NRDY - NYSE

Hello everyone. Thank you for attending today's Nerdy Incorporated Fourth Quarter 2023 Earnings Call. My name is Sierra and I'll be your moderator today. All lines have been muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host TJ Lynn, Associate General Counsel of Nerdy.

Good afternoon and thank you for joining us for Nerdy fourth quarter 2023 earnings call. With me are Chuck Cohn, Founder, Chairman, and Chief Executive Officer of Nerdy; and Jason Pello, Chief Financial Officer. Before I turn the call over to Chuck, I'll remind everyone that this discussion will contain forward-looking statements including, but not limited to expectations with respect to Nerdy's future financial and operating results, strategy, opportunities, plans, and outlook. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Any forward-looking statements are made as of today's date and Nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward-looking statements to reflect any change in expectations or any change in events conditions or circumstances on which any such statement is based. Please refer to the disclaimers in today's shareholder letter announcing Nerdy's fourth quarter results and the company's filings with the SEC for a discussion of the risks. Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today's shareholder letter for reconciliations of these non-GAAP measures. With that let me turn the call over to Chuck.

Thanks TJ and thank you to everyone for joining us today. We entered 2023 with three primary goals that included scaling always-on subscription access based revenue products driving profitability and leveraging AI for AI or artificial intelligence for human interaction to transform how people learn. I'm proud of the Nerdy team for delivering against all three of these commitments, which were accomplished through the tight execution against ambitious initiatives in both our consumer and institutional businesses over the past year. These include completing the evolution to subscription-based offerings, the simplification of our product operating model and pricing, enhancements to our offerings including the launch of multiple new scalable products, and durable improvements in the efficiency of our operating model. As a result of this work revenue accelerated each quarter to 32% year-over-year growth in the fourth quarter. Non-GAAP adjusted EBITDA margin improved by approximately 2,100 basis points year-over-year, representing a 33.2 million improvement in profitability or 108% flow-through from revenue to non-GAAP adjusted EBITDA. Our progress evolving and enhancing converging our consumer and institutional business model product and platform has set the stage for us to build from a solid foundation for growth. It's also enabled us to develop a freemium growth strategy that aims to introduce our products to consumers and institutions at a larger scale than ever before. I wanted to start off by sharing the following retrospective in relation to our three primary goals from 2023. During the year, we successfully transitioned 100% of our consumer business to learning memberships. Market acceptance and demand for learning memberships was strong throughout the year with new consumer customer growth of 26% year-over-year, resulting in us ending the year with 40,700 active learners, up 101% year-over-year. We also made significant platform enhancements that have enabled us to shift our institutional business to access base subscription models that we believe provide more value to our institutional customers. This new model was made possible by the unification and overall our consumer learning membership experience, which then allowed for us to scalably offer our suite of products including those originally built for consumer audiences to K-12 schools and other institutions. During the year, Varsity tutors were schools contracted with nearly 200 school districts delivering 37.6 billion of bookings, an increase of 12.8 million or 52% compared to the previous year. Institutional revenue of $33.8 million increased 77% year-over-year and represented 17% of consolidated recognized revenue in 2023, ahead of our initial 15% expectation to start the year. This level of institutional growth occurred while launching two new products and shifting the business model products and platform to one that involves access based subscription offerings focused on a subset of students requiring tutoring. And then also providing every student in that district with access to our suite of powerful learning resources at no additional cost. Strong adoption of learning memberships and customer lifetime value expansion in our consumer business coupled with continued scaling of our institutional business led to accelerating consolidated revenue growth each quarter throughout the years we delivered year-over-year growth of 5% in Q1, 16% in Q2, 27% in Q3, and 32% in Q4. A year ago as we headed into 2023, we believed the transition to a learning membership model would lead to more attractive unit level economics, broader customer appeal, longer duration and higher lifetime value customer relationships, higher growth margin, and a more scalable and efficient operating model. We also thought that learning memberships would serve as an easier platform from which to drive innovation and incremental growth given our ability to add new product capabilities into the existing all-access subscription offering thereby making the offerings more appealing and engaging. We expected this to drive both the conversion of new members and the retention of existing ones. We also believe that if we built access-based subscription products and made investments in automation, self-service capabilities, and AI that we could simplify operations and simultaneously enhance both the learner and expert experience. I'm pleased to say that our belief that the transition to subscription revenue relationships with customers would provide substantial operating leverage has proven to be correct. During 2023, we were able to deliver adjusted EBITDA margin leverage across every P&L line item on a year-over-year basis. At the start of the year, we expected a non-gap adjusted EBITDA loss in the range of $10 million to break even for the full year in 2023 and that we would be adjusted EBITDA positive in the fourth quarter. Against this commitment, we delivered adjusted EBITDA profitability in the first and second quarter a full nine months ahead of our initial goal. We also delivered adjusted EBITDA profitability of $3 million in the fourth quarter ending the full year with an adjusted EBITDA loss of $2.5 million versus an adjusted EBITDA loss last year of $35.7 million. That improvement of $33.2 million in 2023 versus 2022 represents an adjusted EBITDA margin improvement of approximately 2,100 basis points year-over-year. Said another way we delivered consolidated revenue growth of $30.7 million in 2023 versus the prior year and at the same time we're able to generate a full year improvement of $33.2 million representing a 108% flow-through of consolidated revenue growth to non-gap adjusted EBITDA. We believe these substantial improvements position us for adjusted EBITDA profitability and being operating cash flow positive for the full year in 2024 and beyond. In relation to our third goal in 2023, we've long believed that AI4HI or artificial intelligence for human interaction has the ability to transform how people learn. AI has been central to our ability to improve quality, enhance personalization and decrease the cost of delivering our offerings. AI powers our ability to identify the highest quality experts, assess learners' foundational knowledge, help ensure the right expert learner match and drive operational efficiency. During the year our investments in AI allowed for us to rapidly develop learning experiences involving the real-time generation of content with near zero costs, improve our ability to deliver live human interaction and personalized learning at scale, provide new superpowers to experts and learners on the platform and allowed us to remove substantial operating costs from our business. Our continued investments in AI4HI allowed us to launch an all-new membership experience making it easier for learners to more fully engage with their learning membership by improving product discovery and personalization. We also successfully launched multiple AI-driven solutions that positively impact the customer experience including an AI-generated lesson plan creator, AI-driven chat tutoring and AI-generated learning content including practice problems and Q&A. Looking ahead AI will continue to accelerate our efforts to deliver a compelling product experience and build the leading platform for connecting learners and experts in any subject anywhere and at any time. Turning to our recent performance, I'm pleased to share that in the fourth quarter we delivered $55.1 million of revenue, an increase of 32% year-over-year, capping the year by delivering accelerating sequential growth each quarter in 2023. Revenue growth was driven by both our consumer and institutional businesses, which were up 17% and 160% year-over-year, respectively. New consumer customer growth of 35% year-over-year in the fourth quarter remains strong. Awarding membership customer lifetime values continue to show substantial improvements relative to our old package model. We delivered record quarterly gross profit of $39.2 million in the fourth quarter, an increase of 33% year-over-year. We delivered adjusted EBITDA of positive $3 million in the fourth quarter, above our guidance range of break-even, resulting in adjusted EBITDA margin improvements of approximately 1,900 basis points year-over-year for the quarter. Moving on to our consumer business, our learning membership model continues to lead to more attractive, unit-level economics, broader customer appeal, longer duration, higher lifetime value customer relationships, higher gross margin, and a more scalable and efficient operating model. So recently introduced My Learning Hub and Subject Portals, which enrich the experience and improve the discoverability of learning formats and subjects, are leading to increasing levels of year-over-year non-seekering engagement, which we found is highly predictive of stronger long-term retention and higher lifetime value. During the fourth quarter, we began to test additional product offering tiers by grouping product capabilities and testing multiple price points to identify a pricing model with mass market appeal and deliver the right customer experience and learning support to every student. We also tested multiple self-service features aimed at enhancing and simplifying user experience. These tests, often involving lower average revenue per month or ARPM products, decreased ending ARPM in the quarter, but it provided our teams with multiple signals in the consumer intent, preferences, and behavior that informed our initial approach to a consumer freemium model. Turning our attention to our institutional business and Varsity Tutors for Schools, over the course of 2023, we made significant platform enhancements that have enabled us to shift our institutional business to one that is access and subscription-based and one that provides more value to our institutional customers. Our relationship with Varsity Tutors for Schools now comes with access to a broad range of powerful academic resources for an entire district, as well as the ability to choose between three simple models for high-dose tutoring, with district-assigned, teacher-assigned, and parent-assigned. With Varsity Tutors for Schools, our institutional customers can now choose to administer tutoring centrally at the school district level, empower teachers to manage tutoring interventions, or provide parents with learning memberships and oversee tutoring outside of schools for their own students. The breadth of the resources included in the platform allows us to serve a much broader set of needs for our institutional customers and greatly expands the number of students we can impact. Our focus on product expansion is yielding results, with institutional revenue of $11.3 million, increasing 160% year-over-year and representing 21% of total revenue in the fourth quarter. Varsity Futures for Schools executed 42 paid contracts in the fourth quarter, yielding $10.3 million of bookings, the third consecutive quarter with more than $10 million of bookings. In addition to the high dosage models that are typically focused on a subset of students within a school district, access to the Varsity tutors platform is now provided for all students district-wide, enabling us to provide more value to the school district and its students and families. For example, take a school district with 100,000 students focusing its high-dose tutoring on 1,000 students within the district. The other 99,000 students will now also receive access to products, including 24/7 on-demand chat-based tutoring, on-demand essay review, more than 100 live group classes per week in areas including enrichment, test prep, and academic subjects, our STAR courses, our self-study tools, our college and career readiness resources, our adaptive assessments, our recorded enrichment classes and test prep classes, and more at no additional cost. In many cases, districts were and are paying large amounts of money for these services, and they can now direct those cost savings towards live video-based, high-dosage tutoring from Varsity Tutors for schools. We are now leaning into this interest and recently began making access to the Varsity Tutors platform available at no cost to school districts on a rolling state-by-state basis across the US. By providing a robust set of academic resources at no cost, we aim to efficiently build trust and credibility at scale and earn the right to be considered for live video based high-dose tutoring, which is our superpower and the primary way we intend to monetize these relationships over time. Initial interest has been strong with more than 250 districts representing more than one million students signing up and offering access to their students. The level of initial uptake and success has caused us to invest significant organizational resources towards this initiative and enabling a successful Q1-24 launch. These efforts include a specific focus on platform scalability and building the freemium upsell go-to-market motion of high-dosage tutoring sales to K-12 school districts, as we build trust and credibility with these new no-cost access partners. Turning our attention to 2024. We have three main priorities that aim to further our mission of helping people learn. First, we will scale the winning product for every learner. As we continue to evolve and enhance our product offerings within our new access-based subscription models, our focus remains on delivering enhanced value to both Consumer and Institutional customers. In 2023, we successfully unified our offerings into access-based subscription models, and leveraged AI to improve our products. We will build upon this strong foundation in 2024 to scale our platform and reach more Learners across more learning needs. Our 2024 plan involves significant enhancements to the customer experience that are designed to make accessing high-quality live instruction more intuitive for every Learner. Specifically, we plan to streamline onboarding, simplify scheduling, enhance self-service tools, and expand Expert engagement features to improve the Learning experience on our platform. We also plan to continue to leverage AI to improve the quality of live instruction delivered on the platform and the quality of the customer experience Learners receive. We plan to equip Experts with better capabilities and content to tailor instruction to individual learning journeys and accelerate skill acquisition. Additionally, we plan to use AI to guide Learners towards the most effective next steps in their education, building on our success with AI in matching Learners with Experts. We believe these initiatives will increase engagement on the platform, increase the value we provide for both Learners and Experts, improve customer lifetime value, and ultimately improve our unit-level economics and the total revenue and profitability of the business. As our second goal and priority for the year, we will deliver growth by scaling to Freemium Model. Our efforts this past year enabled us to converge our Consumer and Institutional businesses into similar access based subscription models built on a unified common platform. That's allowed us to take product originally built for either our consumer audience or our institutional audience and make them available to each other as part of a standard product offering in both businesses. This includes 24/7 chat-based tutoring; AI Tutor; on-demand essay review; more than 100 live group classes per week in enrichment, test prep, and academic subjects; our StarCourses; self-study tools; college & career readiness resources; adaptive assessments; and more. We believe the logical next step is the introduction of a freemium offering within both our Consumer and Institutional businesses that introduces Nerdy to millions and eventually tens of millions of Learners, with a specific aim of dramatically growing awareness and driving a halo effect across both businesses. The initial no-cost version of our platform on its own, already meets multiple customer need-states across study support, homework help, college admissions prep, and enrichment. It also serves as a natural on-ramp that will allow us to introduce and upsell our live video-based online tutoring products to a far broader audience across multiple points in a Learners education journey. With more than 1 million students signed up across more than 250 school districts on the Varsity Tutors for Schools side, and encouraging early signal across Consumer customers, We believe a freemium growth strategy will allow us to drive substantial marketplace awareness. We also think it can help us achieve multiple different business objectives including unlocking e-commerce, expanding into new marketing channels, introducing Nerdy to new audiences and finally expanding our total addressable market by becoming a household name. We're looking forward to updating you on the progress we make against this effort over the course of the next year as we further enhance and refine that strategy. As our third goal in 2024, we will deliver profitable growth. In 2024, we expect to build upon our recent success by delivering profitable growth through an increase in the number of active members and lifetime value extension in our consumer business, as well as delivering higher institutional revenues as we continue to rapidly grow Varsity Tutors for schools. We believe that by scaling our winning access base subscription offerings, we will be able to deliver accelerating full year revenue growth of 24% year-over-year at the midpoint of our guidance, improve adjusted EBITDA margin by an additional 500 basis points and deliver positive operating cash flow in 2024. In closing, with our transition to learning memberships and our new unified platform complete. We look forward to building from a strong foundation, scaling and continue to enhance these winning models, launching a freemium strategy to grow the number of learners introduced to our platform and doing so in a way that drives profitable growth. I would like to close by thanking our team at Nerdy for their strong work this past year and their ongoing high-quality efforts towards meeting the needs of learners in any subject, anywhere and at any time. With that I'll turn the call over to Jason to discuss the financials in more detail. Jason?

Thanks, Chuck and good afternoon, everyone. As Chuck mentioned, we're proud of the results we delivered in 2023 that included completing the evolution to access-based subscriptions in our consumer and institutional businesses in just over a year's time, clearly demonstrating the strong product market fit and strong operational execution. Both our consumer and institutional businesses continued to see strong demand in the quarter, which combined with the operating leverage, driven from our evolution to access-based subscription revenue models drove meaningful bottom line performance. The transition to learning memberships continues to yield more attractive unit-level economics, longer duration and higher lifetime value customer relationships, higher gross margins in a more scalable and efficient operating model. We also rapidly scaled our institutional business, which delivered revenue growth of 77% year-over-year in 2023 through partnerships with nearly 200 school districts during the year. Turning to the fourth quarter. We delivered revenue of $55.1 million results that represented 32% year-over-year growth, yielding sequential growth acceleration throughout each quarter in 2023. Active members of 40,700, as of December 31st were up 101% year-over-year, resulting in an annualized run rate of approximately $151 million from learning memberships at year end, a 74% increase year-over-year from $87 million last year. Learning memberships revenue grew to $43.5 million, increased 32% sequentially from the third quarter, represented 79% of total company recognized revenue and nearly 100% of consumer recognized revenue in the fourth quarter. Consumer new customer growth of 35% and consumer revenue year-over-year growth of 17% in the fourth quarter continued to demonstrate strong demand for our consumer offerings. Our institutional business delivered revenue of $11.3 million in the fourth quarter representing 160% growth year-over-year. And we also delivered bookings of $10.3 million, which represented the third consecutive quarter with more than $10 million in bookings. Moving down the P&L, record quarterly gross profit of $39.2 million in the fourth quarter increased 33% year-over-year. Gross margin of 71.3% in the fourth quarter was 75 basis points higher than gross margins of 70.5% during the same period in 2022. Gross profit and gross margin increases were primarily driven by growth in our consumer business as a result of strong adoption of learning memberships, which have led to lifetime value expansion and higher gross margin. As we start 2024 with essentially all consumer revenues from learning memberships. We expect Consumer gross margin to continue to expand. Sales and marketing expenses for the three months ended December 31st on a GAAP basis were $18.8 million, an increase of $1.8 million from $17 million in the same period in 2022. Non-GAAP sales and marketing expenses excluding non-GAAPs stock-based compensation were $18.2 million or 33% of revenue compared to $15.7 million or 38% of revenue in the same period in 2022, an improvement of more than 450 basis points year over year. Sales and marketing spend and 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 in a more efficient operating model in our consumer business. We also delivered substantial Varsity Tutors for Schools revenue growth, yielding efficiencies from private investments in the institutional sales and go-to-market organization. We expect that a more efficient operating model in our consumer business and the continued scaling of our institutional business will continue to lead to sales and marketing efficiency improvements, as the business delivered accelerating revenue growth. General and administrative expenses for the three months ended December 31st, on a GAAP basis were $30.7 million a decrease of $2.2 million from $32.9 million in the same period in 2022. Non-GAAP, G&A excluding non-cash stock-based compensation and restructuring costs was $19.8 million or 36% of revenue, compared to $21 million or 50% of revenue in the same period in 2022, an improvement of over 1,400 basis points year over year. Included in G&A costs were product development costs of $11.5 million, an increase of $2.1 million from $9.4 million in the same period in 2022. Our investments in product development in our platform oriented approach to growth, have allowed us to launch a suite of access-based subscription products including learning memberships for consumers in our District Teacher and Parent Assigned offerings for institutional customers. As we've noted throughout 2023, asset-based subscription offerings, simplify the operating model needed to support customers and grow the business, while also providing a more predictable pattern of revenue recognition overtime. Our ongoing automation efforts involving self-service capabilities, the application of Artificial Intelligence and other efficiency efforts, have allowed us to generate operating efficiencies and remove significant costs from the business. As Chuck mentioned, our belief that the transition to subscription and access-based revenue relationships with customers would provide substantial operating leverage has proven to be correct. We delivered non-GAAP adjusted EBITDA profitability of $3 million in the fourth quarter, ahead of our guidance of breakeven. During 2023, we're able to deliver adjusted EBITDA margin leverage across every P&L line item on a year-over-year basis. And in the full year the non-GAAP adjusted EBITDA loss of $2.5 million versus a non-GAAP adjusted EBITDA loss of $35.7 million in the same period last year. This resulted in adjusted EBITDA improvement of $33.2 million and adjusted EBITDA margin improvement for approximately 2,100 hundred basis points year-over-year in 2023. We believe these durable improvements position us to be adjusted EBITDA profitable and operating cash flow positive for the full year in 2024. These leverage and efficiency improvements were delivered while still investing substantially in product development and our platform-oriented approach to growth, ensuring we can continue to execute against our product roadmap and deliver innovative solutions to meet the needs of today's Learners. During the fourth quarter, we delivered negative operating cash flow of $5 million, compared to negative operating cash flow of $14.5 million last year, an improvement of $9.5 million that reflects the benefits from our evolution to Learning Memberships, partially offset by temporary changes in working capital with no debt and $74.8million of cash on our balance sheet, we believe we have ample liquidity to fund the business and pursue growth initiatives. Turning to our business outlook, today we are introducing first quarter and full year 2024 guidance. For the first quarter and full year, we expect year-over-year revenue growth will be driven by the continued growth of Learning Memberships in our Consumer business, the corresponding increase in the number of Learning Membership subscribers coupled with continued LTV extension; and higher Institutional revenues as we continue to rapidly scale Varsity Tutors for Schools. New Learning Member acquisition remains strong, and a growing awareness that high dosage tutoring is the most effective way to remediate learning loss by parents, educators and policymakers provides us with confidence in the demand for our offerings in the year ahead. It should be noted that first half year-over-year revenue growth is impacted by legacy Package revenue in 2023 of $10.9 million and $4.9 million in the first and second quarter, respectively, that does not recur in 2024 due to the completion of our transition to subscription-based Learning Memberships in our Consumer business. Once we reach the second half of the year, when Package revenues are no longer included in prior year comparable quarterly revenues, we expect growth to accelerate consistent with the sequential quarterly acceleration we delivered in 2023. First quarter revenues are also impacted by lower ARPM resulting from recent efforts to test additional product tiers by grouping product capabilities in testing multiple price points to identify a pricing model with mass market appeal. As we move throughout the year, we expect ARPM for our core learning membership offerings to increase as we optimize our testing efforts. For the first quarter of 2024, we expect revenue in a range of $51 to $53 million. For the full year, we expect revenue in the range of $232 million to $246 million, representing accelerating year-over-year growth of 24% at the midpoint versus our 2023 revenue of $193 million. First quarter and full year non-GAAP adjusted EBITDA guidance reflects the continuing benefits from our recurring revenue products, which focus on long-term relationships with higher value customers and improving gross margin profile and operating leverage stemming from the completion of our evolution to access base subscription revenue business model. These benefits are partially offset by investments in Varsity tutors for schools, go-to-market strategy and product development to drive continued innovation and support our accelerating growth. For the first quarter of 2024, we expect non-GAAP adjusted EBITDA in the range of negative $3 million to breakeven. For the full year, we expect non-GAAP adjusted EBITDA in the range of positive $5 million to positive $15 million, an improvement of over 500 basis points in non-GAAP adjusted EBITDA at the midpoint. We also expect to deliver positive operating cash flow in 2024. In closing, thank you again for your time and for your continued interest in our company. With that, I'll turn it over to the operator for Q&A. Operator?

Thank you. We'll now begin the Q&A session. [Operator Instructions] Our first question comes from Eric Sheridan with Goldman Sachs. Please proceed.

Just wanted to come back to the introduction of the freemium model and how we should be thinking about broader financial implications from that as they build through the year, your elements of how you want to align the marketing structure of the company. What do you think the market opportunity is that you're tapping into, and how to think about the broader eventual evolution of the user funnel having that product out there and what it might mean for us broader freemium users to eventually over time possibly move into a higher price plans? Thanks so much.

Thanks Eric. This is Chuck. Great question. So we have been methodically testing it over the course of the last couple of months and easing our way into it. And we would expect that that would continue to be the case throughout 2024. So the big opportunity that we have with our freemium strategy is to take advantage of all of the non-tutoring engagement, all these incredible products that we've built, many of which companies charge large amounts of money for and have built multi-hundred billion-dollar businesses on and give them away at no cost or low cost and actually introduce consumers to our ecosystem and then monetize on live tutoring. And, of course, live tutoring is our SuperPower that we do better than anyone else out there. So we would expect to test into some of these different freemium models ads do so in a way that builds to that really big opportunity mass market appeal and allow it for people as they have specific learning needs where they get benefit from tutoring to upsell from there. So the way that we're thinking about it it's kind of focusing on the existing model, continuing to scale winning model and then adding incremental users into these different kind of previous states and monetizing their app.

Great. Thanks so much for the color, Chuck.

Our next question comes from Doug Anmuth with JPMorgan. Please proceed.

It's Brian Smile on for Doug. Thanks for taking the questions on just one versus the tutors, can you just describe more drivers of growth into 2020 especially considering the SR3 [ph] allocation funding deadline is coming up in September. Are you seeing any incremental demand from existing partners around that deadline looming and any uptick in the new customer backlog?

Yeah, sure Brian. Good question. I can take this one. So as you think about 2024 I think it's going to be a continuation of what we saw in 2023. So on the consumer side, you'll see continued scaling of learning memberships, the number of active members and continued LTV extension that we've experienced throughout this year. As we feel that business. And then we think about the Varsity Tutors For Schools business. I mean certainly, we had a great year this year. Total bookings were up 50% in revenue for the full year was up 77%. As we think about next year, we're getting a lot of positive signal on our new products Tutor designed, teacher assigned parent assigned. One of the investments are going to make is expanding the go to market sales team and Varsity Tutors For Schools capture that opportunity. I think it's a little bit too early to tell how the [indiscernible] money's going to come in at the end of the year. But as a reminder for from participants, those monies must be spent by September of 2024 and contracted but the services can be provided over the course of the next four years, post September 2024. So, we feel like there's a pretty significant opportunity here to capture our fair share of that those funding sources and enter into multiple year contracts, with our partners in the school district space.

And Brian, I would also add this is Chuck Cohn there are all sorts of different funding sources being used there. State-specific legislation, that's been passed in a variety of different states for tutoring -- tutoring but one thing that is consistently working across the United States and there's broad bipartisan support for the fact that tutoring is highly effective and great. It would be the reporting calls. And so, we feel like we're well positioned to participate in a variety of different state programs, local programs in that as you think about the different the funding environment including federal funding, there's going to be a good broad support for continuing to fund something as attractive as a tutoring. And really all the studies are showing that it's highly effective and remediating ordering loans. So we feel good about that. And then separately, as you think about our strategy of providing access to the Varsity Tutors For Schools platform, we're actually able to introduce ourselves highly efficiently to a much larger number of school districts. So, there's something like 15,000 public school districts United States, through this strategy. Just recently, we’ve been very quickly nearly double the number of school districts, with whom we have relationship. And we think that that's something that really builds, as we grow throughout 2024 where that kind of cumulative number of different school district relationships, where we provide value build trust and credibility and then subsequently are able to then sell them high dosage during something that is pretty exciting. And the feedback thus far, from school district partners has been very positive and oftentimes that it very quickly leads to a commercial relationship as well.

Great. Thanks for the color.

Sure. So this is something that we've been building towards for a couple of years. So, as we built all these different products, we've talked before about how we kind of think of them as building blocks where you can assemble different compelling products for specific audiences that really resonate and between having five video-based tutoring, small group classes, live stream capabilities we can get up to 50,000 people in place that will still marginal cost, diagnostic testing, self-study videos, and a whole host of other resources including AI Tutor. We've brought these all together in such a way where we're able to then kill the different product offerings that resonate in such a way where we can monetize. And we have kind of tested different periods of the past and had great success. And so this is something that wasn't possible until we were able to converge both our consumer and institutional businesses and our consumer institutional platforms into one unified product offerings. So, we're pretty excited about the potential here. So, as we mentioned it's early, but the signal thus far is good and we've been working towards this goal for a long time.

Yes. The only thing I'd add is no freemium is going to give us an array of benefits as we move forward. We're going to be able to connect with customers and different need states drive substantial marketplace awareness. We'll be able to unlock a term of commerce to an extent we haven't been able to in the past, it will enable expansion via new marketing channels, it will enable Nerdy to introduce ourselves to what we think will be millions of students over the course of this year and potentially become a household. So, this is a big long-term opportunity. We feel really good about the initial signals. But to your question it is early innings. We'll continue to refine the offering as we move throughout the year and with the expectation of being ready to go for back-to-school in the fall?

Our next question comes from Andrew Boone with JMP Securities. Please proceed.

Thanks much for taking my questions. I wanted to ask about the cost of operating the freemium model. Is there anything that we should know about either increased hosting or anything else that you can think about there as well as any revenue that may fall off as now some products become free? And then secondly learning memberships are aging. You guys have now been through this process a while, still anything that you guys can share now that we're a little bit more mature in cohorts on retention or anything of that kind of vein? Thanks so much.

Sure. So, I think the important thing here is that these ancillary products have either no marginal costs associated with them were at low marginal costs associated with them. So, the cost that we bear is related to some of the testing that we did for both getting them live, testing e-commerce, rolling out some self-service tools, and you kind of see that reflected in the lower starting point at our Q1 guide, but it builds to a fairly acceleration throughout the year. Ultimately, full year revenue growth, that is still 24% but accelerating. And we feel good about this being self-funding from a -- maybe even margin-accretive over the course of the year. So, we feel good about the economics here and the fact that the rule that we could do so in a highly efficient manner that introduces us to a large number of verse.

And then sorry last question was on the retention of maturing cohorts. You'll see in the shareholder letter we did remove that from lowest historically provided and from our perspective, we would say that they were originally shown to demonstrate the superior economic profile of learning memberships versus our legacy package model. We've proven that out over the last five or six quarters. Those cohorts continue to have LTV extension and we feel really good about the retention the engagement of learning memberships and how we're positioned as we enter 2024.

Yes, I'd also add that we added a chart in our shareholder letter this time that actually shows the year-over-year improvement by month and non-tutoring engagement, which we found to be very important to retention and getting value out of the membership over time particularly in shorter periods. So, we feel great about that connection between the product improvements we're making, particularly, related to both additional products and that product discovery and that how that pulls through to engagement, which in turn all through to retention. And that being something that we continue to do that we can continue to drive for many, many quarters and years to come.

Thank you.

Our next question today comes from Alex Tyler with Raymond James. Please proceed.

Great. Thank you. Jeff can you elaborate a little bit more on what you're on what you're referring to as far as kind of unlocking the e-commerce opportunity what will that look like for Nerdy?

Sure. So we have had e-commerce capabilities, but we also have a consultative sales engine. And we would expect for the majority if not the entirety of these premium sales to occur through e-commerce which should be a source of operating leverage on sales marketing.

Okay. Perfect. So you're effectively a self service and motion for some of these premium from these premium members -- not on an annual

…targeting that market will continue to polish it and refine it but we would expect that be something that makes us more efficient over time. And that means there's not a kind of commensurate decrease in costs that best buy an item as we scale.

And Alex one thing I'd add you know we'd encourage everybody on this call to go to Varsitytutors.com or dirty.com experienced the freemium product for themselves. It's live on both of the wells. Perfect. Would check that out -- had another great quarter on the institutional booking side. Can you just help frame how the pipeline looks heading into 2024 from kind of a total bookings opportunity relative to this time last year is kind of the growth in pipeline and opportunities kind of keep supporting us an acceleration for that segment out.

Sure. So it's dramatically bigger and it speaks to the improvements that we've made in the product offering itself combined with the fact that we believe that there's a emerging multibillion-dollar industry being more within K-12 tutoring that we're very excited about. So over the course of the past call it 13 months or so. We've launched three different subscription products within our institutional segment our first feature side that's different design, than parents assigned model. And the last one allowing us to allocate learning memberships essentially our consumer product with administrative tools sitting on top school districts. So we can really service all three common ways that schools would ever want to administrate tutoring and then separately because of the convergence of our platforms we've been able to take all of the different products including the ones that were originally built for our consumer audiences and extend to school districts. And even as the school district is only interested in focusing on a subsegment of students were able to provide value to all of the students in many cases. But rather there is existing spend associated with the products that we're giving away at no cost as part of this as part of this kind of total offering has been very compelling. It's opened doors and we're excited about how both the quality of our high dosage offering the value that we're able to provide and then the actual like our ability to build relationships at scale and that kind of go to market motion and sales and marketing built stores it really big.

Okay great. And maybe just one quick follow-up on that. Is anything changed as you've launched kind of feature sign different design paradigm. Now you have those three flavors out there? And then also the platform access is kind of a newer motion but have you seen win rates notably improve as a result of having kind of several different flavors for space or districts to kind of sign up with Varsity theaters?

Yes, we have and the fact that we can solve all these different needs states is we're also seeing school districts purchase for different parts of the school district with different products so they're actually using multiple different products. And frankly from their perspective it just seems it's much more simple to communicate. There's a very specific use case associated with each one and then the fact that we're able to provide so much value to everybody throughout the district is something that's really resonating as well. So they're more simple conversations. And when rates are higher and it's more efficient well trust and credibility.

All right. Thank you both.

Thanks, Alex.

Our next question today comes from Maria Ripps with Canaccord. Please proceed.

Great. Thanks for taking my questions. Can you share a little bit more color on your pricing and product test? Sort of what products have you been bundling together and what type of consumer are you targeting sort of with this offerings? And then, how heavily do you intend to roll out this plan sort of going forward one sort of initial testing is completed?

Sure. So we started off the call it the path in Q4 with testing a variety of different options. We learned quickly and we're using that to then for a broader rollout. So in addition to some of the 48 hours packages that we've tested and primarily sold as part of our all inclusive learning membership over the course of the past year, we've also introduced different pricing tiers and some of those include lower hours to drink. Some of those include much lower price points. And then the ability to kind of our purchase when acute needs arise. And I think we have good signal there. It's still early days, but there are certain SKUs that are really resonating and allowed for us to get people onto the platform engaging in products at no cost that traditionally they would have paid other companies for, in some cases large amounts of money which we think kind of creates this gravitational force towards our website that will attract users very efficiently. And then we've been very encouraged by the initial monetization side. So again early and your plan does not count on your tremendous success there, but working in such a way where we believe that that could be a big growth driver.

Got it. Thank you so much for the color.

[Operator Instructions] Our next question today comes from Brett Knoblauch with Cantor Fitzgerald. Please proceed.

Hi guys. This is Thomas Shinske on for Brett. We're encouraged to see the introduction of the freemium model. I was just wondering, if there was any consideration of this model cannibalizing its existing revenues from customers that maybe were on the platform, but not using the tutoring services? Thanks.

Sure. I can take that one. So I think it's important to remember that our free product and platform provides study and support resources that do not replace [indiscernible], but instead they supplemented. So the need states are different. Supplemental resources will serve as a great on-ramp for tutoring and they're largely very low marginal to no marginal costs. So think things like an AI-based tutor, practice problems, assessments and personalized learning plans, as well as a synchronous content, so those items support a learning journey over the course of someone's semester. And when they have an acute need and need specific tutoring to really understand the materials and continue to grow as a learner. That's where we think that the upsell motion to one-on-one live or small group tutoring which are superpowers is where we'll be able to monetize the upsell from freemium to paid offerings?

Yes, there's something about like that like that's our superpower. That's why people come in. And that's where we're truly best in plants place. And we've surrounded that offering with all sorts of ancillary powerful resources that create a environment where students can kind of continue to work overtime. But the accountability, the relationship, the motivation, the ability to comprehend that comes from that social interaction. That's probably present deadline face-to-face interaction. That continues to be what people want and we believe is both highly durable. That's something that people would substitute for these other options as well and then a very powerful monetization engine.

Awesome. Thank you guys.