Good afternoon. Thank you for attending today’s Nerdy Inc. Q2 2024 Earnings Call. My name is Matt, and I’ll your moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to your host, T.J. Lynn, Associate General Counsel at Nerdy. You may proceed.

Good afternoon and thank you for joining us for Nerdy’s second quarter 2024 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’ll remind everyone that this discussion will contain 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 shareholder letter announcing Nerdy’s second quarter results and the company’s filings 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 shareholder letter for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck.

Thanks, T.J., and thank you to everyone for joining us today. In the second quarter, we continued to make progress against the three primary goals we laid out for the year, including our first goal, which was to scale the winning product for every learner. We recently completed the convergence of all of our schools institutional customers on to the unified consumer experience fee for learning membership. The unified platform provides a modern, intuitive and personalized learning experience to better serve the needs of learners while also allowing us to increase the pace of innovation and leverage product improvements across both our consumer and institutional businesses to drive value in both businesses. Within our consumer business, we experienced a higher-than-expected level of seasonal end of year and summer cancellations, which has resulted in fewer active members than anticipated as we enter this back-to-school period. These changes were primarily driven by our lowest-priced product, which, in retrospect, didn’t sufficiently encourage learners to establish a weekly habit and instead, we’re overly focused on flexibility. This experience caused us to scrutinize and reexamine our product priorities through the lens of what drives retention consistently over time within the tutoring category. In particular, we found that the learning membership frequencies focused on making tutoring a weekly habit in service of an important learning goal, naturally drove significantly better retention and higher lifetime value. Based upon this learning, we have reoriented our product selection toward our premium learning membership, which encouraged the development of a weekly tutoring habit with a consistent tutor over a long period of time to support achieving an important learning outcome. Examples include a parent ensuring their first grade student could read or a college student getting a great grade in organic chemistry course in service of their dream of becoming…

Hi, Chuck. Good afternoon everyone. As Chuck mentioned, we continue to make progress towards achieving the 3 primary goals we laid out for the year. In the second quarter, we delivered revenue of $51 million, results that represented 4% year-over-year growth. Revenue growth in the current year period was driven by the continued scaling of our consumer and institutional businesses, partially offset by lower ARPM in our consumer business. Additionally, revenue for the 3 and 6 months ended June 30, 2023, included legacy package revenue of $4.9 million and $15.8 million respectively that did not recur in the current year period due to the completion of the transition to learning memberships in our consumer business. Consumer Learning Membership’s subscription revenue of $36.4 million increased 2% year-over-year in the second quarter and represented 72% of total company revenue. New consumer customer acquisition remained healthy with growth of 12% year-over-year in the second quarter as learning memberships continue to resonate with learners. Active members of 35,500 as of June 30 were up 15% year-over-year. However, they were below our guidance of 37,000 members to end the quarter. ARPM of approximately $281 at the end of the second quarter resulted in an annualized run rate of approximately $120 million from learning memberships at quarter end. The lower-than-expected ARPM was due to a higher mix of lower frequency, non-premium learning memberships than anticipated. Our institutional business delivered revenue of $11.1 million, an increase of 33% year-over-year, which represented 21% of total revenue. Varsity Tutors for schools executed 56 contracts, yielding $4 million worth bookings. Bookings numbers reflect a focus on increasing access to Varsity Tutors for schools’ platform in hiring and onboarding sales personnel in service of and optimizing for the back-to-school buying period in the longer-term market opportunity within institutional. Our premium strategy…

[Operator Instructions] First question is from the line of Ryan MacDonald with Needham. Your live is now open.

Hi, thanks for taking my questions. Maybe to start on the institutional business, so you’ve added 1.1 million students during the quarter and 3.3 million across 600 districts now between – from this freemium strategy. Can you just talk about how you’re using maybe this expanded presence now to convert more schools and districts to paid customers? And what type of conversion rate have you seen thus far off the strategy?

Thanks, Ryan. Appreciate the questions. So, one of the things that’s been really exciting about our platform access strategy or giving access to our low or zero marginal cost products for schools is the fact that these are really valued, that there’s a lot of perceived value and real value that administrators and their students receive from them. And so many of these students were exposed to our products just toward the tail end of this past semester heading into the summer, but it’s been pretty encouraging the fact that just about every school district is willing to meet with us and consider rolling these out. And there’s been a very high uptick rate. And so we’ve been encouraged by the number of partnerships we’ve already formed and the number of meetings that we’re having heading into the school year and then how that ultimately relates to building trust and credibility with those school districts and that pulling through to commercial paid relationships. And so one of the aspects that I think we have been optimizing and getting better at is making sure that those can happen concurrently, and there has not the need to have the conversation around our free tools first and then subsequently later have the commercial conversations. And so we have been getting better and better at using the opportunity to have an audience to explain just how powerful many of our access-based products like Teacher Assigned, District Assigned, and the extent to which they can solve some core problems at administrator space, like learning loss remediation, like helping students be more excited about coming to school in those days and then ultimately seeing attended pull-through, which is the secondary benefit of tutoring. And we have seen, at this point, really all of our bookings coming through relate back to platform access opportunities and getting that kind of motion honed. It took a little while to kind of thread the conversation on both elements of the product, but now we are able to have much, much more comprehensive and strategic conversations and both the volume and nature of those conversations is very, very encouraging.

Appreciate the color there. Maybe moving to the consumer business, so it sounds like we are moving kind of away from this lower price strategy and kind of focusing back more on the premium learning memberships. How long do you think it’s going to take to sort of maybe if you need to rebuild the top of the funnel there on that offering and sort of drive that conversion? And then for Jason, perhaps, maybe you could help us understand, as you are looking at the guidance for third quarter and the remainder of the year, what sort of assumptions you are making for learning members and ARPM as you sort of kind of shift back the strategy towards the premium memberships? Thanks.

Sure Ryan. Thanks for the question. I think what’s important about the shift back to premium memberships is that we are still seeing healthy demand when we think about the top of the funnel. And then when we think about conversion rates as we are moving towards the back-to-school, they are above what we saw last year. So, we are encouraged by the health of the consumer, the market is there, and we think our premium offerings provide students the opportunity to get into a much deeper habit and consistent relationship with tutors. And anytime we have seen that, the data would indicate that you see higher levels of engagement and higher LTV. Recent weekly cohorts are already starting to demonstrate those factors. So, we are seeing faster times to first session, higher levels of tutoring sessions per week, higher levels of non-tutoring engagement due to increased discoverability that we have enabled across the platform. You are seeing higher ARPM and higher new learning member MRR or monthly recurring revenue and already higher levels of retention across the most recent weekly cohorts since the middle of the summer. When we think about the back half and the back-to-school period, we expect to end Q3 with about 40,000 active members, and then we expect to end the year with about 43,000 active members. These growth rates are consistent with historical back-to-school seasonality in the back-to-school peak that we see every year. And then from an ARPM perspective, because we are mix shifting back towards premium members in our highest volume periods, we would expect ARPM to be above $300 at the end of each quarter on a consolidated basis.

Ryan, the other thing I would add – this is Chuck, is that as you enter back-to-school, the number of new customers that you add seasonally is roughly double in, call it, September and October, what it is in the June and July timeframe. And so you are able to acquire much, much larger numbers of customers. And in this case, it will be at higher ARPM levels consistent with our premium membership. So, you can accelerate revenue meaningfully heading into a back-to-school period. And I think one of the things that we really consider to be a silver lining and positive has been recognizing some of those higher levels of churn from the lower-cost offerings in the spring. We realized that we had a little bit of work to do on the activation side to get people into weekly habit and that the product needed to do more of the heavy lifting. And that goodness in identifying how we are going about doing it, as we actually executed on it, started pulling through to higher levels of one-to-one usage on a weekly basis, year-over-year and relative to past cohorts on a non-tutoring engagement level and then through to ultimately retention. And so we have seen those cohorts flip from negative year-over-year on retention in the late spring to early summer to then positive year-over-year and the product work and other operational initiatives, otherwise the company are oriented towards nailing that weekly habit formations in the first 30 days in activation. And ultimately, that’s what we would need to do to make a freemium or low-cost offering really, really successful anyways, and it also drives retention and acceleration within our premium memberships as well today.

Appreciate the color. Thanks.

Thank you for your question. Next question is from the line of Andrew Boone with JMP Securities. Your line is now open.

Thanks so much for taking my question. Chuck, can you talk about the keys to increasing engagement for users? What exactly are they looking for? And what can you guys do to the product to really drive that engagement?

Sure. Happy to do, good question. So, one of the things I think that’s true about any onboarding experience is that it needs to be intuitive, it needs to remove friction, it needs to push somebody towards the path of actually being able to consume the thing that they purchased quickly and get value out of it. And that’s kind of the general North Star Board. The work that we are doing that is aimed at helping people very quickly and intuitively get through our digital experience without friction, in an intuitive manner to be able to find their tutor, know where it stands, to the extent that their matches pending know exactly where in the process it is and then ultimately seamlessly get them through to that first session and have quality indicators and funnel indicators each step along the way that indicates that we as a company are making progress in enhancing that experience, removing friction and that they are getting through to a high-quality session. And after that first session, that it’s easy to replace their tutor to the extent that it’s not perfect or to the extent that they need to reschedule or find alternative times, we have made significant improvements to our invoicing system, to our scheduling system, to our matching process and then to the actual digital onboarding experience in UX as well. So, if you log in, you will see that we have made pretty dramatic upgrades over the course of the last 60 days or so that make it more intuitive, and you should expect to see continued enhancements to that experience that are oriented around getting somebody into the weekly habit. And then separately, once you nail the primary objective that people come into the platform with, which is tutoring, we…

Thanks for that. And then I wanted to ask about ESSER III, and I think we are getting closer to the expiration there. I know we have talked about this in the past, but can you just remind us and tell us about recent conversations you have had with schools as that has come up? Thanks so much.

Just as a reminder, ESSER III funding was appropriated through the American Rescue Plan. We believe there is still about $6 billion to $8 billion left to be spent by the end of September. Those funds have to be obligated by September 30th. They can be used for up to 4 years of learning beyond that date, but they do have to be obligated by September 30th. We are still having active conversations with school districts about ESSER funds, how to best utilize them, how to enter into multiyear agreements in order to support their students over multiple school years. And so as we move into the back-to-school period, now that administrators are getting teachers hired, they are getting students in the school and into their daily routines, we are starting to move towards more active conversations around what tutoring programs could look like to support administrators and teachers.

And we also are seeing though – this isn’t dependent on ESSER and these conversations have been focused on title funds, on existing operating funds, there is state grant programs, there is specific legislation that’s been funded in a variety of states to fund tutoring programs. And so as ESSER is just one of the funding sources and the conversations have certainly shifted progressively more towards other funding sources like Title 1, which is roughly $20 billion per year in funding. And the reality is that tutoring works, right. And we are able to deliver live learning at scale, including high-dosage tutoring, that’s best-in-class better than anybody else out there and we feel like that capability, including a lot of the underlying logistical investments that we have made to drive reliability and systems, we are delivering live learning at scale, ultimately are very, very valuable assets to make us a great partner to school districts. So, with 14,600 public school districts or whatever the count may be exactly, we feel like there is a massive opportunity there to augment how they deliver supplemental learning and tutoring and it’s a net new industry being formed. So, certainly ESSER III was a portion of that industry, but we are seeing that all the data from every study coming out, reinforces the fact that high-dosage tutoring is the most effective way for students to remediate our new off and catch up, and there will continue to be funding sources for it. So, our conversations are much more nuanced and expansive than focusing on a particular funding source. And we feel good about how the product improvements we are making ultimately ladder up to us being a great partner to schools over time and participating in the creation and growth of this industry in the coming years.

Thank you.

Thank you for your question. Next question is from the line of Alex Sklar with Raymond James. Your line is now open.

Hi. This is Jessica on for Alex Sklar. Thank you for taking my questions. To start off with, just a little bit a follow-up on an earlier question. Thinking about your revenue guidance and as you implied like going back to high-single digit revenue growth exiting years, what would you call as a key driver for this rebound? Is it like – is consumer being a seasonally stronger quarter, or is it also like your sales team for Varsity Tutors for Schools ramping up and that’s what’s helping out? Like which do you think has been a more bigger contributing factor?

Yes. I think the – if I had to weigh the two factors, the larger driver, just given the size of the business is going to be the consumer returning this back-to-school period and our focus on that premium member, which is going to drive higher levels of ARPM. As I mentioned, the early signal from the early weekly cohorts is indicating higher levels of engagement, high levels of retention across those cohorts. So, as you move towards the back-to-school period, it is the largest selling season. The level of top of funnel nearly triples in September and October as compared to the summer months. And so what you will see is consumer will drive it, but the ramping and onboarding of the Varsity Tutors for Schools salesforce, the government relations team and the marketing effort is positioning us well to also deliver on the institutional side as we move towards back-to-school. When I think about the guidance change from the last time we talked to maybe time, about 40% of the decline is on the consumer side, with 60% of the decline in revenue on the institutional side in the back half.

Thanks. Very good color. Thanks a lot. Another question is, so as you are thinking about reaching – at least to have a goal of reaching up to 10 million students, have a halo of a benefit from that. In general, just considering these deals, what kind of school districts are you targeting? Are you thinking about like more urban or suburban or rural kind of districts, or like larger districts, more you grow, where are you guys seeing that you believe in helping out with your discussions and with your team?

We are finding this resonates with all school districts. These are valuable products that have real value for students and administrators. And as a result, we are happy and willing to partner with all of these various school districts. There is certainly a prioritization effort related to how we go-to-market and reach out, but ultimately, we are aiming to become the de facto tutoring platform in the United States and build trust and credibility with all school districts and all students.

Alright. Thanks.

Thank you for your question. Next question is from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is now open.

Hi guys. This is Thomas on for Brett. Thank you for taking my questions. I guess – I know we touched on it a bit earlier, but more so just the broader regulatory landscape rather than just ESSER. It seems like almost every month, you see a new Federal or state program trying to fund high-dosage tutoring. I guess how does Nerdy ensure that they are a beneficiary of these programs? Is it more so lobbying on the regulatory side, or is it going into the schools and educating them about these funds?

Well, the good thing is that because tutoring works, because outlet studies are demonstrating it works at the city, county, state and Federal level, there is ample reason for people who want to invest in high-dosage tutoring. So, that’s kind of the first thing is that it really works and the research is coming out and people are now realizing that it’s capable to deliver at scale to an extent that was never possible before. So, we are able to build relationships. Certainly, we have an enterprise sales team that we have been building and investing in, along with the government relations team and marketing efforts to make sure that we are known and trusted. But ultimately, the quality of our products and execution build that trust. And over time, you accrue more and more positive relationships that can testify to the great services that you can deliver and the impact you can have on students. And so we have been getting progressively more mature in that regard. And our products have been getting sequentially better based upon customer feedback and what we are seeing in the market. And we feel good about how that ultimately builds towards an environment where states and perhaps even at the Federal level, there will be support for additional funding for high-dose tutoring because it’s so effective and that as a leading provider that’s trusted, we will have an opportunity to participate in all of those conversations and ultimately – and the opportunity to help those students.

Awesome. That’s it for me. Thanks guys.

Thank you for your question. The next question is from the line of Greg Gibas with Northland Securities. Your line is now open.

Hey. Good afternoon Chuck and Jason. Thanks for taking my question. Just curious, what do you think is driving the higher than expected level of cancellations that you are seeing this summer?

Well, as we leaned into some of the lower cost offerings, many of those offerings did not drive weekly habit. So, I think the product wasn’t ready for the pricing mechanism that was in place to drive weekly habit and tutoring is something that people do on a weekly basis historically and traditionally, and it’s how people kind of organize their calendars. I am going to learn organic chemistry on Wednesday night or I am going to – my daughter is going to learn, work with a reading specialist on Monday afternoons, every week. And so the frequencies that were oriented around meeting on a weekly basis or twice a week basis, naturally, we are better aligned to important learning outcomes, which is why people buy tutoring. And they also aligned with the calendarization of how people manage their lives. And the low-cost products, where you can kind of use it ad hoc, it’s very easy to fall out of habit in anything that is at ad hoc, that is not habit-based. And so in shifting back to the focus on the premium memberships right now, not only does the mix alone naturally drive improvement in retention, but we are also focusing the product enhancements on driving people into that weekly habit from a scheduling perspective and making that more likely. And so perhaps it’s a good learning and relearning and it’s going to inform the UX and products such that we really put a lot of folks in related to getting people into that weekly habit.

Got it. Appreciate your thoughts there. And you may have addressed this, but regarding the ARPM trends from the lower frequency memberships trending lower, when do you expect that to inflect positively on a year-over-year basis?

Terrific question. So, with the shift towards a focus on premium memberships during the key back-to-school period and given the volumes that you see during that period, as I mentioned earlier, are 3x as high as what we would see during the summer. We would expect that the ARPM is above $300 by the end of Q3, and that would carry into Q4 and beyond. So, it will infect quickly. It’s already started to do so as we moved through July and early August. And that’s what gives me that confidence that it will be above $300 again in the back half of the year.

Yes, a lot of the trends you have seen recently with the higher ARPM products and there is some seasonality here, are approaching $400 on the new customers acquired. And so you are not just accelerating the number of customers, but you are also mixing higher ARPM customers, higher frequency customers over time and later on the higher levels of retention that we are seeing in recent cohorts and that can build quickly and over time as we continue to execute.

Got it. Thanks guys.

Thank you for your question. There are currently no further questions registered. [Operator instructions] There are no additional questions waiting at this time. So, that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.