10-Q: Nerdy Reports Q2 Revenue Decline Amid Cost Cuts

Nerdy Inc. reported a revenue decrease for Q2 2025 and the first half of 2025, alongside continued net losses, despite significant cost reduction efforts and improved average revenue per member.

Summary

• Revenue for the three months ended June 30, 2025, decreased by 11% to $45.26 million from $50.98 million in the prior year period.
• Net loss for the three months ended June 30, 2025, improved to $(12.00) million from $(14.40) million in the prior year period.
• Revenue for the six months ended June 30, 2025, decreased by 11% to $92.86 million from $104.71 million in the prior year period.
• Net loss for the six months ended June 30, 2025, worsened to $(28.15) million from $(26.41) million in the prior year period.
• Gross profit for the three months ended June 30, 2025, was $27.84 million, down 17% from $33.49 million in the prior year, with gross margin decreasing from 66% to 62%.
• Gross profit for the six months ended June 30, 2025, was $55.45 million, down 21% from $70.00 million in the prior year, with gross margin decreasing from 67% to 60%.
• Cash and cash equivalents decreased to $36.72 million as of June 30, 2025, from $52.54 million as of December 31, 2024.
• Net cash used in operating activities for the six months ended June 30, 2025, was $(13.49) million, a significant increase from $(1.24) million in the prior year period.
• Active Members (Consumer) decreased by 14% year-over-year to 30.6 thousand as of June 30, 2025.
• Average Revenue per Member per Month (ARPM) increased by 24% year-over-year to $348 as of June 30, 2025.
• Active Experts decreased by 16% year-over-year to 9.7 thousand for the three months ended June 30, 2025.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative. While the company shows progress in cost reduction and ARPM growth, the significant decline in revenue, increased cash burn from operations, and continued net losses for the six-month period are substantial concerns. The decrease in active members and experts also points to underlying challenges in growth and scale, despite efficiency efforts. The dwindling cash balance without clear financing activities is a red flag.

Positives

• Net loss for the three months ended June 30, 2025, improved by $2.40 million compared to the prior year period.
• Operating loss for the three months ended June 30, 2025, improved by $2.94 million compared to the prior year period.
• Average Revenue per Member per Month (ARPM) increased by 24% year-over-year, driven by a mix shift to higher frequency Learning Memberships and price increases.
• Sales and marketing expenses decreased by 13% for the three months and 11% for the six months, attributed to marketing efficiency gains and moderated investment in the Institutional business.
• General and administrative expenses decreased by 20% for the three months and 16% for the six months, due to AI-enabled productivity improvements, new software-driven processes, system implementations, headcount reductions, and other cost reduction efforts.
• Gross margin for the three months ended June 30, 2025, improved sequentially quarter-over-quarter due to price increases for new Consumer customers.
• A legal settlement of $2.00 million related to independent contractor classification was paid in the first quarter of 2025, resolving a prior accrual.

Negatives

• Total revenue decreased by 11% for both the three and six months ended June 30, 2025, compared to the prior year periods.
• Institutional revenue significantly decreased by 34% for the three months and 28% for the six months, primarily due to lower utilization of tutoring sessions as a result of lower bookings and near-term funding uncertainties.
• Consumer revenue decreased by 5% for the three months and 7% for the six months, partly due to a non-recurring state-funded program in 2024.
• Net loss for the six months ended June 30, 2025, worsened by $1.74 million compared to the prior year period.
• Gross margin decreased by 4 percentage points for the three months and 7 percentage points for the six months, primarily due to Expert incentives enacted in Q4 2024.
• Net cash used in operating activities significantly increased to $(13.49) million for the six months ended June 30, 2025, from $(1.24) million in the prior year period, driven by lower revenue, gross margin, and a legal settlement payment.
• Cash and cash equivalents decreased by $15.82 million from December 31, 2024, to June 30, 2025.
• Active Members (Consumer) declined by 14% year-over-year, primarily due to lower retention in older customer cohorts with a higher proportion of lower frequency Learning Memberships.
• Active Experts decreased by 16% year-over-year, attributed to lower Consumer Active Experts and lower utilization in the Institutional business.

Risks

• Difficulty in predicting future financial and operating results due to evolving offerings.
• History of net losses and negative operating cash flows, which may necessitate other sources of liquidity.
• Risks associated with the ability to acquire and retain customers, and to operate and scale Consumer and Institutional businesses.
• Risks associated with intellectual property, including potential infringement claims.
• Risks associated with the classification of third-party experts as independent contractors.
• Risks associated with the liquidity and trading of securities.
• Risks associated with payments that may be required under the tax receivable agreement, with a $117.23 million liability currently not recognized as probable.
• Litigation, regulatory, and reputational risks arising from many learners being minors.
• Changes in applicable law or regulation.
• Possibility of cyber-related incidents and their impacts on business and operations.
• Risks associated with the development and use of artificial intelligence and related regulatory uncertainty.
• Adverse effects from other economic, business, and/or competitive factors.
• Risks associated with managing rapid growth.

Future Outlook

Management expects to deliver sequential quarterly gross margin improvements throughout the year. There is a belief that a significant opportunity exists in the Institutional space, and product enhancements to the Live+AI platform are anticipated to drive growth in future periods. Recent advances in AI are expected to drive further productivity, including the agentification of key processes to improve customer experience, operational consistency, and reduce operating costs. The company believes its cash on hand will be sufficient to satisfy future cash requirements within the next twelve months, including working capital, sales and marketing activities, and capital expenditures.

Management Comments

• Active Members count as of June 30, 2025, was lower compared to June 30, 2024, primarily due to lower retention in older customer cohorts that included a higher proportion of lower frequency Learning Memberships.
• ARPM as of June 30, 2025, was higher compared to June 30, 2024, due to the mix shift to higher frequency Learning Memberships coupled with price increases enacted during the first quarter of 2025.
• Active Expert count decreased due to lower Consumer Active Experts as a result of Expert incentives, which promoted utilization of the highest quality Experts by encouraging them to work with more Learners and develop deeper relationships, coupled with lower utilization of tutoring sessions in the Institutional business as a result of lower bookings.
• Revenue decrease in current year periods was primarily due to lower Institutional revenue and a specific state-funded Consumer revenue program that did not recur in 2025.
• Expert incentives enacted during the fourth quarter of 2024 are believed to drive Expert satisfaction and engagement with the platform by allowing certain Experts to receive additional income for each sequential recurring session with the same student.
• Following the adoption of new Expert incentives, the company is seeing faster time to the first session, more sessions in the first 30 days, lower tutor replacement rates, and higher retention.
• Sales and marketing expense decreases were driven by Consumer marketing efficiency gains coupled with the moderation of investment in the Institutional business given near-term funding uncertainties.
• AI-enabled productivity improvements, coupled with new software-driven processes and system implementations, headcount reductions, and other cost reduction efforts, have enabled the company to generate operating efficiencies and remove significant costs from the business.

Industry Context

The online learning industry continues to evolve, with a growing emphasis on AI integration for personalized learning and operational efficiency. Nerdy's focus on AI-enabled productivity improvements and its Live+AI platform aligns with broader industry trends towards leveraging technology to enhance educational outcomes and reduce costs. However, the decline in Institutional revenue highlights challenges in securing and retaining large-scale contracts, potentially reflecting shifts in government funding or competitive pressures within the B2B education sector. The increase in ARPM suggests a successful strategy in upselling higher-value memberships in the consumer segment, a common trend among subscription-based educational platforms seeking to maximize customer lifetime value amidst fluctuating user acquisition.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• A complaint filed in 2019 in a California Superior Court against Varsity Tutors alleging misclassification of California tutors as independent contractors was tentatively settled in October 2023. The $2.00 million settlement was paid in the first quarter of 2025.
• The company is subject to various other legal and regulatory proceedings at federal, state, and municipal levels challenging the classification of third-party Experts as independent contractors, and claims related to alleged misclassification violating labor and other laws.
• Management believes the ultimate liability from pending legal proceedings and asserted/potential legal claims is not expected to be material individually or in the aggregate to the consolidated financial condition, results of operations, or cash flows.

Related Party Transactions

• Nerdy Inc. has a Tax Receivable Agreement (TRA) with certain Legacy Nerdy Holders, providing for payment of 85% of net cash savings in U.S. federal, state, and local income tax resulting from certain tax basis increases.
• As of June 30, 2025, a liability of $117.23 million under the Tax Receivable Agreement has not been recognized, as it was concluded that 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 three and six months ended June 30, 2025 or 2024.

Stakeholder Impact

• **Shareholders:** Continued net losses and significant cash burn could dilute shareholder value and raise concerns about long-term profitability. The decline in revenue and active members may impact investor confidence, while cost reduction efforts and ARPM growth offer some positive counterpoints.
• **Employees:** Headcount reductions mentioned as part of cost reduction efforts indicate potential job impacts. The focus on AI-enabled productivity improvements may also lead to shifts in workforce needs.
• **Customers (Learners):** Price increases for new Consumer customers and a mix shift to higher frequency Learning Memberships could affect affordability for some, but improvements in user experience and Expert incentives aim to enhance service quality and retention.
• **Experts:** Expert incentives are designed to improve satisfaction and engagement, potentially leading to increased income opportunities for high-quality experts. However, the overall decrease in Active Experts suggests a more concentrated pool of active instructors.
• **Creditors:** The declining cash balance and increased cash used in operating activities could be a concern for creditors, although the company states it has no debt obligations and believes current cash is sufficient for near-term requirements.
• **Regulatory Authorities:** Ongoing legal proceedings regarding independent contractor classification and the upcoming change in emerging growth company status highlight the company's continued engagement with regulatory compliance and potential scrutiny.

Next Steps

• Continue to evaluate the effects of the One Big Beautiful Bill Act (OBBBA) on financial statements and monitor future developments or interpretive guidance.
• Deliver sequential quarterly gross margin improvements throughout the year.
• Continue product enhancements to the Live+AI platform to drive growth in future periods, particularly in the Institutional space.
• Leverage recent advances in AI to drive further productivity, including the agentification of key processes to improve customer experience and operational consistency while reducing operating costs.
• Prepare for the transition from an emerging growth company status starting with the Annual Report on Form 10-K for the year ended December 31, 2025, which will entail new reporting requirements.

Key Dates

Recommendation

While Nerdy Inc. is demonstrating effective cost management and an increase in average revenue per member, the significant decline in overall revenue, particularly in the Institutional segment, and the substantial increase in cash used in operating activities are major concerns. The company continues to operate at a net loss, and its cash reserves are depleting. For existing investors, the cost-cutting measures and ARPM growth offer a glimmer of operational improvement, suggesting a 'hold' to observe if these efficiencies can translate into sustainable profitability and revenue stabilization. However, for new investors, the current financial trajectory, marked by top-line contraction and increased cash burn, presents considerable risk, making it less attractive for a 'buy' recommendation at this juncture. The lack of a recognized Tax Receivable Agreement liability also implies a pessimistic outlook on future taxable income.

Keywords

Online Tutoring, EdTech, Learning Memberships, Varsity Tutors, AI in Education, SEC Filing, Quarterly Report, Financial Results, Education Technology, Digital Learning