Nerdy targets Q4 revenue of $45M-$47M amid accelerated AI platform overhaul and cost reductions

Earnings Call Insights: Nerdy, Inc. (NRDY) Q3 2025

MANAGEMENT VIEW

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Founder, Chairman, President & CEO Charles Cohn acknowledged operational and product challenges in the back-to-school season, stating delays in key product launches pushed back anticipated growth and profitability inflection by a quarter. Cohn described technical debt accumulated over years as a major factor, explaining the decision to lead a fundamental AI-driven replatforming effort: "I dove into these root technical issues myself, working closely with a small group to rethink our platform for the ground up in this AI native era." Cohn reported that nearly 100% of traffic is targeted to be on new AI-written code bases by the end of November and highlighted that the 2.0 version of the Live Learning Platform achieved a 50% reduction in audio/video error rates and nearly 40% cost savings per session.

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Cohn detailed unified product experiences integrating AI tools, diagnostics, and self-study resources, noting over 50% growth in self-study tool consumption since launch and emerging positive trends on repeat user engagement. He added, "We are now targeting having nearly 100% of our traffic on new code bases written by AI by the end of November."

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On operational leadership, Cohn announced the August appointment of a new Chief Operating Officer and 13 new director and senior director level hires to centralize control and accelerate process improvement. He cited AI and sales tools lifting conversion by more than 10% and described continued efforts to reduce sales and customer acquisition costs.

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Chief Financial Officer Jason Pello reported Q3 revenue of $37 million, within guidance, and a 1,000 basis point improvement in growth rates sequentially year-over-year. Pello stated, "Revenue decreased slightly when compared to the prior year period due to lower Institutional revenue, partially offset by higher Consumer revenue." Learning membership revenue reached $33 million, accounting for 89% of total revenue, with ARPM at $374, up 24% year-over-year. Institutional revenue was $3.7 million, with 44 contracts executed and bookings of $6.8 million, down 20% year-over-year.

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Pello noted a 960 basis point improvement in non-GAAP adjusted EBITDA margin year-over-year and a 27% reduction in headcount, emphasizing AI-enabled productivity improvements and cost reductions across all P&L line items.

OUTLOOK

* Pello introduced Q4 2025 revenue guidance of $45 million to $47 million and full year guidance of $175 million to $177 million. He outlined that Q4 Consumer revenue will be impacted by a decline in Active Members, partially offset by ARPM improvements, price increases, and retention gains. Institutional revenue continues to be affected by federal and state funding delays. Non-GAAP adjusted EBITDA loss guidance for Q4 is $2 million to breakeven, and for the full year, $19 million to $21 million. Year-end cash is expected to be $45 million to $48 million, inclusive of a $20 million term loan draw.

FINANCIAL RESULTS

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Q3 revenue was reported at $37 million, compared to $37.5 million in Q3 2024. Consumer Learning Membership revenue increased 5% year-over-year, with ARPM at $374. Active Members as of September 30 stood at 34,300, lower than the prior year and expectations. Institutional revenue reached $3.7 million. Gross margin improved by approximately 140 basis points sequentially, attributed to price increases and a mix shift to higher-frequency memberships. Sales and marketing expenses decreased to $16.6 million, and general and administrative expenses fell to $25.8 million, with product and development costs at $10.3 million. Non-GAAP adjusted EBITDA loss was ($10.2 million), surpassing guidance.

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Liquidity at quarter-end was $32.7 million in cash and cash equivalents, with an additional $20 million drawn from a new $50 million term loan.

Q&A

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Ross Sandler, Barclays: Asked about the impact of the new COO and team leads on execution and product velocity. Cohn responded that centralizing control simplifies structure and enables faster, more unified product launches, expecting this to "impact both engagement metrics, but also positively impact revenue and also allow us to remove costs faster." Pello added the new experience reduces friction and improves retention.

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Jason Tilchen, Canaccord Genuity: Inquired about confidence in avoiding continued drag from missing the back-to-school period and on Institutional funding delays. Cohn stated that almost all web traffic will be on new code bases by month-end, accelerating innovation, and cited sequential improvements in metrics. Pello attributed Institutional challenges to funding delays but emphasized the product's potential for growth. Cohn described the aim to unify intervention tools for broader impact.

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Yi Lee, Cantor Fitzgerald: Queried on the ROI timeline of the new Live Learning Platform and plans to boost Active Members. Cohn said cost per session is dropping and reliability improvements should benefit retention. On growing Active Members, Cohn emphasized improved product velocity and operational reliability. Pello highlighted adjusted EBITDA margin improvements and the team's role in advancing profitability.

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Gregory Gibas, Northland: Sought clarification on ARPM and member growth for Q4. Pello expects ARPM to remain strong at $374, with year-end Active Members at 32,000, focusing on higher-value customers. Cohn and Pello both expressed confidence in operating leverage and positive MRR growth trends.

SENTIMENT ANALYSIS

* Analysts focused on execution risks, Active Member growth, and ROI from platform investments, with a neutral to slightly cautious tone. Questions emphasized timing, the impact of missed periods, and liquidity.
* Management's tone was confident in prepared remarks, highlighting progress and operational changes, but acknowledged challenges and delays. Phrases like "we believe" and "we're excited" indicated cautious optimism, while frequent references to improvement and future impact signaled a forward-looking focus.
* Compared to the previous quarter, both analysts and management showed a shift toward addressing operational and product launch issues, with more emphasis on cost control and platform transformation.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for Q4 revenue ($45 million to $47 million) is lower than the prior full-year range ($191 million to $197 million) stated in Q2, reflecting revised expectations.
* Strategic focus shifted from product enhancements and AI tools (Q2) to resolving technical debt, accelerating platform replatforming, and leadership changes (Q3).
* Analysts in Q3 probed more on execution, member trends, and financial sustainability, compared to Q2's emphasis on product innovation and market opportunity.
* Management's confidence in Q2 about sequential growth was moderated in Q3 by the need to address product delays and operational challenges, though optimism persisted about the benefits of new initiatives.

RISKS AND CONCERNS

* Management cited operational challenges and delayed product launches as primary risks, impacting the ability to capitalize on peak periods and member growth.
* Funding delays in the Institutional segment continue to affect revenue timing and bookings.
* The decline in Active Members and the need to offset this via ARPM improvements and enhanced user experiences were acknowledged as ongoing challenges.
* Management is addressing these risks through leadership hires, AI-driven platform overhaul, and cost controls.

FINAL TAKEAWAY

Nerdy closed Q3 2025 amid operational and product launch setbacks, but is accelerating its AI-native platform overhaul and implementing significant cost reductions to drive productivity and future growth. Leadership changes, unified product experiences, and advances in AI integration are expected to improve retention and operational leverage. While revenue growth was challenged by lower Institutional funding and a decline in Active Members, the company is targeting a return to growth and profitability in the near term, supported by ample liquidity and ongoing platform enhancements.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/nrdy/earnings/transcripts]

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* Nerdy, Inc. (NRDY) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4840010-nerdy-inc-nrdy-q3-2025-earnings-call-transcript]
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