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Good day, and thank you for standing by. Welcome to the NerdWallet Inc. Q1 2024 Earnings Conference Call. [Operator Instruction]. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin MacNamee. Ma'am, please go ahead.
Thank you, operator. Welcome to the NerdWallet Q1 2024 Earnings Call. Joining us today are Co-Founder and Chief Executive Officer, Tim Chen; and Chief Financial Officer, Lauren St. Clair. Our press release and shareholder letter are available on our Investor Relations website, and a replay of this update will also be available following the conclusion of today's call. We intend to use our Investor Relations website as a means of disclosing certain material information and complying with disclosure obligations under SEC Regulation FD from time to time. As a reminder, today's call is being webcast live and recorded. Before we begin today's remarks and question-and-answer session, I would like to remind you that certain statements made during this call may relate to future events and expectations and as such, constitute forward-looking statements. Actual results and performance may differ from those expressed or implied by these forward-looking statements as a result of various risks and uncertainties, including the risk factors discussed in reports filed or to be filed with the SEC. We urge you to consider these risk factors and remind you that we undertake no obligation to update the information provided on this call to reflect subsequent events or circumstances. You should be aware that these statements should not be considered a guarantee of future performance. Furthermore, during this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, except where we are unable without reasonable efforts to calculate certain reconciling items of confidence. With that, I will now turn it over to Tim Chen, our Co-Founder and CEO. Tim?
Thanks, Caitlin. In late 2023, NerdWallet launched a new national brand campaign, Don't Make Future You Hate You, reminding consumers that the financial decisions they make today can have an outsized effect on their future well-being. And of course, that they can turn to NerdWallet for trusted guidance as they make those decisions. In Q1, we've seen the campaign achieved great results as our aided brand awareness reached record high despite brand spend being down 30% year-over-year, reinforcing the resonance of our product offering. Similar to our guidance to consumers, we operate with a long-term orientation. We remain committed to improving our efficiency, so it's been great to see our brand marketing spend work harder for us relative to last year. In Q1, we more than doubled non-GAAP operating income year-over-year by continuing to bolster efficiency, we'll have more capital to reinvest and more resilient throughout the cycle. We're seeing our long-term orientation bear fruit. Our insurance category has faced inflationary headwinds for most of the past few years, but we continue to invest in improving our marketplaces. This work has paid off with record revenue in Q1 despite an end market that is yet to fully recover. These results are a great example of something I've said before. Our business is cyclical. And over time, we know that headwinds and tailwinds will offset each other. So our priority is growing from cycle to cycle. We also continue to take share in a large and growing market, independent of macroeconomic factors, our primary addressable market, U.S. financial services, digital advertising is expanding with a 2023 4-year CAGR of approximately 15% and the blood share in this market has also increased with a 4-year revenue CAGR of 27%. In Q1 specifically, we are proud of our results. We exceeded guidance across revenue, adjusted EBITDA and non-GAAP operating income while growing monthly unique users by 25% year-over-year. These results not only speak to our relentless self-improvement but also enable us to invest in NerdWallet's future. Our vision is to build a TriState financial ecosystem or a single platform where consumers and SMBs can learn, shop, connect their data and make decisions about their money. In Q1, we saw progress across our growth pillars, and I feel confident that the decisions we're making today will result in durable value for our consumers and our business. This quarter, we continue to leverage our trusted brand and playbook to land and expand efficiently in new markets and categories. Internationally, we skilled efforts across the U.K., Canada and Australia. Collectively, MUU growth for these markets outpaced U.S. growth in Q1 at 31% year-over-year, giving us increased conviction in our ability to grow our international presence over the coming years. Meanwhile, our vertical expansion efforts significantly increased our velocity. By repurposing existing assets versus building from scratch with extensive development time, we are able to launch and monetize new home services categories within weeks while still investing in other nascent categories like Medicare, social security and estate planning. Vertical integration remains a key focus as we look to grow from cycle to cycle. These efforts are NerdWallet,'s trusted brand and reach with best-in-class consumer shopping experiences, a combination that should drive improved monetization over time. This quarter, we focused on improving our services to cater to consumers who want more human guidance when making financial decisions. We've only seen tiered support options work effectively in SMB, which operates a hybrid bottle, including both digital and human-assisted shopping experiences. In Q1, this team furthered their efficiency by leveraging machine learning to more accurately route consumers to the right level of support for their circumstances. Over time, we'll seek to bring the hybrid model to more areas to help people make smarter financial decisions. As we achieved record MAU growth over the past several quarters, we've doubled down on our registration and data-driven engagement efforts. By registering users, we can more easily engage and reengage them over time with thoughtful, personalized cross-sell opportunities, increasing their loyalty to NerdWallet and making it a no-brainer for consumers that turn to us directly for their financial product needs. Already, we've seen that our active registered users peaked us more than 3 times a month on average, signaling the potential value of our registered user base. In Q1, we drove a significant increase in registered users, which we attribute to work in areas such as optimizing and registration prompts as part of our larger insurance shopping funnel. We also continue to relentlessly improve how we reengage users over time. Much like our vertical integration works in SMB [indiscernible] consumers to the right experience for them, our CRM work is focused on increasingly personalized campaigns that match registered users with content and offers tailored to their profiles. I am proud of our results in Q1 and the progress we've made toward our vision for consumers. Elevated delinquency rates and high interest rates are contributing to a tough lending environment despite seemingly positive economic indicators. We believe these are normal cyclical dynamics, so we are focused on the long term to grow from cycle to cycle. In the meantime, I'll pass it over to Lauren to provide a financial update.
Thanks, Tim. We ended the quarter above the high end of our guidance range, delivering Q1 revenue of $162 million, down 5% year-over-year. We remain in a cyclically depressed lending environment affecting interest rate sensitive areas such as loans and balance transfer credit cards. Our first quarter results showcase early signs of growth recovery being in sight, led by both insurance and SMB verticals. Let's take a deeper look at the revenue performance during the quarter within each category. Credit cards delivered Q1 revenue of $50 million, declining 19% year-over-year. As we've spoken about previously, last year's regional banking crisis drove increased balance sheet constraints and issuer and services them. We believe these dynamics are temporal rather than structural, but they continue to weigh on our Q1 year-over-year results. We still saw our seasonal cadence of a quarter-over-quarter increase from Q4 to Q1. While issuers remain conservative in balance sheet-intensive areas such as balance transfer cards, consumer demand for products remains high. This gives us confidence that we will see an eventual recovery as issuer appetite returns. Loans generated Q1 revenue of $21 million, declining 3% year-over-year. Our personal loans vertical grew 12% year-over-year during Q1, a deceleration versus Q4 as we have not yet fully recovered from the pullback that began last quarter while we worked through some of the growing teams and scaling with new audiences and partners. We still believe that there is a backlog of consumer demand in personal loans as high loan rates have reduced the incentive for consumers to refinance credit card debt. While we do not expect to return to revenue levels from last year in the near term, we will continue to invest in this vertical in anticipation of an improving lending environment. We expect that macro changes, combined with leveraging our improving ability to align consumer demand more effectively with financial services providers will put us in a prime position to take advantage of demand as it surfaces. We are also optimistic that structural improvements we've made to our mortgage marketplaces will help us capture meaningful share and the housing market recovers. As a reminder from last quarter, we recently changed our revenue product category presentation and are now providing SMB products revenue as a separate disclosure. SMB products consisting of loans, credit cards and other financial products and services intended for small and midsized businesses, delivered Q1 revenue of $30 million, growing 21% year-over-year. SMB loans remained pressured by elevated rates and tighter underwriting, but we continue to drive growth with our diversified product offerings for small and midsized businesses in areas such as credit cards, banking and software. We believe this serves as a further proof point that we have a substantial runway of additional subcategories outside of SMB loans that can provide tailwinds over the long run. Finally, our emerging verticals formerly named our other verticals revenue product category finished Q1 with revenue of $60 million, declining 2% year-over-year. As a reminder, after the regrouping of SMB products revenue, emerging verticals consist of areas such as banking, insurance, investing and international. Banking declined 9% year-over-year as we wrap our toughest comparison period in 2023, but grew versus Q4, which we primarily attribute to our seasonal cadence. Despite the recent moderation of consumer demand, we expect to eventually reach a new normal in our banking vertical as demand remains higher than it was in a 0 interest rate environment. The decline in banking was partially offset by growth in investing due to recent stock market strength, combined with the resurgence in our insurance vertical. Despite tough comps in the prior year, insurance revenue grew 5% year-over-year in Q1. We remain optimistic that the end market will continue to improve, assuming inflation remains stable. Moving on to investments and profitability. During Q1, we earned nearly $11 million of non-GAAP operating income at a 7% margin, a 4 point increase versus the prior year, primarily driven by leverage and brand marketing as we continue to optimize our investment levels, which began during the latter 3 quarters of 2023. We also earned over $25 million of adjusted EBITDA at a 16% margin. In the first quarter, we had GAAP operating income of $3.7 million and net income of $1.1 million, which includes a $3.7 million income tax provision. Similar to what we've mentioned in previous quarters, we expect to be a cash taxpayer for the foreseeable future. Please refer to today's earnings press release for a full reconciliation of our GAAP to non-GAAP measures. Consumers continue to turn to the nurse for their money questions. We provided trust for the guidance to 29 million average monthly unique users in Q1, up 25% year-over-year. Growth was a result of strength in many areas across NerdWallet such as investing, travel, taxes and insurance. We are seeing consistently strong consumer demand for both our learn and shop content, though our learn content has been a larger portion of where consumer demand has more recently concentrated, causing higher MUU growth with some pressure on revenue per MUU. Growth in areas such as investing was bolstered by interest in the stock market as well as Bitcoin stream, and insurance saw rising premiums drive more consumers to look for the best options for them. Despite these near-term monetization pressures, more MUUs engaging with our learn content and coming to us during specific macro events, build our brand recognition and trust and compounds the value of our franchise over term. On to our financial outlook. Similar to what we discussed last quarter, we believe that we have line of sight to returning growth in Q2. We will continue providing quarterly guidance along with a mix of quantitative and qualitative commentary for full year expectations. We expect to deliver second quarter revenue in the range of $147 million to $152 million, which, at the midpoint, would increase 4% versus prior year, but decreased sequentially roughly 8%, somewhat larger than our normal seasonal cadence. To give you more color on our Q2 expectations, the primary driver of the larger than normal seasonal decline from Q1 to Q2 is that banking demand continues to moderate. In addition, we are still facing tight lending conditions across both credit cards and loans. Given the material increase we've recently experienced in insurance revenue, we expect to see a return to much higher year-over-year growth in Q2 as comps get easier. We are also seeing continued momentum in SMB products. As we look to the rest of the year, we remain confident in our ability to return to double-digit revenue growth at some point in the second half given recent recovery in SMB products and insurance. But the timing of the recovery in areas such as balance transfer cards, combined with how potential interest rate movements will impact inversely correlated demand in banking and loans remains uncertain and will ultimately influence how high those double-digit growth rates will be. Moving to profitability. We expect Q2 non-GAAP operating income in the range of negative $1.5 million to $1.5 million. We began to pull back on our brand investment during Q2 of 2023 and are not expecting to see the same level of year-over-year margin accretion during Q2 this year as previous quarters. We are still facing headwinds in monetizing portions of our organic traffic, including areas such as balance transfer credit cards. And as we start to see tailwinds in areas such as insurance and SMB, normalizing demand from financial services providers should result in more paid traffic acquisition. As we've mentioned in the past, we view paid marketing as a means to an end, and we'll continue to spend in a disciplined manner with the aim to be paid back within the quarter in which we spent. Compared to Q1, non-GAAP OI will be lower sequentially due to a larger than seasonal decline in revenue, partially offset by lower brand spend. We will also have planned increases in employee engagement costs, including a biannual employee event, which will have roughly a 2-point margin impact in the quarter. We are reiterating our full year guidance for 2024 margin expectations. Given recent economic data, which indicates continued inflationary pressures, we believe where we fall in these ranges will depend on the pace of improvement in the lending environment. Aligned with our previous full year guidance, we expect non-GAAP OI margin of approximately 6.5% to 8% of revenue and adjusted EBITDA margin in the range of 18% to 19.5% of revenue. We're proud of the results we've delivered so far this year and remain optimistic about the future. Our growing consumer mind share, which solved strong traffic and brand signals give us confidence that as macroeconomic conditions recover, our ability to meet consumer needs will strengthen our long-term positioning. With that, we're ready for questions. Operator?
[Operator Instructions]. And our first question is going to come from the line of Justin Patterson with KeyBanc.
Lauren, you had called out the growing the challenge within the balance transfer product. And I know last quarter, you had some going tanshin near prime consumers. Could you talk about just some of the efforts you're taking to mitigate those issues and how we should think about that recovering?
I'm actually going to hand that question over to Tim to talk a little bit more about personal loans.
Great. Thank you very much. Yes, Yes. So we're still working through the issues we mentioned last quarter as we're scaling in the near and subprime market. So as I previously discussed, when you go into a market, sometimes it takes a few cycles to get the routing and matching, right? So we did rebuild some of these consumer experiences and we're scaling back up with some of the lenders in this space. So we want to get this right for consumers and lenders to create that win-win and we feel we're on the right path here.
Got it. Now with respect to just home services, you called that out as an example of product velocity and reporting assets. Would love to hear a little bit more about just the efforts to scale that category and then get some new ones like Social Security, Medicare up and running.
Yes. So we've got a playbook in our land and expand, it tends to lead with creating quality content in these categories and then really matching consumers with the best products out there. So nothing too different. We're -- after we do this over and over again, we're getting more efficient at launching new verticals a bit more efficiently over time. So that's what we're calling out.
And it looks like our next question is going to come from the line of Ralph Schackart with William Blair.
Just first, maybe a little bit more color, if you could, on the commentary around double-digit growth in the second half. Is that sort of like on a consolidated basis, would each quarter grow double digit? Would it accelerate? Just any comments on that? And then I have a follow-up, please.
Sure. I'll take that piece. So just to reiterate, first for the guide for Q2 revenue, we said that our expectations are $147 million to $152 million, growing 4% year-over-year at the midpoint. We also said that we expect to return to double-digit rates of growth at some point in the second half. And this is led by the strength that we're seeing in SMB products and insurance. So we have not clarified exactly when we expect those double-digit growth rates to kick in, but we know given the strength in those 2 verticals, in particular, that we're confident that we will get there. We also did want to call out that the timing of recovery in areas such as balance transfer cards as well as any interest rate-driven demand changes in banking and loans is going to influence how high those double-digit growth rates will be.
Great. That's really helpful. And just on the brand campaign, you've seen really good results, and I think spending was down about 30% from the letter. Has that sort of reshaped your thought process on spending on brand campaign? Was that sort of just a temporary phenomenon in 2023? Just kind of curious how you think about that spend going forward?
Yes. So we're really proud of some of the learnings and efficiency we've driven there. Yes. Naturally, in an environment where it's tougher to monetize, we look at those return hurdles, and we'll make some adjustments. So that's some of what you saw over the past couple of quarters. But yes, we're also still relatively new to this. We're very data-driven. So given 2022 is the first full year we ran brand campaigns, we're getting better at things like created and list channels. And so we're very ROI-driven there, and we'll make adjustments up or down there. As of now, we say that for the full year '24, the guidance does assume a slightly lower amount of spend versus last year, but we're going to reserve the rate to flex that up and down depending on a variety of factors.
Our next question comes from the line of James Faucette with Morgan Stanley.
It's Michael Infante for James. Tim, I know you called out elevated delinquency rates contributing to a tougher lending environment. But if I look at the pace of year-over-year deterioration in delinquencies across the card issuers and banks that we track, it seems like it's slowing across the majority of those issuers, i.e. getting slightly better. So I'm curious how you're thinking about the time at which issuers may start to more aggressively want to acquire new customers.
Yes. Thanks for the question. It's a good question. We think that the delinquencies and ultimately the delinquencies are a leading indicator, right, in terms of when issuers should start getting more aggressive. The bigger transfer players are also a bit balance sheet constrained beyond just the credit risk part of it. And so we've been through a few cycles like this in the past. So past experience tells us that this is pretty historically abnormal for this to persist. It tends to revert over time. So it's hard to call the exact timing on when that happens. And yes, it's really about investing through the cycle, we're still only single-digit market share in overall card originations and see ample opportunity to grow that by doing things like registering more users, reengaging them and increasing our conversion rates. So we're focusing on the line on.
Appreciate that. That's helpful. And then maybe just on the NerdWallet card, I know we're obviously very early in the product journey, but this is obviously an important customer acquisition to more broadly. So I'm just curious if you could give us a little bit of color just in terms of how traction has trended thus far.
Yes. So for right now, I'd say it's early days. It's on the right track. I just want to reiterate the goal here is, as you mentioned, help consumers build credit history, engage them and get them graduated into unsecured products. So yes, we're seeing improvements in things like credit scores, we're seeing good engagement. And so we're pretty happy so far.
And our next question is going to come from the line of Jed Kelly with Oppenheimer and Co.
Just going back to some of the paid marketing comments, given that you're having good brand awareness and all the engagement you're having on the non-monetizable traffic, can you just talk about how we should think about sort of the cadence as you think about performance marketing this year? And then in terms of the content that there's like users that are reading content and not monetizing, what type of products or what type of education and articles are they reading?
Sure. I'll take the first piece of that around paid marketing. So first off, we think both brand and paid and our organic channels all complement one another. And because 70% of our traffic comes through organic, we've been able to reinvest in more acquisition channels like brand and performance. We operate performance marketing in a disciplined way, aiming to be in quarter profitable, adding incremental non-GAAP OI dollars. And we've said this for a while, but we really do think of performance marketing as a variable expense that we will dial up or down depending on returns. And we also view this as a means to an end as part of our registration and engagement initiatives. So we'll continue to be prudent, but we see increased spend as a positive as performance marketing is a flexible lever to add incremental non-GAAP OI dollars. We get more folks the opportunity to register and it helps us to continue to take share.
Yes. And then on the non-monetizing MUU piece, you definitely have categories where we're just a bit newer. Some of the new markets we mentioned earlier, sometimes we haven't really set up commercial relationships. There's areas like travel and taxes, where we have a lot of informational content that doesn't necessarily monetize. So it kind of varies and especially through the news cycle. I mean, when things like investing or crypto take off, there's parts of that content that also doesn't monetize as well.
And then just one follow-up. As your insurance segment gets bigger, your insurance revenue gets bigger, can you give us any feedback on sort of the customer experience is having relative to your other products?
Yes. I mean I think what you may be referring to is that sometimes in the industry, some of the insurance experiences don't have a great customer feedback score because if phone numbers being sold to multiple brokers, we really trying to minimize that. We're working hard to ask people more questions up front, really match them to the right provider. And so it's a journey, but it's very important for us to keep on investing in that and keep on improving that quarter after quarter.
Our next question is going to come from the line of Peter Christiansen with Citi.
Thanks for the question. I go back to your thoughts on credit cycles and I recognize every each criticize was different. But I guess in previous cycles, while you're still growing organic traffic, when partners do come back, do they come back to spend levels that match your traffic levels currently? Or is it really at their own pace do they start coming back to follow?
Yes. I'd say historically, you tend to have partners on the credit card side, one, all of the qualified lending demand that you can give them. And so because yes, loan balances that are high quality or revenue, right? So historically, that [indiscernible]. When you go into one of these credit crunches, sometimes you see people pull back on how much volume there -- how much volume appetite they have. And so we've been seeing some of that. And so we think that's historically abnormal. We'd expect kind of at some point to return to a more normal dynamic there.
That's helpful. And then there's been some M&A on your partner side legally. I know you guys are very, very diversified on the partner side. So I'm not really asking about issues there. But can you just walk through what you typically go through on that process? Do you have to kind of rewin your contract with that -- with the new established partner? Or are there any other dynamics that we should be looking.
Yes. It's hard to say, again, we don't have too much precedent for something like this. But yes, typically, their products can be quite different, especially across the prime portfolios quite complementary. And so we think that there wouldn't really be a need to rewin a major issuer. We also tend to work with all the large players. So we have pretty good coverage. I think our value proposition in terms of highly qualified consumers that understand the products is pretty compelling. So we tend to work with most people.
And I'm showing no further questions at this time. And I would like to hand the conference back to management for closing remarks.
All right. Thank you all for the questions today, and thank you also to the nerds who commitment to our consumers and our vision delivers all of our results. So with that, we'll see everyone next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect.