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 ~~September 30, 2022~~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 - ~~93,241,837~~98,019,731 shares of common stock as of ~~November 7, 2022~~May 2, 2023

Class B common stock, par value $0.0001 per share - ~~69,210,801~~69,241,655 shares of common stock as of ~~November 7, 2022~~May 2, 2023

Table of Contents

NERDY INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Table of Contents

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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Revenue	Revenue	$	31,752	$	31,298	$	120,863	$	98,649	Revenue		$	49,180	$	46,925
Cost of revenue	Cost of revenue	9,835		10,639		37,418		33,344		Cost of revenue		15,290		14,152
Gross Profit	Gross Profit	21,917		20,659		83,445		65,305		Gross Profit		33,890		32,773
Sales and marketing expenses	Sales and marketing expenses	16,195		18,773		57,152		47,520		Sales and marketing expenses		15,560		22,946
General and administrative expenses	General and administrative expenses	33,409		59,902		96,669		87,674		General and administrative expenses		29,700		30,509

Operating Loss	Operating Loss	(27,687)		(58,016)		(70,376)		(69,889)		Operating Loss		(11,370)		(20,682)
Unrealized loss (gain) on derivatives, net		4,521		(11,342)		(21,773)		(11,342)
Interest (income) expense, net		(7)		1,286		(19)		3,777
Unrealized loss on derivatives, net										Unrealized loss on derivatives, net		21,682		11,042
Interest income										Interest income		(833)		(7)
Other expense, net	Other expense, net	75		8,446		149		8,539		Other expense, net		11		17
Loss (gain) on extinguishment of debt, net		—		1,278		—		(7,117)

Loss before Income Taxes	Loss before Income Taxes	(32,276)		(57,684)		(48,733)		(63,746)		Loss before Income Taxes		(32,230)		(31,734)
Income tax expense	Income tax expense	22		35		35		35		Income tax expense		23		13
Net Loss	Net Loss	(32,298)		(57,719)		(48,768)		(63,781)		Net Loss		(32,253)		(31,747)
Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization		—		(17,484)		—		(23,546)

Net loss attributable to noncontrolling interests	Net loss attributable to noncontrolling interests	(13,782)		(18,960)		(22,102)		(18,960)		Net loss attributable to noncontrolling interests		(13,322)		(14,902)
Net Loss Attributable to Class A Common Stockholders	Net Loss Attributable to Class A Common Stockholders	$	(18,516)	$	(21,275)	$	(26,666)	$	(21,275)	Net Loss Attributable to Class A Common Stockholders		$	(18,931)	$	(16,845)

Loss per share of Class A Common Stock:	Loss per share of Class A Common Stock:									Loss per share of Class A Common Stock:

Basic and Diluted	Basic and Diluted	$	(0.21)	$	(0.27)	$	(0.32)	$	(0.27)	Basic and Diluted		$	(0.21)	$	(0.21)

Weighted-Average Shares of Class A Common Stock Outstanding:	Weighted-Average Shares of Class A Common Stock Outstanding:									Weighted-Average Shares of Class A Common Stock Outstanding:

Basic and Diluted	Basic and Diluted	87,714		79,233		84,601		79,233		Basic and Diluted		91,776		79,619

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

Table of Contents

NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)

(in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Net Loss	Net Loss	$	(32,298)	$	(57,719)	$	(48,768)	$	(63,781)	Net Loss		$	(32,253)	$	(31,747)
Foreign currency translation adjustments	Foreign currency translation adjustments	(146)		(84)		(402)		(34)		Foreign currency translation adjustments		34		(73)
Total Comprehensive Loss	Total Comprehensive Loss	(32,444)		(57,803)		(49,170)		(63,815)		Total Comprehensive Loss		(32,219)		(31,820)
Comprehensive loss attributable to legacy Nerdy holders prior to the reverse recapitalization		—		(17,521)		—		(23,533)

Comprehensive loss attributable to noncontrolling interests	Comprehensive loss attributable to noncontrolling interests	(13,844)		(18,982)		(22,277)		(18,982)		Comprehensive loss attributable to noncontrolling interests		(13,308)		(14,936)
Total Comprehensive Loss Attributable to Class A Common Stockholders	Total Comprehensive Loss Attributable to Class A Common Stockholders	$	(18,600)	$	(21,300)	$	(26,893)	$	(21,300)	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)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	106,382	$	143,964	Cash and cash equivalents	$	96,520	$	90,715
Accounts receivable, net	Accounts receivable, net	3,600		5,321		Accounts receivable, net	6,333		11,596
Other current assets	Other current assets	4,218		6,165		Other current assets	4,182		5,345
Total Current Assets	Total Current Assets	114,200		155,450		Total Current Assets	107,035		107,656
Fixed assets, net	Fixed assets, net	12,546		10,718		Fixed assets, net	12,456		12,504
Goodwill	Goodwill	5,717		5,717		Goodwill	5,717		5,717
Intangible assets, net	Intangible assets, net	3,566		4,428		Intangible assets, net	3,465		3,574
Other assets	Other assets	3,590		832		Other assets	2,884		3,241
Total Assets	Total Assets	$	139,619	$	177,145	Total Assets	$	131,557	$	132,692

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	5,596	$	3,590	Accounts payable	$	4,148	$	3,199
Deferred revenue	Deferred revenue	20,933		30,005		Deferred revenue	22,254		25,539
Due to legacy Nerdy holders		—		841

Other current liabilities	Other current liabilities	9,926		7,473		Other current liabilities	9,157		8,593
Total Current Liabilities	Total Current Liabilities	36,455		41,909		Total Current Liabilities	35,559		37,331
Other liabilities	Other liabilities	19,247		39,431		Other liabilities	35,594		14,311

Total Liabilities	Total Liabilities	55,702		81,340		Total Liabilities	71,153		51,642
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Class A common stock	Class A common stock	9		8		Class A common stock	10		9
Class B common stock	Class B common stock	7		7		Class B common stock	7		7
Additional paid-in capital	Additional paid-in capital	514,617		490,220		Additional paid-in capital	529,410		522,031
Accumulated deficit	Accumulated deficit	(466,374)		(439,708)		Accumulated deficit	(494,038)		(475,107)
Accumulated other comprehensive (loss) income		(91)		136
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	8		(12)
Total Stockholders’ Equity Excluding Noncontrolling Interests	Total Stockholders’ Equity Excluding Noncontrolling Interests	48,168		50,663		Total Stockholders’ Equity Excluding Noncontrolling Interests	35,397		46,928
Noncontrolling interests	Noncontrolling interests	35,749		45,142		Noncontrolling interests	25,007		34,122
Total Stockholders’ Equity	Total Stockholders’ Equity	83,917		95,805		Total Stockholders’ Equity	60,404		81,050
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	139,619	$	177,145	Total Liabilities and Stockholders’ Equity	$	131,557	$	132,692

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

Table of Contents

NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net Loss	Net Loss	$	(48,768)	$	(63,781)	Net Loss	$	(32,253)	$	(31,747)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization	Depreciation & amortization	4,368		3,957		Depreciation & amortization	1,553		1,422
Amortization of intangibles	Amortization of intangibles	454		804		Amortization of intangibles	150		157
Unrealized gain on derivatives, net		(21,773)		(11,342)
Gain on extinguishment of debt, net		—		(7,117)
Stock-based compensation		35,502		38,515
Unrealized loss on derivatives, net						Unrealized loss on derivatives, net	21,682		11,042

Amortization of deferred debt charges		—		493
Gain on asset dispositions		—		(3)
Reverse recapitalization costs allocated to warrants and earnouts		—		1,604
Non-cash stock-based compensation expense						Non-cash stock-based compensation expense	11,049		12,490

Other changes in operating assets and liabilities:	Other changes in operating assets and liabilities:					Other changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net		1,721		(1,712)
Decrease (increase) in other current assets		1,252		(1,154)
Decrease in accounts receivable, net						Decrease in accounts receivable, net	5,263		841
Decrease in other current assets						Decrease in other current assets	1,163		575
Decrease in other assets	Decrease in other assets	882		18		Decrease in other assets	357		344
Increase in accounts payable	Increase in accounts payable	2,006		525		Increase in accounts payable	949		2,503
(Decrease) increase in deferred revenue	(Decrease) increase in deferred revenue	(9,072)		7,114		(Decrease) increase in deferred revenue	(3,285)		804
Increase in other current liabilities	Increase in other current liabilities	998		12,737		Increase in other current liabilities	686		1,764
Decrease in other liabilities	Decrease in other liabilities	(1,040)		(607)		Decrease in other liabilities	(520)		(1,126)
Net Cash Used In Operating Activities		(33,470)		(19,949)
Net Cash Provided By (Used In) Operating Activities						Net Cash Provided By (Used In) Operating Activities	6,794		(931)
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Capital expenditures	Capital expenditures	(4,339)		(3,769)		Capital expenditures	(982)		(1,264)
Net Cash Used In Investing Activities	Net Cash Used In Investing Activities	(4,339)		(3,769)		Net Cash Used In Investing Activities	(982)		(1,264)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Proceeds from reverse recapitalization, net		—		558,324

Payments to legacy Nerdy holders	Payments to legacy Nerdy holders	(767)		(299,317)		Payments to legacy Nerdy holders	—		(767)
Payments of reverse recapitalization costs		—		(16,712)
Proceeds from loan and security agreement		—		11,000

Repayment of loan and security agreement		—		(50,000)

Payments of debt extinguishment costs		—		(1,607)

Other	Other	(96)		—		Other	—		(49)
Net Cash (Used In) Provided By Financing Activities		(863)		201,688
Net Cash Used In Financing Activities						Net Cash Used In Financing Activities	—		(816)
Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash	Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash	7		2		Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash	(7)		(5)
Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash		(38,665)		177,972
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash						Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash	5,805		(3,016)
Cash, Cash equivalents, and Restricted Cash, Beginning of Year	Cash, Cash equivalents, and Restricted Cash, Beginning of Year	145,879		30,682		Cash, Cash equivalents, and Restricted Cash, Beginning of Year	91,547		145,879
Cash, Cash Equivalents, and Restricted Cash, End of Period	Cash, Cash Equivalents, and Restricted Cash, End of Period	$	107,214	$	208,654	Cash, Cash Equivalents, and Restricted Cash, End of Period	$	97,352	$	142,863

Supplemental Cash Flow Information	Supplemental Cash Flow Information					Supplemental Cash Flow Information
Stock-based compensation included in capitalized internal use software		$	1,870	$	—
Non-cash stock-based compensation included in capitalized internal use software						Non-cash stock-based compensation included in capitalized internal use software	$	524	$	606
Purchase of fixed assets included in accounts payable	Purchase of fixed assets included in accounts payable	—		174		Purchase of fixed assets included in accounts payable	—		88

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

Table of Contents

NERDY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands)

Nerdy Inc. Stockholders’ Equity
Class A
Common Stock Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interests
Total
Shares Value Shares Value
June 30, 2022 91,472 $ 9 68,615 $ 7 $ 506,963 $ (447,858) $ (7) $ 44,414 $ 103,528
Net loss — — — — — (18,516) — (13,782) (32,298)
Stock-based compensation — — — — 12,391 — — 468 12,859
Foreign currency translation adjustments — — — — — — (84) (62) (146)
Activity under stock compensation plans 1,770 — 533 — (26) — — — (26)
Rebalancing of ownership percentage between parent and the noncontrolling interests — — — — (4,711) — — 4,711 —
September 30, 2022 93,242 $ 9 69,148 $ 7 $ 514,617 $ (466,374) $ (91) $ 35,749 $ 83,917
December 31, 2021 83,913 $ 8 73,987 $ 7 $ 490,220 $ (439,708) $ 136 $ 45,142 $ 95,805
Net loss — — — — — (26,666) — (22,102) (48,768)
Stock-based compensation — — — — 34,811 — — 2,566 37,377
Foreign currency translation adjustments — — — — — — (227) (175) (402)
Activity under stock compensation plans 3,480 1 1,010 — (96) — — — (95)
Conversion of combined interests into Class A common stock 5,849 — (5,849) — 3,005 — — (3,005) —
Rebalancing of ownership percentage between controlling and noncontrolling interests — — — — (13,323) — — 13,323 —
September 30, 2022 93,242 $ 9 69,148 $ 7 $ 514,617 $ (466,374) $ (91) $ 35,749 $ 83,917

~~Table of Contents~~

Nerdy Inc. Stockholders’ Equity
Class A
Preferred Units Class A-1
Preferred Units Common
Units Class A
Common Stock Class B
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interests
Total
Units Value Units Value Units Value Shares Value Shares Value
June 30, 2021 5,060 $ 3,309 5,007 $ 3,398 54,761 $ 86 $ — $ — $ — $ — $ 7,837 $ (418,445) $ 346 $ — $ (403,469)
Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization — — — — — — — — — — — (17,484) — — (17,484)
Stock-based compensation attributable to legacy Nerdy holders prior to the reverse recapitalization — — — — — — — — — — 447 — — — 447
Foreign currency translation adjustments attributable to legacy Nerdy holders prior to the reverse recapitalization — — — — — — — — — — — — (37) — (37)
Reverse recapitalization, net (5,060) (3,309) (5,007) (3,398) (54,761) (86) 83,875 8 73,971 7 450,847 — (152) 26,147 470,064
Net loss after the reverse recapitalization — — — — — — — — — — — (21,275) — (18,960) (40,235)
Stock-based compensation after to the reverse recapitalization — — — — — — — — — — 34,110 — — 2,954 37,064
Foreign currency translation adjustments after the reverse recapitalization — — — — — — — — — — — — (25) (22) (47)
September 30, 2021 — $ — — $ — — $ — 83,875 $ 8 73,971 $ 7 $ 493,241 $ (457,204) $ 132 $ 10,119 $ 46,303
December 31, 2020 5,060 $ 3,309 5,007 $ 3,398 54,761 $ 86 — $ — — $ — $ 6,833 $ (412,383) $ 296 $ — $ (398,461)
Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization — — — — — — — — — — — (23,546) — — (23,546)
Stock-based compensation attributable to legacy Nerdy holders prior to the reverse recapitalization — — — — — — — — — — 1,451 — — — 1,451
Foreign currency translation adjustments attributable to legacy Nerdy holders prior to the reverse recapitalization — — — — — — — — — — — — 13 — 13
Reverse recapitalization, net (5,060) (3,309) (5,007) (3,398) (54,761) (86) 83,875 8 73,971 7 450,847 — (152) 26,147 470,064
Net loss after the reverse recapitalization — — — — — — — — — — — (21,275) — (18,960) (40,235)
Stock-based compensation after to the reverse recapitalization — — — — — — — — — — 34,110 — — 2,954 37,064
Foreign currency translation adjustments after the reverse recapitalization — — — — — — — — — — — — (25) (22) (47)
September 30, 2021 — $ — — $ — — $ — 83,875 $ 8 73,971 $ 7 $ 493,241 $ (457,204) $ 132 $ 10,119 $ 46,303


	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, ~~2021.~~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, ~~2021,~~2022, filed with the SEC on February 28, ~~2022.~~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. ~~Certain prior year amounts have been reclassified to conform with current period presentation. These reclassifications had no impact~~

Nerdy Inc. was formed on ~~net earnings (loss) or stockholders’ equity (deficit) as previously reported.~~

On September 20, 2021 ~~(the “Closing Date”),~~in connection with a business combination between TPG Pace Tech Opportunities ~~Corp., an exempted company incorporated in the Cayman Islands~~ (“TPG Pace”), and Live Learning Technologies LLC ~~a Delaware limited liability company~~ (along with its wholly-owned subsidiaries, “Nerdy LLC”~~), consummated a business combination (the “Closing”) pursuant to the business combination agreement, dated as of January 28, 2021 (as amended, the “Business Combination Agreement”~~). Nerdy LLC is a holding company that is the sole owner of ~~several~~multiple operating companies, including its flagship business Varsity Tutors LLC (“Varsity Tutors”). ~~Immediately prior to the Closing, TPG Pace became a Delaware corporation and was renamed Nerdy Inc.~~

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. ~~Members of Nerdy LLC are the legacy holders of Nerdy LLC historical common and preferred equity (the “Legacy Nerdy Holder(s)”) and Nerdy Inc.~~

~~Immediately following the Reverse Recapitalization,~~ Nerdy Inc. ~~had~~has the following classes of securities issued and outstanding: (i) ~~83,875 shares of~~ Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), ~~including Earnouts (as defined below),~~ (ii) ~~73,971 shares of~~ Class B common stock, par value $0.0001 per share (the “Class B Common Stock”), ~~including Earnouts,~~ and (iii) ~~17,281~~ 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.

~~Immediately following the Reverse Recapitalization,~~ Nerdy LLC ~~had~~has the following ~~units~~securities issued and ~~warrants~~ outstanding: (i) ~~157,846~~ units (the “OpCo Units”)~~, including Earnouts,~~ and (ii) ~~2,052~~ 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 ~~both September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company holds 22 of the total ~~Warrants~~ issued ~~in connection with the Reverse Recapitalization.~~and outstanding Warrants.

Of the total shares and units issued ~~as a result of the Reverse Recapitalization,~~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

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the Reverse Recapitalization (assuming there is no change in control event) (the “Earnout(s)”). At ~~both September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company holds 36 of the total ~~Earnouts~~ issued ~~in connection with the Reverse Recapitalization.~~

~~As part of the Reverse Recapitalization, Nerdy Inc. contributed all of its assets (other than the OpCo Units it then held) to Nerdy LLC in exchange for additional OpCo Units~~ and OpCo Warrants. Nerdy LLC, as a result of the contribution by Nerdy Inc., received proceeds of $558,324 during the nine months ended September 30, 2021 ($557,574 during the year ended December 31, 2021 after the remaining TPG Pace transaction expenses were paid). Nerdy LLC used these proceeds during the nine months ended September 30, 2021 to (i) pay cash consideration of $299,317 to Legacy Nerdy Holders ($336,846 after the remaining cash was paid to Legacy Nerdy Holders in the fourth quarter of 2021 and the first quarter of 2022), (ii) pay transaction fees and expenses of $22,974 ($29,636 during the year ended December 31, 2021 after the remaining fees and expenses were paid), and (iii) repay $52,343 of outstanding ~~principal, interest, and other charges under its Loan and Security Agreement (the “LSA”). The remaining funds were contributed to Nerdy LLC’s balance sheet.~~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. Nerdy LLC is managed by a five person board of managers, composed of three persons designated by Nerdy Inc. and two persons designated by holders of a majority of the OpCo Units held by members of Nerdy LLC other than Nerdy Inc. Nerdy LLC’s management will continue to manage Nerdy LLC and all of its related and affiliated entities (subject to approval of Nerdy Inc.’s Board of Directors) and Nerdy Inc.’s executive officers serve as the executive officers for all of its related and affiliated entities.

As of September 30, 2022, Legacy Nerdy Holders owned 65,790 OpCo Units, excluding Earnouts, equal to 42.6% of the economic interest in Nerdy LLC, and 65,790 shares of Class B Common Stock, excluding Earnouts, which represents 42.6% of the combined voting power of Nerdy Inc., excluding Earnouts.

As of September 30, 2022, the public stockholders of Nerdy Inc., including certain Legacy Nerdy Holders, (i) owned 88,600 shares of Class A Common Stock, excluding Earnouts, which represents 57.4% of the combined voting power of Nerdy Inc., excluding Earnouts, and 100% of the economic interest in Nerdy Inc., and (ii) through Nerdy Inc.’s ownership of 88,600 OpCo Units, indirectly hold 57.4% of the economic interest in Nerdy LLC.

In connection with the Reverse Recapitalization, Nerdy LLC incurred expenses of $24,972 and $29,636 during the three and nine months ended September 30, 2021, respectively. Of the total costs incurred during the three months ended September 30, 2021, $7,216 were recorded as “General and administrative expenses” in the Condensed Consolidated Statement of Operations and $17,756 were recorded as a reduction of “Additional paid-in capital” at the Closing of the Reverse Recapitalization. Of the total costs incurred during the nine months ended September 30, 2021, $9,602 were recorded as “General and administrative expenses” in the Condensed Consolidated Statement of Operations and $20,034 were recorded as a reduction of “Additional paid-in capital” at the Closing of the Reverse Recapitalization. Of the expenses that were recorded as a reduction of “Additional paid-in capital” at the Closing of the Reverse Recapitalization, $16,712 were paid by Nerdy LLC during the nine months ended September 30, 2021. Nerdy LLC did not record any transaction expenses related to the Reverse Recapitalization during the three and nine months ended September 30, 2022.

The financial results of Nerdy LLC and its wholly-owned subsidiaries are consolidated with and into Nerdy Inc., and ~~following the Reverse Recapitalization on September 20, 2021,~~ 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, ~~if the achievement of certain stock price thresholds are not met within five years of the Reverse Recapitalization.~~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.

For the three and nine months ended September 30, 2021, $17,484 and $23,546 of the consolidated net losses of Nerdy LLC were attributable to the Legacy Nerdy Holders to reflect their absorption of 100% of the consolidated net losses of Nerdy LLC pertaining to the days prior to the Reverse Recapitalization.

In accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, the historical equity of Nerdy LLC has been recast for the three and nine months ended September 30, 2021, to reflect the number of shares of Nerdy Inc.’s Class A Common Stock and Class B Common Stock issued to Legacy Nerdy Holders in connection with the Reverse Recapitalization. The Company recast the units outstanding related to the historical Nerdy LLC preferred units and common units (the “Historical Nerdy LLC Equity”) prior to the Reverse Recapitalization as common equity of Nerdy Inc., reflecting the exchange ratio of 1-for-0.64, pursuant to the Business Combination Agreement. The condensed consolidated financial statements and related notes thereto give effect to the conversion for the three and nine months ended September 30, 2021, without any change to par value or per unit amounts. The condensed consolidated financial statements do not necessarily represent the capital structure of Nerdy Inc. had the Reverse Recapitalization occurred in prior periods. The Company has not

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~~made retroactive adjustments related to the historical book values of Historical Nerdy LLC Equity as the adjustments were considered immaterial.~~

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 ~~June 2016,~~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. ~~This ASU is effective for the Company beginning January 1, 2023.~~ 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. ~~Early adoption is permitted.~~ The Company ~~is in the process of assessing the impact of this ASU.~~

In August 2020, the FASB issued 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 adoptadopted 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 February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU requires organizations that lease assets to recognize on the balance sheet the right-of-use (“ROU”) assets and lease liabilities for the rights and obligations created by those leases. This ASU also requires additional disclosures about the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, which provides entities with a new transition method where comparative periods presented in the financial statements in the period of adoption will not need to be restated. Under the new transition method, an entity initially applies the provisions of the standard at the adoption date, versus at the beginning of the earliest period presented, and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted these ASUs on January 1, 2022, as required by the ASUs, and utilized the cumulative effect adjustment approach, which did not result in an adjustment to the Company’s opening balance of retained earnings. At adoption, the Company recognized ROU assets and lease liabilities of $4,154 and $4,870, respectively, on the balance sheet at January 1, 2022. The new standard did not materially impact the statements of operations, cash flows, or stockholders’ equity (deficit). Additionally, the Company provides expanded disclosures related to its leasing arrangements2023 in accordance with ~~these ASUs. For additional information, see Note 13.~~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 ~~September 30, 2022,~~March 31, 2023, Legacy Nerdy Holders owned ~~65,790~~65,900 OpCo Units, excluding Earnouts, equal to ~~42.6%~~41.4% of the economic interest in Nerdy LLC, and ~~65,790~~65,900 shares of Class B Common Stock, excluding Earnouts. As of December 31, ~~2021,~~2022, Legacy Nerdy Holders owned ~~70,629~~65,948 OpCo Units, excluding Earnouts, equal to ~~47.1%~~42.1% of the economic interest in Nerdy LLC, and ~~70,629~~65,948 shares of Class B Common Stock, excluding Earnouts.

The OpCo Units and the shares of Class B Common Stock, together (the “Combined Interests”), may be redeemed at the option of the Legacy Nerdy Holders on a one-for-one basis for shares of Class A Common Stock or the cash equivalent thereof (based on the market price of the shares of Class A Common Stock at the time of redemption) as determined by Nerdy Inc. If Nerdy Inc. elects the redemption to be settled in cash, the cash used to settle the redemption must be funded through a private or public offering of Class A Common Stock no later than ~~five~~ business days after the redemption notice date. Upon the redemption of the OpCo Units and Class B Common Stock for shares of Class A Common Stock or the equivalent thereof, all redeemed shares of Class B Common Stock will be canceled. After each conversion, Nerdy LLC equity attributable to Nerdy Inc. and the Legacy Nerdy Holders is adjusted to reflect Nerdy Inc.’s and the Legacy Nerdy Holders’ ownership in Nerdy LLC.

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Nerdy Inc. owned ~~57.4%~~58.6% and ~~52.9%~~57.9% of the outstanding OpCo Units as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. ~~The~~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 ~~portion~~portions of the consolidated net losses of Nerdy LLC, which the Legacy Nerdy Holders absorbed, ~~was~~were allocated to NCI. At the end of each reporting period, Nerdy LLC equity attributable to Nerdy Inc. and the Legacy Nerdy Holders iswas 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 September 30,				As Of and For The Nine Months Ended September 30,					As Of and For The Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
OpCo Units	OpCo Units									OpCo Units
Nerdy Inc.	Nerdy Inc.									Nerdy Inc.
Beginning of period	Beginning of period	86,830		—		79,271		—		Beginning of period		90,654		79,271
Vesting or exercise of equity awards	Vesting or exercise of equity awards	1,770		—		3,480		—		Vesting or exercise of equity awards		2,130		764
Conversion of Combined Interests into Class A Common Stock	Conversion of Combined Interests into Class A Common Stock	—		—		5,849		—		Conversion of Combined Interests into Class A Common Stock		500		—
Issuance of OpCo units in connection with the Reverse Recapitalization		—		79,233		—		79,233

End of period	End of period	88,600		79,233		88,600		79,233		End of period		93,284		80,035
Legacy Nerdy Holders	Legacy Nerdy Holders									Legacy Nerdy Holders
Beginning of period	Beginning of period	65,257		—		70,629		—		Beginning of period		65,948		70,629
Vesting or exercise of equity awards	Vesting or exercise of equity awards	533		—		1,010		—		Vesting or exercise of equity awards		452		277
Conversion of Combined Interests into Class A Common Stock	Conversion of Combined Interests into Class A Common Stock	—		—		(5,849)		—		Conversion of Combined Interests into Class A Common Stock		(500)		—
Issuance of OpCo units in connection with the Reverse Recapitalization		—		70,613		—		70,613

End of period	End of period	65,790		70,613		65,790		70,613		End of period		65,900		70,906
Total	Total									Total
Beginning of period	Beginning of period	152,087		—		149,900		—		Beginning of period		156,602		149,900
Vesting or exercise of equity awards	Vesting or exercise of equity awards	2,303		—		4,490		—		Vesting or exercise of equity awards		2,582		1,041
Conversion of Combined Interests into Class A Common Stock		—		—		—		—
Issuance of OpCo units in connection with the Reverse Recapitalization		—		149,846		—		149,846

End of period	End of period	154,390		149,846		154,390		149,846		End of period		159,184		150,941
Ownership Percentage	Ownership Percentage									Ownership Percentage
Nerdy Inc.	Nerdy Inc.									Nerdy Inc.
Beginning of period	Beginning of period	57.1	%	—	%	52.9	%	—	%	Beginning of period		57.9	%	52.9	%
End of period	End of period	57.4	%	52.9	%	57.4	%	52.9	%	End of period		58.6	%	53.0	%
Legacy Nerdy Holders	Legacy Nerdy Holders									Legacy Nerdy Holders
Beginning of period	Beginning of period	42.9	%	—	%	47.1	%	—	%	Beginning of period		42.1	%	47.1	%
End of period	End of period	42.6	%	47.1	%	42.6	%	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
September 30, Nine Months Ended
September 30,
2022 % 2021 % 2022 % 2021 %
Consumer $ 29,087 92 % $ 29,249 94 % $ 103,640 86 % $ 92,930 94 %
Institutional 2,393 7 % 952 3 % 14,693 12 % 1,340 1 %
Other (a) 272 1 % 1,097 3 % 2,530 2 % 4,379 5 %
Revenue $ 31,752 100 % $ 31,298 100 % $ 120,863 100 % $ 98,649 100 %

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	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 ~~the legacy Veritas Prep LLC business and~~ EduNation Limited, a company incorporated in England and Wales, ~~(“First Tutors UK”)~~ 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” ~~balances.~~reported on the Condensed Consolidated Balance Sheets for the periods presented.


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Accounts receivable, net	Accounts receivable, net	$	3,600	$	5,321	Accounts receivable, net	$	6,333	$	11,596
Deferred revenue	Deferred revenue	$	20,933	$	30,005	Deferred revenue	$	22,254	$	25,539

“Accounts receivable, net” is reported net of reserves of ~~$552~~$665 and ~~$477~~$858 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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. ~~Nerdy Inc. is also subject to taxes in foreign jurisdictions. The taxes related to these foreign jurisdictions were immaterial for the three and nine months ended September 30, 2022 and 2021.~~ The Company continues to maintain a full valuation allowance against the deferred tax assets at Nerdy Inc. as of ~~September 30, 2022.~~March 31, 2023.

The effective income tax rate was (0.07)% and ~~(0.07)~~(0.04)% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, respectively. The effective income tax rates differed significantly from the statutory rates in both ~~current year~~ periods, primarily as a result of changes in the valuation allowance and income tax ~~expense (benefit)~~benefit attributable to the NCI. Income tax expense reported for both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 represents amounts owed to state authorities.

The effective income tax rate was (0.06)% and (0.05)% for the three and nine months ended September 30, 2021, respectively. The effective income tax rates differed significantly from the statutory rates in both prior year periods, primarily due to the recognition of a valuation allowance as a result of the Company’s new tax structure following the Reverse Recapitalization and income tax expense (benefit) attributable to the NCI. Income tax expense reported for the three and nine months ended September 30, 2021 represents amounts owed to state authorities due to the change in corporate taxpayer status following the Reverse Recapitalization.

~~For the days prior to the Reverse Recapitalization, Nerdy LLC was a partnership. As such, its net taxable income (loss) and any related tax credits were allocated to its members.~~

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. Basic and diluted loss per share for the three and nine months ended September 30, 2021, represents the period from September 21, 2021 to September 30, 2021, the days in the prior year periods when the Company had Class A and Class B common stock outstanding. Class B Common Stock does not have economic rights in Nerdy Inc., including rights to dividends or distributions upon liquidation, and as a result, is not considered a participating security for basic and diluted loss per share. As such, basic and diluted loss per share of Class B Common Stock has not been presented. Earnouts do not participate in earnings or losses, but are eligible to receive non-forfeitable dividends, if any, as declared by Nerdy Inc., and as a result, are considered participating securities for basic and diluted loss per share. As such, basic and diluted loss per share is computed using the two-class method. Under the two-class method, net earnings attributable to Class A Common Stock, if any, are allocated to Class A Common Stock and Earnouts as if all of the net earnings for the period had been distributed.

Basic loss per share is based on the average number of shares of Class A Common Stock outstanding during the period. Diluted loss per share is based on the average number of shares of Class A Common Stock used for the basic loss per share calculation, adjusted for the dilutive effect of stock options, stock appreciation rights, restricted stock awards, restricted stock units, Warrants, and Earnouts, if any, using the “treasury stock” method and for the Combined Interests that convert into potential shares of Class A Common Stock, if any, using the “if converted” method. “Net loss attributable to Class A Common


	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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Stockholders for diluted loss per share” is adjusted for the Nerdy Inc.’s share of Nerdy LLC’s consolidated net loss, net of Nerdy Inc. taxes, after giving effect to dilutive securities. In addition, “Net loss attributable to Class A Common Stockholders for diluted loss per share” is adjusted for the after-tax impact of changes to the fair value of derivative liabilities, to the extent the Company’s Warrants are dilutive.

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Net Loss Attributable to Class A Common Stockholders $ (18,516) $ (21,275) $ (26,666) $ (21,275)
Less: Undistributed net earnings attributable to participating securities — — — —
Net loss attributable to Class A Common Stockholders for basic and diluted loss per share $ (18,516) $ (21,275) $ (26,666) $ (21,275)
Weighted-average shares of Class A Common Stock for basic and diluted loss per share 87,714 79,233 84,601 79,233
Basic and Diluted loss per share of Class A Common Stock $ (0.21) $ (0.27) $ (0.32) $ (0.27)

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 September 30,		Nine Months Ended September 30,			Three Months Ended March 31,
		2022	2021	2022	2021			2023	2022
Stock options	Stock options	964	3,799	964	3,799	Stock options		974	3,297
Stock appreciation rights	Stock appreciation rights	6,618	7,628	6,618	7,628	Stock appreciation rights		6,417	7,092
Restricted stock awards	Restricted stock awards	1,024	3,115	1,024	3,115	Restricted stock awards		311	2,238
Restricted stock units	Restricted stock units	16,336	—	16,336	—	Restricted stock units		11,389	9,585
Restricted stock units - founder’s award	Restricted stock units - founder’s award	9,258	9,258	9,258	9,258	Restricted stock units - founder’s award		9,258	9,258
Warrants	Warrants	19,311	19,311	19,311	19,311	Warrants		19,311	19,311
Earnouts	Earnouts	7,964	7,964	7,964	7,694	Earnouts		7,964	7,964
Combined Interests that can be converted into shares of Class A Common Stock	Combined Interests that can be converted into shares of Class A Common Stock	65,790	70,613	65,790	70,613	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 ~~within~~on the Condensed Consolidated Balance Sheets to the Condensed Consolidated Statements of Cash ~~Flows.~~Flows for the periods presented.


		September 30, 2022		December 31, 2021		September 30, 2021		December 31, 2020			March 31, 2023		December 31, 2022		March 31, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	106,382	$	143,964	$	169,977	$	29,265	Cash and cash equivalents	$	96,520	$	90,715	$	141,715	$	143,964
Restricted cash included in Other current assets	Restricted cash included in Other current assets	516		1,083		37,845		270		Restricted cash included in Other current assets	516		516		316		1,083
Restricted cash included in Other assets	Restricted cash included in Other assets	316		832		832		1,147		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	Total Cash, Cash Equivalents, and Restricted Cash shown in the Condensed Consolidated Statements of Cash Flows	$	107,214	$	145,879	$	208,654	$	30,682	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 and cash deposits due to Legacy Nerdy Holders. As of September 30, 2022 and December 31, 2021, the Company reported cash deposits of zero and $767, respectively, due to Legacy Nerdy Holders in exchange for their Historical Nerdy LLC Equity as “~~Other current assets” on the Condensed Consolidated Balance Sheets.~~leases.

~~Table of Contents~~

NOTE 8 — FIXED ASSETS, NET

September 30,
2022 December 31,
2021
Fixed assets $ 34,653 $ 28,467
Accumulated depreciation (22,107) (17,749)
$ 12,546 $ 10,718
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 ~~by the Company~~ in the Condensed Consolidated Statements of Operations for the periods presented.


			Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended March 31,
		Statement of Operations Location	2022		2021		2022		2021			Statement of Operations Location		2023		2022
Amortization expense related to capitalized internal use software	Amortization expense related to capitalized internal use software	Cost of revenue	$	1,240	$	1,113	$	3,573	$	3,358	Amortization expense related to capitalized internal use software	Cost of revenue		$	1,297	$	1,164
Depreciation expense	Depreciation expense	General and administrative expenses	267		215		795		599		Depreciation expense	General and administrative expenses		256		258

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NOTE 9 — INTANGIBLE ASSETS, NET

September 30, 2022 December 31, 2021
Carrying
Amount
Accum.
Amort.
Net
Amount
Carrying
Amount
Accum.
Amort.
Net
Amount
Trade names $ 6,073 $ (2,351) $ 3,722 $ 6,073 $ (1,913) $ 4,160
Foreign currency translation adjustment (368) 212 (156) 252 16 $ 268
$ 5,705 $ (2,139) $ 3,566 $ 6,325 $ (1,897) $ 4,428
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 ~~by the Company~~ in the Condensed Consolidated Statements of Operations for the periods presented.

Three Months Ended
September 30, Nine Months Ended
September 30,
Statement of Operations Location 2022 2021 2022 2021
Amortization expense related to intangible assets General and administrative expenses $ 146 $ 268 $ 454 $ 804


		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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 September 30,
2022 December 31,
2021
Non-employee Warrants Other liabilities $ 7,649 $ 17,210
Non-employee Earnouts Other liabilities 9,254 21,466
$ 16,903 $ 38,676

~~Table of Contents~~


	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 ~~on the Company’s~~in Condensed Consolidated Statements of Operations for the periods presented.


			Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended March 31,
		Statement of Operations Location	2022		2021		2022		2021			Statement of Operations Location		2023		2022
Non-employee Warrants	Non-employee Warrants	Unrealized loss (gain) on derivatives, net	$	1,883	$	(1,339)	$	(9,561)	$	(1,339)	Non-employee Warrants	Unrealized loss on derivatives, net		$	8,414	$	5,163
Non-employee Earnouts	Non-employee Earnouts	Unrealized loss (gain) on derivatives, net	2,638		(10,003)		(12,212)		(10,003)		Non-employee Earnouts	Unrealized loss on derivatives, net		13,268		5,879
			$	4,521	$	(11,342)	$	(21,773)	$	(11,342)				$	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.”


		September 30, 2022								December 31, 2021									March 31, 2023								December 31, 2022
		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Non-employee Warrants	Non-employee Warrants	$	7,649	$	3,600	$	4,049	$	—	$	17,210	$	8,100	$	9,110	$	—	Non-employee Warrants	$	12,812	$	6,030	$	6,782	$	—	$	4,398	$	2,070	$	2,328	$	—
Non-employee Earnouts	Non-employee Earnouts	9,254		—		—		9,254		21,466		—		—		21,466		Non-employee Earnouts	20,926		—		—		20,926		7,658		—		—		7,658
		$	16,903	$	3,600	$	4,049	$	9,254	$	38,676	$	8,100	$	9,110	$	21,466		$	33,738	$	6,030	$	6,782	$	20,926	$	12,056	$	2,070	$	2,328	$	7,658

The Company holds certain items that are required to be disclosed at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

~~The Company’s calculation of the fair value of liabilities associated with~~ Public Warrants issued to non-employees ~~was calculated~~were valued using the market approach based upon the quoted market price of Nerdy Inc.’s Public Warrants at the end of each ~~period.~~period and are categorized as Level 1. The ~~Company’s calculation of the fair value of liabilities associated with the~~ Private Placement Warrants, FPA Warrants, and OpCo Warrants issued to non-employees ~~was~~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 ~~classified~~categorized as Level 2. ~~For additional information, see Note 10.~~

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 ~~was~~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, ~~2021~~2022	$	~~21,466~~7,658

Mark-to-market ~~gain~~loss on non-employee Earnouts	~~(12,212)~~13,268
Balance, ~~September 30, 2022~~March 31, 2023	$	~~9,254~~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 ~~the~~expected stock-price volatility ofusing the ~~non-employee Earnouts based on historical volatility of the Company’s Class A Common Stock,~~ implied volatility ~~using historical volatility of~~from the Company’s Public ~~Warrants, and implied volatility using historical volatility of select peer companies’ common stock.~~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.

~~Table of Contents~~

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


		September 30, 2022	December 31, 2021		March 31, 2023	December 31, 2022
Expected term (in years)	Expected term (in years)	3.98	4.72	Expected term (in years)	3.48	3.72
Stock price		$2.11	$4.50
Stock price of Class A Common Stock				Stock price of Class A Common Stock	$4.18	$2.25
Expected stock price volatility	Expected stock price volatility	90.0%	65.0%	Expected stock price volatility	83.0%	79.0%
Risk-free interest rate	Risk-free interest rate	4.2%	1.2%	Risk-free interest rate	3.7%	4.1%
Expected Dividends	Expected Dividends	—%	—%	Expected Dividends	—%	—%
Fair Value (per Earnout)	Fair Value (per Earnout)	$1.21	$2.80	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 ~~and~~or goodwill during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 or ~~2021.~~

~~NOTE 12 — LONG-TERM DEBT~~

~~Loan and Security Agreement~~

On August 9, 2019, Nerdy LLC entered into the LSA for an aggregate principal amount of up to $50,000, subject to certain limitations. The LSA bore interest equal to the greater of either (i) 10.75% plus the prime rate as reported in The Wall Street Journal minus 5.50% or (ii) 10.75%. Additionally, Nerdy LLC was subject to paid-in-kind (“PIK”) interest of 0.55% and an end of term charge equal to 3.00% of the total funded amount. Monthly payments on the LSA were interest only, with the principal, accrued PIK interest, and the end of term charge due in full at maturity. Unused capacity under the LSA did not bear a commitment fee. The LSA was scheduled to mature on August 1, 2023, subject to certain conditions, was secured by substantially all of Nerdy LLC’s assets, and did not contain any financial covenants. Nerdy LLC incurred debt issuance costs of $613 associated with the LSA, which were deferred and were being amortized to interest expense over the term of the LSA. On July 28, 2021, Nerdy LLC borrowed $11,000 from the LSA, increasing total borrowings to $50,000.

With a portion of the proceeds received from the Reverse Recapitalization (see Note 1), Nerdy LLC repaid the $50,000 outstanding principal balance of the LSA. Additionally, Nerdy LLC paid $2,343 in PIK interest, end of term charges, and other expenses. In connection with these repayments and the extinguishment of the LSA, Nerdy LLC recorded a loss of $1,278, which was included in “Loss (gain) on extinguishment of debt, net” in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021. This loss was recorded in the period prior to the Reverse Recapitalization as the debt did not legally survive the Reverse Recapitalization. The LSA was terminated in connection with the Reverse Recapitalization, and Nerdy LLC no longer had the ability to borrow under it after the Closing.

~~CARES Act Promissory Note~~

On April 16, 2020, Nerdy LLC applied for and received a loan in exchange for a promissory note (the “Promissory Note”) under the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”) in the amount of $8,293. The Promissory Note was scheduled to mature on April 16, 2022 and bore a 1.00% interest rate. Nerdy LLC applied for forgiveness of the Promissory Note and on June 30, 2021, Nerdy LLC received notice from the Small Business Administration (the “SBA”) that the Promissory Note and accrued interest of $102 was forgiven in full. In connection with the forgiveness of the Promissory Note, Nerdy LLC recorded a gain of $8,395, which was reported as “Loss (gain) on extinguishment of debt, net” in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2021.

In connection with the Reverse Recapitalization (see Note 1), Nerdy Inc.’s Board of Directors approved repayment in full by Nerdy LLC of the principal amount and accrued interest of the Promissory Note and notified the SBA of their intent to do so. As a result, Nerdy LLC recorded the Promissory Note principal balance of $8,293 and accrued interest of $102 on the condensed consolidated balance sheet within “Other current liabilities,” and reported a loss of $8,395, which was included in “Other expense, net” in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021. On October 14, 2021, Nerdy LLC repaid the Promissory Note principal balance and accrued interest.2022.

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NOTE ~~13 — LEASES~~

In connection with the adoption of ASUs 2016-02 and 2018-11 (see Note 2), the Company updated its policy for recognizing leases under ASC Topic 842. A summary of the updated policy is included below. Prior to January 1, 2022, the Company accounted for leases under ASC Topic 840, “Leases.”

~~Lease Portfolio~~

The Company leases office space in St. Louis, MO and in Tempe, AZ through operating lease agreements. Additionally, the Company subleases its Tempe, AZ office space as a result of a sublease agreement entered into in 2020. The Company has no finance lease agreements. The lease in St. Louis, MO has a remaining term of 11 months. The lease and sublease in Tempe, AZ each have a remaining term of approximately three years. The Company makes payments to the lessor of the office space in Tempe, AZ, while receiving payments from the sublessee.

~~Lease Policy~~

The Company determines if an arrangement is a lease at its inception. When the arrangements include lease and non-lease components, the Company accounts for them as a single lease component. Leases with an initial term of less than 12 months are not reported on the balance sheet, but rather recognized as lease expense on a straight-line basis over the lease term. Arrangements may include options to extend or terminate the lease arrangement. These options are included in the lease term used to establish ROU assets and lease liabilities when it is reasonably certain they will be exercised. The Company will reassess expected lease terms based on changes in circumstances that indicate options may be more or less likely to be exercised.

The Company has lease arrangements that include variable rental payments. The future variability of these payments and adjustments are unknown and therefore are not included in minimum rental payments used to determine the ROU assets and lease liabilities. The Company has lease arrangements where it makes separate payments to the lessor based on the lessor’s common area maintenance expenses, property and casualty insurance costs, property taxes assessed on the property, and other variable expenses. As the Company has elected the practical expedient not to separate lease and non-lease components, these variable amounts are captured in lease expense in the period in which they are incurred. Variable rental payments are recognized in the period in which their associated obligation is incurred. Sublease income is recognized in the period in which the income is earned.

As most of the Company’s lease arrangements do not provide an implicit interest rate, an incremental borrowing rate (“IBR”) is applied in determining the present value of future payments. The Company’s IBR is selected based upon information available at the lease commencement date, and represents the Company’s estimate of an interest rate that it would be able to obtain from a lender to borrow, on a collateralized basis, over a similar term to obtain an asset of similar value in a similar economic environment.

The ROU assets are reported as “Other assets,” and lease liabilities are reported as “Other current liabilities” and “Other liabilities” on the Condensed Consolidated Balance Sheet. Operating lease expense is recognized on a straight-line basis over the lease term and is included in “General and administrative expenses” in the Condensed Consolidated Statements of Operations. Variable lease expense and sublease income are included in “General and administrative expenses” in the Condensed Consolidated Statements of Operations.

~~Impact of Adoption~~

The Company utilized the cumulative effect adjustment method of adoption and, accordingly, recorded ROU assets and lease liabilities of $4,154 and $4,870, respectively, on the balance sheet at January 1, 2022. The Company elected the following practical expedients in accordance with ASC Topic 842:

•Reassessment elections — The Company elected the package of practical expedients, and did not reassess whether any existing contracts are or contain a lease, provided a lease analysis was conducted under ASC Topic 840. To the extent leases were identified under ASC Topic 840, the Company did not reassess the classification of those leases. Additionally, to the extent initial direct costs were capitalized under ASC Topic 840 and are not amortized as a result of the implementation of ASC Topic 842, they were not reassessed.

•Short-term lease election — ASC Topic 842 allows lessees an option to not recognize ROU assets and lease liabilities arising from short-term leases. A short-term lease is defined as a lease with an initial term of 12 months or less. The Company elected to not recognize short-term leases as ROU assets and lease liabilities on the balance sheet. All short-term leases which are not included on the Company’s balance sheet will be recognized within lease expense. Leases that have an initial term of 12 months or less with an option for renewal will need to be assessed in order to determine if the lease qualifies for the short-term lease exception. If the option is reasonably certain to be exercised, the lease does not qualify as a short-term lease.

~~Table of Contents~~

•Lease vs non-lease components — The Company elected to combine future lease and non-lease components as a single component and the total consideration for the arrangements will be accounted for as a lease.

~~The following table presents the balance sheet location of the Company’s operating leases.~~


	September 30, 2022
~~ROU assets~~
~~Other assets~~	$	~~3,274~~

~~Lease liabilities:~~
~~Other current liabilities~~	$	~~1,649~~
~~Other liabilities~~	~~2,158~~
~~Total lease liabilities~~	$	~~3,807~~

~~The following table presents maturities of the Company’s operating lease liabilities as of September 30, 2022, presented under ASC Topic 842.~~

September 30,
2022
Remaining 2022 $ 448
2023 1,622
2024 1,273
2025 644
2026 —
Thereafter —
Total future minimum payments $ 3,987
Less: Implied interest 180
Total lease liabilities $ 3,807

~~The following table presents future minimum rental payments under the Company’s noncancelable operating lease agreements as of December 31, 2021, presented under ASC Topic 840.~~

2022 $ 1,749
2023 1,599
2024 1,250
2025 632
2026 —
Thereafter —
Total $ 5,230

~~The following table presents supplemental operations statement information related to the Company’s operating leases and sublease agreements for the periods presented.~~

Three Months Ended
September 30, Nine Months Ended
September 30,
Statement of Operations Location 2022 2021 (a) 2022 2021 (a)
Operating lease expense General and administrative expenses $ 385 $ 312 $ 1,155 $ 842
Variable lease expense General and administrative expenses 31 — 81 —
Sublease income General and administrative expenses (253) (150) (753) (357)

~~(a)Rent expense and sublease income as reported under ASC Topic 840.~~

~~Table of Contents~~

As of September 30, 2022, the weighted-average remaining lease term and the weighted-average IBR of the Company’s operating leases was approximately 2.27 years and 3.16%, respectively. Operating cash flows for amounts included in the measurement of the Company’s operating lease liabilities were $1,181 for the nine months ended September 30, 2022.

~~NOTE 14~~ — RELATED PARTIES

~~Amounts Due to Legacy Nerdy Holders~~

As of December 31, 2021, the Company reported amounts due to Legacy Nerdy LLC Holders of $841 in exchange for their Historical Nerdy LLC Equity as “Due to legacy Nerdy holders” on the Condensed Consolidated Balance Sheet. The Company paid the amounts due to Legacy Nerdy Holders during the nine months ended September 30, 2022, and there was no liability reported on the Condensed Consolidated Balance sheet as of September 30, 2022.

Tax Receivable Agreement

~~In connection with the Reverse Recapitalization,~~ Nerdy Inc. ~~entered into~~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) ~~in periods after the Reverse Recapitalization~~ 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. If Nerdy Inc. elects to terminate the Tax Receivable Agreement early, Nerdy Inc. would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by it to the TRA Holders under the Tax Receivable Agreement (based upon certain valuation assumptions and deemed events set forth in the Tax Receivable Agreement). If a change of control occurs, the Tax Receivable Agreement will remain in effect with respect to each TRA Holder (provided that certain valuation assumptions, including that there will be sufficient income to utilize all tax attributes covered by the Tax Receivable Agreement, will be utilized to determine the payments to be made under the Tax Receivable Agreement), unless such TRA Holder elects (or the representative of the TRA Holders causes all of the TRA Holders to elect) to receive its early termination payment in connection with the change of control transaction. During the nine months ended September 30, 2022, the Company amended the Tax Receivable Agreement to, among other things, change the applicable rates used in the Tax Receivable Agreement from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”). The transition from LIBOR to SOFR did not have a material impact on the valuation of the Tax Receivable Agreement or the Company’s financial statements.

As of ~~September 30, 2022,~~March 31, 2023, Nerdy Inc. has not recognized a liability of ~~$108,062~~$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 ~~and nine~~ months ended ~~September 30,~~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.

If the Tax Receivable Agreement was terminated at September 30, 2022, Nerdy Inc. would recognize an additional deferred tax asset of approximately $68,391 and an additional Tax Receivable Agreement liability of approximately $61,300, assuming (i) a price of $2.11 per share (the closing price of the Company’s Class A Common Stock as of September 30, 2022), (ii) a constant corporate tax rate of 24.6%, (iii) that Nerdy Inc. will have sufficient taxable income to fully utilize the tax benefits, and (iv) no material changes in relevant tax law.

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~~NOTE 15 — STOCK-BASED COMPENSATION~~

For the days prior to the Reverse Recapitalization, Nerdy LLC’s employees participated in the Nerdy 2016 U.S. Unit Appreciation Rights Plan, the 2016 Canadian Unit Appreciation Rights Plan, and the Varsity Tutors, LLC Incentive Unit Plan (collectively, the “Legacy Plans”). The Legacy Plans consisted of unit appreciation rights (“UARs”) and profit interest units (“PIUs”), which were exchanged for Nerdy Inc. equity awards and cash in connection with the Reverse Recapitalization. Nerdy LLC’s UARs were converted into stock appreciation rights of Nerdy Inc. (“SARs”) and Nerdy LLC’s PIUs were converted into either shares of Class B Common Stock, OpCo Units and cash, or restricted stock awards of Nerdy Inc. (“RSAs”). Holders of UARs received cash, SARs, or a combination of both. Holders of vested PIUs received a combination of shares of Class B Common Stock (and an equivalent number of OpCo Units in Nerdy LLC) and cash. Holders of unvested PIUs received RSAs with the underlying equity being Class B Common Stock (and an equivalent number of OpCo Units in Nerdy LLC).

In connection with the exchange discussed above, UARs held by current employees at the time of Reverse Recapitalization were modified and the Company recorded a step-up in the grant date fair value of the awards as of September 20, 2021, which was principally due to the difference between the UAR grant-date hurdle rates and the Company’s stock price as of the modification date. During the three and nine months ended September 30, 2021, the Company recognized stock-based compensation expense of $32,066 related to the modification of the UARs, of which $2,457 and $29,609 was included in “Sales and marketing expenses” and “General and administrative expenses,” respectively, in the Condensed Consolidated Statements of Operations.

The PIUs were also modified in connection with the exchange discussed above; however, as the modification was classified as Type 1: Probable-to-probable, pursuant to ASC Topic 718, no modification expense was recognized during the three and nine months ended September 30, 2021.

As a result of the Reverse Recapitalization, the Company has issued and outstanding Warrants and Earnouts (see Note 1). Warrants and Earnouts issued to current employees as of September 20, 2021 (the “Employee Warrants” and the “Employee Earnouts,” respectively) were classified as stock-based compensation under ASC Topic 718 as these Warrants and Earnouts were granted conditionally based upon employment. Former employees were not granted Warrants and Earnouts. The Company recorded the fair value of the Employee Warrants and Employee Earnouts as stock-based compensation expense of $408 and $2,763, respectively, on September 20, 2021 as there was no required service period after that date. Of the total Employee Warrant expense, $79 and $329 was included in “Sales and marketing expenses” and “General and administrative expenses,” respectively, in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021. Of the total Employee Earnout expense, $46 and $2,717 was included in “Sales and marketing expenses” and “General and administrative expenses,” respectively, in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021.

~~NOTE 16 — REDEEMABLE PREFERRED UNITS OF NERDY LLC~~

During the three and nine months ended September 30, 2021, Nerdy LLC had historical Class B and Class C redeemable preferred units (respectively, the “Class B Units” and the “Class C Units”) issued and outstanding. In connection with the Reverse Recapitalization on September 20, 2021, the Class B Units and Class C Units were exchanged for cash, Class A Common Stock, or Class B Common Stock and OpCo Units. The following tablesummarizes the changes to Nerdy LLC’s historical Class B and Class C Units for the three and nine months ended September 30, 2021. The Company recast the historical Nerdy LLC redeemable preferred units outstanding for the periods presented, reflecting the exchange ratio of 1-for-0.64. The historical Nerdy LLC redeemable preferred units disclosed in this note give effect to the conversion for all periods presented, without any change to par value or per unit amounts. The Company has not made retroactive adjustments related to the historical book values of the historical Nerdy LLC redeemable preferred units as the adjustments were considered immaterial.

~~Table of Contents~~

As Of and For The Three Months Ended
September 30, 2021 As Of and For The Nine Months Ended
September 30, 2021
Class B Units, value
Beginning of period $ 259,638 $ 259,638
Impact of Reverse Recapitalization (259,638) (259,638)
End of period $ — $ —
Class C Units, value
Beginning of period and end of period $ 119,158 $ 119,158
Impact of Reverse Recapitalization (119,158) (119,158)
End of period $ — $ —
Class B Units, units
Beginning of period and end of period 25,920 25,920
Impact of Reverse Recapitalization (25,920) (25,920)
End of period — —
Class C Units, units
Beginning of period and end of period 11,895 11,895
Impact of Reverse Recapitalization (11,895) (11,895)
End of period — —

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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, ~~2021~~2022 (the ~~“2021~~“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 ~~2021~~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, and~~ ~~StarCourses, our free, live large group classes.~~

We continue to evolve our product offerings to better meet the needs of Learners by launching Learning Memberships, which deliver a comprehensive learning solution that includes access to one-on-one instruction, unlimited live group classes, celebrity-taught live and on-demand lessons, adaptive assessments, and self-study modules. Learning Memberships are for Learners of all ages, ranging from kindergarten to college and adult learners. We’re continuing to invest to expand and broaden the product depth with even more learning solutions for our members to deliver unparalleled and enhanced value.

We believe the transition from a package model to a recurring, always on relationship will lead to longer-term and more consistent engagement with the platform, while also allowing us to serve our customers ongoing learning needs across the entirety of their education lifecycle. We also believe that overtime this will have a significant impact on Expert engagement and retention, as Experts are seeking longer-term and more consistent earning opportunities.

~~Our platform delivers value to both Learners, who are our customers, and Experts.~~systems. We have built a diversified business across the following audiences: K-8, High School, College, Graduate School, and Professional. Learners and Experts come to us for convenience, value, and a superior learning experience. Our scalable platform allows us to drive growth, satisfaction for Learners, and retention across audiences and subjects, as well as allowing Experts to generate income from the convenience of home.

~~Reverse Recapitalization~~

On September 20, 2021 (the “Closing Date”), TPG Pace Tech Opportunities Corp., an exempted company incorporated in the Cayman Islands (“TPG Pace”), and Live Learning Technologies LLC, a Delaware limited liability company (along with its wholly-owned subsidiaries, “Nerdy LLC”), consummated a business combination (the “Closing”) pursuant to the business combination agreement, dated as of January 28, 2021 (as amended, the “Business Combination Agreement”). Nerdy LLC is a holding company that is the sole owner of several operating companies, including its flagship business Varsity Tutors. Immediately prior to the Closing, TPG Pace became a Delaware corporation and was renamed Nerdy Inc.

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. Members of Nerdy LLC are the legacy holders of Nerdy LLC historical common and preferred equity (the “Legacy Nerdy Holders”) and Nerdy Inc.

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The financial results of Nerdy LLC and its wholly-owned subsidiaries are consolidated with and into Nerdy Inc., and following the Reverse Recapitalization on September 20, 2021, 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”). For the three and nine months ended September 30, 2021, $17,484 thousand and $23,546 thousand, respectively, of the consolidated net losses of Nerdy LLC were attributable to the Legacy Nerdy Holders to reflect their absorption of 100% of the consolidated net losses of Nerdy LLC pertaining to the days prior to the Reverse Recapitalization.

~~For additional information on the Reverse Recapitalization, see Note 1 within “Notes to Condensed Consolidated Financial Statements” in Part I, Item 1 of this report.~~

~~Lease Accounting~~

On January 1, 2022, we adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” and ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” At adoption, we recognized right-of-use assets and lease liabilities of $4,154 thousand and $4,870 thousand, respectively, on the balance sheet at January 1, 2022. For additional information regarding the adoption of these ASUs, refer to Notes 2 and 13 within “Notes to Condensed Consolidated Financial Statements” in Part I, Item 1 of this report.

~~Seasonality of Our Business~~

We have experienced in the past, and expect to continue to experience seasonal fluctuations in our revenues and earnings due to Learner and institutional spending and consumption habits and the timing of the academic year. Historically, we experience lower than normal revenues during the summer when schools and universities are typically out of session in the United States (the “U.S.”) and when people more often travel for vacations and holidays. Due to seasonality, comparisons of our historical quarterly results of operations on a sequential basis may not provide meaningful insight into our overall financial performance.

~~COVID-19 Pandemic~~

We continue to monitor the impact of the COVID-19 pandemic on our business. In the first half of 2020, the COVID-19 pandemic and the resulting closure of schools and testing centers created short-term challenges for our business. Many schools went to optional grading, and standardized and professional exams were suspended, which reduced demand for supplemental learning. We leaned into product evolution and completed our long-term transition to delivering live instruction 100% online in April 2020, a goal we had been working toward since first launching our online platform in 2014. We invested in our product capabilities to innovate our way through the short-term challenges, including bringing together what had been multiple disparate learning formats we were building into a single cohesive destination that allowed us to extend and strengthen the extent to which we can help Learners beyond what was capable solely in a one-on-one environment.

The education system in the U.S. is under tremendous stress, creating an environment with immense opportunity for transformation. While COVID-19 accelerated and amplified some of the acute challenges that existed before the pandemic, adding incremental headwinds in the process, it also created an environment where new solutions to these challenges are both welcome and actively being pursued. In addition, with recent advancements in technology, like the learning solutions that we offer, transforming the way people learn has never been more possible. We believe we are at the beginning of a long-term and durable shift in the way supplemental learning will be delivered - a shift that we believe will persist for years to come.

~~Inflation~~

Our financial results have been impacted by wage inflation and other inflationary pressures that have occurred in connection with (i) the economic recovery from the COVID-19 pandemic and (ii) the conflict in Ukraine and the subsequent economic sanctions. We continuously explore the best pricing of our services and will consider future pricing actions to offset these inflationary pressures.

KEY ~~FINANCIAL AND~~ OPERATING METRICS

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

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 ~~the legacy Veritas Prep LLC business and~~ EduNation Limited, a company incorporated in England and Wales (“First Tutors UK”) ~~(collectively, the “Legacy Businesses”)~~, as well as our ~~On Demand and Teacher Assigned solutions.~~Institutional business.

Consistent with our previously discussed expectations, Active Learner (as defined below) and Session (as defined below) growth rates decreased during the third quarter of 2022 and reflect our decisions to shift our go-to-market strategy and products to focus on higher value and longer duration Learning Membership customers. Both metrics were primarily affected by the shift to Learning Memberships (and the related inclusion of classes in our Learning Membership offering vs. selling academic and

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~~enrichment classes on a stand-alone basis) as we evolve our focus toward higher lifetime value recurring relationships with Learners.~~


Active Members in thousands			March 31, 2023
Active Members			32.9

“Active ~~Learner(s)”~~Experts” is defined as the ~~unique~~ number of ~~Learners attending a paid one-on-one instruction, a paid group class,~~Experts who have instructed one or ~~a paid group tutoring session~~more sessions in a given ~~period, as well as the number of unique Learning Membership customers. Variations in the number of~~period. Active ~~Learners are due to changes in demand for~~Experts also includes our ~~solutions, seasonality, testing schedules, and the launch of new products and learning formats and therefore is a key indicator of our ability to attract and engage learners.~~Institutional business, but excludes First Tutors UK. The following table summarizes ~~the number of~~ Active ~~Learners~~Experts for the periods presented.

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
Active Learners in ones;
favorable/(unfavorable) 2022 2021 % 2022 2021 %
Active Learners 53,214 51,572 3% 104,231 99,287 5%

“Revenue per Active Learner” is calculated as revenue divided by the number of Active Learners in a given year or period. The following table summarizes Revenue per Active Learner for the periods presented.

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
dollars in ones;
favorable/(unfavorable) 2022 2021 % 2022 2021 %
Revenue per Active Learner $ 597 $ 607 (2)% $ 1,160 $ 994 17%

“Sessions” is defined as the total number of one-on-one sessions, the number of paid group class enrollees, the number of paid group tutoring session attendees, and the number of sessions enrolled in by Learning Membership customers in a given period. The following table summarizes total Sessions for the periods presented.

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
Sessions in thousands;
favorable/(unfavorable) 2022 2021 % 2022 2021 %
Sessions 371 451 (18)% 1,378 1,396 (1)%

“Sessions Taught per Active Expert” is calculated as the number of one-on-one sessions, the number of paid group classes, and the number of paid group tutoring sessions per active Expert in a given period. The following table summarizes Sessions Taught Per Active Expert for the periods presented.

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
Sessions Taught per Active Expert in ones:
favorable/(unfavorable) 2022 2021 % 2022 2021 %
Sessions Taught per Active Expert 27 31 (13)% 66 72 (8)%

“One-on-One Average Session Length” is defined as a session (e.g., an instructional meeting) between a Learner and a single Expert in a one-on-one setting. The following table summarizes total One-on-One Average Session Length for the periods presented.

Three Months Ended
September 30, Change Nine Months Ended
September 30, Change
in hours;
favorable/(unfavorable) 2022 2021 % 2022 2021 %
One-on-One Average Session Length 1.30 1.34 (3)% 1.29 1.32 (2)%


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

2314

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RESULTS OF OPERATIONS


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
dollars in thousands	dollars in thousands	2022		%		2021		%		2022		%		2021		%		dollars in thousands		2023		%		2022		%
Revenue	Revenue	$	31,752	100	%	$	31,298	100	%	$	120,863	100	%	$	98,649	100	%	Revenue		$	49,180	100	%	$	46,925	100	%
Cost of revenue	Cost of revenue	9,835		31	%	10,639		34	%	37,418		31	%	33,344		34	%	Cost of revenue		15,290		31	%	14,152		30	%
Gross Profit	Gross Profit	21,917		69	%	20,659		66	%	83,445		69	%	65,305		66	%	Gross Profit		33,890		69	%	32,773		70	%
Sales and marketing expenses	Sales and marketing expenses	16,195		51	%	18,773		60	%	57,152		47	%	47,520		48	%	Sales and marketing expenses		15,560		32	%	22,946		49	%
General and administrative expenses	General and administrative expenses	33,409		105	%	59,902		191	%	96,669		80	%	87,674		89	%	General and administrative expenses		29,700		60	%	30,509		65	%

Operating Loss	Operating Loss	(27,687)		(87)	%	(58,016)		(185)	%	(70,376)		(58)	%	(69,889)		(71)	%	Operating Loss		(11,370)		(23)	%	(20,682)		(44)	%
Unrealized loss (gain) on derivatives, net		4,521		15	%	(11,342)		(36)	%	(21,773)		(18)	%	(11,342)		(12)	%
Interest (income) expense, net		(7)		—	%	1,286		4	%	(19)		—	%	3,777		4	%
Unrealized loss on derivatives, net																		Unrealized loss on derivatives, net		21,682		44	%	11,042		24	%
Interest income																		Interest income		(833)		(1)	%	(7)		—	%
Other expense, net	Other expense, net	75		—	%	8,446		27	%	149		—	%	8,539		9	%	Other expense, net		11		—	%	17		—	%
Loss (gain) on extinguishment of debt, net		—		—	%	1,278		4	%	—		—	%	(7,117)		(7)	%

Loss before Income Taxes	Loss before Income Taxes	(32,276)		(102)	%	(57,684)		(184)	%	(48,733)		(40)	%	(63,746)		(65)	%	Loss before Income Taxes		(32,230)		(66)	%	(31,734)		(68)	%
Income tax expense	Income tax expense	22		—	%	35		—	%	35		—	%	35		—	%	Income tax expense		23		—	%	13		—	%
Net Loss	Net Loss	(32,298)		(102)	%	(57,719)		(184)	%	(48,768)		(40)	%	(63,781)		(65)	%	Net Loss		(32,253)		(66)	%	(31,747)		(68)	%
Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization		—		—	%	(17,484)		(56)	%	—		—	%	(23,546)		(24)	%

Net loss attributable to noncontrolling interests	Net loss attributable to noncontrolling interests	(13,782)		(44)	%	(18,960)		(60)	%	(22,102)		(18)	%	(18,960)		(19)	%	Net loss attributable to noncontrolling interests		(13,322)		(28)	%	(14,902)		(32)	%
Net Loss Attributable to Class A Common Stockholders	Net Loss Attributable to Class A Common Stockholders	$	(18,516)	(58)	%	$	(21,275)	(68)	%	$	(26,666)	(22)	%	$	(21,275)	(22)	%	Net Loss Attributable to Class A Common Stockholders		$	(18,931)	(38)	%	$	(16,845)	(36)	%

Revenue

Revenue for the three months ended September 30, 2022 was $31,752 thousand, an increase of 1% from $31,298 thousand during the same period in 2021. Revenue for the nine months ended September 30, 2022 was $120,863 thousand, an increase of 23% from $98,649 thousand during the same period in 2021. Revenue growth was driven by the continued ~~strength~~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 ~~and~~coupled with the ~~addition~~continued scaling of our Institutional business.

During this year’s back-to-school season, we leaned into Learning Memberships as the primary option presented to consumers. Under our Learning Membership model, revenue is recognized on a linear basis over the term of the contract versus being front weighted (typically over the first three to six months) as is the case in our package model. This results in lower revenue recognition in the near-term for Learning Membership clients, as compared to package clients. While this evolution toward subscription offerings results in lower near-term revenue, the evolution toward an ‘always on’ Learning Membership model will allow us to better support Learners across multiple learning modalities, subjects, and time periods, and we expect that it will ultimately allow us to generate superior customer unit-economics, and drive superior levels of growth and profitability. This phenomenon was reflected in our revenue growth rates for the three and nine months ended September 30, 2022, which were below historical trends when we only sold the package model.

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


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
dollars in thousands	dollars in thousands	2022		%		2021		%		2022		%		2021		%		dollars in thousands		2023		%		2022		%
Consumer	Consumer	$	29,087	92	%	$	29,249	94	%	$	103,640	86	%	$	92,930	94	%	Consumer		$	40,335	82	%	$	38,918	83	%
Institutional	Institutional	2,393		7	%	952		3	%	14,693		12	%	1,340		1	%	Institutional		8,540		17	%	6,475		14	%
Other (a)	Other (a)	272		1	%	1,097		3	%	2,530		2	%	4,379		5	%	Other (a)		305		1	%	1,532		3	%
Revenue	Revenue	$	31,752	100	%	$	31,298	100	%	$	120,863	100	%	$	98,649	100	%	Revenue		$	49,180	100	%	$	46,925	100	%

(a)Other consists of ~~the Legacy Businesses~~First Tutors UK and other services.

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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 September 30,						Change			Nine Months Ended September 30,						Change				Three Months Ended March 31,	Change
dollars in thousands; favorable/(unfavorable)	dollars in thousands; favorable/(unfavorable)	2022			2021			$		%	2022			2021			$		%	dollars in thousands; favorable/(unfavorable)		2023			2022			$		%
Revenue	Revenue	$	31,752		$	31,298		$	454	1%	$	120,863		$	98,649		$	22,214	23%	Revenue		$	49,180		$	46,925		$	2,255	5%
Cost of revenue	Cost of revenue	9,835			10,639			804		8%	37,418			33,344			(4,074)		(12)%	Cost of revenue		15,290			14,152			(1,138)		(8)%
Gross Profit	Gross Profit	$	21,917		$	20,659		$	1,258	6%	$	83,445		$	65,305		$	18,140	28%	Gross Profit		$	33,890		$	32,773		$	1,117	3%
% Margin	% Margin	69		%	66		%				69		%	66		%				% Margin		69		%	70		%

Cost of revenue ~~includes the cost of Experts performing instruction, amortization of capitalized technology costs, and other costs required to deliver instruction to Learners.~~

For the three months ended September 30, 2022, cost of revenue decreased $804 thousand to $9,835 thousand, or 8%, compared to the corresponding prior year period, primarily due to lower expert costs of $931 thousand as a result of lower consumer session volume due to the rollout of Learning Memberships. This impact was partially offset by incremental session volume and tutor costs related to ~~Varsity Tutors for Schools~~.

~~For the nine months ended September 30, 2022, cost of revenue~~ increased ~~$4,074 thousand to $37,418 thousand, or 12%, compared to the corresponding prior year period, primarily~~ due to higher expert costs of ~~$3,859~~$1,005 thousand, ~~as a result of higher consumer, one-on-one session volume and incremental session volume and tutor costs~~primarily related to ~~Varsity Tutors for Schools~~.our Institutional business.

~~Gross profit for the three months ended September 30, 2022 of $21,917 thousand increased by $1,258 thousand, or 6%, compared to the same period in 2021.~~ Gross margin of 69% for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~302~~approximately 90 basis points ~~higher~~lower than gross margin of ~~66%~~70% for the three months ended ~~September 30, 2021. Gross~~March 31, 2022. The increase in gross profit ~~for the nine months ended September 30, 2022 of $83,445 thousand increased~~was primarily driven by ~~$18,140 thousand, or 28%, compared~~gross margin expansion across our Consumer audience, which was offset by lower Institutional gross margin primarily due to ~~the same period in 2021. Gross margin of 69% for the nine months ended September 30, 2022 was 284 basis points~~ higher than ~~gross margin~~anticipated engagement with our new offerings.

Table of ~~66% for the nine months ended September 30, 2021. The increases in both current year periods were driven by growth across consumer audiences and growth in our institutional business.~~Contents

Operating Expenses

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


		Three Months Ended September 30,				Change			Nine Months Ended September 30,				Change				Three Months Ended March 31,	Change
dollars in thousands; favorable/(unfavorable)	dollars in thousands; favorable/(unfavorable)	2022		2021		$		%	2022		2021		$		%	dollars in thousands; favorable/(unfavorable)		2023		2022		$		%
Sales and marketing expenses	Sales and marketing expenses	$	16,195	$	18,773	$	2,578	14%	$	57,152	$	47,520	$	(9,632)	(20)%	Sales and marketing expenses		$	15,560	$	22,946	$	7,386	32%
General and administrative expenses	General and administrative expenses	33,409		59,902		26,493		44%	96,669		87,674		(8,995)		(10)%	General and administrative expenses		29,700		30,509		809		3%
Total operating expenses	Total operating expenses	$	49,604	$	78,675	$	29,071	37%	$	153,821	$	135,194	$	(18,627)	(14)%	Total operating expenses		$	45,260	$	53,455	$	8,195	15%

Sales and Marketing

Sales and marketing expenses for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~were $16,195 thousand, a decrease of $2,578 thousand from $18,773 thousand in the same period in 2021. Sales and marketing expenses for the three months ended September 30, 2022 and 2021~~ included stock-based compensation of ~~$1,085~~$838 thousand and ~~$2,648~~$1,075 thousand, respectively. Excluding these impacts in both periods, sales and marketing expenses decreased ~~$1,015~~$7,149 thousand, or 6%33%. In the current year period, we continued to moderate the level of marketing spend, yielding efficiencies in our consumer business. These efficiencies were partially offset by continued investments in our institutional sales and go-to-market organization in support of ~~Varsity Tutors for Schools,~~ ~~which we expect to grow into as revenue continues to grow and we slow the rate of hiring, thereby creating operating leverage.~~

Sales and marketing expenses for the nine months ended September 30, 2022 were $57,152 thousand, an increase of $9,632 thousand from $47,520 thousand in the same period in 2021. Sales and marketing expenses for the nine months ended September 30, 2022 and 2021 included stock-based compensation of $3,130 thousand and $2,648 thousand, respectively. ExcludingAdditionally, excluding these impacts in both periods, sales and marketing expenses ~~increased $9,150 thousand, or 20%. In~~for the ~~current year~~three months ended March 31, 2023 were 30% of revenue compared to 47% of revenue during the same period ~~we made investments~~ in 2022, an approximate 1700 basis point improvement year-over-year.

Sales and marketing ~~targeting new audiences~~spend and ~~advertising~~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 ~~new formats to drive customer acquisition, brand awareness, and reach early in 2022.~~our Consumer business. We also ~~continued to make investments in our institutional sales and go-~~

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~~to-market organization in support of~~delivered substantial Varsity Tutors for ~~Schools~~School, revenue growth, yielding efficiencies from prior investments in the Institutional sales and ~~expect~~go-to-market organization. As Learning Memberships become a greater percentage of total revenue and the Institutional business continues to ~~grow into these investments as~~scale, we expect ~~revenue to grow faster than expenses. These impacts were partially offset by the moderation of~~continued improvements in sales and marketing ~~spend beginning in the second quarter of 2022, which yielded efficiencies in our consumer business.~~leverage.

General and Administrative

General and administrative expenses for the three months ended ~~September 30, 2022 were $33,409 thousand, a decrease of $26,493 thousand from $59,902 thousand in the same period in 2021. General~~March 31, 2023 and ~~administrative expenses for the three months ended September 30,~~ 2022 included non-cash stock based compensation of $11,073 thousand. General and administrative expenses for the three months ended September 30, 2021 included non-cash stock based compensation and transaction costs related to the Reverse Recapitalization of $34,863$10,211 thousand and ~~$7,216~~$11,415 thousand, respectively. Excluding these impacts in both periods, general and administrative expenses increased ~~$4,513~~$395 thousand, or ~~25%~~2%.

General and administrative expenses for the nine months ended September 30, 2022 were $96,669 thousand, an increase of $8,995 thousand from $87,674 thousand in the same period in 2021. General and administrative expenses for the nine months ended September 30, 2022 included non-cash stock based compensation of $32,372 thousand. General and administrative expenses for the nine months ended September 30, 2021 included non-cash stock based compensation and transaction costs related to the Reverse Recapitalization of $35,867 thousand and $9,602 thousand, respectively. Excluding Additionally, excluding these impacts in both periods, general and administrative expenses ~~increased $22,092 thousand, or 52%.~~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.

~~These increases in both current year periods were a result of investments in new product development and administrative expenses related to being a public company.~~ Our investments in product development have allowed us to launch a suite of ~~new~~‘always on’ subscription products including Learning Memberships for consumers, and our Teacher Assigned and On Demand offerings for institutional customers. Subscription offerings ~~oriented toward recurring revenue subscriptions~~simplify both the sales process and ~~contracts. When combined~~the operating model needed to support customers. Combined with ~~investments~~our ongoing efforts in automation, self-service capabilities, and ~~our~~the application of artificial intelligence and machine learning ~~matching algorithms that connect Learners with Experts,~~in our ~~evolution to a Learning Membership model over the last several months has allowed us~~business, we have been able to generate operating ~~efficiencies. As Learning Memberships mix continues to increase as a percentage of total Active Learners, we~~efficiencies and remove significant costs from the business. We believe we will be able to further simplify ~~the sales process and~~our operating model generating additional efficiencies. We also continued to moderate the pace of corporate hiring and third party vendor spend in the third quarter and expect to gain operating leverage from prior investmentswhile growing our business as we ~~allow revenue to grow without a proportional increase in both variable and fixed costs.~~move throughout 2023.

Unrealized Loss ~~(Gain)~~ on Derivatives, Net

~~Fiscal 2022~~

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, we recognized a net ~~loss (gain)~~losses of ~~$4,521~~$21,682 thousand and ~~$(21,773)~~$11,042 thousand, respectively, related to non-cash mark-to-market adjustments on our warrants and ~~earnouts that were issued in connection with the Reverse Recapitalization.~~earnouts. Of the net loss recognized in the three months ended ~~September 30, 2022, $1,883~~March 31, 2023, $8,414 thousand and ~~$2,638~~$13,268 thousand related to warrants and earnouts, respectively. Of the net ~~gain recognized in the nine months ended September 30, 2022, $(9,561) thousand and $(12,212) thousand related to warrants and earnouts, respectively.~~

~~Fiscal 2021~~

During both the three and nine months ended September 30, 2021, we recognized gains of $11,342 thousand related to non-cash mark-to-market adjustments on our warrants and earnouts that were issued in connection with the Reverse Recapitalization. Of the gainsloss recognized in the three ~~and nine~~ months ended ~~September 30, 2021, $1,339~~March 31, 2022, $5,163 thousand and ~~$10,003~~$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) Expense, Net~~Income

Interest income ~~was $7 thousand~~ for the three months ended ~~September 30, 2022, compared to interest expense, net of $1,286~~March 31, 2023 was $833 thousand, for the three months ended September 30, 2021. Interest income was $19 thousand for the nine months ended September 30, 2022, compared to interest expense, net of $3,777 thousand for the nine months ended September 30, 2021. These decreases were driven by the repayment in full of our previously outstanding principal balance under the loan and security agreement (the “LSA”) in connection with the Closing of the Reverse Recapitalization on September 20, 2021.

~~Other Expense, Net~~

Other expense, net was $8,446 thousand and $8,539 thousand during the three and nine months ended September 30, 2021, respectively. In connection with the Reverse Recapitalization, Nerdy Inc.’s Board of Directors approved repayment in full by Nerdy LLC of the principal balance and accrued interest of its promissory note (the “Promissory Note”), which totaled $8,395

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~~thousand, and notified the Small Business Administration (the “SBA”) of their intent to do so. Accordingly, we recognized a loss on repayment of the Promissory Note of $8,395~~an increase from $7 thousand in the ~~three and nine months ended September 30, 2021.~~

~~Loss (Gain)~~same period in 2022. This increase was driven by higher interest income on ~~Extinguishment of Debt, Net~~

~~During~~our cash balances during the three months ended September 30, 2021, we recognized a loss on extinguishment of debt of $1,278 thousand related to Nerdy LLC’s repayment of the outstanding principal balance and accrued interest of the LSA. This repayment was funded by a portion of the proceeds received from the Reverse Recapitalization.

During the nine months ended September 30, 2021, we recognized a gain on extinguishment of debt of $7,117 thousand. On April 16, 2020, Nerdy LLC applied for and received a loan in exchange for a promissory note (the “Promissory Note”) under the Coronavirus Aid, Relief, and Economic Security (the “CARES Act”) in the amount of $8,293 thousand. In the second quarter of 2021, Nerdy LLC applied for forgiveness of the Promissory Note and on June 30, 2021, it received notice from the SBA that the Promissory Note and accrued interest of $102 thousand was forgiven in full. Accordingly, the Company recognized a gain on the Promissory Note forgiveness of $8,395 thousand in the nine months ended September 30, 2021. This gain related to the forgiveness of the Promissory Note was partially offset by the loss related to Nerdy LLC’s repayment of the outstanding principal balance and accrued interest of the LSA of $1,278 thousand.current year period.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had cash and cash equivalents totaling ~~$106,382~~$96,520 thousand and ~~$143,964~~$90,715 thousand, respectively. We have incurred cumulative losses from our operations, and we ~~expect to~~may incur additional losses in the future. Our operations have historically been financed primarily through capital contributions and debt financings. ~~To the extent we continue to generate negative operating~~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 ~~expect that~~may have to finance future operations ~~will continue to be financed~~ primarily byor in part from cash on ~~hand and possible equity issuances and debt financings, as necessary.~~hand. We are using the proceeds received from the ~~Reverse Recapitalization~~reverse recapitalization to fund our operating and investing cash needs, and for continued investments in our growth ~~strategies, and to achieve expected profitability by the end of 2023.~~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 ~~cash flows from operations, and possible future equity issuances and debt financings~~ 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 1317 within “Notes to ~~Condensed~~ Consolidated Financial Statements” in Part I,II, Item 18 of ~~this report. As of September 30,~~our 2022 ~~we had~~Annual Report. There have been no ~~debt obligations.~~material changes to our leasing arrangements previously disclosed in our 2022 Annual Report.

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


		Nine Months Ended September 30,					Three Months Ended March 31,
dollars in thousands	dollars in thousands	2022		2021		dollars in thousands	2023		2022
Cash (used in) provided by:
Cash provided by (used in):						Cash provided by (used in):
Operating activities	Operating activities	$	(33,470)	$	(19,949)	Operating activities	$	6,794	$	(931)
Investing activities	Investing activities	(4,339)		(3,769)		Investing activities	(982)		(1,264)
Financing activities	Financing activities	(863)		201,688		Financing activities	—		(816)
Effect of Exchange Rate Change on Cash, Cash equivalents, and Restricted Cash	Effect of Exchange Rate Change on Cash, Cash equivalents, and Restricted Cash	7		2		Effect of Exchange Rate Change on Cash, Cash equivalents, and Restricted Cash	(7)		(5)
Net (Decrease) Increase in Cash, Cash equivalents, and Restricted Cash		$	(38,665)	$	177,972
Net Increase (Decrease) in Cash, Cash equivalents, and Restricted Cash						Net Increase (Decrease) in Cash, Cash equivalents, and Restricted Cash	$	5,805	$	(3,016)

Operating Activities

Cash ~~used in~~provided by operating activities for the ~~nine~~three months ended ~~September 30, 2022 increased $13,521~~March 31, 2023 was $6,794 thousand compared to ~~the same period in 2021, primarily driven by targeted investments in new products and solutions, including Learning Memberships and~~ ~~Varsity Tutors for Schools, and marketing; new talent hires across engineering and product to drive new product innovation and growth; and unfavorable changes in working capital as we rollout Learning Memberships. In addition,~~ cash used in operating activities ~~for~~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 ~~reflects~~was positively impacted by favorable changes in working capital, primarily related to fluctuations in the ~~increased finance, accounting,~~timing of sales and ~~legal costs~~collections of ~~being a public company.~~receivables. These ~~negative~~positive impacts were partially offset by ~~favorable~~unfavorable changes in deferred revenue due to the ~~timing of collections of accounts receivable and lower interest paid of $4,069 thousand as a result of~~transition to Learning Memberships in the ~~prior~~current year ~~repayment of the LSA, which occurred in connection with the Closing of the Reverse Recapitalization in September 2021. Additionally, cash used in operating activities~~

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~~for the nine months ended September 30, 2021 included transaction costs paid of $6,262 thousand in connection with the Reverse Recapitalization.~~period.

Investing Activities

Cash used in investing activities was ~~$4,339~~$982 thousand and ~~$3,769~~$1,264 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Cash used in investing activities related to capital expenditures primarily for the development of internal use software and IT equipment.

Financing Activities

~~Nine months ended September 30, 2022~~

Cash ~~used in~~provided by financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 was ~~$863~~$816 thousand, which primarily related to payments made to ~~Legacy~~legacy Nerdy ~~Holders~~holders in connection with the ~~Reverse Recapitalization.~~

~~Nine months ended September 30, 2021~~

Cash provided by financing activities for the nine months ended September 30, 2021 was $201,688 thousand. Nerdy LLC received proceeds of $558,324 thousand related to the Reverse Recapitalization. Additionally, Nerdy LLC received proceeds of $11,000 thousand related to borrowings under the LSA. In connection with the Reverse Recapitalization, Nerdy LLC paid $299,317 thousand to Legacy Nerdy Holders, repaid the outstanding principal value of $50,000 thousand related to the LSA, and paid $16,712 thousand of transaction costs. As a result of the repayment and extinguishment of the LSA, Nerdy LLC paid debt extinguishment costs of $1,607 thousand.reverse recapitalization.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies and estimates are more fully described in our 2022 Annual ~~Report on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2022.~~Report. There have been no ~~significant~~material changes to our critical accounting policies and estimates ~~since December 31, 2021.~~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. Additionally, any~~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. Such~~ statements are based on management’s current views and assumptions and involve risks and uncertainties that could affect expected results. Those risks and uncertainties include, but are not limited to, the following: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 ~~individual~~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;

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

•~~our lack of an effective control environment that meets accounting and reporting requirements;~~

•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 COVID-19 may adversely affect our results of operations, financial position, and cash flows;~~

•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 ~~2021~~2022 Annual Report filed with the SEC on February 28, ~~2022.~~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’s~~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 ~~Class A common stock and Class B~~ 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. Based upon the facts and circumstances that existed as of June 30, 2022, we will remain an emerging growth company for our Annual Report on Form 10-K for the year ended December 31, 2022 and for our quarterly reports in the 2023 interim periods.

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 ~~Class A common stock and Class B~~ 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

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value of our shares of ~~Class A common stock and Class B~~ common stock held by non-affiliates is less than $700,000 thousand as of the prior June 30. Based upon the facts and circumstances that existed as of June 30, 2022, we will remain a smaller reporting company for our Annual Report on Form 10-K for the year ended December 31, 2022 and for our quarterly reports in the 2023 interim periods.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market Price Sensitivity

At both ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had warrant and earnout contracts issued and outstanding to non-employees of 19,122 thousand and 7,655 thousand, respectively. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 ~~$765~~$1,281 thousand and ~~$1,721~~$440 thousand, respectively. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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 ~~$925~~$2,093 thousand and ~~$2,147~~$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

~~Management, with~~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)~~amended (the “Exchange Act”)) as of ~~the end of the period covered by this report.~~March 31, 2023. Based on that evaluation, the Company’s CEO and CFO concluded that, as of ~~the end of the period covered by this report,~~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 ~~effective as~~occur or that all control issues and instances of ~~September 30, 2022, because of~~fraud, if any, within the ~~material weaknesses in our internal control over financial reporting described below.~~Company have been detected.

Changes in Internal Control Over Financial Reporting

~~As described in the “Remediation Plan for Material Weaknesses and Current Status” section, there~~There were no significant changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2022,~~March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Previously Identified Material Weaknesses~~

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

We previously disclosed in our Registration Statement on Form S-1 filed with the SEC on October 15, 2021, which became effective as of October 25, 2021, and amendments, including post-effective amendments, thereto and in our 2021 Annual Report the following material weaknesses, which still existed as of September 30, 2022. We did not design and maintain an effective control environment that meets accounting and reporting requirements. Specifically, we did not have a sufficient complement of personnel with an appropriate degree of accounting knowledge and experience to appropriately analyze, record, and disclose accounting matters commensurate with our accounting and reporting requirements and lacked related internal controls necessary to satisfy our accounting and financial reporting requirements.

~~This material weakness contributed to the following additional material weaknesses:~~

•We did not maintain effective controls over risk assessment, including designing and maintaining formal accounting and information technology (“IT”) policies, procedures, and controls over significant accounts and disclosures to achieve complete, accurate, and timely financial accounting, reporting, and disclosures, including segregation of duties controls, controls over the preparation and review of account reconciliations and journal entries, and controls over the review of assurance reports from third-party service organizations.

•We did not design and maintain effective controls over certain IT general controls for information systems that are relevant to the preparation of our financial statements. Specifically, the Company did not design and maintain (i) program change management controls for financial systems to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; and (iii) testing andPART II. OTHER INFORMATION.

3019

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~~approval controls for program development to ensure that new software development is aligned with business and IT requirements.~~

The material weaknesses related to the control environment and risk assessment resulted in adjustments to accounts and disclosures, which were recorded prior to the issuance of the financial statements, as of December 31, 2021, 2020, 2019, and 2018. The IT deficiencies did not result in an adjustment to the financial statements, however, the deficiencies, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Additionally, each of these material weaknesses could result in a misstatement of substantially all account balances and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Notwithstanding such material weaknesses, our CEO and CFO have concluded that our condensed consolidated financial statements in this Quarterly Report on Form 10-Q present fairly, and in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles.

~~Remediation Plan for Material Weaknesses and Current Status~~

In 2021, management developed a comprehensive remediation plan and began to design and implement controls to remediate the material weaknesses described above. These remediation efforts have been ongoing during 2022. The current status of our remediation efforts are as follows:

•We expanded our finance, accounting, and IT organizations by hiring additional resources including, among others, a Controller and Director of Tax with significant technical accounting and SEC reporting experience and a Director of Infrastructure and Security with oversight over internal controls within the IT organization. These individuals have significant internal controls experience and sufficient technical accounting knowledge and experience to appropriately analyze, record, and evaluate for disclosure, accounting matters that are commensurate with our accounting and financial reporting requirements.

•~~We have implemented a dedicated internal audit function that independently monitors compliance with our policies procedures and internal controls.~~

•During the quarter ended September 30, 2022, we (i) developed a risk assessment framework to identify and evaluate sources of potential risks to our financial statements; (ii) completed the design of an enhanced suite of internal controls over financial reporting addressing these potentials risks over key business processes including controls over segregation of duties, preparation and independent review of account reconciliations and journal entries, and review of third-party service organization assurance reports; and (iii) implemented a suite of formal accounting and IT policies and procedures and disseminated the policies and procedures through various communications and training.

•During the quarter ended September 30, 2022, we completed the design and implementation of certain IT general controls for information systems that are relevant to the preparation of our financial statements including (i) program change management controls for financial systems to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; (ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; and (iii) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

We believe these measures will facilitate the remediation of the material weaknesses we have identified and strengthen our internal control over financial reporting. However, these material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We cannot provide an estimate of costs incurred in connection with finishing this remediation plan, however, these remediation measures have been and will continue to be time consuming, cause significant costs to be incurred, and place significant demands on our financial and operational resources.

~~PART II. OTHER INFORMATION.~~

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 ~~September 30, 2022.~~

March 31,

2023.

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ITEM 1A. RISK FACTORS.

In addition to the information set forth elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”) ~~and the risk factor set forth below,~~, 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, ~~2022,~~2023, as of and for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“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.

~~If we are not successful in launching and/or scaling up our new Learning Membership model we could suffer losses and our results of operations may suffer.~~

We recently launched our Learning Membership model, which delivers a comprehensive learning solution that includes, among other things, access to one-on-one tutoring, unlimited live group classes, celebrity-taught live and on-demand lessons, adaptive assessments, and self-study modules. We have devoted significant resources and management time to launching our new membership program. However, there is no guarantee that we will be able to grow the Learning Memberships business or that Learning Memberships will be profitable. If we are not successful, we may suffer losses based on the expenses and resources devoted to pursuing this new strategy and our results of operations may suffer.

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 ~~November 14, 2022.~~May 9, 2023.

31.2						Certification of Jason H. Pello pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated ~~November 14, 2022.~~May 9, 2023.

* 32.1						Certification of Charles Cohn and Jason H. Pello, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated ~~November 14, 2022.~~May 9, 2023.

101						Interactive Data File (Form 10-Q for the quarterly period ended ~~September 30, 2022~~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 ~~September 30, 2022,~~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.

Table of Contents

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: ~~November 14, 2022~~May 9, 2023	By:	/s/ Jason H. Pello
		Name: Jason H. Pello
		Title: Chief Financial Officer

3321


		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).	76

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	2114

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	3019

Item 4.	Controls and Procedures.	3019

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings.	3120

Item 1A.	Risk Factors.	3220



Item 6.	Exhibits.	3220

	SIGNATURES	3321


			Nerdy Inc. Stockholders’ Equity
	Class A Common Stock	Class B Common Stock		Additional Paid-in Capital			Accumulated Deficit	Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interests		Total

			Shares			Value				Shares					Value
June 30, 2022			91,472	$	9		68,615	$	7		$	506,963	$	(447,858)		$	(7)	$	44,414	$	103,528




Net loss			—	—			—	—			—		(18,516)			—		(13,782)		(32,298)
Stock-based compensation			—	—			—	—			12,391		—			—		468		12,859
Foreign currency translation adjustments			—	—			—	—			—		—			(84)		(62)		(146)
Activity under stock compensation plans			1,770	—			533	—			(26)		—			—		—		(26)

Rebalancing of ownership percentage between parent and the noncontrolling interests			—	—			—	—			(4,711)		—			—		4,711		—
September 30, 2022			93,242	$	9		69,148	$	7		$	514,617	$	(466,374)		$	(91)	$	35,749	$	83,917

December 31, 2021			83,913	$	8		73,987	$	7		$	490,220	$	(439,708)		$	136	$	45,142	$	95,805




Net loss			—	—			—	—			—		(26,666)			—		(22,102)		(48,768)
Stock-based compensation			—	—			—	—			34,811		—			—		2,566		37,377
Foreign currency translation adjustments			—	—			—	—			—		—			(227)		(175)		(402)
Activity under stock compensation plans			3,480	1			1,010	—			(96)		—			—		—		(95)
Conversion of combined interests into Class A common stock			5,849	—			(5,849)	—			3,005		—			—		(3,005)		—
Rebalancing of ownership percentage between controlling and noncontrolling interests			—	—			—	—			(13,323)		—			—		13,323		—
September 30, 2022			93,242	$	9		69,148	$	7		$	514,617	$	(466,374)		$	(91)	$	35,749	$	83,917


	Nerdy Inc. Stockholders’ Equity
	Class A Preferred Units			Class A-1 Preferred Units			Common Units			Class A Common Stock				Class B Common Stock				Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interests		Total

	Units	Value		Units	Value		Units	Value		Shares		Value		Shares		Value
June 30, 2021	5,060	$	3,309	5,007	$	3,398	54,761	$	86	$	—	$	—	$	—	$	—	$	7,837	$	(418,445)	$	346	$	—	$	(403,469)
Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		(17,484)		—		—		(17,484)
Stock-based compensation attributable to legacy Nerdy holders prior to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		447		—		—		—		447
Foreign currency translation adjustments attributable to legacy Nerdy holders prior to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		—		(37)		—		(37)
Reverse recapitalization, net	(5,060)	(3,309)		(5,007)	(3,398)		(54,761)	(86)		83,875		8		73,971		7		450,847		—		(152)		26,147		470,064
Net loss after the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		(21,275)		—		(18,960)		(40,235)
Stock-based compensation after to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		34,110		—		—		2,954		37,064
Foreign currency translation adjustments after the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		—		(25)		(22)		(47)
September 30, 2021	—	$	—	—	$	—	—	$	—	83,875		$	8	73,971		$	7	$	493,241	$	(457,204)	$	132	$	10,119	$	46,303

December 31, 2020	5,060	$	3,309	5,007	$	3,398	54,761	$	86	—		$	—	—		$	—	$	6,833	$	(412,383)	$	296	$	—	$	(398,461)
Net loss attributable to legacy Nerdy holders prior to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		(23,546)		—		—		(23,546)
Stock-based compensation attributable to legacy Nerdy holders prior to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		1,451		—		—		—		1,451
Foreign currency translation adjustments attributable to legacy Nerdy holders prior to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		—		13		—		13
Reverse recapitalization, net	(5,060)	(3,309)		(5,007)	(3,398)		(54,761)	(86)		83,875		8		73,971		7		450,847		—		(152)		26,147		470,064
Net loss after the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		(21,275)		—		(18,960)		(40,235)
Stock-based compensation after to the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		34,110		—		—		2,954		37,064
Foreign currency translation adjustments after the reverse recapitalization	—	—		—	—		—	—		—		—		—		—		—		—		(25)		(22)		(47)
September 30, 2021	—	$	—	—	$	—	—	$	—	83,875		$	8	73,971		$	7	$	493,241	$	(457,204)	$	132	$	10,119	$	46,303


	September 30, 2022						December 31, 2021
	Carrying Amount		Accum. Amort.		Net Amount		Carrying Amount		Accum. Amort.		Net Amount
Trade names	$	6,073	$	(2,351)	$	3,722	$	6,073	$	(1,913)	$	4,160
Foreign currency translation adjustment	(368)		212		(156)		252		16		$	268
	$	5,705	$	(2,139)	$	3,566	$	6,325	$	(1,897)	$	4,428


	September 30, 2022
Remaining 2022	$	448
2023	1,622
2024	1,273
2025	644
2026	—
Thereafter	—
Total future minimum payments	$	3,987
Less: Implied interest	180
Total lease liabilities	$	3,807


2022	$	1,749
2023	1,599
2024	1,250
2025	632
2026	—
Thereafter	—
Total	$	5,230


	As Of and For The Three Months Ended September 30, 2021		As Of and For The Nine Months Ended September 30, 2021
Class B Units, value
Beginning of period	$	259,638	$	259,638
Impact of Reverse Recapitalization	(259,638)		(259,638)
End of period	$	—	$	—

Class C Units, value
Beginning of period and end of period	$	119,158	$	119,158
Impact of Reverse Recapitalization	(119,158)		(119,158)
End of period	$	—	$	—

Class B Units, units
Beginning of period and end of period	25,920		25,920
Impact of Reverse Recapitalization	(25,920)		(25,920)
End of period	—		—

Class C Units, units
Beginning of period and end of period	11,895		11,895
Impact of Reverse Recapitalization	(11,895)		(11,895)
End of period	—		—