Earnings Call: Q1 2026

May 7, 2026

Good afternoon. Thank you for attending Nerdy Inc. Q1 2026 earnings call. My name is Angela, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity to ask question and answer at the end. I would now like to pass the conference over to your host, TJ Lynn, Associate General Counsel of Nerdy. You may proceed. Good afternoon, and thank you for joining us for Nerdy's first 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, and Nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward-looking statements to reflect any change in expectations or any change in events, conditions, or circumstances on which any such statement is based. Please refer to the disclaimers in today's shareholder letter announcing Nerdy's first quarter results and the company's filings with the SEC for a discussion of the risks. Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today's shareholder letter for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck. Thanks, TJ, and thank you to everyone for joining today's call. In the first quarter of 2026, we beat the top end of our revenue guidance and delivered our second consecutive quarter of positive non-GAAP adjusted EBITDA. We also translated the AI-native foundation we finished building at the end of 2025 into shipped learner-facing product at a cadence we have never matched in the company's history. Revenue was $48.7 million, above the top end of our $46 million-$48 million guidance range and 2% up year-over-year. Non-GAAP adjusted EBITDA was positive $1 million ahead of our guidance of approximately breakeven and improved by $7.3 million compared to Q1 2025. Adjusted EBITDA margin expanded more than 1,500 basis points year-over-year, our third consecutive quarter of sequential margin improvement. That represents roughly $30 million of annualized operating leverage on a flat top line. Gross margin reached 66.2%, an expansion of more than 800 basis points year-over-year. We ended the quarter with $44.7 million of cash on the balance sheet. Three things stood out in the first quarter. First, the product velocity that we said an AI native code base would unlock is now visible in shipped product with a meaningful slate of additional learner-facing releases reaching customers in the weeks ahead. Second, our cost structure is structurally, not cyclically, better, AI is the reason. Third, the rate of decline in active members on a year-over-year basis narrowed for the third consecutive quarter, and we expect to return to positive growth by the end of 2026. When we finished replatforming on an AI native code base as we wrapped up 2025, we said the point of that work was not about the architecture itself, it was about the speed and quality of the products that we could ship on top of it. Q1 was the first full quarter operating in that new mode. The cadence has fundamentally changed. The most visible expression of that shift is our new learner experience, internally referred to as V3, which became the universal customer experience and surface for our consumer business in March. Every newly acquired customer is now onboarded directly to this new V3 experience. We have begun migrating existing customers as well. Roughly 6,000 new customers came in directly on V3 in the back half of the quarter, and approximately 10,000 existing customers have moved over from the prior experience, and we are seeing strong early signal and optimizing rapidly in response to user behavior and customer feedback, which is broadly positive with a constant point of feedback being it looks and feels like a whole different company or product. The same platform will imminently power our institutional offering, which we expect to expand the market opportunity in institutional beyond the more limited K-12 high-dosage tutoring market that business primarily targeted. Inside V3, the centerpiece for the learner is Maya, our AI concierge. Maya is the always-on guide built into the experience. She answers inbound questions, surfaces the right next step, helps the student find a diagnostic, and resolves day-to-day issues like scheduling a tutoring session, and she does so all without a phone call or a customer support ticket. She's available 24 hours a day with full context of each student's actual learning plan and past interactions, including past tutoring sessions, product interactions, diagnostics, and practice-related engagement, and the results of those, and more. She now handles a meaningful share of in-product customer interactions. For a student or parent, Maya turns a platform into a relationship that feels alive, responsive, and easy. Around Maya, V3 brings together the rest of the family experience. Our native mobile app launched in the App Store in Q1 and is approaching full feature parity with web, with releases now shipping to mobile within 48 hours of going live. The Tutor Gallery lets families browse tutor profiles, watch introductory videos, and book with guaranteed availability through Book Now. We also launched Games, a set of six math and ELA titles initially, built to drive daily engagement and learning. We also launched on-demand courses, converting our top live classes into self-paced courses with supporting materials. We are launching with more than 350 of these courses that collectively span thousands of hours of live instruction. These updates ship together as part of V3. They give families more ways to engage with our platform between live sessions, creating additional retention opportunities. We're seeing the early signal in the numbers. Active members ended the quarter at 36.9 thousand, down 9% year-over-year. The rate of decline has narrowed for 3 consecutive quarters, and customer churn has improved meaningfully year-over-year as customers enter or experience our new platform and ways to get value out of the relationship with us. ARPA was $374, up 12%, and Learning Membership revenue grew 3% to $38.9 million, 80% of total revenue. Adisa headlined the cohorts onboarded directly onto V3 are showing early indications that are directionally consistent with our thesis. While early, what we will say is the cohort signal is consistent across the metrics that matter and that retention is the highest growth lever we have, given how small changes in extending the customer life cycle can have a meaningful impact on long-term revenue and profitability. At today's customer acquisition cost, every additional month of average tenure flows almost entirely through to contribution profit. We expect to provide a full read on our progress on our Q2 call in August. Our upcoming product releases have received strong early feedback. What has shipped in V3 today is the foundation, not the full picture. Three product areas in particular are moving from internal development into the hands of customers in the weeks ahead, with strong early feedback on all three. The first is college and career readiness. We were approached by the leadership from a top 10 U.S. school district about a need we're uniquely qualified to solve. This led to our always-on AI counselor, now targeted for back-to-school 2026 release in two flagship high schools in that district. Early indications show other districts have similar needs. The counselor is highly interactive and guides students through post-secondary decisions. It has real-time integration with school systems, maintains persistent memory across years, and is multimodal across mobile, desktop, voice, SMS, and inbound and outbound calling. For consumer learners, it extends Varsity Tutors as well as tutoring specifically into a multi-year goal-setting process previously outside our reach. The second upcoming Q2 planned product release is related to daily math and reading content and practice. We're launching more than 4,600 K-8 math skills aligned to academic taxonomies, achieving parity with several of the leading supplemental practice platforms, with reading parity coming soon. These additions expand the lesson library, including tens of thousands of lessons, all created year to date and mapped to K-12 and college taxonomies and standards. The content integrates into V3 as structured daily practice alongside tutoring or self-study. Progress is visible to learners and parents, and for tutors, it helps ensure all tutors have prepared professional relevant content for their tutoring sessions across the millions of tutoring sessions per year on the platform. AI orchestrates and personalizes the learning experience that spans all of these product modalities on the platform in service of the learner's goals and preferences. Early feedback on sequencing and quality is strong, and we anticipate similar learner reception when we roll it out more broadly. The third upcoming product is related to language learning, which is already a popular area for one-to-one tutoring on the platform. We're bringing to market an AI-enabled learning experience that will launch for both consumer and institutional customers, and we look forward to sharing more in the near future. I also wanted to touch upon our continuous efforts to utilize AI internally to improve product velocity and improve productivity. AI is at the center of how we're operating and expect our teams to operate. Not only is all of our software development done almost exclusively with AI, we are using it to do everything from automate our back-office workflows to handle inbound and outbound calls and help with customer service interactions on the platform and much, much more. Fixed headcount is lower year-over-year, even as we enhance our existing products and build numerous new ones. These changes drove more than 1,500 basis points of adjusted EBITDA margin expansion in the quarter on roughly flat revenue. The improvements are structural, with software and automation replacing manual processes. With both fixed and variable costs now lower, higher retention means new revenue flows through at a higher contribution margin rate to adjusted EBITDA. AI is how we operate. It's not what we sell. What we sell remains that relationship between a learner and an expert that's now supported by the best technology available, and it's informed by more than 10 million tutoring sessions. Moving on to Varsity Tutors for Schools. The new Varsity Tutors for Schools platform, built on the same V3 platform foundation and integrating AI-enabled tutoring and AI counseling layer and our expanded K-12 content library on the Live + AI™ engine that powers our consumer business, enters the back to school 2026 selling season as a meaningfully stronger offering than what we took to market a year ago. Now looking ahead to the rest of the year, the product velocity we have discussed, our V3 platform, Maya, our AI concierge for learners, having modern mobile apps with full feature parity to web, and the upcoming product releases in college and career readiness, daily math and reading practice, and language learning have shipped or will be shipping before the end of the second quarter. Our customer base is only beginning to experience these enhanced features. As more of our active customers move on to the new platform and our first full V3 new customer cohorts mature, the leading indicators we are watching today should translate into inflecting active member growth later this year. 1 year ago, we were rebuilding the foundation. Today, we're building on it, and the benefits of this increased product velocity will build throughout the year as we enhance more customer-facing surfaces and allow for us to drive long-term growth and profitability. With that, I'll hand the call over to Atul to discuss the financials in more detail. Atul? Thanks, Chuck. Before I walk through the numbers, I'd like to take a couple moments to share what drew me to this role. Nerdy operates in one of the most under-penetrated markets in education technology. There are over 50 million K-12 and college students in the U.S. alone, and the tutoring market remains mostly fragmented and offline. Our active member base of about 37,000 represent a fraction of what this market can support, and that gap is the opportunity. What convinced me that Nerdy can close this gap, a genuinely AI-first culture, product velocity, and a team that moves fast. These are not just talking points. They translate directly into margin expansion and operating leverage you'll see in the results. My mandate as the CFO is clear: Get Nerdy to free cash flow positive while investing with discipline in the areas that drive member growth. That is the financial thread running through everything we are doing in 2026. Let me walk you through our first quarter results. We beat the top end of our revenue guidance range. Revenue was $48.7 million, ahead of our guidance range of $46 million-$48 million and up 2% year-over-year, driven by higher consumer revenue and partially offset by lower institutional revenue. Within consumer revenue, Learning Membership revenue was $38.9 million, up 3% year-over-year and represented 80% of total company's revenue. Consumer revenue growth was driven by higher average revenue per month, or ARPM, of $374, which was up 12% year-over-year, primarily driven by price increases enacted in February 2025. As of March 31st, active members were 36.9 thousand, a decrease of 9% year-over-year. This rate of decline has narrowed sequentially for the 3 consecutive quarters, and we expect to return to positive active member growth by the end of 2026. Our institutional revenue was $9.3 million, a decrease of 1% year-over-year and represented 19% of total company's revenue during the first quarter. As a reminder, the institutional revenue in the first quarter was mostly supported by the prior period bookings. During Q1, Varsity Tutors for Schools bookings were $1.1 million versus $4 million in Q1 of 2025. Gross margin was 66.2%, an expansion of 820 basis points compared to a gross margin of 58.0% during Q1 2025. The increase in gross margin was primarily due to the benefit of price increases enacted in February 2025. Moving to operating expenses. Sales and marketing expenses were $14.2 million, a decrease of 10% year-over-year driven by AI-enabled productivity gains and reduced investment in our institutional business. General and administrative expenses for the quarter were $23.9 million, down 16% year-over-year. G&A costs included product development cost of $9.2 million compared to $10.7 million in the same period last year. The cost reductions are primarily driven by our focus on applying AI systematically across the tech stack, which is resulting in durable efficiency gains and better unit economics. In the first quarter, non-GAAP adjusted EBITDA was positive $1 million and ahead of our guidance of break even. To put that in context, a year ago this quarter, we posted a non-GAAP adjusted EBITDA loss of $6.4 million. That's an improvement of more than $7 million just in a year. Non-GAAP adjusted EBITDA margin improved by more than 1,500 basis points year-over-year, our third consecutive quarter of year-over-year margin improvement. Non-GAAP adjusted EBITDA outperformance was driven by gross profit outperformance, efficiency improvement, and strong cost control across every P&L item. Moving to liquidity and capital resources. We ended the quarter with $44.7 million in cash and cash equivalents. Free cash flow was negative $3 million compared to negative $7.6 million in the same period in 2025. Free cash flow improvement was driven by non-GAAP adjusted EBITDA improvement, as previously discussed, and partially offset by higher working capital and by interest payment of $0.5 million on our term loan. With our cash on hand and the funding available under our term loan, we believe we have ample liquidity to fund operations and growth initiatives as we execute towards free cash flow positive. Turning to our business outlook. Today, we are introducing second quarter guidance and reaffirming full-year 2026 guidance. Before sharing guidance, I want to flag two dynamics that shape the Q2 revenue and EBITDA outlook. First, the decline in Q1 Varsity Tutors for Schools bookings will negatively impact Q2 institutional revenue, given the lag between bookings and revenue recognition. Second, beginning in Q2, we start lapping the price increases implemented in Feb 2025, which will moderate ARPM year-over-year growth for our consumer business. We expect to see continued benefits from improving client retention to our consumer business as that momentum builds through the year. The full-year outlook assumes a more stable institutional funding environment in the second half of the year, reception of new Varsity Tutors for Schools platform, and continued improvements in consumer retention. Revenue guidance. For the second quarter of 2026, we expect revenue in the range of $42 million-$44 million. For the full year of 2026, we expect revenue in the range of $180 million-$190 million. Turning to adjusted EBITDA guidance. For the second quarter of 2026, we expect non-GAAP adjusted EBITDA to be negative $2 million to break even. For the full year of 2026, we expect non-GAAP adjusted EBITDA to be approximately break even. We expect to end the year with $40 million-$45 million in cash, inclusive of $20 million currently drawn on our term loan. To close, this quarter's result, a revenue beat, 820 basis point improvement in gross margin, and non-GAAP adjusted EBITDA that improved from a loss of $6.4 million to a positive $1 million in one year reflect on the progress across every line of the P&L. The work ahead is on active member growth and institutional bookings recovery. We know what we need to do, and we are executing against it. With that, I'll turn it over to the operator for Q&A. Operator? We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian S. Milich with JP Morgan. Your line is now open. Great. Thanks for taking the questions, and good to see the pro- velocity in V3 starting to drive improved learner trends. As we go through the back half here, Chuck, can you just talk about the underlying confidence in achieving return to active member growth? Just the overall durability of these new cohorts that are seeing improved retention and engagement. I guess conversely as well, you mentioned, I believe, right, 6,000 new active members on V3 and then 10,000 or so of the existing members migrating there. Can you just help us walk through the timeline of migrating your overall, you know, entire member base towards V3 and, you know, when you would start to realize returns on that shift? Thank you. Thanks, Brian, and good question. Yeah, we made a ton of progress on new product development in the quarter, and were able to take the sort of base platform that we had built that we considered to be, you know, a brand-new version of the old platform. It was full parity, feature parity and, you know, AI native code base, which then allowed us to build and ship quickly. We were able to really, I think, enhance it just over the course of the last, you know, 90 days or so in a pretty material way. What we have seen is as we first introduced new customer cohorts to that experience, and were able to work through the best way to onboard them to a experience that frankly is much more rich, much more robust, and in many ways looks like a whole new company, and really optimize that onboarding experience to get them into many different non-tutoring products than we'd had before. We saw sequential improvements in retention of those cohorts as they onboarded and started gaining confidence and accelerating that path to a broader rollout. You know, over the course of the rest of the quarter, you know, we would expect to get to 100% of, you know, the existing customers on the current experience. Broadly, what we've seen is that the new customers who come in that are then benefiting from, you know, an enhanced product suite, much deeper content and, you know, there's several more big enhancements planned over the course of the next couple of months. We have seen a pretty tight relationship between getting them into those new products and driving engagement and then that pulling through to early signs on customer retention. The signals are quite promising, but it's early. Brian S. Milich, this is Atul Bagga. Just adding on to that, we are seeing some very good traction with the new customers who are onboarding on V3. You asked about when do we realize the benefit of this in financials. What we see with the retention, the improvement of retention is going to drive higher lifetime value of the customer, and that is going to be seen over the lifetime. You see that continue to build the momentum on financial improvements from retention. It will come over time. Great. Thank you both. Your next question comes from the line of Greg Gibas with Northland Securities. Your line is now open. Great. Good afternoon, Chuck, Atul, thanks for taking the questions. wanted to follow up there, if you could add a little bit more color on the trends you saw with churn versus maybe new or additions with new cohorts within active members. That would be helpful. It sounds like you're seeing some improvements on the churn side of things and wanted to get a sense of how those trended within the quarter. Thanks. Thanks, Greg. Good question. You know, I think the consumer business has sort of shaped up, you know, collectively consistent with expectations. We're obviously still early in the year but, you know, feel good about our ability to drive, you know, growth in that business through enhancing the product and then kind of pulling it up funnel and making a lot of the product enhancements we have more visible, which we think is pretty compelling.That so the initial traction there is positive early in the year, but thus far tracking pretty consistent with expectations. The retention benefits that we're seeing on the new platform, you know, those are still early and applied to a relatively small percentage of the total business. The recent weeks, you know, trends and, you know, the initial sort of launch has gone well. As it relates to, you know, deviating from expectations earlier in the year, I don't think we've seen that at all. It's been a pretty good start to the year, and the product velocity is exceeding expectations. Got it. great, that's good to hear. you know, if I could, as it relates to just the full year guidance, Tul, would you be willing to maybe go into a little bit more depth in terms of the trends on a quarterly basis, with ARPU and then active members? Yes. We can talk about it. On active member, this is going to be a big focus for us. As you've seen, our trend on active member has been improving consistently in the last few quarters. We do expect that to get better as we see higher retention. Higher retention also translates into higher LTV, which means that improves our ability to acquire new customers more effectively. That's one. Second, on the cost structure side, we have made some substantial improvements. If you look at Q1 2025 to Q2 to Q1 2026, we have delivered 1,500 basis points of margin expansion, 820 basis points coming from gross margin. We've improved efficiency of all our variable expenses, sales, marketing, operations. On the fixed headcount, we are seeing higher productivity. Just to give you a little context, our headcount is down about 20% year-over-year, while the revenue is roughly flat. That momentum we expect continue to build. We will continue to see more opportunities to lean on AI and improve our productivity. In terms of the rest of the business, Q two and Q three, as you know, is seasonally weaker quarter for us. We do expect some drop in Q two and Q three, and Q four, again, that picks up. Got it. Very helpful. Thank you. Again, if you would like to ask a question, please press star one to raise your hand and join the queue. There are no further questions at this time. That concludes today's call. Thank you for attending. You may now disconnect.