Q3 2022 Nerdy Inc Earnings Call

November 14, 2022

Yeah.

Okay.

Yes.

Okay.

Thank you.

Okay.

Thank you.

Okay.

Thank you.

Okay.

[music].

Yeah.

Good afternoon, and thank you for attending todays <unk> third quarter 2022 results Conference call. My name is Jason and I'll be the moderator for todays call all.

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to ask a question. Please press star one on yourself on the keypad.

Alex Press conference over to your host Molly Sorg head of Investor Relations.

Good afternoon, and thank you for joining us for <unk> third quarter 2022 earnings call with me are Chuck column, founder Chairman and Chief Executive Officer, Ibrd, and Jason Palo Chief Financial Officer.

Before 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.

These 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 or any change in events conditions or circumstances on which any such statement is based please.

Please refer to the disclaimers in today's shareholder letter announcing <unk> third quarter results and the Companys 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 shareholder letter for the reconciliations of these non-GAAP measures with that let me turn the call over to Chuck.

Chuck.

Thanks, Molly and thank you to everyone, who has joined US today, we're happy to be back in front of you discussing our third quarter results.

Two quarters ago, we unveiled to you our ambitious plan to evolve our products and revenue model to Orient towards long term recurring relationships with customers that default of being always on.

We did this in response to market changes, we are seeing including new consumer and institutional customer preferences for learning solutions that can provide ongoing support across academic calendar years subjects and learning formats.

As a result, we began to converge our product and revenue strategies and developed new recurring revenue products, including learning memberships for consumers and on demand features side for school district customers.

Early data suggest that our transitional Verde memberships would lead to longer duration and higher lifetime value customer relationships enhanced gross margins better marketing efficiency, better forecasting visibility and a more scalable and efficient operating model.

We also believe the transition would allow us to serve a larger market of gardeners, while offering experts and opportunity for more consistent earnings.

We shared this transition would require trading off revenue recognition in the short term because our packaged model recognizes revenue and a frontloaded manner, while in our wording membership model revenue is recognized linearly over time.

We estimated that cumulative revenue for a given customer would catch up and surpass that of the package customer by month six and the transition. We describe this revenue recognition difference as the J curve.

Two quarters into this initiative. We are pleased to report that the new business model has exceeded our expectations and validated our underlying assumptions and more.

Based on the positive feedback we received a school started across the country combined with the favorable customer economics. We observed we determined wording memberships is the winning model and we made learning memberships. The primary solution offered to consumers during the quarter.

In doing so we made the decision to lean further into the J curve on revenue recognition as we transition the larger percentage of the business than previously targeted alerting memberships. We also discontinued our academic and enrichment class our card sales by rolling them into our wording membership offering.

As anticipated and consistent with what we discussed in August .

Summer travel and leisure was heightened with consumption seasonally declining over the summer months.

Then saw continued strengthening of demand for supplemental learning as schools went back into session and demand picked up.

Notably, we haven't observed any discernible macroeconomic pressure on demand for our products.

We delivered revenue of 31 $8 million in the third quarter results that were just above the midpoint of our guidance range of 30% to $33 million.

This result reflects stronger than anticipated performance, given our decision to shift to a higher proportion of new customers to learning memberships, which decreases recognize revenue in the current quarter in order to be able to generate higher levels of revenue in subsequent quarters from those specific customers.

During the third quarter, approximately 62% of new learners in our consumer business purchased a learning membership as opposed to a package.

Revenue recognized in the third quarter from learning memberships grew to $5 8 million or 18% of total recognized revenue up from just 2% of total recognized revenue in the second quarter.

Learning membership revenue has already grown to an annualized run rate of $52 million as of September 30th.

As I have mentioned for our consumer business, earning memberships are helping to transform our relationship with customers into one that is recurring in nature spanning multiple subjects and learning formats.

This model encourages ongoing consistent learning over longer periods of time, which is leading to significant improvements in customer engagement.

In addition to one on one tutoring each membership includes access to unlimited life and asynchronous learning formats with content available for the entire household.

We are seeing these benefits deliver positive multi format engagement trends.

And over 25% of our early cohorts have adopted at least one other learning format beyond one on one tutoring for.

For customer audiences, where our classroom learning resource content is broader that number grows to 40%.

The higher retention and engagement is leading to superior customer monetization and lifetime value trends relative to our package model.

Our recent monthly cohorts cumulative membership revenue is on a path to equal or exceed historical average customer revenue cohort curves after approximately four months more than making up for the approximately 30% of customers in less than 10% of revenue the consumer class customers historically represented.

This clearly demonstrates the superior economics of our learning membership and the higher value of the active orders, we are adding to the platform.

We now expect by the end of the calendar year, our monthly subscription revenue recognized from learning memberships will exceed the revenue recognized from package customers.

And by the end of the first quarter next year, we expect our monthly consumer revenue will be driving year over year growth in our consumer business again with superior unit level economics, as we exit the J curve.

We have developed a powerful and unique proposition for learners.

Continuing to invest and serving a wider array of learning needs by offering more learning resources and providing customers with more value.

Customer surveys and engagement trends support our view that learning memberships provide the value customers desire.

Based upon our historical experience with customers engaging and learning across multiple formats as well as our recent experience with learning membership customers. We are seeing that multi format engagement is highly correlated with better retention and extending customer lifetime value and monetization.

In the fourth quarter, we are continuing to enhance learning memberships by adding unlimited access to three new products, both versus tutor jet and FSA review.

<unk> is our recently acquired kids coding platform tutor chat provides 20 <unk> support to every student with access to homework help and support from highly qualified tutors via live chat across core K through 12 subjects.

And as they review provides writing support for students whenever they needed by allowing students to upload written work to receive thoughtful feedback within 48 hours on SaaS papers reports admissions assays and more.

Tutor chat and FSA review, where both originally developed for varsity tutors for schools and we are now leveraging them and a key consumer product.

This is a good example of our platform based approach to growth, where we build a product or capability once and leverage it multiple times across different audiences.

As we expand our product portfolio make our platform more sticky and enhance the value and provide the learning membership customers. We anticipate that we can further grow customer lifetime values.

Turning now to our institutional business two quarters ago, We announced we were building two new products that would support our always on vision.

Products on demand and a teacher signs offer school districts district wide solutions that can be deployed across the entire student and teacher populations widening the impact we can have with our school district partners.

On demand provides universal support to all students with access to $24 7 million on demand chat based tutoring assay editing and self directed learning tools.

Teacher signs of the solution that empowers educators, who know students best schedule face to face online personalized support with experts.

Teachers can leverage an extra set of hands focused on reinforcing what happens in the classroom with a targeted focus on the specific needs of individual students.

These comprehensive solutions serves the entire student population supporting long term partnerships with schools.

These new product offerings are combined with our existing high dosage tutoring product. We believe nerdy provides the tools that students teachers and administrators are seeking by offering access to always on educational resources.

Earlier. This year, we also discussed that we adjusted the institutional sales teams focus towards larger school district opportunities, where there is an interest in more holistic and longer lasting partnerships.

During the third quarter varsity tutors for schools signed 21, new contracts, yielding $5 $6 million of bookings.

<unk> average contract value that more than doubled versus all prior periods.

This shift in focus to larger school district opportunities has also driven continued growth in our deal pipeline as we head into the fourth quarter.

We are seeing high levels of interest in our new products that address entire district wide student populations and target higher contract values.

These partnerships involve more complicated implementations and the involvement to more stakeholders, which is leading to longer contracting and nipple, but dacian timelines, though we believe the more significant relationships. We are building with institutions are worthy trade off.

Turning now to our marketplace dynamics, our third quarter results reflect momentum across both our consumer and institutional businesses as we reorient our products towards higher value and more recurrent relationships.

As we previously shared by orienting our business to consumers with recurring need states, we're targeting higher lifetime value customers.

Mid way through the quarter, we began slowing the number of new experts added to the platform. So as to both concentrated on deeper relationships with fewer experts and to provide those experts with more revenue generating opportunities.

It's been just over one year since <unk> became a public company.

During that time, the education landscape has changed dramatically we continue to innovate at a rapid pace bring new products and capabilities to market and evolve our go to market strategies to position <unk> as the preferred solution to meet both consumer and institutional learners needs in any subject anywhere and at any time.

As the learning membership subscriber base increases and institutional revenues grow we expect that these new go to market strategies will continue to yield operating efficiencies, we remain confident in our ability to achieve adjusted EBITDA profitability by the end of 2023 as previously communicated with that.

I'll turn the call over to Jason to discuss the financials in more detail Jason.

Thanks, Chuck and good afternoon, everyone I'm pleased to be speaking with you today about nerdy strong third quarter performance and our outlook for the balance of the year.

Our team continued to execute at a high level during the third quarter and made substantial progress against our business model evolution.

As Chuck mentioned during this year's back to school season, we accelerated our transition to learning memberships as a result of the strong customer response and the positive economics, we are experiencing as.

As we shared in our past two earnings calls.

Evolution towards learning membership results in lower near term revenue and adjusted EBITDA.

However, we expect that will ultimately allow us to generate superior long term customer unit economics, and drive higher levels of growth and profitability.

This shift in revenue recognition as reflected in our revenue growth rates for the three and nine months ended September 32022.

Expenses as a percentage of revenue also reflect the impact of recognized revenue being at the bottom of the J curve during the third quarter.

It's important to keep this in mind as we discuss our financial results for the period.

In the third quarter, we recognized revenue of $31 8 million.

Result that were just above the midpoint of our guidance range of 30% to $33 million, despite presenting a higher proportion of customers with learning memberships than originally targeted.

Revenue growth was driven by continued strength in our consumer offerings and the addition of our institutional business.

Institutional revenue of $2 $4 million represented 7% of total revenue in the third quarter.

Impacted by normal summer seasonality and longer than anticipated contracting and implementation timelines as we target larger school district opportunities.

Moving down the P&L gross profit of $21 9 million for the third quarter represented an increase of 6% compared to the same period last year.

Gross profit increases were driven by growth across consumer audiences and the addition of varsity tutors for schools.

Gross margins of 69% for the three months ended September 30 expanded approximately 300 basis points from 66% in the same period last year.

Sales and marketing expenses on a GAAP basis were $16 2 million in the third quarter, a decrease of $2 $6 million compared to the same period in 2021.

non-GAAP sales and marketing expenses, excluding noncash stock based compensation were $15 1 million or 48% of revenue in the third quarter of 2022. This compares to 52% of revenue in the same period of last year and approximately 400 basis point improvement.

Throughout the third quarter, we continued to moderate the level of marketing spend yielding the efficiencies in our consumer business.

These efficiencies were partially offset by continued investments in our institutional sales and go to market organization and supportive varsity tutors for schools, which we expect to grow into as revenue continues to grow and we slowed the rate of hiring creating operating leverage.

Over the last several months our evolution to a learning membership model when coupled with investments in automation and self service capabilities and our machine learning matching algorithm is allowing us to generate operating efficiencies.

As learning memberships mix continues to increase as a percentage of total active learners. We believe we'll be able to further simplify the sales process and operating model generating additional efficiencies.

We also continued to moderate the pace of corporate hiring and third party vendor spend in the third quarter and expect to gain operating leverage from prior investments as we allow revenue to grow without a proportional increase in both variable and fixed costs.

We expect these efficiencies will begin to materialize in the first quarter of 2023 as the cumulative built alerting membership.

Institutional revenues accelerates and we exit the J curve.

We reported a non-GAAP adjusted EBITDA loss of $14 million in the third quarter of 2022 at the high end of our guidance range of $14 million to $17 million.

<unk> were primarily driven by higher gross margin rate marketing efficiency gains, reducing the pace of hiring and diligent cost oversight.

The lower adjusted EBITDA relative to last year was primarily driven by the shift to a membership model and the associated lower near term revenue recognition that naturally flows through the lower adjusted EBITDA in the current quarter and were reflective of being at the bottom of the J curve during Q3.

As Chuck mentioned these investments have allowed us to deliver several new and exciting products, including learning memberships and our teacher assigned an on demand institutional offerings.

Turning to our business outlook today, we are providing fourth quarter and full year guidance.

As Chuck mentioned, the traction and response, we received from customers related to learning membership has exceeded our expectation.

We're also beginning to see more evidence that validates our belief that the model would lead to longer duration and higher lifetime value customer relationships enhanced gross margins and a more scalable and efficient model.

The acceleration to learning membership has continued in the fourth quarter and is the primary supplemental learning solution, we're presenting to customers.

Today, we are narrowing our fourth quarter and full year revenue guidance ranges to reflect the significant momentum we're realizing in the transition to their new memberships.

As well as the longer lead times, we are experiencing that institutional business due to the previously discussed focus on opportunities with larger school districts.

As is typical for our business, we expect sequential quarterly revenue growth driven by increases in the number of learning membership subscribers and higher institutional revenues.

For the fourth quarter of 2022, we expect revenue in the range of $39 million to $41 million.

And for the full year 2022, we are narrowing our expected revenue guidance in the range of $160 million to $162 million.

Within the guidance range, we provided when we first introduced learning membership in May.

We're targeting to exit the aggregate J curve, whereby aggregate monthly consumer revenue returns to year over year growth by the end of the first quarter in 2023.

Our adjusted EBITDA guidance for both the fourth quarter and full year reflect the natural flow through from lower recognized revenue in the quarter that is the result of accelerating the transition to learning memberships as we capitalize on the long term shift towards always on learning solutions.

The guidance also reflects the continued moderation of marketing expense and reduced levels of hiring beginning to demonstrate operating leverage.

For the fourth 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 $36 million to $38 million also consistent with the guidance ranges provided in may.

I also wanted to highlight that the second and third quarters of 2022 represent our highest projected cash use quarters, which are impacted by summer seasonality in the short term cash flow impact as we shift to a membership model.

With no debt and $106 4 million cash on our balance sheet, we have ample liquidity to fund the business and pursue growth initiatives.

Given the operating efficiencies I mentioned earlier and their ability to positively impact the P&L and as learning membership mixed growth, we remain confident in our ability to achieve adjusted EBITDA profitability by the end of 2023.

Thank you 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 as always we appreciate your interest in <unk> and look forward to continuing the dialogue. During this exciting time for the company with that I'll turn it over to the operator for Q&A operator.

If you would like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.

Our first question comes from Eric Sheridan with Goldman Sachs. Your line is now open.

Thanks, so much for taking the question maybe two if I can with what Youre learning on the membership side, how should we be thinking about elements of LTV changes looking out into next year less seasonality in the business and maybe some of the early early learnings from those components on the member.

Ship piece that we should be keeping in mind I know its little early maybe guide to 'twenty three but just how we should be thinking about the output of the velocity on the membership side and what it means for the business in 'twenty three and then in the institutional piece how much of the narrowing the range in Q4 was down to the institutional business and is there any sense you can give us some.

The backlog or elements of sales force productivity in the institutional business. So we can better understand what's being built there for the long term from a revenue base. Thanks, so much.

Okay.

Thanks, Eric good questions. So I'll take the first one and hand, the second one over to Jason but as you know we started rolling out, earning memberships in spring and accounted for about 2% of recognized revenue in the second quarter and about 18% of recognized revenue in the third quarter and one of the things that we share.

Third in the shareholder letter was actually plotting our LTV curves relative to our blended model of packages and classes and Youll see that theres significant LTV trajectory growth of LTV and the trajectory as the cohort clients relative to the old blended package in class model.

So we feel really really good about the trends and three to four months and youre seeing that would be recognized revenue from already memberships is actually eclipsing that packaged model for a given customer and is on a really really healthy trajectory. We've seen each of the last several months really starting with May and then moving into.

This most recent September cohort really positive signs there. So we have not been through an entire school year and we haven't been through some of the end of term periods, but the results are really encouraging in that if you look at the marketing side, we've been able to hold our marketing CAC.

And Pac in totality flat on the consumer side, approximately and thats with blending into what we believe are much higher LTV customers. So it's a little early to say, how how much that could change the LTV to CAC trajectory, but we feel really encouraged to share some of that data in the shareholder letter that allow you that.

See some of the trends that we're actually seeing.

And then maybe to address your question as it relates to the guide down in Q4 tiers for schools I think it's important to remember as we leaned into learning memberships that does expand and deepen.

The length of the J curve, so I would say that a little bit less than half of the change that we see and then virtually tutors for schools accounted for just over half of the guide down so over the last few quarters, we've talked about the change in focus for the institutional sales team towards larger school districts, certainly larger school districts require more constituent buyer.

And we're just launching those contract periods, but what's important here is unlike the BW space, where companies are pulling down their March 3rd Party spending government funding already been provided the monies in the market and tools are seeking out solutions just like ours.

To meet their student and teacher needs so from our perspective.

The delays are just that timing delay the transitory and are focused on new products.

Lend themselves to these district right sale is the right one for the long term.

Our next question comes from Ryan Macdonald.

Your line is now open.

Alright, thanks for taking my questions.

Chuck maybe first for you great to see some of the progress Youre, making on the learning memberships in the Si.

Signs of higher Ltvs there.

When you talk about leaning more into that as we go into fourth quarter and into early next year can you talk about what that looks like in terms of how you continue to try to push that prioritization to sort of the existing learners that are on your platform and does this come with sort of a discontinuation of the package altogether.

<unk> as we think about 2023 would just love to know some of the moving parts there.

Sure. Thanks, Brian Good question. So the way we went about rolling this out was actually testing it audience by audience and seeing the extent to which learning memberships resonated with any given audience like elementary school students more Middle School High school or some.

Some other sub segments, there and and as we proved out that it was actually resonating and it was converting with favorable economics.

Then shifting to higher and higher proportion of the business to learning memberships.

And every time, we do that.

Theres a little bit.

Many J curve so to speak early due to the fact that we need to train the consultative sales organization, we need to update our collateral and other materials, we need to update all of the content that we have available and make sure that actually resonates with that given the audience and so as we went.

Into the school year and as each of the different waves of school started we saw that it was converting well.

A lot of the customer economics that we're now maturing look really favorable and we just became excited about how these longer duration contracts that lead to higher lifetime value relationships.

They can ultimately drive enhanced gross margins they could drive better marketing efficiency side 400 bps improvement in sales and marketing efficiency in the third quarter and we would expect for continued efficiency to pull through in the coming quarters and then it can bring better forecasting visibility and then lastly than it actually is going to allow for us to operate in a more.

<unk> efficient business model that could pull through too.

Our goals are getting becoming adjusted EBITDA profitable this coming year as you feel really good about and so as we got farther into the school year, we increased the percentage of customers or 62% of consumers in the current quarter purchased eight learning partnership and then in October it's actually shifting to about 70.

5% and we do think that there is a segment of the customer base, we're learning memberships.

At least in its current form.

Is it maybe the right model to introduce today that includes test prep that professional where sometimes theres more short term and acute needs.

We're limited in duration relative to say a long term contract and so our expectation is we won't ship, 100%, but we'll ship you know call. It 80 something percent of the business over the course of the coming quarters to learning memberships on consumer side.

Yes, maybe just to add one comment to that on the consumer side, we would expect by the end of this calendar year that our monthly subscription revenue from learning memberships would exceed that in the package customers and then maybe just a little bit further beyond that by the end of the first quarter, our monthly consumer revenue driving year over year growth with more attractive unit level economics.

And having exited the J curve during this transition period.

Yes, and yes.

I think one of the things Thats interesting here is as the mix of learning memberships as a percentage of total goes up there's going to be an opportunity to simplify our sales process. Our operating model and then rationalize some of the offerings in a way to drive operating leverage.

That's super helpful color I appreciate it and maybe just on that point of sort of running a more efficient operating model moving toward Im curious what youre seeing in terms of.

Usage in terms of tutor usage.

On the membership product versus the package and how or what potential efficiencies you see there in terms of either how you scale continue to scale the number of tutors on the platform or perhaps maybe optimize the number of tubes on the platform as we look out into next year. Thanks.

Okay.

Good question. So one of the things that we started focusing.

Focusing on the middle of the quarter and Youll see pull through to a greater extent in the coming quarter as we started focusing on on boarding fewer tutors and actually giving them more work and one of the benefits of the learning membership from the export side of the platform as it allows for a higher level.

<unk> income generation opportunities so from the experts perspective, they can actually count on meeting with the student every week for an entire school year.

It's just more dependable consistent that more transactional customer types. So the feedback from the expert side has been really positive and we're going to focus on allocating more work to those active experts and then orienting the relationships towards these long term customer engagements in a way that day.

Also positive customer relationship and also gives the experts themselves a higher level of consistency to that and kind of scraping. So thus far that's been really well received we really started focusing on the middle of the quarter and you'd expect to see a pull through in the coming quarters in terms of fewer experts joining the platform.

More work for us.

Excellent appreciate the color. Thanks again.

Thanks for the question.

Our next question comes from Aaron Kessler with Raymond James Your line is now open yes, hi, guys.

Couple of questions. Maybe just can you give us a sense maybe for the cost for some of the additional learning membership services, you're offering the three that you mentioned I think code versus Chitter chatter as they review.

And second maybe just on back on the institutional side.

Is there an update on maybe total contracts or total contract value and I'm wondering if there's any churn that youre seeing what they existing contracts as you move to larger school districts. Thank you.

Okay.

Yes, sure I can maybe take the second one first so we can put it in the shareholder letter that during the quarter we.

We booked $5 6 million institutional contracts. So there was 21, new 'twenty three.

'twenty, two I think recurring contracts or renewals.

Importantly, as we've shifted towards this.

Larger school district focus we're seeing that the contract values have more than doubled in the third quarter versus the first half of the year on the one hand and the renewal section.

We're starting to see that those sites that have renewed have more than double the level of contract value with us so positive signs on both sides.

But as we mentioned those higher value contracts in larger school district deals do take a little bit more time, but those kind of metrics that I provided.

Optimism that truly is just a timing issue.

And then on your <unk>.

First question, so three new different three new products that we're adding we're learning membership. So one is classes, we're offering 255 classes per week that come as part of this all inclusive model. We then have tutor chat chat based tutoring offerings that we originally built for varsity tutors for schools that were now incorporate.

<unk> and other shifts in that lastly.

As a review which is the on demand at the editing tool that we also know from our seat heaters for school separate again leveraging into learning membership. So two good examples of how we can build once and then leverage and longer times, which is something we're pretty excited about so these these combined with code versus we believe we're going to be ways that we can generate.

<unk> value for customers throughout different different kind of pathways in their learning journey. So other summer and they may not have in the queue tutoring need there is an opportunity to engage in coding classes and leverage some of these other products that can drive higher levels of engagement and retention. So we don't expect for them to be.

On a marginal basis expenses, if anything they would more than pay for themselves through just higher levels of retention and repurchase rates at the end of contract terms. So we feel really really good about the relationship between getting customers to engage more and that leading to higher levels of retention and engagement.

And over time, and that's something that we're going to continue to lean into so it's something that we've seen historically in our packaged model continuing to prove out and our membership model and.

We're pretty excited to include these three new products this quarter.

And the only thing Thats great.

Even with the production of these new products into the learning membership during the fourth quarter, we still expect that learning memberships as compared to our historical package business will yield accretive gross margins.

Great. Thank you.

Our next question comes from Maria <unk> with Canaccord. Your line is now open.

Great. Thanks, Thanks for taking my questions.

The process of transitioning to the membership model and that we see what seems to be set up in active cards. We said this quarter. How are you thinking about your active sort of.

Progressing from here and can you talk about how your marketing message has evolved around your new membership product.

Yeah, absolutely. So when you think about active buyers now the thing that we need to keep in mind and maybe you guys were in this last quarter was that we would be including what we're historically sold on a standalone basis academic enrichment classes within Florida I understand so we anticipated that <unk> would go down during.

The quarter, we did see that there was some flow through from.

Residual classes during the summer into the quarter that was offset by higher than anticipated uptake from a membership perspective as well as from our existing base, partially offset by.

Reductions in the delay of implementation of our students for schools. So net net active learner changes were largely in line with our expectations, probably a little bit higher given the strong demand we saw on the one to one side across both passengers and memberships and then the flow through that we saw related to classes. When you think about Q.

Four we would anticipate that active learner counts would be down about 10% on a year over year basis. As we continue to have those classes hold into learning memberships.

And continue to roll those out portion.

Customer base.

Got it and then the second question was around marketing message for your new membership product.

The way, we've largely thought about this as the learning membership is most likely to resonate with the customer with a recurrent need states. So one of the things that we focused on is how.

Oh really optimizing your study title across multiple subject multiple modalities can ultimately allow for students to achieve educational outcomes.

That that just can't happen in a more transactional environment. So one of the things that we've really focused on is the fact that we can support across all these different need states and the fact that we have tutors and over 3000 subjects.

Can help you on a recurrent basis and then between tutoring classes and other modalities, we have really everything that you might need to achieve academic success, and so that more holistic messaging oriented towards a longer term need state is something that pulled through our marketing and then we lessen the focus on transactional.

Last minute.

Understood. Thank you very much.

Thanks Maria.

Our next question comes from Doug Anmuth with Jpmorgan. Your line is now open.

Thanks for the questions.

For the charts on page 11, and whether those are helpful.

Curious is there anything in your view that it could push out or delay that J curve inflection and membership surpassing the package model roughly six months out as you've laid out.

Then can you just talk a little bit about how the better than expected membership traction informs what you can develop from a product perspective over time.

Sure. Thanks, Pat Yes, we feel really good about all the trends we are seeing thus far related to kind of customer uptake and then the LTV trends over time, one of the things that we reserve the right to do the futures kind of intimated on the actual product and pricing and we want to be a little bit of flexibility.

In that regard so based on the current economics, we feel good about moving through the J curve in that six month period, but there is also different flavors of the membership that we could create over time that might have different pricing and margin structures and ultimately cause for a slightly different kind.

Kind of transition there, but we also think those are the sort of things that could dramatically expand tam and allow for us to target completely different and net new customers and so while we're focused right now on just nailing the execution related to our current implementation of our new memberships. There is the opportunity to innovate on top of this.

With different pricing and content included and other membership offerings in the future, Yes, you see that a little bit in those cohort curves that youre referencing.

<unk> and shareholder letter so from May to June we introduced twice a week frequency simple change, but drove substantial improvements in the steepness of the LTV curve.

And then since then you've seen.

High level of consistency.

But I would.

Agree with Chuck that we do reserve the right to continue to track our test our way into this bundled solution in different ways to meet different audience in these states.

But for now I think we can worry about where we're at.

Yes.

Thank you both.

Our next question comes from Brett No block with Fitzgerald. Your line is now open.

Thank you hi, guys. Congrats on the quarter two for me. The first is I think we've seen a lot, especially over the last couple of weeks.

In the media about the decline in kind of test scores.

Yes.

K 12 level I guess have you seen this kind of a light a fire in under the admin.

To try and put new processes in place to address this issue and how does that kind of coincide with call. It the longer deal cycles youre seeing across institutions.

Thanks, Brett and I think you were referencing the National report card and the need scores, which was certainly.

Headline news nationally drove a lot of inbound interest and also of course as.

Citizeness cause for great concern in the sense that.

Test scores are actually worse than I think many people had thought nationwide related to students and kind of the amount of quarterly progression over the course of the last two years. So in terms of how that then impacts the business I think it kind of twofold. One it's made schools feel a little bit more pressure to think about some of these <unk>.

And there is more kind of top down evaluation, how schools are doing on a statewide basis and of course. Many of these scores were given out state by state by state.

And as the new cycle, certainly followed so.

I think there's definitely a little bit more focus on solving this issue in the more near term than might otherwise have been the case, but this is consistent with the trends that we've seen over the course of the last couple of years, we feel good about our ability to partner with <unk>.

School districts and district administrators to really help students that clearly need a lot of help.

I would say.

Consistent with what we've seen and positive.

<unk>.

Q3 2022 Nerdy Inc Earnings Call

Request a DemoDemo

NRDY

Nerdy

Earnings