Q4 2023 Nerdy Inc Earnings Call

Sierra: Be a Pattern of Some sort Be a Pattern of Some sort Live intently Be Intelligence Earn interesting Create unique Systems Beautiful Dimensionless Discoverers Give us a toe Touch us, Or we arrive at The coming of the Invisible End Sign But first, Spread Share Share Share Hello, everyone. Thank you for attending today's Nerdy Incorporated fourth quarter 2023 earnings. My name is Sierra, and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers. If you would like to ask, press star one on your telephone keypad.

Okay.

Okay.

Okay.

Okay.

Hello, everyone.

Thank you for attending today's nerdy incorporated fourth quarter 2023 earnings call.

My name is Sierra and I'll be your moderator today.

All lines will be muted 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 press star one on your telephone keypad.

T.J. Lin: I would now like to pass the conference over to our host, T.J. Lin, Associate General Counsel of the U.S. Department of Defense. Good afternoon, and thank you for joining us for Nerdy's fourth quarter 2023 earnings call. With me are Chuck Cohn, the founder, chairman, and chief executive officer of Nerdy, and Jason Pello, the 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 Nerdy's 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.

I would now like to pass the conference over to our host T. J Lynn Associate General counsel of nerdy.

Good afternoon, and thank you for joining us for <unk> fourth quarter 2023 earnings call.

With me are Chuck cone, founder Chairman and Chief Executive Officer of Nerdy adjacent Pelo 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.

T.J. Lin: Any forward-looking statements are made as of today, and Nerdy 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 refer to the disclaimers in today's shareholder letter announcing Nerdy's fourth-quarter 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 shareholder letter for reconciliations of these non-GAAP measures. With that, let me turn the call over to Jeff.

Any forward looking statements are made as of today's date and nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward looking statements.

Reflect any change in expectations or any change in events conditions or circumstances on which any such statement is based.

Please refer to the disclaimers and today's shareholder letter announcing <unk> fourth quarter 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 today's shareholder letter for reconciliations of these non-GAAP measures.

With that let me turn the call over to Chuck.

Jeff: Thanks, TJ, and thank you to everyone for joining us today. We entered 2023 with three primary goals that included scaling always-on subscription and access-based revenue products, driving profitability, and leveraging AI for AI, or artificial intelligence for human interaction, to transform how people learn. I'm proud of the Nerdy team for delivering against all three of these commitments, which were accomplished through the tight execution of ambitious initiatives in both our consumer and institutional businesses over the past. These include completing the evolution to subscription-based offerings, the simplification of our product operating model and pricing, enhancements to our offerings, including the launch of multiple new scalable products, and durable improvements in the efficiency of our operating model. As a result of this work Non-GAAP adjusted EBITDA margin improved by approximately 2,100 basis points year-over-year, representing a $33.2 million improvement in profitability or 108% flow-through from revenue to non-GAAP adjusted EBITDA.

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

We entered 2023 with three primary goals that included scaling always on subscription access fee revenue products, driving profitability, and leveraging AI or AI or artificial intelligence, where human interaction to transform how people work.

I'm proud of the <unk> team for delivering against all three of these commitments with for a complex through the tie that could be going against ambitious initiatives in both our consumer and institutional businesses over the past year.

These include completing the evolution to a subscription based offerings.

Simplification of our product operating model and pricing enhancements to our offerings, including the launch of multiple new scalable products and durable improvements in the efficiency of our operating model.

As a result of this work revenue accelerated each quarter to 32% year over year growth in the fourth quarter.

non-GAAP adjusted EBITDA margin improved by approximately 2100 basis points year over year, representing a $33 $2 million improvement in profitability or 108% flow through from revenue to non-GAAP adjusted EBITDA.

Jeff: Our progress in evolving, enhancing, and converging our consumer and institutional business models, products, and platforms has set the stage for us to build from a solid foundation for growth. It's also enabled us to develop a freemium growth strategy that aims to introduce our products to consumers and institutions at a larger scale than ever before. I wanted to start off by sharing the following retrospectives in relation to our three primary goals for 2020. During the year, we successfully transitioned 100% of our consumer business to learning memory.

Our progress evolving enhancing converging, our consumer and institutional business model product and platform that sets the stage for us to build from a solid foundation for growth.

It has also enabled us to develop a freemium growth strategy that aims to introduce our products to consumers and institutions at a larger scale than ever before.

I wanted to start off by sharing the following retrospective in relation to our three primary goals from 2023.

During the year, we successfully transitioned 100% of our consumer business to learning memberships.

Jeff: Market acceptance and demand for learning memberships was strong throughout the year, with new consumer-to-customer growth of 26% year-over-year, resulting in us ending the year with 40.7 thousand active learners, a top 101% year-over-year. We also made significant platform enhancements that have enabled us to shift our institutional business to access-based subscription models that we believe provide more value to our institutional customers. This new model was made possible by the unification and overall enhancement of our consumer learning membership experience, which then allowed for us to scalably offer our suite of products, including those originally built for consumer audiences, to K-12 schools and other institutions. During the year, Varsity Tutors for Schools contracted with nearly 200 school districts, delivering $37.6 million in bookings, an increase of $12.8 million, or 52% compared to the previous year.

Market acceptance and demand for learning memberships was strong throughout the year with new consumer customer growth was 26% year over year resulted in us ending the year with 47000 active learners up 101% year over year.

We also made significant platform enhancements that have enabled us to shift our institutional business to access based subscription models that we believe provide more value to our institutional customers.

This new model was made possible by the unification and overall of our consumer learning membership experience, which then allowed for us to scale Billy offer our suite of products, including those originally built for consumer audiences to K 12 schools and other institutions.

During the year varsity tutors for schools contracted with nearly 200 School district, delivering 37 $6 billion of bookings an increase of $12 8 million or.

We're 52% compared to the previous year.

Jeff: Institutional revenue of $33.8 million increased 77% year-over-year and represented 17% of consolidated recognized revenue in 2023, ahead of our initial 15% expectation to start the year. This level of institutional growth occurred while launching two new products and shifting the business model and platform to one that involves access-based subscription offerings focused on a subset of students requiring tutoring and then also providing every student in that district with access to our suite of powerful learning resources at no additional cost. Strong adoption of learning memberships and customer lifetime value expansion in our consumer business, coupled with continued scaling of our institutional business, led to accelerating consolidated revenue growth each quarter throughout the years. We delivered year-over-year growth of 5% in Q1, 16% in Q2, 27% in Q3, and 32% in Q4.

Institutional revenue was $33 $8 million increased 77% year over year and represented 17% of consolidated recognized revenue in 2023 ahead of our initial 15% expectation to start the year.

This level of institutional growth occurred while launching two new products and shifting the business model products and platform to one that involves access based subscription offerings focused on a subset of students requiring tutoring and then also providing every student in that district with access to our suite of powerful learning resources.

At no additional cost.

Growing adoption of learning memberships and customer lifetime value expansion in our consumer business, coupled with continued scaling of our institutional business led to accelerating consolidated revenue growth each quarter throughout the year as we delivered year over year growth of 5% in Q1, 16% in Q2 2000.

7% in Q3 and 32% in Q4.

Jeff: A year ago, as we headed into 2023, we believed the transition to a learning membership model would lead to more attractive unit level economics, broader customer appeal, longer duration, and higher lifetime value customer relationships, higher growth margins, and a more scalable and efficient operating model. We also think that learning memberships would serve as an easier platform from which to drive innovation and incremental growth, given our ability to add new product capabilities to the existing all-access subscription offering, thereby making the offerings more appealing and engaging. We expect this to drive both the conversion of new members and the retention of existing ones. We also believe that if we built access-based subscription products and made investments in automation, self-service capabilities, and AI, we could simplify operations and simultaneously enhance both the learner and expert experience.

A year ago as we headed into 2023, we believe the transition to a learning membership model would lead to more attractive unit level economics broader customer appeal longer duration and higher lifetime value customer relationships higher gross margin and a more scalable and efficient operating model.

We also thought that learning memberships would serve 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 offerings more appealing and engaging.

We expect this to drive both the conversion of new members and the retention of existing ones.

We also believe that if we built access based subscription product and made investments in automation and self service capabilities and AI that we could simplify operations and simultaneously enhance both the learner and expert experience.

Jeff: I'm pleased to say that our belief that the transition to subscription revenue relationships with customers would provide substantial operating leverage has proven to be correct. During 2023, we were able to deliver adjusted EBITDA margin leverage across every P&L line item on a year-over-year basis. At the start of the year, we expected a non-gap adjusted event loss in the range of $10 million to break even for the full year in 2023 and that we would be adjusted even to a positive in the fourth quarter. Against this commitment, we delivered adjusted EBITDA profitability in the first and second quarters, a full nine months ahead of our initial goal. We also delivered adjusted EBITDA profitability of $3 million in the fourth quarter, ending the full year with an adjusted EBITDA loss of $2.5 million versus an adjusted EBITDA loss last year of $35.7 million.

I'm pleased to say that our belief that the transition to subscription revenue relationships with customers would provide substantial operating leverage has proven to be correct.

During 2023, we were able to deliver adjusted EBITDA margin leverage across every P&L line item on a year over year basis.

At the start of the year, we expected a non-GAAP adjusted EBITDA loss in the range of $10 million to breakeven for the full year in 2023.

And that we would be adjusted EBITDA positive in the fourth quarter.

Against this amendment, we delivered adjusted EBITDA profitability in the first and second quarter, a full nine months ahead of our initial goal.

We also delivered adjusted EBITDA profitability of $3 million in the fourth quarter ending the full year with an adjusted EBITDA loss of $2 $5 million versus an adjusted EBITDA loss last year of $35 $7 million.

Jeff: That improvement of $33.2 million in 2023 versus 2022 represents an adjusted EBITDA margin improvement of approximately 2,100 basis points year over year. Said another way, we delivered consolidated revenue growth of $30.7 million in 2023 versus the prior year, and at the same time, we were able to generate a full year improvement of $33.2 million, representing a 108% flow through of consolidated revenue growth to non-GAAP adjusted EBITDA. We believe these substantial improvements position us for adjusted EBITDA profitability and being operating cash flow positive for the full year in 2024 and beyond. In relation to our third goal in 2023, we've long believed that AI4HI, or Artificial Intelligence for Human Interaction, has the ability to transform how people learn. AI has been central to our ability to improve quality, enhance personalization, and decrease the cost of delivering our offer. AI powers our ability to identify the highest quality experts, assess learners' foundational knowledge, help ensure the right expert learner match, and drive operational efficiency.

That improvement of $33 2 million in 2023 versus 2022 represents an adjusted EBITDA margin improvement of approximately 2100 basis points year over year.

So said another way, we delivered consolidated revenue growth of $37 million in 2023 versus the prior year and at the same time, we're able to generate a full year improvement of $33 2 million.

Representing a 108% flow through of consolidated revenue growth.

non-GAAP adjusted EBITDA.

We believe these substantial improvements position us for adjustment EBITDA profitability and being operating cash flow positive for the full year in 2024 and beyond.

In relation to our third goal in 2023, we've long believed that AI or AI or artificial intelligence, where human interaction has the ability to transform how people work.

AI has been central to our ability to improve quality enhance personalization and decrease the cost of delivering our offerings.

AI powers, our ability to identify the highest quality experts assess whether it's foundational allow us help ensure the right expert wearer mat and drive operational efficiency.

Jeff: During the year, our investments in AI allowed us to rapidly develop learning experiences involving the real-time generation of content with near zero cost, improve our ability to deliver live human interaction and personalized learning at scale, provide new superpowers to experts and learners on the platform, and allowed us to remove substantial operating costs from our. Our continued investments in AI4AI allowed us to launch an all new membership experience, making it easier for learners to more fully engage with their learning membership by improving We also successfully launched multiple AI-driven solutions that positively impact the customer experience, including an AI-generated lesson plan creator, AI-driven chat tutoring, and AI-generated learning content, including practice problems and Q&A. Looking ahead, AI will continue to accelerate our efforts to deliver a compelling product experience and build the leading platform for connecting learners and experts in any subject, anywhere, and at any time.

During the year our investments in AI.

<unk> for us to rapidly develop learning experiences involving our real time generation of content with near zero cost.

Improve our ability to deliver Y human interaction and personalized learning at scale provide new superpowers to experts in orders on the platform and allowed us to remove substantial operating costs from our business.

Our continued investments in AI for Agi allowed us to launch an all new membership experience, making it easier for learners to more fully engage with their learning membership by improving product discovery and personalization.

We also successfully launched multiple AI driven solutions that positively impact the customer experience, including an AI generated less than planned creator.

Driven that tutoring and AI generated learning content, including practice problems in Q&A.

Looking ahead AI will continue to accelerate our efforts to deliver a compelling product experience.

And build the leading platform for connecting learners and experts in any subject anywhere and anytime.

Jeff: Turning to our recent performance, I'm pleased to share that in the fourth quarter, we delivered $55.1 million of revenue, an increase of 32% year-over-year, capping the year by delivering accelerating sequential growth each quarter in 2023. Revenue growth was driven by both our consumer and institutional businesses, which were up 17% and 160% year-over-year, respectively. New consumer customer growth of 35% year-over-year in the fourth quarter remains

Turning to our recent performance I am pleased to share than in the fourth quarter, we delivered $55 $1 million of revenue an increase of 32% year over year capping the year by delivering accelerating sequential growth each quarter in 2023.

Revenue growth was driven by both our consumer and institutional businesses, which were up 17, and 160% year over year, respectively.

New consumer customer growth of 35% year over year in the fourth quarter remained strong.

Jeff: Wording membership customer lifetime values continue to show substantial improvements relative to our old package. We delivered a record quarterly gross profit of $39.2 million in the fourth quarter, an increase of 33% year-over-year. We delivered adjusted EBITDA of positive $3 million in the fourth quarter, above our guidance range of breakeven, resulting in adjusted EBITDA margin improvements of approximately 1,900 basis points year-over-year for the quarter. Moving on to our consumer business, our learning membership model continues to lead to more attractive unit level economics, broader customer appeal, longer duration, higher lifetime value customer relationships, higher gross margin, and a more scalable and efficient operating model. The recently introduced MyLearningHub and Subject Portals, which enrich the experience and improve the discoverability of learning formats and subjects, are leading to increasing levels of year-over-year non-tutoring engagement, which we found is highly predictive of stronger long-term retention and higher lifetime value. During the fourth quarter, we began to test additional product offering tiers by grouping product capabilities and testing multiple price points to identify a pricing model with mass market appeal and We also tested multiple self-service features aimed at enhancing and simplifying the user experience.

Wording membership customer lifetime values continued to show substantial improvements relative to our old package model.

We delivered record quarterly gross profit of $39 $2 million in the fourth quarter, an increase of 33% year over year.

We delivered adjusted EBITDA of positive $3 million in the fourth quarter above our guidance range of breakeven, resulting in adjusted EBITDA margin improvement of approximately 90 to 100 basis points year over year for the quarter.

Moving on to our consumer business are learning membership model continues to lead to more attractive unit level economics broader customer appeal longer duration and higher lifetime value customer relationships higher gross margin and a more scalable and efficient operating model.

The recently introduced my learning hub and subject portals, which enrich the experience that improves the discover ability of learning formats and subjects are leading to increasing levels of year over year nonrecurring engagement, which we found is highly predictive of stronger long term retention and higher lifetime value.

During the fourth quarter, we began to test additional product offering tiers by grouping product capabilities and testing multiple price points to identify a pricing model with mass market appeal and deliver the right customer experience and learning support to every student.

We also tested multiple self service features aimed at enhancing and simplifying the user experience.

Jeff: These tasks, often involving lower average revenue per month or ARPM products, decreased ending ARPM in the quarter, but they provided our teams with multiple signals about the consumer intent, preferences, and behavior that informed our initial approach to a consumer freemium model. Turning our attention to our institutional business and varsity tutors for schools, over the course of 2023, we made significant platform enhancements that have enabled us to shift our institutional business to one that is access and subscription-based and one that provides more value to our institutional customers. A relationship with Varsity Tutors for Schools now comes with access to a broad range of powerful academic resources for an entire district, as well as the ability to choose between three simple models for high-dose tutoring: district-assigned, teacher-assigned, and parent-assigned. With Varsity Tutors for Schools, our institutional customers can now choose to administer tutoring centrally at the school district level, empower teachers to manage tutoring interventions, or provide parents with learning memberships and oversee tutoring outside of school for their own students.

These tests often involving lower average revenue per month or ARPA products decreased ending RPM in the quarter, but it provided our teams with multiple signals into consumer intent preferences and behavior that informed our initial approach to consumer freemium model.

Turning our attention to our institutional business and varsity tutors with schools over the course of 2023, we made significant platform enhancements that have enabled us to shift our institutional business to one that is access and subscription based and one that provides more value to our institutional customers.

Our relationship with varsity tutors for schools now comes with access to a broad range of powerful academic resources for an entire district as well as the ability to choose between three simple model for high dose gearing with district designed <unk> signed and parents aside.

With regard to these units for schools, our institutional customers can now choose to administer tutoring essentially at the school district level empower teachers demand is petering interventions or provide parents with learning membership and oversee tutoring outside of schools for their own students.

Jeff: The breadth of the resources included in the platform allows us to serve a much broader set of needs for our institutional customers and greatly expands the number of students we can impact. Our focus on product expansion is yielding results, with institutional revenue of $11.3 million, increasing 160% year-over-year and representing 21% of total revenue in the fourth quarter. Varsity Teachers for Schools executed 42 paid contracts in the fourth quarter, yielding $10.3 million in bookings.

The breadth of the resources is included in the platform allows us to serve a much broader set of need for our institutional customers and greatly expands the number of students we can impact.

Our focus on product expansion is yielding results with institutional revenue of $11 3 million, increasing 160% year over year, and representing 21% of total revenue in the fourth quarter.

Marci heaters for schools executed 42 paid contracts in the fourth quarter, yielding $10 $3 million of bookings the third consecutive quarter with more than $10 million of bookings.

Jeff: The third consecutive quarter was more than $10 million in bookings. In addition to the high dosage models that are typically focused on a subset of students within a school district, access to the varsity theaters platform is now provided for all students district-wide, enabling us to provide more value to the school district and its students and families. For example, take a school district with 100,000 students focusing on tithed tutoring for 1000 students within the district.

In addition to the high dosage models that are typically focused on a subset of students within a school district.

Access to the Barclays. Peter's platform is now provided for all students district wide, enabling us to provide more value to the school district and its students and families.

For example, take a school district with 100000 students focusing entitles the tutoring on one thousands prudence within the district.

Jeff: The other 99,000 students will now also receive access to products including 24-7 on-demand chat-based tutoring, on-demand essay review, more than 100 live group classes per week in areas including enrichment, test prep, and academic subjects, our STAR courses, our self-study tools, our college and career readiness resources, our adaptive assessments, our recorded enrichment classes and test prep classes, and more at no additional cost. In many cases, districts were and are paying large amounts of money for these services and they can now direct those cost savings toward live video based high dosage tutoring from Varsity Tutors for Schools. We are now leaning into this interest and recently began making access to the varsity tutors platform available at no cost to school districts on a rolling state-by-state basis across the U.S. By providing this robust set of academic resources at no cost, we aim to efficiently build trust and credibility at scale and earn the right to be considered for live video-based, high-dose tutoring, which is our superpower and the primary way we intend to monetize these relationships over time.

The other 99000 students will now also receive access to product, including 24 seven on demand chat based tutoring on demand Thats a review more than 100 life group classes per week in areas, including enrichment test prep and academic subjects are star courses are.

<unk> studied tools, our college and career readiness resources are adaptive assessments are recorded enrichment classes and test prep classes and more at no additional cost.

In many cases district were and are paying large amounts of money for these services and they can now direct those cost savings towards live video based hydro's petering from varsity tutors with schools.

We are now leading into this interest and recently began making access to the varsity tutors platform available at no cost at school districts on a rolling state by state basis across the U S.

By providing this robust set of academic resources at no cost, we aim to efficiently build trust and credibility at scale and earn the right to be considered for live video based high dosage tutoring, which is our superpower and the primary way, we intend to monetize these relationships over time.

Jeff: Initial interest has been strong, with more than 250 districts representing more than a million students signing up and offering access to their students. The level of initial uptake and success has caused us to invest significant organizational resources into this initiative and enable a successful Q124 launch. These efforts include a specific focus on platform scalability and building the freemium upsell, go-to-market motion of high-dose tutoring sales to K-12 school districts as we build trust and credibility with these new no-cost access partners. Turning our attention to 2024, we have three main priorities that aim to further our mission of helping people learn. First, we will scale the winning product for every learner.

Initial interest has been strong with more than 250 districts, representing more than 1 million students signing up and offering access to their students.

The level of initial uptake and success has caused us to invest significant organizational resources towards this initiative and enabling our successful Q1 'twenty four launch.

These efforts include a specific focus on platform scalability and building the freemium upsell go to market motion of hydro catering sales to K 12 school districts as rebuild trust and credibility with these new no cost access partners.

Turning our attention to 2024 three.

Three main priorities that aimed to further our mission of helping people work.

We will scale the winning product for every learner.

Jeff: As we continue to evolve and enhance our product offerings within our new access-based subscription model, our focus remains on delivering enhanced value to both consumer and institutional customers. In 2023, we successfully unified our offerings into access-based subscription models and leveraged AI to improve our product. We'll build upon this strong foundation in 2024 to scale our platform and reach more learners across more learning. Our 2024 plan involves significant enhancements to the customer experience that are designed to make accessing high-quality live instruction more intuitive for every learner. Specifically, we plan to streamline onboarding, simplify scheduling, enhance self-service tools, and expand expert engagement features to improve the learning experience on our platform. We also plan to continue to leverage AI to improve the quality of live instruction delivered on the platform and the quality of the customer experience learners receive. We plan to equip experts with better capabilities to help tailor instruction and create individual learning journeys that accelerate skill acquisition. Additionally, we plan to use AI to guide learners towards the most effective next steps in their learning journey, building on our success with AI and matching learners and experts.

As we continue to evolve and enhance our product offerings within our new access based subscription model, our focus remains on delivering enhanced value to both consumer and institutional customers.

In 2023, we successfully unified our offerings into access based subscription models and leverage AI to improve our product.

We will build upon the strong foundation in 2024 to scale, our platform and reach more words across more learning needs.

Our 2024 plan involves significant enhancements to the customer experience that are designed to make accessing high quality live instructor and more intuitive for every learner.

Specifically, we plan to streamline onboarding simplified scheduling enhanced self service tools and expand expert engagement features to improve the learning experience on our platform.

We also plan to continue to leverage AI to improve the quality of life instruction and delivered on the platform and the quality of the customer experience learners receipts.

We plan to equip experts with better capabilities to help tailor and structuring and create individual learning journeys that accelerating skill acquisition.

Currently we plan to use AI to guide learners towards the most effective next steps in their learning journey building on our success with AI and mapping learners and expert.

Jeff: We believe these initiatives will increase engagement on the platform, increase the value we provide for both learners and experts, improve customer lifetime value, and ultimately improve our Unilever economics and the total revenue and profitability of the business. As our second goal and priority for the year, we will deliver growth by scaling two freemium models. Our efforts this past year enabled us to converge our consumer and institutional businesses into similar access-based subscription models built on a unified common platform. That has allowed us to take products originally built for either our consumer audience or our institutional audience and make them available to each other as part of a standard product offering in both businesses. This includes 24-7 CAT-based tutoring. A.I.

We believe these initiatives will increase engagement on the platform increase the value we provide for both learners for improved customer lifetime value and ultimately improve our unit level economics, and the total revenue and profitability of the business.

As our second goal and priority for the year, we will deliver growth by scaling to freemium model.

Our efforts this past year enabled us to converge, our consumer and institutional businesses into similar access based subscription models built on a unified common platform.

That's allowed us to take product originally built for either of our consumer audience for our institutional audience and make them available to each other as part of a standard product offering in both businesses.

This includes 24, 7% cap based tutoring.

Jeff: Tutor, On-Demand Essay Review, more than 100 live group classes per week in enrichment, test prep, and academic subjects; star courses, self-study tools, college and career readiness resources, adaptive assessments, and more. We believe the logical next step is the introduction of a freemium offering within both our consumer and institutional businesses that introduces Nerdy to millions and eventually tens of millions of learners with a specific aim of dramatically growing awareness and driving a halo effect across both businesses. The initial no-cost version of our platform, on its own, already meets multiple customer needs states across study support, homework help, college admission prep, and enrichment. It also serves as a natural on-RAM that will allow us to introduce and upsell our live video-based online tutoring products to a far broader audience across multiple points in a learner's education. With more than 1 million students signed up across more than 250 school districts on the Varsity Tutors for Schools side, and encouraging early signals across consumer customers, we believe a freemium growth strategy will allow us to drive substantial marketplace awareness. We also think it can help us achieve multiple different business objectives, including unlocking e-commerce, expanding into new marketing channels, introducing Nerdy to new audiences, and finally, expanding our total addressable market by becoming a household name.

Hi, Peter on demand as they review more than 100 life group classes per week, and enrichment test prep and academic subjects.

Our star courses self study tools college and career readiness resources adaptive assessments and more.

We believe the logical next step is the introduction of a freemium offering within both our consumer and institutional businesses that introduces nerdy to millions and eventually tens of millions of alerts with the specific aim at dramatically growing awareness and driving a halo effect across both businesses.

The initial no cost version of our platform on its own already meets multiple customer need states across studies support homework help colleges, making prep and enrichment.

It also serves as a natural on ramp that will allow us to introduce an upsell or live video based online tutoring product to a far broader audience across multiple points in our learners education journey.

With more than 1 million students signed up across more than 250 school districts on the varsity tutors for school side, an encouraging early signal across consumer customers. We believe a freemium growth strategy will allow us to drive substantial marketplace awareness.

We also think it can help us achieve multiple different business objectives, including unlocking e-commerce expanding into new marketing channels.

Producing dirty to new audiences, and finally, expanding our total addressable market by becoming a household name.

Jeff: We're looking forward to updating you on the progress we make on this effort over the course of the next year as we further enhance and refine this strategy. As our third goal in 2024, we will deliver profitable growth. In 2024, we expect to build upon our recent success by delivering profitable growth through an increase in the number of active members and a lifetime value extension in our consumer business, as well as delivering higher institutional revenues as we continue to rapidly grow varsity tutors for schools. We believe that by scaling our winning access-based subscription offerings, we will be able to deliver accelerating full-year revenue growth of 24% year-over-year at the midpoint of our guidance, improve adjusted EBITDA margin by an additional 500 basis points, and deliver positive operating cash flow in 2024.

We're looking forward to updating you on the progress we make against this effort over the course of the next year as we further enhance and refine this strategy.

As our third goal in 2024, we will deliver profitable growth.

In 2024, we expect to build upon our recent success by delivering profitable growth through an increase in the number of active members and lifetime value extension in our consumer business as well as delivering higher institutional revenues as we continued to rapidly grow varsity tutors for school.

We believe that by scaling our winning access based subscription offerings, we will be able to deliver accelerating full year revenue growth of 24% year over year at the midpoint of our guidance improve adjusted EBITDA margin by an additional 500 basis points and deliver positive operating cash flow in 2024.

Jeff: In closing, with our transition to learning memberships and our new unified platform complete, we look forward to building from a strong foundation, scaling to continue to enhance these winning models, launching a freemium strategy to grow the number of learners introduced to our platform, and doing so in a way that drives profitable growth. I would like to close by thanking our team at Nerdy for their hard work this past year and their ongoing high-quality efforts towards meeting the needs of learners in any subject, anywhere, and at any time. With that, I'll turn the call over to Jason to discuss the financials in more detail. Thanks Chuck, and good afternoon everyone.

In closing with our transition of learning memberships in our new unified platform complete we look forward to building a strong foundation scale and continuing to enhance these winning models wanting a freemium strategy to grow the number of runners introduced through our platform and doing so in a way that drives profitable growth.

I would like to close by thanking our team at <unk> for their strong work this past year and their ongoing high quality efforts towards meeting the needs of learners in any subject anywhere and at any time.

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

Thanks, Chuck and good afternoon, everyone. As Chuck mentioned, we are proud of the results. We delivered in 2023 that included completing the evolution to access based subscriptions in our consumer and institutional businesses in just over a year's time.

Jason: As Chuck mentioned, we're proud of the results we delivered in 2023, which included completing the evolution to access-based subscriptions in our consumer and institutional businesses in just over a year's time, clearly demonstrating their strong product market fit and strong operational execution. Both our consumer and institutional businesses continued to see strong demand in the quarter, which combined with the operating leverage driven from our evolution to access-based subscription revenue models drove meaningful bottom-line performance. This transition to learning memberships continues to yield more attractive unit level economics, longer duration, and higher lifetime value customer relationships. Higher Gross Margins and a More Scalable and Efficient Operating Model We also rapidly scaled our institutional business, which delivered revenue growth of 77% year-over-year in 2023, through partnerships with nearly 200 school districts during the year. Turning to the fourth quarter,

Clearly demonstrating our strong product market fit and strong operational execution.

Both our consumer and institutional businesses continued to see strong demand in the quarter, which combined with the operating leverage driven from our evolution to access based subscription revenue model drove meaningful bottom line performance.

The transition to learning memberships continues to yield more attractive unit level economics longer duration and higher lifetime value customer relationships higher gross margin.

More scalable and efficient operating model.

We also rapidly scaled our institutional business, which delivered revenue growth of 77% year over year and 2023 through partnerships with nearly 200 school districts during the year.

Turning to the fourth quarter.

Jason: We delivered revenue of $55.1 million, results that represented 32% year-over-year growth, yielding sequential growth acceleration throughout each quarter in 2023. Active members of 40.7 thousand as of December 31st were up 101 percent year over year. Resulting in an annualized run rate of approximately $151 million from learning memberships at year-end, a 74% increase year-over-year from $87 million last year. Learning Memberships revenue grew to $43.5 million, increased 32% sequentially from the third quarter, represented 79% of total company recognized revenue, and nearly 100% of consumer-recognized revenue in the fourth quarter. Consumer new customer growth of 35% and consumer revenue year over year growth 17% in the fourth quarter continue to demonstrate strong demand for our consumer. Our institutional business delivered revenue of $11.3 million in the fourth quarter, representing 160% growth year-over-year. And we also delivered bookings of $10.3 million, which represented the third consecutive quarter with more than $10 million in bookings. Moving down the P&L, our record quarterly gross profit of $39.2 million in the fourth quarter increased 33% year-over-year.

We delivered revenue of $55 $1 million results that represented 32% year over year growth, yielding sequential growth acceleration throughout each quarter in 2023.

<unk> members are 47000 as of December 31 were up 101% year over year.

Resulting in an annualized run rate of approximately $151 million from learning memberships at year end.

74% increase year over year from $87 million last year.

Learning memberships revenue grew to $43 $5 million increased 32% sequentially from the third quarter represented 79% of total company recognized revenue and nearly 100% consumer recognized revenue in the fourth quarter.

Consumer new customer growth of 35%.

Tumor revenue year over year growth of 17% in the fourth quarter continued to demonstrate strong demand for our consumer offerings.

Additional business delivered revenue of $11 3 million in the fourth quarter, representing a 160% growth year over year.

We also delivered bookings of $10 3 million, which represented the third consecutive quarter with more than $10 million in bookings.

Moving down the P&L record quarterly gross profit of $39 2 million in the fourth quarter increased 33% year over year.

Jason: Gross margin of 71.3% in the fourth quarter, 75 basis points higher than gross margin of 70.5% during the same period in 2022. Rose, profit and gross margin increases were primarily driven by growth in our consumer business as the result of strong adoption of learning members, which led to lifetime value expansions and higher gross margins. As we start 2024 with essentially all consumer revenues from learning memberships, we expect consumer growth margin to continue to expand. Sales and marketing expenses for the three-month end of December 31st on a gap basis were $18.8 million, an increase of $1.8 million from $17 million in the same period in 2022. Non-cash sales and marketing expenses, including non-cash stock-based compensation, were $18.2 million for 33% of.

Gross margin of 71, 3% in the fourth quarter was 75 basis points higher than gross margin of 75% during the same period in 2022.

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

As we start 2024 is essentially all consumer revenues from learning memberships, we expect consumer gross margin to continue to expand.

Sales and marketing expenses for the three months ended December 31 on a GAAP basis were $18 8 million, an increase of $1 $8 million from $17 million in the same period in 2022.

non-GAAP sales and marketing expenses, excluding noncash stock based compensation were $18 2 million or 33% of revenue compared to $15 7 million or 38% of revenue in the same period in 2022, an improvement of more than 450 basis points year over year.

Jason: Compared to $15.7 million for 38% of revenue in the same period in 2022, an improvement of more than 450 basis points year over year. Sales and marketing spend and efficiency improvements were driven by the transition to learning memberships, including the continued expansion of lifetime value, our focus on optimizing the level of marketing, and a more efficient operating model in our consumer business. We also delivered substantial Varsity Tutors for Schools revenue growth, yielding efficiencies from prior investments in the institutional sales and go-to-market organization. We expect that a more efficient operating model in our consumer business and the continued scaling of our institutional business will continue to lead to sales and marketing efficiency improvements as the business delivers accelerating revenue growth. General administrative expenses for the three months ended December 31st on a gap basis were $30.7 million, a decrease of $2.2 million from $32.9 million in the same period in 2022.

Sales and marketing spend and efficiency improvements were driven by the transition to learning memberships, including the continued expansion of lifetime value our focus on optimizing the level of marketing spend and a more efficient operating model and our consumer business.

We also delivered substantial varsity tutors for schools revenue growth you had inefficiencies from prior investments in the institutional sales and go to market organization.

We expect that a more efficient operating model and our consumer business and the continued scaling of our institutional business will continue to lead to sales and marketing efficiency improvements as the business delivered accelerating revenue growth.

General and administrative expenses for the three months ended December 31 on a GAAP basis were $30 7 million a decrease of $2 2 million from $32 9 million in the same period in 2022.

Jason: Non-GAAP G&A, excluding non-cash stock-based compensation and restructuring costs, was $19.8 million, or 36% of revenue, compared to $21 million, or 50% of revenue in the same period in 2022, an improvement of over 1,400 basis points year-over-year. Included in G&A costs were product development costs of $11.5 million, an increase of $2.1 million from $9.4 million in the same period in 20 Our investments in product development and our platform-oriented approach to growth have allowed us to launch a suite of access-based subscription products, including learning memberships for consumers and our district teacher and parent-assigned offerings for institutional customers. As we've noted throughout 2023, access-based subscription offerings simplify the operating model needed to support customers and grow the business, while also providing a more predictable pattern of revenue recognition over time, thanks to our ongoing automation efforts involving self-

non-GAAP G&A, excluding noncash stock based compensation and restructuring costs was $19 8 million or 36% of revenue compared to $21 million or 50% of revenue in the same period in 2022, an improvement of over 1500 basis points year over year.

Included in G&A costs, where product development costs of $11 $5 million, an increase of $2 1 million from $9 4 million in the same period in 2022.

Our investments in product development and our platform oriented approach to growth have allowed us to launch a suite of access based subscription products, including learning memberships for consumers.

In our district teacher impairing assigned offerings for institutional customers.

As we've noted throughout 2023 access based subscription offerings to simplify the operating model needed to support customers and grow the business.

While also providing a more predictable pattern of revenue recognition over time.

Our ongoing automation efforts involving self service capabilities.

Jason: The application of artificial intelligence and other efficiency efforts have allowed us to generate operating efficiencies and remove significant costs from the business. As Chuck mentioned, our belief that the transition to subscription and access-based revenue relationships with customers would provide substantial operating leverage has proven to be correct. We delivered non-gap adjusted even-step profitability of $3 million in the fourth quarter, ahead of our guidance of break-even. During 2023, we were able to deliver just-to-be-with-a-margin leverage across every P&L line item on a year-over-year basis. Ending the full year with a non-gap adjusted EBITDA loss of $2.5 million versus a non-gap adjusted EBITDA loss of $35.7 million in the same period last year.

The application of artificial intelligence and.

Other efficiency efforts have allowed us to generate operating efficiencies and removed significant costs from the business.

As Chuck mentioned, our belief that the transition to subscription in access based revenue relationships with customers would provide substantial operating leverage has proven to be correct.

We delivered non-GAAP adjusted EBITDA profitability of $3 million in the fourth quarter ahead of our guidance of breakeven.

During 2023, we're able to deliver adjusted EBITDA margin leverage across every P&L line item on a year over year basis.

And in the full year with a non-GAAP adjusted EBITDA loss of $2 5 million versus a non-GAAP adjusted EBITDA loss of $35 7 million in the same period last year.

This resulted in adjusted EBITDA improvement of $33 2 million and adjusted EBITDA margin improvement of approximately 2100 basis points year over year in 2023.

Jason: This resulted in an adjusted EBITDA improvement of $33.2 million and an adjusted EBITDA margin improvement of approximately 2,100 basis points year-over-year in 2023. We believe these durable improvements position us to be profitable even if they're profitable in operating cash flow positives for the full year in 2024. These leverage and efficiency improvements were delivered while making substantial investments in product development and our platform-oriented approach to growth, ensuring we can continue to execute against our product roadmap and deliver innovative solutions to meet the needs of today's learners. During the fourth quarter, we delivered negative operating cash flow of $5 million compared to negative operating cash flow of $14.5 million last year.

We believe these durable improvements position us to be adjusted EBITDA profitable and operating cash flow positive for the full year in 2024.

These deleverage and efficiency improvements were delivered while making substantial investments in product development and our platform oriented approach to grow.

Ensuring we can continue to execute against our product roadmap and deliver innovative solutions to meet the needs of today's learners.

During the fourth quarter, we delivered negative operating cash flow of $5 million compared to negative operating cash flow of $14 $5 million last year.

An improvement of $9 $5 million that reflects the benefits from our evolution to learning memberships.

Partially offset by temporary changes in working capital.

With no debt and $74 $8 million of cash in our balance sheet. We believe we have ample liquidity to fund the business and pursue growth initiatives.

Turning to our business outlook today, we are introducing first quarter and full year 2020 for guidance.

For the first quarter and full year, we expect year over year revenue growth be driven by the continued growth of learning memberships in our consumer business. The corresponding increase in the number of learning membership subscribers, coupled with continued LTV extension and higher institutional revenues as we continue to rapidly scale varsity tutors for schools.

Jason: An improvement of $9.5 million that reflects the benefits of our Evolution to Learning memberships, partially offset by temporary changes in working capital. With no debt and $74.8 million of cash in our balance sheet, we believe we have ample liquidity to fund the business and pursue growth. Turning to our business outlook, today, we are introducing first quarter and full year 2024 guidance. For the first quarter of the full year, we expect year-over-year revenue growth to be driven by the continued growth of Learning Memberships in our consumer business, the corresponding increase in the number of Learning Membership subscribers, coupled with continued LTV extension, and higher institutional revenues as we continue to rapidly scale varsity tutors for schools. New learning member acquisition remains strong, and a growing awareness that high-dose tutoring is the most effective way to remediate learning loss by parents It should be noted that first half year-over-year revenue growth is impacted by legacy package revenue in 2023 of $10.9 million and $4.9 million in the first and second quarters, respectively, but that does not recur in 2024.

New learning member acquisition remains strong and a growing awareness that high dosage jewelry is the most effective way to remediate learning loss by parents educators and policymakers provides us with confidence in the demand for our offerings in the year ahead.

It should be noted that first half year over year revenue growth is impacted by legacy package revenue in 2023 of $10 $9 million and $4 9 million in the first and second quarters, respectively that does not recur in 2024.

Due to the completion of our transition to subscription based learning memberships in our consumer business.

Once we reach the second half of the year when package revenues are no longer included in prior year comparable quarterly revenues, we expect growth to accelerate consistent with the sequential quarterly acceleration we delivered in 2023.

First quarter revenues are also impacted by lower ARPA, resulting from recent efforts to test additional product tiers by grouping product capabilities and testing multiple price points to identify a pricing model with mass market appeal.

As we move throughout the year, we expect ARPA for our core learning membership offerings to increase as we optimize our testing efforts.

Jason: Due to the completion of our transition to subscription-based earning memberships in our consumer business. Once we reach the second half of the year, when package revenues are no longer included in prior year comparable quarterly revenue, we expect growth to accelerate, consistent with the sequential quarterly acceleration we delivered in 2023. First quarter revenues are also impacted by lower ARPM, resulting from recent efforts to test additional product tiers by grouping product capabilities and testing multiple price points to identify a pricing model with mass market appeal.

For the first quarter of 2024, we expect revenue in a range of $51 million to $53 million.

For the full year, we expect revenue in a range of 232 million to $246 million.

Representing an accelerating year over year growth of 24% at the midpoint versus our 2023 revenue of $193 million.

First quarter and full year non-GAAP adjusted EBITDA guidance reflects the continuing benefits from our recurring revenue products, which focus on long term relationships with higher value customers.

Jason: As we move throughout the year, we expect ARPM for our core learning membership offering to increase as we optimize our testing efforts. For the first quarter of 2024, we expect revenue in a range of $51 to $53 million. For the full year, we expect revenue in a range of $232 million to $246 million, which represents an accelerating year-over-year growth of 24% at the midpoint versus our 2023 revenue of $193 million.

An improving gross margin profile and operating leverage stemming from the completion of our evolution to access based subscription revenue business model.

These benefits are partially offset by investments in varsity tutors for schools go to market strategy and product development to drive continued innovation and support our accelerating growth.

For the first quarter of 2024, we expect non-GAAP adjusted EBITDA in a range of negative $3 million to breakeven.

For the full year, we expect non-GAAP adjusted EBITDA in a range of positive $5 million to positive $15 million, an improvement of over 500 basis points and non-GAAP adjusted EBITDA at the midpoint.

Jason: First quarter and full year non-GAAP adjusted EBITDA guidance reflects the continuing benefits from our recurring revenue products, which focus on long-term relationships with higher value customers, and the Improving Growth Margin Profile and Operating Leverage Stemming from the Completion of our Evolution to Access-Based Subscription Revenue Business Model. These benefits are partially offset by investments in varsity tutors for schools, go-to-market strategy, and product development to drive continued For the first quarter of 2024, we expect non-GAAP adjusted EBITDA in a range of negative $3 million to break even.

We also expect to deliver positive operating cash flow in 2024.

In closing thank you again for your time and for your continued interest in our company with that I'll turn it over to the operator for Q&A operator.

Thank you.

We will now begin the Q&A session.

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

To remove your question press Star followed by two.

And if youre using a speakerphone please pick up your handset before asking your question.

Our first question today comes from Eric Sheridan with Goldman Sachs. Please proceed.

Jason: For the full year, we expect non-gap adjusted EBITDA in a range of positive $5 million to positive $15 million, and an improvement of over 500, and non-gap-adjusted EBITDA at the mid- We also expect to deliver positive operating cash flow in 2024. In closing, thank you again for your time and for your continued interest in our company. With that, I'll turn it over to the operator for Q

The question just wanted to come back to the introduction of the freemium model and how we should be thinking about broader financial implications from that as they build through the year elements of how you want to align the marketing structure of the company. What you think the market opportunity is that you are sort of tapping into and how to think about the broader <unk>.

Actual evolution of sort of the user funnel, having that product out there and what it might mean for.

Broader premium users to eventually over time, possibly move into higher price plans. Thanks, so much.

Operator: Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two, and if you are using a speakerphone, please pick up your handset before asking your question.

Thank you.

Thanks, Eric Great question. So we have been methodically testing it over the course.

The last couple of months and using our way into it and we would expect that that would continue to be the case throughout 2024. So the big opportunity that we have with our premium strategy is to take advantage of all of the non tutoring engagement. All these incredible products that we've built many of which companies charged <unk>.

Eric Sheridan: Our first question today comes from Eric Sheridan with Goldman Sachs. Please proceed. Question: I just wanted to come back to the introduction of the freemium model and how we should be thinking about broader financial implications from that as they build through the year. You know, elements of how you want to align the marketing structure of the company, what you think the market opportunity is that you're sort of tapping into, and how to think about the broader eventual evolution of sort of the user funnel, having that product out there, and what it might mean for Thanks, Eric. This is Chuck.

Large amounts of money for an adult multi hundred billion dollar businesses on and giving them away at no cost or at low cost and actually introduce consumers to our ecosystem and then monetize on.

Live tutoring and of course live tutoring is our superpowers, we'd do better than anyone else out there. So we would expect to test into some of these different <unk> models.

Ed.

So in a way that the answer to that really big opportunity.

Chuck: Great question. So we have been methodically testing it over the course of, you know, the last couple of months and working our way into it. And we would expect that that would continue to be the case throughout twenty twenty four. So, the big opportunity that we have with our freemium strategy is to take advantage of all of the non-tutorial engagement, all these incredible products that we've built. Many of which companies charge large amounts of money for and have built multi-hundred million dollar businesses on, and give them away at no cost or low cost and actually introduce consumers to our ecosystem and then monetize on live tutoring.

Mass market appeal, and allowing for people as they have a specific learning needs, where they get benefit from generate jobs and there. So the way that we're thinking about it is kind of.

<unk> the existing model continuing to scale, a winning model and then adding incremental users.

Into these different kind of previous states and monetizing thereafter.

Great. Thanks, so much for the color Chuck.

Our next question comes from Doug Anmuth with J P. Morgan. Please proceed.

Hey, it's Bryan Smith on for Doug Thanks for taking the question.

Just on varsity tutors can you just describe more drivers of growth into 2024, especially considering the extra three allocation funding deadline is coming up in September.

Chuck: And, of course, live tutoring is our superpower that we do better than anyone else out there. So we would expect to test into some of these different freemium models and do so in a way that builds to that really big opportunity kind of mass market and allows it for people when they have a specific learning need where they could benefit from tutoring to help them self-study. So the way that we're thinking about it is kind of focusing on the existing model, continuing to scale a winning model, and then adding incremental users into these different kinds of freemium states and monetizing their app. Great, thanks so much for the color shot.

Are you seeing any incremental demand from existing partners around that deadline looming and any uptick in the new customer backlog.

Yeah sure Brian Great question I can take this one so.

As you think about 2024, I think it's going to be a continuation of what we saw in 2023. So on the consumer side Youll see continued scaling of learning memberships.

Of active members and continued LTV extension that we've experienced throughout this year as we scale that business and then when you think about the varsity tutors for schools business. I mean, certainly we had a great year. This year total bookings were up 50% in revenue for the full year was up 77% as we think about next year, we're getting a lot of positive signal on our new products.

Douglas Anmuth: Our next question comes from Doug Anmuth with J.P. Morgan. Please proceed. Hey, it's Brian Smilak on for Doug.

Brian Smilak: Thanks for taking the question. Just on Varsity Tutors, can you describe more drivers of growth into 2024, especially considering the ESSER III allocation funding deadline is coming up in September? Are you seeing any incremental demand from existing partners around that deadline looming, and any uptake in the new customer backlog? Yeah, sure, Brian. Great question. I can take this one.

<unk>.

District design teacher assigned comparing aside.

And one of the investments, we're going to make us expanding the go to market sales team and varsity tutors for schools to capture that opportunity.

I think it's a little bit too early to tell how the aftermarket is going to come in at the end of the year, but as a reminder for our.

Participants.

Jason: So, you know, as you think about 2024, I think it's going to be a continuation of what we saw in 2023. On the consumer side, you'll see continued scaling of learning memberships, the number of active members, and continued extension that we've experienced throughout this year as we scale that business. And then when you think about the varsity tutors for schools business, I mean, certainly, we had a great year this year. Total bookings are up 50%, and revenue for the full year is up. 77%

Money must be spent by September of 2024.

Contracted but the services can be provided over the course of the next four years post September 2024, and so we feel like there's a pretty significant opportunity here to capture our fair share.

Those funding sources and enter into multiple year contracts with our partners in the school district space.

Yes, Brian I would also add this is Jack now that there are all sorts of different funding sources being used there state specific.

Legislation, that's been passed in a variety of different states for tutoring tutoring is but one thing that is consistently working across the United States and there is broad bipartisan support for the fact that tutoring is highly effective and great remediated.

Jason: as we think about next year, we're getting a lot of positive signals on our new products, district design, teacher assigned, and parent assigned. And one of the investments we're going to make is expanding the go-to-market sales team for varsity tutors for schools to capture that opportunity. I think it's a little bit too early to tell how the extra money is going to come in at the end of the year.

And so we feel like we're well positioned to participate in a variety of different state programs.

Grams in that as you think about the difference the funding environment, including federal funding.

Chuck: But as a reminder to participants, those monies must be spent by September of 2024, and contracts must be signed, but the services can be provided over the course of the next 4 years post September 2024. And so we feel like there's a pretty significant opportunity here to capture our fair share of, you know, those funding sources and enter into some multiple-year contracts with our partners in the school district. Yeah, and Brian, I would also add, this is Chuck now, that there are all sorts of different funding sources being used that are state specific. Andas at night for tutoring.

<unk> to be a good broad support for continuing to find something it hasn't affected the junior as a tutoring and really all of the studies are showing that is highly effective and remediated margin loss.

So we feel good about that and then separately as you think about our strategy of providing access to the varsity tutors and schools platform.

Actually able to introduce ourselves highly efficiently to a much larger number of school districts. So there is something like 15000 public school districts of United States through this strategy. Just recently, we've been able to very quickly nearly double the number of school districts with whom we have a relationship and we think that that's something that.

Chuck: The one thing that is consistently working across the United States, and there's broad bipartisan support for the fact that tutoring is highly effective and great as we're mediating learning calls. And so we feel like we're well positioned to participate in a variety of different state programs, local programs, and that, as you think about the difference, the funding environment, including federal funding, there's going to be good, broad support for continuing to find something as effective as tutoring, and really all the studies are showing that it's highly effective in remediating. So we feel good about that. And separately, as you think about our strategy of providing access to the Marcy Tutors for Schools platform, we're actually able to introduce ourselves highly efficiently to a much larger number of school districts. So there are something like 15,000 public school districts in the United States.

Really.

Bill as you grow throughout 2024, we're at that kind of a cumulative number of different school district relationships, where we provide value build trust and credibility and then subsequently.

Are able to then sell in hydrous. It's steering is something that is pretty exciting and the feedback thus far from school district partners has been very positive and oftentimes it very quickly leads to a commercial relationship as well.

Great. Thanks for the color.

Our next question comes from Ryan Macdonald with Needham.

Please proceed.

Hey, this is Matt <unk> on for Ryan Thanks for taking the questions.

I wanted to start with learning memberships nice to see that the transition is now complete but Q4 learning members came in slightly below the 42000 expectation just curious on what caused the difference and are you providing any outlook for Q1 on the numbers or just any color on how you are forecasting for 2024 would be helpful.

Chuck: Through this strategy, just recently, we've been able to very quickly nearly double the number of school districts with whom we have a relationship. And we think that that's something that really builds as you grow throughout 2024, where that kind of cumulative number of different school district relationships, where we provide value, build trust and credibility, and then subsequently, are able to sell in high doses during something that, you know, is pretty exciting. And the feedback thus far from school district partners has been very positive. And oftentimes, it very quickly leads to a commercial relationship as well.

Yeah sure Thanks, Matt I guess.

I'd say, we thought that that number of active learning members came in largely in line with our expectations. We had continued strength in new customer growth up 35% year over year in the fourth quarter and so I think as we look ahead, we feel really good about where we're positioned.

Brian Smilak: Great, thanks for the call. Our next question comes from Ryan McDonald with Needham. Please proceed. Hey, this is Matt Cheon for Ryan.

<unk> ahead to next year, we would expect about $45 5000 at the end of Q1, and then thinking longer term at the end of the year. We would expect about 56000 active members now keep in mind as both of those numbers that I just provided exclude the potential <unk>.

Ryan McDonald: Thanks for taking the questions. I wanted to start with learning memberships. Nice to see that the transition is now complete. But Q4 learning members came in slightly below the 42,000 expectations. Just curious about what caused the difference.

Version.

Matt Cheon: And are you providing any outlook for Q1 on learning members, or just any color on how you're forecasting LMs for 2024 would be helpful? Yeah, sure. Thanks, Matt.

Premium to paid customers as we move throughout the year, so a little bit early to forecast that although we feel good about the conversion mechanisms that we're seeing but the numbers I gave you are for our traditional learning membership customers.

Jason: I guess I would say we thought that the number of active learning members came in largely in line with our expectations. We had continued strength and new customer growth of 35% year over year in the fourth quarter. And so I think as we look ahead, we feel really good about where we're positioned. Looking ahead to next year, we'd expect about 45 and a half thousand at the end of Q1.

Got it appreciate that Jason Yeah, I wanted to touch on the premium conversion channel there.

Obviously, you mentioned that you've been testing it a little bit, but obviously rolling it out now more broadly what inning would you say you're in and kind of building out that go to market and maybe just if you could flesh out more of the strategy are that that wedge to drive that up sell from from freemium to paid thanks guys.

Jason: And then thinking longer term, at the end of the year, we would expect about 56,000 active members. Now, the thing to keep in mind is both of those numbers that I just provided exclude the potential conversion of premium customers to pay customers as we move throughout the year. It's a little bit early to forecast that, although we feel good about the conversion mechanisms that we're seeing. But the numbers I gave you are more for our traditional learning membership customers. I got it.

Sure. So this is something that we've been building towards for a couple of years. So as we built all of these different products.

We've talked before about how we got to think of them as building blocks, where you can have several different compelling products for specific audiences that really resonate.

Matt Cheon: Appreciate that, Jason. Yeah, I wanted to touch on the freemium conversion channel there. Obviously, you mentioned that you've been testing it a little bit, but obviously, rolling it out now more broadly. What inning would you say you're in and kind of building out that go-to-market strategy, and maybe just if you could flesh out more of the strategy or that wedge to drive that upsell from freemium to paid? Thanks, guys. Church.

Between having by video based tutoring small group classes livestream capabilities, we can get up to 60000 people into glass almost no marginal cost diagnostic testing self study videos and a whole host of other resources, including AI tutor.

We've brought these all together in such a way, where we're able to then build a different product offerings that resonate.

Chuck: So this is something that we've been building towards for a couple of years. So as we build all these different products, we've talked before about how we kind of think of them as building blocks, where you can assemble different compelling products for specific audiences that really resonate. And between having live video-based tutoring, small group classes, live stream capabilities where you can get up to 50,000 people in a class at almost no marginal cost, diagnostic testing, self-study videos, and a whole host of other resources, including AI Tutor, we've brought these all together in such a way that we're able to then build different product offerings that can resonate in such a way that we can then monetize. And And so this is something that wasn't possible until we were able to converge both our consumer and institutional businesses and our consumer and institutional platforms into one unified product offering.

Such a way where we can monetize we have tested different variances in the past has had great success. So this is something that wasn't possible until we were able to converge, both our consumer and institutional businesses.

And our consumer and institutional platforms into one unified product offering so we're pretty excited about the potential here. So.

So as we mentioned it's early but the signal thus far is good and we've been working towards this goal for a long time.

Yes, the only thing I'd add is.

Premium is going to give us an array of benefits as we move forward, we're going to be able to connect with customers in different need states drive substantial marketplace awareness will be able to unlock E. Commerce to an extent, we haven't been able to in the past it will enable expansion via new marketing channel.

And that will enable nerdy did introduce ourselves to what we think will be millions of students over the course of this year and potentially become a household name. So this is a big long term opportunity we.

Chuck: So, we're pretty excited about the potential here. As we mentioned, it's early, but the signal thus far is good, and we've been working towards this goal for a long time. Yeah, the only thing I'd add is.

We feel really good about the initial signal but to your question. It is early innings, we'll continue to refine the offering as we move throughout the year.

With the expectation of being ready to go for back to school and fall, Yes, I think the important thing is the tutoring prove it monetization engine.

Jason: Freeman's going to give us an array of benefits as we move forward. We're going to be able to connect with customers in different need states and drive substantial marketplace awareness. We'll be able to unlock e-commerce to an extent we haven't been able to in the past. It'll enable expansion via new marketing channels, and it'll enable Nerdy to introduce itself to what we think will be millions of students over the course of this year and potentially become a household name. So, you know, this is a big long-term opportunity. We feel really good about the initial signal, but to your question, you know, it is early innings.

So we feel really good about that kind of activity between the engagements.

Jewelry and products and then ultimately monetizing in a material way.

The actual tutoring side, which of course.

Super helpful. Thank you.

Our next question comes from Andrew Boone with JMP Securities. Please proceed.

Thanks, So much for taking my questions I wanted to ask about the cost of operating the freemium model is there anything that we should know about either increased hosting or anything else that you can talk about there as well as any revenue that may fall off is now some products become free and then secondly learning memberships are are are aging you guys have now been through this process a while.

Matt Cheon: We'll continue to refine the offering as we move throughout the year, and with the expectation of being ready to go for back to school in the fall. Yeah, I think the important thing is that tutoring is a proven monetization engine, and we know how to monetize, so we feel really good about that connectivity between the engagement in non-tutoring products and then ultimately monetizing in a material way on the actual tutoring site, which, of course, is super helpful. Thank you.

Is there anything that you guys can share now that we're a little bit more mature in cohorts on retention.

Or anything of that kind of.

Yeah.

Thanks, so much.

Sure So I think.

The important thing here is that these ancillary products have either no marginal cost associated with that and we're a low marginal cost associated with that so the cost that we bear as related to some of the testing that we did for both getting them live testing ecommerce rolling out some self service tools and you've got to see that reflected.

Andrew Boone: Our next question comes from Andrew Boone with JMP Securities. Please proceed. Thanks so much for taking my questions.

Andrew Boone: I wanted to ask about the cost of operating the premium model. Is there anything that we should know about either increased hosting or anything else that you can think about there, as well as any revenue that may fall off as some products become free? And secondly, learning memberships are aging. You guys have already been through this process for a while. Is there anything that you guys can share now that we're a little bit more mature in cohorts on retention or anything like that? Vane,

And the lower starting point and our Q1 guide, but it builds to a.

Like acceleration throughout the year and ultimately full.

Full year revenue growth that is still 24%, but accelerating and we feel good about this being a self funding from a maybe even margin accretive over the course of the year. So we feel good about the economics here and the fact that.

Jason: Sure, so I think the, you know, the important thing here is that these ancillary products have either no marginal cost associated with them or a low marginal cost. So, you know, the cost that we bear is related to some of the testing that we did for both getting them live, testing e-commerce, rolling out some self-service tools, and you see that reflected in the lower Arden starting point as our Q1 guide.

We can do so in a highly efficient manner that introduces us to a large number.

Learners.

And then sorry last question was on the retention of maturing cohorts, you'll see in the shareholder letter we did remove that from what was historically provided and from our perspective.

Jason: But it builds to an acceleration throughout the year, ultimately with full year revenue growth that is still 24% but accelerating. And we feel good about this being self-funding from a maybe even margin in creative over the course of the year. We feel good about the economics here and the fact that we can do so in a highly efficient manner that introduces us to a large number of new workers. The last question was on the retention of maturing cohorts. You'll see in the shareholder letter that we did remove that from what was historically provided. We would say that they were originally shown to demonstrate the superior economic profile of learning memberships versus our legacy package model. We've proven that out over the last five or six quarters.

We would say that they were original the show and to demonstrate the superior economic profile of Verde memberships versus our legacy package model, we've proven that out over the last five or six quarters.

Those cohorts continue to LTV extension, and we feel really good about the retention and the engagement of learning memberships and how we're positioned as we enter 2024.

Yes.

And then we added.

A chart in our shareholder letter this time that actually shows the year over year improvement by month, and non tutoring engagement, which we found to be very important to retention and getting value out of the membership over time, particularly in shoulder. So we feel great about that connection between.

Jason: Those cohorts continue to have LTV extension, and we feel really good about the retention, the engagement of learning memberships, and how we're positioned as we enter 2024. Yeah, I'd also add that we added a chart in our shareholder letter this time that actually shows the year-over-year improvement by month in non-tutoring engagement, which we found to be very important to retention and getting value out of the membership over time, particularly in the shoulder period. So we feel great about that connection between the product improvements we're making, particularly related to both additional products and product discovery, and then how that pulls through to engagement, which in turn pulls through to retention. And that being something that we continue to drive for many quarters and years to come. Thank you.

The product improvements, we're making particularly related to both additional products in that product discovery and that how that pulls through to engagement, which in turn all through two retention and that being something that we continue to that we can continue to drive forward.

Many quarters and years to come.

Thank you.

Our next question today comes from Alex Skylar with Raymond James. Please proceed.

Yes.

Great. Thank you Chuck can you just elaborate a little bit more on what youre, what youre, referring to as far as kind of unlocking the e-commerce opportunity what will that look like priority.

Sure. So we have had ecommerce capabilities, but we also have a consultative sales engine and we would expect for the majority if not the entirety of these premium sales to occur through e-commerce, which would be a source.

Alex Schuyler: Our next question today comes from Alex Schuyler with Raymond James. Please proceed. Great, thank you. Chuck, can you elaborate a little bit more on what you're on what you're referring to as far as kind of unlocking the e-commerce opportunity? What will that look like for Nerdy? Sure, we have e-commerce capabilities, but we also have a consultative sales engine, and we would expect the majority, if not the entirety, of these premium sales to occur through e-commerce, which would be a source of operating leverage in the retail market. Okay, oh, perfect.

Operating leverage on sales and marketing.

Okay, perfect so effectively a self service.

<unk> for some of these premium.

New members.

Got it.

Not anything new it's working well.

Okay.

Chuck: So effectively, a self-service motion for some of these premium, some of these premium members, not anything new, not anything new. We'll continue to polish it and refine it, but we would expect that that would be something that, Weinstein. And Alex, one thing I'd add, you know, we'd encourage everybody on this call to go to VarsityTutors.com or Nerdy.com and experience the freemium product for It's live on both of the websites.

We will continue to policy and refine it.

Would expect that that would be something that.

Makes us more efficient over time and that would be.

Theres not a commensurate increase in costs.

The scale and Alex one thing I'd add we'd encourage everybody on this call to go to varsity tutors dot com or <unk> dot com and experienced the freemium product for themselves.

On bulk of the website.

Perfect.

Alex Schuyler: Perfect. We'll check that out. Another great quote on the institutional booking side. Can you just help frame how the pipeline looks heading into 2024 from kind of a total bookings opportunity relative to this time last year? Is the growth and pipeline and opportunities kind of keeping supporting an acceleration for that segment? Turk.

Check that out.

Okay.

Another great quarter name, because we are still booking side can you just help frame how the pipeline looks heading into 2024 from kind of a total bookings opportunity relative to this time last year.

The growth in pipeline and opportunity to kind of keep supporting.

An acceleration for that segment.

Sure. So it's dramatically bigger and it speaks to the improvements that we've made in the product offering itself combined with the fact that we.

Chuck: So it's dramatically bigger, and it speaks to the improvements that we've made in the product offering itself, combined with the fact that we believe that there's an emerging multi-billion dollar industry being formed within K-12 tutoring that we're very excited about. So over the course of the past year, we've launched three different subscription products within our institutional segment. Our first teacher-assigned, then district-assigned, then parent-assigned model, and the last one allowing us to allocate learning memberships, effectively our consumer products with administrative tools sitting on top, to school districts. So we can really serve all three common ways that schools would ever want to administer tutoring. And then separately, because of the convergence of our platforms... We've been able to take all of the different products, including the ones that were originally built for our consumer audiences, and extend them to school dishes. And even if the school district is only interested in focusing on a subsegment of students, we're able to provide value to all of the students.

We believe that Theres, a emerging multibillion dollar industry being more of a 10-K 12 tutoring that we're very excited about so over the course of the past call. It 13 months or so.

<unk> launched three different subscription products within our institutional segment, our first feature side than district, aside that parents decide model and the last one.

As to allocate learning macro shifts effectively our consumer product with administrative tools sitting on top.

That's correct. So we can really service all three common ways that schools would ever want to administrate tutoring and that separately because of the convergence of our platforms. We've been able to take all of the different products, including the ones that were originally built for our consumer audiences and extent to school districts as even.

As a school district is only interested in focusing on a sub segment of students, we're able to provide value to all of the students in many cases.

Chuck: And in many cases, there is existing spend associated with the products that we're giving away at no cost as part of this as part of this kind of total offering. And it's been very compelling, it's opened doors, and we're excited about the quality of our high dosage offering. The value that we're able to provide, and then the actual, like, our ability to then build relationships at scale, and that kind of go-to-market motion in sales and marketing build towards a really, Okay, great. And maybe Chuck, just one quick follow up on that.

There is existing spend associated with the products that we're giving away at no cost as part of this.

As part of this kind of a total offering has been very compelling us to open doors.

We're excited about how.

Both the quality of our high dosage offering.

The value that we're able to provide and then the actual <unk>.

Our ability to that build relationships at scale.

Kind of go to market notion and sales and marketing builds towards a really big year.

Okay, Great and maybe just one quick follow up on that is there anything changed as you've launched kind of teachers on district and parent assign value of those three flavors out there and then also the platform access it's kind of a newer motion, but have you seen win rates, notably improve as a result of having kind of several different.

Alex Schuyler: Is anything changed as you've launched this kind of teacher-assigned, district-assigned, and parent-assigned? Now you have those three flavors out there. And then also, platform access is kind of a newer motion, but have you seen win rates significantly improve as a result of having kind of those several different flavors for states or districts to kind of sign up with varsity shooters? Yeah, we have. And the fact that we can solve all these different needs states is that we're also seeing school districts purchase for different parts of the school district different products. So, they're actually using multiple different products that then, frankly, from their perspective, it just seems, it's much more simple to communicate. There's a very specific use case associated with each 1. And then the fact that we're able to provide so much value to everybody throughout the district is something that's really responding as well. So, they're more simple conversations when rates are higher, and it's more efficient to build trust and credibility.

Flavors for for space or districts trying to sign up with with both to the theater.

Yes, we have and the fact that we can solve all of these different need states is we're also seeing school districts purchase for different parts of the school district with different products. So they are actually using multiple different products.

Then frankly from their perspective, it just seems it's much more separately communicate there's very specific use cases associated with each one and then the fact that we're able to provide so much value to everybody throughout the district.

It's something that's really resonating as well so they're more simple conversations when rates are higher and.

Chuck: All right, thank you both. Yeah, thanks, Alex. Our next question today comes from Maria Ripps with Canaccord.

It's more efficient to build trust and credibility.

Alright, Thank you both.

Yes, Thanks, Alex.

Our next question today comes from Maria <unk> with Canaccord.

Maria Ripps: Please proceed. Great. Thanks for taking my questions. Can you maybe share a little bit more, Carla, on your pricing and product test? So, what products have you been bundling together, and what type of consumer are you targeting, sort of, with these offerings? And then, how heavily do you intend to roll out this plan, sort of, going forward once sort of initial testing is completed? Sure. So we started off, you know, in the past, in Q4 with testing, you know, a variety of different options.

These proceed.

Great. Thanks for taking my questions can you make Michelle a little bit more color on your pricing and product test.

What products have you been bundling together and what type of consumer are you targeting with this offerings.

And then how heavily do you intend to roll out this plan sort of going forward upon sort of initial testing is completed.

Okay.

Sure. So we started off.

Yes.

Call it in Q4 with testing.

R&D of different options and we learn quickly and we're using that to them for a broader rollout. So in addition to some of the 48 hour.

Chuck: We learned quickly, and we're using that to then inform, you know, a broader rollout. So, in addition to some of the four and eight hour Packages that we've tested and primarily sold as part of our all-inclusive learning membership over the course of the past year, we've also introduced different pricing tiers, some of those include lower hours of tutoring, some of those include much lower price points, and then the ability to kind of up-purchase when acute needs arise. And I think we have a good signal there. It's still early days, but there are certain skews that are really responding and allowing for us to get people onto the platform, engaging in products at no cost that, traditionally, they would have paid other companies for, in some cases, large amounts of money, which we think kind of creates this gravitational force towards our website that will attract users very efficiently. And then we've been very encouraged by the initial monetization side. So again, early, and our plan does not count on tremendous success there, but working in such a way that we believe that that could be a big growth driver. I got it. Thank you so much for the call.

Packages that we've tested and primarily sold as part of our all inclusive working membership over the course of the past year. We've also introduced different pricing tiers at some of those include lower hours to drink some of.

Those include.

Much lower price points, and then the ability to kind of upfront.

Up purchase when acute needs rise and I think we have good signal there. It's still early days, but there are certain skus that are really resonating and allowed for us to get people onto the platform engaging in products at no cost that traditionally they would have paid other companies for in some cases large lots of money.

Which we think kind of creates this gravitational force towards our website that will attract users very efficiently.

And then we've been very encouraged by the initial monetization side. So again early.

Our plan does not.

Accounts on tremendous success, there, but working in such a way, where we believe that that could be a big growth driver.

Sure.

Got it. Thank you so much for the color.

Maria Ripps: Thank you for your questions. As a reminder, it is star 1 to ask a question and star 2 to remove one. Our next question, and it comes from Brett Noblock, is about how cancer fits you.

Thank you for your questions.

As a reminder, it is star one to ask a question you can start to term is.

Our next question today comes from Brett Knoblauch with Cantor Fitzgerald.

Brett Noblock: Please proceed. Hi guys, this is Thomas Shinski on behalf of Brett. We're encouraged to see the introduction of the freemium model. I was just wondering if there was any consideration of this model cannibalizing existing revenues from customers that maybe were on the platform but were not using the tutoring services. Thanks. Sure, I could take that one.

Please proceed.

Hi, guys. This is Thomas <unk> on for Brett.

We're encouraged to see the introduction of the freemium model.

I'm just wondering if there was any consideration of this model cannibalizing existing.

Revenues from customers that maybe we are on the platform, but not using the tutoring services. Thanks.

Yes.

Sure I can take that one so I think it's important to remember that our free product and platform provide study and support resources that do not replace hi, Jess its tutoring.

Jason: So I think it's important to remember that our free product and platform provides study and support resources that do not replace high-quality tutoring, but they instead supplement it. So, you know, the need states are different. Supplemental resources will serve as a great on-ramp for tutoring and they're largely very low marginal to no marginal costs. So think things like an AI-based tutor, practice problems, assessments, and personalized learning plans.

Instead, they supplemented the need states are different supplemental resources will serve as a great on ramp for tutoring.

They are largely very low margin low to no marginal cost. So I think things like an AI based tutor practice problems assessments and personalized learning plans.

Jason: As well as asynchronous content. So those items support a learning journey over the course of someone's semester, and when they have an acute need and need specific tutoring to really understand the materials and continue to grow as a learner, that's where we think that the upsell to one-on-one live or small group tutoring, which are our superpowers, is where we'll be able to monetize the upsell from premium to Yeah, there's something about life that like that's our superpower. That's why people come here. And that's where we're truly best in class, and we've surrounded that offering with all sorts of Sheridan, Douglas Anmuth, Maria Ripps, Nerdy take the faith interaction. That continues to be what people want.

As well as asynchronous content. So those items supported learning journey over the course of <unk>.

Semester, and when they have an acute need or need specific tutoring to really understand the materials.

<unk>.

And continue to grow as a learner, that's where we think that the upsell motion to one on one live or small group tutoring, which our superpowers is where we'll be.

To monetize.

The upsell from premium to paid offerings.

Yes, there is something about that.

But that's our superpower, that's why people come here.

And Thats, where we are truly best in class class and we are surrounded that offering with all sorts of the.

Ancillary powerful resources that create a environment, where students can kind of continue to learn over time, but the accountability the relationship that motivation.

The ability to comprehend that comes from that social interaction that probably present and live face to face interaction that continues to be what people want and that we believe is both highly durable that's something that people would substitute for these other options.

Thomas Shinski: And it is both highly durable, not something that people would substitute for these other options, and then a very powerful monitor. Awesome, thank you guys. Thank you all for your questions. There are currently no questions in queue, so as a reminder, it is star one to ask a question. There are no further questions at this time, so that will conclude today's conference call. I would like to thank everyone for their participation, and you may now disconnect your line.

Then a very powerful monetization.

Awesome. Thank you guys.

Okay.

Thank you all for your questions.

There are currently no questions in queue. So as a reminder, it is star one to ask a question.

There are no further questions at this time, so that will conclude today's conference call I would like to thank everyone for their participation and you may now disconnect your line.