Q3 2024 Nerdy Inc Earnings Call
Portion of the call with an opportunity for questions and answers at the end.
Speaker Change: I would now like to pass the conference over to your host T. J Lynn Associate General Counsel of Nerdy you May proceed.
Speaker Change: Good afternoon, and thank you for joining us for <unk> third quarter 2024 earnings call.
Speaker Change: With me are Chuck cone, founder Chairman and Chief Executive Officer of Nerdy adjacent Pelo Chief Financial Officer.
Speaker Change: 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.
Speaker Change: These forward looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results.
Speaker Change: Any forward looking statements are made as of today's date and <unk> does not undertake or accept any obligation to publicly release any updates or revisions to any forward looking statements to reflect any change in expectations or any change in events conditions or circumstances on which.
Speaker Change: Any such statement is based.
Speaker Change: Please refer to the disclaimers and today's shareholder letter announcing <unk> third quarter results and the company's filings with the SEC for a discussion of the risk.
Speaker Change: 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.
Speaker Change: With that let me turn the call over to Chuck.
Chuck Cone: Thanks D J and thank you to everyone for joining us today in the third quarter, we continued to make progress against the primary goals, we laid out for the year.
Chuck Cone: First of all we paired with scaling the winning product for every learner.
Chuck Cone: As we've shared in the past we have historically seen in getting new customers on our platform and institute rigs that can seamlessly and with little friction involved is highly predictive of customer satisfaction retention and ultimately lifetime value.
Chuck Cone: We identified that the FERC 30 day Onboarding experience with one of the highest impact areas, where we can drive durable improvements to retention and lifetime value.
Chuck Cone: We focus a significant portion of our product and engineering efforts towards this area, which has resulted in multiple key enhancements being shipped recently that will benefit both consumer and institutional customers.
Chuck Cone: These improvements to the digital experience focused on the fundamentals of a great customer experience.
Chuck Cone: Our new Onboarding enables our customers Peter placement request to be documented more accurately and efficiently and we are seeing the improved completion rates and accuracy low through the high quality matches faster time to first sessions and higher levels of customer satisfaction.
Chuck Cone: Our new tutor, Matt tracker provides greater transparency into the matching process.
Chuck Cone: Making it easier for customers to manage their tutoring relationships.
Chuck Cone: Firm scheduling availability.
Chuck Cone: And introducing new member the full breadth of our learning tools available to them.
Chuck Cone: It also reduces the amount of new client inbound service request prior to being matched to their theater, which we expect to pull through to higher levels of customer retention.
Chuck Cone: These user experience pages are delivering improvements across the first 30 day period post activation for new customers.
Chuck Cone: Specific areas that have improved include I'm defer tutoring session birth death in attendance rate higher.
Chuck Cone: Higher levels of engagement and non tutoring product like live classes, and AI tuner and a reduction in due to replacement.
Chuck Cone: These important changes were collectively leading to higher customer retention in new consumer tenant work.
Chuck Cone: Consistent with the early trends, we shared last quarter the shift in our product mix towards membership oriented around weekly tutoring abbott's, including our four an eight hour options coupled with digital experience improvement is positively affecting newly acquired cohort.
Among new customers that are now joining at higher frequency learning members of this back to school season, we're seeing higher levels of tutoring sessions per week higher levels of non tutoring engagement due to improved discover ability across the platform higher average revenue per month and.
Chuck Cone: And improved levels of retention in the first months.
Chuck Cone: These trends benefited from further in quarter improvements to the digital experience, which we believe will drive more consistent customer usage and lead to improvements in lifetime value and unit level economics.
Chuck Cone: Positive trends in new customer cohorts were partially offset by lower retention than older customer cohorts that included a higher proportion of low frequency learning memberships, which was a trend we spoke about last quarter.
Chuck Cone: We expect this trend to continue through year end and then subsequently subside.
Chuck Cone: As we've discussed throughout the year, we've made substantial investments in the varsity tutors for schools go to market organization and platform infrastructure.
Chuck Cone: These investments primarily focused on three areas.
Chuck Cone: The first was on converging the consumer and institutional platforms into a unified digital experience, which required significant product and engineering resources and was an initiative. We completed last quarter. We believe that will allow us to go much faster in the future.
Collectively leading to higher customer retention in new consumer cohort.
Consistent with the early trends we shared last quarter, the shift in our product mix towards membership oriented around weekly tutoring habits, including our four and eight hour options, coupled with digital experience improvements, is positively affecting newly acquired cohorts.
Chuck Cone: The second area of investment was enabling access to the varsity tutors platform for the entire school district in order to serve millions of students and to establish a high volume of school district relationship with the aim of building trust and credibility.
Chuck Cone: As the broad access to our platform and a new school district, we are laying the foundation to become their preferred tutoring platform when they look to implement eight high dosage tutoring programs in the future.
Among new customers that are now joining our higher frequency learning membership this back to school season, we're seeing higher levels of tutoring sessions per week, higher levels of non-tutoring engagement due to improved discoverability across the platform.
Chuck Cone: The third area of investment for guarantee senior schools within the expansion of the institutional go to market sales organization to drive further market penetration and bookings growth.
Higher average revenue per month and improved levels of retention in the first month.
These trends benefited from further in-quarter improvements to the digital experience which we believe will drive more consistent customer usage and lead to improvements in lifetime value and unit level economics.
Chuck Cone: In the third quarter, we saw and continue to see strong interest in school districts signing up for access to our platform.
Chuck Cone: We successfully enabled access to the varsity tutors, where schools platform for an additional $1 1 million students, bringing the total to $4 4 million students at nearly 900 school districts during the third quarter.
These positive trends in new customer cohorts were partially offset by lower retentions in older customer cohorts that included a higher proportion of low-frequency learning memberships, which was a trend we spoke about last quarter.
Chuck Cone: Didn't engagement within our platform a stronger than expected as students return to school demonstrating the relevance of our offering and the growing need for student support beyond the traditional classroom.
We expect this trend to continue through year-end and then subsequently subside.
As we've discussed throughout the year, we made substantial investments in the Varsity Tutors for Schools go-to-market organization and platform infrastructure.
Chuck Cone: At school started significant effort was placed on trying to capture aster related bookings and to launch platform access at hundreds of school district.
These investments primarily focused on three areas. The first was on converging the consumer and institutional platforms into a unified digital experience, which required significant product and engineering resources and was an initiative we completed last quarter. We believe that will allow us to go much faster in the future.
Chuck Cone: That required us to expend significant internal resources to support these efforts in a short period of time.
Chuck Cone: We believe this is a good long term investment however in the short term it resulted in a tradeoff of resources and focus which impacted execution in the consumer business.
Chuck Cone: We believe our strategy to offer access to the varsity tutors platform is yielding positive results by driving brand awareness and introducing our products to school district partners at a larger scale than ever before.
The second area of investment was enabling access to the Varsity Tutors platform for the entire school district in order to serve millions of students and to establish a high volume of school district relationship with the aim of building trust and credibility.
Chuck Cone: 32% of paid contracts and 22% of total bookings value in the third quarter came from school District partners, who initially partnered with US via no cost access through our platform and subsequently converted to our paid offerings.
As we roll out access to our platform in a new school district, we are laying the foundation to become their preferred tutoring platform when they look to implement paid high dosage tutoring programs in the future.
Chuck Cone: This strategy of providing access to our low marginal cost product.
Speaker Change: The third area of investment for Variety Teachership Schools was in the expansion of the institutional go-to-market sales organization to drive further market penetration and bookings growth.
That have high perceived value is allowing us to build a large number of relationships with school districts and positions us to drive sustainable long term growth within the K 12 market.
Speaker Change: In the third quarter, we saw and continue to see strong interest in school districts signing up for access to our platform.
Chuck Cone: The investments in the go to market function and institutional sales organization in particular were made in anticipation of a higher level of bookings.
Speaker Change: We successfully enabled access to the Varsity Tutors for Schools platform for an additional 1.1 million students, bringing the total to 4.4 million students at nearly 900 school districts during the third quarter.
Chuck Cone: Our thesis was supported by the prior two years of institutional bookings growth combined with the upcoming Endovascular funding on September 32024, which we believed could deliver a substantial amount of bookings with K 12 school districts.
Speaker Change: Student engagement with our platform was stronger than expected as students returned to school, demonstrating the relevance of our offering and the growing need for student support beyond the traditional classroom.
While we successfully executed a 117 contracts during the third quarter, representing an increase of 46% year over year, those contracts only yielded $8 $5 million of bookings, which was below expectations.
Speaker Change: As school started, significant effort was placed on trying to capture ESSER-related bookings and to launch platform access at hundreds of school districts. That required us to expend significant internal resources to support these efforts in a short period of time.
Chuck Cone: We attribute the lower deal size to several factors, including entering back to school with the newly hired sales team being overly focused on the answer deadline versus other funding sources and to complexity involving Onboarding Free platform Act that school District partners.
Speaker Change: We believe this was a good long-term investment, however, in the short term, it resulted in a trade-off of resources and focus, which impacted execution in the consumer business.
Speaker Change: We believe our strategy to offer access to the Varsity Tutors platform is yielding positive results by driving brand awareness and introducing our products to school district partners at a larger scale than ever before.
Chuck Cone: The institutional opportunity within K 12 schools represents a significant market opportunity and one for which we believe we are uniquely qualified.
Speaker Change: 32% of paid contracts and 22% of total bookings value in the third quarter came from school district partners who initially partnered with us via no-cost access to our platform and subsequently converted to our paid offerings.
Chuck Cone: To better reflect the more normalized sales cycle in a post after environment that encompasses multiple different student populations and recurring funding sources within schools will be moderating our level of spend to a level that we believe will support durable and profitable growth.
Speaker Change: This strategy of providing access to our low marginal cost products that have high perceived value is allowing us to build a large number of relationships with school districts and positions us to drive sustainable long-term growth within the K-12 market.
Chuck Cone: As discussed last quarter, we've been working to modernize and enhance several components of our marketplace infrastructure.
Chuck Cone: We are in the final stages of fully delivering several improvements to our underlying marketplace infrastructure systems, including staffing scheduling enhancements invoicing and substitution automation and other improvements that we believe will allow us to provide best in class logistical reliability.
Speaker Change: The investments in the go-to-market function, and institutional sales organization in particular, were made in anticipation of a higher level of bookings.
Speaker Change: Our thesis was supported by the prior two years of institutional bookings growth combined with the upcoming end-of-expert funding on September 30, 2024, which we believe could deliver a substantial amount of bookings with K-12 school districts.
Chuck Cone: Due to the resource being required to support varsity tutors for schools in the third quarter certain marketplace infrastructure initiatives are taking longer than anticipated to fully implement.
Chuck Cone: Once delivered we believe that these initiatives will allow us to deliver meaningful gross margin improvements and operating leverage on a go forward basis, while simultaneously improving the customer experience due to the higher reliability levels of our marketplace infrastructure systems.
Speaker Change: While we successfully executed 117 contracts during the third quarter, representing an increase of 46% year-over-year, those contracts only yielded $8.5 million of bookings, which was below expectations.
Speaker Change: We attribute the lower deal size to several factors, including entering back to school with the newly hired sales team being overly focused on the answer deadline versus other funding sources and to complexity involving Onboarding Free platform Act that school District partners.
Speaker Change: We attribute the lower deal size to several factors including entering back to school with a newly hired sales team, being overly focused on the answer deadline versus other funding sources, and the complexity involving onboarding pre-platform access school district partners.
Chuck Cone: Taking a step back.
Chuck Cone: We believe that the growing awareness and recognition by parents educators and policymakers that high dosage during as the most effective way to accelerate learning provides us with confidence in the demand for live tutoring in the years to come.
Speaker Change: The institutional opportunity within K 12 schools represents a significant market opportunity and one for which we believe we are uniquely qualified.
Speaker Change: The institutional opportunity within K-12 schools represents a significant market opportunity and one for which we believe we're uniquely qualified.
Chuck Cone: We continue to deliver product enhancements that drive high levels of engagement with our platform expand our customer's lifetime value and provide durable competitive advantages, which we believe will enable strengthening financial performance in the coming quarters. We appreciate your continued interest in our company and look forward to meeting the evolving needs of <unk>.
Speaker Change: To better reflect the more normalized sales cycle in a post at the environment that encompasses multiple different student populations and recurring funding sources within schools will be moderating our level of spend to a level that we believe will support durable and profitable growth.
Speaker Change: To better reflect the more normalized sales cycle in a post-ESSER environment that encompasses multiple different student populations and recurring funding sources within schools, we'll be moderating our level of spend to a level that we believe will support durable and profitable growth.
Speaker Change: As discussed last quarter, we've been working to modernize and enhance several components of our marketplace infrastructure.
Chuck Cone: <unk>, then any subject anywhere and at any time with that I'll turn the call over to Jason to discuss the financials in more detail Nathan.
Speaker Change: As discussed last quarter, we've been working to modernize and enhance several components of our marketplace infrastructure.
Speaker Change: We're in the final stages of fully delivering several improvements to our underlying marketplace infrastructure systems, including staffing scheduling enhancements invoicing and substitution automation and other improvements that we believe will allow us to provide best in class logistical reliability.
Jason: Thanks, Chuck and good afternoon, everyone as Chuck mentioned, we continue to make progress towards achieving the three primary goals, we laid out for the year.
Speaker Change: We are in the final stages of fully delivering several improvements to our underlying marketplace infrastructure systems, including session scheduling enhancements, invoicing and substitution automation, and other improvements that we believe will allow us to provide best-in-class logistical reliability.
Jason: In the third quarter, we delivered revenue of $37 5 million, a decrease of 7% year over year.
Revenue declined primarily due to lower ARPA and our consumer business.
Speaker Change: Due to the resource being required to support varsity tutors for schools in the third quarter certain marketplace infrastructure initiatives are taking longer than anticipated to fully implement.
Jason: <unk> was lower due to a higher mix of lower frequency alerting memberships when compared to the prior year period.
Speaker Change: Due to the resourcing required to support varsity tutors for schools in the third quarter, certain marketplace infrastructure initiatives are taking longer than anticipated to fully implement.
Jason: Consumer learning memberships subscription revenue of $31 $4 million represented 84% of total company revenue.
Speaker Change: Once delivered we believe that these initiatives will allow us to deliver meaningful gross margin improvements and operating leverage on a go forward basis, while simultaneously improving the customer experience due to the higher reliability levels of our marketplace infrastructure systems.
Jason: Active members of $39 7000.
Jason: As of September 30 were up 1% year over year.
Jason: RPM of approximately $302 as of September 30 was up 7% from $281 at the end of the second quarter and resulted in an annualized run rate of approximately $144 million from learning memberships at quarter end.
Speaker Change: Taking a step back.
Speaker Change: We believe that the growing awareness and recognition by parents educators and policymakers that high dosage during as the most effective way to accelerate learning provides us with confidence in the demand for live tutoring in the years to come.
Jason: Our institutional business delivered revenue of $5 4 million, a decrease of 3% year over year and represented 14% of total revenue.
Speaker Change: We continue to deliver product enhancements that drive high levels of engagement with our platform expand our customer's lifetime value and provide durable competitive advantages, which we believe will enable strengthening financial performance in the coming quarters. We appreciate your continued interest in our company and look forward to meeting the evolving needs of learners.
Jason: Our platform access strategy in our institutional business is allowing us to introduce our products to school districts at a much larger scale than ever before.
Speaker Change: As Chuck mentioned, our strategy to introduce school districts to the platform and ultimately convert them to our fee based offerings started to bear fruit in the third quarter.
There's 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 Nathan.
Speaker Change: With 32% of paid contracts and 22% of total bookings value coming from school District partners, who initially partnered with varsity tutors for schools via free access to our platform and subsequently converted to our paid offerings.
Jason: Thanks, Chuck and good afternoon, everyone as Chuck mentioned, we continue to make progress towards achieving the three primary goals, we laid out for the year.
Jason: In the third quarter, we delivered revenue of $37 5 million, a decrease of 7% year over year.
Speaker Change: We believe that providing access to our platform is allowing us to gain market share and that we are building a strategic and differentiated asset that positions us for continued sustainable long term growth within the case 12 market.
Jason: Revenue declined primarily due to lower RPM and our consumer business.
Jason: <unk> was lower due to a higher mix of lower frequency are already memberships when compared to the prior year period.
Speaker Change: However, we are taking steps to moderate our institutional investments to reflect a more normalized sales cycle in a post <unk> environment that encompasses multiple different student populations and referring funding sources within schools that we believe will allow us to deliver durable and profitable growth as we move into 2025.
Jason: Consumer learning memberships subscription revenue of $31 $4 million represented 84% of total company revenue.
Jason: Active members of $39 7000.
Jason: As of September 30 were up 1% year over year.
Jason: Our payment of approximately $302 as of September 30 was up 7% from $281 at the end of the second quarter and resulted in an annualized run rate of approximately $144 million from learning memberships at quarter end.
Speaker Change: Moving down the P&L gross profit of $26 5 million in the third quarter was lower by 9% year over year.
Speaker Change: Gross margin was 75% for the three months ended September 30th.
Speaker Change: And compared to a gross margin of 72, 4% during the comparable period in 2023.
Jason: Our institutional business delivered revenue of $5 4 million, a decrease of 3% year over year and represented 14% of total revenue.
Speaker Change: The decrease in gross margin was primarily due to lower ARPA, coupled with higher utilization of tutoring sessions across learning memberships in our consumer business.
Jason: Our platform exit strategy in our institutional business is allowing us to introduce our products to school districts at a much larger scale than ever before.
Speaker Change: Partially offset by lower seasonal utilization and our access based products and our institutional business.
Speaker Change: As Chuck mentioned, our strategy to introduce school districts to the platform and ultimately convert them to our fee based offerings started to bear fruit in the third quarter with.
Speaker Change: Improvements to our marketplace infrastructure systems, including scheduling invoicing and substitution improvements are now expected to be fully implemented in the fourth quarter.
Speaker Change: With 32% of paid contracts and 22% of total bookings value coming from school District partners, who initially partnered with varsity tutors for schools via free access to our platform and subsequently converted to our paid offerings.
Speaker Change: Once implemented these initiatives are expected to yield gross margin improvement and operating leverage on a go forward basis, while also improving the customer experience.
Speaker Change: Sales and marketing expenses for the quarter on a GAAP basis were $20 3 million, an increase of $1 million from $19 3 million in the same period last year.
Speaker Change: We believe that providing access to our platform is allowing us to gain market share and that we are building a strategic and differentiated asset.
Speaker Change: non-GAAP sales and marketing expenses, excluding noncash stock based compensation were $19 7 million compared to $18 5 million in the same period last year.
Speaker Change: <unk> for continued sustainable long term growth within the K 12 market.
Speaker Change: However, we are taking steps to moderate our institutional investments to reflect a more normalized sales cycle in a post <unk> environment that encompasses multiple different student populations and referring funding sources within schools that we believe will allow us to deliver durable and profitable growth as we move into 2025.
Speaker Change: Sales and marketing increases were driven by investments in our institutional sales organization in order to drive customer acquisition brand awareness and reach.
Speaker Change: These investments were partially offset by consumer sales and marketing efficiency gains, where we saw customer acquisition costs decreased by $1 6 million or 9% year over year in the third quarter.
Speaker Change: Moving down the P&L gross profit of $26 5 million in the third quarter was lower by 9% year over year.
Speaker Change: General and administrative expenses for the quarter on a GAAP basis were $31 8 million a decrease of $3 7 million from $35 5 million in the same period last year.
Speaker Change: <unk> margin was 75% for the three months ended September 30.
Speaker Change: And compared to a gross margin of 72, 4% during the comparable period in 2023.
Speaker Change: non-GAAP G&A, excluding noncash stock compensation expenses transaction costs restructuring costs and a provision for a legal settlement was $22 $6 million.
Speaker Change: The decrease in gross margin was primarily due to lower ARPA, coupled with higher utilization of tutoring sessions across learning memberships in our consumer business.
Speaker Change: Compared to $20 $5 million in the same period last year.
Speaker Change: Offset by lower seasonal utilization and our access based products and our institutional business.
Speaker Change: Included in G&A costs for product development costs of $11 3 million, an increase of $1 2 million from $10 1 million in the same period last year.
Speaker Change: Improvements to our marketplace infrastructure systems, including scheduling invoicing and substitution improvements are now expected to be fully implemented in the fourth quarter.
Speaker Change: We believe our investments in product development and our platform oriented approach to growth have allowed us to launch and continuously improve our suite of subscription in access based products.
Speaker Change: Once implemented these initiatives are expected to yield gross margin improvement and operating leverage on a go forward basis, while also improving the customer experience.
Speaker Change: Which are allowing us to simplify our operating model needed to support the organization, allowing us to maximize our investment in the unified platform.
Speaker Change: Sales and marketing expenses for the quarter on a GAAP basis were $23 million, an increase of $1 million from $19 3 million in the same period last year.
Speaker Change: non-GAAP adjusted EBITDA loss of $14 million for the three months ended September 30 was above our guidance range of negative $17 million to negative $19 million and compared to a non-GAAP adjusted EBITDA loss of $8 2 million in the same period last year.
Speaker Change: non-GAAP sales and marketing expenses, excluding noncash stock based compensation were $19 7 million compared to $18 $5 million in the same period last year.
Speaker Change: Sales and marketing increases were driven by investments in our institutional sales organization in order to drive customer acquisition brand awareness and reach.
Speaker Change: non-GAAP adjusted EBITDA improvements relative to guidance were primarily driven by lower sales and marketing spend operating efficiency gains and diligent cost controls.
Speaker Change: These investments were partially offset by consumer sales and marketing efficiency gains, where we saw customer acquisition costs decreased by $1 6 million or 9% year over year in the third quarter.
Speaker Change: Compared to last year non-GAAP adjusted EBITDA was lower primarily due to investments and divestitures for school sales organization and product development to drive innovation and support our growth.
General and administrative expenses for the quarter on a GAAP basis were $31 8 million a decrease of $3 7 million from $35 5 million in the same period last year.
As of September 30, the Companys principal sources of liquidity, our cash and cash equivalents of $65 million and we have zero debt. We believe our strong balance sheet provides us with ample liquidity to operate against our plan and pursue growth initiatives.
Speaker Change: non-GAAP G&A, excluding noncash stock compensation expenses transaction costs restructuring costs and a provision for a legal settlement was $22 6 million compared.
Speaker Change: Turning to our business outlook, we're providing fourth quarter and updating full year revenue and adjusted EBITDA guidance.
Speaker Change: Compared to $20 $5 million in the same period last year include.
Speaker Change: Fourth quarter revenue guidance reflects higher sequential quarterly revenues from learning memberships.
Speaker Change: Included in G&A costs for product development costs of $11 3 million, an increase of $1 2 million from $10 1 million in the same period last year.
Speaker Change: Conversely tutors for schools, when K 12 schools and universities are in session.
Speaker Change: The fourth quarter, we expect year over year consumer revenue will be impacted by a decline in the number of learning membership subscribers due primarily to a higher level of cancellations from older cohorts, who purchased lower frequency Liberty memberships, coupled with lower average revenue per member per month.
Speaker Change: We believe our investments in product development and our platform oriented approach to growth have allowed us to launch and continuously improve our suite of subscription in access based products.
Speaker Change: Which are allowing us to simplify our operating model needed to support the organization.
Speaker Change: Allowing us to maximize our investment in the unified platform.
Speaker Change: In our institutional business, we expect that the lower bookings year to date will result in the flow through of lower revenues during the fourth quarter versus the prior year.
Speaker Change: non-GAAP adjusted EBITDA loss of $14 million for the three months ended September 30.
Speaker Change: It was above our guidance range of negative $17 million to negative $19 million and compared to a non-GAAP adjusted EBITDA loss of $8 2 million in the same period last year.
Speaker Change: For the fourth quarter of 2024, we expect revenue in the range of $44 million to $47 million.
Speaker Change: For the full year, we expect revenue in the range of $186 million to $189 million.
Speaker Change: non-GAAP adjusted EBITDA improvements relative to guidance were primarily driven by lower sales and marketing spend operating efficiency gains and diligent cost controls.
Speaker Change: We expect to deliver a sequential improvement in adjusted EBITDA from the third to the fourth quarter, which we would expect to continue into 2025.
Speaker Change: Compared to last year non-GAAP adjusted EBITDA was lower primarily due to investments and divestitures for school sales organization and product development to drive innovation and support our growth.
Speaker Change: Fourth quarter adjusted EBITDA guidance, primarily reflects the flow through of lower revenue year over year, coupled with investments in the institutional sales organization and product development to drive continued innovation and growth.
Speaker Change: As of September 30, the Companys principal sources of liquidity, our cash and cash equivalents of $65 million.
For the fourth quarter of 2024, we expect adjusted EBITDA in the range of negative $7 million to negative $10 million.
Speaker Change: And we have zero debt, we believe our strong balance sheet provides us with ample liquidity to operate against our plan and pursue growth initiatives.
Speaker Change: For the full year, we expect adjusted EBITDA in the range of negative $23 million to negative $26 million.
Speaker Change: Turning to our business outlook, we are providing fourth quarter and updating full year revenue and adjusted EBITDA guidance.
Speaker Change: As mentioned, we believe we have ample liquidity to fund the business and pursue growth initiatives.
Speaker Change: Fourth quarter revenue guidance reflects higher sequential quarterly revenues from learning memberships and varsity tutors for schools when K 12 schools and universities are in session.
Speaker Change: In closing thank you again for your time and for your continued interest in our company.
Speaker Change: With that I'll turn it over to the operator for Q&A operator.
Speaker Change: For the fourth quarter, we expect year over year consumer revenue will be impacted by a decline in the number of learning membership subscribers due primarily to a higher level of cancellations from older cohorts you purchased lower frequency <unk> memberships, coupled with lower average revenue per member per month.
Speaker Change: Thank you if you'd like to queue for a question you can do so by pressing star one on your telephone keypad.
Speaker Change: If for any reason you'd like to remove your question at Star two.
Speaker Change: But again to join the question queue. Please press star one.
Speaker Change: In our institutional business, we expect that the lower bookings year to date will result in the flow through of lower revenues during the fourth quarter versus the prior year.
Speaker Change: Our first question is from Andrew Boone with JMP Securities. Your line is now open.
Andrew Boone: Thanks, so much for taking my questions.
Speaker Change: For the fourth quarter of 2024, we expect revenue in the range of $44 million to $47 million.
Andrew Boone: You guys understood. The various puts and takes in terms of the <unk> guide, but can you guys doubleclick in terms of your visibility and stability in terms of the consumer side of the business. How do we think about timing there and then stepping back more operationally.
Speaker Change: For the full year, we expect revenue in the range of $186 million to a $189 million.
We expect to deliver a sequential improvement in adjusted EBITDA from the third to the fourth quarter, which we would expect to continue into 2025.
Andrew Boone: Can you talk about driving engagement with customers. How are you guys thinking about getting more frequency on the platform. Overall, so that you do improve intention excuse me improve retention for consumers. Thanks, so much.
Speaker Change: Fourth quarter adjusted EBITDA guidance, primarily reflects the flow through of lower revenue year over year, coupled with investments in the institutional sales organization and product development to drive continued innovation and growth.
Speaker Change: Thanks, Andrew Good question.
Speaker Change: So the way that we think about that kind of consumer business and performing.
Speaker Change: For the fourth quarter of 2024, we expect adjusted EBITDA in a range of negative $7 million to negative $10 million.
Speaker Change: Performance in the quarter, which I shared a little bit in the prepared remarks relates back to the old cohorts, which were a blend of customers that were on the weekly tutoring frequency and some that were not those that were not had higher levels of churn at the year end, which fall through the quarter. Those that were on the weekly tutoring frequency you had much higher levels.
Speaker Change: For the full year, we expect adjusted EBITDA in the range of negative $23 million to negative $26 million.
Speaker Change: As mentioned, we believe we have ample liquidity to fund the business and pursue growth initiatives.
Speaker Change: In closing thank you again for your time and for your continued interest in our company.
Speaker Change: With that I'll turn it over to the operator for Q&A operator.
Speaker Change: <unk> retention, which is attributable to the fact that tutoring is a weekly habit oriented activity that people get into every one every Tuesday night for French jewelry every Thursday night for.
Speaker Change: Thank you if you'd like to queue for a question you can do so by pressing star one on your telephone keypad.
Speaker Change: If for any reason you'd like to remove your question at Star two.
Speaker Change: Alice at Pratt and preparation for going to law school.
Speaker Change: But again to join the question queue. Please press star one.
Speaker Change: And as we got back into the school year and as we shared on the last quarterly call. We reoriented the focus towards memberships that were focused on weekly tutoring.
Speaker Change: Our first question is from Andrew Boone with JMP Securities. Your line is now open.
Andrew Boone: Thanks, so much for taking my questions.
And in addition to that that alone from a mix perspective drove higher levels of retention and higher <unk>.
Andrew Boone: You guys understood. The various puts and takes in terms of the <unk> guide, but can you guys doubleclick in terms of your visibility and stability in terms of the consumer side of the business. How do we think about timing there and then stepping back more operationally.
Speaker Change: On both a kind of blended in year over year basis, and then separately, we made a series of product enhancements that we shared in the shareholder letter.
Andrew Boone: Can you talk about driving engagement with customers. How are you guys thinking about getting more frequency on the platform. Overall, so that you do improve intention excuse me improve retention for consumers. Thanks, so much.
Speaker Change: <unk> improved the first 30 day activation so they remove friction they made it easier to schedule. They made it easier to figure out the status of your tutor to replace your tutor and those are durable product driven changes number then seeing pull through to higher first session success rates and then.
Thanks, Andrew Good question.
Speaker Change: So the way that we think about that kind of consumer business and a solid.
Speaker Change: A bunch of downstream positive metrics related to tutor engagement.
Speaker Change: Our performance in the quarter.
Speaker Change: Third a little bit in the prepared remarks relates back to the old cohorts, which were a blend of customers that were on the weekly tutoring frequency and some that were not those that were not had higher levels of churn at the year end, which fall through the quarter. Those that were on the weekly tutoring frequency you had much higher levels of retention.
Speaker Change: Also made a series of improvements to the platform itself in a way that drive discovery ability.
Speaker Change: Many of the non tutoring products, including AI tutor live classes adaptive diagnostic testing and some of the self service tools. So we have seen both one on one engagement on a weekly or monthly basis year over year and then separately.
Speaker Change: Which is attributable to the fact that during as a weekly habit oriented activity that people get into every one every Tuesday night for French jewelry every Thursday night for.
Speaker Change: For non tutoring engagement, we've seen it actually.
Speaker Change: ROE quite nicely this back to school season in connection with both the mix changes and then all of the product urine changes and all of that engagement then pulls through traditionally to much higher levels of retention and so we're seeing among the first several months of <unk>.
Speaker Change: Alice at Pratt and preparation for going to law school.
Speaker Change: And as we got back into the school year and as we shared on the last quarterly call. We reoriented the focus towards memberships that were focused on weekly tutoring.
Speaker Change: And in addition to that that alone from a mixed perspective drove higher levels of retention and higher ARPA on both a kind of blended in year over year basis, and then separately. We made a series of product enhancements that we shared in the shareholder letter.
Speaker Change: Back to school cohorts that all of the kind of negative year over year retention trends have reverted and we're back to parity and we'd hope that through the product driven changes that we're working on right. Now we have high conviction that those can then fall through too material year over year wins on retention on a go forward basis, so that.
Speaker Change: That improved the first 30 day activation.
Speaker Change: That's how we kind of model it and think about it but.
Speaker Change: So they remove friction they made it easier to schedule. They made it easier to figure out the status of your tutor to replace your tutor.
As those cohorts pull through and shift the total answer if accumulative members, we would expect to see retention the retention answer totality shift positively.
And those are durable product driven changes number then seeing pull through to higher first session success rates and then a bunch of downstream positive metrics related to tutor engagement. We've also made a series of improvements to the platform itself in a way that drive discovery ability.
Thank you.
Speaker Change: We have no further questions in the queue at this time so as a final reminder, it is star one to join the question queue.
Speaker Change: Many of the non tutoring products, including AI tutor live classes adapter diagnostic testing and some of the self service tools. So we have seen both one on one engagement on a weekly or monthly basis year over year and then separately.
We have a question from Greg give us with Northland Securities.
Speaker Change: Your line is now open.
Speaker Change: Great Hey, guys. Thanks for taking the questions.
For non tutoring engagement, we've seen it actually.
Speaker Change: Curious if we could go a little bit further on the institutional revenue kind of what's driving the decline there and.
Speaker Change: Grow quite nicely this back to school season in connection with both the mix changes and then all of the product urine changes and all of that engagement then pulls through traditionally to much higher levels of retention and so we're seeing among the first several months of <unk>.
Speaker Change: Nice to see that you're enabled another $1 1 million students up to a $4. Four now how is progress trending regarding kind of monetizing our upselling those offerings for school districts.
Speaker Change: Back to school cohorts that all of that kind of negative year over year retention trends have reverted and we're back to parity and we'd hope that through the product driven changes that we're working on right. Now we have high conviction that those can then pull through to material year over year wins on retention on a go forward basis, so that.
Speaker Change: Thanks, Greg Good question.
Speaker Change: So as we've shared over the past couple of quarters, we were taking a big swing related to this back to school season, and making the most of the NDA after motion and that was informed by the last couple of years of bookings and all the progress and success we've had.
Speaker Change: And one of the things that we saw this back to school season was.
That's how we kind of model it and think about it but.
Speaker Change: The platform active strategy.
Speaker Change: As those cohorts pull through and shift the total answer if accumulative members, we would expect to see retention the retention answer totality shift positively.
Speaker Change: Where we gain access to the platform had high levels of demand.
You also saw that ramping of new sales team heading into that back to school season was a little bit more challenging than expected and then after itself did not create the level of urgency that we expected is that 930 deadline and I think in.
Speaker Change: Thank you.
Speaker Change: Retrospect, we are overly focused on that specific deadline as opposed to focusing on broad base.
We have no further questions in the queue at this time so as a final reminder, it is star one to join the question queue.
Strategic conversations that span a multitude of funding types and different need state grants happen one of the really positive things is the extent to which at our platform and all of its product capabilities that are involved in all of the integrations that we've done we're now able to accommodate and serve abroad.
Speaker Change: We have a question from Greg give us with Northland Securities.
Speaker Change: Your line is now open.
Speaker Change: Great Hey, guys. Thanks for taking the questions.
Speaker Change: Curious if we could go a little bit further on the institutional revenue kind of what's driving the decline there and.
Speaker Change: Swath of different use cases, and whether a school district wants to administer tutoring.
Speaker Change: Nice to see that you're enabled another $1 1 million students of the $4. Four now how is progress trending regarding kind of monetizing our upselling those offerings for school districts.
Speaker Change: Before school during school in class outside of class after school or a nicer weekends with parents.
Speaker Change: We put in place the platform and software driven changes that allow for us to accommodate a broad swath of different needs and then also span different students groups, whether it's related to math or reading U K through five and we're meeting and learning loss or whether it is related to certain special education students.
Speaker Change: Thanks, Greg Good question.
Speaker Change: So as we've shared over the past couple of quarters, we were taking a big swing related to this back to school season, and making the most of the NDA after motion and that was informed by the last couple of years of bookings and all the progress and success, we've had and one of the things that we saw this back to school season was that the plan.
Speaker Change: Abroad, and there is a way that our platform can accommodate many of these different student populations that have acute needs. So we're finding that there's these pockets that all school districts largely have that have good funding, we're seeing with that new.
Speaker Change: <unk> strategy.
Speaker Change: Where we gain access to the platform had high levels of demand. We also saw that ramping of new sales team heading into that back to school season was a little bit more challenging than expected and then after itself did not create the level of urgency that we expected at that 930 deadline and I think in.
Speaker Change: Our new sales team the deal sizes came in a little bit smaller, which we attributed back to <unk>.
Speaker Change: <unk> motion and newer team.
Speaker Change: Retrospect, we are overly focused on that specific deadline as opposed to <unk>.
Speaker Change: And we would expect through the deal sizes to increase as we get farther into the school year and the team matures and we get a little bit better at the kind of platform access strategy. So I think we feel good about that deal.
Speaker Change: Focusing on broad based.
Speaker Change: Strategic conversations that span a multitude of funding types.
Oems, but not the average deal size, but the platform access strategy itself is working it's generating deals and so they are kind of converting through and we're building a lot of trust and put a lot of energy into it.
Speaker Change: And different need state grants.
Speaker Change: Having one of the really positive things is the extent to which as our platform and all of its product capabilities have evolved and all of the integrations that we've done we're now able to accommodate and serve a broad swath of different use cases, and whether a school district wants to administer tutoring.
And.
Speaker Change: We think long term is.
Speaker Change: A good investment it will pay back we're building trust with school districts short term, it's a complicated motion of having all of the school districts for the first time. This back to school season launch concurrently, but we've made tremendous progress progress on the product front and we're seeing high levels of engagement across some of those school districts that have been.
Speaker Change: Before school during school in class outbound class after school or a nicer weekends with parents.
Speaker Change: We put in place the platform and software driven changes that allow for us to accommodate a broad swath of different needs and then also span different students groups, whether it's related to math or reading <unk>, five and we're meeting and learning loss or whether it is related to certain special education students.
Speaker Change: We shared some of the SaaS or pulling through two deals. So we feel good about the.
Speaker Change: Strategic advantage, we have related to the platform access and that how that ultimately accrues to strong relationships with those districts, yes, maybe just to put some numbers behind what Chuck said and I appreciate the question Greg.
Speaker Change: Abroad, and there is a way that our platform can accommodate many of these different student populations that have an acute needs. So we're finding that there's these pockets that all school districts largely have that have good funding, we're seeing with that new.
Speaker Change: Platform access is allowing us to gain share in the market for building, a strategic and differentiated asset that we think positions us for sustainable long term growth within the state to 12 market.
Speaker Change: Student engagement with the platform as Chuck mentioned was really high as we enter the back to school period.
Speaker Change: Our new sales team the deal sizes came in a little bit smaller, which we attributed back to a newer motion and newer team.
Speaker Change: Showing clear evidence for the need for support beyond the traditional classroom and that platform exit strategy is starting to bear fruit, 32% of the paid contracts and 22% of total bookings value came from school District partners, who originally partnered with varsity tutors for schools via the free platform access and subsequently converted to our.
Speaker Change: And we would expect through the deal sizes to increase as we get farther into the school year and that team matures and we get a little bit better at the kind of platform axis strategy. So I think we feel good about that deal volumes.
Speaker Change: Volumes, but not the average deal size, but the platform access strategy itself is working it's generating deals and they're kind of converting through and we're building a lot of trust, we put a lot of energy into it and we.
Speaker Change: Paid hydro subsidiary offerings. So we think that thats going to continue into 2025, and well beyond that and feel good about the work that we did during the third quarter to onboard.
Speaker Change: We think long term is.
Speaker Change: Nearly 900 schools.
Speaker Change: A good investment it will pay back we're building trust with school districts short term, it's a complicated motion of having all of the school districts for the first time. This back to school season launch concurrently, but we made tremendous progress progress on the product front and we're seeing high levels of engagement across some of those school districts that have been.
Speaker Change: Definitely paying a short term price in terms of resource allocation.
As back to school launched but we.
Speaker Change: We feel good about the long term strategic asset that we felt and how that ultimately generates growth and profitability.
Got it very helpful.
Speaker Change: We shared some of the SaaS or pulling through to deal. So we feel good about the kind of strategic advantage, we have related to the platform access and that how that ultimately accrues to strong relationships with those districts, yes, maybe just to put some numbers behind what Chuck said and I appreciate the question Greg.
Great and then I guess, turning gears to the consumer side.
Speaker Change: Wanted to just kind of get a little bit more color on your expectations for.
Speaker Change: Lee active member growth versus RPM dynamics in Q4 on a year over year basis.
Speaker Change: Kind of if you expect any changes in kind of dynamics there between those two.
Speaker Change: Platform access it is allowing us to gain share in the market for building, a strategic and differentiated asset that we think positions us for sustainable long term growth within the state to 12 market.
Speaker Change: And I guess separately.
Speaker Change: As it relates to I think you spoke to.
Speaker Change: The lower customer acquisition costs, you're seeing I'm wondering if you could touch on kind of what's driving that is it different marketing marketing initiatives or kind of go to market strategy, where you're maybe seeing success there.
Speaker Change: Student engagement with the platform as Chuck mentioned was really high as we entered the back to school period.
Speaker Change: It's showing clear evidence for the need for support beyond the traditional classroom and the platform exit strategy is starting to bear fruit, 32% of the paid contracts and 22% of total bookings value came from school District partners, who originally partnered with varsity tutors for schools via the free platform access and subsequently converted to our.
Speaker Change: Sure. Thanks for the question. So the positive trends, we're seeing in the new customer cohorts you mentioned on the call those were partially offset by lower retention and older customers that included a higher proportion of the lower frequency alerting memberships that was a trend we spoke to you last quarter. We think that'll continue through the end of the year and then subsequently subside.
Speaker Change: Paid hydro subsidiary offerings. So we think that that's going to continue into 2025 and well beyond that and feel good about the work that we did during the third quarter to onboard.
Speaker Change: We think we'll end the year with about 36000 active members.
Speaker Change: You mentioned ARPA.
Speaker Change: Importantly, we saw RPM improved from $2 81 at the end of Q2 to 302 at the end of Q3 as we focused on those higher frequency customers that trend will continue in Q4, we think we will end around 310.
Speaker Change: Nearly 900 schools.
Speaker Change: Definitely paying a short term price in terms of resource allocation.
Speaker Change: As you know back to school launched but we we.
Speaker Change: And then again continue to accrete as we move into 2025.
Speaker Change: We feel good about the long term strategic asset that we felt and how that ultimately generates growth and profitability.
Speaker Change: Within marketing specifically on the consumer side, we are seeing some efficiency there customer acquisition cost decreased by about $1, four or 8% year over year in the third quarter. When you couple that with consumer sales conversion improvements our cash were down about 14% in Q3, which we feel really good about the durability of that efficiency improvement as we move into 2025.
Speaker Change: Got it very helpful.
Great and then I guess, turning gears to the consumer side.
Speaker Change: Wanted to just kind of get a little bit more color on your expectations for <unk>.
Speaker Change: Active member growth versus RPM dynamics in Q4 on a year over year basis.
Speaker Change: We're able to target our marketing investments toward.
Speaker Change: Kind of if you expect any changes in kind of dynamics there between those two.
Speaker Change: Higher LTV customers and segments that have quicker paybacks.
Speaker Change: And I guess separately.
Speaker Change: As it relates to I think you spoke to.
Speaker Change: Lower customer acquisition costs, you're seeing I'm wondering if you could touch on kind of what's driving that is it different marketing marketing initiatives or kind of go to market strategy, where you're maybe seeing success there.
Got it thanks for the color.
Speaker Change: There are no further questions in the queue at this time so that concludes today's call. Thank you all for your participation you may now disconnect your lines.
Speaker Change: Sure. Thanks for the question. So the positive trends, we're seeing in the new customer cohorts. We mentioned on the call those were partially offset by lower retention and older customers that included a higher proportion of the lower frequency learning memberships that was a trend we spoke to you last quarter. We think that'll continue through the end of the year and then subsequently subside.
Speaker Change: We think we'll end the year with about 36000 active members.
Speaker Change: You mentioned ARPA.
Speaker Change: Importantly, we saw ARPA improved from $2 81 at the end of Q2 to three <unk> at the end of Q3 as we focused on those higher frequency customers that trend will continue in Q4, we think we will end around 310, and then again continue to accrete as we move into 2025.
Speaker Change: Within marketing specifically on the consumer side, we are seeing some efficiency there customer acquisition cost decreased by about $1, four or 8% year over year in the third quarter. When you couple that with consumer sales conversion improvements our cost were down about 14% in Q3, which we feel really good about the durability of that efficiency improvement as we move into 2025.
Speaker Change: As we're able to target our marketing investments toward.
Speaker Change: Higher LTV customers and segments that have quicker paybacks.
Speaker Change: Got it thanks for the color.
Speaker Change: There are no further questions in the queue at this time so that concludes today's call. Thank you all for your participation you may now disconnect your lines.