Nerdy's Q3 2025: Contradictions Emerge on Product Velocity, AI Impact, and Operational Efficiency

Date of Call: November 6, 2025

Financials Results

• Revenue: $37.0M, down 1% YOY from $37.5M (in line with guidance of $37M-$40M)
• Gross Margin: Improved ~140 basis points sequentially vs Q2 2025; year-over-year decrease attributed to investments in Expert pay & incentives (no absolute % provided)
• Operating Margin: Non-GAAP adjusted EBITDA margin improved 960 basis points YOY; non-GAAP adjusted EBITDA loss $10.2M vs $14M prior-year (Q3)

Guidance:

• Q4 revenue expected $45M to $47M
• Full-year revenue expected $175M to $177M
• Q4 non-GAAP adjusted EBITDA loss expected $2M to breakeven
• Full-year non-GAAP adjusted EBITDA loss expected $19M to $21M
• Expect to end year with $45M to $48M in cash (includes $20M drawn term loan)
• Note: Consumer Active Members decline expected to partially offset by higher ARPM; Institutional revenue impacted by federal/state funding delays

Business Commentary:

* Revenue and Consumer Growth: - Nerdy, Inc.'s third-quarter revenue was $37 million, with a 1% year-over-year decrease, but a 1,000 basis point improvement in growth rates sequentially compared to the second quarter. - Revenue was driven by a 5% increase in Learning membership revenue, despite a decline in Active Members due to operational challenges.

• Operational Challenges and Product Launch Delays:
• The company faced challenges with key product launches, impacting their anticipated inflection in growth and profitability by a quarter.
• These setbacks were attributed to technical debt and operational issues stemming from disparate technology systems and the strain on underlying systems.

• Productivity Improvements and AI Integration:
• Nerdy achieved a 960 basis point improvement in non-GAAP adjusted EBITDA margin year-over-year, driven by improved operational efficiency and cost reductions across nearly every P&L line item.
• This improvement is attributed to AI-enabled productivity improvements and new software-driven processes, allowing for significant headcount reductions.

• Institutional Business Performance:
• The Institutional business delivered $3.7 million in revenue, representing 10% of total company revenue, with a decrease in bookings due to federal and state funding delays.
• Despite challenges, Nerdy anticipates returning to growth with the launch of a new end-to-end Varsity Tutors for Schools experience, aligning with established intervention frameworks.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a 960 bps year-over-year improvement in non-GAAP adjusted EBITDA margin, announced targeting nearly 100% of traffic on new AI-written code bases by end of November, and provided Q4 revenue guidance of $45M-$47M while forecasting a path to near-term profitability.

Q&A:

• Question from Ross Sandler (Barclays): The new management structure with the COO and 13 new team leads, how will that impact execution speed and responsibilities? With the new tech stack, how do you expect it to impact KPIs like member growth or retention next year?
  Response: Centralizing under the new COO and the modernized code base has already dramatically increased product velocity; management expects faster launches to improve engagement, accelerate revenue, and reduce costs, leading to better retention and growth.

• Question from Jason Tilchen (Canaccord): You said product delays pushed the growth inflection by a quarter and caused you to miss back-to-school — what's the timing dynamic and why are you confident the drag won't persist?
  Response: Nearly 100% of traffic will be on new code bases by month-end, and sequential improvements (including MRR growth) and faster product velocity give confidence the back-to-school drag is temporary.

• Question from Jason Tilchen (Canaccord): Can you discuss the funding delays — are they due to the government shutdown or other factors — and what benefits do you expect from the new end-to-end Varsity Tutors for Schools experience?
  Response: Institutional timing is driven by federal/state funding delays; the new end-to-end Schools product aligns with MTSS/RTI frameworks and Live+AI/high-dosage tutoring, making it more sellable and able to capture district demand once funding proceeds.

• Question from Yi Lee (Cantor Fitzgerald): With the Live Learning Platform showing 50% fewer A/V errors, ~40% cost savings per session and 50% growth in self-study consumption, how will this translate to revenue growth and cost savings timing/ROI?
  Response: As volume migrates to the new platform, marginal session costs and customer-service costs fall, reliability and user experience improve, and management expects the biggest ROI to manifest via higher retention and lower operating costs.

• Question from Yi Lee (Cantor Fitzgerald): With the COO and new senior hires, what's the first 100-day plan and how will you reverse the Active Members decline while driving ARPM/ARPU?
  Response: Focus is on collapsing decision-making and boosting product velocity to improve funnel performance, discoverability and reliability across features, which should reaccelerate member acquisition and retention while preserving higher ARPM.

• Question from Gregory Gibas (Northland): Did you comment on ARPM and member growth assumptions implied in Q4 guidance?
  Response: Q3 ARPM was $374 (up 24% YOY); management expects to end year with ~32,000 Active Members and is prioritizing higher-value customers, with Active MRR up 7% at quarter-end as the basis for Q4 guidance.

• Question from Gregory Gibas (Northland): After product-launch delays and missing back-to-school, what learning member trends have you seen since the launches?
  Response: Post-launch metrics show higher retention and improved satisfaction (aided by AI vetting of tutors and integrated experiences); management expects unified platform features to drive stronger retention beyond the initial months.

Contradiction Point 1

Product Velocity and Execution Speed

It involves claims about the impact of new management and tech stack on execution speed and product velocity, which are critical for operational efficiency and company growth.

How will the new management structure impact execution speed? How will the new tech stack affect member growth and retention KPIs? Do you expect faster member growth or improved retention? - Ross Sandler (Barclays Bank PLC, Research Division)

2025Q3: The new Chief Operating Officer will centralize control, simplifying structures for better execution. Product velocity has dramatically increased, enabling faster testing and launches. This will impact engagement metrics and positively affect revenue. - Charles Cohn(CEO)

Can you detail the factors driving revenue growth resumption in the second half of the year and the composition of active member vs. ARPM growth? - Bryan Smilek (JPMorgan)

2025Q2: The last 60 days saw significant productivity, and innovation has improved retention and customer onboarding. - Charles Cohn(CEO)

Contradiction Point 2

AI Impact on Engagement and Retention

It highlights differing perspectives on the immediate impact of AI tools on user engagement and retention, which are critical for business growth and customer satisfaction.

Could you discuss member trends following delayed product launches? - Gregory Gibas (Northland Capital Markets)

2025Q3: Improvements in the new platform are positively impacting customer retention. The unified platform will enhance discovery and retention, which will continue to improve over time. - Charles Cohn(CEO)

Which new features are most effective for driving engagement and retention? - Jason Tilchen (Canaccord)

2025Q1: AI tools are enhancing the user experience, but the impact is incremental. Tutor Copilot shows positive signals but is less immediately impactful on financials. - Charles Cohn(CEO)

Contradiction Point 3

Operational Efficiency Impact of AI

It involves differing statements about how AI is currently impacting operational efficiency, which is crucial for cost management and resource allocation.

How will the new management structure impact execution speed? How will the new tech stack affect KPIs such as member growth and retention? Will the new structure drive faster member growth or improved retention? - Ross Sandler (Barclays Bank PLC)

2025Q3: The new tech stack allows for more unified experiences that are expected to enhance customer retention. - Charles Cohn(CEO)

Is there an AI product considered a gamechanger? - Yi Lee (Cantor Fitzgerald)

2025Q1: We're halfway through applying AI to automate operations. Matching algorithms and customer service processes are being automated, leading to improved customer satisfaction and retention. - Jason Pello(CFO)

Contradiction Point 4

Product Delivery and Timing

It involves differing statements about the timing and delivery of new products, which could impact customer satisfaction and company revenue.

How will you address product delays that caused missing the back-to-school season, and what strategies will drive future growth? - Jason Tilchen (Canaccord Genuity Corp., Research Division)

2025Q3: We have launched new experiences across almost the entire website, with nearly 100% of traffic on new code bases by the end of November. - Charles Cohn(CEO)

Can you clarify the assumptions behind the active learning numbers and ARPM for 1Q and explain the dynamics involved? - Unidentified Analyst (Citizens JMP)

2024Q4: Nerdy had a strong Q4, with significant improvements in retention and increased tutor engagement. - Chuck Cohn(CEO)

Contradiction Point 5

Customer Retention and AI Impact

It centers around the impact of AI tools on customer retention, which is crucial for company growth and profitability.

How will funding delays affect bookings, and what benefits are expected from the new Varsity Tutors for Schools experience? - Jason Tilchen (Canaccord Genuity Corp., Research Division)

2025Q3: The new in-line experience reduces friction, enhances discoverability, and improves multi-subject and multi-student within the same family experiences, which should lead to higher retention. - Jason Pello(CFO)

How is the new AI product impacting consumer retention? What caused the Q4 gross margin and utilization dynamics, and why is improvement expected in the next few quarters? - Ross Sandler (Barclays)

2024Q4: AI products enhance retention by offering personalized sessions and insights. - Chuck Cohn(CEO)