Q2 2023 Nerdy Inc Earnings Call

Good afternoon.

Thank you for attending today's Mardi, Inc. Second quarter, 20th 23 earnings call. My name is Bethany and that will be the moderator for today's call.

All lines will be needed 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.

Right across the conference over to our House T. J Lynn Associate General Counsel with Mardi Inc. Please go ahead, good afternoon, and thank you for joining us for 32nd quarter of 2023 earnings call.

With me or <unk>, founder, Chairman and Chief Executive Officer of Nerdy, and Jason Pelo, Chief Financial Officer.

Before I came to call up your chest I'll remind everyone that this discussion will contain forward looking statements.

But not limited to your expectations with respect to nerdy future financial and operating results strategy opportunities plans and outlook.

Forward looking statements involve significant risks and uncertainty that could cause the actual results.

Really from expected results.

Any forward looking statements are made as of today's date.

Does not undertake or accept any obligation to publicly release any updates of revision.

Forward looking statements to reflect any change in expectations or any change in events conditions or circumstances.

Such statement in space.

Please refer to the disclaimers and today's shareholder letter announcing nerdy second quarter results and.

In the company's filings with the SEC for a discussion of the risks.

No I'm all of the financial measures that we will discuss today are prepared in accordance with GAAP.

Please refer to today's shareholder letter for reconciliation of these non-GAAP measures.

With that let me turn the call over the check.

<unk>.

Thanks D J and thank you to everyone for joining us today.

And the second quarter of strong starts to the year continue to be delivered revenue and profitability ahead of our expectations. We also made substantial progress in advancing are always on recurring revenue product offerings and the application of AI for HIV or artificial intelligence for human interaction to our business.

As we head into the upcoming school year. It is worth noting what has changed over the past year and how we believe those changes position us for growth in the period of the head.

One year ago, we are entering our first back to school with learning memberships Ah new all access subscription offering that aimed to support learners across academic calendar years subjects and learning format.

We had just introduced the concept the quarter before and learning memberships had just driven 2% of consumer revenue in the second quarter of 2022.

Fast forward to today and learning memberships accounted for 73% of total company revenue and 88% of consumer revenue in the second quarter of 2023.

As of this June 100 per cent of new consumer customers. Joining the platform are doing so through a learning membership subscription marketing the completion of our evolution the new recurring revenue business model six months earlier than expected.

We now expect it nearly 100% of recognized consumer revenue will be from learning membership subscription by year end.

We underwent a similar evolution over the past year, and our institutional offering varsity tutors for schools.

<unk> one year ago that we're building new always on products that were built for district wide scale that will enable us to help more workers than ever before.

We also shared that we were seeking to bring together are different offerings to address a multitude of deeds for school district partners and students.

This would require building the product offering and shifting our sales strategy to focus on deeper and more comprehensive partnerships with these larger school districts.

We are pleased to share that our strategy continues to work and that's a strong momentum from the first quarter continued into the second quarter.

Our institutional business delivered revenue of $8.4 million, an increase of 43% year over year, representing 17% of total revenue in the quarter.

Bookings in the quarter totaled $10.5 million, an increase of 175% year over year.

We shared over the past year and at the start of this year that we expected our new always on recurring revenue offerings to be far superior to our legacy package model.

In addition to allowing us to provide a better and more personalized experience. The learners are new operating model would be far more efficient, allowing for us to drive operating leverage simplify ourselves model and shifts additional resources towards net new innovation, including the application of AI for H I.

Those are anticipated business model benefits are now being realized and driving substantial improvements in our operating results.

The new and simpler operating model made possible by are always on recurring revenue offerings combined with the benefits were realizing from the application of AI has allowed for us to significantly reduce the labor needed to operate the platform.

These changes have meaningfully enhanced our contribution margin profile and simultaneously allowed us to fund increased investments and product and engineering, including at the more aggressively pursue our product roadmap and drive both growth and profitability in future periods.

I am pleased to share that in the second quarter, we delivered $48.8 million of revenue an increase of 16% year over year exceeding our guidance range of $45 million to $47 million in representing an 1100 basis point acceleration and growth over the previous quarter.

We saw positive new customer acquisition and engagement trends in the second quarter with a new consumer membership and package customers acquired in the quarter growing 19% year over year.

As we progressed farther into the summer June and July represented the highest levels of year over year growth for new consumer membership and packaged customers. This year.

We completed our evolution to 100% learning memberships for new consumer customers in June was the transition as a professional audience occurring six months earlier than originally targeted.

Our customer lifetime values continued to show significant improvements relative to the old package model driven by our evolution of learning memberships and the application of AI for H I.

These drivers are key contributors to our strong operating results and improve profitability.

We delivered positive adjusted EBITDA of $1.3 million or $10.9 million improvement year over year in the second quarter, beating our guidance range and adjusted EBITDA loss of 3 million to breakeven <unk>.

That represents a more than 2500 basis point improvement and adjusted EBITDA margin year over year.

We have continued to make substantial progress on accelerating the use of AI throughout our business, including launching membership experienced improvements that leveraged generative AI as well as accelerating it's used to drive substantial operating efficiencies and internal productivity improvements.

Moving to our consumer business. The learning membership model has demonstrated superior unit level economics longer duration and higher lifetime valued customer relationships higher gross margin and is a more scalable inefficient operating model learning memberships also serves as an easier.

Platform from which to drive innovation and incremental growth given our ability to add new product capabilities into the existing all access subscription offering, thereby making the offering more appealing any gauging ultimately driving conversion of new members and the retention of existing ones.

Learning membership revenue continue to grow at a rapid pace in the second quarter revenue during the second quarter from learning memberships grew to $35.6 million or $5.9 million or 20% increase from the first quarter of 2023.

We ended the second quarter with 31000 active members paying approximately $350 per month, representing 130 million dollar annualized run rate a quarter at.

This August in time for back to school, we're introducing a significantly upgraded and enhanced Bernie membership digital experience that makes it easier for learners to more fully engage with their learning membership.

These updates are aimed at enriching the experience encouraging achievement reinforcing personal accountability to learning and improving the discoverability of learning formats and subjects.

For many years of experience, we know that when customers engage more deeply with our products, including across multiple learning formats multiple subjects or multiple students per household is highly predictive of stronger longterm retention and higher lifetime value of those customers.

The new digital learning membership experienced transforms the way members engage with our platform, making engaging in discovery with the platform more intuitive and user friendly by serving as the new homepage in central destination for learning members.

It allows members to effortlessly access their upcoming live tutoring schedule easily track their path learning interactions in a subject and track progress and achievement towards learning goals.

The new digital membership experienced enabled easier discovery of new subjects.

And will encourage users to explore additional areas of interest through personalized AI generated learning recommendations that predict and suggest the next product interaction across learning formats in subjects that are most likely to drive engagement and customer value.

The new experience also brings together all of the key account management information and resources to a simple user experience that provides easy sell service membership management tools to better meet the changing needs of learning members.

We also expect these new cell service tools will help drive operating efficiency.

Now, let's turn our attention to varsity tutors for schools and our institutional business.

Consistent with our strategy heading into 2000 twenty-three our focus on larger and more expansive partnerships with larger school districts, including the inclusion of our high dosage teacher sided on demand products or do a single district partnership is yielding results.

Institutional revenue in the quarter was $8.4 million, an increase of 43% year over year, representing 17% of total revenue in the second quarter, we completed 48 contracts in the quarter totaling $10.5 million of bookings an increase of 175% year over year yeah.

To date or average contract value is above $100000 more than double compared to the same period last year.

Our continued growth in the second quarter and expanding portfolio of reference accounts compelling efficacy data that demonstrates the effectiveness of our solutions and enhancements to our unique product suite provide us confidence that we are well positioned as we enter the key back to school selling season.

Over the last six years, he has been foundational to our ability to improve quality enhanced personalization and decrease the cost of our offerings, we've been using AI for years to power our ability to identify the highest quality experts assess learners foundational knowledge.

Sure the right expert Werner match and drive operational efficiency.

Last quarter I shares of the speed of innovation occurring at nerdy with both stunning and invigorating and that we are actively infusing generative AI into our products to supercharge and Personalised human interaction drive operating efficiency and generally enhance the effectiveness and efficiency of our platform.

I also shared that we have made significant investments in instrumentation and data capture and that through those investments had built up a large proprietary data set over the past 10 million hours alive instruction delivered through our lives learning platform.

We also shared that over the past six plus years, we had developed practical experience driving enhanced personalised learning interactions as well as efficiency gains through the application of AI.

As a result, we believe we stood the benefit tremendously from the latest advancements in generative AI.

90 days later that speed of innovation that was initially stunning is now quickly becoming just how we work.

Our teams are both encouraged and pushed to leverage AI and their daily work and all employees have access to in line generative AI tools. In addition to system and workload driven approaches to support high volume activities at scale, allowing our teams to focus their time and energy on new innovation and growth opportunities.

Illustrate the speed of innovation occurring along with where AI related investments are being made beyond some of the more visible consumer facing applications. We shared several examples in our shareholder letter a few of which I'll share with you today.

The first is related to leveraging generative AI to produce high quality learning content at scale.

In order to scale of learning content to the 3000 plus subjects. We currently support and the corresponding tens of thousands of skills, we needed to construct an AI based approach for evaluating learning content.

Design, a robust system that generates practice content across the spectrum of subjects and skills leveraged degenerative AI.

The system is unique as it integrates a human in the loop feedback process, ensuring both accuracy and difficulty Ah lines educational standards, while curating datasets, we can use for improving our own AI bottles.

Every subject is different and needs and unique dataset in order to tune and optimize our AI models for both accuracy difficulty and academic learning standard alignment.

We are rapidly deploying learning content across approximately 200 of our most in demand subjects with more than 66000, AI generated practice problems answers and explanations, having been created and vetted in the last month or so.

They will be available for learning membership customers to use this back to school season in a variety of learning formats, such as <unk> computer adaptive tests and more.

By year, and we expect to be able to <unk> the quantity of high quality learning content generated by the new AI system.

In addition of new capabilities being deployed we're also continuing to enhance the existing generative capabilities, we spoken about in the past.

During the quarter, we made enhancements to our AI tutor chat system, focusing on both user experience and educational effectiveness.

By employing an upgraded AI model and refining metrics to evaluate each conversation, we've sharpened better understanding of the AI tutors strengths and areas for improvement.

These updates reflect our commitment the pedagogical adherence and the individualized needs of each student.

We also continue to see strong engagement with our AI adolescent and generator over the last 90 days, we've had experts of the platform leverage it more than 45000 times for lesson plans and their sessions with partners. We've continued to increase the quality and relevance of this AI generated content and 92% of these lessons were.

<unk> five stars.

Another example relates using AI to.

The power Chatbots, we saw a significant interest from our internal product and operating teams and different functional areas to begin using sophisticated AI power chatbots to allow users to get answers faster.

We created a template it approached for developing training and deploying chatbots, the sport customers and internal themes.

We have seen strong results, thus far and AI powered chatbots have been deployed for a variety of different uses on both sides of the platform and for internal teams.

Our I T customer support bought for example addresses technical issues <unk> experts experience like issues with audio and video it.

It is currently resolving more than 50% of all interactions farming live agents better diagnostic information, enabling them to solve the root issue faster than we would expect for these numbers to keep going up over time.

These sorts of AI enabled solutions to completing work are helping to drive substantial operating efficiency gains across the business.

Whether it's the mass production of hyper personalized learning content or the use of AI power Chatbots for customer service interactions the application of AI throughout our business is yielding a better experience for lawyers and experts and driving significant operating leverage looking.

Looking ahead, we expect to see further winds on driving both conversion and retention as well as improvements in operational efficiency as a result of continued investments in AI.

In closing I wanted to extend my thanks to our team at nerdy for their high quality work and focus on driving strong execution and service of our learners experts institutional partners and shareholders.

We have an opportunity to redefine how people learn and build a business of significant value and impact in the years to come.

Our strategic evolution towards always on recurring revenue products and the continued implementation of AI for H I have helped to put us in a strong position entering the 2023 2024 school year.

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

Thanks, Chuck and good afternoon, everyone.

We shared at the beginning of the year that we expect that our new always on recurring revenue offerings to be far superior to our legacy package model.

The benefits would become a parent in the coming quarters.

With accelerating growth and profitability that stemmed from more attractive level economics, lager duration and higher lifetime valued customer relationships higher gross margin and a more scalable inefficient operating model.

Today I'm pleased to report that during the second quarter those anticipated business model benefits are now being realized.

And driving substantial improvements in our operating results.

And the second quarter, we delivered revenue of $48 $8 million results that were above our guidance range for $45 million to $47 million and represented 16% year over year growth.

Are active member count 31000 as of June 30th exceeded our expectations. It was driven by higher than anticipated levels of new client acquisition and strong retention among learning membership customers.

Learning memberships revenue <unk> $35.6 million during the quarter and represented 73 per cent of total company recognized revenue and 88% of consumer recognized revenue in the second quarter.

As Chuck mentioned, we expect nearly 100 per cent of consumer recognize revenues will be from learning memberships by the end of the year.

Our institutional business delivered revenue of $8.4 million, representing 17 per cent of total revenue during the second quarter <unk>.

And delivered bookings, a 10 and a half million dollars, an increase of 175% year over year.

On a combined basis learning memberships and institutional revenues delivered 90 per cent of total revenue, which is a substantial change from last year or just 16 per cent of revenues were from consumers subscription and institutional contracts.

Moving down the piano.

Gross profit of $34.1 million in the second quarter increased by $5.4 million and 19% year over year.

Gross margin of 69.8% for the second quarter was approximately 160 basis points higher than 68.2 per cent in the same period last year.

Both gross profit and gross margin increases were driven by growth in our consumer business. As a result of the strong adoption of learning memberships, which has led to the lifetime value expansion in higher gross margin.

As we evolve towards a greater mix of learning membership revenue, we expect consumer gross margin to continue to expand throughout 2023.

Sales and marketing expenses under GAAP basis for $14.9 million in the second quarter.

A decrease of $3.1 million compared to the same period in 2022.

non-GAAP sales and marketing expenses, excluding non-cash stock based compensation for $14.2 million or 29% of revenue in the second quarter. This compared to 40 per cent of revenue in the same period of last year.

An improvement of more than 1100 basis points year over year.

Sales and marketing spend it and efficiency improvements were driven by the completion of our evolution to learning memberships, including the continued expansion of lifetime value.

Our focus on optimizing the level of marketing spend in a more efficient operating model in a consumer business, leading to attractive L. T V to cap dynamics.

We also delivered substantial varsity tutors for schools revenue growth, yielding efficiencies from prior investments and the institutional sale and go to market organization.

Is learning memberships to become a greater percentage of total revenues and the institutional business continues to scale. When you expect to yield durable sales and marketing improvements as the business delivers accelerating sequential year over year revenue growth each quarter as we move throughout 2023.

G&A on a gap basis was $29.7 million in the first quarter, a decrease of $3 million compared to the same period in 2022.

non-GAAP general and administrative expenses, excluding non-cash stock based compensation or $20th.3 million or 42% of revenue in the second quarter, which compared to 54% of revenue in the same period last year and improvement of nearly 1300 basis points year over year.

In July 2023, the company communicated workforce reductions to certain variable hourly employees and expert vetting and matching rolls and icy customer support.

The workforce reductions are the result of efficiencies gained through new recurring revenue relationships with higher lifetime valued customers that simplified a companies operating model as.

As well as automation efforts involving self service capabilities, the application of AI and other efficiency efforts.

Cost savings realized from the workforce reductions across variable rolls staffed in proportion to customer volumes are allowing us to increase the pace of investments and product and engineering, including AI.

More aggressively pursue our product roadmap and drive both growth and profitability and future periods.

As Chuck mentioned, we delivered positive adjusted EBITDA of $1.3 million or $10 9 million dollar for more than 2500 basis point improvement year over year.

Meeting her guidance range of an adjusted EBITDA loss of $3 million to breakeven.

Positive adjusted you, but that was driven by improvements across every P&L line item on a year over year basis, including higher revenues roast margin expansion sales and marketing efficiency gains and continued variable labor productivity improvements stemming from our automation efforts and our business model changes streamline operations.

We believe will be able to continue to drive further efficiency and operating leverage as revenue and active member account's continued to grow.

Work on enhanced self service and AI capabilities.

During the second quarter, we had negative operating cash flow of $4.5 million, which primarily reflects the continued burned down a legacy package deferred revenue and compared to negative operating cash flow of $19.3 million last year and improvement of $14.8 million that reflects the substantial improve.

<unk> from our evolution to learn your number of ships.

We have $99 million of cash on our balance sheet and know that giving dirty ample liquidity fund a business and pursue growth initiatives.

Turning to our business outlook today, we're providing third quarter and updated full year 2023 got.

For the third quarter and full year, we expect year over year revenue growth will be driven by the completion of our evolution towards recurring revenue stream and our consumer business.

Corresponding increase in the number of learning membership subscribers and higher institutional revenues.

Third quarter revenue guidance reflects the quarterly low point in revenue during the year, which is due to normal seasonality and the resulting lower revenues from learning membership legacy package customers and varsity tutors for schools that occur when K to 12 schools and universities are on celebrate.

In fact, we experienced this summer trough or low point inactive members two weeks ago and total number of started growing again this past week a.

Trend, we expect to continue as new learning member acquisition grows approaching the start of the school year and the end of summer break for all students.

Full year revenue guidance reflects normal back to school seasonality with effectively all schools in session. After labor day in September , including anticipated higher levels of new customer acquisition and retention coupled with higher institutional revenues during the academic calendar when K to 12 schools and universities are in session.

For the third quarter of 2023, we expect revenue in a range of $38 million to $40 million, representing 23 per cent growth at the midpoint versus R. Q3, 2022 revenue of $31.8 million.

For the full year, we're raising our revenue targets from $193 million to $200 million to $196 million to $200 million, representing 22 per cent growth at the midpoint versus R 2022 revenue of $162.7 million.

Are positive momentum provides us with increased confidence in our expectation that will deliver accelerating sequential year over year revenue growth each quarter as we moved throughout 2023.

Our adjusted EBITDA guidance for both the third quarter and full year reflects the continuing benefit from a recurring revenue products, which focus on longterm relationships with higher valued customers and improving your gross margin profile and further operating efficiencies stemming from the completion of our evolution to recurring revenue business model.

Third quarter adjusted EBITDA guidance reflects the impact of lower revenue due to normal summer seasonality and higher variable costs in the third quarter as we ramp into the back to school selling season.

For the third quarter of 2023, we expect it adjusted EBITDA loss in the range of $8 million to $10 million.

For the full year, we're raising our adjusted EBITDA targets from a loss of $7 million to breakeven to an adjusted EBITDA loss of $4 million a breakeven.

Consistent with prior guidance, we expect to return to positive adjusted EBITDA in the fourth part.

Thank you again for your time and with that I'll turn it over to the operator for Q&A.

<unk>.

Thank you.

If you would like to ask a question. Please press start followed by one on your telephone keypad and.

If for any reason you would like to remove that question. Please press star followed by team again to ask a question. Please press star one and as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question with a policy of briefly ask questions are registered.

Our first question comes from the line.

Doug and that's with J P. Morgan. Please go ahead.

Hey, it's Brian Smiley conflict out thanks for taking my questions.

Just to start can you just elaborate on the early results and feedback are seeing from the revamped user experience <unk> and then could you also just provide an update on the benefits of monthly memberships and how you think about pricing double four it. Thanks.

Absolutely Thanks Bryan.

Yeah. So we're really excited with the new digital learning better shipping experience, we've completely overhaul it with a specific focus on discovery and self service tools.

So there are a variety of different ways that you can get value out of your learning membership ranging from of course like jewelry too rude classes do recorded on demand videos too asynchronous content and then as part of this back to school launch we're going to be watching a large large swath me I generated caught.

<unk> and practice test format diagnostic.

F format, and others and so there is so much different content that we wanted to organize it in a way that was consistent with how students study and so on their main dashboard page students are able to discover a variety of different tools. They can use and then dig into a particular subject and five all.

The different word associated with that subject because we know that most students prefer to learn across multiple different part of the format. So when it launched we saw pretty dramatic step function change and engagement among not tutoring formats, and that's really exciting because we know that historically when burners and.

Cage and multiple subjects or multiple learning format that we see significantly higher retention and customer lifetime valuable ultimately it. So that's exactly the metrics that we're trying to move and as we add a couple additional capabilities beyond just the existing membership features that.

They have to date like the AI generated cats have like a couple of additional generations on a couple of our key product modality accurate receiving a huge overhaul soon we're pretty excited about the potential to get yet another step function change, which we believe will ultimately lead to much higher levels of engagement and retention ultimately.

Customer lifetime value.

Awesome. Thank you and then just on the monthly membership benefit towards overall pricing and pop up on the acquisition.

Yeah, I think I would say during the summer well acquisition and retention exceed your expectations. We think from a price point perspective, the value that we can provide through the learning membership with all of them with allergies.

Appropriately place and then certainly we feel like those level, a new customer dishes. During the during the summer months continued to accelerate with June and July being highest for wealth disjointed Nikki back school period, and we feel really good about.

Set up that we've got going.

Yeah, and we saw like what does it really exciting things is that as you continue to improve the customer experience the product marketing associated with it we've seen conversion at the top of the bottle will continue to improve and that's resulted in an acceleration and use new customer additions on a year over year basis throughout.

The last several months over the last.

A couple of months to call at June July and August month today, we're in the mid to high 30, 35% growth on.

Kind of combination of tutoring package and then a large membership customers don't really excited about that and that is are you mentioned in our prepared remarks as of June 100%.

New consumer customer just joining the platform are doing so.

Which of course, the subscription revenue and more predictable and ultimately allows for us to add more value to that customer experience by continuing to buckle in additional product features that are additive to that learning experience. So the fact that there is a close connection between improving the value that we're providing to consumers conversion.

At the top of the final accelerate.

And growing them at driving new member ads that were ahead of our expectations of something that'd be feeling really really good about so right now there's about 15% of students or so in the United States or a school school started going back about a week ago over the next five weeks the remainder will begin to start but the fact that new customer Aqua.

<unk> is ramping up in the extent to which some of the new elements of our member experience. Then at are offering overall resonating really exciting and encouraging.

We're not all the way through the back to school season yet.

We have a.

Really strong summer on your desk rats could start to August and.

Thank you.

Our next question comes from the line of Brian Mcdonald with medium. Please go ahead.

Hey, Thanks for taking my question. This is messier on Verizon and nice to see the EBIT strength in the corner as well I wanted to double click on the guidance, though so I think we were a little surprised by the lower numbers in Q3 relative to consensus and I think part of that is some questions around.

Around the new learning membership model and the consumer revenue. So curious with the seasonality that you're describing the prepared remarks can we think about that is really just compare diversity tutors for school and some of those package customers and really that you're not seeing that same seasonality with some of the learning memberships and ultimately would just love to kind of get an update on what things worse sees.

And all that you're starting to see a bait and what things or maybe c's and all that will continue to be part of the nerdy model.

Now in in the future.

Yeah, I think what are the things to keep in mind, while we be revenue expectations. During Q2, Q3 guidance consistent with our expectations.

From before if you to one of the things to keep in mind.

When we guided towards acted members at the end of Q2 that was our first point going through the summer and what we ended up seeing was that the.

The low points and the number of active members actually happened about two weeks ago, and then last last week, we actually started to have again net new additions to learning memberships and then as Chuck mentioned as we enter this back to a period, where only about a weekend, we've gotta be six more weeks before the majority of students or the vast majority of students are.

In school is al Qaeda 12, and universities hosts labor day, and so the corners, a little bit that way. We just wanted to take that into consideration. Given this is our first order our first that smoked period, having the consumer offering being 100 per cent 30 members and also the timing in case of seasonality So look <unk>.

Active new ads during July June we're about 35 per cent.

We feel really good about the setup, but just again not having been through a <unk> period at 100% learning memberships and given that we're only a week into the basketball period, we felt that that guy is prudent consistent with what we had previously stated.

Yeah.

Exactly what we said we would.

So we exceeded expectations on revenue and EBITDA you do feel great about that and we finished with more active learners and we expect that that was a function better new customer acquisition and retention than expected and the low point in having them.

Summers at last week of July .

Obviously false between quarters and that from that point on ramps off. So last week, you know started ramping back up with the school year Big net positive that week. So we are really well positioned for the start of the school year, but as it relates to I guess your application around raising guidance relative to expectations around the next two quarters.

We just wanted to be a little more data, we feel really well positioned to start the school year.

This guide is consistent with our expectations.

The only thing I would add is.

No.

The positive momentum, we had and the guy that we put out their delivers accelerating sequential year over year round each quarter is removed throughout 2023, and we expect to be adjusted EBITDA positive in the fourth quarter and growing in north of 40 per cent. So we feel really good about those metrics and.

They demonstrate strength of learning member says.

Got it I appreciate it that color I think that'll that'll make sense, maybe switching gears for the institutional business. It looks like what the us or funds those should all be or they're all plan to be committed by the by the deadline at this point. So curious how additive that continues to be with with some of your RFP volume in demand and.

Then post that funding do you have any concerns that the funding is driving some interest right now and maybe that makes it tougher to drive deals once that those extra funds have been used or is it more of just added him to conversations now and you think that you can continue to have productive conversations whether S or funding cause I'm, a table or not.

Great question, so well, we're coming off a great part with 43% revenue growth in the corner or bookings $10.5 million or 175% year over year, we only launched for our seniors are schools two years ago, and one year ago, we watched this new always on.

<unk> strategy focused on larger districts bigger partnerships more comprehensive solutions <unk>.

That sponsorship from superintendents, and we feel great about the momentum today's and the extent to which our products resonating. So.

And I'll I'll answer your question about the specific funding types, but maybe to put it in perspective right. Now we are serving less than 1% of public school students and we've obviously built a tremendous amount of momentum over just this past year and as we enter the back to school period, we feel like this strategy around putting teachers.

At the center of the relationship where based on their own unique knowledge of what's current in the classroom and who needs. The most interfaith intervention, they're able to.

Prescribed to reach the students that need it and get leverage in their own lives. So we're solving kind of the two most important in acute issues that school district administrators phase, which is student achievement, including learning loss, and then separately teacher retention and this product lines up incredibly well against both of those.

As we headed in the back to school, we have a whole host of different product enhancements that will be rolling out that are oriented around making the product even better and then also even more cost efficacious as it relates to be able to help a larger number of students and making it more reasonable for an entire school district to be able to roll this out.

<unk>, so right now I believe that third.

Refunding dollars have been spent so that leaves $16 million $16 billion excuse me to be spent during the course of the next call in 15 months.

And we feel really good about the position that ran and frankly, the extent to which this product saw such a cute needs that it's durable long lasting nature and we feel like we're just getting started so we are hearing <unk>.

Multiple your heels being brought up that's exciting that's something that we expected that happened we had one of those in the quarter that was material.

And we feel good about the ability for this product to continue to scale.

Thank you.

Our next question comes from the line of Andrew Boom with J M. P. U security. Please go ahead.

[noise] met on for Andrew Thanks for taking my question maybe to just on the institutional business can you just talk about your sales for us and if there's any other investments that need to be made there, especially if the business continues to scale and then just now obviously learning memberships at an inflection point, what further investments do you need to make obviously the new the new.

Portal is a is a.

Keep focused now but are there any other additions that you need to make into that business as it continues to go. Thank you.

Sure happy to answer that good question. So the varsity theater school side, one of the things you are starting to see happen is that we're getting operating leverage at the investments that we made in our institutional go to market strategy and team over the course of the past call.

Call It 18 months or so holding that cost content benefiting from the increase revenues those are actually driving operating leverage so that kind of team size in totality of the investment there is.

Relatively constant and then as we're getting renewals app that revenue basis growing you're starting to see the benefits all through to the bottom line. So I would not expect that we grow the team substantially and feel good about the overall kind of <unk>.

Total investment there and then separately on learning memberships, you're gonna see the fact that we're adding new learning members as a ramp up through the school year.

And of course higher lifetime value, then they're packaged predecessors drive sequential revenue growth in the coming quarters. So you're basically later, taking while we expect to be higher customer lifetime valued customers on top of one another who them are hired or a longer duration at higher value per month.

As a result, you get revenue acceleration so.

We would expect kind of coming out of Q3 are seasonal low complaint that you start getting pretty significant operating leverage associated with it and while we're adding in certain areas like software engineering and AI.

Thus far those investments have been self funding and we feel really good about.

Heading into 2024, the ability for this business to be quite profitable.

Great. Thank you so much.

Thank you.

Our next question comes from the line up Maria Blue with Barclays. Please go ahead.

Hi, This is Jesse on for Mario Thanks for taking the question.

Piggy backing onto the last question. So you guys have another strong quarter in terms of marketing spent leverage and.

Sort of that layer caking.

Dynamic that you mentioned earlier, so how should we think about the sustainability of this lower marketing spend intensity and then going forward is there more runway for marketing efficiencies or should we expect to level off from here in the out years. Thanks.

Yeah. That's a great question I think as you mentioned, we've been able to drive substantial leverage through the first half of this year from all of our D perspective, given a kind of a combination of both higher ltvs on the one hand and those will continue to later tank, which is gonna be a net benefit going forward, coupled with just efficient and optimize market.

One of the things that we're gonna do during the third quarter and this plays into the.

EBITDA guide is given the strength the ltvs into more efficient operating model, we are going to lean into some additional marketing spend to extend our reach during the key back school period.

Think it's prudent thing to do when customers are integrated needs state for tutoring.

And again, given the strength of the Ltv's that we've seen we think it's the right time to do it.

Yeah as opposed to your question on sustainability and the exciting thing about the growth of new customer adds that we're seeing is that it's been driven by conversion. So our product is resonating more with customers and we were making it more restaurant were tracing the value that we're able to communicate provide.

That of course has.

Credible benefits from it you don't want like a matter of perspective.

I asked for you to driving on that operating leverage over time. So as we've continued to add new skews to appeal to different audiences feature different elements of the membership to communicate value propositions that are specific to that type of customer they're likely to leverage we've seen conversion improve and then.

Unilateral economics groups, so casually down and then your new address going and that is something that we think will be able to continue to.

Optimize over the course of these you know many years continuing to make the product more residents and appealing adding more value of the learning membership and as a result.

Driving sales and marketing and operating leverage.

Thank you.

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