Nerdy Inc. 2026 Q2 Earnings Call

Thank you for joining us for Nerdy's second quarter 2026 earnings call. With me are Chuck Cohn, Founder, Chairman, and Chief Executive Officer of Nerdy, and Atul Bagga, 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. 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 reconciliation of these non-GAAP measures. With that, let me turn the call over to Chuck.

Thanks, TJ. Thank you to everyone for joining today's call. Q2 demonstrated continued improvement in Nerdy's operating performance. It also made clear what the company is becoming: a focused consumer learning company built around one connected system for learning, tutoring, and progress. Total revenue was $43.3 million, with consumer generating $36.5 million, or 84% of total revenue. Gross margin expanded 320 basis points to 64.7%. Net loss improved to $6.9 million from $12 million a year ago. Our non-GAAP adjusted EBITDA loss narrowed 68% to $900,000 from $2.7 million a year ago, ahead of the midpoint of our guidance range. Alongside that progress, we have made two decisions that have narrowed the company's focus to its highest return opportunity. We decided to wind down Varsity Tutors for Schools and exit First Tutors, a small legacy tutoring property in the United Kingdom.

This decision concentrates our people, capital, and product development on the part of Nerdy where we have the strongest brand, the deepest operating experience, and the greatest opportunity to build a differentiated learning experience for consumers. We believe the market opportunity is significantly larger and the potential returns on our investments are substantially higher. We're even encouraged by the progress on our consumer product and business. Let's move into the second quarter results and our outlook. Consumer revenue was $36.5 million in Q2. ARPM was $366, up 5% year-over-year. Learning Memberships were 29.1 thousand at June 30th, down 5% year-over-year, with the rate of decline moderating for the fourth consecutive quarter. Returning the member base to durable growth remains an important back-to-school objective. The rate of decline has continued to narrow, and at the same time, ARPM gross margin and operating efficiency have all improved.

We expect a stronger product experience that I'll describe later to support retention and acquisition as we move through the back-to-school season and into 2027. We're reducing our full-year revenue outlook to $168 million-$175 million from $180 million-$190 million. The reduction is driven by the businesses we decided to exit. Q3 is seasonally our lowest revenue quarter, which includes summer with students out of school, and our business ramps up seasonally very quickly as school starts in late Q3 and into Q4. That seasonality, together with the institutional wind-down, is reflected in our Q3 non-GAAP adjusted EBITDA guidance of negative $9 million to negative $6 million, excluding exit costs. Our revised full-year non-GAAP adjusted EBITDA outlook is negative $4 million to approximately break even, excluding exit costs.

Before we move into product, I want to talk for a second about how Nerdy is leveraging a smaller team that's leveraging AI to build more. Total headcount at the end of Q2 was down 34% year-over-year. Our engineering organization was 30% smaller than it was a year ago, but it delivered substantially more product output. We incurred $2 million of AI-related expenses during the quarter, which is up sharply from the prior year, and we're actively moderating and getting more intelligent around that spend. We used variable AI expense to accelerate that work without adding the permanent headcount that a traditional production model would have required. This is one of the most tangible ways AI is changing Nerdy. It allows for a smaller organization to build faster, operate with fewer fixed costs, and direct more resources towards the customer experience.

The result is not one isolated product release. Since the beginning of 2026, we've launched or rebuilt almost every piece of the digital learning experience surrounding our live tutoring product and our complementary non-tutoring products. This will be a significant step up in the breadth and quality of our offerings for our customers. Let me walk through some selected consumer product enhancements and why we think it changes the customer experience for the positive. Our library now includes more than 15,000 lessons covering each skill within 220 discrete subjects. The lessons are available in two formats. The first is a dynamic textbook-style format for self-study purposes. The second is a presentation-style format for tutors to use in live tutoring sessions so that we have prepared structured lessons available for almost every subject. We believe this can uplevel the experience across millions of tutoring sessions each year.

We extended adaptive diagnostics, quizzes, full-length practice tests, flashcards, and the lessons I mentioned to those 200-plus subjects. We're weaving them together into what we're calling a Study Plan. A Study Plan is a software-based way to track and plan activities over time in pursuit of a goal and can serve as the common system to help drive daily active usage and provide value before, during, and after any tutoring sessions in pursuit of that long-term goal. The importance of the work is not on the volume of the content alone. Every lesson, diagnostic, question, quiz, worksheet, and activity is organized against the shared academic taxonomy in that subject. The structure allows a diagnostic to identify a skill gap, the Study Plan to recommend the appropriate next activity, and the tutor to use that same information when deciding what a learner should do next.

The Study Plan brings together four elements that our product previously handled discreetly: the learner's goal, the time available to reach it, the skills already mastered, and the combination of lessons, practice, diagnostics, and live tutoring that most likely produce progress. The same plan is visible to the student, the tutor, and is available both within the student experience, the tutor experience, and the live learning platform itself where tutoring occurs. It's now a core part of the Learning Memberships experience. In August, it will be extended to 100% of tutoring relationships. Historically, the tutoring session was often perceived by the customer as the product. Customer interactions could sometimes be quiet in between tutoring sessions.

We're building a platform in which the Study Plan highlights all the different ways to learn a subject in between and during the live tutoring sessions and where it can serve as the daily active drumbeat to engagement. Our historical experience from 10-plus million hours of live tutoring and many more practice activities is driving personalization in our approach to how we're sequencing learning. That combination of AI and human expertise is an example of what we mean when we talk about AI for HI. That's the product. Let's talk about how it translates into growth. That same product infrastructure can support a more efficient acquisition and activation model. Historically, the vast majority of our customers converted via a telesales-assisted, consultative sales process. Under the new model, learners can register online, better see and experience the platform, and purchase a Learning Memberships via a self-service checkout funnel.

We believe this modern approach creates a substantially lower cost, more scalable customer acquisition model while improving the customer experience. In closing, we're entering this back-to-school season as a more focused, lean company with higher quality products and a more efficient operating model, which we believe positions us well for the year ahead. With that, I'll turn the call over to Atul to discuss the financials in more detail.

Atul? Thanks, Chuck, good afternoon, everyone.

In the second quarter, revenue and non-GAAP adjusted EBITDA were both within our guidance ranges, and we continue to make progress on our cost structure, with free cash flow improving 24% year-over-year. As I said last quarter, my mandate is to get Nerdy to free cash flow positive while investing with discipline in the areas that drive member growth. This quarter's results, together with the actions Chuck just outlined, move us further in that direction. Revenue in the quarter was $43.3 million, within our guidance range of $42 million-$44 million, and down 4% year-over-year, driven by both consumer and institutional revenue. Consumer revenue was $36.5 million, representing 84% of total company's revenue. Average revenue per month or ARPM was $366, up 5% year-over-year.