NRDY earnings call transcript, November 9, 2026

Good afternoon, and thank you.

Thank you for joining us for NERDI's third quarter 2026 earnings call. With me are Chuck Tone, Founder, Chairman, and Chief Executive Officer of NERDI, and Atul Baga, Chief Financial Officer. Before I turn the call over to Chuck, I'll remind everyone that this discussion will contain forward-looking statements.

Thanks, TJ, and thank you to everyone for joining today's call. Our third quarter results were in line with expectations with non-GAAP. Adjusted EBITDA improving by $4.5 million year-over-year and non-GAAP adjusted EBITDA margin improving by over 1,000 basis points. We also made important progress on our product transformation, rolling out a redesigned. Messaging first, student experience, and advancing new self-service e-commerce capabilities. Together, these improvements are designed to make it easier for families to get started, deliver more value during and in-between tutoring sessions, and create a more efficient and scalable business. The third quarter marked an important transition in Nerdy's evolution. Throughout 2026, we have been building a new consumer learning experience, simplifying our business, and applying AI to improve our products and operations. In recent weeks, major parts of that... ...work have moved into customers' hands. That includes a large portion of our reimagined new student experience with the remaining features and products being launched in the coming weeks. Our new e-commerce infrastructure builds on our existing online purchasing capabilities with... a registration-led path to learning membership. Our acquisition model is historically centered on generating leads and converting them through sales. The new experience enables customers to register, purchase, and begin their learning membership through a self-service checkout flow without requiring a sales conversation. Over time, we expect this...

...more modern way to transact with our customers to lower customer acquisition costs, expand reach, and support a more efficient and scalable go-to-market model. These capabilities are arriving later than planned, limiting their contribution during the back-to-school acquisition. We acquired fewer new learning membership customers than anticipated and entered the fourth quarter with a smaller recurring revenue base. Our Q4 Revenue Outlook reflects that shortfall in learning membership counts. Moving on to recent product development. The new student experience changes how families use Nerdy. Instead of navigating menus and pages, learners and parents simply tell us what they need and the platform does it. More than 100 agentic actions sit behind that couch. A student can get step-by-step help on tonight's homework, turn next week's test into personalized study plans with reminders, generate practice on exactly what they're struggling with, schedule or reschedule sessions with the tutor, message their tutor, unenroll or enroll in classes, and do it all in the same thread. Everything in a learning membership from one-to-one tutoring to live classes to AI practice is now one message away. We believe this makes the learning membership more valuable. between sessions and increasing engagement between tutoring sessions is one of the most direct ways we can elevate retention and customer lifetime value. We recently introduced a new capability called smart actions in the quarter.

that brings real-time AI directly into live instruction. It acts as a real-time assistant alongside the human tutor, displaying superimposed suggestions directly on the digital classroom screen. Tutors can utilize suggested 3D interactive. models, visual explanations, and lesson content into the shared lesson with a click. Pulling from the more than 15,000 prepared lessons that we now have that spans some 200 subjects that are getting filtered on in real-time by AI as students and tutors. Talk about their academic work. A tutor explaining blood circulation, for example, can place a three-dimensional heart on the screen and show the student how blood moves through it, which is both a more effective way to teach and it's also far more engaging and stimulating. For our youngest learners, we built an entirely separate elementary experience. It is rocket and space themed, visually rich, and designed from the ground up for K-5 students rather than the universal data. dashboard and experience for all learners that we've had in the past. We believe that a different form factor and a significantly more interactive and visually appealing way of engaging and teaching will result in a differential level of engagement for young learners, who we believe will have a lot of. fun with this experience. Our focus is now on translating these launches into sustained gains in customer acquisition, retention, and profitable growth. With that, I'll turn the call over to Atul to discuss the financials in more detail. Atul, thanks.

the VD4S business. Average revenue per member per month or ARPAM was $366. Down 2% year over year. As a reminder, we fully left the price increases enacted in Feb 2025. And the change in ARPAM now reflects a mixed shift over periods. As of September 30th, active members were 31.8 thousand. A decrease of 7% year over year. Active member performance was largely driven by the lower new member acquisition from delays in the new product launches, which was partially offset by year over year improvement in our retention. Last quarter, we said we expected our new product experience. to support acquisition through the back to school seasons, several of the product enhancements and customer acquisition initiatives behind that expectations, including our self-service registration and checkout experience ran behind our original plan and that. delay wait on third quarter customer acquisition. Some of these features have shipped and the remainders will ship in the fourth quarter. We expect these to support our new client acquisition as they roll out. Gross margin in third quarter on a gap. was 59.7% including a $1.6 million non-cash charge for the abandonment of capitalized internal use software related to the wind down. including a charge non-cap gross margin was 64.5% an expansion of 160 basis points compared to Q3 2025 which was mostly driven by lower amortization of capitalized internal use software and partially offset by higher expert costs as sessions per member increased moving to operating expenses over the past year we made a strategic choice to lead with AI

how we operate how we build new features how we deliver the student and tutor experience how we support our members and how we run our corporate functions as a result we have substantially improved our efficiency and transformed the organization to give you a sense of scale of this change a year ago our total headcount was 934. at the end of third quarter our headcount was 525. a reduction of 44 excluding the vt4s exit our consumer sales support engineering product and the gna teams are linear by more than 300 people as ai handles work that previously required additional headcount at the same time our product velocity has continued to increase we are a much smaller team building more and that shows up in every line of the operating expense sales and marketing expenses for 13.8 million dollars a decrease of 17 year over year driven by ai enabled productivity gains in the sales organization and reduced investment in our institutional business general and administrative expenses were 18.4 million dollars down 29 year over year gna included product development costs of 7.8 million dollars compared to 10.3 million dollars in the same period last year as we continue to apply ai across the tech stack last quarter we talked about the steep increase in ai spend during the second quarter we talked about our first to optimize the ai spend without impacting usage and we told you that we expected ai spend to remain at or below second quarter level in the third quarter ai spend was 1.5

million dollars down from 2 million dollars in the second quarter more important our September run rate of ai spend was more than 60 percent below its july peak all driven by strong governance and model optimization and without reducing employee adoption of ai in the third quarter non-GAAP adjusted EBITDA loss was 5.7 million dollars ahead of our guidance range of negative 9 to negative 6 million dollars to put that in context a year ago this quarter posted a non-GAAP adjusted EBITDA loss of 10.2 million dollars that's an improvement of four and a half million dollars or 44 percent year over year and more than 1 000 basis points of margin expansion non-GAAP adjusted EBITDA performance related to our guidance was driven by lower sales staffing cost lower ai cost and disciplined gna management non-GAAP free cash flow was negative 5.9 billion dollars compared to negative 4.1 million dollars in the same period in 2025 as we discussed last quarter vt4s contracts are generally paid in advance so exiting ahead of the peak season would reduce our cash collection this year that played out as we expected two items related to the wind down drove the year-over-year change absence of approximately 5.1 million dollars of prepaid for s bookings collected in the prior year quarter and 1.2 million dollars of exit related payments excluding these items are free cash flow improved by approximately

4.5 million dollars year over year. moving to liquidity and capital resources on september 28th we borrowed the remaining 10 million dollars available under the first branch of our term loan. bringing the total borrowings to 30 million dollars. we ended the quarter with 42.5 million dollars in cash and cash equivalents. turning to our business outlook today we are introducing fourth quarter 2026 guidance. the guidance reflects lower newer client acquisitions in the third quarter which carries into a smaller active member base and lower consumer revenue in the fourth quarter. continued cost discipline of sets part of the revenue impact on non-GAAP adjusted EBITDA. our fourth quarter outlook reflects the timing of product enhancements and customer acquisitions initiatives I described earlier. some of these features and the remainder will ship later in the quarter. as they roll out, we expect the year-over-year gap in new client acquisition to narrow through the fourth quarter. moving to revenue guidance. for the fourth quarter of 2020 we expect revenue in the range of 37 to 39 million dollars. turning to adjusted EBITDA guidance. for the fourth quarter of 2026, we expect non-GAAP adjusted EBITDA to be approximately break-even. we expect to end the year with 35 to 37 million dollars of cash, inclusive of 30 million dollars drawn on our term loan. based on our current operating plan, we expect existing liquidity to

50 million dollars of cash. the company through free cash flow breakeven. to close revenue within guidance, non-GAAP adjusted EBITDA ahead of the top end of our guidance and a cost structure that is meaningfully leaner and the total headcount. our priority now is returning active members to growth and the product and customer acquisition releases shipping this quarter are central to that. my mandate has not changed. get nerdy to free cash flow positive while investing with discipline in areas that drive member growth with that i'll turn it over to operator for q a operator we will now

please stand by while we compile the Q&A roster your first question comes from the line of Greg Gibbous with Northland Securities your line is now open please go ahead

This concludes today's call.