nrdy-20230331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-39595

NERDY INC.

(Exact name of registrant as specified in its charter)


Delaware		98-1499860
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

	101 S. Hanley Rd., Suite 300
	St. Louis, Missouri 63105
(Address of Principal Executive Offices) (Zip Code)

(314) 412-1227

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

NRDY

New York Stock Exchange

Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share

NRDY-WT

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the numbers of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class A common stock, par value $0.0001 per share - 98,019,731 shares of common stock as of May 2, 2023

Class B common stock, par value $0.0001 per share - 69,241,655 shares of common stock as of May 2, 2023

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NERDY INC.

QUARTERLY REPORT ON FORM 10-Q

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		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited).	1

	Condensed Consolidated Statements of Operations (Unaudited).	1

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited).	2

	Condensed Consolidated Balance Sheets (Unaudited).	3

	Condensed Consolidated Statements of Cash Flows (Unaudited).	4

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited).	5

	Notes to Condensed Consolidated Financial Statements (Unaudited).	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	19

Item 4.	Controls and Procedures.	19

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	20

Item 1A.	Risk Factors.	20



Item 6.	Exhibits.	20

	SIGNATURES	21

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PART I. FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).

NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)


	Three Months Ended March 31,
		2023		2022
Revenue		$	49,180	$	46,925
Cost of revenue		15,290		14,152
Gross Profit		33,890		32,773
Sales and marketing expenses		15,560		22,946
General and administrative expenses		29,700		30,509


Operating Loss		(11,370)		(20,682)
Unrealized loss on derivatives, net		21,682		11,042
Interest income		(833)		(7)
Other expense, net		11		17

Loss before Income Taxes		(32,230)		(31,734)
Income tax expense		23		13
Net Loss		(32,253)		(31,747)

Net loss attributable to noncontrolling interests		(13,322)		(14,902)
Net Loss Attributable to Class A Common Stockholders		$	(18,931)	$	(16,845)

Loss per share of Class A Common Stock:

Basic and Diluted		$	(0.21)	$	(0.21)

Weighted-Average Shares of Class A Common Stock Outstanding:

Basic and Diluted		91,776		79,619

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in thousands)


	Three Months Ended March 31,
		2023		2022
Net Loss		$	(32,253)	$	(31,747)
Foreign currency translation adjustments		34		(73)
Total Comprehensive Loss		(32,219)		(31,820)

Comprehensive loss attributable to noncontrolling interests		(13,308)		(14,936)
Total Comprehensive Loss Attributable to Class A Common Stockholders		$	(18,911)	$	(16,884)

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands)


	March 31, 2023		December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents	$	96,520	$	90,715
Accounts receivable, net	6,333		11,596
Other current assets	4,182		5,345
Total Current Assets	107,035		107,656
Fixed assets, net	12,456		12,504
Goodwill	5,717		5,717
Intangible assets, net	3,465		3,574
Other assets	2,884		3,241
Total Assets	$	131,557	$	132,692

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	4,148	$	3,199
Deferred revenue	22,254		25,539


Other current liabilities	9,157		8,593
Total Current Liabilities	35,559		37,331
Other liabilities	35,594		14,311

Total Liabilities	71,153		51,642
Stockholders’ Equity
Class A common stock	10		9
Class B common stock	7		7
Additional paid-in capital	529,410		522,031
Accumulated deficit	(494,038)		(475,107)
Accumulated other comprehensive income (loss)	8		(12)
Total Stockholders’ Equity Excluding Noncontrolling Interests	35,397		46,928
Noncontrolling interests	25,007		34,122
Total Stockholders’ Equity	60,404		81,050
Total Liabilities and Stockholders’ Equity	$	131,557	$	132,692

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Three Months Ended March 31,
	2023		2022
Cash Flows From Operating Activities
Net Loss	$	(32,253)	$	(31,747)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization	1,553		1,422
Amortization of intangibles	150		157
Unrealized loss on derivatives, net	21,682		11,042

Non-cash stock-based compensation expense	11,049		12,490




Other changes in operating assets and liabilities:
Decrease in accounts receivable, net	5,263		841
Decrease in other current assets	1,163		575
Decrease in other assets	357		344
Increase in accounts payable	949		2,503
(Decrease) increase in deferred revenue	(3,285)		804
Increase in other current liabilities	686		1,764
Decrease in other liabilities	(520)		(1,126)
Net Cash Provided By (Used In) Operating Activities	6,794		(931)
Cash Flows From Investing Activities
Capital expenditures	(982)		(1,264)
Net Cash Used In Investing Activities	(982)		(1,264)
Cash Flows From Financing Activities

Payments to legacy Nerdy holders	—		(767)







Other	—		(49)
Net Cash Used In Financing Activities	—		(816)
Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash	(7)		(5)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	5,805		(3,016)
Cash, Cash equivalents, and Restricted Cash, Beginning of Year	91,547		145,879
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	97,352	$	142,863

Supplemental Cash Flow Information
Non-cash stock-based compensation included in capitalized internal use software	$	524	$	606
Purchase of fixed assets included in accounts payable	—		88

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands)


	As Of and For The Three Months Ended March 31,
		2023		2022
Class A Common Stock
Beginning of period		$	9	$	8
Activity under stock compensation plans		1		—
End of period		10		8
Class B Common Stock


Beginning and end of period		7		7
Additional Paid-In Capital
Beginning of period		522,031		490,220
Non-cash stock-based compensation		11,247		12,697
Activity under stock compensation plans		(1)		(49)
Conversion of combined interests into Class A common stock		181		—
Rebalancing of ownership percentage between controlling and the noncontrolling interests		(4,048)		(5,598)
End of period		529,410		497,270
Accumulated Deficit
Beginning of period		(475,107)		(439,708)
Net loss		(18,931)		(16,845)
End of period		(494,038)		(456,553)
Accumulated Other Comprehensive Income (Loss)
Beginning of period		(12)		136
Foreign currency translation adjustments		20		(39)
End of period		8		97
Total Stockholders’ Equity Excluding Noncontrolling Interests		35,397		40,829
Noncontrolling Interests
Beginning of period		34,122		45,142
Net loss		(13,322)		(14,902)
Non-cash stock-based compensation		326		404
Foreign currency translation adjustments		14		(34)
Conversion of combined interests into Class A common stock		(181)		—
Rebalancing of ownership percentage between controlling and the noncontrolling interests		4,048		5,598
End of period		25,007		36,208
Total Stockholders’ Equity		$	60,404	$	77,037
Class A Common Stock - Shares
Beginning of period		95,296		83,913
Activity under stock compensation plans		2,130		764
Conversion of combined interests into Class A common stock		500		—
End of period		97,926		84,677
Class B Common Stock - Shares
Beginning of period		69,306		73,987
Activity under stock compensation plans		452		277
Conversion of combined interests into Class A common stock		(500)		—
End of period		69,258		74,264

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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NERDY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except per share information and where indicated otherwise)

NOTE 1 — BASIS OF PRESENTATION

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), under the rules and regulations of the United States (the “U.S.”) Securities and Exchange Commission (the “SEC”), and on a basis substantially consistent with the audited consolidated financial statements of Nerdy Inc. (herein referred to as “Nerdy,” the “Company,” “us,” “our,” or “we,” and unless otherwise stated or context otherwise indicates, all such references herein mean Nerdy and its consolidated subsidiaries) as of and for the year ended December 31, 2022. These unaudited condensed consolidated financial statements should be read in conjunction with such audited consolidated financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.

These unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair statement of the Company’s results of operations, comprehensive income (loss), financial condition, cash flows, and stockholders’ equity (deficit) for the interim periods presented. Interim results are not necessarily indicative of the results for any other interim period or for the entire year.

Nerdy Inc. was formed on September 20, 2021 in connection with a business combination between TPG Pace Tech Opportunities (“TPG Pace”) and Live Learning Technologies LLC (along with its wholly-owned subsidiaries, “Nerdy LLC”). Nerdy LLC is a holding company that is the sole owner of multiple operating companies, including its flagship business Varsity Tutors LLC (“Varsity Tutors”). As a result of the business combination and related transactions (the “Reverse Recapitalization”), Nerdy LLC merged with a wholly-owned subsidiary of Nerdy Inc., with Nerdy LLC surviving such merger. Nerdy Inc. is a holding company that has no material assets other than its ownership interests in Nerdy LLC and its indirect interests in the subsidiaries of Nerdy LLC, and has no independent means of generating revenue or cash flow.

Nerdy Inc. has the following classes of securities issued and outstanding: (i) Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), (ii) Class B common stock, par value $0.0001 per share (the “Class B Common Stock”), and (iii) warrants, each exercisable to purchase one share of Class A Common Stock at a price of $11.50 per share. The shares of Class B Common Stock are owned by the Legacy Nerdy Holders (as defined below), have voting rights only, and have no dividend or economic rights. The Company does not intend to list its Class B Common Stock on any stock exchange.

Nerdy Inc.’s warrants consist of TPG Pace’s previously outstanding private placement warrants and public warrants to purchase Class A ordinary shares that were converted into corresponding private placement warrants to purchase Class A Common Stock (the “Private Placement Warrant(s)”) and public warrants to purchase Class A Common Stock (the “Public Warrant(s)”). Each Private Placement Warrant and Public Warrant allows for the purchase of one share of Class A Common Stock at an exercise price of $11.50 per share. Additionally, Nerdy Inc. also issued warrants to purchase Class A Common Stock in connection with a forward purchase agreement (the “FPA Warrant(s)”). Each FPA Warrant allows for the purchase of one share of Class A Common Stock at an exercise price of $11.50 per share.

Nerdy LLC has the following securities issued and outstanding: (i) units (the “OpCo Units”) and (ii) warrants to purchase OpCo Units at an exercise price of $11.50 (the exercise of which would also result in the issuance of one corresponding share of Class B Common Stock) (the “OpCo Warrant(s)”). Members of Nerdy LLC are the legacy holders of Nerdy LLC historical common and preferred equity (the “Legacy Nerdy Holder(s)”) and Nerdy Inc.

The Private Placement Warrants, the Public Warrants, the FPA Warrants, and the OpCo Warrants are collectively referred to herein as the “Warrant(s).” At March 31, 2023 and December 31, 2022, the Company holds 22 of the total issued and outstanding Warrants.

Of the total shares and units issued and outstanding, there are 8,000 shares or units of (i) Class A Common Stock or (ii) OpCo Units (and a corresponding number of Class B Common Stock), as applicable, that will be subject to forfeiture if the achievement of certain stock price thresholds of the Class A Common Stock are not met within five years of the Reverse Recapitalization (assuming there is no change in control event) (the “Earnout(s)”). At March 31, 2023 and December 31, 2022, the Company holds 36 of the total issued and outstanding Earnouts.

Nerdy Inc. and Nerdy LLC will at all times maintain a one-to-one ratio between the number of shares of Class A and Class B Common Stock issued by Nerdy Inc. and the number of OpCo Units issued by Nerdy LLC.

The financial results of Nerdy LLC and its wholly-owned subsidiaries are consolidated with and into Nerdy Inc., and a portion of the consolidated net earnings (loss) of Nerdy LLC, which the Legacy Nerdy Holders are entitled to or are required to absorb, are allocated to the noncontrolling interests (the “NCI”). The Company has excluded Earnouts in the calculation of the

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ownership interests in Nerdy LLC as the Earnouts are subject to forfeiture, as discussed above. To the extent these price thresholds are met, the Earnouts will no longer be subject to forfeiture and the units will then be included in the calculation of the ownership interests in Nerdy LLC.

NOTE 2 — RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements (other than the ones described below) that had or will have an impact on the results of operations, comprehensive income (loss), financial condition, cash flows, and stockholders’ equity (deficit) based on current information.

Recently Issued

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception and it simplifies the diluted earnings (loss) per share calculation in certain areas. The Company is required to adopt this ASU on January 1, 2024. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU.

Recently Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new current expected credit losses (“CECL”) model generally calls for the immediate recognition of all expected credit losses and applies to loans, accounts and trade receivables, as well as other financial assets measured at amortized cost, loan commitments and off-balance sheet credit exposures, debt securities, and other financial assets measured at fair value through other comprehensive income and beneficial interests in securitized financial assets. This ASU replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available for sale debt securities to be recognized through an allowance for credit losses rather than as a reduction in the amortized cost of the securities, and provides for additional disclosure requirements. The Company adopted this ASU on January 1, 2023 in accordance with the ASU. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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NOTE 3 — NONCONTROLLING INTERESTS

As of March 31, 2023, Legacy Nerdy Holders owned 65,900 OpCo Units, excluding Earnouts, equal to 41.4% of the economic interest in Nerdy LLC, and 65,900 shares of Class B Common Stock, excluding Earnouts. As of December 31, 2022, Legacy Nerdy Holders owned 65,948 OpCo Units, excluding Earnouts, equal to 42.1% of the economic interest in Nerdy LLC, and 65,948 shares of Class B Common Stock, excluding Earnouts.

Nerdy Inc. owned 58.6% and 57.9% of the outstanding OpCo Units as of March 31, 2023 and December 31, 2022, respectively. For the three months ended March 31, 2023 and 2022, the financial results of Nerdy LLC and its subsidiaries were consolidated with and into Nerdy Inc., and the portions of the consolidated net losses of Nerdy LLC, which the Legacy Nerdy Holders absorbed, were allocated to NCI. At the end of each reporting period, Nerdy LLC equity attributable to Nerdy Inc. and the Legacy Nerdy Holders was rebalanced to reflect Nerdy Inc.’s and the Legacy Nerdy Holders’ ownership in Nerdy LLC.

The following table summarizes the changes in ownership of OpCo Units in Nerdy LLC, excluding Earnouts, for the periods presented.


	As Of and For The Three Months Ended March 31,
		2023		2022
OpCo Units
Nerdy Inc.
Beginning of period		90,654		79,271
Vesting or exercise of equity awards		2,130		764
Conversion of Combined Interests into Class A Common Stock		500		—

End of period		93,284		80,035
Legacy Nerdy Holders
Beginning of period		65,948		70,629
Vesting or exercise of equity awards		452		277
Conversion of Combined Interests into Class A Common Stock		(500)		—

End of period		65,900		70,906
Total
Beginning of period		156,602		149,900
Vesting or exercise of equity awards		2,582		1,041


End of period		159,184		150,941
Ownership Percentage
Nerdy Inc.
Beginning of period		57.9	%	52.9	%
End of period		58.6	%	53.0	%
Legacy Nerdy Holders
Beginning of period		42.1	%	47.1	%
End of period		41.4	%	47.0	%

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NOTE 4 — REVENUE

The following table presents the Company’s revenue by business category for the periods presented.


	Three Months Ended March 31,
		2023		%		2022		%
Consumer		$	40,335	82	%	$	38,918	83	%
Institutional		8,540		17	%	6,475		14	%
Other (a)		305		1	%	1,532		3	%
Revenue		$	49,180	100	%	$	46,925	100	%

(a)Other consists of EduNation Limited, a company incorporated in England and Wales, and other services.

Contract liabilities are reported within “Deferred revenue” on the Company’s Condensed Consolidated Balance Sheets. Deferred revenue consists of advanced payments from customers for performance obligations that have not been satisfied. Deferred revenue is recognized when the performance obligations have been completed. The Company expects to recognize substantially all of the deferred revenue balance in the next twelve months. The following table presents the Company’s “Accounts receivable, net” and “Deferred revenue” reported on the Condensed Consolidated Balance Sheets for the periods presented.


	March 31, 2023		December 31, 2022
Accounts receivable, net	$	6,333	$	11,596
Deferred revenue	$	22,254	$	25,539

“Accounts receivable, net” is reported net of reserves of $665 and $858 as of March 31, 2023 and December 31, 2022, respectively.

NOTE 5 — INCOME TAXES

Nerdy Inc. holds an economic interest in Nerdy LLC (see Notes 1 and 3), which is treated as a partnership for U.S. federal income tax purposes. As a partnership, Nerdy LLC is generally not subject to U.S. federal income tax under current U.S. tax laws as its net taxable income (loss) and any related tax credits are passed through to its members and included in their tax returns, even though such net taxable income (loss) or tax credits may not have actually been distributed. Nerdy Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its distributive share of the net taxable income (loss) and any related tax credits of Nerdy LLC. The Company continues to maintain a full valuation allowance against the deferred tax assets at Nerdy Inc. as of March 31, 2023.

The effective income tax rate was (0.07)% and (0.04)% for the three months ended March 31, 2023 and 2022, respectively. The effective income tax rates differed significantly from the statutory rates in both periods, primarily as a result of changes in the valuation allowance and income tax benefit attributable to the NCI. Income tax expense reported for both the three months ended March 31, 2023 and 2022 represents amounts owed to state authorities.

NOTE 6 — LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share of Class A Common Stock.


	Three Months Ended March 31,
		2023		2022
Net Loss Attributable to Class A Common Stockholders		$	(18,931)	$	(16,845)
Less: Undistributed net earnings attributable to participating securities		—		—
Net loss attributable to Class A Common Stockholders for basic and diluted loss per share		$	(18,931)	$	(16,845)
















Weighted-average shares of Class A Common Stock for basic and diluted loss per share		91,776		79,619


Basic and Diluted loss per share of Class A Common Stock		$	(0.21)	$	(0.21)

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The following table details the securities that have been excluded from the calculation of weighted-average shares for diluted loss per share of Class A Common Stock for the periods presented as they were anti-dilutive.


	Three Months Ended March 31,
		2023	2022
Stock options		974	3,297
Stock appreciation rights		6,417	7,092
Restricted stock awards		311	2,238
Restricted stock units		11,389	9,585
Restricted stock units - founder’s award		9,258	9,258
Warrants		19,311	19,311
Earnouts		7,964	7,964
Combined Interests that can be converted into shares of Class A Common Stock		65,900	70,906

NOTE 7 — CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash Flows for the periods presented.


	March 31, 2023		December 31, 2022		March 31, 2022		December 31, 2021
Cash and cash equivalents	$	96,520	$	90,715	$	141,715	$	143,964
Restricted cash included in Other current assets	516		516		316		1,083
Restricted cash included in Other assets	316		316		832		832
Total Cash, Cash Equivalents, and Restricted Cash shown in the Condensed Consolidated Statements of Cash Flows	$	97,352	$	91,547	$	142,863	$	145,879

The Company includes amounts in restricted cash required to be set aside by contractual agreement. Restricted cash consists of cash collateralized letters of credit in support of its corporate office leases.

NOTE 8 — FIXED ASSETS, NET

The following table presents fixed assets and accumulated depreciation reported on the Condensed Consolidated Balance Sheets for the periods presented.


	March 31, 2023		December 31, 2022
Fixed assets	$	37,439	$	36,164
Accumulated depreciation	(24,983)		(23,660)
	$	12,456	$	12,504

The following table presents amortization expense related to capitalized internal use software and depreciation expense reported in the Condensed Consolidated Statements of Operations for the periods presented.


		Three Months Ended March 31,
	Statement of Operations Location		2023		2022
Amortization expense related to capitalized internal use software	Cost of revenue		$	1,297	$	1,164
Depreciation expense	General and administrative expenses		256		258

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NOTE 9 — INTANGIBLE ASSETS, NET

The Company’s intangibles assets consist entirely of trade names. The following table presents the carrying amount and accumulated amortization related to trade names reported on the Condensed Consolidated Balance Sheets for the periods presented.


	March 31, 2023		December 31, 2022
Carrying amount	$	6,026	$	5,956
Accumulated amortization	(2,561)		(2,382)
	$	3,465	$	3,574

The following table presents amortization expense related to intangible assets reported in the Condensed Consolidated Statements of Operations for the periods presented.


		Three Months Ended March 31,
	Statement of Operations Location		2023		2022
Amortization expense related to intangible assets	General and administrative expenses		$	150	$	157

NOTE 10 — DERIVATIVE FINANCIAL INSTRUMENTS

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company does not hold or issue financial instruments for speculative or trading purposes.

The Company has issued and outstanding Warrants and Earnouts to non-employees. The Warrants and Earnouts held by non-employees are not in the scope of ASC Topic 718, “Compensation—Stock Compensation” and are classified as derivative liabilities under ASC Topic 480, “Distinguishing Liabilities from Equity” or ASC Topic 815, “Derivatives and Hedging.” Derivative Warrant and Earnout liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. The Company does not offset derivative assets and liabilities within the Condensed Consolidated Balance Sheets.

At both March 31, 2023 and December 31, 2022, the number of Warrants and Earnouts contracts issued and outstanding to non-employees was 19,122 and 7,655, respectively.

The following table presents the balance sheet location and fair value of the Company’s derivative liability instruments on a gross basis, none of which are designated as hedging instruments under ASC Topic 815.


	Balance Sheet Location	March 31, 2023		December 31, 2022
Non-employee Warrants	Other liabilities	$	12,812	$	4,398
Non-employee Earnouts	Other liabilities	20,926		7,658
		$	33,738	$	12,056

The following table presents the effects of the Company’s derivative instruments in Condensed Consolidated Statements of Operations for the periods presented.


		Three Months Ended March 31,
	Statement of Operations Location		2023		2022
Non-employee Warrants	Unrealized loss on derivatives, net		$	8,414	$	5,163
Non-employee Earnouts	Unrealized loss on derivatives, net		13,268		5,879
			$	21,682	$	11,042

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NOTE 11 — FAIR VALUE MEASUREMENTS

The following table represents the Company’s liabilities measured at fair value on a recurring basis and the basis for that measurement according to the levels in the fair value hierarchy in ASC Topic 820, “Fair Value Measurement.”


	March 31, 2023								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Non-employee Warrants	$	12,812	$	6,030	$	6,782	$	—	$	4,398	$	2,070	$	2,328	$	—
Non-employee Earnouts	20,926		—		—		20,926		7,658		—		—		7,658
	$	33,738	$	6,030	$	6,782	$	20,926	$	12,056	$	2,070	$	2,328	$	7,658

The Public Warrants issued to non-employees were valued using the market approach based upon the quoted market price of Nerdy Inc.’s Public Warrants at the end of each period and are categorized as Level 1. The Private Placement Warrants, FPA Warrants, and OpCo Warrants issued to non-employees were valued based upon the quoted price for similar liabilities (the Public Warrants issued to non-employees) in active markets at the end of each period. As such, the Private Placement Warrants, FPA Warrants, and OpCo Warrants issued to non-employees are categorized as Level 2.

The fair value of liabilities associated with the non-employee Earnouts was measured on a recurring basis using the Monte Carlo Option Pricing Method. The fair value measurement is categorized as Level 3, as the fair values utilize significant unobservable inputs. The following table summarizes the Level 3 activity measured on a recurring basis.


Balance, December 31, 2022	$	7,658

Mark-to-market loss on non-employee Earnouts	13,268
Balance, March 31, 2023	$	20,926

The fair value of each non-employee Earnout was estimated using the Monte Carlo Option Pricing Method at the end of each reporting period. Inherent in the Monte Carlo Option Pricing Method are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, and dividend yield. The Company estimated expected stock-price volatility using the implied volatility from the Company’s Public Warrants. The risk-free interest rate was based on the U.S. Treasury zero-coupon yield curve for a maturity similar to the expected remaining life of the non-employee Earnouts. The expected life of the non-employee Earnouts was assumed to be equivalent to their remaining contractual term. The Company anticipated the dividend rate will remain at zero.

The following table presents the assumptions used to remeasure the fair value of outstanding non-employee Earnouts liabilities for the periods presented.


	March 31, 2023	December 31, 2022
Expected term (in years)	3.48	3.72
Stock price of Class A Common Stock	$4.18	$2.25
Expected stock price volatility	83.0%	79.0%
Risk-free interest rate	3.7%	4.1%
Expected Dividends	—%	—%
Fair Value (per Earnout)	$2.73	$1.00

The Company’s financial assets and liabilities also include cash and cash equivalents, restricted cash, receivables, and accounts payable for which the carrying value approximates fair value due to their short maturities (less than 12 months). Certain assets and liabilities, including definite-lived assets and goodwill, are measured at fair value on a non-recurring basis. There were no fair value measurement adjustments recognized related to definite-lived assets or goodwill during the three months ended March 31, 2023 or 2022.

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NOTE 12 — RELATED PARTIES

Tax Receivable Agreement

Nerdy Inc. has a tax receivable agreement with certain Legacy Nerdy Holders (the “TRA Holder(s)”) (the “Tax Receivable Agreement”). The Tax Receivable Agreement generally provides for the payment by Nerdy Inc. to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state, and local income tax that Nerdy Inc. actually realizes (or is deemed to realize in certain circumstances) as a result of: (i) certain increases in tax basis that occur as a result of (A) the Reverse Recapitalization (including as a result of cash received in the Reverse Recapitalization and debt repayment occurring in connection with the Reverse Recapitalization) or (B) exercises of the redemption or call rights set forth in the Nerdy LLC operating agreement; and (ii) imputed interest deemed to be paid by Nerdy Inc. as a result of, and additional basis arising from, any payments Nerdy Inc. makes under the Tax Receivable Agreement. Nerdy Inc. will retain the benefit of the remaining 15% of these net cash savings.

As of March 31, 2023, Nerdy Inc. has not recognized a liability of $110,575 under the Tax Receivable Agreement after concluding it was not probable that such Tax Receivable Agreement payments would be paid based on its estimates of Nerdy’s LLC future taxable income. Nerdy Inc. did not make any payments to the TRA Holders under the Tax Receivable Agreement during the three months ended March 31, 2023 or 2022. The amounts payable under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount, character, and timing of the taxable income of the Company in the future. If the valuation allowance recorded against the deferred tax assets applicable to the tax attributes referenced above is released in a future period, the Tax Receivable Agreement liability may be considered probable at that time and recorded within earnings.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, and capital resources of Nerdy Inc. and its consolidated subsidiaries. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included herein and our audited consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”), as filed with the United States Securities and Exchange Commission (the “SEC”) on February 28, 2023. In addition, the following discussion and analysis of Nerdy Inc.’s financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth in the sections entitled “Item 1A. Risk Factors” in Part I of the 2022 Annual Report and “Item 1A. Risk Factors” in Part II of this report, as well as under the section “Cautionary Note On Forward-Looking Statements” below. Unless otherwise stated or the context otherwise indicates, all references in the succeeding paragraphs to “Nerdy,” “the Company,” “us,” “our” or “we” mean Nerdy Inc. and its consolidated subsidiaries.

OVERVIEW

We operate a platform for live online learning. Our mission is to transform the way people learn through technology. Our purpose-built proprietary platform leverages technology, including artificial intelligence (“AI”), to connect students, users, parents, guardians, and purchasers (“Learner(s)”) of all ages to tutors, instructors, subject matter experts, educators, and other professionals (“Expert(s)”), delivering superior value on both sides of the network. Our comprehensive learning destination provides learning experiences across numerous subjects and multiple formats, including Learning Memberships, one-on-one instruction, small group tutoring, small group classes, large format group classes, and adaptive self-study. Our flagship business, Varsity Tutors LLC (“Varsity Tutors”), is one of the nation’s largest platforms for live online tutoring and classes. Its solutions are available directly to Learners, as well as through schools and other institutions. Our platform offers Experts the opportunity to generate income from the convenience of home, while also increasing access for Learners by removing barriers to high-quality, live online learning. Our offerings include Varsity Tutors for Schools, a product suite (including High Dosage, Teacher Assigned, and On Demand tutoring) that leverages our platform capabilities to offer our online learning solutions directly to education systems. We have built a diversified business across the following audiences: K-8, High School, College, Graduate School, and Professional.

KEY OPERATING METRICS

We monitor the following key operating metrics to evaluate the growth of our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

We continue to make substantial progress in our transition from our Package model to Learning Memberships within our Consumer business. As a result of this transition, we are presenting Active Members (as defined below) as a new key operating metric. As Learning Memberships were first broadly sold in the second quarter of 2022, comparable Active Member counts for prior year periods will not be provided until the second quarter of 2023.

“Active Member(s)” is defined as the number of Learners with an active Learning Membership as of the date presented. Variations in the number of Active Members are due to changes in demand for our solutions, seasonality, testing schedules, the extension of Learning Memberships to additional Consumer audiences, and the launch of new membership options. As a result, we believe Active Members is a key indicator of our ability to attract, engage, and retain Learners. Active Members exclude EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”), as well as our Institutional business.


Active Members in thousands			March 31, 2023
Active Members			32.9

“Active Experts” is defined as the number of Experts who have instructed one or more sessions in a given period. Active Experts also includes our Institutional business, but excludes First Tutors UK. The following table summarizes Active Experts for the periods presented.


	Three Months Ended March 31,		Change
Active Expert in thousands: favorable/(unfavorable)		2023	2022	%
Active Experts		10.2	11.3	(10)%

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RESULTS OF OPERATIONS


	Three Months Ended March 31,
dollars in thousands		2023		%		2022		%
Revenue		$	49,180	100	%	$	46,925	100	%
Cost of revenue		15,290		31	%	14,152		30	%
Gross Profit		33,890		69	%	32,773		70	%
Sales and marketing expenses		15,560		32	%	22,946		49	%
General and administrative expenses		29,700		60	%	30,509		65	%


Operating Loss		(11,370)		(23)	%	(20,682)		(44)	%
Unrealized loss on derivatives, net		21,682		44	%	11,042		24	%
Interest income		(833)		(1)	%	(7)		—	%
Other expense, net		11		—	%	17		—	%

Loss before Income Taxes		(32,230)		(66)	%	(31,734)		(68)	%
Income tax expense		23		—	%	13		—	%
Net Loss		(32,253)		(66)	%	(31,747)		(68)	%

Net loss attributable to noncontrolling interests		(13,322)		(28)	%	(14,902)		(32)	%
Net Loss Attributable to Class A Common Stockholders		$	(18,931)	(38)	%	$	(16,845)	(36)	%

Revenue

Revenue growth was driven by the continued evolution towards ‘always on’ recurring revenue products, strong adoption of Learning Memberships, lifetime value expansion, and a return to year-over-year growth in our Consumer business coupled with the continued scaling of our Institutional business.

The following table presents our revenue by business category for the periods presented.


	Three Months Ended March 31,
dollars in thousands		2023		%		2022		%
Consumer		$	40,335	82	%	$	38,918	83	%
Institutional		8,540		17	%	6,475		14	%
Other (a)		305		1	%	1,532		3	%
Revenue		$	49,180	100	%	$	46,925	100	%

(a)Other consists of First Tutors UK and other services.

Cost of Revenue and Gross Profit

The following table sets forth our cost of revenue and gross profit for the periods presented.


	Three Months Ended March 31,	Change
dollars in thousands; favorable/(unfavorable)		2023			2022			$		%
Revenue		$	49,180		$	46,925		$	2,255	5%
Cost of revenue		15,290			14,152			(1,138)		(8)%
Gross Profit		$	33,890		$	32,773		$	1,117	3%
% Margin		69		%	70		%

Cost of revenue increased due to higher expert costs of $1,005 thousand, primarily related to our Institutional business.

Gross margin of 69% for the three months ended March 31, 2023 was approximately 90 basis points lower than gross margin of 70% for the three months ended March 31, 2022. The increase in gross profit was primarily driven by gross margin expansion across our Consumer audience, which was offset by lower Institutional gross margin primarily due to higher than anticipated engagement with our new offerings.

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Operating Expenses

The following table sets forth our operating expenses for the periods presented.


	Three Months Ended March 31,	Change
dollars in thousands; favorable/(unfavorable)		2023		2022		$		%
Sales and marketing expenses		$	15,560	$	22,946	$	7,386	32%
General and administrative expenses		29,700		30,509		809		3%
Total operating expenses		$	45,260	$	53,455	$	8,195	15%

Sales and Marketing

Sales and marketing expenses for the three months ended March 31, 2023 and 2022 included stock-based compensation of $838 thousand and $1,075 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses decreased $7,149 thousand, or 33%. Additionally, excluding these impacts in both periods, sales and marketing expenses for the three months ended March 31, 2023 were 30% of revenue compared to 47% of revenue during the same period in 2022, an approximate 1700 basis point improvement year-over-year.

Sales and marketing spend and efficiency improvements were driven by the transition to Learning Memberships, including the continued expansion of lifetime value, our focus on optimizing the level of marketing spend, and a more efficient operating model in our Consumer business. We also delivered substantial Varsity Tutors for School revenue growth, yielding efficiencies from prior investments in the Institutional sales and go-to-market organization. As Learning Memberships become a greater percentage of total revenue and the Institutional business continues to scale, we expect continued improvements in sales and marketing leverage.

General and Administrative

General and administrative expenses for the three months ended March 31, 2023 and 2022 included non-cash stock based compensation of $10,211 thousand and $11,415 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased $395 thousand, or 2%. Additionally, excluding these impacts in both periods, general and administrative expenses for the three months ended March 31, 2023 were 40% of revenue compared to 41% of revenue during the same period in 2022, an approximate 100 basis point improvement year-over-year.

Our investments in product development have allowed us to launch a suite of ‘always on’ subscription products including Learning Memberships for consumers, and our Teacher Assigned and On Demand offerings for institutional customers. Subscription offerings simplify both the sales process and the operating model needed to support customers. Combined with our ongoing efforts in automation, self-service capabilities, and the application of artificial intelligence and machine learning in our business, we have been able to generate operating efficiencies and remove significant costs from the business. We believe we will be able to further simplify our operating model while growing our business as we move throughout 2023.

Unrealized Loss on Derivatives, Net

During the three months ended March 31, 2023 and 2022, we recognized net losses of $21,682 thousand and $11,042 thousand, respectively, related to non-cash mark-to-market adjustments on our warrants and earnouts. Of the net loss recognized in the three months ended March 31, 2023, $8,414 thousand and $13,268 thousand related to warrants and earnouts, respectively. Of the net loss recognized in the three months ended March 31, 2022, $5,163 thousand and $5,879 thousand related to warrants and earnouts, respectively.

For additional information on our warrants and earnouts, see Note 10 within “Notes to Condensed Consolidated Financial Statements” in Part I, Item 1 of this report.

Interest Income

Interest income for the three months ended March 31, 2023 was $833 thousand, an increase from $7 thousand in the same period in 2022. This increase was driven by higher interest income on our cash balances during the current year period.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

As of March 31, 2023 and December 31, 2022, we had cash and cash equivalents totaling $96,520 thousand and $90,715 thousand, respectively. We have incurred cumulative losses from our operations, and we may incur additional losses in the future. Our operations have historically been financed primarily through capital contributions and debt financings. Despite our

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positive cash flows from operations realized for the three months ended March 31, 2023, it is possible that we may have to finance future operations primarily or in part from cash on hand. We are using the proceeds received from the reverse recapitalization to fund our operating and investing cash needs, and for continued investments in our growth strategies.

Cash Requirements

Our cash requirements within the next twelve months include working capital requirements, sales and marketing activities, and capital expenditures. We believe our cash on hand will be sufficient to satisfy these future requirements.

As of March 31, 2023, we had no debt obligations. Our cash requirements under our contractual obligations and commitments consist primarily of lease arrangements. For information on our lease obligations and the amount and timing of future payments, see Note 17 within “Notes to Consolidated Financial Statements” in Part II, Item 8 of our 2022 Annual Report. There have been no material changes to our leasing arrangements previously disclosed in our 2022 Annual Report.

The following table sets forth our cash flows for the periods presented.


	Three Months Ended March 31,
dollars in thousands	2023		2022
Cash provided by (used in):
Operating activities	$	6,794	$	(931)
Investing activities	(982)		(1,264)
Financing activities	—		(816)
Effect of Exchange Rate Change on Cash, Cash equivalents, and Restricted Cash	(7)		(5)
Net Increase (Decrease) in Cash, Cash equivalents, and Restricted Cash	$	5,805	$	(3,016)

Operating Activities

Cash provided by operating activities for the three months ended March 31, 2023 was $6,794 thousand compared to cash used in operating activities of $931 thousand in the prior year period. The improvement in operating cash flow was driven by higher revenues, sales and marketing efficiency gains, the pull through of automation and workforce reduction actions stemming from our business model changes that streamline operations, and diligent cost oversight. Additionally, cash provided by operating activities in the current year period was positively impacted by favorable changes in working capital, primarily related to fluctuations in the timing of sales and collections of receivables. These positive impacts were partially offset by unfavorable changes in deferred revenue due to the transition to Learning Memberships in the current year period.

Investing Activities

Cash used in investing activities was $982 thousand and $1,264 thousand for the three months ended March 31, 2023 and 2022, respectively. Cash used in investing activities related to capital expenditures primarily for the development of internal use software and IT equipment.

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2022 was $816 thousand, which primarily related to payments made to legacy Nerdy holders in connection with the reverse recapitalization.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies and estimates are more fully described in our 2022 Annual Report. There have been no material changes to our critical accounting policies and estimates previously disclosed in our 2022 Annual Report.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

See Note 2 within “Notes to Condensed Consolidated Financial Statements” in Part 1, Item 1 of this report for a discussion regarding recently issued and adopted accounting standards.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

Certain statements in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future, including our expectations with respect to: continued improvements in sales and marketing leverage; the growth of our Institutional business; simplifying our operations model while

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growing our business; and the sufficiency of our cash to fund future operations. Any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “approximately,” “believes,” “contemplates,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “outlook,” “plans,” “possible,” “potential,” “predicts,” “projects,” “should,” “seeks,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Our financial condition, results of operations, and cash flows may differ materially from those in the forward-looking statements as a result of various factors, including:

•our limited operating history, which makes it difficult to predict our future financial and operating results;

•our history of net losses;

•risks associated with our shift to the Learning Membership model;

•risks associated with scaling up our Institutional business;

•risks associated with our intellectual property, including claims that we infringe on a third party’s intellectual property rights;

•risks associated with our classification of some individuals and entities we contract with as independent contractors;

•risks associated with the liquidity and trading of our securities;

•risks associated with payments that we may be required to make under the tax receivable agreement;

•risks associated with the terms of our warrants;

•litigation, regulatory, and reputational risks arising from the fact that many of our Learners are minors;

•changes in applicable laws or regulations;

•the possibility of cyber-related incidents and their related impacts on our business and results of operations;

•the possibility that we may be adversely affected by other economic, business, and/or competitive factors;

•risks associated with managing our rapid growth; and

•other risks and uncertainties included under “Risk Factors” within Part II, Item 1A of this report and in our 2022 Annual Report filed with the SEC on February 28, 2023.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” elsewhere in this report. Readers are urged to carefully review and consider the various disclosures made in this report and in other documents we file from time to time with the SEC that disclose risks and uncertainties that may affect our business. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

EMERGING GROWTH COMPANY STATUS

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting

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standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

We expect to remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of TPG Pace Tech Opportunities’ initial public offering, (b) in which we have total annual gross revenue of at least $1,235,000 thousand, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our shares of common stock that are held by non-affiliates equals or exceeds $700,000 thousand as of the prior June 30 or (2) the date on which we have issued more than $1,000,000 thousand in non-convertible debt securities during the prior three-year period.

SMALLER REPORTING COMPANY STATUS

We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We expect to remain a smaller reporting company at the last day of the fiscal year as long as (i) the market value of our shares of common stock held by non-affiliates is less than $250,000 thousand as of the prior June 30, or (ii) our annual revenues are less than $100,000 thousand during the prior fiscal year and the market value of our shares of common stock held by non-affiliates is less than $700,000 thousand as of the prior June 30.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Price Sensitivity

At both March 31, 2023 and December 31, 2022, we had warrant and earnout contracts issued and outstanding to non-employees of 19,122 thousand and 7,655 thousand, respectively. As of March 31, 2023 and December 31, 2022, a hypothetical 10% adverse change in the price of our public warrants would have increased the fair value of the liabilities related to these warrant contracts by approximately $1,281 thousand and $440 thousand, respectively. As of March 31, 2023 and December 31, 2022, a hypothetical 10% adverse change in the fair value of the earnouts, which is impacted by the price of our Class A common stock, would have increased the fair value of the liabilities related to these earnout contracts by approximately $2,093 thousand and $766 thousand, respectively.

For additional information regarding our warrants and earnout contracts issued and outstanding to non-employees, refer to Notes 10 within “Notes to Condensed Consolidated Financial Statements” in Part I, Item 1 of this report.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the Company, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2023. Based on that evaluation, the Company’s CEO and CFO concluded that, as of March 31, 2023, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Limitations on Effectiveness of Controls and Procedures

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION.

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ITEM 1. LEGAL PROCEEDINGS.

For disclosure of environmental proceedings with a governmental entity as a party pursuant to Item 103(c)(3)(iii) of Regulation S-K, we have elected to disclose matters where we reasonably believe such proceeding would result in monetary sanctions, exclusive of interest and costs, of $1,000 thousand or more. Applying this threshold, there are no such environmental proceedings to disclose as of and for the three months ended March 31, 2023.

ITEM 1A. RISK FACTORS.

In addition to the information set forth elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”), you should carefully consider the risk factors we previously disclosed in our Annual Report on Form 10-K, filed with the SEC on February 28, 2023, as of and for the year ended December 31, 2022 (the “2022 Annual Report”). As of the date of the Quarterly Report, there have been no material changes to the risk factors previously disclosed in our 2022 Annual Report. These risks could materially and adversely affect our business, financial condition, results of operations, and cash flows. However, these risks are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations, and cash flows.

ITEM 6. EXHIBITS.

The following exhibits are either provided with this Form 10-Q or are incorporated herein by reference.


Exhibit No.						Description

3.1						Certificate of Incorporation of Nerdy Inc. (incorporated by reference to Exhibit 3.1 filed with the Company’s Form 8-K filed on September 24, 2021 (File No. 001-39595)).

3.2						Bylaws of Nerdy Inc. (incorporated by reference to Exhibit 3.2 filed with the Company’s Form 8-K filed on September 24, 2021 (File No. 001-39595)).

†10.1						Consulting Agreement, Departure Agreement, and General Release, dated March 10, 2023, by and between Heidi Robinson and Nerdy Inc., Nerdy LLC, Varsity Tutors LLC, and Live Learning Technologies Shared Resources LLC.

31.1						Certification of Charles Cohn pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 9, 2023.

31.2						Certification of Jason Pello pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 9, 2023.

* 32.1						Certification of Charles Cohn and Jason Pello, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 9, 2023.

101						Interactive Data File (Form 10-Q for the quarterly period ended March 31, 2023 filed in iXBRL (Inline eXtensible Business Reporting Language)). The financial information contained in the iXBRL-related documents is “unaudited” and “unreviewed.”

104						The cover page from the Company’s Form 10-Q for the quarterly period ended March 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101.

† These exhibits constitute management contracts, compensatory plans, and arrangements.

* These certifications are deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Nerdy Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Nerdy Inc.

Date: May 9, 2023	By:	/s/ Jason Pello
		Name: Jason Pello
		Title: Chief Financial Officer