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What changed in Nerdy Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Nerdy Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+342 added−473 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)

Top changes in Nerdy Inc.'s 2023 10-K

342 paragraphs added · 473 removed · 252 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

60 edited+36 added−80 removed42 unchanged
Biggest changeGovernment Regulation There are a variety of regulations that apply to how we operate our business, including, for example, regulations related to marketing efforts (such as the CAN-SPAM Act of 2003, the Telephone Consumer Protection Act of 1991 (“TCPA”), Federal Trade Commission (the “FTC”) guidelines related to communications with consumers, the Children’s Online Privacy Protection Act (“COPPA”), among others); regulations related to data privacy of consumers (such as the California Consumer Privacy Act (“CCPA”)) and how we process such information (such as the CCPA and other similar legislation that is or may be enacted (including the California Privacy Rights and Enforcement Act of 2020 (“CPRA”)), as well as data security and data breaches; regulations related to background checks as regulated by the Fair Credit Reporting Act (“FCRA”) and similar state laws and new hire reporting (for employees and independent contractors depending on the state) and other federal, state, and local laws of general applicability to employers, direct-to-consumer companies, and companies in general (these laws, regulations, and standards govern issues such as worker classification, labor and employment, anti-discrimination, payments, whistleblowing and worker confidentiality obligations, personal injury, text messaging, subscription services, intellectual property, consumer protection and warnings, marketing, taxation, privacy, data security, competition, unionizing and collective action, arbitration agreements and class action waiver provisions, terms of service, mobile application and website accessibility, money transmittal, and background checks).
Biggest changeFor additional information regarding the impact of regulatory and administrative investigations, audits, and inquiries on our business and financial results, see “Risk Factors” in Part I, Item 1A of this report. 10 Table of Contents Government Regulation There are a variety of regulations that apply to how we operate our business, including, for example, regulations related to marketing efforts (such as the CAN-SPAM Act of 2003, the Telephone Consumer Protection Act of 1991 (“TCPA”), Federal Trade Commission (the “FTC”) guidelines related to communications with consumers, the Children’s Online Privacy Protection Act (“COPPA”), the Family Educational Rights and Privacy Act (“FERPA”), among others); regulations related to data privacy of consumers (such as the California Consumer Privacy Act (“CCPA”), the Student Online Personal Protection Act (“SOPPA”) among others) and how we process such information (such as the CCPA and other similar legislation that is or may be enacted (including the California Privacy Rights and Enforcement Act of 2020 (“CPRA”)), as well as data security and data breaches; regulations related to background checks as regulated by the Fair Credit Reporting Act (“FCRA”) and similar state laws and new hire reporting (for employees and independent contractors depending on the state) and other federal, state, local, and foreign laws of general applicability to employers, direct-to-consumer companies, and companies in general (these laws, regulations, and standards govern issues such as worker classification, labor and employment, anti-discrimination, payments, whistleblowing and worker confidentiality obligations, personal injury, text messaging, subscription services, intellectual property, consumer protection and warnings, marketing, taxation, privacy, data security, competition, unionizing and collective action, arbitration agreements and class action waiver provisions, terms of service, mobile application and website accessibility, money transmittal, and background checks).
While we believe our online technology driven solution offers significant benefits when compared to these offline options, we compete with them to attract Learners and Experts to our platform. While we believe we are one of the few companies that offers a comprehensive destination for live learning online, we do compete with other direct-to-consumer and institutional solutions.
While we believe our online technology-driven solution offers significant benefits when compared to these offline options, we compete with them to attract Learners, Institutions, and Experts to our platform. While we believe we are one of the few companies that offers a comprehensive destination for live learning online, we do compete with other direct-to-consumer and institutional solutions.
We leverage both internally developed and externally licensed capabilities related to AI, which allows large data sets to be leveraged and understood in a way that can generate substantial insights that drive the personalization of the learning experience.
We leverage both internally developed and externally licensed capabilities related to AI and machine learning, which allows large data sets to be leveraged and understood in a way that can generate substantial insights that drive the personalization of the learning experience.
Learners can access thousands of Experts on Nerdy’s platform using numerous devices, providing them with the ability to learn across our various learning formats anytime and from anywhere, including at pre-scheduled times and on-demand. • Long-Term, Consistent Learning : We have developed products that have created an opportunity to develop longer and more all-encompassing relationships that span academic calendar years, subjects, and learning formats. • Purpose-Built Technology : Our platform was designed specifically for learning with interactive technology tools such as two-way video, collaborative work-spaces, recording and replay capabilities, and adaptive diagnostic testing, as well as integrated personalization features to facilitate instruction and provide a more engaging and enjoyable experience to Learners. • Expansive Range of Subjects : We are focused on developing breadth and depth in our subject catalog.
Learners can access thousands of Experts on Nerdy’s platform using numerous devices, providing them with the ability to learn across our various learning formats anytime and from anywhere, including at pre-scheduled times and on-demand. • Long-Term, Consistent Learning : We have developed products that have created an opportunity to develop longer and more all-encompassing relationships that span academic calendar years, subjects, and learning formats. 4 Table of Contents • Purpose-Built Technology : Our platform was designed specifically for learning with interactive technology tools such as two-way video, collaborative work-spaces, recording and replay capabilities, and adaptive diagnostic testing, as well as integrated personalization features to facilitate instruction and provide a more engaging and enjoyable experience to Learners. • Expansive Range of Subjects : We are focused on developing breadth and depth in our subject catalog.
Pello served as Vice President, Corporate Finance at Save-A-Lot, a revenue grocery chain owned by private equity from December 2017 until September 2019. Prior to that role, Mr.
Pello served as Vice President, Corporate Finance at Save-A-Lot, a grocery chain owned by private equity from December 2017 until September 2019. Prior to that role, Mr.
It is not possible to predict whether or when such legislation may be adopted in additional jurisdictions, and certain proposals, if adopted, could harm our business through a decrease in consumer registrations and revenues, or through a change in marketing strategies; however, a federal data privacy and security standard, which is also a possibility, may provide substantial clarity and benefits for businesses that collect and maintain such data.
It is not possible to predict whether or when such legislation may be adopted in additional jurisdictions, and certain proposals, if adopted, could harm our business through a decrease in consumer registrations and revenue, or through a change in marketing strategies; however, a federal data privacy and security standard, which is also a possibility, may provide substantial clarity and benefits for businesses that collect and maintain such data.
Swenson was a partner at the national law firm of Polsinelli PC, and began serving as Nerdy’s outside counsel in 2008, shortly after it was founded. Mr. Swenson received a BSBA with distinction and a BA from Washington University in St. Louis, as well as his law degree from the University of Missouri-Kansas City. 15 Table of Contents
Swenson was a partner at the national law firm of Polsinelli PC, and began serving as Nerdy’s outside counsel in 2008, shortly after it was founded. Mr. Swenson received a BSBA with distinction and a BA from Washington University in St. Louis, as well as his law degree from the University of Missouri-Kansas City. 12 Table of Contents
Much like online learning affords Learners the ability to find the best Expert for their needs irrespective of location, we believe a remote-first orientation enables us to access a significantly larger talent pool from which to hire, which can serve as a long-term competitive advantage.
Much like online learning affords Learners the ability to find the best Experts for their needs irrespective of location, we believe a remote-first orientation enables us to access a significantly larger talent pool from which to hire, which can serve as a long-term competitive advantage.
Cohn has a BSBA in Finance and Entrepreneurship from Washington University in St. Louis. Jason Pello , age 43, has served as our Chief Financial Officer since October 2020. Previously, Mr. Pello served as our Vice President, Finance and Accounting from September 2019 until October 2020. Prior to joining Nerdy, Mr.
Cohn has a BSBA in Finance and Entrepreneurship from Washington University in St. Louis. Jason Pello , age 44, has served as our Chief Financial Officer since October 2020. Previously, Mr. Pello served as our Vice President, Finance and Accounting from September 2019 until October 2020. Prior to joining Nerdy, Mr.
Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats, including one-on-one instruction, small group classes, large format group classes, coding, tutor chat, essay review, and adaptive self-study. Our flagship business, Varsity Tutors LLC (“Varsity Tutors”), is one of the nation’s largest platforms for live online tutoring and classes.
Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats, including one-on-one instruction, small group tutoring, large format classes, tutor chat, essay review, adaptive assessments, and self-study tools. Our flagship business, Varsity Tutors LLC (“Varsity Tutors”), is one of the nation’s largest platforms for live online tutoring and classes.
The offline market for live learning, both one-on-one instruction and small group classes, is large and fragmented. We compete for time and attention with many small and local businesses, small proprietorships, and larger national companies including franchises.
The offline market for live learning, both one-on-one instruction and small group tutoring, is large and fragmented. We compete for time and attention with many small and local businesses, small proprietorships, and larger national companies, including franchises.
We are continually investing in broadening our existing catalog of approximately 3,400 subjects for audiences across the learning lifecycle, including live instruction solutions, as well as proprietary content used for adaptive assessments and self-study. We consistently invest in improving our capabilities, technology architecture, and developing new solutions that can be leveraged across new markets and audiences.
We are continually investing in broadening our existing catalog of subjects for audiences across the learning lifecycle, including live instruction solutions, as well as proprietary content used for adaptive assessments and self-study. We consistently invest in improving our capabilities, technology architecture, and developing new solutions that can be leveraged across new markets and audiences.
While we have scaled to hundreds of thousands of users, many people in the U.S. and institutions are not aware of the online solutions we offer. Many still believe they need to drive to a brick-and-mortar location often during rush hour traffic to find supplemental learning assistance.
While we have scaled to hundreds of thousands of users, many people and Institutions in the U.S. are not aware of the online solutions we offer. Many still believe they need to drive to 9 Table of Contents a brick-and-mortar location, often during rush hour traffic, to find supplemental learning assistance.
The approximately 3,400 subjects we currently offer our Learners serves their needs across the entire learning lifecycle. • Learning Across Multiple Formats : Learning Memberships combine all of our products into a singular solution with all-inclusive pricing, making it easy and affordable for Learners to engage in multiple learning formats. • Cost Effective : We believe we provide the best value for our Learners by offering a cost-effective and superior learning experience in comparison to traditional offline learning models.
The thousands of subjects we currently offer our Learners serves their needs across the entire learning lifecycle. • Learning Across Multiple Formats : Learning Memberships combine all of our products into a singular solution with all-inclusive pricing, making it easy and affordable for Learners to engage in multiple learning formats. • Cost Effective : We believe we provide the best value for our Learners by offering a cost-effective and superior learning experience in comparison to traditional offline learning models.
The offerings are highly customizable and can be deployed across large populations in a scalable manner to meet the needs of specific populations. With the strategic investments we are making to adapt our platform for institutions and school districts, we are well-positioned to be the unlimited learning solution of choice.
The offerings can be deployed across large populations in a scalable manner to meet the needs of specific populations. With the strategic investments we are making to adapt our platform for Institutions and school districts, we are well-positioned to be the learning solution of choice.
There have been statutory changes and resulting ballot initiatives regarding independent contractor status that demonstrate certain sentiment among certain legislatures and the public (both favorable and unfavorable).
There have been statutory changes and resulting ballot initiatives regarding independent contractor status that demonstrate certain sentiments among certain legislatures and the public (both favorable and unfavorable).
We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the U.S. and other countries to the extent it is determined to be appropriate and cost-effective. As of February 14, 2023, we have several registered and pending trademarks in the U.S. and foreign jurisdictions.
We have an ongoing trademark and service mark registration program pursuant to which we register our brand names and product names, taglines, and logos in the U.S. and other countries to the extent it is determined to be appropriate and cost-effective. As of February 13, 2024, we have several registered and pending trademarks in the U.S. and foreign jurisdictions.
Regulatory and Administrative Investigations, Audits, and Inquiries We have in the past been, are currently, and may in the future be the subject of regulatory and administrative investigations, audits, and inquiries conducted by federal, state, or local governmental agencies concerning the classification and compensation of Experts, data security, tax issues, unemployment insurance, workers’ compensation insurance, business practices, and other matters.
Regulatory and Administrative Investigations, Audits, and Inquiries We have in the past been, are currently, and may in the future be the subject of regulatory and administrative investigations, audits, and inquiries conducted by governmental agencies concerning the classification and compensation of Experts, data security, tax issues, unemployment insurance, workers’ compensation insurance, business practices, and other matters.
Nerdy allows people to learn online in approximately 3,400 subjects, when they want, from the convenience of home, school, and any other location at the click of a button. 4 Table of Contents Learners We serve a diverse population of audiences across the entire learning life cycle from kindergarten all the way through professional and adult.
Nerdy allows people to learn online in thousands of subjects, when they want, from the convenience of home, school, and any other location at the click of a button. Learners We serve a diverse population of audiences across the entire learning life cycle from kindergarten all the way through professional.
We have seen strong demand and increasing engagement, including in early data surrounding Learning Memberships, as we continue to evolve our services and products toward ‘always on’, recurring relationships with Learners that better serve our multiple direct-to-consumer audiences. Institutional Audience The education system in the U.S. is under tremendous stress, creating an environment with immense opportunity for transformation.
We have seen strong demand and increasing engagement as we continue to evolve our services and products toward ‘always on’recurring relationships with Learners that better serve our multiple direct-to-consumer audiences. Institutional Audience The education system in the U.S. is under tremendous stress, creating an environment with immense opportunity for transformation.
Information about our Executive Officers The section below provides information regarding our executive officers as of February 14, 2023: Charles Cohn , age 37, is our Founder, Chairman, President, and Chief Executive Officer. Mr. Cohn founded the company in 2007. Mr.
Information about our Executive Officers The section below provides information regarding our executive officers as of February 13, 2024: Charles Cohn , age 38, is our Founder, Chairman, President, and Chief Executive Officer. Mr. Cohn founded the Company in 2007. Mr.
We have strong and growing engagement in the Expert network, and have the ability to scale with demand. 5 Table of Contents Our value proposition for Experts • Large Learner Population, Strong Income Potential, More Convenient : Our platform empowers Experts with the convenience of immediate access to a large audience of Learners, providing the opportunity for meaningful supplementary earnings without the required effort to find new customers and without geographical constraints. • Consistent Opportunities : Consumer demand trends toward recurring, ‘always on’ relationships has also impacted how Experts interact with our platform.
Our value proposition for Experts • Large Learner Population, Strong Income Potential, More Convenient : Our platform empowers Experts with the convenience of immediate access to a large audience of Learners, providing the opportunity for meaningful supplementary earnings without the required effort to find new customers and without geographical constraints. • Consistent Opportunities : Consumer demand trends toward recurring, ‘always on’ relationships has also impacted how Experts interact with our platform.
For additional information regarding the impact of data privacy and security on our business, see “Risk Factors” in Part I, Item 1A of this report. Intellectual Property We believe that our intellectual property rights are valuable and important to the business.
For additional information regarding the impact of government regulation on our business and financial results, see “Risk Factors” in Part I, Item 1A of this report. Intellectual Property We believe that our intellectual property rights are valuable and important to the business.
Our Consumer and Institutional models are driven by a scalable technology infrastructure that is engineered for learning. We consistently invest in improving our capabilities and technology architecture, as well as in developing new solutions that can be leveraged across new markets and audiences. Our platform is supported by a team of highly experienced and talented developers.
Our Technology Platform Our Consumer and Institutional models are driven by a scalable technology platform that is engineered for learning. We consistently invest in improving our capabilities and technology architecture, as well as in developing new solutions that can be leveraged across new markets and audiences.
Our offerings also include Varsity Tutors for Schools , a product suite (including High Dosage, Teacher Assigned, and On Demand Tutoring) that leverages our platform capabilities to offer our online learning solutions directly to education systems. We have built a diversified business across multiple audiences, including: K-8, High School, College, Graduate School, Professional and Adult.
Our offerings also include Varsity Tutors for Schools , a product suite that leverages our platform capabilities to offer high-dosage tutoring and our online learning solutions to Institutions. We have built a diversified business across multiple audiences, including: K-8, High School, College, Graduate School, and Professional.
Industry Background and Key Trends There are several favorable trends in the learning market that make our platform and proposition appealing on both sides of the network and we believe that our business will disproportionately win as these category dynamics shift. • Secular Digitization of Learning : We believe the learning industry is at an inflection point for online adoption and is undergoing rapid digital transformation.
Industry Background and Key Trends There are several favorable trends in the learning market that make our platform and proposition appealing on both sides of the network and we believe that our business will disproportionately win as these category dynamics shift. • Secular Digitization of Learning and the Impact of AI : We believe the learning industry is undergoing a rapid digital transformation.
In 2022, as part of our ‘always on’ vision, we built two new products for our Institutional business that are oriented toward providing district-wide solutions that can be deployed across entire student and teacher populations, significantly widening the impact we can have with our school district partners.
In 2022, as part of our ‘always on’ vision, we built two access and subscription-based products, Teacher Assigned and On Demand, for our Institutional business that were oriented toward providing district-wide solutions that could be deployed across entire student and teacher populations, significantly widening the impact we can have with our school district partners.
Louis, Missouri 63105, Telephone: 314-412-1227). The information and other content contained on our website are not part of (or incorporated by reference in) this report or any other document we file with the SEC.
The information and other content contained on our website are not part of (or incorporated by reference in) this report or any other document we file with the SEC.
Our solutions are available directly to Learners, as well as through schools and other institutions. Our platform offers Experts the opportunity to generate income from the convenience of home, while also increasing access for Learners by removing barriers to high-quality live online learning.
Our solutions are available directly to Learners (“Consumer(s)”), as well as through education systems (“Institution(s)”). Our platform offers Experts the opportunity to generate income from the convenience of home, while also increasing access for Learners by removing barriers to high-quality live online learning.
Moreover, the latest AI advancements are allowing us to rapidly develop transformative experiences involving the real-time generation of content with near zero costs, improving our ability to deliver live human interaction and personalized learning at scale.
We collectively call them AI for HI ® , short for Artificial Intelligence for Human Interaction. The latest AI advancements are allowing us to rapidly develop transformative experiences involving the real-time generation of content with near zero costs and improving our ability to deliver live human interaction and personalized learning at scale.
As stated above, we remain subject to a variety of laws and regulations. We monitor changes to applicable state and federal regulations and believe we are in compliance with the existing interpretations or applications of such applicable state and federal regulations. There is also a possibility of retroactive application of new laws to the business as well.
As stated above, we remain subject to a variety of laws and regulations. We monitor changes to applicable regulations and design our policies and practices to comply with the existing interpretations or applications of such applicable state and federal regulations. There is also a possibility of retroactive application of new laws to the business.
We aspire to and promote a welcoming, inclusive culture that values all people - regardless of sex, gender, race, color, religion, national origin, age, disability, veteran status, sexual orientation, gender expression, or experiences - through recruiting outreach and internal connection.
We aspire to and promote a welcoming, inclusive culture that values all people - regardless of sex, gender, race, color, religion, national origin, age, disability, veteran status, sexual orientation, gender expression, or experiences - through recruiting outreach and internal connection. We are committed to being an organization that is as diverse as the audiences we serve.
Technology has lowered the barriers for individuals to access learning opportunities and connect with Experts on a global scale and is removing the inefficiencies of in-person interactions, increasing affordability, extending geographic access, and providing flexibility and convenience through on-demand online models. AI is the theory and development of computer systems able to perform tasks that normally require human intelligence.
Technology, including AI, has lowered the barriers for individuals to access learning opportunities and connect with Experts on a global scale and is removing the inefficiencies of in-person interactions, increasing affordability, extending geographic access, and providing flexibility and convenience through on-demand online models.
We continue to evolve and enhance our product experience to build relevance and find solutions to unmet needs across all of our audiences, which opens up new avenues for new growth and lifetime value expansion, and otherwise accelerates our product roadmap. 10 Table of Contents Our Technology Platform Technology is at the core of everything we do.
We continue to evolve and enhance our product experience to build relevance and find solutions to unmet needs across all of our audiences, which opens up new avenues for growth and lifetime value expansion, and otherwise accelerates our product roadmap.
These dynamics have allowed us to deliver durable growth and healthy unit level economics. Our Two-Sided Network Nerdy connects Learners of all ages with the Experts they need to advance and develop in-demand skills, pass critical exams and certifications, excel academically, and live up to their potential.
Our Two-Sided Network Nerdy connects Learners of all ages with the Experts they need to advance and develop in-demand skills, pass critical exams and certifications, excel academically, and live up to their potential.
This confluence of technology, process automation, and AI allows us to source high quality Experts at scale with minimal human labor, making the process highly scalable and efficient.
This confluence of technology, process automation, and AI allows us to source high quality Experts at scale with minimal human labor, making the process highly scalable and efficient. We have strong and growing engagement in the Expert network, and have the ability to scale with demand.
Strong Unit Level Economics The Learning Membership model is helping transform our relationship with customers into one that is recurring in nature and spans subjects and learning formats. The model encourages ongoing consistent learning over longer periods of time, which is leading to significant improvements in customer engagement and lifetime value.
Memberships are helping transform our relationship with customers into one that is recurring in nature and spans subjects and learning formats. The model encourages ongoing consistent learning over longer periods of time, which is leading to significant improvements in customer engagement and lifetime value. In 2023, we introduced a significantly upgraded and enhanced Learning Membership digital experience.
The SEC maintains an internet site containing these reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. All of these documents also are available to stockholders at no charge upon request sent to our corporate secretary (101 S. Hanley Road, 14 Table of Contents Suite 300, St.
The SEC maintains an internet site containing these reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. All of these documents also are available to stockholders at no charge upon request sent to our corporate secretary (8001 Forsyth Blvd., Suite 1050, St. Louis, Missouri 63105, Telephone: 314-412-1227).
Increased digital connectivity between Learners, Experts, and other key stakeholders is improving communication and accountability to provide increased transparency into Learner achievement. • Consumerization of Learning : The transition in parents’ and modern Learners’ preferences towards finding, curating, and managing their own learning is reshaping the learning markets and contributing to the digitization of learning.
We believe increased digital connectivity between Learners, Experts, and other key stakeholders is substantially improving the user experience and enabling personalized learning at scale. • Consumerization of Learning : The transition in parents’ and modern Learners’ preferences towards finding, curating, and managing their own learning is reshaping the learning markets and contributing to the digitization of learning.
As a result, today’s workforce needs to constantly learn new concepts and skills to keep pace with fast-changing job requirements without the heavy penalty of having to temporarily exit the workforce.
Additionally, technological advancements and their resulting transformational changes across industries are impacting skill requirements in today’s workplace. As a result, today’s workforce needs to constantly learn new concepts and skills to keep pace with fast-changing job requirements without the heavy penalty of having to temporarily exit the workforce.
ITEM 1. BUSINESS. Unless otherwise stated or the context otherwise indicates, all references in this Form 10-K to “Nerdy,” “the Company,” “us,” “our,” or “we” mean Nerdy Inc. and its consolidated subsidiaries. Mission Our mission is to transform how people learn. We are enabling access to high quality, personalized, live learning in any subject, anywhere, at any time.
ITEM 1. BUSINESS. Unless otherwise stated or the context otherwise indicates, all references in this Form 10-K to “Nerdy,” “the Company,” “us,” “our,” or “we” mean Nerdy Inc. and its consolidated subsidiaries. Business Overview We operate a platform for live online learning. Our mission is to transform the way people learn through technology.
Giving them convenience and control over their work schedule and providing them with work they can be proud of. • Purpose-Built Technology : Our platform empowers Experts with interactive technology features such as two-way video, collaborative work-spaces, recording and replay capabilities, and adaptive diagnostic testing, as well as integrated personalization features to make delivering online instruction easy. • Frictionless Payment Processing : We ensure the Experts are paid on-time and securely with frequent payments, alleviating administrative burden and hassle and allowing them to focus on helping Learners learn.
As a result of our subscription-based business, Experts have the ability to develop deeper relationships that allow for more consistent revenue-generating opportunities. • Flexibility : As the modern workforce mindset shifts toward flexibility and choice, our platform empowers Experts to work from wherever, whenever, and however they want, giving them convenience and control over their work schedule. • Purpose-Built Technology : Our platform empowers Experts with interactive technology features such as two-way video, collaborative work-spaces, recording and replay capabilities, and adaptive diagnostic testing, as well as integrated personalization features to make delivering online instruction easy. • Frictionless Payment Processing : We ensure the Experts are paid on-time and securely with frequent payments, alleviating administrative burden and hassle and allowing them to focus on helping Learners learn.
Additionally, we have common law rights in some trademarks in the U.S. and foreign jurisdictions, as well as many registered copyrights in the U.S. We also have numerous registered domain names for websites that are used in the business, such as www.nerdy.com, and the businesses of the subsidiary entities, such as www.varsitytutors.com, and other businesses and their respective variations.
We also have numerous registered domain names for websites that are used in the business, such as 11 Table of Contents www.nerdy.com, the businesses of the subsidiary entities, such as www.varsitytutors.com, and other businesses and their respective variations.
These consumers experience the same level of agency and modern technology-enabled approach they experience in other categories that have digitized. As a result of this shift in consumer behavior, learning providers have emerged that focus on direct-to-consumer models making learning resources, including live learning, available broadly and on-demand.
As a result of this shift in consumer behavior, learning providers have emerged that focus on direct-to-consumer models making learning resources, including live learning, available broadly and on-demand.
Chris Swenson , age 51, has served as our Chief Legal Officer and Corporate Secretary since August 2019, having started Nerdy’s legal department in May 2015 as its Vice President and General Counsel. Prior to joining Nerdy, Mr.
Pello holds a Bachelor’s and Master’s degree in Accounting from the University of Missouri-Columbia and is a registered CPA in Missouri (inactive). Chris Swenson , age 52, has served as our Chief Legal Officer and Corporate Secretary since August 2019, having started Nerdy’s legal department in May 2015 as its Vice President and General Counsel. Prior to joining Nerdy, Mr.
We offer competitive compensation, including salary and equity, and benefits packages to meet the needs of employees where we operate. All employees are offered training and development opportunities, including unlimited free classes and 52 hours of free tutoring on our Live Learning Platform (for which they provide feedback on their experience with the platform, which helps us improve the platform).
All employees are offered training and development opportunities, including free classes and tutoring on our Live Learning Platform (for which they provide feedback on their experience with the platform, which helps us improve the platform).
In doing so, 7 Table of Contents we’re able to build solutions that improve quality, decrease cost, improve convenience, and meet the needs of Learners, enabling access to high quality live learning that would otherwise not exist in service of helping people learn.
In doing so, we’re able to build solutions that improve quality, decrease cost, improve convenience, and meet the needs of Learners by enabling access to high quality live learning, and other powerful learning resources.
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 and durable relationships. 8 Table of Contents Our Learning Platform as a Service offering leverages the technology infrastructure and product capabilities originally developed for our Consumer business, providing a single comprehensive software platform that allows institutions to roster entire student bases and deploy solutions for different segments of students.
Our Learning Platform as a Service offering leverages the technology infrastructure and product capabilities originally developed for our Consumer business, providing a single comprehensive software platform that allows Institutions to roster entire student bases and deploy solutions for different segments of students.
Importantly, the investments we make to support a learning solution for one audience can be scaled to apply to new audiences, resulting in returns that are multiples of our initial investment. At our core, we are a technology business and technology investments persist throughout all aspects of the Learner and Expert journey.
Importantly, the investments we make to support a learning solution for one audience can be scaled to apply to new audiences, resulting in returns that are multiples of our initial investment. There are specific groupings of core competencies, or layers, of our platform that we believe to be particularly differentiated and powerful.
As shown through our development of Learning Memberships and On Demand Tutoring, we are constantly exploring new methods of learning that will allow us to broaden our appeal to more Learners.
We are focused on further penetrating our core audiences and continuing to improve the product and customer experience in order to further expand our appeal among our direct-to-consumer audience. As shown through our development of Learning Memberships, we are constantly exploring new methods of learning that will allow us to broaden our appeal to more Learners.
There is also considerable and relatively untapped opportunity to extend our platform to reach audiences beyond the U.S. We believe that as our range of subjects offered and audiences served through the platform grows across learning categories, our market presence and brand recognition will expand, driving more Learners and Experts to our platform.
We believe that as our range of subjects offered and audiences served through the platform grows across learning categories, our market presence and brand recognition will expand, driving more Learners and Experts to our platform. 8 Table of Contents Direct-to-Consumer Audience Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats.
By providing numerous learning formats to help Learners access top Experts across a multitude of formats, including adaptive self-study tools, our platform empowers both Learners and Experts to have more agency, optimize interactions, and enhance their learning and instructing experience. • Demand for Long-Term, Consistent Learning : Learners are expressing interest in supplemental learning solutions that support a more consistent use pattern over extended periods of time and a default to recurring, ‘always on’ relationships. 6 Table of Contents • Pandemic’s Impact on Learning Proficiency : The pandemic led to prolonged closures in 2020 and 2021 of K-12 schools and colleges and universities throughout the United States (the “U.S.”).
By providing numerous learning 5 Table of Contents formats to help Learners access top Experts across multiple learning formats, our platform empowers both Learners and Experts to have more agency, optimize interactions, and enhance their learning and instructing experience. • Demand for Long-Term, Consistent Learning : Learners are expressing interest in supplemental learning solutions that support a more consistent use pattern over extended periods of time and a default to recurring, ‘always on’ relationships. • Learning Loss and Chronic Absenteeism : The National Center for Education Statistics (“NCES”) published what is known as the “Nation's Report Card”.
Using the latest advances in learning science and AI, our adaptive assessments can measure a Learner’s proficiency in a given subject in as little as 20 minutes. Learning Platform as a Service Our Learning Platform as a Service offers a customizable set of solutions allowing learning to be ‘always on’ and available for Learners.
Learning Platform as a Service Our Learning Platform as a Service offers a customizable set of solutions allowing learning to be ‘always on’ and available for Learners.
We may also run the risk of retroactive applications of new laws to our business model that could result in liability or losses. We are also subject to data privacy and data security laws related to the personal information we collect from Learners and Experts.
We are also subject to data privacy and data security laws related to the personal information we collect from Learners and Experts.
We embrace diversity of experience, thought, and skill sets to ensure our team has complementary strengths to succeed in a rapidly evolving industry. 9 Table of Contents Our Growth Strategy We have multiple growth vectors that will enable us to further scale our platform by attracting and retaining more Learners and Experts through more deep and meaningful relationships.
Our Growth Strategy We have multiple growth vectors that we believe will enable us to further scale our platform by attracting and retaining more Learners and Experts through deeper and more meaningful relationships.
We have invested millions of dollars to drive consumer awareness and believe that we will continue to raise awareness of the value and availability of our platform. COVID-19 Pandemic We continue to monitor the impact of the COVID-19 pandemic on our business.
We will continue to drive consumer awareness of the value and availability of our platform.
As of February 14, 2023, we had approximately seven hundred full and part-time employees, none of whom are covered under a collective bargaining agreement. Talent Acquisition, Development, Engagement, and Retention We believe that our employees are our greatest asset and place a premium on the importance of their retention, growth, and development.
Talent Acquisition, Development, Engagement, and Retention We believe that our employees are our greatest asset and place a premium on the importance of their retention, growth, and development. We offer competitive compensation, including salary and equity, and benefits packages to meet the needs of employees where we operate.
Learning Memberships are for Learners of all ages, ranging from kindergarten to college and adult Learners, and can be used in any subject, at any time. Memberships are helping transform our relationship with customers into one that is recurring in nature and spans subjects and learning formats.
Learning Memberships include access to one-on-one instruction, small group tutoring, large format classes, tutor chat, essay review, adaptive assessments, and self-study tools. Learning Memberships are for Learners of all ages, ranging from kindergarten to college and professional Learners, and can be used in any subject, at any time.
We view partnering with education institutions, including K-12 school districts and universities, as a durable, long-term opportunity to help improve the way supplemental learning is administered. • Changing Workforce Dynamics : The advent of technology has dramatically changed how people view work, and platforms that enable interactions directly between providers and consumers are disrupting traditional, antiquated models.
The acuity of these problems, combined with the growing broad bipartisan recognition that high-dosage tutoring is a highly effective way to address the issue, is leading to an acceleration in market activity, with multiple states focused on rolling out state-funded, statewide tutoring programs. • Changing Workforce Dynamics : The advent of technology has dramatically changed how people view work, and platforms that enable interactions directly between providers and consumers are disrupting traditional, antiquated models.
Learning Memberships In 2022, we continued to evolve our product offerings to better meet the needs of Learners by launching Learning Memberships, a monthly membership program that includes access to one-on-one instruction, unlimited live group classes, live and on-demand lessons, coding, tutor chat, essay review, adaptive assessments, and self-study modules.
Learning Memberships In 2022, we continued to evolve our product offerings to better meet the needs of Learners by launching Learning Memberships, our ‘all access’ subscription offering that aims to support Learners across academic calendar years, subjects, and learning formats.
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Business Overview We operate a platform for live online learning. Our mission is to transform the way people learn through technology.
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Recent results have shown that fourth and eighth graders have fallen behind in reading and dropped to levels not seen since 1992 and math scores have had the largest ever decline on record.
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We continue to evolve our product offerings to better meet the needs of Learners by launching Learning Memberships, a monthly membership program that includes access to one-on-one instruction, unlimited live group classes, live and on-demand lessons, coding, tutor chat, essay review, adaptive assessments, and self-study modules.
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Meanwhile, according to one study, “chronic absenteeism”, which is defined as the percentage of students absent more than 10% of school days, was at 26% in certain states in 2023. This is above pre-pandemic levels of 15% in 2019.
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Learning Memberships are for Learners of all ages, ranging from kindergarten to college and adult learners. We’re continuing to invest to expand and broaden the product depth of Learning Memberships with even more learning solutions for our members to deliver unparalleled and enhanced value.
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The updates are aimed at enriching the experience, encouraging achievement, reinforcing personal accountability to learning, and improving the discoverability of learning formats and subjects.
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We believe the transition to a recurring, ‘always on’ relationship, will lead to longer-term and more consistent engagement with the platform by Learners, while also allowing us to serve our customers’ ongoing learning needs across the entirety of their education lifecycle.
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From many years of experience, we believe 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.
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We also believe that over time Learning Memberships will have a significant impact on Expert engagement and retention, as Experts are seeking longer-term and more consistent earning opportunities.
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These upgrades of the digital experience for Learners are in service of that ultimate outcome and are aimed at increasing engagement across each of those vectors. The new Learning Membership experience includes: My Learning Hub The new My Learning Hub transforms the way members engage with our platform, making engaging and discovery with our platform more intuitive and user-friendly.
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Finding the exact right Expert to meet the specific and unique needs of a Learner is a critical driver of having a successful learning experience and has a profound impact on Learner satisfaction.
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The My Learning Hub serves as the new home page and central destination for 6 Table of Contents Learning Members, allowing members to effortlessly access their upcoming live tutoring schedule, easily track their past learning interactions in a subject, and track progress and achievement toward learning goals.
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Our technology platform identifies and curates the top Experts in every subject, which enables us to match Learners to the Experts who are ideally qualified to help them learn. The result is an exceptional experience for Learners.
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The My Learning Hub 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.
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We use AI to select the ideal Expert for a given Learner’s needs, taking into account several variables, including Learner and Expert attributes, diagnostic assessments, and data from past learning experiences. We believe quality matching is a key differentiator for Nerdy, something that legacy offline models and online directories struggle to do well.
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My Learning Hub also brings together all of the key account management information and resources into a simple user experience that provides easy self-service management tools to better meet the changing needs of Learning Members and, at the same time, drive operating efficiency.
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Our platform and multiple learning formats allow us to deliver value in more ways and establish long-term, recurring relationships between Learners and Experts. This generates powerful network effects in our business: high customer satisfaction attracts more Learners to our platform, which in turn attracts more Experts as well.
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Subject Portals Our new Subject Portals enable Learners to easily find all the different ways they can learn a given subject. We know our typical Learner prefers to learn a given subject in multiple different ways and this new experience honors that with improved discoverability.
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As a result of our evolution towards Learning Memberships, we have given Experts the ability to develop deeper relationships that allow for more consistent revenue-generating opportunities. • Flexibility : As the modern workforce mindset shifts toward flexibility and choice, our platform empowers Experts to work from wherever, whenever, and however they want.
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With the new Subject Portal experience updates, we aim to increase the number of learning formats Learners leverage on our platform in each subject, thereby driving increases in engagement and frequency of use and improving the value received by Learners. AI Content Generation With AI Content Generation, we used generative AI to generate lesson plans, including problems, answers, and explanations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe market price for our Class A Common Stock may be influenced by many factors, including: • actual or anticipated variations in our operating results; • changes in financial estimates by us or by any securities analysts who might cover our stock; • changes in laws and regulations affecting our business; • conditions or trends in our industry; • changes as a result of the COVID-19 pandemic or macroeconomic events; 32 Table of Contents • stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the software and information technology industries; • announcements by us or our competitors of new product or service offerings, significant acquisitions, strategic partnerships, or divestitures; • announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; • the public’s reaction to our press releases, our other public announcements, and our filings with the SEC; • capital commitments; • commencement of, or involvement in, litigation involving Nerdy Inc.
Biggest changeThe market price for our Class A Common Stock may be influenced by many factors, including: • actual or anticipated variations in our operating results; • changes in financial estimates by us or by any securities analysts who might cover our stock; • changes in laws and regulations affecting our business; • conditions or trends in our industry; 29 Table of Contents • changes as a result of macroeconomic events; • stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the software and information technology industries; • announcements by us or our competitors of new product or service offerings, significant acquisitions, strategic partnerships, or divestitures; • announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; • the public’s reaction to our press releases, our other public announcements, and our filings with the SEC; • capital commitments; • investors’ general perception of our company and our business; • recruitment or departure of key personnel, including Charles Cohn, our Founder, Chairman, President, and Chief Executive Officer; • sales of Class A Common Stock, including sales by our directors and officers or specific stockholders • changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; and • the volume of shares of Class A Common Stock available for public sale.
Many jurisdictions have or are considering enacting privacy or data protection laws or regulations relating to the collection, use, storage, transfer, disclosure, and/or other processing of personal data.
Many jurisdictions have or are considering enacting privacy or data protection laws or regulations relating to the collection, use, storage, transfer, disclosure, and/or other processing of personal data.
Such laws and regulations may include data residency or data localization requirements (which generally require that certain types of data collected within a certain country be stored and processed within that country), data export restrictions or international transfer laws (which prohibit or impose conditions upon the transfer of such data from one country to another), requirements that companies implement privacy or data protection and security policies or requirements that companies grant individuals certain rights, such as the right to access, correct, and delete personal data stored or maintained by such companies, be informed of security breaches that affect their personal data, or provide consent to use their personal data for other purposes.
Such laws and regulations may include data residency or data localization requirements (which generally require that certain types of data collected within a certain country be stored and processed within that country), data export restrictions or international transfer laws (which prohibit or impose conditions upon the transfer of such data from one country to another), requirements that companies implement privacy or data protection and security policies or requirements that companies grant individuals certain rights, such as the right to access, correct, and delete personal data stored or maintained by such companies, be informed of security breaches that affect their personal data, or provide consent to use their personal data for other purposes.
While we have implemented various measures intended to enable us to comply with applicable privacy or data protection laws, regulations, and contractual obligations, these measures may not always be effective and do not guarantee compliance.
While we have implemented various measures intended to enable us to comply with applicable privacy or data protection laws, regulations, and contractual obligations, these measures may not always be effective and do not guarantee compliance.
Additionally, privacy or data protection laws and regulations may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another, other requirements, or legal obligations or our practices.
Additionally, privacy or data protection laws and regulations may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another, other requirements, or legal obligations or our practices.
Risks Related to Intellectual Property We operate in an industry with extensive intellectual property litigation, and we have been, and may be in the future, subject to claims related to a violation of third-party’s intellectual property rights.
Risks Related to Intellectual Property We operate in an industry with extensive intellectual property litigation, and we have been, and may be in the future, subject to claims related to a violation of a third-party’s intellectual property rights.
Negative perception of our platform or company may harm our reputation, brand, and networks effects, including as a result of: • complaints or negative publicity about us, Experts on our platform, our product offerings, or our policies and guidelines, including our practices and policies, even if factually incorrect or based on isolated incidents; 20 Table of Contents • illegal, negligent, reckless, or otherwise inappropriate behavior by Experts, Learners, or third parties; • a failure to provide Experts with competitive compensation and opportunities to work with Learners; • actual or perceived disruptions or defects in our platform, such as privacy or data security breaches, site outages, payment disruptions, or other incidents that impact the reliability of our offerings; • litigation regarding or investigations by regulators into, our platform or our business; • Learners’ lack of awareness of, or compliance with, our policies and terms and conditions; • Experts’ lack of awareness of, or compliance with, our terms and conditions; • changes to our policies that Learners or others perceive as overly restrictive, unclear, or inconsistent with our values or mission, or that are not clearly articulated; • changes to our terms and conditions that Experts perceive as overly restrictive, unclear, or inconsistent with our values, or mission or that are not clearly articulated; • a failure to enforce our policies or terms and conditions in a manner that Learners, Experts, and other users perceive as effective, fair, and transparent; • inadequate or unsatisfactory Learner support service experiences; • illegal or otherwise inappropriate behavior by Experts, management team members, or other employees or contractors; • negative responses by Experts or Learners to new offerings on our platform; • political or social policies or activities; or • any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or our industry as a whole.
Negative perception of our platform or Company may harm our reputation, brand, and networks effects, including as a result of: • complaints or negative publicity about us, Experts on our platform, our product offerings, or our policies and guidelines, including our practices and policies, even if factually incorrect or based on isolated incidents; • illegal, negligent, reckless, or otherwise inappropriate behavior by Experts, Learners, or third parties; • a failure to provide Experts with competitive compensation and opportunities to work with Learners; • actual or perceived disruptions or defects in our platform, such as privacy or data security breaches, site outages, payment disruptions, or other incidents that impact the reliability of our offerings; • litigation regarding or investigations by regulators into our platform or our business; • Learners’ lack of awareness of, or compliance with, our policies and terms and conditions; • Experts’ lack of awareness of, or compliance with, our terms and conditions; • changes to our policies that Learners or others perceive as overly restrictive, unclear, or inconsistent with our values or mission, or that are not clearly articulated; • changes to our terms and conditions that Experts perceive as overly restrictive, unclear, or inconsistent with our values, or mission, or that are not clearly articulated; • a failure to enforce our policies or terms and conditions in a manner that Learners, Experts, and other users perceive as effective, fair, and transparent; • inadequate or unsatisfactory Learner support service experiences; • illegal or otherwise inappropriate behavior by Experts, management team members, or other employees or contractors; • negative responses by Experts or Learners or other users to new offerings on our platform; • political or social policies or activities; or • any of the foregoing with respect to our competitors, to the extent such resulting negative perception affects the public’s perception of us or our industry as a whole.
As a non-traditional form of delivering learning and/or instruction direct-to-consumers over the internet, our online learning offerings will be subject to increased scrutiny by prospective Learners. Online product offerings that we or our competitors offer may not be successful or operate efficiently, and new entrants to the field of online learning also may not perform well.
As a non-traditional form of delivering learning and/or instruction direct-to-consumers over the internet, our online learning offerings may be subject to increased scrutiny by prospective Learners. Online product offerings that we or our competitors offer may not be successful or operate efficiently, and new entrants to the field of online learning also may not perform well.
Institutions are particularly sensitive to any actual or perceived integrity issues, Any negative publicity (whether or not within our control) could cause school districts that currently employ our services to satisfy their needs in the future by alternative means. • Changes in the composition of the school board or changes in school administration .
Institutions are particularly sensitive to any actual or perceived integrity issues, Any negative publicity (whether or not within our control) could cause schools or school districts that currently employ our services to satisfy their needs in the future by alternative means. • Changes in the composition of the school board or changes in school administration .
If any of these online products or services fail to perform well, Learners may become reluctant to purchase or consume online offerings for fear that the learning experience may be substandard and begin to look for alternatives to online learning. • Ineffective marketing efforts .
If any of these online products or services fail to perform well, prospective Learners may become reluctant to purchase or consume online offerings for fear that the learning experience may be substandard and begin to look for alternatives to online learning. • Ineffective marketing efforts .
There are numerous federal, state, and international laws and regulations regarding privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal data and other content (such as the CAN-SPAM Act of 2003, the TCPA, the FCRA, FTC guidelines related to communications with consumers, COPPA, CCPA, CPRA, CPPA, CTDPA, VCDPA, CPA, UCPA, the UK Data Protection Act, the General Data Protection Regulation, among others), the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other laws and regulations.
There are numerous federal, state, and foreign laws and regulations regarding privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal data and other content (such as the CAN-SPAM Act of 2003, the TCPA, the FCRA, FTC guidelines related to communications with consumers, COPPA, CCPA, CPRA, CPPA, CTDPA, VCDPA, CPA, UCPA, the UK Data Protection Act, the General Data Protection Regulation, among others), the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other laws and regulations.
Experts may access the platform and continue to offer one-on-one and group instruction from any location in which they have access to our platform, even if located outside of the U.S., which exposes us to international risks.
Experts may access the platform and continue to offer one-on-one and group instruction from any location in which they have access to our platform, even if located outside of the U.S., which exposes us to foreign and international risks.
Learners and Experts could seek to challenge those terms and conditions, including but not limited to: network access, usage by minors, recorded sessions, taxes, integration with other policies, confidentiality, content, restrictions, arbitration, disclaimer of warranties, limitation of liability, indemnification, third-party beneficiaries, non-solicitation provisions, non-disclosure provisions, non-exclusivity, non-disparagement, governing law/choice of law, jurisdiction, venue, notice requirements, affiliate marketing, other platform activities, contract termination (including early contract termination), authority, installment payments, subscriptions, refunds, minimum billing, redemptions, guarantees, compensation (and adjustments/additions thereto), independent contractor status, insurance, intellectual property rights, and economics of the relationships (noting that some of these items apply solely to Learners, some apply solely to Experts and some apply to both).
Learners and Experts could seek to challenge those terms and conditions, including but not limited to: 16 Table of Contents network access, usage by minors, recorded sessions, taxes, integration with other policies, confidentiality, content, restrictions, arbitration, disclaimer of warranties, limitation of liability, indemnification, third-party beneficiaries, non-solicitation provisions, non-disclosure provisions, non-exclusivity, non-disparagement, governing law/choice of law, jurisdiction, venue, notice requirements, affiliate marketing, other platform activities, contract termination (including early contract termination), authority, installment payments, subscriptions, refunds, minimum billing, redemptions, guarantees, compensation (and adjustments/additions thereto), independent contractor status, insurance, intellectual property rights, and economics of the relationships (noting that some of these items apply solely to Learners, some apply solely to Experts, and some apply to both).
If the protection of our intellectual property and proprietary rights is inadequate to prevent use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused in the marketplace, and our ability to attract customers may be adversely affected. 31 Table of Contents Third parties may challenge any copyrights, trademarks, and other intellectual property and proprietary rights owned or held by us.
If the protection of our intellectual property and proprietary rights is inadequate to prevent use or misappropriation by third parties, the value of our brand and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused in the marketplace, and our ability to attract customers may be adversely affected. 28 Table of Contents Third parties may challenge any copyrights, trademarks, and other intellectual property and proprietary rights owned or held by us.
Additionally, depending on the nature of the information compromised, in the event of a security breach or other privacy or security related incident, we may also have obligations to notify affected individuals and regulators about the incident, and we may need to provide some form of remedy, such as a subscription to credit monitoring services, payment of significant fines, or payment of compensation in connection with a class-action settlement (including under international and state privacy laws).
Additionally, depending on the nature of the information compromised, in the event of a security breach or other privacy or security related incident, we may also have obligations to notify affected individuals and regulators about the incident, and we may need to provide some form of remedy, such as a subscription to credit monitoring services, payment of significant fines, or payment of compensation in connection with a class-action settlement (including under foreign and state privacy laws).
If we experience a change of control (as defined under the Tax Receivable Agreement, which includes certain mergers, asset sales, and other forms of business combinations and certain changes to the composition of our board), the Tax Receivable 39 Table of Contents Agreement will remain in effect with respect to each TRA Holder (provided that certain valuation assumptions applicable to an early termination of the Tax Receivable Agreement, including that there will be sufficient income to utilize all tax attributes covered by the Tax Receivable Agreement, will be utilized to determine the payments to be made under the Tax Receivable Agreement), unless such TRA Holder elects (or the representative of the TRA Holders causes all of the TRA Holders to elect) to receive its early termination payment in connection with the change of control transaction, in which case the Tax Receivable Agreement will terminate with respect to such TRA Holder as described in the paragraph above.
If we experience a change of control (as defined under the Tax Receivable Agreement, which includes certain mergers, asset sales, and other forms of business combinations and certain changes to the composition of our board), the Tax Receivable Agreement will remain in effect with respect to each TRA Holder (provided that certain valuation assumptions applicable to an early termination of the Tax Receivable Agreement, including that there will be sufficient income to utilize all tax attributes covered by the Tax Receivable Agreement, will be utilized to determine the payments to be made under the Tax Receivable Agreement), unless such TRA Holder elects (or the representative of the TRA Holders causes all of the TRA Holders to elect) to receive its early termination payment in connection with the change of control transaction, in which case the Tax Receivable Agreement will terminate with respect to such TRA Holder as described in the paragraph above.
Further, our payment obligations under the Tax Receivable Agreement will not be conditioned upon the TRA Holders having a continued interest in Nerdy Inc. or Nerdy LLC, and the rights of the TRA Holders (including the right to receive payments) under the Tax Receivable Agreement are generally transferable by the TRA Holders as long as the transferee of such rights has executed and delivered or in connection with such transfer executes and delivers, a joinder to the Tax Receivable Agreement.
Further, our payment obligations under the Tax Receivable Agreement will not be conditioned upon the TRA Holders having a continued interest in us or Nerdy LLC, and the rights of the TRA Holders (including the right to receive payments) under the Tax Receivable Agreement are generally transferable by the TRA Holders as long as the transferee of such rights has executed and delivered or in connection with such transfer executes and delivers, a joinder to the Tax Receivable Agreement.
We may incur fines and other losses or negative publicity with respect to these problems. Additionally, these claims may give rise to litigation, which could be time-consuming and expensive. New employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation by our Experts.
We may incur fines and other losses or negative publicity with respect to these problems. Additionally, these claims may give rise to litigation, which could be time-consuming and expensive. New employment and labor laws and regulations may be proposed or adopted that may increase the potential exposure of employers to employment-related claims and litigation by the Experts on our platform.
Additionally, we will also need to retain the institutions that we contract with to generate ongoing revenue from that institution and such retention could be compromised by the following factors, many of which are largely outside of our control: • Timing of school and school districts’ funding sources and budget cycle .
Additionally, we will also need to retain the Institutions that we contract with to generate ongoing revenue from those Institutions and such retention could be compromised by the following factors, many of which are largely outside of our control: • Timing of school and school districts’ funding sources and budget cycle .
Additionally, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the 33 Table of Contents adoption of certain accounting standards until those standards would otherwise apply to private companies.
Additionally, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the 30 Table of Contents adoption of certain accounting standards until those standards would otherwise apply to private companies.
In providing services to Learners and contracting with Experts to provide offerings to Learners, we collect personally identifiable information from Learners, prospective Learners, and Experts, and prospective Experts, such as names, birth dates, contact information, and payment information, as well as limited access to social security numbers of employees and Experts 30 Table of Contents through third-party systems.
In providing services to Learners and contracting with Experts to provide offerings to Learners, we collect personally identifiable information from Learners, prospective Learners, and Experts, and prospective Experts, such as names, birth dates, 27 Table of Contents contact information, and payment information, as well as limited access to social security numbers of employees and Experts through third-party systems.
Our effective income tax rate could be adversely affected by various factors, including, but not limited to, changes in the mix of earnings in tax jurisdictions with different statutory tax rates, changes in the valuation of deferred tax 34 Table of Contents assets and liabilities, changes in existing tax policies, laws, regulations or rates, changes in the level of non-deductible expenses (including share-based compensation), changes in the location of our operations, changes in our future levels of research and development spending, mergers and acquisitions, or the result of examinations by various tax authorities.
Our effective income tax rate could be adversely affected by various factors, including, but not limited to, changes in the mix of earnings in tax jurisdictions with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in existing tax policies, laws, regulations or rates, changes in the level of non-deductible expenses (including share-based compensation), changes in the location of our operations, changes in our future levels of research and development spending, mergers and acquisitions, or the result of examinations by various tax authorities.
Among other things, our governing documents, include provisions regarding: • the ability of our Board to issue shares of preferred stock, including “blank check” preferred stock, and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of, our directors and officers; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders after such date and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; • the requirement that a special meeting of stockholders may be called only by the Chief Executive Officer, the Chairman of the Board, or our Board, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; • the ability of our Board to amend the bylaws, which may allow our Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board, and also may discourage or deter a 41 Table of Contents potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
Among other things, our governing documents, include provisions regarding: • the ability of our Board to issue shares of preferred stock, including “blank check” preferred stock, and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of, our directors and officers; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders after such date and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; • the requirement that a special meeting of stockholders may be called only by the Chief Executive Officer, the Chairman of the Board, or our Board, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; • the ability of our Board to amend the bylaws, which may allow our Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board, and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company. 36 Table of Contents These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our Board or management.
U.S. federal, state, local, and non-U.S. tax laws, policies, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to Nerdy Inc. or Nerdy LLC and may have an adverse effect on our business, cash flows, and future profitability.
U.S. federal, state, local, and non-U.S. tax laws, policies, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us or Nerdy LLC and may have an adverse effect on our business, cash flows, and future profitability.
If we fail to efficiently manage this expansion of our business, our costs and expenses may increase more than we 23 Table of Contents plan and we may not successfully expand our customer base, enhance our platform and technology-enabled services, develop new offerings with new and existing customers, attract a sufficient number of new customers in a cost-effective manner, attract a sufficient number of qualified Experts in a cost-effective manner, satisfy the requirements of our existing customers, respond to competitive challenges, or otherwise execute our business plan.
If we fail to efficiently manage this expansion of our business, our costs and expenses may increase more than we plan and we may not successfully expand our customer base, enhance our platform and technology-enabled services, develop new offerings with new and existing customers, attract a sufficient number of new customers in a cost-effective manner, attract a sufficient number of qualified Experts in a cost-effective manner, satisfy the requirements of our existing customers, respond to competitive challenges, or otherwise execute our business plan.
We intend to cause Nerdy Inc. to take steps to eliminate any material cash balances. Such steps could include distributing such cash balances as dividends on our Class A Common Stock and reinvesting such cash balances in Nerdy LLC for additional OpCo Units (with an accompanying stock dividend with respect to our Class A Common Stock).
We intend to take steps to eliminate any material cash balances. Such steps could include distributing such cash balances as dividends on our Class A Common Stock and reinvesting such cash balances in Nerdy LLC for additional OpCo Units (with an accompanying stock dividend with respect to our Class A Common Stock).
The ability of Nerdy LLC, its subsidiaries, and other entities in which it directly or indirectly holds an equity interest to make such distributions will be subject to, among other things, (i) the applicable provisions of Delaware law (or other applicable jurisdiction) that may limit the amount of funds 38 Table of Contents available for distribution and (ii) restrictions contained in any credit agreement to which Nerdy LLC, its subsidiaries, and other entities in which it directly or indirectly holds an equity interest are bound.
The ability of Nerdy LLC, its subsidiaries, and other entities in which it directly or indirectly holds an equity interest to make such distributions will be subject to, among other things, (i) the applicable provisions of Delaware law (or other applicable jurisdiction) that may limit the amount of funds available for distribution and (ii) restrictions contained in any credit agreement to which Nerdy LLC, its subsidiaries, and other entities in which it directly or indirectly holds an equity interest are bound.
Moreover, claims by Experts and Learners could damage our reputation, regardless of whether such claims have merit. Our employees located outside of the U.S. and the international residents accessing our platform and purchasing our offerings expose us to international risks.
Moreover, claims by Experts and Learners could damage our reputation, regardless of whether such claims have merit. Our employees located outside of the U.S. and foreign residents accessing our platform and purchasing our offerings expose us to foreign risks.
Factors impacting a Learner’s willingness and ability to stay engaged in an offering include personal factors, such as ability to continue to pay for the offering(s), lack of interest in continuing to learn in a particular area, distractions in the Learner’s learning environment, and sufficient time to engage in the offering(s), all of which are generally beyond our control. • Circumvention of the platform/Disintermediation .
Factors impacting a Learner’s willingness and ability to stay engaged in an offering include personal factors, such as ability to continue to pay for the offering(s), lack of interest in continuing to learn in a particular area, distractions in the Learner’s learning environment, and sufficient time to engage in the offering(s), all of which are generally beyond our control. 19 Table of Contents • Circumvention of the platform/Disintermediation .
We have encountered and will continue to encounter these risks and if we do not manage them successfully, our business, financial condition, results of operations, and prospects may be materially and adversely affected. 16 Table of Contents We have incurred significant net losses since our formation, and it may be difficult for us to achieve and maintain profitability.
We have encountered and will continue to encounter these risks and if we do not manage them successfully, our business, financial condition, results of operations, and prospects may be materially and adversely affected. We have incurred significant net losses since our formation, and it may be difficult for us to achieve and maintain profitability.
If we do not help Learners to quickly resolve any learning, technological, or logistical 22 Table of Contents issues they encounter, otherwise provide effective ongoing support to Learners, or deliver the type of high quality, engaging offerings that Learners expect, they may withdraw from our offerings, which would negatively impact our revenue.
If we do not help Learners to quickly resolve any learning, technological, or logistical issues they encounter, otherwise provide effective ongoing support to Learners, or deliver the type of high-quality, engaging offerings that Learners expect, they may withdraw from our offerings, which would negatively impact our revenue.
Mr. Cohn may have interests different than yours. For example, because some of Mr. Cohn’s common stock was obtained at prices below the current trading price of the Class A Common Stock and because Mr.
Mr. Cohn may have interests different from yours. For example, because some of Mr. Cohn’s common stock was obtained at prices below the current trading price of the Class A Common Stock and because Mr.
You should consider our business and prospects in light of the risks, expenses, and difficulties typically encountered by companies in their early stage of development, including, but not limited to our ability to successfully: • execute on our relatively new, evolving, and unproven business model, including our shift in 2022 to offering Learning Memberships and our recent introduction of Varsity Tutors for Schools offerings; • build new products and services, both internally and through third parties; • acquire complementary products and services to expand our offerings and enhance our platform; • attract and retain Learners and Experts and increase their engagement with/through our platform; • manage the growth of our business, including increasing or unforeseen expenses; • develop and scale a technology infrastructure to efficiently handle increased utilization by Learners, especially during peak periods; • maintain and manage relationships with strategic partners; • ensure our platform remains secure and protects the information of Learners, Experts, and other users; • build and pursue a profitable business model and pricing strategy; • compete with companies that offer similar services or products; • expand into adjacent markets; • navigate the ongoing evolution and uncertain application of regulatory requirements, such as privacy laws, to our business; and • continue our expansion into new geographic markets, including markets outside the U.S.
You should consider our business and prospects in light of the risks, expenses, and difficulties typically encountered by companies in their early stage of development, including, but not limited to, our ability to successfully: • execute on our relatively new, evolving, and unproven business model, including our shift to offering Learning Memberships and our introduction of expanded Varsity Tutors for Schools offerings; • build new products and services, both internally and through third parties; • acquire complementary products and services to expand our offerings and enhance our platform; • attract and retain Learners and Experts and increase their engagement with/through our platform; • manage the growth of our business, including increasing or unforeseen expenses; • develop and scale a technology infrastructure to efficiently handle increased utilization by Learners, especially during peak periods; • maintain and manage relationships with strategic partners; • ensure our platform remains secure and protects the information of Learners, Experts, and other users, including Institutional customers; • build and pursue a profitable business model and pricing strategy; • compete with companies that offer similar services or products; • expand into adjacent markets; • navigate the ongoing evolution and uncertain application of regulatory requirements to our business; and • continue our expansion into new geographic markets, including markets outside the U.S.
The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the Tax Receivable Agreement, including that (i) we have sufficient income to fully utilize the tax attributes covered by the Tax Receivable Agreement, (ii) net operating losses and credits that are available as of the termination are utilized through the earlier of the scheduled expiration of such losses or credits or the fifth anniversary of the termination, (iii) the applicable tax rates will be those specified by law as in effect as of the termination date, (iv) non-amortizable asset basis is utilized on an accelerated timeline, and (v) any OpCo Units (other than those held by Nerdy Inc.) outstanding on the termination date are deemed to be redeemed on the termination date.
The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the Tax Receivable Agreement, including that (i) we have sufficient income to fully utilize the tax attributes covered by the Tax Receivable Agreement, (ii) net operating losses and credits that are available as of the termination are utilized through the earlier of the scheduled expiration of such losses or credits or the fifth anniversary of the termination, (iii) the applicable tax rates will be 34 Table of Contents those specified by law as in effect as of the termination date, (iv) non-amortizable asset basis is utilized on an accelerated timeline, and (v) any OpCo Units (other than those held by us) outstanding on the termination date are deemed to be redeemed on the termination date.
If adequate additional funds are not available if and when needed, we may be required to delay, reduce the scope of, or eliminate material parts of our business strategy. Individuals that appear in content hosted on our platform may claim violation of their agreements.
If adequate additional funds are not available if and when needed, we may be required to delay, reduce the scope of, or eliminate material parts of our business strategy. 21 Table of Contents Individuals that appear in content hosted on our platform may claim violation of their agreements.
It may be several years, if ever, before we generate revenue from a new offering sufficient to 21 Table of Contents recover our costs. As a result, we may ultimately be unable to recover the full investment that we make in a new offering or achieve our expected level of profitability for the offering.
It may be several years, if ever, before we generate revenue from a new offering sufficient to recover our costs. As a result, we may ultimately be unable to recover the full investment that we make in a new offering or achieve our expected level of profitability for the offering.
In particular, any failure to successfully implement systems enhancements and improvements will likely negatively impact our ability to manage our expected growth, ensure uninterrupted operation of key business systems, and comply with the rules and regulations that are applicable to public reporting companies.
In particular, any failure to successfully implement systems enhancements and improvements will likely negatively impact our ability to manage our expected growth, ensure uninterrupted operation of key business systems, 20 Table of Contents and comply with the rules and regulations that are applicable to public reporting companies.
Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our offerings and technical infrastructure may harm our reputation, brand, 27 Table of Contents and our ability to attract Learners and Experts to our platform.
Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our offerings and technical infrastructure may harm our reputation, brand, and our ability to attract Learners and Experts to our platform.
Factors that may cause fluctuations in our quarterly operating results include, but are not limited to, the following: • timing of our costs incurred in connection with the launch of new offerings and the delay in receiving revenue from these new offerings, which delay may last for several years; • seasonal variation driven by the seasonal nature of traditional academic calendars; • changes in Learner purchases, utilization, and retention levels in our offerings; • changes in our key metrics or the methods used to calculate our key metrics; • changes in our pricing; • changes in the mix of our product offerings; • timing and amount of our marketing and sales expenses; • costs necessary to improve and maintain our software platform; and • changes in the prospects of the economy generally, which could alter current or prospective customers’ spending priorities or could increase the time it takes us to launch new offerings.
Factors that may cause fluctuations in our quarterly operating results include, but are not limited to, the following: • timing of our costs incurred in connection with the launch of new offerings and the delay in receiving revenue from these new offerings, which delay may last for several years; • seasonal variation driven by the seasonal nature of traditional academic calendars; • changes in Learner purchases, utilization, and retention levels in our offerings; • changes in our key metrics or the methods used to calculate our key metrics; • changes in our pricing; • changes in the mix of our product offerings; • timing and amount of our marketing and sales expenses; • costs necessary to improve and maintain our software platform; • write-downs or write-offs, restructuring, and impairment, or other charges; and • changes in the prospects of the economy generally, which could alter current or prospective customers’ spending priorities or could increase the time it takes us to launch new offerings.
As a result, in such circumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not be able to recoup those payments, which could materially adversely affect our liquidity. 40 Table of Contents In certain circumstances, Nerdy LLC will be required to make tax distributions to the Nerdy LLC unitholders, including Nerdy Inc., and the tax distributions that Nerdy LLC will be required to make may be substantial.
As a result, in such circumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not be able to recoup those payments, which could materially adversely affect our liquidity. 35 Table of Contents In certain circumstances, Nerdy LLC will be required to make tax distributions to the Nerdy LLC unitholders, including us, and the tax distributions that Nerdy LLC will be required to make may be substantial.
Adverse macroeconomic conditions, including inflation, slower growth or a recession, tighter credit, higher interest rates, and higher unemployment rates can adversely impact consumer confidence and spending and may adversely affect demand for the services provided on our platform.
Adverse macroeconomic conditions, including inflation, slower growth or a recession, tighter credit, higher interest rates, and higher unemployment rates, can adversely impact consumer confidence and spending and may affect institutional funding and spending, and these conditions may adversely affect demand for the services provided on our platform.
We believe that building a strong reputation and brand as a safe, reliable, and effective platform and continuing to increase the strength of the network effects among Experts and Learners on our platform are critical to our ability to attract and retain qualified Experts and Learners.
We believe that building a strong reputation and brand as a safe, reliable, and effective platform and continuing to increase the strength of the network effects among Experts and Learners on our platform are critical to our ability to attract and retain qualified Experts and Learners and to market our offerings to Institutions.
The Nerdy LLC tax distribution requirement may complicate our ability to maintain our intended capital structure. Nerdy LLC will generally make quarterly tax distributions, to the Nerdy LLC unitholders, including Nerdy Inc.
The Nerdy LLC tax distribution requirement may complicate our ability to maintain our intended capital structure. Nerdy LLC will generally make quarterly tax distributions, to the Nerdy LLC unitholders, including us.
Additionally, some universities moved to ‘test optional’ admissions that do not require a standardized test score related to one or more of these exams. If this trend becomes pervasive, or if it extends to all of standardized testing at all age and education levels, it could have a negative impact on our business.
Additionally, some universities moved to ‘test optional’ admissions that do not require a standardized test score related to one or more of these exams. If this trend becomes pervasive, or if it extends to all standardized testings at all ages and education levels, it could have a negative impact on our business.
We are also subject to the terms of our privacy policies, and obligations to third parties related to privacy, data protection, and information security. We strive to comply with applicable laws, regulations, policies, and other legal obligations relating to privacy, data protection and information security to the extent possible.
We are also subject to the terms of our privacy policies, and obligations to third parties related to privacy, data protection, and information security. We strive to comply with applicable laws, regulations, policies, and other legal obligations relating to privacy, data protection and information security to 26 Table of Contents the extent possible.
The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable 29 Table of Contents to our business operations may limit the use and adoption of our services and reduce overall demand for them.
The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to our business operations may limit the use and adoption of our services and reduce overall demand for them.
In connection with the Reverse Recapitalization, we entered into the Tax Receivable Agreement with Nerdy LLC unit holders (other than Nerdy Inc.) (the “TRA Holders”).
In connection with the Reverse Recapitalization, we entered into the Tax Receivable Agreement with Nerdy LLC unit holders (other than us) (the “TRA Holders”).
If Nerdy Inc. retains such cash balances (or reinvests such balances in Nerdy LLC without an accompanying stock dividend with respect to our Class A Common Stock), the other Nerdy LLC unitholders would benefit from any value attributable to such accumulated or reinvested cash balances as a result of their exercise of the OpCo redemption right.
If we retain such cash balances (or reinvests such balances in Nerdy LLC without an accompanying stock dividend with respect to our Class A Common Stock), the other Nerdy LLC unitholders would benefit from any value attributable to such accumulated or reinvested cash balances as a result of their exercise of the OpCo redemption right.
As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting.
We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting.
A regional or global health pandemic, including COVID-19, could severely affect our business, results of operations, and financial condition due to impacts on Learners and Experts that use the platform, and consumer and institutional spending more broadly, as well as impacts from remote work and remote learning arrangements, actions taken to contain the disease or treat its impact, and the speed and extent of the recovery.
A health pandemic could severely affect our business, results of operations, and financial condition due to impacts on Learners and Experts that use the platform, and consumer and institutional spending more broadly, as well as impacts from remote work and remote learning arrangements, actions taken to contain the disease or treat its impact, and the speed and extent of the recovery.
If we cannot compete successfully against our competitors, our ability to grow our business and achieve profitability could be impaired. 24 Table of Contents Our business is affected by seasonality driven by school and standardized testing schedules. Our business is affected by the general seasonal trends common to education, tutoring, and standardized testing markets in the markets we serve.
If we cannot compete successfully against our competitors, our ability to grow our business and achieve profitability could be impaired. Our business is affected by seasonality driven by school and standardized testing schedules. Our business is affected by the general seasonal trends common to education, tutoring, and standardized testing schedules in the markets we serve.
If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. Changes to applicable U.S. tax laws and regulations or exposure to additional income tax liabilities could affect our and Nerdy LLC’s business and future profitability.
If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed. 32 Table of Contents Changes to applicable U.S. tax laws and regulations or exposure to additional income tax liabilities could affect our and Nerdy LLC’s business and future profitability.
If we do not successfully maintain and develop our brand, reputation, and network effects and successfully differentiate our offerings from competitive offerings, our business may not grow, we may not be able to compete effectively, and we could lose existing qualified Experts or existing Learners or fail to attract new qualified Experts or new Learners, any of which could adversely affect our business, financial condition, and results of operations.
If we do not successfully maintain and develop our brand, reputation, and network effects and successfully differentiate our offerings from competitive offerings, our business may not grow, we may not be able to compete effectively, and we could lose existing qualified Experts 17 Table of Contents or existing Learners or fail to attract new qualified Experts, new Learners, or other new users, any of which could adversely affect our business, financial condition, and results of operations.
We are an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, our Class A Common Stock may be less attractive to investors.
We are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, our Class A Common Stock may be less attractive to investors.
Furthermore, so long as Mr. Cohn beneficially owns certain specified percentages of the Class A Common Stock owned by him at the Closing, Mr. Cohn will have rights to nominate up to three directors to the Nerdy Inc. Board of Directors, and will also have consent rights with respect to other parties’ nominees under the Stockholders Agreement.
Cohn beneficially owns certain specified percentages of the Class A Common Stock owned by him at the Closing, Mr. Cohn will have rights to nominate up to three directors to our Board of Directors, and will also have consent rights with respect to other parties’ nominees under the Stockholders Agreement. As long as Mr.
Nerdy Inc. has no material assets other than its interest in Nerdy LLC, which holds, directly or indirectly, all of our business. Nerdy LLC generally is not subject to U.S. federal income tax, but may be subject to certain U.S. state and local and non-U.S. taxes.
We have no material assets other than our interest in Nerdy LLC, which holds, directly or indirectly, all of our business. Nerdy LLC generally is not subject to U.S. federal income tax, but may be subject to certain U.S. state and local and non-U.S. taxes.
Our ability to effectively manage any significant growth of our business will depend on a number of factors, including our ability to: • effectively recruit, onboard, motivate, and retain new employees, including in software engineering, data science, product, design, marketing, sales, and customer service, while retaining existing employees, maintaining the most important aspects of our corporate culture and effectively executing our business plan; • effectively recruit, vet, contract, and curate new independent contractors, while retaining existing independent contractors, maintaining and improving our platform and its curation in connection with effectively executing our business plan; • continue to improve our operational, financial, and management controls; • protect and further develop our strategic assets, including our intellectual property rights; and • make sound business decisions in light of the scrutiny associated with operating as a public company.
Our ability to effectively manage any significant growth of our business will depend on a number of factors, including our ability to: • effectively recruit, onboard, motivate, and retain new employees, including in software engineering, data science, product, design, marketing, sales, and customer service, while retaining existing employees, maintaining the most important aspects of our corporate culture, and effectively executing our business plan; • effectively recruit, vet, contract, and curate new independent contractors, while retaining existing independent contractors, maintaining and improving our platform and its curation in connection with effectively executing our business plan; • continue to improve our operational, financial, and management controls; and • protect and further develop our strategic assets, including our intellectual property rights.
Our business may also be subject to laws specific to students, such as the Family Educational Rights and Privacy Act (“FERPA”). State laws and regulations targeting protection of students continue to be proposed and enacted.
Our business may also be subject to laws specific to students, such as the Family Educational Rights and Privacy Act (“FERPA”) and the Student Online Personal Protection Act (“SOPPA”). State laws and regulations targeting protection of students continue to be proposed and enacted.
Such changes in U.S. federal income tax laws could adversely affect Nerdy Inc.’s or Nerdy LLC’s business, cash flows, and future profitability.
Such changes in U.S. federal income tax laws could adversely affect our or Nerdy LLC’s business, cash flows, and future profitability.
In 2022, the Company had approximately 20 thousand Active Experts with independent contractor agreements. The Company defines an Active Expert as having instructed one or more sessions in a given period.
In 2023, the Company had approximately 17 thousand Active Experts with independent contractor agreements. The Company defines an Active Expert as having instructed one or more sessions in a given period.
Further, the existence and need to comply in certain markets could impact our ability to make our platform available in those markets (without taking additional compliance steps).
Further, the existence and need to comply in certain markets could impact our ability to make our platform available in those markets (without taking additional compliance 23 Table of Contents steps).
Additionally, the terms of any future debt agreements we may enter into are likely to similarly preclude us from paying dividends. As a result, capital appreciation, if any, of the Class A Common Stock will be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our Class A Common Stock.
Additionally, the terms of any future debt agreements we may enter into are likely to similarly preclude us from paying dividends. As a result, capital appreciation, if any, of the Class A Common Stock will be your sole source of gain for the foreseeable future.
Operating in international markets requires significant resources, management attention, and subjects us to regulatory, economic, and political risks that are different from those in the U.S. We have international employees in Canada and the United Kingdom.
Operating in international and foreign markets requires significant resources, management attention, and subjects us to regulatory, economic, and political risks that are different from those in the U.S. We have employees employed by locally established entities in Canada and the United Kingdom.
Such underperformance could create the perception that online offerings in general are not an effective way to learn or educate, whether or not our offerings achieve satisfactory performance, which could make it difficult for us to successfully attract prospective Learners. Additionally, as a result of the COVID-19 pandemic, telehealth services, and other non-traditional online services are becoming increasingly prevalent.
Such underperformance could create the perception that online offerings in general are not an effective way to learn or educate, whether or not our offerings achieve satisfactory performance, which could make it difficult for us to 15 Table of Contents successfully attract prospective Learners. Additionally, telehealth services, and other non-traditional online services are becoming increasingly prevalent.
The rate at which we expand our user base of Active Learners and increase Active Learner engagement with our platform may decline or fluctuate because of several factors, including: • our ability to shift to Learning Memberships; • our ability to consistently provide Learners with a convenient, high quality experience; • the pricing of our offerings in relation to other alternatives, including the prices charged by offline competitors and other learning alternatives; • the quality and prices of our products and services that we offer to Learners and those of our competitors and other learning alternatives; • our ability to acquire and retain Learners of all age segments; • changes in standardized testing or admissions requirements; • changes in college or university enrollment; • changes in online versus in-person attendance at schools, colleges, or universities; • changes in professional licensure, certification requirements, or regulations; • changes in learning-related spending levels by consumers and institutions; • the effectiveness of our sales and marketing efforts; • seasonal demands for our offerings may fluctuate with the seasonal nature of traditional academic calendars; and 18 Table of Contents • our ability to introduce new products and services that are favorably received by Learners.
The rate at which we expand our user base of Learners and increase Learner engagement with our platform may decline or fluctuate because of several factors, including: • our ability to acquire and retain Learners of all age segments; • our ability to consistently provide Learners with a convenient, high-quality experience; • the quality and prices of our products and services that we offer to Learners and those of our competitors and other learning alternatives; • changes in standardized testing or admissions requirements; • changes in college or university enrollment; • changes in professional licensure, certification requirements, or regulations; • changes in learning-related spending levels by consumers and Institutions; • the effectiveness of our sales and marketing efforts; • seasonal demands for our offerings may fluctuate with the seasonal nature of traditional academic calendars; and • our ability to introduce new products and services that are favorably received by Learners.
Our use of open source software may also present additional security risks because the source code for open source software is publicly available, which may make it easier for hackers and other third parties to determine how to breach our website and systems that rely on open source software. Any of these risks could be difficult to eliminate or manage.
Our use of open source software may also present additional security risks because the source code for open source software is publicly available, which may make it easier for hackers and other third parties to determine how to breach our website and systems that rely on open source software.
Nerdy Inc. is a U.S. corporation subject to U.S. corporate income tax on its allocable share of the income or loss 37 Table of Contents of Nerdy LLC. Further, because our operations and customers are located throughout the U.S., Nerdy Inc. and Nerdy LLC are subject to various U.S. state and local taxes.
We are a U.S. corporation subject to U.S. corporate income tax on our allocable share of the income or loss of Nerdy LLC. Further, because our operations and customers are located throughout the U.S., we and Nerdy LLC are subject to various U.S. state and local taxes.
Further, if legal standards for classification of independent contractors change, whether at the federal or state level, it may be necessary to change our business model or modify our compensation structure for these roles, including by paying additional compensation or reimbursing expenses (or whatever other requirements related to employees, versus independent contractors, are implicated by any such determination(s) or change(s)). 17 Table of Contents A determination in, or settlement of, any legal proceeding(s), whether we are party to such legal proceeding or not, that classifies independent contractors with whom we contract as employees, could harm our business, financial condition, and results of operations, including as a result of: • monetary exposure arising from or relating to failure to withhold and remit taxes, unpaid wages and wage and hour laws and requirements (such as those pertaining to failure to pay minimum wage and overtime, or to provide required breaks and wage statements), expense reimbursement, statutory and punitive damages, penalties, including related to attorney general actions by states, and government fines; • injunctions prohibiting continuance of existing business practices; • claims for employee benefits, social security, workers’ compensation, and unemployment; • claims of discrimination, harassment, and retaliation under civil rights laws; • manage the growth of our business, including increasing or unforeseen expenses; • develop and scale a technology infrastructure to efficiently handle increased utilization by Learners, especially during peak periods; • claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; • other claims, charges, or other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability or agency liability; and • harm to our reputation and brand.
A determination in, or settlement of, any legal proceeding(s), whether we are party to such legal proceeding or not, that classifies independent contractors with whom we contract as employees, could harm our business, financial condition, and results of operations, including as a result of: • monetary exposure arising from or relating to failure to withhold and remit taxes, unpaid wages and wage and hour laws and requirements (such as those pertaining to failure to pay minimum wage and overtime, or to provide required breaks and wage statements), expense reimbursement, statutory and punitive damages, penalties, including related to attorney general actions by states, and government fines; • injunctions prohibiting continuance of existing business practices; • claims for employee benefits, social security, workers’ compensation, and unemployment; • claims of discrimination, harassment, and retaliation under civil rights laws; • managing the growth of our business, including increasing or unforeseen expenses; • developing and scaling a technology infrastructure to efficiently handle increased utilization by Learners, especially during peak periods; 14 Table of Contents • claims under laws pertaining to unionizing, collective bargaining, and other concerted activity; • other claims, charges, or other proceedings under laws and regulations applicable to employers and employees, including risks relating to allegations of joint employer liability or agency liability; and • harm to our reputation and brand.
If we are not successful in quickly and efficiently scaling up offerings with new and existing Learners or institutions, our reputation and our results of operations results will suffer. Our continued growth and profitability depends on our ability to successfully scale up our existing and newly launched products.
If we are not successful in quickly and efficiently scaling up offerings with new and existing Learners or Institutions, our reputation and our results of operations results will suffer. Our continued growth and profitability depends on our ability to successfully scale up our existing and newly launched offerings. As we continue aggressively growing our business, we may require new employees.
To the extent the COVID-19 pandemic or any other regional or global health pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section.
To the extent a health pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section.
Our failure to comply with these laws or requirements could result in fines or impact our ability to accept payments in the future. Any restrictions that impact our ability to accept payments in the future will affect our business, including loss of credit card acceptance privileges. Some jurisdictions have adopted laws that govern payments and other financial activities.
Any restrictions that impact our ability to accept payments in the future will affect our business, including loss of credit card acceptance privileges. Some jurisdictions have adopted laws that govern payments and other financial activities.
Cohn has held some of his common stock for a longer period, he may be more interested in a transaction involving the sale of our company or Mr. Cohn may want us to pursue strategies that deviate from the interests of other stockholders.
Cohn has held some of his common stock for a longer period, he may be more interested in a transaction involving the sale of our company or Mr. Cohn may want us to pursue strategies that deviate from the interests of other stockholders. A significant portion of our total outstanding shares may be sold into the market at any time.
If purchases or utilization of our offerings does not increase, we are unable to launch new offerings in a cost-effective manner, or we are otherwise unable to manage new offerings effectively, our ability to grow our business and achieve profitability would be impaired and the quality of our solutions and the satisfaction of the Learners and institutions using our platform could suffer.
If purchases or utilization of our offerings does not increase, we are unable to launch new offerings in a cost-effective manner, or we are otherwise unable to manage new offerings effectively, our ability to grow our business and achieve profitability would be impaired and the quality of our solutions and the satisfaction of the Learners and Institutions using our platform could suffer. 18 Table of Contents If we are not successful in scaling up our Institutional offerings to education systems, we could suffer losses and our results of operations will suffer.
If we fail to manage this growth effectively, the success of our business model may be compromised. We have experienced rapid growth in a relatively short period of time. Our revenue grew from $103,968 thousand in 2020 to $140,664 thousand in 2021 and $162,665 thousand in 2022.
If we fail to manage this growth effectively, the success of our business model may be compromised. We have experienced rapid growth in a relatively short period of time. Our revenue grew from $103,968 thousand in 2020 to $193,399 thousand in 2023.
Charles Cohn, Nerdy Inc.’s Founder, Chairman, President, and Chief Executive Officer, beneficially owns a significant portion of Nerdy Inc.’s Common Stock and has significant influence over us. Charles Cohn beneficially owns approximately 31.4% of our outstanding Class A Common Stock, assuming conversion of his Class B common stock and all other shares of Class B common stock.
Charles Cohn, our Founder, Chairman, President, and Chief Executive Officer, beneficially owns a significant portion of our Common Stock and has significant influence over us. Charles Cohn beneficially owns approximately 29.4% of our outstanding Class A Common Stock, assuming conversion of his Class B common stock and all other shares of Class B common stock. Furthermore, so long as Mr.
While we have implemented various measures intended to anticipate, identify, and 19 Table of Contents address the risk of these types of activities, these measures may not adequately address or prevent all illegal, improper, or otherwise inappropriate activity by these parties from occurring in connection with our offerings.
While we have implemented various measures intended to anticipate, identify, and address the risk of these types of activities, these measures may not adequately address or prevent all illegal, improper, or otherwise inappropriate activity by these parties from occurring in connection with our offerings. Such conduct could expose us to liability or adversely affect our brand or reputation.
The assumed tax rate for this purpose will be the combined maximum U.S. federal, state, and local income tax rate that may potentially apply to any member for the applicable taxable year.
The assumed tax rate for this purpose will be the combined maximum U.S. federal, state, and local income tax rate that may potentially apply to any member for the applicable taxable year. The highest marginal U.S. federal income tax rate applicable to corporations is significantly lower than the highest marginal U.S. federal income tax rate applicable to non-corporate taxpayers.
Any such compromise could also result in damage to our brand and a loss of confidence in our security and privacy or data protection measures. 26 Table of Contents Our systems and the systems we use under contract with third-parties may be vulnerable to computer viruses and other malicious software, physical or electronic break-ins, or weakness resulting from intentional or unintentional actions by us, our third-party service providers, as well as similar disruptions that could make all or portions of our website or apps unavailable for periods of time.
Our systems and the systems we use under contract with third-parties may be vulnerable to computer viruses and other malicious software, physical or electronic break-ins, or weakness resulting from intentional or unintentional actions by us, our third-party service providers, as well as similar disruptions that could make all or portions of our website or apps unavailable for periods of time.
We may not succeed in increasing our revenue sufficiently to offset any higher expenses, and our efforts to grow the business may prove more expensive than we currently anticipate.
Additionally, as a public company, we incur significant legal, accounting, and other expenses. We may not succeed in increasing our revenue sufficiently to offset any higher expenses, and our efforts to grow the business may prove more expensive than we currently anticipate.
College and graduate school attendance dropped during the COVID-19 pandemic, resulting in decreased demand for both academic and test prep-related support. Testing for both professional and standardized exams including the Series Exams, GMAT, LSAT, GRE, MCAT, NCLEX, GMAT, LSAT, SAT, ACT, and numerous other exams were cancelled or had testing center and test administration problems during the COVID-19 pandemic.
Testing for both professional and standardized exams including the Series Exams, GMAT, LSAT, GRE, MCAT, NCLEX, GMAT, LSAT, SAT, ACT, and numerous other exams were cancelled or had testing center and test administration problems during the COVID-19 pandemic.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES. Our corporate headquarters is located at 101 S. Hanley Rd., Suite 300, St. Louis, Missouri 63105 with a lease term that expires in August 2023.
Biggest changeITEM 2. PROPERTIES. Our corporate headquarters is located at 8001 Forsyth Blvd., Suite 1050, St. Louis, Missouri 63105 with a lease term that expires in April 2031, with two extension options.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changePursuant to such SEC regulations, the Company has elected to use a threshold of $1,000 thousand for purposes of determining whether disclosure of any such proceedings is required. Applying this threshold, there are no such environmental proceedings pending as of the filing date of this report or that were resolved during the fourth quarter of 2022. ITEM 4.
Biggest changePursuant to such SEC regulations, the Company has elected to use a threshold of $1,000 thousand for purposes of determining whether disclosure of any such proceedings is required. Applying this threshold, there are no such environmental proceedings pending as of the filing date of this report or that were resolved during the fourth quarter of 2023. ITEM 4.
MINE SAFETY DISCLOSURES. Not applicable. 42 Table of Contents PART II
MINE SAFETY DISCLOSURES. Not applicable. 38 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMarket for Common Stock and Dividends Our Class A common stock, par value $0.0001 per share (the “Class A Common Stock) and our public warrants that are exercisable for our Class A Common Stock are traded on the New York Stock Exchange (the “NYSE”) under the symbols “NRDY” and “NRDY-WT”, respectively.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market for Common Stock and Dividends Our Class A common stock, par value $0.0001 per share (the “Class A Common Stock) is traded on the New York Stock Exchange (the “NYSE”) under the symbol, “NRDY”.
We did not pay any cash dividends on our Class A Common Stock during the year ended December 31, 2022, nor do we have plans to pay cash dividends on our common stock in the foreseeable future.
We did not pay any cash dividends on our Class A Common Stock during the year ended December 31, 2023, nor do we have plans to pay cash dividends on our common stock in the foreseeable future.
Issuer Purchases of Equity Securities There were no purchases of equity securities by the issuer or affiliated purchasers, as defined in Rule 10b-18(a)(3) the Securities Exchange Act of 1934, during the fourth quarter of 2022.
Issuer Purchases of Equity Securities There were no purchases of equity securities by the issuer or affiliated purchasers, as defined in Rule 10b-18(a)(3) the Securities Exchange Act of 1934, during the fourth quarter of 2023.
The actual number of Class A Common Stock or public warrant holders is greater than this number of record holders and includes stock and warrant holders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
The actual number of Class A Common Stock is greater than this number of record holders and includes stock holders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Our Class B common stock, par value $0.0001 per share (the “Class B Common Stock”), our private placement and forward purchase agreement warrants that are exercisable for our Class A common stock, and our warrants that are exercisable for our Class B Common Stock are not traded on any established public trading market.
Our Class B common stock, par value $0.0001 per share (the “Class B Common Stock”) is not traded on any established public trading market. On February 13, 2024, there were approximately 45 stockholders and 24 stockholders of our Class A Common Stock and Class B Common Stock, respectively.
Performance Graph We are a “smaller reporting company,” as defined by Item 10(f)(1) of Regulation S-K, and therefore are not required to provide the information required by paragraph (e) of Item 201 of Regulation S-K. ITEM 6. [RESERVED] 43 Table of Contents
Performance Graph As of December 31, 2022, we were a “smaller reporting company,” as defined by Item 10(f)(1) of Regulation S-K, but are no longer a “smaller reporting company” as of December 31, 2023.
Removed
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Added
Pursuant to 5120.1c of the United States Securities and Exchange Commission (the “SEC”) Financial Reporting Manual, we may continue to use the scaled disclosures permitted for a smaller reporting company through our annual report on Form 10-K for the year ended December 31, 2023, and therefore are not required to provide the information required by paragraph (e) of Item 201 of Regulation S-K.
Removed
On February 14, 2023, there were approximately 35 stockholders and 24 stockholders of our Class A Common Stock and Class B Common Stock, respectively, as well as approximately 79 holders of our warrants that are exercisable for our Class A common stock and our Class B Common Stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYear Ended December 31, Change Year Ended December 31, Change in hours: favorable/(unfavorable) 2022 2021 % 2021 2020 % One-on-One Average Session Length 1.27 1.32 (4)% 1.32 1.39 (5)% 46 Table of Contents RESULTS OF OPERATIONS Year Ended December 31, dollars in thousands 2022 % 2021 % 2020 % Revenue $ 162,665 100 % $ 140,664 100 % $ 103,968 100 % Cost of revenue 49,732 31 % 46,700 33 % 34,834 34 % Gross Profit 112,933 69 % 93,964 67 % 69,134 66 % Sales and marketing expenses 74,183 45 % 65,441 47 % 43,838 42 % General and administrative expenses 129,559 80 % 121,968 87 % 43,231 41 % Write-off of other intangible assets — — % 3,009 2 % — — % Operating Loss (90,809) (56) % (96,454) (69) % (17,935) (17) % Unrealized gain on derivatives, net (26,620) (17) % (71,041) (51) % — — % Interest (income) expense, net (483) — % 3,772 3 % 4,827 5 % Other expense, net 183 — % 8,571 6 % 1,901 2 % Gain on extinguishment of debt, net — — % (7,117) (5) % — — % Loss before Income Taxes (63,889) (39) % (30,639) (22) % (24,663) (24) % Income tax expense 19 — % 40 — % — — % Net Loss (63,908) (39) % (30,679) (22) % (24,663) (24) % Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization — — % (23,546) (17) % (24,663) (24) % Net loss attributable to noncontrolling interests (28,509) (17) % (3,354) (2) % — — % Net Loss Attributable to Class A Common Stockholders $ (35,399) (22) % $ (3,779) (3) % $ — — % Revenue Revenue for the year ended December 31, 2022 was $162,665 thousand, an increase of $22,001 thousand, or 16%, from $140,664 thousand during the same period in 2021.
Biggest changeYear Ended December 31, Change Active Experts in thousands 2023 2022 % Active Experts 17.2 20.8 (17)% RESULTS OF OPERATIONS Year Ended December 31, dollars in thousands 2023 % 2022 % Revenue $ 193,399 100 % $ 162,665 100 % Cost of revenue 56,952 29 % 49,732 31 % Gross Profit 136,447 71 % 112,933 69 % Sales and marketing expenses 68,448 36 % 74,183 45 % General and administrative expenses 125,570 65 % 129,559 80 % Operating Loss (57,571) (30) % (90,809) (56) % Unrealized loss (gain) on derivatives, net 13,385 7 % (26,620) (17) % Interest income (3,377) (2) % (483) — % Other (income) expense, net (19) — % 183 — % Loss before Income Taxes (67,560) (35) % (63,889) (39) % Income tax expense 109 — % 19 — % Net Loss (67,669) (35) % (63,908) (39) % Net loss attributable to noncontrolling interests (27,495) (14) % (28,509) (17) % Net Loss Attributable to Class A Common Stockholders $ (40,174) (21) % $ (35,399) (22) % Revenue Revenue growth in the current year was driven by the completion of our evolution towards ‘always on’ recurring revenue products, strong adoption of Learning Memberships, and lifetime value expansion in our Consumer business coupled with the continued scaling of our Institutional business.
We have determined that collectively, these factors reflect that we are the principal in transactions with Learners and institutions. We do not have any incremental costs to obtain or fulfill a contract that require capitalization.
We determined that collectively, these factors reflect that we are the principal in transactions with Learners and Institutions. We do not have any incremental costs to obtain or fulfill a contract that require capitalization.
Revenue Recognition and Deferred Revenue We recognize revenues from our services as performance obligations are satisfied. Performance obligations are satisfied throughout the term of contracts with Learners and institutions, who are our customers, when they are provided services. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Revenue Recognition and Deferred Revenue We recognize revenue from our services as performance obligations are satisfied. Performance obligations are satisfied throughout the term of contracts with Learners and Institutions, who are our customers, when they are provided services. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Once the software is ready for its intended use it is placed into service, such costs are amortized on a straight-line basis within “Cost of revenue” in the Consolidated Statements of Operations, generally over a four year estimated useful life of the related asset.
Once the software is ready for its intended use, it is placed into service and such costs are amortized on a straight-line basis within “Cost of revenue” in the Consolidated Statements of Operations, generally over a four year estimated useful life of the related asset.
We expect to remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing date of the TPG Pace’s initial public offering, (b) in which we have total annual gross revenue of at least $1,235,000 thousand or (c) in which we are deemed to be a large accelerated filer, which means the market value of our shares of common stock that are held by non-affiliates equals or exceeds $700,000 thousand as of the prior June 30th, or (2) 54 Table of Contents the date on which we have issued more than $1,000,000 thousand in non-convertible debt securities during the prior three-year period.
We expect to remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing date of the TPG Pace’s initial public offering, (b) in which we have total annual gross revenue of at least $1,235,000 thousand or (c) in which we are deemed to be a large accelerated filer, which means the market value of our shares of common stock that are held by non-affiliates equals or exceeds $700,000 thousand as of the prior June 30th, or (2) the date on which we have issued more than $1,000,000 thousand in non-convertible debt securities during the prior three-year period.
Historically, we experience lower than normal revenues during the summer when schools and universities are out of session in the United States (the “U.S”). and when people travel for vacations and holidays. Due to seasonality, comparisons of our historical quarterly results of operations on a sequential basis may not provide meaningful insight into our overall financial performance.
Historically, we experience lower than normal revenue during the summer when schools and universities are out of session in the United States (the “U.S”). and when people travel for vacations and holidays. Due to seasonality, comparisons of our historical quarterly results of operations on a sequential basis may not provide meaningful insight into our overall financial performance.
The following discussion should be read in conjunction with the financial statements under Part II, Item 8 of this report, “Cautionary Note On Forward-Looking Statements” on page 1 of this report, and “Risk Factors” in Part I, Item 1A of this report. This section of this report generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
The following discussion should be read in conjunction with the financial statements under Part II, Item 8 of this report, “Cautionary Note On Forward-Looking Statements” on page 1 of this report, and “Risk Factors” in Part I, Item 1A of this report. This section of this report generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Based upon the facts and circumstances that existed as of December 31, 2022, we remained an emerging growth company for our Annual Report on Form 10-K for the year ended December 31, 2022 and will continue to be for our quarterly reports in the 2023 interim periods.
Based upon the facts and circumstances that existed as of December 31, 2023, we remained an emerging growth company for our Annual Report on Form 10-K for the year ended December 31, 2023 and will continue to be for our quarterly reports in the 2024 interim periods.
Seasonality of our Business We have experienced in the past, and expect to continue to experience seasonal fluctuations in our revenues and earnings due to Learner and institutional spending and consumption habits, and the timing of the academic year.
Seasonality of our Business We have experienced in the past, and expect to continue to experience seasonal fluctuations in our revenue and earnings due to Learner and Institutional spending and consumption habits, and the timing of the academic year.
Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats, including, one-on-one instruction, small group classes, large format group classes, coding, tutor chat, essay review, and adaptive self-study. Our flagship business, Varsity Tutors LLC (“Varsity Tutors”), is one of the nation’s largest platforms for live online tutoring and classes.
Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats, including Learning Memberships, one-on-one instruction, small group tutoring, large format classes, tutor chat, essay review, adaptive assessments, and self-study tools. Our flagship business, Varsity Tutors LLC (“Varsity Tutors”), is one of the nation’s largest platforms for live online tutoring and classes.
SMALLER REPORTING COMPANY STATUS We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
SMALLER REPORTING COMPANY STATUS As of December 31, 2022, we were a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
The grant date fair value of earnouts issued to employees and the Founder’s Award was determined using the Monte Carlo Option Pricing Method. 53 Table of Contents For additional discussion on stock-based compensation, see Note 20 in “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report.
The grant date fair value of the Founder’s Award was determined using the Monte Carlo Option Pricing Method. For additional discussion on stock-based compensation, see Note 20 in “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this report, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Nerdy Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission (the “SEC”) on February 28, 2022.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this report, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Nerdy Inc.’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023.
Given the customer receives benefit from the completion of each session (as Learners are not obligated to meet with the same Expert for a minimum number of sessions), we concluded that each session is a separate performance obligation.
Given the customer receives benefit from the completion of each session (as Learners are not obligated to meet with the same Expert for a minimum number of sessions), we concluded each one-on-one or small group tutoring session is a separate performance obligation.
Our offerings include Varsity Tutors for Schools , a product suite (including High Dosage, Teacher Assigned, and On Demand Tutoring) that leverages our platform capabilities to offer our online learning solutions directly to education systems. We have built a diversified business across the following audiences: K-8, High School, College, Graduate School, and Professional.
Our offerings include Varsity Tutors for Schools , a product suite that leverages our platform capabilities to offer high-dosage tutoring and our online learning solutions to Institutions. We have built a diversified business across the following audiences: K-8, High School, College, Graduate School, and Professional.
Additionally, excluding these impacts in both periods, sales and marketing expenses for the year ended December 31, 2022 were 43% of revenue compared to 44% of revenue during the same period in 2021, an approximate 100 basis point improvement year-over-year.
Additionally, excluding these impacts in both periods, sales and marketing expenses for the year ended December 31, 2023 were 34% of revenue compared to 43% of revenue during the same period in 2022, a 893 basis point improvement year-over-year.
Our solutions are available directly to Learners, as well as through schools and other institutions. Our platform offers Experts the opportunity to generate income from the convenience of home, while also increasing access for Learners by removing barriers to high-quality live online learning.
Our solutions are available directly to Learners (“Consumer(s)”), as well as through education systems (“Institution(s)”). Our platform offers Experts the opportunity to generate income from the convenience of home, while also increasing access for Learners by removing barriers to high-quality live online learning.
Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized and amortized over the estimated useful life of the upgrades. Goodwill Goodwill recorded by us relates to the assets of a previously acquired business.
Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized and amortized over the estimated useful life of the upgrades.
The grant date fair value of the restricted stock units was determined based upon the closing price of the Company’s Class A Common Stock on the date of grant. The grant date fair value of the stock appreciation rights, restricted stock awards, and stock options was determined using the Black-Scholes Model.
Any forfeitures of stock-based compensation are recorded as they occur. The grant date fair value of the restricted stock units was determined based upon the closing price of our Class A Common Stock on the date of grant. The grant date fair value of the stock appreciation rights, restricted stock awards, and stock options was determined using the Black-Scholes Model.
Specifically, our financial results have been impacted by wage inflation among our employees and other inflationary pressures. We continuously explore the best pricing of our services and will consider future pricing actions to offset these inflationary pressures. Restructuring On December 8, 2022, we announced the completion of workforce reductions of approximately 17% of our total workforce.
Specifically, our financial results have been impacted by wage inflation among our employees and other inflationary pressures. We continuously explore the best pricing of our services and will consider future pricing actions to offset these inflationary pressures.
Sales and marketing expenses for the year ended December 31, 2022 included non-cash stock-based compensation and restructuring costs of $4,086 thousand and $345 thousand, respectively. Sales and marketing expenses for the year ended December 31, 2021 included non-cash stock-based compensation of $3,378 thousand. Excluding these impacts in both periods, sales and marketing expenses increased $7,689 thousand, or 12%.
Sales and marketing expenses for the year ended December 31, 2023 included non-cash stock-based compensation of $2,795 thousand. Sales and marketing expenses for the year ended December 31, 2022 included non-cash stock-based compensation and restructuring costs of $4,086 thousand and $345 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses decreased $4,099 thousand, or 6%.
We generate revenue by selling services to Learners and institutions for one-on-one instruction, classes, and other services that are fulfilled by Experts, who deliver instruction on our behalf through our proprietary Live Learning Platform. Our contracts with Learners consist of Learning Memberships and Packages.
We generate revenue by selling services to Learners and Institutions for one-on-one instruction and small group tutoring that are fulfilled by Experts, who deliver instruction on our behalf through our proprietary Live Learning Platform.
Cash for the purchase of services by Learners (Learning Memberships and Packages) is generally collected in advance (at one time or in installments) and recorded to deferred revenue until the services are used by the Learner.
Cash for the purchase of services by Learners is generally collected monthly in advance and recorded to deferred revenue until the services are used by the Learner.
Interest (Income) Expense, Net Interest income was $483 thousand for the year ended December 31, 2022, compared to interest expense, net of $3,772 thousand for the year ended December 31, 2021.
Interest Income Interest income was $3,377 thousand for the year ended December 31, 2023, compared to $483 thousand for the year ended December 31, 2022.
Given the institutions receive benefit from the completion of each session (institutions are not obligated to meet with the same Expert for a minimum number of sessions), we have concluded that each session is a separate performance obligation.
Revenue is recognized from one-on-one instruction and small group tutoring as performance obligations are satisfied. Given the Institutions receive benefit from the completion of each session (as Institutions are not obligated to meet with the same Expert for a minimum number of sessions), we concluded each one-on-one or small group tutoring session is a separate performance obligation.
For additional information on our financial instruments, refer to Notes 1, 2, 14, and 15 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report.
For additional information on the Public and FPA Warrant Exchange, the Private Warrant Transaction, and the Earnout Transaction, refer to Notes 1, 5, and 14 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report.
Excluding these impacts in both periods, general and administrative expenses increased $23,940 thousand, or 39%. Additionally, excluding these impacts in both periods, general and administrative expenses for the year ended December 31, 2022 were 52% of revenue compared to 44% of revenue during the same period in 2021.
Additionally, excluding these impacts in both periods, general and administrative expenses for the year ended December 31, 2023 were 41% of revenue compared to 52% of revenue during the same period in 2022, a 1,102 basis point improvement year-over-year.
Revenue is recognized, and to the extent cash for the purchase of services by institutions is collected in advance (at one time or in installments) deferred revenue is relieved on the date services are delivered to institutions in an amount that reflects the consideration we are contractually entitled to receive in exchange for those services. 52 Table of Contents For institutions that do not pay in advance, we typically invoice these institutions on a monthly basis for each session provided, with amounts recorded to accounts receivable, net of any related allowance for doubtful accounts.
Revenue is recognized, and to the extent cash for the purchase of services by Institutions is collected in advance (at one time or in installments), deferred revenue is relieved on the date services are delivered to the Institutions in an amount that reflects the consideration we are contractually entitled to receive in exchange for those services.
General and administrative expenses for the year ended December 31, 2022 included non-cash stock-based compensation and restructuring costs of $43,158 thousand and $1,134 thousand, respectively. General and administrative expenses for the year ended December 31, 2021 included non-cash stock-based compensation and transaction costs of $51,039 thousand and $9,602 thousand, respectively.
General and administrative expenses for the year ended December 31, 2022 included non-cash stock-based compensation and restructuring costs of $43,158 thousand and $1,134 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses decreased $5,202 thousand, or 6%.
That cost is recognized straight-line or graded (when applicable) over the period during which the employee is required to provide service in exchange for the award - the requisite service period. Any forfeitures of stock-based compensation are recorded as they occur.
Stock-based Compensation We recognize the cost of services received in exchange for awards of equity instruments based on the grant-date fair value of equity awards. That cost is recognized straight-line or graded (when applicable) over the period during which the employee is required to provide service in exchange for the award - the requisite service period.
KEY FINANCIAL AND OPERATING METRICS We monitor the following key financial and operating metrics to evaluate the growth of our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
KEY FINANCIAL AND OPERATING METRICS We monitor the following key operating metrics to evaluate the growth of our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. During the second quarter of 2023, we completed the transition from our Package model to Learning Memberships within our Consumer business for all new customers.
We expect to remain a smaller reporting company at the last day of the fiscal year as long as (i) the market value of our shares of common stock held by non-affiliates is less than $250,000 thousand as of the prior June 30, or (ii) our annual revenues are less than $100,000 thousand during the prior fiscal year and the market value of our shares of common stock held by non-affiliates is less than $700,000 thousand as of the prior June 30.
An entity is a “smaller reporting company” based upon the following criteria (i) the market value of its shares of common stock held by non-affiliates is less than $250,000 thousand as of the prior June 30, or (ii) its annual revenue is less than $100,000 thousand during the prior fiscal year and the market value of its shares of common stock held by non-affiliates is less than $700,000 thousand as of the prior June 30.
The following table presents a reconciliation of income tax expense with amounts computed at the federal statutory tax rate for the periods presented.
Income tax expense recorded during the years ended December 31, 2023 and 2022 represents amounts owed to state authorities. The following table presents a reconciliation of income tax expense with amounts computed at the federal statutory tax rate for the periods presented.
Unrealized Gain on Derivatives, Net During the years ended December 31, 2022 and 2021, we recognized net gains of $26,620 thousand and $71,041 thousand, respectively, related to non-cash mark-to-market adjustments on our warrants and earnouts that were issued in connection with the Reverse Recapitalization.
Unrealized Loss (Gain) on Derivatives, Net During the years ended December 31, 2023 and 2022, we recognized a net loss (gain) of $13,385 thousand and $(26,620) thousand, respectively, related to non-cash mark-to-market adjustments on our Warrants and Earnouts contracts to non-employees. Of the net loss recognized in 2023, $11,091 thousand and $2,294 thousand related to warrants and earnouts, respectively.
Variations in the number of Active Learners are due to changes in demand for our solutions, seasonality, testing schedules, and the launch of new products and learning formats and therefore is a key indicator of our ability to attract and engage Learners. The following table summarizes the number of Active Learners for the periods presented.
Variations in the number of Active Members are due to changes in demand for our solutions, seasonality, testing schedules, the extension of Learning Memberships to additional Consumer audiences, and the launch of new membership options. As a result, we believe Active Members is a key indicator of our ability to attract, engage, and retain Learners.
See Note 17 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report for information on our lease obligations and the amount and timing of future payments. As of December 31, 2022, we had no debt obligations.
We believe our cash on hand will be sufficient to satisfy these future requirements. Our cash requirements under our contractual obligations and commitments consist primarily of lease arrangements. See Note 17 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report for information on our lease obligations and the amount and timing of future payments.
We estimate the amount in which and the period of time over which payments for services are not redeemed using historical usage and redemption patterns. These estimates are reassessed each reporting period. Our revenues from contracts with institutions, which are generally short-term in duration (one year or less), are recognized from services as performance obligations are satisfied.
These estimates are reassessed each reporting period. 46 Table of Contents Institutions Our revenue from contracts with Institutions, which are generally short-term in duration of (one year or less), is recognized from services as performance obligations are satisfied.
These subscription offerings simplify both the sales process and the operating model needed to support customers. Combined with our ongoing efforts in automation, self-service capabilities and the application of artificial intelligence and machine learning in our business, we have been able to generate operating efficiencies and remove significant costs from the business.
Combined with our ongoing automation efforts involving self-service capabilities, the application of AI, and other efficiency efforts, we have been able to generate operating efficiencies and remove significant costs from the business.
Investing Activities Cash used in investing activities was $5,317 thousand and $5,163 thousand for the years ended December 31, 2022 and 2021, respectively. Cash used in investing activities related to capital expenditures primarily for the development of internal use software and information technology (“IT”) equipment.
Cash used in investing activities related to capital expenditures primarily for the development of internal use software and information technology (“IT”) equipment. Financing Activities Cash used in financing activities for the year ended December 31, 2023 was $1,940 thousand, which related to transaction costs paid in connection with the Warrant Transactions and Earnout Transaction.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS See Note 3 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report for a discussion regarding recently issued and adopted accounting standards.
RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS See Note 3 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report for a discussion regarding recently issued and adopted accounting standards. 47 Table of Contents EMERGING GROWTH COMPANY STATUS We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act.
Financing Activities Year Ended 2022 Cash used in financing activities for the year ended December 31, 2022 was $1,000 thousand, which primarily related to payments made to Legacy Nerdy Holders in connection with the Reverse Recapitalization. Year Ended 2021 Cash provided by financing activities for the year ended December 31, 2021 was $159,250 thousand.
Cash used in financing activities for the year ended December 31, 2022 was $1,000 thousand, which primarily related to payments made to legacy Nerdy holders in connection with the reverse recapitalization. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
For additional information regarding the adoption of these ASUs, refer to Notes 3 and 17 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report.
For additional information regarding our the Public and FPA Warrant Exchange, the Private Warrant Transaction, and the Earnout Transaction, refer to “Overview” within Part I, Item 2 of this report and Notes 1, 5, and 14 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report.
For additional discussion, refer to “Cautionary Statement on Forward-Looking Statements” on page 1 of this report and “Risk Factors” in Part I, Item 1A of this report. Macroeconomic Trends Adverse macroeconomic conditions, including inflation, slower growth or a recession, tighter credit, higher interest rates, and higher unemployment rates have had negative impacts on consumer confidence and spending in 2022.
Macroeconomic Trends Adverse macroeconomic conditions, including inflation, slower growth or a recession, tighter credit, higher interest rates, and higher unemployment rates, had negative impacts on consumer confidence and spending in 2023 and 2022, and some of these conditions are expected to continue into 2024.
Year Ended December 31, dollars in thousands 2022 % 2021 % 2020 % Consumer $ 140,820 86 % $ 130,223 93 % $ 97,936 94 % Institutional 19,054 12 % 4,871 3 % — — % Other (a) 2,791 2 % 5,570 4 % 6,032 6 % Revenue $ 162,665 100 % $ 140,664 100 % $ 103,968 100 % (a) Other consists of the Legacy Businesses and other services. 47 Table of Contents Cost of Revenue and Gross Profit The following table sets forth our cost of revenue and gross profit for the periods presented.
Year Ended December 31, Change dollars in thousands; favorable/(unfavorable) 2023 % 2022 % $ % Consumer $ 158,654 82 % $ 140,820 86 % 17,834 13 % Institutional 33,815 17 % 19,054 12 % 14,761 77 % Other (a) 930 1 % 2,791 2 % (1,861) (67) % Revenue $ 193,399 100 % $ 162,665 100 % $ 30,734 19 % (a) Other consists of the Legacy Businesses and other services. 42 Table of Contents Cost of Revenue and Gross Profit The following table sets forth our cost of revenue and gross profit for the periods presented.
Contracts with Learners are sold through Learning Memberships, whereby Learners pay a fixed monthly rate over the contract term, and Packages, which primarily consist of upfront payments that can be redeemed up to one year from the date of first payment.
Contracts with Institutions are sold through subscriptions (District Assigned, Teacher Assigned, and Parent Assigned), whereby Institutions pay a fixed monthly rate over the contract term, and our legacy high-dosage contracts, which consist of payments for services that can be redeemed following the date of first payment or payments after services are completed.
We elected as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with customers that have an expected duration of one year or less. Fixed Assets, Net Expenditures for fixed assets are capitalized and primarily include costs related to software developed or acquired for internal use and purchases of furniture and IT equipment.
We elected as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with customers that have an expected duration of one year or less. Learners Our revenue from contracts with Learners, which are generally short-term in duration (one year or less), is recognized as performance obligations are satisfied.
The below metrics exclude the legacy Veritas LLC (“Veritas”) business and EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”) (collectively, the “Legacy Businesses”), as well as our Teacher Assigned and On Demand solutions.
Active Members exclude EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”), as well as our Institutional business.
Gross profit for the year ended December 31, 2022 of $112,933 thousand increased by $18,969 thousand, or 20%, compared to the same period in 2021. Gross margin was 69% during the year ended December 31, 2022, an approximate increase of 260 basis points when compared to the prior year period.
Gross margin was 71% during the year ended December 31, 2023, an increase of 113 basis points when compared to the prior year period.
Per the terms of the contract, services purchased by institutions are generally redeemed up to one year from the date of the first payment. To the extent cash for the purchase of services by institutions is collected in advance, we recognize revenue for unredeemed payments for services over the life of the agreement with institutions based on usage.
Per the terms of our legacy high-dosage contracts, services purchased by Institutions are generally redeemed following the date of the first payment. We recognize revenue for unredeemed payments for services over the period in which the performance obligation is satisfied (unredeemed payments expire after a stated usage period) with the Institution based on historical usage patterns.
Of the net gain recognized in 2022, $12,812 thousand and $13,808 thousand related to warrants and earnouts, respectively. Of the net gain recognized in 2021, $24,095 thousand and $46,946 thousand related to warrants and earnouts, respectively.
Of the net gain recognized in 2022, $12,812 thousand and $13,808 thousand related to warrants and earnouts, respectively. The net gain recognized for the year ended December 31, 2022 related to our Warrants was due to a lower average trading price of our Public Warrants during the period.
Year Ended December 31, dollars in thousands 2022 2021 Computed tax (21%) $ (13,417) $ (1,489) Partnership outside basis adjustments (3,840) (8,827) Income tax benefit attributable to NCI 7,085 797 Change in valuation allowance charged to expense 14,301 9,812 State income tax benefit, net of effect on federal tax (2,406) (190) Other, net (none in excess of 5% of computed tax) (1,704) (63) Income tax expense $ 19 $ 40 Prior to the Reverse Recapitalization, Nerdy LLC was a partnership.
Year Ended December 31, dollars in thousands 2023 2022 Computed tax (21%) $ (14,188) $ (13,417) Partnership outside basis adjustments 2,266 (3,840) Income tax benefit attributable to NCI 6,979 7,085 Income tax credit (1,121) (412) Change in valuation allowance charged to expense 11,907 14,301 State income tax benefit, net of effect on federal tax (2,888) (2,406) Other, net (2,846) (1,292) Income tax expense $ 109 $ 19 LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash As of December 31, 2023 and 2022, we had cash and cash equivalents totaling $74,824 thousand and $90,715 thousand, respectively.
Year Ended December 31, Change Year Ended December 31, Change dollars in thousands; favorable/(unfavorable) 2022 2021 $ % 2021 2020 $ % Revenue $ 162,665 $ 140,664 $ 22,001 16 % $ 140,664 $ 103,968 $ 36,696 35 % Cost of revenue 49,732 46,700 (3,032) (6) % 46,700 34,834 (11,866) (34) % Gross Profit $ 112,933 $ 93,964 $ 18,969 20 % $ 93,964 $ 69,134 $ 24,830 36 % % Margin 69 % 67 % 67 % 66 % Cost of revenue includes the cost of Experts performing instruction, amortization of capitalized technology costs, and other costs required to deliver instruction to Learners.
Year Ended December 31, Change dollars in thousands; favorable/(unfavorable) 2023 2022 $ % Revenue $ 193,399 $ 162,665 $ 30,734 19 % Cost of revenue 56,952 49,732 (7,220) (15) % Gross Profit $ 136,447 $ 112,933 $ 23,514 21 % % Margin 71 % 69 % Cost of revenue includes the cost of Experts performing instruction, amortization of capitalized technology costs, and other costs required to deliver instruction to Learners.
Based upon the facts and circumstances that existed as of December 31, 2022, we remained a smaller reporting company for our Annual Report on Form 10-K for the year ended December 31, 2022 and will continue to be for our quarterly reports in the 2023 interim periods.
Pursuant to 5120.1c of the SEC Financial Reporting Manual, we may continue to use the scaled disclosures permitted for a smaller reporting company through our annual report on Form 10-K for the year ended December 31, 2023, and will begin providing non-scaled larger company disclosure in our first quarterly report of 2024.
These increases in the current year period were driven by growth across Consumer audiences, including Learning Memberships, and growth in our Institutional business.
These increases in the current year period were primarily driven by growth in our Consumer business as a result of the strong adoption of Learning Memberships, which has led to lifetime value expansion and higher gross margin.
This increase in the current year period was a result of investments in new product development and administrative expenses related to being a public company. Our investments in product development have allowed us to launch a suite of new products including Learning Memberships for consumers, and our Teacher Assigned and On Demand Institutional offerings for institutional customers.
Our investments in product development and our platform-oriented approach to growth have allowed us to launch a suite of ‘always on’ subscription products including Learning Memberships for consumers, and our District, Teacher, and Parent Assigned offerings for Institutional customers. Subscription and access-based offerings simplify the operating model needed to support customers and grow the business.
Per the terms of the Packages contract, purchased services can be redeemed up to one year from the date of the first payment. We recognize revenue for unredeemed payments for services over the life of the agreement (unredeemed payments expire each month in the case of Learning Memberships) with the customer based on historical customer usage patterns.
We recognize revenue for unredeemed payments for services over the period in which the performance obligation is satisfied (unredeemed payments expire each month for Learning Memberships) with the customer based on historical customer usage patterns. We estimate the amount in which and the period of time over which payments for services are not redeemed using historical usage and redemption patterns.
Cost of revenue for the year ended December 31, 2022 increased $3,032 thousand to $49,732 thousand, or 6%, compared to the prior year period, primarily due to higher Expert costs of $2,652 thousand as a result of higher consumer, one-on-one session volume and incremental session volume and tutor costs related to Varsity Tutors for Schools .
Cost of revenue for the year ended December 31, 2023 increased primarily due to higher Expert costs of $6,816 thousand related to higher tutoring volumes in both our Consumer and Institutional business. Gross profit for the year ended December 31, 2023 of $136,447 thousand increased by $23,514 thousand, or 21%, compared to the same period in 2022.
Cash Requirements Our cash requirements within the next twelve months include working capital requirements, sales and marketing activities, and capital expenditures. We believe our cash on hand will be sufficient to satisfy these future requirements. 50 Table of Contents Our cash requirements under our contractual obligations and commitments consist primarily of lease arrangements.
To the extent we generate negative operating cash flows, it is possible that we may have to finance future operations primarily or in part from cash on hand. Cash Requirements Our cash requirements within the next twelve months include working capital requirements, sales and marketing activities, and capital expenditures.
Operating Expenses The following table sets forth our operating expenses for the periods shown: Year Ended December 31, Change Year Ended December 31, Change dollars in thousands; favorable/(unfavorable) 2022 2021 $ % 2021 2020 $ % Sales and marketing expenses $ 74,183 $ 65,441 $ (8,742) (13) % $ 65,441 $ 43,838 $ (21,603) (49) % General and administrative expenses 129,559 121,968 (7,591) (6) % 121,968 43,231 (78,737) (182) % Write-off of other intangible assets — 3,009 3,009 100 % 3,009 — (3,009) (100) % Total operating expenses $ 203,742 $ 190,418 $ (13,324) (7) % $ 190,418 $ 87,069 $ (103,349) (119) % Sales and Marketing Sales and marketing expenses for the year ended December 31, 2022 were $74,183 thousand, an increase of $8,742 thousand from $65,441 thousand in the same period in 2021.
Operating Expenses The following table sets forth our operating expenses for the periods shown: Year Ended December 31, Change dollars in thousands; (favorable)/unfavorable 2023 2022 $ % Sales and marketing expenses $ 68,448 $ 74,183 $ (5,735) 8 % General and administrative expenses 125,570 129,559 (3,989) 3 % Total operating expenses $ 194,018 $ 203,742 $ (9,724) 5 % Sales and Marketing Sales expenses consist of compensation for our employees engaged in our sales process.
The following table sets forth our cash flows: Year Ended December 31, dollars in thousands 2022 2021 2020 Cash (used in) provided by: Operating activities $ (48,002) $ (38,891) $ (6,654) Investing activities (5,317) (5,163) (2,874) Financing activities (1,000) 159,250 12,293 Effect of Exchange Rate Change on Cash, Cash Equivalents and Restricted Cash (13) 1 21 Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash $ (54,332) $ 115,197 $ 2,786 Operating Activities Cash used in operating activities for the year ended December 31, 2022 increased $9,111 thousand compared to the same period in 2021, primarily driven by targeted investments in new products and solutions, including Learning Memberships and Varsity Tutors for Schools , and marketing; new talent hires across engineering and product to drive new product innovation and growth; and unfavorable changes in working capital as we rollout Learning Memberships.
Year Ended December 31, dollars in thousands 2023 2022 Cash used in: Operating activities $ (7,560) $ (48,002) Investing activities (6,887) (5,317) Financing activities (1,940) (1,000) Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash (20) (13) Net Decrease in Cash, Cash Equivalents, and Restricted Cash $ (16,407) $ (54,332) Operating Activities Cash used in operating activities for the year ended December 31, 2023 decreased $40,442 thousand compared to the same period in 2022.
This decrease in interest expense was driven by the repayment in full of our previously outstanding principal balance under the loan and security agreement (the “LSA”) in connection with the Closing of the Reverse Recapitalization on September 20, 2021 and higher interest income on our cash balances during the year ended December 31, 2022.
This increase was driven by higher interest income on our cash balances during the year ended December 31, 2023. 44 Table of Contents Income Tax Expense Our effective income tax rate was (0.16)% and (0.03)% for the years ended December 31, 2023 and 2022, respectively.
We also continued to make investments in our Institutional sales and go-to-market organization in support of Varsity Tutors for Schools , and expect to grow into these investments as we expect revenue to grow faster than expenses.
We also delivered substantial Varsity Tutors for School revenue growth, yielding efficiencies from prior investments in the Institutional sales and go-to-market organization. Our more efficient operating model in our Consumer business and the continued scaling of our Institutional business continue to lead to sales and marketing efficiency improvements as the business delivers revenue growth.
Sources and Uses of Cash As of December 31, 2022 and 2021, we had cash and cash equivalents totaling $90,715 thousand and $143,964 thousand, respectively. We have incurred cumulative losses from our operations, and we may incur additional losses in the future. Our operations have historically been financed primarily through capital contributions and debt financings.
We have incurred cumulative losses from our operations, and we may incur additional losses in the future. Our operations since we became a public company have been financed primarily by the cash proceeds we received from the reverse recapitalization.
Removed
We continue to evolve our product offerings to better meet the needs of Learners by launching Learning Memberships, a monthly membership program that includes access to one-on-one instruction, unlimited live group classes, live and on-demand lessons, coding, tutor chat, essay review, adaptive assessments, and self-study modules.
Added
The Public and FPA Warrant Exchange, the Private Warrant Transaction, and the Earnout Transaction Public and FPA Warrant Exchange On September 25, 2023, we concluded an offer to holders of our then-outstanding publicly traded warrants, each exercisable to purchase one share of Nerdy Inc.’s Class A Common Stock at a price of $11.50 per share (the “Public Warrant(s)”) and warrants to purchase one share of Nerdy Inc.’s Class A Common Stock at a price of $11.50 per share issued in connection with a forward purchase agreement (the “FPA Warrant(s)”), which provided such holders the opportunity to receive 0.25 shares of Nerdy Inc.’s Class A Common Stock (the “Public Offer exchange rate”) in exchange for each Public Warrant and FPA Warrant tendered by such holders (the “Offer”).
Removed
Learning Memberships are for Learners of all ages, ranging from kindergarten to college and adult learners. We’re continuing to invest to expand and broaden the product depth of Learning Memberships with even more learning solutions for our members to deliver unparalleled and enhanced value.
Added
This Offer included a solicitation of consents from holders of the Public Warrants and FPA Warrants to amend the warrant agreement with respect to certain terms of the Public Warrants and the FPA Warrants (the “Public and FPA Warrant Amendment”, together with the Offer, the “Public and FPA Warrant Exchange”).
Removed
We believe the transition to a recurring, ‘always on’ relationship, will lead to longer-term and more consistent engagement with the platform, while also allowing us to serve our customers’ ongoing learning needs across the entirety of their education lifecycle.
Added
At the closing of the Offer, all remaining outstanding Public and FPA warrants that were not exchanged at the election of the holder were converted into 0.225 shares of Class A Common Stock, pursuant to the Public and FPA Warrant Amendment.
Removed
We also believe that over time Learning Memberships will have a significant impact on Expert engagement and retention, as Experts are seeking longer-term and more consistent earning opportunities.
Added
As a result of the Public and FPA Warrant Exchange, 12,000 thousand Public Warrants and FPA Warrants were exchanged for 2,992 thousand shares of Nerdy Inc.’s Class A Common Stock, with a nominal cash settlement in lieu of fractional shares. No Public Warrants and FPA Warrants remained outstanding after the Public and FPA Warrant Exchange.
Removed
Reverse Recapitalization On September 20, 2021 (the “Closing Date”), TPG Pace Tech Opportunities Corp., an exempted company incorporated in the Cayman Islands (“TPG Pace”), and Live Learning Technologies LLC, a Delaware limited liability company (along with its wholly-owned subsidiaries, “Nerdy LLC”), consummated a business combination (the “Closing”) pursuant to the business combination agreement, dated as of January 28, 2021 (as amended, the “Business Combination Agreement”).
Added
Private Warrant Transaction Concurrently with the Offer, holders of our then-outstanding warrants to purchase one share of Nerdy Inc.’s Class A Common Stock at a price of $11.50 per share issued in connection with a private placement (the “Private Placement Warrant(s)”) and warrants to purchase one unit of Nerdy LLC (the “OpCo Unit(s)”) at an exercise price of $11.50 (the exercise of which would also result in the issuance of one corresponding share of Class B common stock (together with the Class A Common Stock, the “Common Stock”)) (the “OpCo Warrant(s)”) agreed to amend the warrant agreement with respect to certain terms of the Private Placement Warrants and OpCo Warrants (the “Private Placement Warrant Amendment”, together with the Public and FPA Warrant Amendment, the “Warrant Amendment”).
Removed
Nerdy LLC is a holding company that is the sole owner of several operating companies, including its flagship business, Varsity Tutors. Immediately prior to the Closing, TPG Pace became a Delaware corporation and was renamed Nerdy Inc.
Added
The Warrant Amendment, among other provisions, required that upon the closing of the Offer that (a) each Private Placement Warrant be automatically exchanged or exercised on a cashless basis into shares of Class A Common Stock and (b) each OpCo Warrant that is outstanding be automatically exercised on a cashless basis into OpCo Units with an equivalent number of shares of Class B Common Stock being issued, in each case, at the same ratio as the Public Offer exchange rate (the “Private Warrant Transaction”, together with the Public and FPA Warrant Exchange, the “Warrant Transactions”).
Removed
As a result of the business combination and related transactions (the “Reverse Recapitalization”), Nerdy LLC merged with a wholly-owned subsidiary of Nerdy Inc., with Nerdy LLC surviving such merger.
Added
As a result of the Private Warrant Transaction, 5,281 thousand Private Placement Warrants were exchanged or exercised on a cashless basis for 1,314 thousand shares of the Company’s Class A Common Stock, with a nominal cash settlement in lieu of fractional shares and 2,052 thousand OpCo Warrants were exchanged 40 Table of Contents or exercised on a cashless basis for 513 thousand OpCo Units (with an equivalent number of shares of Class B Common Stock), with a nominal cash settlement in lieu of fractional shares.
Removed
Nerdy Inc. is a holding company that has no material assets other than its ownership interests in Nerdy LLC and its indirect interests in the subsidiaries of Nerdy LLC, and has no independent means of generating revenue or cash flow.
Added
No Private Placement Warrants and OpCo Warrants remained outstanding after the Private Warrant Transaction.
Removed
Members of Nerdy LLC are the legacy holders of Nerdy LLC historical common and preferred equity (the “Legacy Nerdy Holders”) and Nerdy Inc.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to market risk, including changes to interest rates, the price of our public warrants, and the price of our Class A Common Stock. At both December 31, 2022 and 2021, we had Non-Employee Warrant and Earnout contracts issued and outstanding of 19,122 thousand and 7,655 thousand, respectively.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our Warrants and Earnouts issued to non-employees are no longer outstanding as a result of the Public and FPA Warrant Exchange, the Private Warrant Transaction, and the Earnout Transaction. As such, we are no longer exposed to significant market risk.
For additional information regarding our warrants and earnout contracts, refer to Notes 1, 2, 14, and 15 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report. 55 Table of Contents
For additional information regarding the Public and FPA Warrant Exchange, the Private Warrant Transaction, and the Earnout Transaction, refer to “Overview” within Part I, Item 2 of this report and Notes 1, 5, and 14 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of this report. 48 Table of Contents
Removed
As of December 31, 2022 and 2021, a hypothetical 10% adverse change in the price of our public warrants would have increased the fair value of the liabilities related to the Non-Employee Warrant contracts by approximately $440 thousand and $1,721 thousand, respectively.
Added
Our exposure to foreign currency exchange rates and interest rates are immaterial.
Removed
As of December 31, 2022 and 2021, a hypothetical 10% adverse change in the fair value of the earnouts, which is impacted by the price of our Class A Common Stock and interest rates, would have increased the fair value of the liabilities related to the Non-Employee Earnout contracts by approximately $766 thousand and $2,147 thousand, respectively.

Other NRDY 10-K year-over-year comparisons