Nerdy, Inc.

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 1 on your telephone keypad. I would now like to pass the conference over to our host, T.J. Lin, Associate General Counsel with NERDI, Inc. Please go ahead.

Good afternoon, and thank you for joining us for NERDI's second quarter 2023 earnings call. With me are Chuck Cohn, Founder, Chairman, and Chief Executive Officer of NERDI, and Jason Pellow, 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 outlook. 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 revision 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 NERDI's second 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 Chuck. Chuck?

Thanks, TJ, and thank you to everyone for joining us today. In the second quarter, our strong start to the year continued, and we delivered revenue and profitability ahead of our expectations. We also made substantial progress in advancing our always-on recurring revenue product offerings and the application of AI for HIs. or artificial intelligence for human interaction to our business. As we head into the upcoming school year, it is worth noting what has changed over the past year and how we believe those changes position us for growth in the periods ahead. One year ago, we were entering our first back to school with learning memberships, a new all access subscription offering that aimed to support learners across academic calendar years, subjects, and learning formats. We had just introduced the concept the quarter before and Learning Memberships had just driven 2% of consumer revenue in the second quarter of 2022. Fast forward to today and Learning Memberships accounted for 73% of total company revenue and 88% of consumer revenue in the second quarter of 2023. As of this June, 100% of new consumer customers joining the platform are doing so through a learning membership subscription, marking the completion of our evolution to the new recurring revenue business model six months earlier than expected. We now expect that nearly 100% of recognized consumer revenue will be from learning membership subscriptions by year end. We underwent a similar evolution over the past year in our institutional offering, Varsity Tutors for Schools. We shared one year ago that we were building new always-on products that were built for district-wide scale that would enable us to help more learners than ever before. We also shared that we were seeking to bring together our different offerings to address a multitude of needs for school district partners and students. This would require building the product offering and shifting our sales strategy to focus on deeper and more comprehensive partnerships with these larger school districts. We are pleased to share that our strategy continues to work and that the strong momentum from the first quarter continued into the second quarter. Our institutional business delivered revenue of $8.4 million, an increase of 43% year-over-year, representing 17% of total revenue in the quarter. Bookings in the quarter totaled $10.5 million, an increase of 175% year-over-year. We shared over the past year and at the start of this year that we expected our new, always-on recurring revenue offerings to be far superior to our legacy package model. In addition to allowing us to provide a better and more personalized experience to learners, our new operating model would be far more efficient, allowing for us to drive operating leverage, simplify our sales model, and shift additional resources towards net new innovation, including the application of AI for HIs. Those anticipated business model benefits are now being realized and driving substantial improvements in our operating results. The new and simpler operating model made possible by our always-on recurring revenue offerings combined with the benefits we are realizing from the application of AI has allowed for us to significantly reduce the labor needed to operate the platform. These changes have meaningfully enhanced our contribution margin profile and simultaneously allowed us to fund increased investments in product and engineering, including AI, to more aggressively pursue our product roadmap and drive both growth and profitability in future periods. I am pleased to share that in the second quarter, we delivered $48.8 million of revenue, an increase of 16% year-over-year, exceeding our guidance range of $45 to $47 million and representing an 1100 basis point acceleration in growth over the previous quarter. We saw positive new customer acquisition and engagement trends in the second quarter with new consumer membership and package customers acquired in the quarter growing 19% year over year. As we progressed farther into the summer, June and July represented the highest levels of year over year growth for new consumer membership and package customers this year. We completed our evolution to 100% learning memberships for new consumer customers in June, with the transition of the professional audience occurring six months earlier than originally targeted. Our customer lifetime values continued to show significant improvements relative to the old package model, driven by our evolution of learning memberships and the application of AI for HIs. These drivers were key contributors to our strong operating results and improved profitability. We delivered positive adjusted EBITDA of $1.3 million, a $10.9 million improvement year over year in the second quarter, beating our guidance range of an adjusted EBITDA loss of $3 million to break even. That represents a more than 2,500 basis point improvement in adjusted EBITDA margin year over year. We have continued to make substantial progress on accelerating the use of AI throughout our business, including launching membership experience improvements that leverage generative AI, as well as accelerating its use to drive substantial operating efficiencies and internal productivity improvements. Moving to our consumer business, the learning membership model has demonstrated superior unit level economics, longer duration and higher lifetime value customer relationships, higher gross margin, and is a more scalable and efficient operating model. Learning Memberships also serves as an easier platform from which to drive innovation and incremental growth, given our ability to add new product capabilities into the existing all-access subscription offering, thereby making the offering more appealing and engaging, ultimately driving conversion of new members and the retention of existing ones. learning membership revenue continued to grow at a rapid pace in the second quarter. Revenue during the second quarter from learning memberships grew to $35.6 million, a $5.9 million or 20% increase from the first quarter of 2023. We ended the second quarter with 31,000 active members paying approximately $350 per month, representing $130 million annualized run rate at quarter end. This August, in time for back to school, we are introducing a significantly upgraded and enhanced learning membership digital experience that makes it easier for learners to more fully engage with their learning membership. These updates are aimed at enriching the experience, encouraging achievement, reinforcing personal accountability to learning, and improving the discoverability of learning formats and subjects. For many years of experience, we know that when customers engage more deeply with our products, including across multiple learning formats, multiple subjects, or multiple students per household, it is highly predictive of stronger long-term retention and higher lifetime value of those customers. The new digital learning membership experience transforms the way members engage with our platform making engaging in discovery with the platform more intuitive and user-friendly by serving as the new homepage and central destination for learning members. It allows members to effortlessly access their upcoming live tutoring schedule, easily track their past learning interactions in a subject, and track progress and achievement towards learning goals. The new digital membership experience enables easier discovery of new subjects and will encourage users to explore additional areas of interest through personalized AI-generated learning recommendations that predict and suggest the next product interaction across learning formats and subjects that are most likely to drive engagement and customer value. The new experience also brings together all of the key account management information and resources into a simple user experience, that provides easy self-service membership management tools to better meet the changing needs of learning members. We also expect these new self-service tools will help drive operating efficiency. Now let's turn our attention to Varsity Tutors for Schools and our institutional business. Consistent with our strategy heading into 2023, our focus on larger and more expansive partnerships with larger school districts including the inclusion of our high dosage teacher assigned and on-demand products into a single district partnership is yielding results. Institutional revenue in the quarter was $8.4 million, an increase of 43% year over year, representing 17% of total revenue in the second quarter. We completed 48 contracts in the quarter, totaling $10.5 million of bookings, an increase of 175% year over year. Year to date, our average contract value is above $100,000, more than double compared to the same period last year. Our continued growth in the second quarter and expanding portfolio of reference accounts, compelling efficacy data that demonstrates the effectiveness of our solutions, and enhancements to our unique product suite provide us confidence that we are well positioned as we enter the key back to school selling season. Over the last six years, AI has been foundational to our ability to improve quality, enhance personalization, and decrease the cost of our offerings. We've been using AI for years to power our ability to identify the highest quality experts, assess learners' foundational knowledge, help ensure the right expert-learner match, and drive operational efficiency. Last quarter, I shared that the speed of innovation occurring at Nerdy was both stunning and invigorating, and that we were actively infusing generative AI into our products to supercharge and personalize human interaction, drive operating efficiency, and generally enhance the effectiveness and efficiency of our platform. I also shared that we had made significant investments in instrumentation and data capture, and that through those investments had built up a large proprietary data set over the past 10 million hours of live instruction delivered through our live learning platforms. We also shared that over the past six plus years, we had developed practical experience driving enhanced personalized learning interactions, as well as efficiency gains through the application of AI. As a result, we believed we stood to benefit tremendously from the latest advancements in generative AI. 90 days later, that speed of innovation that was initially stunning is now quickly becoming just how we work. Our teams are both encouraged and pushed to leverage AI in their daily work And all employees have access to inline generative AI tools in addition to system and workflow driven approaches to support high volume activities at scale, allowing our teams to focus their time and energy on new innovation and growth opportunities. To illustrate the speed of innovation occurring, along with where AI related investments are being made beyond some of the more visible consumer facing applications, we shared several examples in our shareholder letter a few of which I'll share with you today. The first is related to leveraging generative AI to produce high-quality learning content at scale. In order to scale learning content to the 3,000-plus subjects we currently support and the corresponding tens of thousands of skills, we needed to construct an AI-based approach for evaluating learning content. We designed a robust system that generates practice content across a spectrum of subjects and skills leveraging generative AI. The system is unique as it integrates a human-in-the-loop feedback process, ensuring both accuracy and difficulty are aligned with educational standards while curating datasets we can use for improving our own AI models. Every subject is different and needs a unique dataset in order to tune and optimize our AI models for both accuracy difficulty, and academic learning standard alignment. We are rapidly deploying learning content across approximately 200 of our most in-demand subjects with more than 66,000 AI-generated practice problems, answers, and explanations having been created and vetted in the last month or so. They will be available for learning membership customers to use this back-to-school season in a variety of learning formats, such as quizzes, computer adaptive tests, and more. By year end, we expect to be able to 10x the quantity of high-quality learning content generated by the new AI system. In addition to new capabilities being deployed, we're also continuing to enhance the existing generative AI capabilities we've spoken about in the past. During the quarter, we made enhancements to our AI tutor chat system, focusing on both user experience and educational effectiveness. By employing an upgraded AI model and refining metrics to evaluate each conversation, we've sharpened our understanding of the AI tutor's strengths and areas for improvement. These updates reflect our commitment to pedagogical adherence and the individualized needs of each student. We also continue to see strong engagement with our AI lesson plan generator. Over the last 90 days, we've had experts of the platform leverage it more than 45,000 times for lesson plans in their sessions with learners. We've continued to increase the quality and relevance of this AI-generated content, and 92% of these lessons were rated five stars. Another example relates to using AI to power chatbots. We saw significant interest from our internal product and operating teams in different functional areas to begin using sophisticated AI-powered chatbots to allow users to get answers faster. We created a templated approach for developing, training, and deploying chatbots to support customers and internal teams. We have seen strong results thus far and AI-powered chatbots have been deployed for a variety of different uses on both sides of the platform and for internal teams. Our IT customer support bot, for example, addresses technical issues learners and experts experience, like issues with audio and video. It is currently resolving more than 50% of all interactions, arming live agents with better diagnostic information, enabling them to solve the root issue faster, and we'd expect for these numbers to keep going up over time. These sorts of AI-enabled solutions to completing work are helping to drive substantial operating efficiency gains across the business. Whether it's the mass production of hyper-personalized learning content or the use of AI-powered chatbots for customer service interactions, the application of AI throughout our business is yielding a better experience for learners and experts and driving significant operating leverage. Looking ahead, we expect to see further wins on driving both conversion and retention as well as improvements in operational efficiency as a result of continued investments in AI. In closing, I want to extend my thanks to our team at Nerdy for their high-quality work and focus on driving strong execution in service of our learners, experts, institutional partners, and shareholders. We have an opportunity to redefine how people learn and build a business of significant value and impact in the years to come. Our strategic evolution towards always-on recurring revenue products and the continued implementation of AI for HI has helped put us in a strong position entering the 2023-2024 school year. With that, I'll turn the call over to Jason to discuss the financials in more detail. Jason?