Nerdy — Q3 2026 Earnings Summary

Financial Performance:

• Q3 2026 revenue was $33.2 million, within the guidance range of $32.0 million to $35.0 million, representing a 10% year-over-year decline from $37.0 million in Q3 2025.
• GAAP net loss was $12.8 million for Q3 2026, compared to $18.7 million in Q3 2025.
• Non-GAAP adjusted EBITDA loss was $5.7 million, improving by $4.5 million year-over-year from a loss of $10.2 million in Q3 2025 and beating the guidance range of negative $9.0 million to negative $6.0 million.
• Non-GAAP adjusted EBITDA margin expanded by over 1,000 basis points year-over-year.
• GAAP gross margin was 59.7% for Q3 2026, compared to 62.9% in Q3 2025.
• Non-GAAP gross margin was 64.5% for Q3 2026, an improvement of approximately 160 basis points from 62.9% in Q3 2025.
• Operating cash flow for Q3 2026 was negative $4.6 million, compared to negative $2.4 million in Q3 2025.
• Non-GAAP free cash flow for Q3 2026 was negative $5.9 million, compared to negative $4.1 million in Q3 2025; excluding wind-down impacts, free cash flow improved by approximately $4.5 million year-over-year.
• Total headcount decreased 44% at the end of Q3 2026 versus the prior year; excluding the Varsity Tutors for Schools exit, Consumer sales, support, engineering, and product teams are leaner by more than 300 people.
• Annualized AI spending rate was approximately 60% below its peak in June and July by September.
• Cash and cash equivalents were $42.5 million as of September 30, 2026.
• Total borrowings on the term loan were $30.0 million as of September 30, 2026, following the borrowing of the remaining $10.0 million tranche on September 28.
• Deferred revenue was $5.475 million as of September 30, 2026, down from $14.481 million as of December 31, 2025.

Guidance and Future Outlook:

• Q4 2026 revenue guidance is set at $37.0 million to $39.0 million.
• Q4 2026 non-GAAP adjusted EBITDA is expected to be approximately breakeven.
• The company expects to end the year with $35.0 million to $37.0 million in cash, inclusive of the $30.0 million term loan draw.
• Management expects existing liquidity to fund operations through free cash flow breakeven.
• Revenue guidance reflects lower new client acquisition in Q3, resulting in a smaller Active Member base and lower Consumer revenue in Q4.
• Product enhancements and customer acquisition initiatives are expected to narrow the year-over-year gap in new client acquisition through Q4.
• The company anticipates sustained gains in customer acquisition, retention, and profitable growth as new product launches translate into results.

Business Segments and Product Lines:

• Consumer revenue was $30.7 million in Q3 2026, down 7% year-over-year, representing 93% of total revenue.
• Active Members totaled 31.8 thousand as of September 30, 2026, down 7% year-over-year.
• Average Revenue Per Member (ARPM) was $366 in Q3 2026, down 2% year-over-year.
• Institutional revenue decreased due to the wind-down of the Varsity Tutors for Schools (VT4S) business line.
• A redesigned, messaging-first student experience was rolled out, allowing learners to access tutoring, live classes, and AI practice via a single conversation thread with over 100 agentic actions.
• New self-service e-commerce capabilities now support a registration-led path to membership, enabling customers to purchase and begin learning without a sales conversation.
• "Smart Actions" capability introduced real-time AI assistance in live instruction, providing tutors with access to over 15,000 prepared lessons across 200 subjects, including 3D interactive models.
• A separate, rocket and space-themed elementary experience was built specifically for K-5 students.
• Product enhancements and customer acquisition initiatives were running more than three months behind the original plan, weighing on Q3 acquisition.

Market and Competitive Landscape:

• The company is transitioning from a lead-generation and sales-conversion model to a self-service, scalable go-to-market model.
• The new self-service model is expected to lower customer acquisition costs and expand reach over time.
• The wind-down of the VT4S business line resulted in a decline in Institutional revenue.
• Retention continued to improve year-over-year, though new client acquisition was lower in Q3.

Risks and Challenges:

• Product transformation capabilities arrived later than planned, limiting their contribution during the back-to-school acquisition window and resulting in fewer new learning membership customers than anticipated.
• The wind-down of the VT4S business line reduced cash collections due to the absence of prepaid bookings and incurred exit-related payments.
• The company has a history of net losses and negative operating cash flows.
• Risks include the ability to acquire and retain customers, scale the Consumer business, and manage growth.
• Indebtedness and potential covenant restrictions related to the term loan could adversely affect financial condition.
• Risks associated with AI development, regulatory uncertainty, and the classification of independent contractors.

Management Commentary and Tone:

• Chuck Cohn, Founder, Chairman & CEO, stated that Q3 results were in line with expectations and marked an important transition in the company's evolution.
• Management emphasized that the new student experience changes how families use Nerdy, making the learning membership more valuable between sessions to elevate retention and customer lifetime value.
• Management noted that AI-enabled efficiency improvements and disciplined cost management drove the improvement in non-GAAP adjusted EBITDA.
• The tone indicates confidence in the long-term strategy to simplify the business and apply AI to improve products and operations, despite short-term revenue headwinds from the product transition.

Other Key Points:

• The company exited the VT4S business line, which contributed to a $1.6 million charge for the abandonment of capitalized internal-use software.
• Non-GAAP adjusted net loss was $7.0 million for Q3 2026, compared to $11.9 million in Q3 2025.
• Sales and marketing expenses on a GAAP basis were $13.8 million for Q3 2026, a decrease of $2.8 million from the prior year period.
• General and administrative expenses on a GAAP basis were $18.4 million for Q3 2026, a decrease of $7.4 million from the prior year period.
• The company borrowed the remaining $10.0 million available under the first tranche of its term loan on September 28, 2026.
• Active Experts decreased to 6.7 thousand in Q3 2026 from 8.1 thousand in Q3 2025, primarily due to lower Consumer Active Experts and the VT4S wind-down.