Good day, and thank you for standing by. Welcome to the NerdWallet Inc. Q1 2024 Earnings Conference Call. [Operator Instructions]. 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…

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…

[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 growing pains, smashing sub and your 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.

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's intact. 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.