At Clayton-based online learning firm Nerdy (NYSE: NRDY), 30% of software coding is being completed by artificial intelligence, the company disclosed recently.
Nerdy highlighted the 30% figure last month while sharing its first quarter 2023 financial results, touting it as an example of how implementation of AI technology is helping to expand its product portfolio and trim operating costs.
Founded in 2007, Nerdy is the parent company of Varsity Tutors and offers an array of online tutoring tools including one-on-one instruction, group classes and self-study. In addition to offering individual tutoring for students and adults, it operates Varsity Tutors for Schools, a collection of products designed for school districts.
Nerdy said in a shareholder letter published in May that the 30% of software code written by AI stems from providing employees with generative AI tools, with its staff “both encouraged and expected to use it in their work.” Generative AI is technology that can “produce various types of content, including text, imagery and audio,” according to TechTarget.
Nerdy founder, chairman and CEO Chuck Cohn said in an interview that some of the company’s software developers had begun using generative AI and indicated it was improving their productivity, which led Nerdy at the start of the year to roll out its use broadly for software coding. Cohn said so far that has led to increased productivity related to its software development efforts, helping to enhance its product portfolio.
“For us, given how robust our product roadmap is, we think it allows for us to pull forward some of those things that might have otherwise taken more time,” he said. “You can see a path toward over the next couple of years, as the technology evolves and we get better at leveraging it, where eventually software engineers can be two or three or 10 times as effective over time. We’re not there yet, but I think there’s a clear path to how that would occur.”
How does Nerdy’s use of AI overlap with its business goals?
Cohn doesn’t view AI as a replacement to traditional software development, instead believing it helps the company get more out of its resources. He said Nerdy’s number of software engineers was “always a limiter to how fast we could grow."
“The product roadmap and number of high quality ideas always exceeded our ability to get them done with the team we had. There is in our case no shortage of additional high value projects we want to fund effectively that we can be more likely to get done,” Cohn said.
Cohn said he expects Nerdy to continue modestly adding to its software development team, though he has told analysts that AI is expected to affect staffing more broadly. He said in an earnings call in February that Nerdy’s use of AI “will allow us to further simplify our business model, reducing the need to hire incremental staff.”
Nerdy has trimmed its headcount in the past year, saying in December it was laying off 17% of its staff, a move it attributed to a new sales model. Nerdy disclosed in February it has about 700 employees, down 30% from a year ago.
Nerdy’s focus on AI overlaps with its pivot to a go-to-market sales strategy that emphasizes learning memberships. For years, Nerdy’s business model involved users buying blocks of tutoring hours to be consumed over time. It has now shifted to what it calls an "always on" model that allows customers to purchase membership packages for tutoring, with membership accounting for 60% of Nerdy’s first quarter revenue of $49.2 million.
Nerdy has highlighted costs savings that come with its use of AI. The company said in its recent shareholder letter that its use of AI technology in its customer support call evaluation and feedback has produced $1 million-plus in annual savings. That comes as Nerdy has previously set a goal to reach achieve positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) by the end of 2023 and reported in the first quarter it had adjusted EBITDA of $1.4 million, saying it hit its goal “more than nine months ahead” of its target date. Nerdy stock is up $1.88 a share, to $4.12 a share, so far this year, though it's down from a 2021 debut of $9.70 a share.
Why Nerdy’s use of AI isn’t new
Cohn said Nerdy’s use of artificial intelligence technology isn't new. Around 2017, the company began using machine learning to help solve business problems, including how to find the best tutor for students.
“We went about using machine learning algorithms to detect patterns that no human could detect. We could constantly test one algorithm against another, looking at whatever data we had access to, to try to find patterns that were more predictive of the better customer experience,” Cohn said.
The ability to use AI to better personalize the learning experience for customers is one of the biggest benefits of AI technology, Cohn said. Nerdy has trademarked the phrase AI for HI, or Artificial Intelligence for Human Interaction, to describe its approach to using AI technology. In the first quarter this year, it said it released a pair of new products designed to personalize its platform. They include AI-enabled chat tutoring and an AI lesson plan generator, which the company says is designed to produce lesson plans, including practice problems and curriculum content, ahead of tutoring sessions.
Cohn said he believes Nerdy has a leg up on other companies when it comes to deploying AI, saying he’s confident it can move faster than the “countless companies that are highlighting the way they are leveraging it, but don’t have the deep infrastructure or the data instrumentation to where they are able to then deploy it quickly in the right ways.”
“We’re well suited to run fast here and establish a bigger competitive advantage and better customer experience simply because we’ve been applying machine learning in very practical ways for a long time,” he said.
