NerdWallet, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited, compared with the three months ended March 31, 2022. NerdWallet operates a consumer personal-finance platform connecting consumers and small and mid-sized businesses with financial-product providers.
Financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $169.6 million | $129.1 million |
| Operating income (loss) | $(0.8) million | $(9.1) million |
| Net income (loss) | $1.7 million | $(10.5) million |
| Diluted EPS | $0.02 | $(0.16) |
| Adjusted EBITDA (non-GAAP) | $20.9 million | $8.9 million |
| Operating cash flow | $16.4 million | $1.6 million |
- Revenue rose 31% year over year. Credit cards revenue increased 36% to $61.3 million; loans fell 36% to $22.0 million; other verticals grew 74% to $86.3 million.
- Operating margin was approximately -0.5% versus -7.0%; net margin was approximately 1% versus -8%. Adjusted EBITDA margin was 12% versus 7%. The filing does not report gross profit or a gross margin.
- Total costs and expenses increased 23% to $170.4 million, including sales and marketing expense of $121.7 million, up 27%. Stock-based compensation was $8.6 million, versus $6.5 million.
- Operating cash flow improved to $16.4 million. Investing cash outflow was $7.6 million, mainly reflecting $7.3 million of capitalized software development costs. Financing cash inflow was $8.1 million, including $8.4 million from stock-option exercises; the company also drew and repaid $7.5 million on its credit line.
- Cash and cash equivalents were $100.8 million at quarter-end, up from $83.9 million at December 31, 2022. Total liabilities were $90.3 million and stockholders’ equity was $361.8 million.
Changes, outlook, and risks
- Revenue growth came from credit cards and other verticals, partly offset by weakness in loans. Mortgages revenue declined 57% and student-loan revenue declined 46%, which management attributed to higher interest rates and macroeconomic headwinds. Personal-loan revenue increased 8%, incorporating the 2022 On the Barrelhead acquisition.
- Management reported 23 million average monthly unique users, up 7% year over year, supported by banking and travel engagement and the OTB acquisition; mortgage and investing declines partly offset growth.
- No specific revenue or earnings guidance was provided in the supplied filing text. Management expects to invest in personnel and the business, and believes cash, operating cash flow and credit-facility access will meet liquidity needs for at least 12 months from the filing date.
- The $100 million credit facility, which expires December 2, 2023, had no outstanding balance at March 31; $98.3 million was available after letters of credit. The company reported compliance with its covenants.
- Fundera contingent consideration was recorded at $30.9 million; $28.2 million had been paid by April 28, with the remainder expected to be paid in May 2023. On May 2, the board authorized a stock repurchase plan of up to $20 million, with no fixed expiration or obligation to repurchase shares.
- Management identified macroeconomic uncertainty, including inflation, higher interest rates and tighter credit markets, as risks to demand and results. It also cited competition, user engagement and partner relationships among forward-looking uncertainties. Management reported no legal matter expected to have a material financial effect and no material accrued litigation loss.
- The income tax benefit was $1.8 million, compared with a $1.2 million provision in Q1 2022. The company maintained a full valuation allowance against net deferred tax assets; the reported effective tax rate is unusually high because of the small pre-tax loss and tax-related items.
Important facts for investors to verify
- Whether growth in banking, insurance and other verticals can continue and offset ongoing weakness in mortgages and student loans.
- How marketing investment and acquisition integration affect future revenue, profitability and cash generation.
- Cash needs and capital allocation following the Fundera earnout payment and the newly authorized repurchase plan.
- The credit facility’s December 2023 expiration and any renewal, replacement or financing plans.
- Potential dilution and recurring compensation costs: stock-based compensation increased year over year, and the equity-plan share reserve increased by 3.8 million shares in January 2023.