Nerdy, Inc.

and thank you for attending today's Nerdy Fourth Quarter 2021 earnings call. My name is Selena and I will be your moderator. 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, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Molly Sorg, Head of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for NERDI's fourth quarter and full year 2021 earnings call. With me are Chuck Cohn, founder, chairman, and chief executive officer of NERDI, and Jason Pello, 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 NERDI's future financial and operating results, strategy, opportunities, plans, and outlooks. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Any forward-looking statements are made as of today's date, and NERDI 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 press release announcing NERDI's fourth quarter and full year 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 press release for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck. Chuck?

Thanks, Molly, and thank you to everyone who has joined us today. We appreciate your interest in NERDI. We're happy to be back in front of you discussing the strong momentum we built in 2021 and the meaningful opportunities we believe are ahead of us. Let's get started with a few of our 2021 highlights. Last year, Nerdy achieved new all-time demand records with full-year 2021 revenue growing 35% from the prior year to $140.7 million. and bookings growing nearly 50% over 2020. From a platform perspective, we saw strong engagement with active learners up 46% and online sessions up 73% over 2020, with paid sessions per active expert increasing 19% versus the prior year. The investments we are making in product, technology, sales, and marketing are driving strong customer engagement and retention across existing users and driving growth in new users. These investments are paying off both in terms of driving scale and strong unit economics as our one-to-one customer LTVs continue to grow. Our consumer results demonstrate the continued momentum and strength of our platform-based approach to growth. With technology at our core, we continue to scale in new subjects, formats, and audiences, increasing user engagement. We also launched Varsity Tutors for Schools in August, representing the beginning of an institutional go-to-market strategy to serve new audiences. That institutional strategy over time will focus on schools, universities, businesses, and other organizations. Earlier this month, we contracted with our 100th school district an important early milestone, but one that represents only scratching the surface of the scale of opportunity we see across the more than 14,000 school districts within the United States. With over $140 million on our balance sheet following the closing of our business combination with TPG PaceTech opportunities, our business is more than sufficiently capitalized to fund our company to profitability, and to pursue targeted M&A. There's a lot to be excited about here. We're seeing strong business momentum in January and February across our business, including user growth, engagement, bookings, and consumption. As we look ahead to 2022, our business is focused on three core themes, all of which we believe will continue to help drive our growth and advance our value proposition and strategic positioning in the market. We plan to further penetrate the direct-to-consumer market with enhanced product offerings, audience coverage, and a relentless focus on the customer experience, including self-service capabilities. Second, we are executing on the vast institutional opportunity in front of us as we begin to develop recurring and durable relationships with schools and other institutions. Third, we are building out our scalable technology platform with new products and capabilities to better meet the needs of learners. this platform oriented approach to growth allows us to utilize the shared capabilities we have developed that serve as the building blocks that can be modified for different markets and audiences providing significant leverage over time for every dollar invested in doing so we're able to build solutions that improve quality decrease cost improve convenience and meet the needs of learners enabling broad access to high quality live learning and as our business scales can achieve meaningful operating leverage from the platform investments we are making today we believe the demand for supplemental learning is rapidly growing as a result of several macro trends we are excited to talk with you about today first let's talk about the trends we are seeing on the consumer side of the business we continue to see that learners and parents are increasingly receptive to using online learning platforms as higher quality more convenient and less expensive supplemental learning solutions this rapid adoption has led to online learning platforms being viewed as normal further accelerating their appeal and driving overall market expansion which we believe is just getting started nerdy's platform allows us to personalize experiences for learners at scale through technology, making our solutions even more attractive to our customers and enabling us to efficiently target and serve new audiences. As we highlight in our fourth quarter shareholder letter, we believe we are at the beginning of a GBA war. A long-term trend towards heightened and unprecedented levels of competition among students for great grades. Nearly 80% of undergraduate universities have taken a test-optional approach to admissions, no longer requiring ACT or SAT exams. That leaves GPA as the most heavily weighted component of a college application. Students that might have historically distinguished themselves with a standardized test score now must increasingly do so through GPA. A January 2022 survey found that 62% of parents with high school-aged children believe GPA is more important than it has ever been for college-bound students. This focus on GPA is changing the way that many students are thinking about leveraging tutoring and supplemental academic support. In the past, many students historically would cram for short periods of time, measured in weeks, with the objective of achieving a great score on the ACT or SAT. Now, with GPA as the priority, students are focused on maximizing their grades over four years across all classes to ensure their highest average possible score. This shift in focus has translated to increased demand for our services with one-on-one consumer bookings for our middle and high school academic audiences increasing by 43% in the fourth quarter and 41% in 2021 compared to the same period to the prior year. As we said in November, when learning and outcomes matter to students, our business accelerates. Shifting gears to our professional audience, we are continuing to see rapid growth in this category as professionals increasingly seek to augment their qualifications with advanced certificates and coursework. Bookings in our professional audience grew 77% in the fourth quarter and 91% in 2021 compared to the same periods in the prior years, representing one of our fastest-growing audiences among our direct-to-consumer offerings. Importantly, we are seeing these demand trends persist into 2022, driving our decision to strategically invest in further product innovation, sales, marketing, expert supply, and our technology platform. We view these initiatives as having strong ROIs, with each dollar of investment leveraged across multiple audiences, driving revenue growth and scale for years to come. And these strategic investments are coming at the perfect time, supporting our ability to serve as the provider of choice in the $75 billion supplemental learning market as it rapidly shifts from offline to online. On the institutional side, our enthusiasm for the growth potential in this space is influenced by the macro environment we are operating in today. As we enter 2022, the education system in the United States is under tremendous stress, but with immense opportunity for transformation. While COVID accelerated and amplified some of the acute challenges that existed before the pandemic and added incremental headwinds in the process, it also created an environment where new solutions to these challenges are welcome and are actively being pursued. And with the recent advancements in technology, like the learning solutions that Nerdy offers, transforming the way people learn has never been more possible. We believe we are on the brink of what we call the great unbundling of education. as school administrators and educators are beginning to rethink how they can deliver the best outcomes for students, looking for new solutions beyond the traditional approach, which historically solved learning demands only with internal and in-person resources. Education leaders are more open than ever to using online solutions and are recognizing the value third-party platforms can bring to complement existing classroom instruction, including in scaling evidence-based high-dosage tutoring. We call this the era of unlimited learning and view this as the beginning of a durable, long term category trend, a trend that is being recognized by educators, administrators and policymakers alike. In his speech, Vision for Education in America delivered last month, Education Secretary Miguel Cardona highlighted that strategies like targeted intensive tutoring can help meet the needs of students and the demands of the economy. He challenged all district leaders to set a goal of giving every child that fell behind during the pandemic at least 30 minutes per day, three days a week with a tutor to provide that child with consistent, intensive support, recognizing that we cannot expect classroom teachers to do it all by themselves. We believe NERDI's learning platform as a service can be the unlimited learning solution for school districts, administrators, and educators as they seek to improve student outcomes. Our learning platform as a service offers a customizable set of solutions, allowing learning to be always on and available for learners. By offering a comprehensive suite of learning solutions, Institutions can add services and product offerings over time as needs evolve, allowing Nerdy to be a long-term partner to institutions as they seek recurring relationships that bring modern solutions to their districts. Importantly, the capabilities of this new offering represent only the beginning of an institutional go-to-market strategy that we believe can be as big as our direct-to-consumer efforts. Our learning platform as a service can easily be adapted to serve new audiences beyond schools, such as universities, businesses, and other organizations. We are building each platform capability once with the intent of leveraging the investment in many new markets and with many new audiences over time. We believe Nerdy is offering the right suite of product solutions as the education landscape evolves and we enter the new era of unlimited learning. I believe we are participating in a once in a generation opportunity to help drive the shift from offline to online in learning. And the investments we've made to build a scalable platform can easily be leveraged to serve new audiences and markets and put us in a position to lead in the transformation of how people learn through technology. With that, I'll turn it over to Jason to discuss the financials in more detail. Jason? Thanks, Chuck, and good afternoon, everyone. As Chuck noted, our business continued to grow rapidly throughout the year and into the fourth quarter as we executed on our product innovation and growth strategy, which led to record bookings and revenues in our direct-to-consumer business and the launch of our institutional strategy with the introduction of our sleep tutors for schools. Our financial results demonstrate the continued momentum and strength in our platform-based approach to learning, and we remain confident in the underlying trends driving demand for our services, the long-term transition from offline to online learning, the large and growing addressable market, and our ability to scale and innovate at a rapid pace to deliver solutions that meet learner needs in any subject, anywhere, and at any time. On the top line, we continue to innovate and bring new products to market that further extends our ability to reach new audiences and deepen relationships with learners while also increasing expert engagement and driving revenue growth. we achieved new all-time bookings and revenue records in both the fourth quarter and the full year. Bookings of $47.3 million in the fourth quarter were up 53% over the fourth quarter of 2020, and bookings of $159.9 million in 2021 were up 48% versus the prior year. Revenue of $42 million during the fourth quarter yielded 27% growth year-over-year, with full-year revenues of $140.7 million up 35% over 2020. Revenues from our institutional strategy were immaterial to both our fourth quarter and full year 2021 results, and consumer growth increased relative to our third quarter growth rate. O'Keeffe and revenue growth were driven by strength in our direct consumer offerings across the K-8 high school, college graduate, and professional adult audiences, in addition to the launch of Varsity Tutors for Schools. Bookings are a strong leading indicator of the demand in our business, giving us increased confidence that the platform investments we made during 2021 are working to drive new customer adoption as well as strong engagement and retention across existing users. Moving down to PML, gross profit of $28.7 million increased 27% year-over-year during the fourth quarter. Year-to-date gross profit of $94 million increased 36% over 2020, And gross profit increases were driven by the continued adoption of one-to-one online learning, expansion across more subjects to consumer audiences, such as professional and learning differences, and growth in our small group class format. Gross margins of 68.2% during the quarter and 66.8% during the year were flat to the comparable periods in 2020. Sales and marketing expenses on a GAAP basis were $17.9 million for the fourth quarter and $65.4 million for the full year, up $5 and $21.6 million versus the same period in 2020. Non-GAAP sales and marketing expenses, excluding non-cash stock-based compensation, were $17.2 million for 41% of revenue in the fourth quarter and $62.1 million for 44% of revenue for the full year. This compares to 39% of revenue in last year's fourth quarter and 42% of revenue in 2020. In both the fourth quarter and full year, we continue to make investments in marketing, targeting new audience and advertising new products, including Star Courses, our free, celebrity-led, live, large free classes to drive customer acquisition, brand awareness, and reach. We also made investments in establishing and growing our sales organization to support varsity tutors for schools by institutional offerings. Additionally, investments in machine learning and automation continue to provide us with operating leverage improvements. General administrative expenses for the fourth quarter and full year were $34.3 million and $122 million, respectively, excluding non-recurring one-time items and non-cash stock compensation expense, non-GAAP G&A expenses for $19.1 million, or 45% of revenue, in the fourth quarter and $61.3 million, or 44% of revenue, for the full year. This compares to $11 million, or 33% of revenue, and $40.2 million, or 39% of revenue, in the same period in 2020. In both the fourth quarter and full year 2021, we saw higher general and administrative expenses as we accelerated investments in new product development, moving quickly to bring in new talent to drive innovation and growth. These investments allowed us to launch our institutional strategy with the introduction of varsity tutors for schools, build and scale the institutional sales team, grow expert supply, as well as develop and launch a new suite of product capabilities in support of the initiative. We also expanded and enhanced our finance, accounting, and legal function in connection with becoming a newly public company, a one-time step up in cost that over time will create leverage as our business grows. We reported a non-GAAP adjusted EBITDA loss of $5.5 million in the fourth quarter of 2021 and $22.4 million for the full year compared to non-GAAP adjusted EBITDA of $200,000 in the fourth quarter of 2020 and a non-GAAP adjusted EBITDA loss of $8.9 million for the full year. NERDI's decrease in adjusted EBITDA relative to 2020 was mainly driven by the one-time cost associated with becoming a newly public company and the strategic investments we made in new talent and marketing to drive product innovation and growth and to build out varsity tutors for schools. We continue to believe that now is the time to invest in our platform in order to capitalize on the attractive macro tailwinds impacting our business, continue to build out the foundation for our institutional strategy, and to build new products and technology capabilities that will enable us to better meet the learner and expert needs in the future, support innovation, operate more efficiently, and help drive continued growth while further strengthening our competitive moat. And importantly, each dollar of investment we make to support a learning solution for one audience can be leveraged across multiple audiences over time. We ended the year with cash and cash equivalents of $144 million in no debt, providing us with ample liquidity to operate against our plan and achieve profitability by the end of 2023. Our strong liquidity also puts us in a position of strength to pursue targeted M&A as the overall market for supplemental learning expands and quickly shifts from offline to online. The strong consumer institutional demand trends that drove our all-time record revenue in 2021 have continued in early 2022. Providing us with increased confidence that these trends, including the rapid shift from offline to online learning, the GPA war, and the great unbundling of education leading to unlimited learning, can prove to be robust catalysts for our business. Given these trends, as well as our growth investments designed to capitalize on these favorable demand tailwinds, we have increased confidence in our 2022 outlook. Today, we're providing the following guidance updates. For the first quarter of 2022, we expect revenue in a range of $45 to $48 million, up 34% at the midpoint from $34.6 million in the year-ago quarter. For the full year of 2022, we expect revenue in the range of $196 to $200 million, representing more than 40% growth at the midpoint versus our 2021 revenue of $140.7 million. Nerdy's growth forecast reflects normal pre-COVID seasonality in the first half of the year, followed by the anticipation of heightened travel during the summer months, and then a return to normal fourth-quarter trends for the direct consumer audience. We also expect revenue from our new growth investments to build throughout the year, including revenues driven by Varsity Tutors for Schools, which are expected to ramp into the 2022-2023 academic school year starting in August. having the most impact on fourth quarter 2022 revenue growth. As for adjusted EBITDA, for the first quarter of 2022, we expect a non-GAAP adjusted EBITDA loss in the range of $6 to $8 million. For the full year 2022, we expect a non-GAAP adjusted EBITDA loss in the range of $20 to $25 million. Given the strength of our balance sheet, our 2022 adjusted EBITDA guidance for both the first quarter and full year reflects accelerated investments to drive efficiencies and support growth in the direct-to-consumer and institutional categories in order to capitalize on the significant demand trends we're seeing across the board. We view these initiatives as having strong ROIs with each dollar of investment leveraged across multiple audiences, driving revenue growth and scale for years to come. Thank you again for your time. And with that, I'll turn the call back over to Chuck. Thanks, Jason. And thanks again to all of you for joining us today. As I hope you can tell from our remarks, we are very excited about the opportunity we see ahead for our business. We continue to see momentum among our direct-to-consumer audiences as we further refine and enhance our product offerings. And we see tremendous opportunity on the institutional side as we enter this new era of unlimited learning. We believe that with the right investment and a steadfast focus on execution, our growth potential is vast. Let's turn the call over to the operator and get started with Q&A. Operator?