learning differences and expansion into new format beyond one to one instruction such as small group classes as lenders are increasingly adopting our multi format approach to delivering personalized instruction.

We've also increased the frequency of Freestor courses, which allow us to provide exceptional value to learners drive engagement across existing users and increase awareness among new lenders, we believe that improving access to high quality educational resources and affordable learning solutions allows us to attract talented mission driven employees.

And build our brand and reputation.

We also expect this will appeal to a large investor segment.

Gross profit increased 51% year over year in Q2.

Also well ahead of expectations driven as Chuck said by increased usage of one one online learning. Our addition of more subjects and audiences and ongoing growth in our small group classes, including summer camps.

After a significant year over year increases related to our shift to a 100% online in 2020 and early 2021 gross margins were flat year over year in Q2, as we significantly expanded our subject offerings and introduced hundreds of new small classes across new subjects.

Group class revenue exceeded our expectations coming in at over 300% year over year growth during the second quarter. We expect these new classes will see increased students per class over time, as we optimize the availability and number of classes.

The momentum in our one to one business combined with the successful release of several new learning format and investments in brand awareness have delivered strong lifetime value growth with recent one on one cohorts LTV coming in significantly higher than previous periods.

Given the growth in revenue and one to one LTV and the strong signal worsening we increased our spend within sales and marketing expenses to $14.2 million during Q2.2021 week.

We gained operational leverage and sales expenses to their use of automation and AI to streamline sale, which we then very deliberately reinvested the sales cost savings into growth initiatives. These included launching new marketing vehicles like dark horses, and new advertising channels like television to drive greater brand awareness and reach you.

Expect these investments to pay significant dividends in future quarters.

General and administrative expenses rose to $14.5 million in Q2 and remained flat as a percentage of revenue as compared to the second quarter of 2020.

Our transition to delivering life learning, 100% online lowered our support related expenses and we're also getting good leverage from automation and AI.

We're also generating savings and office expenses as we're now a remote first company.

<unk> hired some deeply talented people and executive management engineering product data science and design to help drive new product innovation and growth.

We're very pleased with the caliber of individuals electing to join our team.

From a supply perspective, we're able to scale the number of active experts on our platform by 26% year over year in the second quarter of 2021 and anticipation of a strong back to school period.

Our net loss of 300000 for the three months ended June 30th 2021 improved by $3.8 million year over year from a net loss of $4.1 million in the same period one year ago.

Our net loss was impacted by an $8.4 million gain on debt extinguishment.

Distant with our forecast nerdy reported a non-GAAP adjusted EBITDA loss of $5 million in the second quarter, which reflects our increased investment in growth and innovation and compares to an adjusted EBITDA loss of 900000 in the year ago quarter.

Finally on the balance sheet, we held cash and cash equivalents of $14.7 million at the end of the quarter and in July we increased our total borrowings under our loan and security agreement by 11 million to $50 million, which as a reminder, we plan to fully repay all outstanding debt at closing.

In summary, we've seen a strong start in 2021 with growth in active learners engagement exceeding our expectations as our multi format approach to delivering personalized learning continues to resonate with learners.

The economy reopening the anticipated return to more in person instruction at schools and continued execution against our key initiatives provides us with positive signal as we look out to the remainder of 2021.

Our forecast allows for when we expect to continue investing in growth and innovation for their foreseeable future as we're seeing strong returns on these investments.

The momentum in our one to one online business combined with the successful release of several new learning formats and investments in brand awareness have delivered strong one on one lifetime value improvement revenue growth in <unk>.

Gross profit expansion.

Consistent with our forecast in prior communications to you throughout the year with the expected proceeds from the proposed business combination with TPG pace.

We expect to have increased flexibility to continue investing in growth to ensure nerdy remains at the forefront of innovation, while also expanding marketing initiatives to drive awareness and capture market share at this unique moment for online learning.

The financial model, we shared at our Analyst day in April was the model, we and TPG used to evaluate the stacked transactions the potential merger.

And reflects our expectations and the annual budget for the business as of January 2021.

As you can see from these results several of our operating metrics and financial results have continued to meaningfully outpace our expectations for the first half of the year.

Thanks, again for your time and with that I'll turn the call back over to Chuck.

Thanks, Jason and thanks again to all of you for joining US today, we've been collecting some of your tough questions and Martin is here to ask them on your behalf. So let's get started with Q&A BARDA.

Thanks Chuck.

I have a list of some of the top questions. We've received on our results and the transaction. So we're going to dive into those are the first question is about the upside in Q2.

Both revenue and gross profits exceeded your forecast what were the key drivers of the outperformance on each of those lines.

So theres a lot going really well and there's a lot to be excited about we've been making a number of investments against our key initiatives and in general we've seen really strong execution from our team that has allowed us to provide learners with a lot more value than they can get elsewhere, you can see that showing up in strong Werner and engagement growth this year as more work.

<unk> adopt more of our solutions, so compare that to a year or two ago. When we could only offer someone one on one learning.

Now we can offer adaptive diagnostic testing small group classes large format group classes and they have a lot more reasons to choose us.

So as I mentioned earlier were to continue to build out our multi format products.

And taking summer camps as an example, we designed the summer camp experience to be a comprehensive learning solution. So we leverage multiple forms of live instruction and then we coupled that with asynchronous content students could work through on their own time, and we did it in a way that parents and students found really fun and really can.

Kelly.

I think theres a lot more upside here as we implement a similar approach and we begin to scale, what we did with summer camps. This year across more subjects and then more audiences in order to drive deeper and deeper levels of engagement than any one learning format can do on its own. So a really big idea and we're just getting started here.

Right. So our second question is about LTV. It looks like you saw some nice improvement in lifetime value can you provide some more insight on what's happening there.

Sure. So we have seen really strong lifetime value for one on one customers and it's been trending up as a result of a couple of different things that we've done LTV expansion in the first quarter, which is the most recent mature quarter improved 22% compared to 2019, which is on the heels of 25% growth.

Q4 cohort.

We've improved our matching capabilities of bunge, and we're better leveraging all of the data at our disposal to find the right experts for given learners unique needs. We're also improving the rate at which we get worse to engage in new products and then additional formats and we're giving customers more reasons to come back and engage with our platform.

So more stark horses more diagnostic testing.

Our product recommendations and as we launch new learning formats and brought them together to create a comprehensive learning destination over the past year. The net result has been far greater than the sum of its parts, we've seen retention and engagement and purchases from existing users have all gone up dramatically and that's pushing up the lifetime value you see in the cohort.

Currently shared.

So those cohort curves LTV is significantly higher than previous periods for one on one customers an LTV of past cohorts is continuing to go up now that Warner's have more reasons to engage in more products to purchase and we focus on shifting more of the learners into deeper multi format relationships, which in turn.

Shifting up engagement in our LTV curves in a pretty dramatic way.

One of the things I'm pretty excited about is continuing to drive deeper and deeper interactions on the platform and many of the investments we're making today are actually focused on driving improvements here.

Great. So turning to our expenses how should we think about the additional investments that you made in sales and marketing during Q2.

We've gained some nice leverage inefficiency in sales expenses and because we're seeing good results from new marketing vehicles. We've continue to deliberately reinvest sales cost savings into marketing. We're also investing in new formats like star courses and testing new advertising channels like television to drive greater brand awareness.

Rich.

We expect these investments to pay significant dividends in future quarters.

Great. So can you talk about your process for adding new small group classes.

How do you select topics and determine potential demand and the profitability potential of those classes.

Yeah, Great question, we're in the early stages of building out our small group class offering. So we're still experimenting with the right subject offerings and also how frequently to offer classes, including the right times of day.

We really ramped up our small group classes selection in Q2 and in doing so we've been doing a lot of consumer research to identify was likely to be successful.

We then launch of glass and closely monitor and measure enrollments in demand to figure out where to add more selection and where we should pay it back.

As we've mentioned before launching lots of classes quickly has a J curve associated with it as you figure out what's popular where you don't have consumer interest and what times of day or days of week or are not necessary.

That then allows us to begin to optimize the classes. We have available over time increase enrollment for glass, which then allows us to get the high level of gross margin.

We're really excited about the traction we've seen in the volume of classes customers purchased in the quarter and we would expect we will continue to get smarter about refining which classes to offer win in the coming quarters. One thing we've been doing that is resonating with learners is leaning into parents students with other similar students in particular classes and leveraging our adaptive diagnostic testing so they can be in a more sim.

<unk> cohort on the other side of the platform experts can earn more instructing groups and overtime, we expect growth in the small group classes will drive gross margins up given you're splitting the cost of the instructor over many students that.

That is what we mean when we talk about the J curve in your classes.

And then as a reminder, small group class Tam is almost two acts that are one on one instruction. So theres really a big market opportunity here and its clear from a topline perspective that the approach is working and we have a big opportunity here, we should keep leaning into.

Great. So maybe turning to experts can you talk a little bit about how tutor liquidity looks as youre heading into the back to school season.

From an expert supplier perspective, we're doing really well we grew the number of active experts on our platform 26% in Q2.

And we're bringing in really high quality experts across our expert base, 45% for the graduate where post graduate degree and the common occupations, our teacher Professor working professional College Grad School student and retiree remember our business is entirely online. So we can look anywhere in the country.

For talent.

Our experts like but the work is flexible and then they can earn on top of their day jobs. Since most of the demand is in the evenings after school and after work.

Great.

First up about the American rescue plan. Your release noted the potential for billions of dollars to be spent on addressing covid related learning loss, what more can you share about how varsity tutors for schools is trying to help with Covid learning loss.

Can you share any early progress our results from that initiative.

We're really excited about this initiative as I mentioned, we're looking to help state educational agencies school districts and students overcome learning loss during Covid 19 and to maximize the use of federal funds with the recent launch of what we call varsity tutors for schools.

We're really confident we can help students not only overcome covid wording loss, but you excel again and regain a lovely morning, and just a general confidence in school.

We're actively investing in varsity tutors for schools and we've established a dedicated sales and support team to service academic institutions, and we've improved our product capabilities to integrate adaptive self assessments. We've also enabled better reporting capabilities to help administrators.

Evidenced based live tutoring has been proven to be one of the most effective interventions to address learning loss and the department of education recommends it is an appropriate strategy for utilizing federal funding.

<unk> shows that live human tutoring can result in classroom test scores, 35% higher than asynchronous learning platforms and now more than ever we can see that millions of students need support that's personalized to meet their learning needs.

That's the core of what live tutoring offers and why leveraging one on one and small group learning resources is so vital to help overcome the acute learning law students experienced over the past year.

The American rescue plan or AARP has provided over $120 billion to help K 12 schools reopen safely.

At least 20% earmarked to address pandemic related learning loss over the next several years.

Varsity tutors for schools allows state educational agencies and school districts to leverage one on one tutoring and small group tutoring and groups of up to five students across their entire student population.

Starting to see traction in this space with school starting to sign up for our product offering and services and we expect varsity tutors for schools to contribute to growth in the back half of 2021, it's a net new initiatives not contemplated in our forecast or the transaction with TPG pace that further demonstrates our ability to innovate and meet the needs of orders.

Great. So you you've discussed the headwind that covid represented to the business in 2020.

What impact are you seeing currently and do you expect to see going into the back half of this year.

We believe many of the short term macro challenges that we experienced last year, including great optional assessments and reduced University enrollment and testing center closures have abated and are turning into a tailwind as learners are expected to return to school and as the economy reopens.

We've invested substantially in helping students and professionals multi dips and we're confident in our ability to continue to grow no matter what the environment holds.

We're feeling good about business growth now and post Covid and other factors give us confidence to as we've been discussing today, we've really enhanced our product offering and have begun to weave together small group classes large format group classes and adaptive self study with one on one to create a comprehensive learning destination.

And we've been investing in new initiatives and marketing to help fuel growth.

Also have a very strong balance sheet when the transaction closes and from a macro standpoint online learning is expected to grow at 30% compounded on a go forward basis.

We believe that we are really well positioned to benefit from the secular shift and stand to gain disproportionately for all the reasons, we've discussed with you today.

Okay. So just a couple more questions.

The first is about the transaction with TPG pace at the merger was originally expected to close in Q2 can you talk more about when you expect the transaction to close and what caused the timing change.

Thanks, Martin the main reason for the delay relative to our prior expectations as the sheer volume of work. The SEC is working through that is resulting in delays for all companies looking to go public.

We've worked very efficiently to response to SEC comments on our registration statement and believe we are in the final stages of the process. Once we receive clearance it should take about one week to print and mail the proxy voting materials and then two weeks, where the vote. We look forward to trading as nerdy on the New York stock exchange and moving forward as a public company in the near future.

Great and finally, your Q1 and Q2 results were well ahead of the forecast that was used by TPG pace Tac was evaluating the business combination and what was disclosed in your S. Four how do you feel about the back half of 2021, given the upside.

We feel great about our first half performance and as we said earlier the financial model that we shared at our analyst day in April was the model, we and TPG used to evaluate the spec transaction and the potential merger and that model reflected our expectations and the annual budget for the business as of January 2021.

And as you can see from these results our operating metrics and financial results have continued to meaningfully outpace our expectations in the first half of this year and as we said previously we won't be updating our forecast before the transaction closes we are executing well and we're making targeted investments in growth and in product innovation.

And we believe that many of the short term macro events. We saw last year are reversing and turning into a tailwind. So we feel good about our momentum.

Great. So I think that does it for the questions. Chuck is there anything you'd like to say in closing.

I really want to thank all of you again for joining US today, we're really pleased to share our strong Q2 results with you and even more excited about what we believe the future holds the opportunity keeps getting bigger and bigger.

You'd like to learn more about nerdy I'd encourage you to view our analyst day presentation on our Investor website at Www Dot <unk> Dot com.

And that's been updated to include our Q1 and Q2 financials and please also check out the videos about our products and about our customers that are linked to in todays earnings release, we look forward to closing the transaction and to speaking with each of you soon thank you.

Thank you very much for joining us today for <unk> second quarter 'twenty to 'twenty one earnings call. This now concludes the call and you may disconnect your lines.

Uh huh.

Okay.

Yes.

Okay.

Okay.

Yes.

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