Nerdy, Inc.

Good afternoon. Thank you for attending today's NERDI Inc. Q3 2024 earnings call. My name is Cole and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, T.J. Lin, Associate General Counsel of NERDI. You may proceed.

Good afternoon and thank you for joining us for NERDI's third quarter 2024 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 revisions to any forward-looking statements to reflect any change in expectations or any change in events, conditions, or circumstances on which any such statement is based. Please refer to the disclaimers in today's shareholder letter announcing NERDI's third quarter results and the company's filings with the SEC for discussion of the risk. 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.

Thanks, CJ, 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. The first goal we shared was scaling the winning product for every learner. As we have shared in the past, we have historically seen that getting new customers on our platform and into tutoring sessions seamlessly and with little friction involved is highly predictive of customer satisfaction, retention, and ultimately lifetime value. We identified that the first 30-day onboarding experience was one of the highest impact areas where we could drive durable improvements to retention and lifetime value. We focused 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. These improvements to the digital experience focus on the fundamentals of a great customer experience. Our new onboarding assistant enables a customer speed replacement request to be documented more accurately and efficiently, and we are seeing the improved completion rates and accuracy flow through to high-quality matches, faster time to first sessions, and higher levels of customer satisfaction. Our new tutor match tracker provides greater transparency into the matching process, making it easier for customers to manage their tutoring relationships, confirm scheduling availability, and introducing new members to the full breadth of our learning tools available to them. It also reduces the amount of new client inbound service requests prior to being matched to their tutor, which we expect to pull through to higher levels of customer retention. These user experience pages are delivering improvements across the first 30-day period post-activation for new customers. The specific areas that have improved include time to first tutoring session, first session attendance rates, higher levels of engagement in non-tutoring products like live classes and AI tutor, and a reduction in tutor replacement. These important changes are collectively leading to higher customer retention in new consumer cohorts. Consistent with the early trends we shared last quarter, the shift in our product mix towards memberships oriented around weekly tutoring habits, including our four and eight hour options, coupled with digital experience improvements, is positively affecting newly acquired cohorts. Among new customers that are now joining our higher frequency learning memberships this back to school season, We are seeing higher levels of tutoring sessions per week, higher levels of non-tutoring engagement due to improved discoverability across the platform, higher average revenue per month, and improved levels of retention in the first month. These trends benefited from further in-quarter improvements in the digital experience, which we believe will drive more consistent customer usage and lead to improvements in lifetime value and unit-level economics. These positive trends in new customer cohorts were partially offset by lower retention in older customer cohorts that included a higher proportion of low-frequency learning memberships, which was a trend we spoke about last quarter. 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 Futures for Schools go-to-market organization and platform infrastructure. 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 engineering resources and was an initiative we completed last quarter. We believe that will allow us to go much faster in the future. 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 relationships with the aim of building trust and credibility. As they 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. The third area of investment for Variety Tutorship Schools was in the expansion of the institutional go-to-market sales organization to drive further market penetration and bookings growth. In the third quarter, we saw and continue to see strong interest in school districts signing up for access to our platform. 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. 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. 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. We believe this was 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. 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. 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. 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 address sustainable long-term growth within the K-12 market. The investments in the go-to-market function and institutional sales organization in particular were made in anticipation of a higher level of bookings. Our thesis was supported by the prior two years of institutional bookings growth, combined with the upcoming end-of-ester funding on September 30, 2024, which we believed could deliver a substantial amount of bookings with K-12 school districts. 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. 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 after deadline versus other funding sources, and to complexity involving onboarding free platform access school district partners. The institutional opportunity within K-12 schools represents a significant market opportunity and one for which we believe we're uniquely qualified. To better reflect a more normalized sales cycle in a post-ester 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. As discussed last quarter, we've been working to modernize and enhance several components of our marketplace infrastructure. We're in the final stages of fully delivering several improvements to our underlying marketplace infrastructure systems, including Scott Pestridge, Session scheduling enhancements invoicing and substitution automation and other improvements that we believe will allow us to provide best in class logistical reliability. Scott Pestridge, Due to the resourcing required to support varsity tutors for schools in the third quarter 30 marketplace infrastructure initiatives are taking longer than anticipated to fully implement. Once delivered, we believe that these initiatives will allow us to deliver meaningful growth 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. Taking a step back, we believe that the growing awareness and recognition by parents, educators, and policymakers that high-dosage tutoring is the most effective way to accelerate learning provides us with confidence in the demand for live tutoring in the years to come. We continue to deliver product enhancements that drive high levels of engagement with our platform, expand our customers' 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 in any subject, anywhere, and at any time. With that, I'll turn the call over to Jason to discuss the financials in more detail. Jason?