Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nerdy Inc (NRDY, Financial) successfully enabled access to the Varsity Tutors for Schools platform for an additional 1.1 million students, bringing the total to 3.3 million students across nearly 600 school districts.
- The company has shifted its focus towards premium learning memberships, which have shown higher retention rates and increased average revenue per member.
- Recent improvements in the digital user experience have led to faster time to first session, higher levels of tutoring sessions per week, and improved engagement.
- Nerdy Inc (NRDY) has expanded its Varsity Tutors for Schools' sales and go-to-market team, positioning itself for growth in the institutional sector.
- The company maintains a strong balance sheet with $69.8 million in cash and cash equivalents, providing ample liquidity for growth initiatives.
Negative Points
- Nerdy Inc (NRDY) experienced higher-than-expected levels of seasonal cancellations in its consumer business, leading to fewer active members than anticipated.
- The company faced lower-than-expected average revenue per member (ARPM) due to a higher mix of lower frequency, non-premium learning memberships.
- Gross profit decreased by 2% year over year, with gross margin falling from 69.8% to 65.7% due to higher tutor substitute costs and lower margins in institutional offerings.
- The onboarding of the Varsity Tutors for Schools' sales team took longer than expected, resulting in lower-than-anticipated bookings during the summer months.
- Nerdy Inc (NRDY) reported a non-GAAP adjusted EBITDA loss of $2.1 million for the quarter, compared to a positive $1.3 million in the same period last year.
Q & A Highlights
Q: Can you discuss how Nerdy is using its expanded presence in schools to convert them into paid customers and the conversion rates seen so far?
A: Charles Cohn, CEO, explained that the platform access strategy has been effective, with high uptake rates from school districts. The strategy involves offering low or zero marginal cost products to schools, which has been well-received. The company is improving its approach to have concurrent conversations about free tools and commercial opportunities, leading to more strategic partnerships and paid relationships.
Q: With the shift back to premium learning memberships, how long will it take to rebuild the top of the funnel, and what assumptions are being made for learning members and ARPM in the guidance?
A: Jason Pello, CFO, noted that demand remains healthy, with conversion rates above last year's levels. The focus on premium memberships is expected to drive higher engagement and lifetime value. The company anticipates ending Q3 with about 40,000 active members and the year with 43,000, with ARPM expected to be above $300 due to the shift towards premium memberships.
Q: What are the keys to increasing user engagement, and what product changes are being made to drive this?
A: Charles Cohn, CEO, emphasized the importance of an intuitive onboarding experience that removes friction and quickly delivers value. Enhancements have been made to the scheduling, matching, and digital onboarding processes to improve user experience. The company is also focusing on promoting multimodality learning, which historically doubles retention and lifetime value.
Q: With the expiration of ESSER III funds approaching, what are the recent conversations with schools regarding funding?
A: Jason Pello, CFO, mentioned that there is still $6-8 billion in ESSER III funds to be obligated by September 30. Nerdy is actively discussing multiyear agreements with schools to utilize these funds. Conversations are also focusing on other funding sources like Title 1 and state grants, as high-dosage tutoring is recognized as effective.
Q: What is driving the higher-than-expected cancellations this summer, and when do you expect ARPM trends to improve?
A: Charles Cohn, CEO, attributed the cancellations to lower-cost offerings that did not encourage a weekly habit. The company is refocusing on premium memberships, which align better with learning outcomes and calendar habits. Jason Pello, CFO, expects ARPM to exceed $300 by the end of Q3, driven by the shift to premium memberships and seasonal demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
