Q4 2021 Nerdy Inc Earnings Call
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Yes.
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Good evening and thank you for attending today's nerdy fourth quarter 2021 earnings call. My name is Selena and I will be your moderator all lines will be in use it during the presentation portion of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Molly Sorg head of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us for <unk> fourth quarter and full year 2021 earnings call with me are Chuck co founder Chairman and Chief Executive Officer, Marty adjacent Palo Chief Financial Officer.
I turn the call over to Chuck I'll remind everyone that this discussion will contain forward looking statements, including but not limited to expectations with respect to <unk> future financial and operating results strategy opportunities plans and outlook.
Forward looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results.
Any forward looking statements are made as of today's date and <unk> does not undertake or accept any obligation to publicly release any updates or revisions to any forward looking statements to reflect any change in expectations.
Change in events conditions or circumstances on which any such statement is based.
Please refer to the disclaimer in todays press release announcing <unk> fourth quarter and full year results and the company's filings with the SEC for a discussion of the risks.
Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today's press release for reconciliations of these non-GAAP measures.
Let me turn the call over to Chuck Chuck.
Thanks, Molly and thank you to everyone who has joined US today. We appreciate your interest in <unk>.
We're happy to be back in front of you discussing the strong momentum we built in 2021 and the meaningful opportunities. We believe are ahead of us.
Let's get started with a few of our 2021 highlights.
Last year, you already achieved new all time demand records with full year 2021 revenue growing 35% from the prior year to $140 7 million.
And bookings growing nearly 50% over 2020.
From a platform perspective, we saw strong engagement with active orders up 46% and online sessions up 73% over 2020 with paid session per active expert increasing 19% versus the prior year.
The investments we are making in product technology sales and marketing are driving strong customer engagement retention across existing users and driving growth in new users.
These investments are paying off both in terms of driving scale and strong unit economics as a one to one customer ltvs continue to grow.
Our consumer results demonstrate the continued momentum and strength of our platform based approach to growth.
With technology at our core we continue to scale and new subjects formats and audiences increasing user engagement.
We also launched versus tutors for schools in August representing the beginning of an institutional go to market strategy to serve new audiences that institutional strategy over time, we'll focus on schools universities businesses and other organizations.
Earlier this month, we contracted with our 100 school district and important early milestone, but one that represents only scratching the surface of the scale of opportunity we see across the more than 14000 school districts within the United States.
With over $140 million on our balance sheet. Following the closing of our business combination with TPG pace tech opportunities.
Our business is more than sufficiently capitalized to fund our company to profitability.
And to pursue targeted M&A.
There's a lot to be excited about here, we're seeing strong business momentum in January and February across our business, including user growth engagement bookings and consumption.
As we look ahead to 2022, our business is focused on three core things all of which we believe will continue to help drive our growth and advance our value proposition and strategic positioning in the market.
First we plan to further penetrate the direct to consumer market with enhanced product offerings audience coverage and a relentless focus on the customer experience, including self service capabilities.
We are executing on the vast institutional opportunity in front of us as we begin to develop recurring and durable relationships with schools and other institutions.
Third we are building out our scalable technology platform with new products and capabilities to better meet the needs of learners.
This platform oriented approach to growth allows us to utilize the shared capabilities. We have developed that serve as the building blocks that can be modified for different markets that audiences, providing significant leverage over time for every dollar invested.
In doing so we're able to build solutions that improve quality decrease cost improve convenience and meet the needs of orders, enabling broad access to high quality LIBOR.
And as our business scale, we can achieve meaningful operating leverage from the platform investments we are making today.
We believe the demand for supplemental learning is rapidly growing as a result of several macro trends. We're excited to talk with you about today.
First let's talk about the trends what youre seeing on the consumer side of the business. We continue to see that learners and parents are increasingly receptive to using online learning platforms as higher quality more convenient and less expensive supplemental learning solutions.
This rapid adoption has led to online learning platforms being viewed as normal further accelerating their appeal and driving overall market expansion, which we believe is just getting started.
<unk> platform allows us to personalize experiences for learners at scale through technology, making our solution, even more attractive to our customers and enabling us to efficiently target and serve new audiences as we highlighted in our fourth quarter shareholder letter. We believe we are at the beginning of a GBA War.
A long term trend toward heightened and unprecedented levels of competition amongst students for great grades.
Nearly 80% of undergraduate universities have taken a test optional approach to admissions no longer requiring <unk> exams.
That leaves GPA as the most heavily weighted component of the college application.
Students that might have historically distinguish themselves with a standardized test scores now must increasingly do so through GPA.
January 2022 survey found that 62% of tenants with high School age children believed GPA is more important than it has ever been for college bound students.
Focus on GPA is changing the way that many students are thinking about leveraging tutoring and supplemental academic support in the past. Many students historically would cramp for short periods of time measured in weeks with the objective of achieving a great score on the AC Trs.
Now with GBS. The priority students are focused on maximizing their grades over four years across all classes to ensure their highest average possible score.
This shift in focus has translated to increased demand for our services with one on one consumer bookings for our middle and high school academic audiences, increasing by 43% in the fourth quarter and 41% in 2021 compared to the same periods of the prior year.
As we said in November when learning and outcomes matter to students our business accelerates.
Shifting gears to our professional audience, we're continuing to see rapid growth in this category as professionals increasingly seek to augment their qualification with advanced certificates and coursework.
Bookings in our professional audience grew 77% in the fourth quarter and 91% in 2021 compared to the same periods in the prior years, representing one of our fastest growing audiences among our direct to consumer offerings.
Importantly, we're seeing these demand trends persist into 2022, driving our decision to strategically invest in further product innovation sales marketing experts supply and our technology platform.
We view these initiatives as having strong ROI with each dollar of investment leveraged across multiple audiences driving revenue growth and scale for years to come.
And these strategic investments are coming at the perfect time supporting our ability to serve as the provider of choice in the $75 billion supplemental learning market as it rapidly shifts from offline to online.
On the institutional side, our enthusiasm for the growth potential in this space is influenced by the macro environment. We are operating in today.
As we enter 2022, the education system in United States is under tremendous stress, but.
But with immense opportunity for transformation.
While COVID-19 accelerated and amplified some of the acute challenges that existed before the pandemic and added incremental headwinds in the process. It also created an environment, where new solutions to these challenges are welcome and are actively being pursued.
And with the recent advancements in technology like the learning solutions that nerdy offers transforming the way people Werent has never been more possible.
We believe we are on the brink of what we call the great Unbundling of education as school administrators and educators are beginning to rethink how they can deliver the best outcomes for students looking for new solutions beyond the traditional approach, which historically solve learning demands only with internal and in person resources.
Education leaders are more open than ever using online solution and are recognizing the value of third party platforms can bring to complement existing classroom instruction, including in scaling evidenced based high dosage tutoring.
We call. This the euro of unlimited learning and view this as the beginning of a durable long term category trends.
<unk> is being recognized by educators administrators and policymakers alike.
In his speech vision for education in America delivered last month Education Secretary Miguel Cardona highlighted that strategies like targeted intensive tutoring can help meet the needs of students and the demands of the economy.
He challenged all district leaders have set a goal of giving every child that fell behind during the pandemic at least 30 minutes per day three days a week with a tutor to provide that child with consistent intensive support recognizing that we cannot expect classroom teachers to do it all by themselves.
We believe <unk> learning platform as a service can be the unlimited learning solution for school districts administrators and educators as they seek to improve student outcomes.
Our learning platform as a service offers a customizable set of solutions, allowing learning to be always on and available for learners.
By offering a comprehensive suite of learning solutions institutions can add services and product offerings over time as needs evolve, allowing <unk> to be a long term partner to institutions as they seek recurring relationships that bring modern solutions to their districts.
Fortunately the capabilities of this new offering represents only the beginning of an institutional go to market strategy that we believe can be as big as our direct to consumer efforts.
Our learning platform as a service can easily be adapted to serve new audiences beyond schools, such as universities businesses and other organizations we.
We are building each platform capability once with the intent of leveraging the investment in many new markets and with many new audiences over time.
We believe nerdy is offering the right suite of product solutions as the education landscape evolves and we entered the new era of unlimited learning.
I believe we are participating in a once in a generation opportunity to help drive the shift from offline to online in learning.
And the investments we have made to build a scalable platform can easily be leveraged to serve new audiences and market and put us in a position to lead in the transformation of how people work through technology.
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 business continued to grow rapidly throughout the year and into the fourth quarter as we executed on our product innovation and growth strategy.
This led to record bookings and revenue in our direct to consumer business and the launch of our institutional strategy with the introduction of our new tuners for schools.
Our financial results demonstrate the continued momentum and strengthen our platform based approach to learning.
And we remain confident in the underlying trends driving demand for our services. The long term transition from offline to online learning, but largely growing addressable market and our ability to scale and innovate at a rapid pace to deliver solutions that meet learner needs in any subject anywhere and at anytime.
On the top line, we continue to innovate and bring new products to market that further extends our ability to reach new audiences and deepen relationships with learners, while also increasing expert engagement and driving revenue growth.
We achieved new all time bookings and revenue records in both the fourth quarter and the full year.
Bookings of $47 3 million in the fourth quarter up 53% over the fourth quarter of 2020 and bookings of $159 9 million in.
In 2021 were up 48% versus the prior year.
Revenue of $42 million during the fourth quarter, yielding a 27% growth year over year with full year revenue of $140 7 million up 35% over 2020.
Revenues from our institutional strategy were immaterial to both our fourth quarter and full year 2021 results.
Super growth increase relative to our third quarter growth rate.
Bookings and revenue growth were driven by strength in our direct to consumer offerings across the K through eight high School College graduate and professional adult audience. In addition to the launch of our city tutors for schools.
They're a strong leading indicator of the demand in our business, giving us increased confidence that the platform investments. We made during 2021 are working to drive new customer adoption as well as strong engagement and retention across the existing users.
Moving down to P&L gross profit of $28 $7 million increased 27% year over year during the fourth quarter.
Year to date gross profit of $94 million increased 36% over 2020 and gross profit increases were driven by the continued adoption of one one online learning expansion across more subjects consumer audiences, such as professional and learning differences.
And growth in our small group class format.
Gross margin of 68, 2% during the quarter and 66, 8% during the year.
That's the comparable periods in 2020.
Sales and marketing expenses on a GAAP basis were $17 9 million for the fourth quarter and $65 4 million for the full year up 5% and $21 6 million versus the same period in 2020.
non-GAAP sales and marketing expenses, excluding noncash stock based compensation were $17 2 million or 41% of revenue in the fourth quarter, and $62 1 million or 44% of revenue for the full year.
This compares to 39% of revenue in last year's fourth quarter and 42% of revenue in 2020.
In both the fourth quarter and full year, we continue to make investments in marketing targeting new audience and advertising new products, including <unk>.
Celebrity led.
<unk> large NUPLAZID to drive customer acquisition brand awareness and reach.
We also made investments in establishing and growing our sales organization to support varsity tutors for schools, our institutional offering.
Additionally investments in machine learning automation continue to provide us with operating leverage improvements.
General and administrative expenses for the fourth quarter to full year with $34 3 million and $122 million respectively.
<unk> nonrecurring onetime items and noncash stock compensation expense non-GAAP G&A expenses were $19 1 million or 45% of revenue in the fourth quarter, and $61 3 million or 44% of revenue for the full year.
This compares to $11 million or 33% of revenue and $40 2 million or.
39% of revenue in the same period in 2020.
In both the fourth quarter and full year 2021, we saw higher general and administrative expenses as we accelerated investments in new product development moving quickly to bring in new talent to drive innovation and growth.
These investments allow us to launch our institutional strategy with the introduction of varsity tutors for schools building scale. The institutional sales team grow expert supply as well as develop and launch a new suite of product capabilities and supported the initiatives.
We also expanded and enhanced our finance accounting and legal function in connection with becoming a newly public company a onetime step up in costs, but over time will create leverage as our business grows.
We reported a non-GAAP adjusted EBITDA loss of $5 5 million in the fourth quarter of 2021, and $22 4 million for the full year compared to non-GAAP adjusted EBITDA of $200000 in the fourth quarter of 2020, and a non-GAAP adjusted EBITDA loss of $8 9 million for the full year.
This decrease in adjusted EBITDA relative to 2020 was mainly driven by the onetime costs associated with becoming a newly public company and the strategic investments, we made new talent and marketing to drive product innovation and growth into buildup varsity tutors Schwartz.
We continue to believe that now is the time to invest in our platform in order to capitalize on the attractive macro tailwind impacting your business.
They need to build out the foundation for our institutional strategy.
And to build new products and technology capabilities that will enable us to better meet the learner and expert needs in the future supporting innovation operate more efficiently and help drive continued growth while further strengthening our competitive moat.
And importantly, each dollar of investment we make quarter learning solution for one of these can be leveraged across multiple audiences over time.
We ended the year with cash and cash equivalents of $144 million and no debt.
Riding us with ample liquidity to operate against our plan and achieve profitability by the end of 2023.
Our strong liquidity also puts us in a position of strength to pursue targeted M&A as the overall market for supplemental learning expand quickly shifts from offline to online.
The strong consumer institutional demand trends that drove our all time record revenue in 2021 have continued in early 2022.
Providing us with increased confidence that these trends, including the rapid shift from offline to online learning the GPA war integrate unbundling of education, leading to unlimited learning can prove to be robust catalysts for our business.
Given these trends as well as our growth investments designed to capitalize on these favorable demand tailwind we have increased confidence in our 2022 outlook.
Today, we are providing the following guidance update.
For the first quarter of 2022, we expect revenue in a range of $45 million to $48 million up 34% at the midpoint from $34 6 million in the year ago quarter.
For the full year of 2022, we expect revenue in the range of $196 million to $200 million.
Representing more than 40% growth at the midpoint, we're starting 2021 revenue of $147 million.
<unk> growth forecast reflects normal pre COVID-19 seasonality in the first half of the year, followed by the anticipation of heightened travel during the summer months.
And then a return to normal fourth quarter trends for the direct to consumer audience.
We also expect revenue from our new growth investments to build throughout the year, including revenues driven by varsity tutors for schools, which are expected to ramp into the 2022 2023 academic school year, starting in August having the most impact on fourth quarter 2022 revenue.
As for adjusted EBITDA for.
For the first quarter of 2022, we expect a non-GAAP adjusted EBITDA loss in the range of $6 million to $8 million.
For the full year 2022, we expect a non-GAAP adjusted EBITDA loss in the range of $20 million to $25 million.
Given the strength of our balance sheet, our 2022 adjusted EBIT guidance.
The first quarter and full year reflect accelerated investments to drive efficiency and support growth in the <unk>.
Our consumer and institutional categories in order to capitalize on the significant demand trends, we're seeing across the board.
We view these initiatives as having strong rois with each dollar of investment leveraged across multiple audiences driving revenue growth at scale for years to come.
Thank you again for your time and with that I'll turn the call back over to Jeff.
Thanks, Jason and thanks again to all of you for joining us today.
I hope you can come from our remarks, we're very excited about the opportunity we see ahead for our business.
Continue to see momentum among our direct to consumer audiences as we further refine and enhance our product offerings.
And we see tremendous opportunity on the institutional side as we enter this new era of unlimited learning we.
We believe that was the right investment.
Our steadfast focus on execution our growth potential is vast.
Let's turn the call over to the operator and get started with Q&A operator.
Thank you.
To ask a question. Please press star followed by one on your telephone keypad apparently region like terminate that question. Please press star followed by team again to ask a question press Star one.
Minder.
Thank you speaker phone, please remember to pick up your handset before asking your question.
Paul here briefly ask questions Hi, guys. This is curt.
The first question comes from Andrew Bailey with JMP Securities. Please go ahead.
Hi, guys. Good afternoon, and thanks for taking my questions two please.
One just a little bit more strategic on our product Chuck I think you talked about self service in your prepared remarks can you just touch on kind of the timing there whether you've kind of run any tests.
I know you guys do some stuff around small group classes, there how can that extend to just reduce friction overall for buyers as you think more about the typical kind of one on one higher priced.
Kind of children buys and then number two is active orders came in a little bit lighter than kind of.
Thats, where our numbers were.
Can you just talk about kind of thoughts there on 2022 is it kind of fair to assume 20% growth or is there any seasonality in the <unk> is there anything to highlight as we think about kind of thinking about active Warner grants for next year. Thank you so much.
Sandy Thank you Andrew I appreciate the question.
So yes, so the way, we think about improving the customer experience. There is many different aspects of it part of it relates to personalization and part of it relates to quality part of it just is oriented around making it easy for people to get the help they need as efficiently as possible.
As it relates to self service, we've made huge upgrades to as an example, our external portfolio e-commerce capability as it relates to the classes and ability to checkout as well as building out capabilities related to supporting some of the subscription offerings. We have light clubs and we've also started to improve many aspects in.
<unk> is a big opportunity to remove friction make the experience more intuitive and we think that'll manifest in a couple of different ways, including continuing to improve net promoter score.
Making it easier to consume additional products, including additional tutoring subjects as well as purchasing.
Tangential products like classes, and then just making it easier to order. So we're going to be continuing to work on this throughout the course of the year, we had a big initiative of our stream oriented toward.
We're hauling the customer experience both on mobile as well as on lab and then also improving the personalization recommendations such that without any where we help you get to the products or recommendations.
Likely the best fit for us. So we can expect for those pull through to improved efficiency as a percentage of revenue on some of the customer service.
And sales line items, we'd also expect Birch drive renewal and LTV extension and then just generally provide a better customer experience and that's something that we think is a big opportunity. This year, but that will continue to invest in on a go forward basis as well.
And Andrew I'll take the question on active riders this is Jason.
On a year over year basis, we continue to examine durable growth with active learners up 46%.
From 2021 versus 2020 from Q3 to Q4, specifically seasonally the business slowed down from Q3 to Q4 on the glass side as we've seen a mix shift towards academic trends accelerated now with the test prep down and academic tutoring up with a greater focus on GPA that Chuck mentioned during the call so sequential.
Really from Q3 to Q4 <unk> increased due to the greater mix of one to one tutoring in Q4 versus classes in the summer, which is consistent with prior years Q3. As you remember has a lot of enrichment classes in camps in the summer, which decreased as you had in the school year.
And then as I mentioned this test prep decline and shift toward academics have resulted in higher <unk>. During the fourth quarter. As you think about 2022 I would say you should continue to model low single digit declines in revenue per active learner given our anticipated continued mix shift towards a higher proportion of classes.
Which implies active learner growth will be slightly faster than our revenue guidance.
Yes, I think it's also worth noting that as we come out of Q4 and ended in Q1, we've seen the.
Asian Man in active partner growth sessions and consumption ultimately leading to higher levels of GAAP. Thus far as a result us see implementation is going to lie on the varsity tutors. The school side, which is the big revenue drivers skewing towards the class orientation as well as some of the investments we're making.
On consumer side in and around areas like professional as well as enrichment that pulling through to higher levels.
<unk>, well, which has been disproportionately driving activewear growth relative to.
Market.
Got it.
Thank you so much guys.
Thank you Andrea the next question comes from Doug, Doug Anmuth with J P. Morgan. Please proceed.
Hey, its Brian smiling on for Doug. Thanks for taking my questions just to start can you elaborate a bit on what's driving the slope of revenue growth recovery through 'twenty. Two that you discussed in the letter and potentially quantify the expected VTS contribution and.
And then just thinking about the bottomline to what are the puts and takes on the 22 EBITDA guide came in a bit lighter than we expected. So just curious to see your thoughts on the investments leading to those losses.
Yes, so as we look at the macro trends in totality, we're seeing strong consumer growth, we're seeing accelerating consumer consumption.
Using GAAP revenue growth of our consumer side growing as well we have these macro tailwind to the business, including people taking way more ownership in their education. The GPA. We are driving this maniacal focus on rates and we feel really good about the tailwind in consumer and our ability to execute it.
Against that strategy and then similarly on the institutional side. There is this incredible macro trend where schools are willing to entertain ways of solving problems and leveraging third party solutions that just didn't previously exist and the technology is now at a place where it's possible to deliver always on learning to an extent.
That simply wasn't possible or practical in the past and we feel like we're incredibly well positioned there and the investments that we're making today and you mentioned that EBITDA.
<unk> forecast for 2002, they are oriented around investing against the consumer institutional platform opportunity in such a way where we can leverage this technology enabled platform built.
Capabilities once leverage them multiple times across different audiences and market segments and over time, we think that drives not just revenue growth and consumer in institutional but also drive substantial operating leverage. So when you look at the efficacy of our spend on a bookings basis, we feel really good about how it's flowing through.
And the early signal and then how the investments, we're making and some of these areas set us up for a really big 23, as well, which is a result of how we're going about until the end of the scale of the opportunity here, we've said it before but the institutional opportunity, we believe to be as big as the consumer opportunity and we're really really excited.
Traction so we feel good about the 40.
40, plus percent revenue growth target for 2004th for 'twenty, two and we believe that the investments, we're making are commensurate with the opportunity set us up for a very high likelihood of achieving it along with the ability to put us in a position where we can have strong growth across both consumer and institutional year on that.
Yes, the only thing I'd add to that Chuck and I mentioned that we're seeing an acceleration of growth across the business. So Q3 was up 19% Q4 is up 27%.
We put you at 35% at the midpoint for Q1, and then the full year growth for 2020, you've continued to accelerate.
40% at the midpoint.
The guide range. So this is why we are doubling down on investment the macro trends Chuck talked about the GPA more of the great unbundle the that were in the shareholder letter and in the prepared remarks today.
A bigger opportunity than what we saw a year ago. So we think it's the right time to invest.
The reason we went public was to make sure that we appropriately capitalized we are $144 million of cash on the balance sheet no debt and these levels of investment are modest from our perspective.
And there are varying in central.
Thanks for taking my questions.
Thank you. The next question comes from Ryan Macdonald with Needham.
Please proceed.
Hi, good afternoon checking Jason Congrats on a great quarter.
Chuck first one for you.
Interesting article in the New York Times this morning.
Our recent survey data that showed I think over half of American children missed at least three days of school and 25% and it's more than a week in January alone as you've seen sort of the surge with omicron.
And some loosening restrictions on schools, so, forcing more children to learn remotely again I'm curious as you've seen looked at sort of traffic and consumption on the platform to start the year, if youre seeing any correlation with increased number of days at home or out of school versus.
Time spent on the platform and I guess from maybe two part question is is this having an impact on the trends youre seeing in terms of consumer bookings versus also then on the institutional side to schools are obviously meeting more of this or having a greater need for the tutoring platforms given that thanks.
Thanks, Brian Great question, Yes, so the way, we think about it as odd as the outcomes matter and as long as rates are being signed and be more of being held accountable trying to learn.
There is demand for supplemental education solutions and so the specific things you referenced with the tenants being down nationally in January a little bit due to omni crop certainly as kids arent Debbie small at all in any way shape or form that a little bit of a headwind, but what we saw was that despite some of the attendance headlines that you see national.
The consumer business continued to perform well and we feel really good about how it's tracking in totality. So net net sure we'd love for there not to be any snow days or summers from that pattern as it relates to consumption patterns, but the reality is that some of these these tailwind that we have related to.
The focus on academics, the normalization of online learning and then just the acuity of the problem that schools are experiencing how well positioned we are to help them.
Worse.
Thank you reference site.
A snow day or in attendance related and so we feel good about the macros.
Linked to the business and that our ability to continue to deliver.
To deliver strong growth and also help people throughout.
These times, where there is a lot of uncertainty.
Really helpful and maybe just on the follow up for Jason you talked about obviously, some really strong success still happening on the institutional side with varsity tutors for schools 100 deals now essentially a doubling since the end of October we'd love to understand.
Any quantification around what that's translating to in terms of the.
Monetary bookings and.
You mentioned in the remarks around sort of outlook for 'twenty, two that youre expecting more a more material impact from a revenue perspective in the fourth quarter does that mean that these contracts that you're signing now are more for them for next school year or are you starting to see sort of go lives happen every day and.
Sort of that translating to consumption in early in the year.
Yes, no great question, we're really excited about the varsity tutors for schools opportunity and what it can grow into I would say in the fourth quarter as we mentioned on the last call. The expectation was but it would be an immaterial portion of the revenue and it was.
As Chuck mentioned earlier on this call we have kicked off many of the implementations. We're starting to see that go live during the first quarter and expect to continue into the second quarter.
And then as we move forward looking into 2022 2023 school year, that's where we really expect to see some of the investments we're paying off right now start to really take hold.
<unk> school to assess the need from the standardized testing that they provided students.
The heightened levels of strategic resignations and retirements that you mentioned so we think that this will continue to parlay itself into a long term durable growth opportunity, especially as we get into the coming school year, but revenue is flowing right now in the first quarter and second quarter and we feel really good about.
Thanks for the color Congrats again.
Thank you Ryan. The next question comes from Eric Sheridan with Goldman Sachs. Please proceed.
Thanks, So much for taking my question, maybe sticking with some of the themes we've talked about so far looking at those investments you plan on making a 22 first question would be can you isolate what's level of those investments might be onetime in nature. So we can better understand some of the investments drove in 'twenty, two when measured against our longer term profitability goals and trucking.
I believe in your comments you talked about how some of these investments obviously play into the broader platform fee for the company overall and could touch upon multiple areas of the business over the long term could you just refresh investors view on how you see investments, reflecting black and driving sort of more of a platform ecosystem impact across the entirety of the car.
Over the medium to long term thanks, so much.
Thanks, Eric Good question, so as Jason referenced earlier, we had a one time big step up in public company related costs, and accounting finance legal and related expenses, we would not expect that those would grow proportionate to revenue over time.
As you think about the areas that we're investing both as it relates to consumer and then institutional and then our tech platform. Most of those take the form of personnel. So we're investing in one core underlying tech platform that we can build a capability volume leverage it many times and that powers, both say our professional audience are enriched.
<unk> audience are earning differences team on the consumer side as well as powering a lot of what we need to do to deliver on our customer expectations on the institutional side as well and so you see a big increase in engineering and product costs. This year Youre already seeing the results of those investments over the <unk>.
Last year, we grew our.
Engineering head count as an example, 50% last year, we expected to grow about 50% again. This year and then you would expect that the revenue would catch up with that increase in personnel costs. So we feel really good about the strong bookings growth that we're seeing pull through and then we would expect that.
Yeah.
Between growing into.
Engineering and product spend that's been driving growth and operating leverage combined with.
The big step up in cost related to our institutional sales team, which that takes a little bit of time to pull through you basically you basically growing into that operating leverage to a large extent in addition to getting additional operating efficiencies related to.
Self service and other capabilities matching driving higher LTV continuing to get them get.
Efficiency, there as well as gross margin improvements as classes mature and as we sell more group tutoring sessions overtime.
So all of those things.
Largely relate to the fact that past revenue catches up with bookings, which are very strong 53% in the fourth quarter, you would expect for that to that start covering the increased fixed cost, which gives us confidence in our ability to get back to profitability in 'twenty three.
Great. Thanks, so much for the color.
Thank you Eric next question comes from Maria <unk> with Canaccord. Please proceed.
Great. Thanks, so much for taking my questions first can you just comment on the competitive dynamics in the industry.
Corporate trends starting to subside here and what are you seeing with some of the offline competitors now.
And then secondly, you mentioned potential M&A is one of the growth leverage going forward can you, maybe just talk about what kind of assets and capabilities would be additive to the platform.
Thanks Maria.
So on the competitive side, we've always said that we compete mostly against offline options as well as mom and Pops, we've heard US asset there is 5000 mom and pop tutoring companies out there many hundreds of professional testing companies.
And we believe that that.
Very fragmented market and that hasn't changed over the course of the last couple of years. So there isn't any one company or group of companies for that matter that we've seen come up more frequently and so the way. We think about competition is from the perspective of making sure that we're continuing to enhance the value that we deliver over time.
<unk> faster than the aggregate market is improving and so as long as we are consistently increasing the quality of delivery were decreasing cost and we're improving convenience and then making sure that the value equation is coming out net positive every year were getting a little bit better in delivering more and more value we will ultimately take share.
Because.
How consumers ultimately make their stage in higher quality lower cost more convenient you can deliver against those things and personalize the experience, which we believe we're doing will ultimately take care of it. So there hasn't been a big shift on the consumer side.
Or any shift.
For that matter that we've seen and being able to witness.
And then on the institutional side, it's very fragmented.
Mom and pop companies that have been around for a while do you have new entrants that reforms to go. After this opportunity yes legacy companies that are pivoting to add some sort of online option and we feel like our platform and our ability to deliver high quality by learning at scale across the entire district level.
Capabilities that we felt like adaptive testing and.
Additional products that we can then.
Solution sell into those audiences in ways that allow school administrators to solve problems are experiencing is really differentiated and our learning platform as a service approach is oriented around landing relationships building trust and credibility with that school in that school administrators overtime.
Demonstrating that we could add value and then presenting an opportunity for that to both extend that solution to other students and other grades throughout the school districts as well as add on additional products outside of just the initial ones that they started with.
And then Maria I'll talk to the M&A side of your question. So we're excited because we're finally capitalize to be offensive in this space and we are well funded with the balance sheet and then we've also got access to equity capital as a public company. So we feel really good about that we would focus our efforts on adding incremental capabilities that we can accelerate our.
The new product categories and that we can extend across the entire platform both the consumer side as well as the institutional side.
So the main focus of any M&A activity will be to consider targets that accelerate our product map in the future.
Got it that's very helpful. Thank you Bob.
Thank you Maria the next question comes from Mario Lu with Barclays. Please proceed.
Great. Thanks for taking the question. The first one is on varsity cater for schools.
So I was just wondering if you could share some behavior out of school districts that have signed up.
Earlier.
And the program, whether it's the ones that went live.
Had they added to their their contract budget as if any data point you.
Can share that gives you confidence that this segment will grow larger than PDP overtime.
And then secondly.
Mentioned in the past that international expansion was going to be a long term driver.
Is this less of a focus now for the company with Barstool.
Sure.
Any update on international.
Thanks, Mario I'll talk about the varsity tutors for schools behavior first and then Chuck will talk about the international opportunity in front of us so as.
As we mentioned.
The call in the shareholder letter, we signed a 100 deals. So we're seeing great product that receptivity and importantly in addition to the 100 contracts that we've signed.
Over 30% have already re up even though the vast majority of the contracts hasn't ended yet so.
That just demonstrates from our perspective, our ability to land and expand in some cases, we signed 334 deals with certain school districts, who started at a very.
Niche.
If all the benefits of the program platform and it continues we can provide all of the of our tutor base continued to expand that cements our schools for their entire school district, So feel really good about our opportunity there.
And the trend lines that we're seeing.
Yes, and then on international I think we've said this before that.
Tremendous opportunity, we believe that over time, we are well positioned to go after it.
To date, it's a mid single digit percentage of the business. We have a small number of resources focused there, but it's not a primary focus and our focus remains on the direct to consumer opportunity based on the institutional opportunity within the United States, but we're very cognizant of just how big the international opportunities over time, but.
It's relatively de prioritized, but we're pretty excited about what it can do in years ahead.
Great. Thank you.
Thank you Mario and the next question comes from Aaron Kessler with Raymond James. Please proceed.
Hey, guys. Congrats on the quarter a couple of questions. Maybe first what's kind of inflationary costs. We're seeing how are you thinking about kind of essentially adjusting rates or maybe think about paying tutors more he saw there and then just maybe you can talk about strong trends.
Within high schools any other trends you would call out may lower grades or higher Ed.
Different subjects. Thank you.
Okay, great. Thanks for the question. So so far we haven't seen any we haven't had any difficulty recruiting experts with our current fee structure active expert.
In the fourth quarter of this year were up 24% year over year versus the prior year I would say, we're experimenting with enhanced pay scales.
Called bonus structures for top experts, which we believe will help drive retention and engagement for those top experts as I mentioned.
We continuously explore the best pricing of our products.
We pass through modest pricing in the ordinary course, and believe the category to be largely an elastic so.
Overall feel good about where we're at from a cost structure perspective, and as you can.
Moving into 2022.
And then hi, Greg I think your second question was whether there's any interesting trends occurring at the audience level.
I understood that correctly.
I think were all strong signs of high school or any other things you would call out.
Yes, yes, so we have seen.
What's really interesting is that that shift away from test prep towards academics has driven a substantial increase and acceleration related to high school academic bookings in particular, so it was up 43% year over year in the fourth quarter for high school academics.
40, 41% of Hughes.
41% of the full year, 43%.
Fourth quarter, we're also seeing a lot of strength in college. So the same kind of focus on test optional that occurred with high school students applying to undergraduate universities is also occurring as it relates to college students applying to graduate universities, where there has been relatively there's been relative pressure on graduate test prep.
But its more than made up more by the strength in academic can we saw 50% growth in academic tutoring bookings for college students.
And so both of those segments, we are driving substantial bookings growth in totality that we expect pull through early in the year or two strong GAAP growth as consumption fall through and then separately professional which is another area that we've referenced we're really excited about has grown really quickly as well so for the full year.
Bookings were up 91% for our professional business on the consumer side and 77% for the fourth quarter specifically so.
Professionals professional consumers are looking for the.
The same sort of benefits you get from an online platform that exist for all age so rather than drive to run it out classroom.
Or a strip mall they can instead go online and get a higher quality service its more convenient in many cases, where a third a third last year half price. Some of the established incumbents and we can just provide a lot of value, which continues to resonate with professionals.
Okay, great. Thank you.
Yeah.
Thank you and the next question comes from Greg Keybanc with Northland Securities. Please proceed.
Thanks, Jason and thanks for taking the questions and congrats on a strong quarter.
Quick follow up on your commentary around the professional learners.
It's growing.
Category right now at 77% growth.
So what I guess do you think is driving that and do those types of does that category of learners typically have a higher or lower ARPA.
That category of learner typically have a higher initial package size from the perspective.
Higher complexity subject leads to higher costs on the <unk> side that we pass through.
But what about what I would say that segment is a little bit more focused on passing an exam or a test so it's not it.
Sure.
LTV accretive over the fullness of time as you see in the academic side of the house.
At least today, but we're continuing to move upstream to make people more and more prepared for their test and feel like the opportunity continues to expand.
It's also worth mentioning that is our newest segment. We just launched it a couple of years grow it's launching for much much smaller base. So we think there's tremendous opportunity there and there's many examples around the professional segment, where there are companies that have $100 million revenue businesses in one subject and there is many hundreds of subjects that could fall within professional so.
Given the kind of antiquated nature of any of the competitors in the space in our building.
Leverage many of the capabilities on our platform, we feel like we're very well positioned to continue to build out that suite, including leading into things like bundling and adaptive testing, where we feel like we can add a lot more value over the course of the next year.
Got it that's helpful and then I.
I could follow up on kind of your guidance assumptions, you said varsity tutors for schools. The institutional product was pretty minimal in Q4 makes sense given its launch in August but.
Should we assume maybe a similar pace of new school additions I think it was from August to February getting to 100 is that kind of what youre, assuming in guidance and what it almost makes sense the breakout of contribution from the institutional product.
Good question I'd say the thing that we all need to keep in mind. This is a very nascent kind of like foothold into the.
In the institutional space versus six months old we feel really good about the opportunities that the.
The product market fit 100 contract.
To accelerate demand as we get reference accounts, we continue to build out the sales team in that space and expect that we'll have continued traction and demand from school, especially given the macro environment. So the one thing to keep in mind, it's very early.
As we think about 2022 guidance.
On both the consumer side as it relates to heightened travel.
Expecting a more modest Q3 than we historically would have seen and then as it relates to the institutional opportunity.
While we're working with some tool to have similar programs. We do expect that majority of schools will reduce their consumption. During the summer months and then we will have a very.
Very good fourth quarter at <unk>.
Consumers come back into back to school period, Great pattern again outcomes matter, that's what our business accelerate and you couple that with the institutional benefits that we expect to see in 2022, and 2023 school year, we feel really good.
Great. Thank you.
Thank you Greg.
That concludes the Q&A session I would like to pass the conference back to Chuck <unk> for additional remarks.
Thank you and thank you everyone for joining us today.
Frankly excited about the momentum in our business the strength that we're seeing in the consumer segment all of the initial traction we've seen on the institutional side and how the investments that we've made over the course of the last several months in particular combined with the macro trends in consumer in areas like the GBA more the parental and focus on.
Outcomes and taking ownership of education, and a normalization of online platforms combined with this incredible opportunity related to helping partners partner with schools to solve some really important problems they are experiencing.
Combined creates an opportunity that we think is really exciting warrants investing in.
And we appreciate your time and interest and as we continue to execute against this very big opportunity.
That concludes the <unk> fourth quarter 2021 earnings call. Thank you for your participation you may now disconnect your line.
Okay.
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