NerdWallet, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. NerdWallet operates a personal-finance advice and comparison platform in the U.S., U.K. and Canada, connecting consumers and small and mid-sized businesses with financial-product providers. Amounts below are in U.S. dollars.
Financial performance
- Revenue: Q2 revenue was $125.2 million, up 37% from $91.6 million; first-half revenue was $254.3 million, up 40% from $181.6 million.
- Revenue mix, Q2: Credit cards $54.6 million (+82%); loans $24.0 million (-26%); other verticals $46.6 million (+58%). First-half growth was led by credit cards (+89%) and other verticals (+50%); loans declined 10%.
- Profit and margins: Q2 net loss was $9.3 million versus $13.9 million; first-half net loss was $19.8 million versus $26.8 million. Q2 operating loss was $9.0 million, or about 7% of revenue, compared with $22.7 million, or 25%, a year earlier. Gross margin, calculated as revenue less cost of revenue, was about 93% versus 92% in Q2 2021.
- Adjusted EBITDA: $12.7 million for Q2 and $21.6 million for the first half, versus losses of $10.8 million and $7.6 million, respectively. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock-based compensation and acquisition costs.
- Cash flow: First-half operating cash use was $14.4 million, investing cash use $15.9 million and financing cash use $11.5 million. Cash declined $42.0 million to $125.8 million.
- Liquidity and debt: Cash and cash equivalents were $125.8 million at June 30, versus $167.8 million at year-end 2021. No credit-facility borrowings were outstanding at June 30; $100 million was available subject to customary conditions. Total liabilities were $82.5 million, including $29.9 million of current contingent consideration. On July 7, the company borrowed $70 million under its facility; the filing states the rate was 4.54% at borrowing, based on LIBOR plus 2.75%.
Material changes and developments
- Credit-card revenue rose sharply, while mortgage weakness drove much of the decline in loans revenue. Mortgage revenue fell 55% in Q2; personal-loan revenue rose 76%.
- Other-vertical growth reflected SMB products (+159% in Q2) and banking (+127%); insurance revenue fell 29%, which the company attributed to inflation-driven pressure on insurers’ profitability.
- Operating expenses increased 17% in Q2 and 25% in the first half. First-half sales and marketing rose 22%, research and development 39%, and general and administrative 59%, reflecting continued investment, personnel costs and higher stock-based compensation.
- Monthly Unique Users averaged 20 million in Q2, up 2% year over year; the first-half average was 21 million, down 1%.
- On July 11, after quarter-end, NerdWallet completed its acquisition of On the Barrelhead for approximately $70 million cash and 4.9 million Class A shares, valued at approximately $43 million on the acquisition date. The filing had not completed the purchase-price allocation. Certain founder and employee retention awards are additional compensation, not purchase consideration.
Outlook, risks and unusual items
- No specific revenue, profit or EBITDA guidance is provided in this filing. Management said it expected cash, operating cash flow and credit-facility access to cover liquidity needs for at least 12 months from the filing date, while noting investments and cash needs could vary.
- Management cited macroeconomic uncertainty, market volatility, inflation and rising interest rates. It reported pressure on mortgage and investing activity, and warned that consumer behavior, marketing decisions and macro conditions may cause Monthly Unique Users to fluctuate.
- The company recorded a $1.4 million income-tax provision for the first half versus an $8.6 million benefit in the prior-year period. It cited 2022 tax rules for research-and-development cost capitalization and a full valuation allowance against U.S. deferred tax assets.
- First-half cash outflows included $30.5 million of contingent consideration payments; the remaining 2022 performance-period commitment was expected to be settled over the next 12 months. Contingent consideration fair-value changes added $5.7 million to first-half expenses.
- Management said it was not aware of legal matters expected to materially affect the company and had not accrued a potential legal loss. The company reported compliance with credit-facility covenants at June 30 and effective disclosure controls.
Key facts for investors to verify
- Whether credit-card and other-vertical growth can offset continued mortgage weakness and sustain overall revenue growth.
- How the $70 million acquisition borrowing, acquisition integration, and final purchase-price allocation affect interest expense, liquidity and results.
- Whether positive Adjusted EBITDA translates into improving GAAP profitability and operating cash generation; review the measure’s exclusions, particularly stock-based compensation.
- How user trends and marketing efficiency evolve as management responds to macroeconomic and partner-industry pressures.
- The future impact of the deferred-tax valuation allowance and remaining earnout and acquisition-related obligations.