Good day and thank you for standing by. Welcome to the NerdWallet Q1 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin MacNamee, Head of Investor Relations. Please go ahead.

Thank you, operator. Welcome to the NerdWallet Q1 2023 earnings call. Joining us today are Co-Founder and Chief Executive Officer, Tim Chen; and Chief Financial Officer, Lauren StClair. Our press release and shareholder letter are available on our Investor Relations' Web site, and a replay of this update will also be available following the conclusion of today's call. We intend to use our Investor Relations' Web site 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. With that, I will now turn it over to Tim Chen, our Co-Founder and CEO of NerdWallet. Tim?

Thanks, Caitlin. We started the year off strong here at NerdWallet, despite continued macroeconomic volatility from uncertainty around student loan forbearance to rising interest rates to first and second order effects from regional bank failures. In Q1, we reported revenue growth at the high end of our guidance range and exceeded our guidance on adjusted EBITDA. Given the current economic climate, I'd like to take a few moments today to reiterate NerdWallet's approach to building our business and creating durable value for consumers and shareholders. Historically, we've taken a long-term view. To us this means prioritizing consumer trust, while continuing to diversify and improve our product experiences throughout the credit cycle, even in verticals facing headwinds. This is aligned with our relentless self improvement value, or shared commitment to continuously raise the bar for ourselves, our consumers and our shareholders. Over time, this approach has established our brand as a trusted one-stop shop, which in turn has lowered our volatility across the cycle. In this period of heightened uncertainty, we will maintain our long-term orientation. Practically, this means we invest both in areas with immediate payback, like banking and in areas with future payoff, like loans and brand marketing. But we will right-size these investments to stay flexible in a lower visibility macro environment. For instance, we still expect to run brand campaigns with a similar cadence to last year, though we now expect our full year investment to be less than it was in 2022. The improved profitability will give us more flexibility to be opportunistic. We achieved our Q1 results despite underlying volatility across our verticals. The macro pressures impacting some verticals were offset by growth in others, a testament to our diversification and ability to execute against our strategy. We saw inverse correlation in certain verticals with…

Thanks, Tim. While there may be some near-term macro pressures within certain verticals of our business, we once again saw that our diversification and execution have provided us meaningful growth tailwinds. We delivered Q1 revenue of $170 million, up 31% year-over-year and at the high end of our guidance. Now let's take a deeper look at the revenue performance during the quarter within each category. Credit cards delivered Q1 revenue of $61 million growing 36% year-over-year. Our credit cards vertical had a good start to the year, capitalizing on strength that we typically see coming out of the holiday season, combined with our Best-Of Awards, as well as our Q1 brand campaign. We also saw a continuation of the partner tightening that began in the second half of 2022 as a more cautious sub and near prime underwriting environment. This conservatism has started extending to products typically targeted to prime consumers as well, as card issuers approach the second order impacts of regional bank failures with caution. We feel confident in our ability to continue to deliver high quality matches to our partners. Though consistent with what we said last quarter, we expect to see growth deceleration this year. Loans generated Q1 revenue of $22 million declining 36% year-over-year. Our mortgage vertical saw another quarter pressured by the heightened interest rate environment, as we're lapping what was still a relatively strong period during the first quarter of 2022. And while we are still seeing the benefit of the acquisition of OTB in personal loans, the current macro environment has shown further credit tightening pressures. As a result, we've seen decelerating growth from our partners, combined with lower consumer demand as interest rates rise. We will continue to be disciplined in our growth levers within challenged verticals, but remain committed to…

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions]. Our first question today comes from the line of James Faucette from Morgan Stanley. Your line is open.

Thank you very much. Thanks for the questions here and all the detail. I guess first thing is that if we think about the overall macro environment, and clearly like what's happening with some of your partners, how much of an impact are you seeing from a reduced -- to your outlook and the way that you're trying to manage the business, are you seeing from kind of just reduced demand for accounts versus pricing, et cetera, just trying to get a handle on what the different components of that are?

Yes, I'll take that one. So on the partner side -- well, I'll start off on the consumer side actually. Things are robust. We're seeing record brand awareness, strong MAU trends. On the partner side, lenders had already been tightening throughout the second half of 2022. So going into Q1, the environment was already pretty tight. That was pretty much across the board, both in terms of pricing and tighter underwriting. After the regional bank failures in March, we saw a step up in that tightening. So we don't think the tightening we're seeing here is driven by a step up in credit deterioration. That's really more related to increasing concerns that capital is going to be harder to come by for banks, which is leading to a lot of caution. And so in terms of capital being harder to come by, it's things like we just had a recent round of bank earnings. There's caution around what reduced regional bank lending does to the broader economy. There's also concerns with regards to commercial real estate exposure. Both large and regional banks are expecting regulators to increase capital requirements in the future. And all of this is creating an environment where banks are more cautious about deploying capital in May than they were in February. And so that's kind of where you're seeing both underwriting and pricing affected a bit. There's a wide range of possible outcomes. As we look forward, we could see a snapback. We could see things stay weak for longer if the regional banking issues persist for a long time. If unemployment is worse than expected, say, it's largely expected that we're going to reach 5% exiting 2023, if you talk to lenders, right? Then that could create more incremental tightening. So overall, I'd say we're facing headwinds, but have the flexibility to navigate a wide variety of scenarios.

Got it. I appreciate that. And then, Tim, I want to ask you. You've always been really forward thinking in terms of how to deal with changing markets and technology, et cetera. With the rise in awareness of things like ChatGPT, et cetera, how do you think about that both as risk or as well as potential benefit to NerdWallet and how you try to both inform consumers and work with your financial partners?

Yes. So we talked a little bit about this last time, nothing materially different. I'd say the two areas we think a lot about are first how it might be used to evolve search engines? And then the second is how it will enable consumer innovations like democratizing access to personalized financial guidance, how do we make our products better, right? So in terms of the search engines and how they evolve, we think generative AI will make search better and extend its capabilities. So the two will blend together taking the best from both. I think AI is going to really improve the scope [ph] and frequently asked questions where search is going to be pretty hard to beat for simple, factual questions. And then I think we'll continue to see highly specialized apps in marketplaces for things that require personalization and real-time pricing, like looking for a loan. So from a consumer products standpoint, what we're really excited about is how AI will help us improve our user experience. So as I mentioned last quarter, you need to have hundreds of thousands of dollars in investable assets that justify a financial advisor's time. So in AI trained on our first party data, our marketplace data and our house views can really help us democratize access for a lot more people.

That's great color. I appreciate that, Tim.

Thank you for your question. Our next question comes from Jed Kelly from Oppenheimer & Co., Incorporated. Your line is open.

Great. Thanks for taking my question. Just can you touch on how we should think in this environment with where we see tighter underwriting, sort of how your performance marketing margin should work? I would imagine there'd be less marketing competition. So would we actually see your performance marketing margins go up? And then just on insurance, seems like you're less impacted than some of your competitors. Can you just talk about the outlook on how you think about insurance? We recently saw an insurance company get acquired. Just can you talk about the outlook for that segment? Thank you.

Thanks, Jed. I'll start with your question around performance marketing, and then I'll hand it off to Tim to answer your question around insurance. So for performance marketing, I'll just take a step back and remind everyone, 70% of our traffic comes through organic channels. And over time, this has actually allowed us to diversify into new channels, such as performance marketing. And we really think about performance marketing as a variable expense that we can dial up, or we can pull back as needed depending on return. And we also think about performance marketing as a means to an end as part of our registration and engagement initiatives. And as we create more seamless registration experiences and start connecting more first party data, we're able to proactively nudge our users to make smart money moves. So in Q1, you saw that we're able to continue our pace of investing and growing users through these channels. And we'll continue to lean in, in 2023 as we see opportunities. At the same time, we're also able to dial back in short order, as needed. And so I think there's really sort of two stories here, Jed. I think on the first one, yes, as we see less consumer demand, we'll absolutely pull back as well. And as we see potentially different dynamics with partners or competition that can also help us determine the returns that we're getting. But in other areas, we will continue to lean in where we see good returns. And so net-net, we'll continue to be disciplined in how we think about our performance marketing. And we'll make sure that we're getting the returns that we expect.

Yes. So the two questions are at least a little bit related. In insurance, when we improve our products for our consumers, when we increase that personalization, it helps us out in performance marketing as well, right? In terms of this quarter in insurance, we're able to grow revenue over 100% year-over-year. It was really driven by the industry starting to normalize, but also due to that new auto insurance marketplace we talked about. Going into Q2, yes, some of the profitability concerns from carriers resurfaced. So it's creating some short-term headwinds. And so we're expecting quarter-over-quarter declines going from Q1 to Q2, and we called this out in our revenue guidance along with cards is the revenue headwind. We don't have great visibility into how long these headwinds last. What we're really focused on is continuing to invest in that better user experience so that we can capitalize as carriers work through these issues and return to market.

Got it. And then just as a follow up, you're implementing the stock buyback. Can you just talk about how you're balancing share repurchases versus potential attractive M&A, given if valuations come down? Thank you.

Yes. Thanks, Jed. So I'll just remind everyone as capital allocators, we're always evaluating opportunities for long-term value creation. We can decide between internal organic investments, M&A, and also now returning capital to shareholders. And we believe that giving ourselves the flexibility to make the best decisions for capital allocation is the right choice for NerdWallet as well as shareholders today. And the authorization that we just put in place provides us that optionality to be opportunistic during the right conditions. We've mentioned in the past that price is a key factor in any decision we make. And we'll take that same pragmatic approach with any of the levers that we're able to deploy when it comes to allocation, and that includes both M&A and now share repurchase.

Thank you.

Thank you for your question. Our next question comes from the line of Justin Patterson with KeyBanc Capital Markets. Your line is now.

Great. Thanks. Two, if I can. First for Tim, how do you think about the right levels of investment to continue gaining share and coming out of this period stronger for when market conditions normalize? And then Lauren, as a follow up to that, how should we think about the guardrails that are in place to ensure EBITDA margin expands to this year? Thank you.

Yes, thanks for the question, Justin. In terms of the right investment level, I'd say we've got irons in the fire. We're investing in quite a number of longer term ventures. We're investing in brand marketing. These are all investments that don't necessarily optimize for in-quarter payback, right? So I think it's absolutely essential that any company operating well bounces between more short-term investments versus venture investments on an ongoing basis, and funds those venture investments from core operations.

Yes. And on your question on adjusted EBITDA margins, we're really proud that the business that we have has a ton of operating leverage. And that's allowed us to opportunistically invest in many areas of the business. And we're also able to be flexible in what we're investing in. And so in the short term, we said that we expect to continue to spend on brand, but that we will pull back relative to last year slightly as we go through some of this more uncertain times. We'll also be very prudent in our use of performance marketing. And as we said, we'll lean in when we see great returns. But we can also pull back in short order when we see consumer demand or partner demand changing. Over the long term, though, we've talked a lot about how much leverage the business has and that our expectations are that we're going to return to and eventually surpass our 2019 levels. And I'll just remind everyone, again, on a couple of the levers that we have. So one, over time, we believe we hit a logical ceiling in our brand spend and so that becomes a true fixed cost. The second is around our registered users and overall engagement on the site and how that will make all of our acquisition channels more effective. We also don't expect to have the step up change in expenses as a result of becoming a public company. And then we've talked about more recently continuing to gain leverage as a result of our maturing cost base. And we said that in areas like R&D over time.

Thank you.

Thank you for your question. Our next question comes from Youssef Squali - Truist Securities. Your line is open.

Great. Thank you very much. Good afternoon, guys. So maybe a couple of questions. For starters, can you maybe just provide a little more color on linearity of demand throughout the quarter? I think when you reported Q4, it was early to mid February and back then I think you hadn't seen the tightening that you're now talking about. Was SVB kind of the catalyst that you felt kind of turned things around in terms of maybe demand, obviously, with the backdrop of rising rates, or was there anything else? And kind of how did April trend for you?

Yes, so I'll take that one. Short answer is yes. SVB was a major catalyst for a step up in some of that tightening. I think definitely saw at that point what I perceived to be some partners really reevaluating their internal priorities. And so hence, yes, the timeline you outlined, end of March real step up in tightening sounds right.

Okay. And then assuming that continues obviously into April, maybe just a quick follow up to Lauren. Within that 10% growth that you've outlined for Q2, I was wondering if maybe you can unpack that a little bit and help us kind of gauge your expectation for growth in credits versus loan versus others.

Yes, sure. I'll give a little bit more color. So one of the things that I did call out in my prepared remarks is that from Q1 to Q2, we tend to see a low single digit decline quarter-over-quarter, and that's part of the normal seasonality. And for this Q2, as you can see in our top line guide, we're anticipating outsized deceleration in a couple of areas. So first one I'll call out is credit cards. So we expected slower growth for the rest of 2023 as a result of tougher comps from recovery and pricing. We're now seeing more partner conservatism, which we expect to impact both pricing and a bit of tightening of the risk model. The second area I'll call out is insurance. And we still expect growth. But as Tim mentioned, the carrier profitability issues are arising again. And so we think that that's going to put more pressure as we think about Q2 and to the rest of the year. We talked a little bit about banking. That continues to perform. But given we're in unchartered territory, we do expect things to start slowing. And then lastly, we don't expect much change across the loans category. But given that comps will start getting easier, we do expect slightly better growth, but we don't expect material changes to that business overall.

Great, that's helpful. Thank you, both.

Thank you for your question. Our next question comes from Ross Sandler with Barclays. Your line is open.

Great. Just a follow up to the mix [ph] question just asked. So it seems like banking and deposit revenues are north of 30 million at this point in the first quarter. And so even though that's growing very strongly, it's not large enough to offset the declines that you're going to see in credit card and insurance into 2Q. So I guess if that's the case, like two questions. One, why would deposit or banking demand slow down, as you just said, when it seems like consumers are still freaking out about where to put their money every day? And then second, what would it take to see the big one, the credit card weakness start to turn up? I think you talked about unemployment as a kind of indicator for willingness to acquire new customers, or not from your credit card issuer or partners, but we're in a different dynamic now. So is it just going to be like loosening of credit conditions sometime down the road, or what would be like early signals that credit card could start to turn up for you guys? And then I got one follow up.

Yes. Okay. So in terms of banking, we're in uncharted territory. So really, we're 14 years old. Until last year, the cost of capital has been pretty dirt cheap for banks. So to your point, yes, in 2023, if you're paying 0% for a savings account, you're going to lose a lot of depositors. So if it stays like that, even if rates come in a little bit, we'd expect a healthy ongoing business relative to prior years as deposits become more valuable to banks. If we go back into a world at zero rates, again, we'd expect more of a reversion to prior levels. But there'd also be that big offsetting pickup in things like refi, right? So I guess -- I'd just say we're in uncharted territory there. So trying to apply that lens to how we're looking at the future. On the second question on credit card weakness, I think a lot of this skittishness is just really hard to forecast, right? So we're seeing what we think are partners walking away from business they would normally be excited to underwrite. I think some of it is being driven by things like the scarcity of capital or being unsure what's going to happen with banking regulations on capital ratios as we go forward. So I think it's possible that we see a snapback. It's also possible that we see things drag on a bit longer. So those are kind of how we think about those dynamics.

Got it, that's helpful. And then on the cost side, so the proactive reduction in brand and performance marketing that you talked about, do you feel like that's going to actually have any impact on traffic, given the heightened kind of organic awareness that's going on right now around NerdWallet? And then do you feel like that marketing reduction is sufficient enough to sustain these margins going up for '23, like you just guided to or is there other things that need to come into the fray later this year? That's it for me. Thanks a lot.

Yes. So in terms of the reduction in brand investment, I'll just sort of remind everyone, we're still spending quite a bit on brand. And so we feel good about the level in investment, awareness and all the other positive signals that we get from our spend in that area. So while we are reducing it, we are still spending. And so we think that's the right -- appropriate amount of investment. In terms of sort of throughout the year, we do feel like there is flexibility. And we do feel like we have all the levers at our disposal to help to maintain those margins, despite some of the uncertainty on the top line.

Yes. I'd also call out cycles are inevitable, and we've always planned accordingly. I think for us, it's always meant staying disciplined when things are really good. And it also means maintaining dry powder so that we can be opportunistic. So if you look back, you'll see that we have a lot of agility on our costs. Second half of '20, for example, we're able to scale back our marketing investments and drive 10% adjusted EBITDA margin in a really rough period post pandemic. So, yes, feeling overall pretty good that we should be able to adapt to these conditions.

Thank you.

Thank you for your question. Our next question is from Ralph Schackart with William Blair. Your line is open.

Great, thanks. Maybe just extension of Ross' question on expenses, Tim, I think you talked about still wanting to lean in and invest in some projects during the downturn to be stronger for when the macro eventually turns. But I also wanted to ask, are there some certain projects now that you've scaled back on and/or have I guess maybe put to the side waiting for a bigger macro -- better macro environment to also kind of help offset the reduced outlook on the top line? And then just to follow up, Lauren, I think you talked about growth being lower than 2022 and certainly lower than Q1, and you had some comments about 2023. Would you mind just sort of repeating I guess what you said on growth for 2023? Thank you.

Yes, so short answer is we really haven't scaled back on any of our venture projects. The area we pulled back on brand has a longer term payoff. So it gives us a lot of short-term flexibility. So haven't felt that need.

Yes. In terms of the 2023 revenue growth, so as I mentioned, we're not providing full year guidance. But because of our diversification, we're confident in our ability to execute. And so we feel good as we think about 2023 despite some of the uncertainty that we talked about. We did say though for full year 2023 or qualitatively is that we are still committed to improving our adjusted EBITDA margins on a full year basis relative to the prior year.

Okay. Thank you.

Thank you for your question. Our next question is from Pete Christiansen with Citi. Your line is open.

Good afternoon. Thanks for the question. I'm curious, I guess when banks are tightening, when one part of providers are tightening their standards, that translates into a lower match rate or bounty rate, I guess. I'm not sure if you've experienced this level of degree of tightness before, but does that in any way manifest into attrition on the MUU front at all? If you're seeing people being rejected for products that they're applying for, is that a potential factor for attrition?

Yes, so the short answer is no. Yes, we're seeing record levels of everything from brand awareness, MAUs are growing healthy, those trends are really positive. On the margin, some group of people who previously would have qualified for one product might be trading down to another in terms of their option set, whether we're talking about consumer or SMB, but that need for financing remains and is real. So for us, it's just most important for us to give people the best possible option that they can get at that point in time. So that's really what we're focused on.

Yes, and I'll also just add. As we think about users coming to our site, they come for a number of reasons. Tim talked about they're coming to shop for financial product. There's a lot of folks though that come to the site to learn and to educate themselves, especially during uncertain times. And so some of the dynamics with our partners, right now we're not seeing that on our consumer demand or trends in terms of traffic to site.

Thank you both for clearing that up. Just one last one. Lauren, you commented that overall revenue growth should outpace MUU growth in the year, which I think makes sense. But aside from mix, can you talk about some of the -- at least qualitatively some of the dynamics you expect to see throughout the year in terms of match rate and I guess, overall, like ASPs or pricing? Is it match rates declining, but pricing I guess relatively stable or down less?

Yes, so I'll just maybe go back and remind everyone. What we said last quarter is that MAUs are still growing, but we expected them to grow slower than revenue, as we continue to see the benefits of conversion improvements and then also pricing, although pricing to a lesser extent as we move throughout this year. And so as we just talked about consumer demand still remain healthy and traffic to our site remains healthy. And Tim talked about some of the dynamics with tightening that we're seeing in some of our partners. We do anticipate that will impact some of the conversion rates and things like that, and also potentially pricing as well.

Okay. Thanks for clearing that up. I appreciate it.

Thank you. Our next question comes from James Faucette from Morgan Stanley. Your line is open.

Hi. Thanks for the follow-up question. I just want to ask a quick follow up on the qualitative commentary for the rest of '23. I know that you just repeated that you expect to be able to show EBITDA improvement in the second half of the year. It makes sure I understood that that's on a year-over-year basis and in each quarter in the second half. And did you make a comment around revenue and revenue growth? I thought I heard in the prepared remarks that maybe you were targeting something -- you were targeting growth, but maybe less growth than you saw in the first quarter. Can you just make sure I understood those things correctly?

Yes, sure. Let me start with the revenue piece. So yes, what we said is that we expected revenue growth to decelerate relative to last year as well as to Q1 of this year. And then in terms of adjusted EBITDA, what we said is that we expect to show margin accretion for adjusted EBITDA for the full year of 2023 relative to 2022. And we also gave a little bit more color around a little bit of the quarterly variability. So we said we still expect to continue to spend on brand, although pull back a little bit, but spending on brand in Q1, Q2 and Q3, and therefore, we expect the adjusted EBITDA margins to be lower than those in Q4.

Got it. And then just on that, I'm guessing now second half of the year, even though you're expecting deceleration from what we saw in the first quarter, does that -- should we take from that that you expect though to still be able to grow in the second half of the year? Or is that still a little tough to say, and instead you're just kind of planning on managing expenses to make sure that you hit your EBITDA objectives?

Yes. So we haven't guided to the full year on revenue. As Tim mentioned, we do have lower visibility now than we've had in the past. So we are really focusing on areas that we can control. And so we'll continue to invest for the long term, but also manage for the right level of investment in the short term as well.

Great. Thanks for that clarification, really helpful.

Yes, absolutely.

Thank you very much for your questions. I would now like to turn it back to management for closing remarks.

Great. Well, thanks all. Before we wrap up, I want to thank our Nerds for their hard work this quarter. While certain macroeconomic conditions are inevitable in the near term, we will remain flexible positioning NerdWallet to find opportunities to serve our consumers and SMBs, grow our business, and move closer to our vision of being a trusted financial ecosystem. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.