Q4 2023 Nerdy Inc Earnings Call

Participants

TJ Lynn; Associate General Counsel; Nerdy Inc

Charles Cohn; Chairman of the Board, Chief Executive Officer, Founder; Nerdy Inc

Jason Pello; Chief Financial Officer; Nerdy Inc

Eric Sheridan; Analyst; Goldman Sachs

Doug Anmuth; Analyst; JPMorgan

Ryan MacDonald; Analyst; Needham & Company Inc.

Andrew Boone; Analyst; JMP Securities

Alex Tyler; Analyst; Raymond James

Maria Ripps; Analyst; Canaccord Genuity

Brett Knoblauch; Analyst; JMP Securities

Presentation

Operator

Hello, everyone. Thank you for attending today's Nerdy Incorporated fourth-quarter 2023 earnings call. My name is Sarah, 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, if you would like to ask a question, press star one on your telephone keypad. I would now like to pass the conference over to our host, T.J. Lynn, Associate General Counsel of nursing.

TJ Lynn

Good afternoon, and thank you for joining us for Nerdy Fourth-Quarter 2023 earnings call. With me are Chuck cone, Founder, Chairman and Chief Executive Officer of nerdy, and Jason pillow, 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 Nordea'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 or any forward looking statements are made as of today's date, and there 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 earnings 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.

Charles Cohn

Thank you, Jay, and thank you to everyone for joining us today as 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 was 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 theaters were schools contracted with nearly 200 school districts, delivering 37.6 billion of bookings, an increase of 12.8 million were 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 costs, growing 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 year as we delivered year-over-year growth of 5% in Q1, 15% in Q2, 27% in Q3 and 32% in Q4 a year ago. As we headed into 2023, we believe 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 gross 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 we built access base of subscription product and made investments in automation and self-service capabilities in AI that we can 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 relief in terms of 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-GAAP adjusted EBITDA loss in the range of $10 million to breakeven 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 21 hundred 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 33.3 million representing a 108% flow-through of consolidated revenue growth to non-GAAP adjusted EBITDA. We believe these substantial improvements position us for adjustment, 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 AI for AI or artificial intelligence where 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. It powers our ability to identify the highest quality experts, assess where the foundational knowledge help ensure the right expert were mapped and drive operational efficiency.
During the year, our investments in AI allows for us to rapidly develop learning experiences involving the real-time generation of content with near-zero cost, improve our ability to deliver live human interaction and personalized learning at scale, provide new superpowers to experts in orders on the platform allowed us to remove substantial operating cost from our business. Our continued investments in airfreight allowed us to launch an all new membership experience making it easier for learners to more fully engage with the 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 less than planned creator, AI driven that tutoring and ad generated learning content, including practice problems in Q&A.
Looking ahead, I 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 anytime.
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 remained strong learning membership customer lifetime values continued 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 breakeven, resulting in adjusted EBITDA margin improvements of approximately 1900 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. The 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-cigarette 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 the user experience. These tests often involving lower average revenue per month or RPM products decreased ending our bundle in the quarter, but it provided our teams with multiple signals and the consumer intent, preferences and behavior that informed our initial approach to consumer freemium model.
Turning our attention to our institutional business and Varsity theaters with 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 model for high-dose tutoring with district design, teacher assigned and parent design with hearts either through schools, our institutional customers can now choose to administer tutoring essentially 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, largely due to schools executed 42 paid contracts in the fourth quarter, yielding 10.3 million of bookings for 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 districts. Access to the largely Peter's platform is now provided for all students district-wide, enabling us to provide more value to the school districts and students and families. For example, take a school district with 100,000 students focusing in Tieto's tutoring on 1,000 students within the district. The other 99,000 students will now also receive access to products, including 24 seven on-demand chat-based tutoring on-demand. As a review more than 100 live group classes per week in areas including enrichment, test prep and academic subjects. Our star scores is our self-study tools, our college and career readiness resources. Our adaptive assessments are recorded enrichment classes and test prep classes and more at no additional costs. In many cases, district were and are paying large amounts of money for these services and they can now direct those cost savings towards live video based high-dose filtering from Varsity tutors with 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 U.S. 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 1 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 you won 24 awards. These efforts include a specific focus on platform scalability and building the freemium upsell go-to-market motion of high-dose 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 win. First, we will scale the winning product for every learner as we continue to evolve and enhance our product offerings within our new access base subscription model, 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 product. We'll build upon this strong foundation 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 to help tailor instruction and create individual learning journeys that accelerate skill acquisition. Additionally, we plan to use AI to guide Werner's towards the most effective next steps in their learning journey.
Building on our success with a eye and mapping learners and experts. We believe these initiatives to increase engagement on the platform, increase the value we provide for both learners and experts to 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 seven cafes tutoring. I do their on-demand as they review more than 100 live group classes per week and enrichment test prep and academic subjects are Star courses self-study tools, college and 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 30 to millions and eventually tens of millions of words with a specific aim at dramatically growing awareness and driving a halo effect across both businesses. The initial low cost version of our platform on its own already meet multiple customer needs. States across study support homework, help collagen medicine prep and enrichment. It also serves as a natural on-ramp that will allow us to introduce an upsell our live video-based online tutoring product to a far broader audience across multiple points in Werner's education journey with more than 1 million students signed up across more than 250 school districts on the varsity tutors school side, 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 Darty 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 NRT 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?

Jason Pello

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 base 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 base 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 their new 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 noncash 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 prior 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 noncash 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 over time. 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 excess base 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 21 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, EBIT leverage and efficiency improvements were delivered while making substantial investments 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 74.8 million 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 be driven by the continued growth of our new memberships in our consumer business. The corresponding increase in the number of membership subscribers, coupled with continued LTV extensions and higher institutional revenues as we continue to rapidly scale of 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 quarters, respectively. That does not recur in 2024 due to the completion of our transition to subscription-based burning 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 RPMs 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 RPM 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. And with that, I'll turn it over to the operator for Q&A. Operator?

Question and Answer Session

Operator

Thank you, sir. We'll now begin the Q&A session. (Operator Instructions)
Our first question comes from Eric Sheridan with Goldman Sachs. Please proceed. Question.

Eric Sheridan

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 sort of tapping into and how to think about the broader eventual evolution of sort 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.

Charles Cohn

Thanks, Eric. This is Jack. 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, kind of mass market appeal and allow it for people as they have specific learning needs where they get benefit from children 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.

Eric Sheridan

Great. Thanks so much for the color.

Operator

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

Doug Anmuth

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

Jason Pello

Yes, 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 are designed teacher aside impair and 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 Ester-E 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.

Charles Cohn

And Brian, I would also add this is Jack now that 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 Marcy tutors or 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 bill 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.

Doug Anmuth

Great.
Thanks for the color.

Operator

Our next question comes from Ryan MacDonald with Needham. Please proceed.

Ryan MacDonald

Hey, this is Matt on for Brian. Thanks for taking the questions. I wanted to start with learning memberships. Nice to see that the transition is now complete, but the Q4 learning numbers came in slightly below the 42,000 expectation. Just curious on what caused the difference and are you providing any outlook for Q1 on the numbers there.
Any color on how you're forecasting elements for 2024 would be helpful.

Jason Pello

Yes, sure. Thanks, Matt. I guess I would say we thought that the number of active learning members came in largely in line with our expectations. We had continued strength in new customer growth, up 35% year over year in the fourth quarter. So I think as we look ahead, we feel really good about where we're positioned. Looking ahead to next year, we would expect about 45,500 at the end of Q1 and then thinking longer term at the end of the year, we would expect about 56,000 active members now. But can you keep in mind, is both of those numbers that I just provided exclude the potential conversion of freemium to paid customers as we move throughout the year. So a little bit early to forecast that, although we feel good about the conversion mechanisms that we're seeing. But the numbers I gave you are more for our traditional learning membership customers.

Ryan MacDonald

Got it. Appreciate that, Jason. Yes, wanted to touch on the freemium conversion channel there. What you know, obviously, you mentioned that you've been testing it a little bit, but obviously rolling it out now more broadly, what inning would you say you're in in kind of building out that go to market? And maybe just if you could flesh out more of the strategy, are that that wedge to drive that upsell from freemium to paid.

Charles Cohn

Thanks, guys. 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, smaller 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 a 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.

Jason Pello

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 will 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 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?
Yes, I think the important thing is that tutoring is a proven monetization engine and we know how to monetize. So we feel really good about that connectivity between the engagements and our tutoring products and then ultimately monetizing material with a while the actual Tutor, except which of course, is there.

Ryan MacDonald

Yes. Super helpful. Thank you.

Operator

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

Andrew Boone

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 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.

Charles Cohn

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 I 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 U-verse.

Andrew Boone

And then sorry, last question was on the retention of maturing cohorts. But 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.

Charles Cohn

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 shoulder 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.
Yes, thank you.

Operator

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

Alex Tyler

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 NRT?
Sure.

Charles Cohn

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 freemium sales to occur through e-commerce, which should be a source of operating leverage on sales marketing.

Alex Tyler

Okay. Perfect. So you're effectively a self service and motion for some of these premium from these premium members, not on an annual new, not anything new work involves dynamic 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.

Charles Cohn

And Alex, one thing I'd add, you know, we'd encourage everybody on this call to go to Varsity tutors.com or dirty.com experienced the freemium product for themselves. It's live on both of the wells.
Perfect.
Would check that out is 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.

Jason Pello

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.

Alex Tyler

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 for space or districts to kind of sign up with Varsity theaters?

Charles Cohn

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.

Alex Tyler

Thank you both.
Yes.

Jason Pello

Thanks, Alex.

Operator

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

Maria Ripps

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 test?
It is completed?

Charles Cohn

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, Indonesia.

Maria Ripps

Got it. Thank you so much for the color.

Operator

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

Brett Knoblauch

Hi, guys. This is Thomas Shen ski 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 immunome revenues from customers that maybe were on the platform but not using the tutoring services? Thanks.

Charles Cohn

Sure. I can take that one. So I think it's important. Remember that our free product and platform provides study and support resources that do not replace just Studer, 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 a 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?

Jason Pello

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.

Brett Knoblauch

Awesome.
Thank you, guys.

Operator

Thank you all for your questions. There are currently no questions in queue. So as a reminder, it is star-1 to ask a question.
There are no further questions at this time. So that will conclude today's conference call. I'd like to thank everyone for their participation, and you may now disconnect your line.