Nerdy, Inc. (NRDY) Earnings

Management highlights

- Strategic Focus Realignment * The company decided to wind down Varsity Tutors for Schools (VT4S) and exit the small UK-based First Tutors business to concentrate resources on the highest-return consumer learning opportunity, where Nerdy has its strongest brand and deepest operating experience. * The exit of VT4S will reduce Nerdy's annual fixed cost run rate by approximately $11 million. - Overall Q2 2026 Financial Performance * Total company revenue was $43.3 million, down 4% year-over-year, and within management's guidance range of $42 million to $44 million. * Gross margin expanded 320 basis points year-over-year to 64.7%, driven by lower software amortization and reduced expert costs. * Net loss improved to $6.9 million from $12 million year-over-year; non-GAAP adjusted EBITDA loss narrowed 68% to $900,000 from $2.7 million year-over-year, which was ahead of the guidance midpoint. * Free cash flow improved 24% year-over-year to a negative $6.3 million from a negative $8.2 million year-over-year. * Total headcount was reduced 34% year-over-year, with the engineering organization 30% smaller, while product output increased substantially. - AI-Driven Productivity and Investment * AI-related expenses totaled $2 million in Q2 2026, up sharply from $0.4 million in the year-ago quarter and $0.7 million in Q1 2026. All employees now use daily AI tools to replace work that previously required additional headcount or external software. * Management expects AI usage to continue increasing, but efficiency gains will keep AI spend at or below current levels. AI has allowed a smaller organization to build products faster, reduce fixed costs, and allocate more resources to customer experience. - Consumer Product Enhancements * Since the start of 2026, Nerdy has launched or rebuilt nearly every component of its digital learning experience around its core live tutoring product. The platform now offers over 15,000 lessons across 220 discrete subjects, available in self-study dynamic textbook format and tutor-facing presentation format for live sessions. * The new connected Study Plan feature organizes all learning content (diagnostics, quizzes, practice tests, flashcards, lessons) around a shared academic taxonomy, identifies skill gaps, recommends personalized next activities, and is visible to both students and tutors. It will be rolled out to 100% of tutoring relationships in August 2026, designed to increase daily engagement between tutoring sessions. * A new self-service customer acquisition and checkout funnel has replaced the legacy telesales-led conversion model, reducing customer acquisition costs and improving scalability while enhancing the customer experience.

Guidance

- Full year 2026 revenue guidance was revised downward to a range of $168 million to $175 million from the prior range of $180 million to $190 million; the entire downward revision is attributable to the exit of VT4S and First Tutors, with consumer business expectations unchanged from prior plans. - Q3 2026 revenue guidance is set at $32 million to $35 million, reflecting the typical seasonal pattern of Q3 being the lowest revenue quarter of the year, with most back-to-school revenue conversions occurring in late Q3 and Q4. - Full year 2026 non-GAAP adjusted EBITDA guidance (excluding exit costs) was revised to a range of negative $4 million to approximately breakeven, maintained at the prior upper bound of breakeven with only a minor adjustment to the lower bound to account for exited businesses. - Q3 2026 non-GAAP adjusted EBITDA guidance (exiting exit costs) is negative $9 million to negative $6 million, consistent with seasonal Q3 revenue patterns. - Year-end 2026 cash and cash equivalents guidance was revised downward to $30 million to $32 million (inclusive of $20 million drawn on the company's term loan) from the prior expectation of $40 million to $45 million. The revision is driven by reduced working capital collections from the exited VT4S business (which operates on annual advance-paid contracts) and expected wind-down costs, not by underperformance of the core consumer business. - Management expects current existing liquidity will be sufficient to fund Nerdy's operations through the achievement of free cash flow breakeven.

Segment performance

Nerdy has two core operating segments: Consumer and Institutional, plus a small legacy UK segment called First Tutors. - Consumer Segment: Q2 2026 revenue was $36.5 million, which contributed 84% of Nerdy's total Q2 revenue. Average Revenue Per Member (ARPM) was $366, up 5% year-over-year. Active learning memberships totaled 29.1 thousand as of June 30, 2026, down 5% year-over-year, with the rate of decline moderating for four consecutive quarters. - Institutional Segment (Varsity Tutors for Schools): Q2 2026 revenue was approximately $6.8 million, making up the remaining ~16% of total Q2 revenue. The business has been marked for wind down, and was a low single-digit percentage of Nerdy's overall business prior to the exit decision. - First Tutors (UK legacy tutoring): This was a small business that has been fully exited, with no material revenue contribution reported in Q2 2026.

Risks & headwinds

- Forward-looking statements around future performance, member growth, and profitability carry inherent significant risks and uncertainties that could cause actual results to differ materially from management's expectations. - The school funding environment for institutional K-12 and higher education learning services has been challenged for several years, which was a core factor in the decision to exit VT4S. - The company's active consumer membership base is still declining year-over-year, and there is no guarantee that new product initiatives will return the membership base to durable growth as targeted. - AI spend has increased sharply year-over-year, and there is risk that expected efficiency gains may not materialize to keep AI spend stable at current levels.

Analyst Q&A

• Q: What factors led to the decision to wind down Varsity Tutors for Schools, and what is the expected net impact on profitability once the wind down is complete? /

  A: Management made the decision to reallocate all capital and focus to the core consumer business, where they see stronger momentum, deeper consumer engagement, and much higher return on invested capital. VT4S represented only a low single-digit percentage of total business, faced a multi-year challenging school funding environment, and diverted resources from the larger consumer opportunity. The wind down will remove $11 million in annual fixed costs from Nerdy's run rate, while the exited revenue from VT4S and First Tutors is already fully reflected in the revised guidance. The decision pulls forward the consumer product roadmap and accelerates the path to permanent profitability.

• Q: Have consumer business expectations changed, and what is driving the moderating decline in active learning memberships? /

  A: The downward revision to full-year guidance is entirely attributable to the exited businesses, and there have been no material changes to consumer operating expectations relative to the original plan. Management does not aim to simply moderate membership decline; the goal is to accelerate membership growth, driven by the full rebuild and expansion of the consumer product platform. Management expects the improved product experience, including the new Study Plan feature and expanded content library, will change the membership growth trajectory, though this upside is not reflected in the current guidance.