Nerdy, Inc. (NRDY) Q4 2021 Earnings Report, Transcript and Summary

Good evening and thank you for attending today's Nerdy Fourth Quarter 2021 Earnings Call. My name is Selena and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Molly Sorg, Head of Investor Relations. Please go ahead.

Good afternoon and thank you for joining us for Nerdy’s fourth quarter and full year 2021 earnings call. With me are Chuck Cohn, Founder, Chairman and Chief Executive Officer of Nerdy; and Jason Pello, Chief Financial Officer. Before I turn the call over to Chuck, I will remind everyone that this discussion contains forward-looking statements, including, but not limited to, expectations with respect to Nerdy's future financial and operating results, strategy, opportunities, plans and outlook. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Any forward-looking statements are made as of today’s date and Nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based. Please refer to the disclaimers in today’s press release announcing Nerdy's fourth quarter and full year results and the company’s with the SEC for a discussion of the risks. Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today’s press release for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck. Chuck?

Thanks Molly and thank you to everyone who has joined us today. We appreciate your interest in Nerdy, we're happy to be back in front of you discussing the strong momentum we built in 2021. And the meaningful opportunities we believe are ahead of us. Let's get started with a few of our 2021 highlights. Last year, Nerdy achieved new all-time demand records with full year 2021 revenue growing 35% from the prior year to $140.7 million and bookings growing nearly 50% over 2020. From a platform perspective, we saw strong engagement with active learners up 46% and online sessions up 73% over 2020 with paid sessions per active expert increasing 19% versus the prior year. The investments we are making in product technology, sales and marketing are driving strong customer engagement retention across existing users and driving growth and new users. These investments are paying off both in terms of driving scale and strong unit economics as our one-on-one customer LTVs continue to grow. Our consumer results demonstrate the continued momentum and strength of our platform based approach to growth. With technology at our core, we continue to scale in new subjects formats, and audiences increasing user engagement. We also launched Varsity Tutors for Schools in August, representing the beginning of an institutional go-to-market strategy to serve new audiences. That institutional strategy over time will focus on schools, universities, businesses, and other organizations. Earlier this month, we contracted with our 100th school district, an important early milestone, but one that represents only scratching the surface of the scale of opportunity we see across the more than 14,000 school districts within the United States. With over $140 million on our balance sheet following the closing of our business combination with TPG Pace Tech Opportunities, our business is more than sufficiently capitalized to fund our company to profitability, and to pursue targeted M&A. There's a lot to be excited about here. We're seeing strong business momentum in January and February across our business including user growth, engagement, bookings, and consumption. As we look ahead to 2022, our business is focused on three core themes, all of which we believe will continue to help drive our growth and advance our value proposition and strategic positioning in the market. First, we plan to further penetrate the direct-to-consumer market with enhanced product offerings, audience coverage, and a relentless focus on the customer experience, including self service capabilities. Second, we're executing on the fast institutional opportunity in front of us as we begin to develop recurring and durable relationships with schools and other institutions. Third, we're building out our scalable technology platform with new products and capabilities to better meet the needs of learners. This platform oriented approach to growth allows us to utilize the shared capabilities we have developed that serve as the building blocks that can be modified for different markets and audiences, providing significant leverage over time for every dollar invested. In doing so, we're able to build solutions that improve quality, decrease cost, improve convenience, and meet the needs of orders enabling broad access to high quality live learning. And as our business scales, we can achieve meaningful operating leverage from the platform investments we are making today. We believe the demand for supplemental learning is rapidly growing as a result of several macro trends we're excited to talk with you about today. First, let's talk about the trends we are seeing on the consumer side of the business. We continue to see that learners and parents are increasingly receptive to using online learning platforms as higher quality, more convenient, and less expensive supplemental learning solutions. This rapid adoption has led to online learning platforms being viewed as normal, further accelerating their appeal and driving overall market expansion, which we believe is just getting started. Nerdy's platform allows us to personalize experiences for learners at scale through technology, making our solution even more attractive to our customers, and enabling us to efficiently target and serve new audiences. As we highlight in our fourth quarter shareholder letter. We believe we're at the beginning of a GBA war, a long-term trend toward heightened an unprecedented levels of competition among students for great grades. Nearly 80% of undergraduate universities have taken a test optional approach to admissions no longer requiring ACT or SAT exams. That leaves GPA as the most heavily weighted component of a college application. Students that might have historically distinguished themselves with a standardized test score, now must increasingly do so through GPA. Our January 2022 survey found that 62% of parents with high school aged children believe GPA is more important than it has ever been for college bound students. This focus on GPA is changing the way that many students are thinking about leveraging tutoring, and supplemental academic support. In the past, many students historically would cram for short periods of time, measured in weeks with the objective of achieving a great score on the ACT or SAT. Now, with GPA as the priority, students are focused on maximizing their grades over four years across all classes to ensure their highest average possible score. This shift in focus has translated to increase demand for our services, with one-on-one consumer bookings for our middle and high school academic audiences, increasing by 43% in the fourth quarter, and 41% in 2021, compared to the same periods in the prior year. As we said in November, when learning and outcomes matter to students, our business accelerates. Shifting gears to our professional audience, we're continuing to see rapid growth in this category, as professionals increasingly seek to augment their qualifications with advanced certificates and coursework. Bookings in our professional audience through 77% in the fourth quarter, and 91% in 2021, compared to the same periods in the prior years, representing one of our fastest growing audiences among our direct-to-consumer offerings. Importantly, we're seeing these demand trends persist into 2022, driving our decision to strategically invest in further product innovation, sales, marketing, experts supply and our technology platform. We view these initiatives as having strong ROI, with each dollar of investment leveraged across multiple audiences, driving revenue, growth and scale for years to come. And these strategic investments are coming at the perfect time, supporting our ability to serve as the provider of choice in the $75 billion supplemental learning market, as it rapidly shifts from offline to online. On the institutional side, our enthusiasm for the growth potential in the space is influenced by the macro environment we're operating in today. As we enter 2022, the education system in the United States is under tremendous stress, but with immense opportunity for transformation. While COVID accelerated and amplified some of the acute challenges that existed before the pandemic and added incremental headwinds in the process, it also created an environment where new solutions to these challenges are welcome and are actively being pursued. And with the recent advancements in technology, like the learning solutions that Nerdy offers, transforming the way people learn has never been more possible. We believe we're on the brink of what we call the great unbundling of education. As school administrators and educators are beginning to rethink how they can deliver the best outcomes for students looking for new solutions beyond the traditional approach, which historically solve learning demands only with internal and in person resources. Education leaders are more open than ever for using online solutions and are recognizing the value third-party platforms can bring to compliment, existing classroom instruction, including in scaling evidence-based high dosage tutoring. We call this the era of unlimited learning, and use this as the beginning of a durable, long-term category trends, a trend as being recognized by educators, administrators and policymakers alike. In his speech, Vision for Education in America delivered last month, education secretary Miguel Cardona highlighted that strategies like targeted intensive tutoring can help meet the needs of students in the demands of the economy. He challenged all district leaders to set a goal of giving every child that fell behind during the pandemic at least 30 minutes per day, three days a week with a tutor to provide that child with consistent intensive support recognizing that we cannot expect classroom teachers to do it all by themselves. We believe Nerdy's learning platform as a service can be the unlimited learning solution for school districts, administrators and educators as they seek to improve student outcomes. Our learning platform as a service offers a customizable set of solutions allowing learning to be always on and available for learners. 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 relationships that bring modern solutions to their districts. Importantly, the capabilities of this new offering represent only the beginning of an institutional go-to-market strategy that we believe can be as big as our direct-to-consumer efforts. Our learning platform as a service can easily be adapted to serve new audiences beyond schools, such as universities, businesses and other organizations. We are building each platform capability once with the intent of leveraging the investment in many new markets and with many new audiences over time. We believe Nerdy is offering the right suite of product solutions as the education landscape evolves, and we enter the new era of unlimited learning. I believe we are participating in a once in a generation opportunity to help drive the shift from offline to online in learning. And the investments we've made to build a scalable platform can easily be leveraged to serve new audiences and markets and put us in a position to lead in the transformation of how people learn through technology. With that, I'll turn it over to Jason to discuss the financials in more detail. Jason?

Thanks, Chuck and good afternoon, everyone. As Chuck noted, our business continues to grow rapidly throughout the year and into the fourth quarter as we executed on our product innovation and growth strategy, which led to record booking through revenues in our direct-to-consumer business, and the launch of our institutional strategy with the introduction of Varsity Tutors for Schools. Our financial results demonstrate the continued momentum and strength in our platform-based approach to learning. And we remain confident in the underlying trends driving demand for our services. The long-term transition from offline to online learning, the largely growing addressable market, and our ability to, scale and innovate at a rapid pace to deliver solutions that meet learner needs in any subject anywhere and at any time. On the top line, we continue to innovate and bring new products to market that further extends our ability to reach new audiences and deepen relationships with learners, while also increasing expert engagement and driving revenue growth. We achieved new all-time bookings and revenue record in both the fourth quarter and the full year. Bookings of $47.3 million in the fourth quarter were up 53% over the fourth quarter of 2020 and bookings of $159.9 million in 2021were up 48% versus the prior year. Revenue of $42 million during the fourth quarter yielded 27% growth year-over-year with full year revenues of $140.7 million up 35% over 2020. Revenues from our institutional strategy we're immaterial to both, our fourth quarter and full year 2021 results, the consumer growth increased relative to our third quarter growth rate. Bookings and revenue growth, we're driven by strength in direct-to-consumer offerings across the K through eight high school, college graduates and professional adult audiences, in addition to the launch of Varsity Tutors for Schools. Looking to our strong main indicator of the demand in our business, giving us increased confidence that the platform investments we made during 2021 are working to drive new customer adoption, as well as strong engagement and retention across existing users. Moving down to P&L, gross profit of $28.7 million increased 27% year-over-year during the fourth quarter, year-to-date gross profit of $94 million increased 36% over 2020 and gross profit increases were driven by the continued adoption of one-to-one online learning expansion across more subjects consumer audiences such as professional and learning differences and growth in our small group class format. Gross margin of 68.2% during the quarter, and 66.8% during the year reflects the comparable periods in 2020. Sales and marketing expenses on a GAAP basis were $17.9 million for the fourth quarter and $65.4 million for the full year up five and $21.6 million versus the same period in 2020. Non GAAP sales and marketing expenses excluding non-cash stock-based compensation were $17.2 million, or 41% of revenue in the fourth quarter and $62.1 million, or 44% of revenue for the full year. This compares to 39% of revenue in last year's fourth quarter and 42% of revenue in 2020. In both the fourth quarter and full year, we continue to make investments in marketing, targeting new audience and advertising new products, including StarCourses, our free, celebrity-led, live, large group classes to drive customer acquisition, brand awareness and reach. We also made investments in establishing and growing our sales organization to support Varsity Tutors for Schools by institutional offering. Additionally, investments in machine learning automation continue to provide us with operating leverage improvements. General and Administrative expenses for the fourth quarter and full year were $34.3 million and $122 million respectively, excluding non-recurring one-time and non-cash compensation expense, non-GAAP G&A expenses for $19.1 million, or 45% of revenue in the fourth quarter, and $61.3 million or 44% of revenue for the full year. This compares to $11 million, or 33% of revenue, and $14.2 million, or 39% of revenue in the same period in 2020. In both the fourth quarter and full year 2021, we saw higher general and administrative expenses as we accelerate investments in new product development, moving quickly to bring in new talent to drive innovation and growth. These investments allowed us to launch our institutional strategy with the introduction of Varsity tutors for schools failed and scale the institutional sales team, grow expert supply as well as develop and launch a new suite of product capabilities in support of the initiative. We also expanded and enhanced our finance, accounting and legal function in connection with becoming a newly public company a one-time step up in costs that over time will create leverage as our business grows. We reported a non-GAAP adjusted EBITDA loss of $5.5 million in the fourth quarter of 2021 and $22.4 million for the full year compared to non-GAAP adjusted EBITDA of $200,000 in the fourth quarter of 2020 and a non-GAAP adjusted EBITDA loss of $8.9 million for the full year. Nerdy's decrease in adjusted EBITDA relative to 2020 was mainly driven by the one-time cost associated with becoming a newly public company. And the strategic investments were made to new talents and marketing to drive product innovation and growth and to build out Varsity Tutors for Schools. We continue to believe that now's the time to invest in our platform in order to capitalize on the attractive macro tailwind impacting our business. Continue to build out the foundation for our institutional strategy, and to build new products and technology capabilities that will enable us to better meet the learner and expert needs in the future, support innovation, operate more efficiently, and help drive continued growth while further strengthening our competitive mode. And importantly each dollar of investment we make to support learning solution for one audience can be leveraged across multiple audiences over time. We ended the year with cash and cash equivalents of $144 million and no debt, providing us with ample liquidity to operate against our plan and achieve profitability by the end of 2023. A strong liquidity also puts us in a position of strength to pursue targeted M&A. As the overall market for supplemental learning expands and quickly shifts from offline to online. The strong consumer institutional demand trends that drove our all-time record revenue in 2021 had continued in early 2022, providing us with increased confidence that these trends, including the rapid shift from offline to online learning to GPA war, and the great unbundling of education leading to unlimited learning can prove to be robust catalysts for our business. Gaining strength as well as our growth investments designed to capitalize on these favorable demand tailwind, we have increased confidence in our 2022 outlook. Today, we're providing the following guidance updates. For the first quarter of 2022, we expect revenue in the range of $45 , to $48 million, up 34% at the midpoint from $34.6 million in the year ago quarter. For the full year of 2022, we expect revenue in the range of $196 million to $200 million, representing more than 40% growth at the midpoint, or sorry, 2021 revenue of $140.7 million. Nerdy's growth forecasts reflect normal pre-COVID seasonality in the first half of the year, followed by the anticipation of heightened travel during the summer months, and then a return to normal fourth quarter trends for the direct-to-consumer audience. We also expect revenue from our new growth investments to build throughout the year, including revenues driven by Varsity Tutors for Schools, which are expected to ramp into the 2022/2023 academic school year starting in August having the most impact on fourth quarter 2022 revenue growth. As for adjusted EBITDA, for the first quarter of 2022, we expect a non-GAAP adjusted EBITDA loss in the range of $6 million to $8 million. For the full year 2022, we expect a non-GAAP adjusted EBITDA loss in the range of $20 million to $25 million. Given the strength of our balance sheet, our 2022 adjusted EBITDA guidance for both the first quarter and full year reflects accelerated investments to drive efficiencies and support growth in the direct-to-consumer and institutional categories in order to capitalize on the significant demand trends we're seeing across the board. Review these initiatives, is having strong ROI with each dollar of investment leveraged across multiple audiences, driving revenue growth and scale for years to come. Thank you again for your time. So with that, I'll turn the call back over to Chuck.

Thanks, Jason. And thanks again to all of you for joining us today. As I hope you can tell from our remarks, we're very excited about the opportunity we see ahead for our business. We continue to see momentum among our direct-to-consumer audiences, as we further refine and enhance our product offerings. And we see tremendous opportunity on the institutional side as we entered this new era of unlimited learning. We believe that with the right investment and a steadfast focus on execution. Our growth potential is vast. Let's turn the call over to the operator and get started with Q&A. Operator?

Thank you. [Operator Instructions] The first question comes from Andrew Boone with JMP Securities. Please go ahead.

Hi, guys. Good afternoon, and thanks for taking my questions two please. One, just a little bit more strategic on the product Chuck, I think you talked about self-service in your prepared remarks. Can you just touch on kind of the timing there whether you've kind of run any tests? I know you guys do some stuff around small group classes there. How can that extend to just reduce friction overall for buyers, as you think more about the typical kind of one-on-one higher priced, kind of tutoring buzz? And then number two is, active learners came in a little bit lighter than kind of I guess where our numbers were. Can you just talk about kind of thoughts there on 2022 is it kind of fair to assume 20% growth or is there any seasonality into 4Qs then I think the highlight as we think about kind of thinking about active learner growth for next year? Thank you so much.

Thank you, Andrew, appreciate the question. So, yes so the way that we think about improving the customer experience, there's many different aspects of it. Part of it relates to personalization, part of it relates to quality. Part of it just make - is oriented around making it easy for people to get the help they need as efficiently as possible. So as it relates to self-service, we've made huge upgrades to as an example, our external portfolio, our e-commerce capabilities related to classes and ability to check out as well as building out capabilities related to supporting some of these subscription offerings, we have like clubs. And we've also started to improve many aspects internally. We think there's a big opportunity to remove friction make the experience more intuitive. And we think that will manifest in a couple of different ways, including continuing to improve Net Promoter Score, making it easier to consume additional products, including additional tutoring subjects, as well as purchasing sort of tangential products like classes, and then just making it easier to introduce. So we're going to be continuing to work on those throughout the course of the year. We have a big initiative of [Wall Street] oriented toward overhauling the customer experience, both on mobile as well as on web, and then also improving the personalization recommendations, such that without any word, we help you get to the products or recommendations that are likely the best fit for you. So we didn't expect for those pull through to improve efficiency as a percentage of revenue on some of the customer service and sales line items. We'd also expect for it to drive renewal and LTV extension, and then just generally provide a better customer experience that's something that we think it's a big opportunity this year, but that we'll continue to invest in on a [cohort basis] as well.

And then Andrew, I'll take the question on active learners, this is Jason, but looking at on a year-over-year basis, we continue to exhibit durable growth with active learners up 46% in 2021, versus 2020. From Q3 to Q4, specifically, seasonally the business slows down from Q3 to Q4. On the classes' side, as we've seen an increased mix shift towards the academic. These trends accelerated now as the test prep down an academic tutoring s up with a greater focus on GPA that Chuck mentioned during the call. So sequentially from Q3 to Q4 ARPU increase to the greater mix of one-to-one tutoring in Q4 versus classes in the summer, which is consistent with prior years. Q3 as you remember has a lot of enrichment classes and camps in the summer, which decreased as you head into the school year. And then, as I mentioned the test prep declined we shift toward academics has resulted in higher ARPU during the fourth quarter. As you think about 2022, I would say you should continue to model low single-digit declines in revenue per active learner, given our anticipated continued mix shift towards a higher proportion classes, which implies active learner growth will be slightly faster than our revenue guidance.

Yes, I think it's also worth noting that as we've come out of Q4 headed into Q1, we've seen the acceleration and in active learner growth sessions and consumption. Ultimately leading to higher levels of gap as far as a result of us seeing implementations go live on the [Varsity Tutors] and school side, which is a big revenue driver skewing towards the class orientation, as well as some of the investments we're making on the consumer side. And around areas like professional as well as enrichment that pulling through to higher levels, class sales as well, which has been, disproportionately driving active learner growth relative to market.

Thank you so much guys.

Thank you, Andrew. The next question comes from Doug Anmuth with JPMorgan. Please proceed.

Hi, it's Bryan Smilek, on for Doug. Thanks for taking my questions. Just to start, can you elaborate a bit on what's driving the slope of revenue growth recovery through 2022 that you discussed in a letter and potentially quantify the expected VTS contribution? And then just thinking about the bottom line to what are the puts and takes on the 2022 EBITDA guide that came in a bit later than we expected so, just curious to see your thoughts on investments leading to those losses? Thanks.

Yes, so as we look at the macro trends in totality, we're seeing strong consumer growth. We're seeing accelerating consumer consumption. We're seeing GAAP revenue growth of our consumer side grow as well. We have these macro tailwinds for the business, including people taking way more ownership of their education, the GPA we're driving this maniacal focus on grades. And we feel really good about the tailwind in consumer our ability to execute against that strategy. And then similarly, on the institutional side, there's this incredible macro trends where schools are willing to entertain ways of solving problems and leveraging third-party solutions that just didn't previously exist. And the technology is now in place where it's possible to deliver Always On Learning to an extent that simply wasn't possible or practical in the past. We feel like we're incredibly well positioned there. And the investments that we're making today, and you mentioned that EBITDA forecast for 2022 they're oriented around investing against the consumer institutional and platform opportunity in such a way where we can leverage this technology enabled platform, build capabilities, wants leverage them multiple times across different audiences and market segments. And over time, we think that drives not just revenue growth in consumer and institutional, but it also drives substantial operating leverage. So if you look at the efficacy of our spend on a booking spaces, we feel really good about how it's pulling through in the early signal, and then how the investments we're making. And some of these areas set aside for a really big 2023 as well, which is a result of how we're going about building and scale the opportunity here. We've said it before, but the institutional opportunity, we believe, to be as big as the consumer opportunity. And we're really, really excited about the traction. So we feel good about the 40 plus percent revenue growth target we're putting forth for 2022. And we believe that the investments we're making are commensurate with the opportunity and set us up for a very high likelihood of achieving it, along with the ability to put us in a position where we can have strong growth across both consumer and institutional years ahead.

Yes, the only thing I'd add to that, you know, Chuck kind of mentioned it we're seeing an acceleration of growth across the business. So Q3 was up 19%, Q4 is up 27%. The guy would put you at 35% at the midpoint for Q1, and then the full year growth for 2022 continues to accelerate at 40% at the midpoint of the guide range. So this is why we're doubling down on investments. The macro trends Chuck talked about, the GPA war, the great unbundle being that we're in the shareholder letter, and in the prepared remarks today, you know, they're a bigger opportunity than we saw a year ago. So we think it's the right time to invest. The reason we went public was to make sure that we were appropriately capitalized we are $144 million of cash on the balance sheet, no debt. And these levels of investment are modest from our perspective and they're very insightful.

Thanks for taking my questions.

Thank you. The next question comes from Ryan McDonald with Needham. Please proceed.

Hi good afternoon, Chuck and Jason, congrats on a great quarter. Chuck, first one for you, there was an interesting article in The New York Times this morning, there were some survey data that showed I think over half of American children missed at least three days of school and 25% missed more than a week in January alone. Have you seen sort of the surge with Omicron and some loosening restrictions on schools so forcing more children to learn remotely again? I'm curious, as you've seen, looked at sort of traffic and consumption on the platform to start the year, if you're seeing any correlation with, you know, increased number of days at home route of school versus, you know, time spent on the platform. And I guess, from maybe two part question is this having an impact on the trends you're seeing in terms of consumer bookings versus also then on the institutional side to schools are obviously meeting more of this, or having a greater need for the tutoring platforms given that? Thanks.

Thanks, Ryan, a great question. Yes, so the way we think about it, as far as the outcomes matter and as long as grades are being assigned, and people are being held accountable, trying to learn, there's demand for supplemental education solutions. And so the specific things you reference with attendance being down nationally, generally resulted Omicron, certainly, if kids aren't attending school at all, in any way, shape or form, then that's a little bit of a headwind. But what we saw was that, you know, despite some of the attendance headlines that we see nationally, the consumer business continued to perform well. And we feel really good about how it's tracking in totality. So, net-net sure, you know, we'd love for there not to be any snow days, or summers to that patterns as it relates to consumption patterns. But the reality is, that some of these tailwinds that we have related to the focus on academics, the normalization of online learning, and then just the acuity of the problem that schools are experiencing how well positioned we are to help them. They dwarf you know, any of the things you referenced, like, you know, a snow day or attendance related to omicrons. So, we feel good about the macros tailwind to the business and that our ability to continue to deliver strong growth and also help people throughout these times where there is a lot of uncertainty.

Really helpful and maybe, as a follow-up for Jason, you talked about obviously, some really strong success still happening on the institutional side with Varsity Tutors for Schools, you know, 100 deals now essentially doubling since the end of October. We'd love to understand, you know, any quantification around, what that's translating to in terms of the, monetary bookings. And you mentioned in the in the remarks around sort of outlook for 2022, that you're expecting more material impact from a revenue perspective in fourth quarter. Does that mean that these contracts that you're signing now are more for the for next school year or are you starting to see sort of go lives happen, you know, every day and sort of that translating to consumption in early in the year? Thanks.

Yes, no, great question. We're really excited about the Varsity Tutors for Schools opportunity, and what it can grow into, I would say in the fourth quarter, as we mentioned on the last call, the expectation was what would be an immaterial portion of the revenue then it was, But as Chuck mentioned earlier on this call, we have kicked off many of the implementations we're starting to see that go live during the first quarter and expect to continue it in the second quarter. And then as we move forward, looking into the 2022/2023 school year, that's where we really expect to see some of the investments we're paying off right now start to really take hold, as schools have assessed the need from the standardized testing that they provided students, the heightened levels of teacher resignations and retirements that you mentioned. So we think that this will continue to parlay itself into a long-term and durable growth opportunity, especially as we get into the coming school year. But revenue is flowing right now in the first quarter in the second quarter. And we feel really good about it.

Thanks for the color, congrats again.

Thank you, Ryan. The next question comes from Eric Sheridan with Goldman Sachs. Please proceed.

Thanks so much for taking the question. Maybe sticking with some of the themes we've talked about so far, and looking at those investments, you plan on making in 2022 first question, can you isolate what level of those investments might be one-time in nature so we can better understand some of the investment curve in 2022 when measured against a longer term profitability goals? And Chuck, I believe in your comments, you talked about how some of these investments obviously play into the broader platform theme for the company overall. And you touched on multiple areas of business over the long-term, can you just refresh industry's view on how you see investments reflecting back in driving sort of more of a platform, ecosystem impact across the entirety of the company over the medium to long-term? Thanks so much.

Thanks Eric good question. So as Jason referenced earlier, we had a one-time big step up in public company related costs, and accounting, finance, legal and related expenses, we would not expect that those would grow proportionate to revenue over time. As you think about the areas that we're investing both as it relates to consumer and institutional, and in our tech platform, most of those take the form of personnel. So we're investing in one core underlying tech platform where we can build the capability ones, leverage it many times, and that powers both, say, our professional audience, our enrichment audience, our learning differences team on the consumer side, as well as powering a lot of what we need to do to deliver on our customer expectations on the institutional side as well. And so, you see a big increase in engineering and product costs this year, you're already seeing the results of those investments. Over the past year, we grew our engineering headcount as an example, 50% last year, we expected to grow it about 50%, again this year, and then you would expect that the revenue would catch up with that increase in personnel costs. So, we feel really good about the strong bookings growth that we're seeing pull through. And then we would expect that between growing into the engineering and product spend, that's then driving growth and operating leverage, combined with the big step up in cost related to our institutional sales team, which then takes a little bit of time to pull through. You basically, you're basically growing into that operating leverage to a large extent, in addition to getting additional operating efficiencies related to self-service and other capabilities, matching driving higher LTV continuing to get efficiency there, as well as gross margin improvements, as classes mature, and as we sell more group tutoring sessions over time. So all of those things are, you know, largely relate to the fact that as revenue catches up with bookings which are very strong 53% in the fourth quarter, you'd expect for that to that start covering the increase in fixed costs, which gives us confidence in our ability to get back to profitability in 2030.

Great, thanks so much for the color.

Thank you, Eric. The next question comes from Maria Ripps with Canaccord. Please proceed.

Great, thanks so much for taking my questions. First, can you just comment on the competitive dynamics in the industry some of the COVID trends are starting to subside here? And what are you seeing with some of the offline competitors now? And then secondly, you mentioned potential M&A is one of the growth levers going forward. Can you maybe just talk about what kind of assets or capabilities would be added if to the platform?

Thanks Maria. So on the competitive side, you know, we've always said that we compete mostly against offline options, as well as online options for an estimate as there is 5000, Mom and Pop tutoring companies out there many hundreds of professional testing companies. And you know, we believe those estimates it's a very fragmented market, and that hasn't changed over the course of the last couple of years. And so, there isn't any one company or group of companies for that matter, that we've seen come up more frequently. And so, the way we think about competition is from the perspective of making sure that we're continuing to enhance the value that we deliver over time, faster than the aggregate market is improving. So as long as we're consistently input, increasing the quality of delivery we're decreasing costs, and we're improving convenience. And then making sure that the value equation is coming out net positive each and every year, we're getting a little bit better at delivering more and more value, we will ultimately take share, because that's how consumers ultimately make their decisions, higher quality, lower costs, more convenient and you can deliver against those things and personalize the experience, which we believe we're doing well, that we take care of. So there hasn't been a big shift on the consumer side, or any shift, you know, for that matter that we've seen, and be able to witness. And then on the institutional side, it's very fragmented. You have Mom and Pop companies that have been around for a while you have new entrants that were formed to go after this opportunity, you have legacy companies that are pivoting to add some sort of online option. And we feel like our platform, and our ability to deliver high quality by learning at scale across the entire district and leverage capabilities that we've built, like adaptive testing, and like additional products that we can then solution and sell into those audiences in ways that allow school administrators to solve problems they're experiencing is really differentiated. And our learning platform as a service approach is oriented around landing relationships, building trust and credibility with that school and that school administrator over time, demonstrating that we could add value, and then presenting an opportunity for them to grow, extend that solution to other students and other grades throughout the school district as well as add on additional products outside of just the initial one that they started with.

And then Maria, I'll talk to the M&A side of your question. So we're excited because we're finally capitalized to be offensive in this face. And you know, we're well funded with a balance sheet. And then we've also got access to equity capital, as a public company. So we feel really good about that. We would focus our efforts on adding incremental capabilities, that we can accelerate our entrance in the new product categories, and that we can extend across these higher platforms to both the consumer side as well as the institutional side. So the main focus of any M&A activity will be to consider targets that accelerate our products map in the future.

Got it, that's very helpful. Thank you both.

Thank you, Maria. The next question comes from Mario Lu with Barclays. Please proceed.

Okay, thanks for taking the question. The first one is on Varsity Tutors for Schools. Just wondering if you could share some behavior at the school districts that you signed up earlier in the program, whether the ones that went live, had they added to their contract budget, just any data point, you can share that gives the confidence that this segment will grow larger than B2C over time? And then secondly, you mentioned the past that international expansion was going to be a long-term driver. Is this less of a focus now for the company with Varsity Tutors for Schools, any updates on international?

Thanks, Mario, I'll talk about the Varsity Tutors for Schools behavior first, and then talk about the international opportunity in front of us. So, as we mentioned, in the call, and in the shareholder letter, we signed 100 deals, so we're seeing great product fit receptivity. And importantly, you know, in addition to the 100 contracts that we've signed, over 30% have already re-up even though the vast majority of the contracts haven't ended yet. So, that just demonstrates from our perspective, our ability to land and expand you know in some cases, we signed three, four deals with certain school districts who started at a very niche, all the benefits of the program platform, and they continued to get all of our tutor base. And they've continued to expand that to entire schools, for their entire school district, so feel really good about our opportunity there and the trend lines that we're seeing.

Yes, and then on international, I think we've said this before that it's a tremendous opportunity. We believe that over time, we're well positioned to go after it. We know today, it's a mid-single-digit percentage of the business. We have, a small number of resources focus there, but it's not a primary focus. And our focus remains on the direct-to-consumer opportunity in the United States and the institutional opportunity within the United States. But we're very cognizant of just having the international opportunities over time, but you know it's relatively deprioritized. But we're pretty excited about what it can do in years ahead.

Great, thank you.

Thank you, Mario. The next question comes from Aaron Kessler with Raymond James. Please proceed.

Hi, guys, congrats on the quarter. Couple questions maybe with kind of the inflationary costs, we're seeing how are, you thinking about kind of potentially adjusting rates or maybe thinking about paying tutors more any thoughts there. And then just maybe you can talk about strong trends within high schools, any other trends you would call out may lower grades or higher at or maybe different subjects? Thank you.

Hi great, thanks for the question. So far, we haven't seen any, we haven't had any difficulty recruiting experts. With our current pay structure, active experts. In the fourth quarter of this year were up 24% year-over-year versus the prior year, I would say we're experimenting with enhanced pay scales, and it's called bonus structures for our top experts, which we believe will help drive retention and engagement for those top experts as I mentioned. We continuously explore the best pricing of our products. And we pass through modest pricing in the ordinary course and with the category to be largely elastic. So overall, feel good about where we're at from a cost structure perspective, as we move into 2022.

And then hi Aaron I think your second question was, whether there's any interesting trends occurring at the audience level. So assuming I understood that correctly?

[indiscernible] high school just any other things you would call up?

Yes, so we've seen you know, what's really interesting is that shift away from test prep towards academics has driven a substantial increase and acceleration related to high school academic bookings in particular. So it was up 43% year-over-year in the fourth quarter for high school academics 41%, excuse me and 41% for the full year 43% for the fourth quarter. We're also seeing a lot of strength in college so the same kind of focus on test optional that occurs with high school students applying to undergraduate universities, is also occurring as it relates to college students applying to graduate universities, where there's been relatively, there's a relative pressure on graduate Test Prep. But it's more than made up for by the strength in academics. So we saw 50% growth in academic tutoring, bookings for college students. And so both of those segments, you know, we're driving substantial bookings growth in totality that we expect to pull through early in the year to strong GAAP growth as consumption pulls through. And then separately professional, which is another area that we've referenced, we're really excited about has grown really quickly as well. So for the full year, bookings were up 91% for our professional business on the consumer side, and 77% for the fourth quarter, specifically. So - professional consumers are looking for the same sort of benefits that you get from an online platform that exists for all ages. So rather than drive to read it out classroom or you know, a strip mall, they can instead go online and get a higher quality service. It's more convenient, in many cases, where a third, you know a third, last or half the price some of the established incumbents and we can just provide a lot of value which continues to resonate with professionals.

Great, thank you.

Thank you, Aaron. The next question comes from Greg Gibas with Northland Securities. Please proceed.

Hi Chuck and Jason, thanks for taking the questions and congrats on the strong quarter. If I could follow-up on your commentary around professional learners being the fastest growing category right now 77% growth. So what I guess you think is driving that and to do those types of is that like category of learners typically have a higher or lower ARPU?

Yes, that category of learner typically have a higher initial package size, from the perspective of, you know, higher complexity subject leads to higher costs on the tutor side that we pass through. But wonder what I would say that segment is a little bit more focused on passing an exam or a test. So it's not a LTV accretive over the fullness of time, as you see in the academic side of the house. At least today, but we're continuing to move upstream to make people more and more prepared for their tests, and feel like the opportunity continues to expand. I think it's also worth mentioning, that's our newest segment, we just launched it a couple of years ago, it's launching from much, much smaller base. So we think there's tremendous opportunity there. And there's, many examples in and around the professional segment where there are companies that have $100 million revenue businesses in one subject, and there's many hundreds of subjects that could fall within professional. So given the kind of antiquated nature of any of the competitors in the space, our ability to leverage many of the capabilities on our platform, we feel like we're very well positioned to continue to build out that suite, including leading into things like bundling and adaptive testing, where we feel like we can add a lot more value over the course of the next year.

Got it that's helpful. And then, a quick follow-up on your guidance assumptions you said Varsity Tutors for Schools, the institutional product was pretty minimal in Q4 make sense given its launch in August. But should we assume maybe a similar pace of new school additions? I think it was from August to February getting to 100. Is that kind of what you're assuming in guidance and what it almost makes sense to break out of contribution from the institutional product?

Good question, I'd say like, the thing that we all need to keep in mind is, this is a very nascent, kind of like foothold into the institutional space for us. It's six months old, we feel really good about the opportunities that the product market fit 100 contracts continue to accelerate to me and as we get referenced accounts, we continue to build out the sales team in that space and expect that we'll have continued traction and demand from schools, especially given the macro environment. So the one thing to keep in mind, it's very early, as we think about 2022 guidance on both the consumer side as it relates to height and travel, expecting a more modest Q3 than we historically would have seen, then as relates to the institutional opportunity. While we're working with some schools to have summer programs, we do expect that majority of schools will reduce their consumption during the summer months. And then we'll have a very, very good fourth quarter, as you know, consumers come back in the back school period, grades matter again, outcomes matter that's when our business accelerates. And you couple that with the institutional benefits that we expect to see in 2022 and 2023 school year, we feel really good.

Great, thank you.

Thank you, Greg. That concludes the Q&A session. I would like to pass the conference back to Chuck Cohn for additional remarks.

Thank you, and thank you, everyone, for joining us today. We're incredibly excited about the momentum in our business, the strength that we're seeing in the consumer segment, all the initial traction we've seen on the institutional side and how the investments that we've made over the course of the last several months in particular combined with the macro trends in consumer in areas like the GPA war. The parental that focus on outcomes and taking ownership of education and the normalization of online platforms combined with this incredible opportunity related to helping partners with - partner with schools to solve some really important problems they're experiencing. Combined creates an opportunity that we think is really excited, warrants investing in and we appreciate your time and interest as we continue to execute against this very big opportunity.

That concludes the Nerdy fourth quarter 2021 earnings call. Thank you for your participation. You may now disconnect your line.