10-K: Nerdy Inc. Navigates AI Shift Amidst Revenue Decline

Nerdy Inc. reported a 6% decrease in 2025 revenue to $178.99 million, driven by lower Institutional revenue and a non-recurring state-funded program, despite growth in Consumer Learning Memberships and strategic AI investments.

Summary

• Net loss for the year ended December 31, 2025, improved to $60,948 thousand, compared to $67,142 thousand in 2024.
• Total revenue for 2025 decreased by 6% to $178,988 thousand from $190,231 thousand in 2024.
• Consumer revenue decreased 2% to $150,736 thousand, primarily due to a non-recurring state-funded program in 2024.
• Institutional revenue decreased 22% to $27,607 thousand.
• Learning Membership revenue, a component of Consumer revenue, increased 2% year-over-year.
• Gross Profit for 2025 was $103,780 thousand, a 19% decrease from $128,394 thousand in 2024.
• Gross Margin for 2025 was 58%, down from 67% in 2024, impacted by a $7,757 thousand charge for the abandonment of capitalized internal-use software.
• Cost of revenue increased 22% to $75,208 thousand, including the $7,757 thousand software abandonment charge and $5,243 thousand in higher Expert costs due to pay and incentive investments.
• Sales and marketing expenses decreased 16% to $60,123 thousand, driven by Consumer marketing efficiency and moderated Institutional investment.
• General and administrative expenses decreased 17% to $105,521 thousand, attributed to AI-enabled productivity, new software processes, and headcount reductions.
• Operating loss improved to $61,864 thousand in 2025 from $70,108 thousand in 2024.
• Cash used in operating activities increased to $18,846 thousand in 2025 from $15,603 thousand in 2024, partly due to a $2,000 thousand legal settlement payment.
• Active Members (Consumer) decreased 11% year-over-year to 33.2 thousand as of December 31, 2025.
• Average Revenue per Member per Month (ARPM) increased 21% year-over-year to $364 as of December 31, 2025, due to a mix shift to higher frequency memberships, price increases, and improved retention.
• Active Experts decreased 22% to 15.8 thousand in 2025, due to lower Consumer Active Experts and reduced Institutional utilization.
• Secured a $50,000 thousand Term Loan facility with Hercules Capital, Inc. on November 3, 2025, and drew $20,000 thousand.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed report with significant strategic shifts towards AI and cost efficiency, which are positive long-term, but current operational metrics like revenue, active members, and active experts show declines, indicating ongoing challenges. The new debt facility provides liquidity but also adds to leverage.

Positives

• Net loss improved to $60,948 thousand in 2025 from $67,142 thousand in 2024.
• Operating loss improved to $61,864 thousand in 2025 from $70,108 thousand in 2024.
• Learning Membership revenue (Consumer) increased 2% year-over-year.
• Average Revenue per Member per Month (ARPM) increased 21% year-over-year to $364, driven by a mix shift to higher frequency memberships, price increases for new Consumer customers, and higher retention in newer cohorts.
• Gross margin, excluding the $7,757 thousand abandonment charge, improved sequentially quarter-over-quarter, reaching 67% for the fourth quarter of 2025 (up approximately 380 basis points from Q3 2025).
• Sales and marketing expenses decreased 16% due to Consumer marketing efficiency gains and moderated investment in the Institutional business.
• General and administrative expenses decreased 17% due to AI-enabled productivity improvements, new software-driven processes, headcount reductions, and other cost reduction efforts.
• Made a strategic decision to rebuild the platform and products on new, AI-native codebases for immediate improvement and more efficient future product innovation.
• Achieved nearly 100% of traffic on new codebases written with AI, with anticipation of fully decoupled back-end legacy systems soon.
• New AI vetting of tutors led to a significant drop in tutor replacement rate, boosting new-tutor quality and match quality, which is expected to improve retention.
• Secured a $50,000 thousand Term Loan facility, providing $20,000 thousand in immediate liquidity and an additional $10,000 thousand available capacity under the first tranche.
• Maintained compliance with all debt covenants as of December 31, 2025.

Negatives

• Overall revenue decreased 6% to $178,988 thousand in 2025.
• Institutional revenue decreased 22% to $27,607 thousand.
• Consumer revenue decreased 2% due to a non-recurring state-funded program in 2024.
• Gross Profit decreased 19% to $103,780 thousand.
• Gross Margin decreased from 67% in 2024 to 58% in 2025, partly due to a $7,757 thousand abandonment charge for legacy software.
• Active Members (Consumer) decreased 11% year-over-year to 33.2 thousand, attributed to operational challenges.
• Active Experts decreased 22% to 15.8 thousand, due to lower Consumer Active Experts and lower Institutional utilization.
• Cash used in operating activities increased to $18,846 thousand in 2025 from $15,603 thousand in 2024.
• Incurred a $2,000 thousand legal settlement payment in Q1 2025 related to independent contractor classification.
• Has a history of significant net losses and negative operating cash flows since formation in October 2007, with expectations of continued losses.
• May need additional capital in the future to pursue business objectives, with no assurance of availability on favorable terms.
• Indebtedness and debt service obligations could adversely affect financial condition and funding operations.
• Operating activities may be restricted by covenants related to the Term Loan.

Risks

• Offerings continue to evolve, making future financial and operating results difficult to predict, and expected results may not be achieved.
• Incurred significant net losses and generated negative operating cash flows since formation, and may struggle to achieve and maintain profitability.
• Adverse economic conditions, including slower growth or recession, may adversely affect business by reducing demand for services.
• Risk that independent contractors may be reclassified as employees, leading to substantial costs, changes in business model, and potential liabilities.
• Failure to attract new Learners or retain existing Learners, or to increase their engagement, could adversely impact revenue growth and profitability.
• Financial performance depends heavily on Learner retention, and factors influencing retention may be out of control (e.g., dissatisfaction, poor Expert performance, personal factors, circumvention of platform).
• Many Learners are minors, which may subject the company to significant litigation risks, regulatory scrutiny (e.g., COPPA), and reputational damage.
• Exposure to claims and losses, including class action lawsuits, brought by or on behalf of Learners, Institutions, or Experts, which could have a material adverse effect.
• Reputation and brand, and the network effects among Experts and Learners, are important to success; failure to maintain and develop them could adversely affect the business.
• If not successful in scaling up Institutional offerings to education systems, could suffer losses and results of operations could suffer.
• Contracts with education systems present unique risks and uncertainties not present when selling directly to Learners (e.g., competitiveness, upfront costs, budget cuts, non-renewal).
• Expects to continue to invest in growth; failure to manage growth effectively could compromise the business model.
• Computer malware, viruses, hacking, phishing attacks, spamming, and other cyber-related incidents could harm business and results of operations.
• Dependence on third-party vendors, tools, and platforms for services (hosting, discovery, advertising, content delivery, AI technologies) could adversely impact revenue or service delivery if terms change or access is lost.
• Faces competition from established and emerging companies and technologies, which could divert customers, result in pricing pressures, and significantly reduce revenue.
• Use of machine learning and artificial intelligence (AI) technologies may result in reputational harm, liability, or other unforeseen adverse consequences due to complexity, rapid evolution, regulatory uncertainty, intellectual property issues, factual inaccuracies, and reliance on third-party AI.
• Historically generated negative cash flows from operations and may need additional capital in the future, which may not be available on favorable terms or at all.
• Operating activities may be restricted as a result of covenants related to the Term Loan, and failure to comply could require immediate repayment.
• Level of indebtedness and debt service obligations could adversely affect financial condition and make it more difficult to fund operations.
• Activities are subject to federal and state laws and regulations (e.g., privacy, data protection, consumer protection, ADA, AI regulation), which are subject to change and could increase compliance costs and liabilities.
• Operates in an industry with extensive intellectual property litigation, and may be subject to claims related to third-party intellectual property rights, which can be costly to defend.
• Failure to adequately protect intellectual property and other proprietary rights could adversely affect business, results of operations, and financial condition.
• Quarterly operating results have fluctuated in the past and may do so in the future, which could cause stock price to decline.
• The trading price of Class A Common Stock may be volatile, and purchasers could incur substantial losses.
• Concentration of ownership among members of senior management, directors, and principal stockholders (e.g., Charles Cohn owns ~48.7%) may prevent new investors from influencing significant corporate decisions.
• Significant and rapid advances in AI may lead to future write-downs or write-offs, restructuring, and impairment or other charges (as seen in 2025).
• Failure to maintain effective internal control over financial reporting and effective disclosure controls and procedures could adversely affect investor confidence.
• Does not anticipate paying any cash dividends on Class A Common Stock in the foreseeable future, making capital appreciation the sole source of gains.
• Subject to risks related to taxation in the U.S., including potential adverse changes in tax laws or interpretations.
• As a holding company, depends on distributions from Nerdy LLC to pay taxes, make payments under the Tax Receivable Agreement, and cover corporate expenses.
• May be required to make substantial payments under the Tax Receivable Agreement, which could be accelerated and/or significantly exceed actual tax benefits.
• Will not be reimbursed for any payments made under the Tax Receivable Agreement if tax benefits are subsequently disallowed.
• Tax distributions to Nerdy LLC unitholders may be substantial and complicate the ability to maintain the intended capital structure.
• Bylaws contain certain anti-takeover provisions that could limit stockholders' ability to take certain actions and could delay or discourage takeover attempts.
• Failure to meet the New York Stock Exchange's continued listing requirements could result in a delisting of Class A Common Stock.

Future Outlook

Expects gross margin improvement to continue into 2026 as the mix of Consumer revenue shifts to higher frequency and higher priced Learning Memberships, and as tutoring incentives are better optimized. Anticipates back-end legacy systems will be fully decoupled in the near future, allowing deeper AI integration and faster launch of new interactive, context-aware experiences. Will continue to invest in improving capabilities and technology architecture, and developing new solutions. Believes existing cash balances and current borrowing capacity under the term loan will be sufficient for at least the next twelve months, but may require additional funds to respond to business challenges or accelerate growth.

Management Comments

• Our purpose-built proprietary platform leverages technology, including AI, to connect students, users, parents, guardians, and purchasers (Learner(s)) of all ages to tutors, instructors, subject matter experts, educators, and other professionals (Expert(s)), delivering superior value on both sides of the network.
• We believe this modernization of our software platform onto entirely new, AI-native codebases will allow for not only the immediate improvement of the experiences we can offer to Learners, but also allow for more efficient product innovation in the future.
• Following the adoption of the new incentives, we continue to see faster time to the first session, more sessions in the first 30 days, lower tutor replacement rates, and higher retention.
• AI-enabled productivity improvements, coupled with new software-driven processes and system implementations, headcount reductions, and other cost reduction efforts, have enabled us to generate operating efficiencies and remove significant costs from the business.
• Recent advances in our application of AI across our entire tech stack provide us with the opportunity to move faster and drive further levels of productivity and operating leverage, while improving both the customer experience and operational consistency as we scale our business.
• We believe our Active Expert count at December 31, 2025 is sufficient to meet our near-term growth objectives.
• We believe that our existing cash balances and current borrowing capacity under our term loan will be sufficient to meet our minimum anticipated cash requirements for at least the next twelve months.

Industry Context

StockSavvy.ai notes the learning industry is undergoing rapid digital transformation, with AI lowering barriers to access and removing inefficiencies of in-person interactions, increasing affordability, extending geographic access, and providing flexibility. The shift towards 'consumerization of learning' and demand for long-term, consistent learning are reshaping markets. Significant 'learning loss and chronic absenteeism' post-pandemic are driving acceleration in market activity for high-dosage tutoring, with states rolling out funded programs. Changing workforce dynamics and the shift to lifelong and skills-based learning are creating demand for flexible, skill-based learning platforms. Nerdy Inc. is positioned to leverage these trends with its AI-enabled, multi-format online learning platform, competing in a fragmented market with both online and offline solutions.

Comparison to Industry Standards

• StockSavvy.ai notes that Nerdy Inc.'s strategic shift to AI-native codebases and focus on AI-enabled productivity aligns with broader tech industry trends seen in companies like Google and Microsoft, which are heavily investing in AI to enhance product offerings and operational efficiency.
• The reported 380 basis point sequential gross margin improvement in Q4 2025 (excluding the abandonment charge) suggests effective cost optimization and pricing strategies, a key differentiator in the competitive EdTech space where many smaller players struggle with profitability.
• The 11% decline in Active Members contrasts with some EdTech growth narratives, indicating specific operational challenges that need to be addressed to fully capitalize on market opportunities, similar to how Coursera or Chegg might face user acquisition hurdles in a dynamic market.

Management Changes

Corporate Governance

Legal Proceedings

• Varsity Tutors, a consolidated subsidiary, is subject to various legal and regulatory proceedings at federal, state, and municipal levels challenging the classification of third-party Experts as independent contractors.
• In October 2023, Varsity Tutors agreed to a settlement in a California Private Attorneys General Act (PAGA) lawsuit regarding misclassification, expensing $1,700 thousand in 2023 and accruing $2,000 thousand at December 31, 2024. The settlement was paid in the first quarter of 2025.
• For other independent contractor classification claims, the company believes it is 'at most only reasonably possible and not probable' that a loss will be incurred, and the amount of loss cannot be reasonably estimated. No accrual was recorded for these matters at December 31, 2025 or 2024.

Related Party Transactions

• Has a Tax Receivable Agreement with certain Legacy Nerdy Holders (TRA Holders) for the payment of 85% of net cash savings in U.S. federal, state, and local income tax resulting from certain tax basis increases.
• As of December 31, 2025, a liability of $118,238 thousand under the Tax Receivable Agreement has not been recognized, as it was not probable that such payments would be made based on estimates of future taxable income.
• No payments were made to TRA Holders under the Tax Receivable Agreement during the years ended December 31, 2025, 2024, or 2023.
• Charles Cohn, Founder, Chairman, President, and Chief Executive Officer, beneficially owns approximately 48.7% of outstanding Class A Common Stock (assuming conversion of Class B common stock and all other Class B shares), giving him significant influence over the company.

Stakeholder Impact

• Shareholders face potential stock price volatility, possible dilution from future capital raises, and no anticipated cash dividends. The founder's significant ownership concentration may limit influence of other investors. Payments under the Tax Receivable Agreement could be substantial and potentially reduce consideration in a change of control.
• Employees benefit from a remote-first work environment, competitive compensation, and development opportunities. However, AI-enabled productivity improvements have contributed to headcount reductions and other cost reduction efforts.
• Customers (Learners and Institutions) are expected to benefit from improved user experience and product innovation through AI, a broader subject catalog, and multiple learning formats. However, there are risks of dissatisfaction, platform failures, or security breaches.
• Experts are offered opportunities for supplemental income, flexibility, and purpose-built technology with frictionless payment. However, there is a risk of reclassification as employees, and a decrease in Active Experts due to incentives promoting utilization of the highest quality Experts.
• Creditors, specifically Hercules Capital, Inc., are impacted by the $20,000 thousand Term Loan outstanding, which is subject to customary covenants and repayment obligations.

Next Steps

• Continue to invest in improving capabilities and technology architecture.
• Develop new solutions that can be leveraged across new markets and audiences.
• Focus on enhancing the Learning Membership experience by modernizing and unifying the new student user experience, streamlining onboarding, making it easier to manage tutoring relationships, and improving discoverability of learning tools.
• Continue to drive consumer awareness of the value and availability of the platform.
• Adapt the platform for Institutions and school districts to be the learning solution of choice.
• Further integrate AI deeply across the platform and launch new interactive, context-aware experiences.
• Monitor and address operational challenges impacting Active Members.
• Optimize tutoring incentives to continue gross margin improvement.
• Potentially draw remaining $10,000 thousand from the first tranche of the Term Loan by December 31, 2026.
• Potentially access the second tranche of the Term Loan (up to $20,000 thousand) after the first tranche is fully drawn or after December 31, 2026, subject to lender approval.

Key Dates

Recommendation

Nerdy Inc. is undergoing a significant strategic transformation, heavily investing in AI to modernize its platform and improve efficiency. While this shift is promising for long-term growth and has led to improved net and operating losses, current operational metrics show declines in revenue, active members, and active experts. The increase in ARPM and sequential gross margin improvement are positive signs of monetization and efficiency, but the overall business model is still evolving and faces substantial competition and regulatory risks, particularly regarding independent contractor classification and AI. The new debt facility provides necessary liquidity but adds to financial obligations. Given the mixed signals and the early stage of the AI transformation, a 'Hold' recommendation is appropriate for investors to monitor the execution of the AI strategy and its impact on key growth metrics before making further investment decisions.

Keywords

Online Tutoring, AI Learning Platform, EdTech, Varsity Tutors, Learning Memberships, Institutional Learning, Artificial Intelligence in Education, SEC 10-K, Financial Results, Risk Factors, Corporate Governance, Nerdy Inc.