NerdWallet, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in millions of dollars except per-share data and user metrics. Comparisons are with the corresponding 2022 periods.
Business context and key metrics
NerdWallet operates a consumer and SMB personal-finance advice and comparison platform in the U.S., U.K., Canada and Australia. It earns revenue by connecting users with financial-product providers. Average monthly unique users (MUUs) were 24 million in Q3, up 22% year over year, and 23 million for the first nine months, up 12%. Management cited strength in travel, banking and insurance, partly offset by mortgage-related weakness.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $152.8 | $142.6 | $465.7 | $396.9 |
| Operating income (loss) | $4.0 | ($8.8) | ($1.0) | ($26.9) |
| Net income (loss) | ($0.5) | $0.7 | ($9.5) | ($19.1) |
| Adjusted EBITDA | $26.7 | $14.5 | $68.3 | $36.1 |
| Adjusted EBITDA margin | 18% | 10% | 15% | 9% |
Revenue grew 7% in Q3 and 17% for the nine months. Q3 growth reflected other verticals (+16%) and loans (+16%), partly offset by credit cards (-6%). Nine-month growth was led by other verticals (+45%); credit cards rose 6%, while loans declined 10%. Banking revenue benefited from higher interest rates; mortgage weakness reflected higher rates and macroeconomic headwinds. Insurance revenue fell 23% in Q3 amid carrier profitability pressure, but rose 51% year to date, primarily from auto insurance.
Q3 operating margin was approximately 3%, versus a 6% operating loss margin a year earlier; nine-month operating margin was approximately breakeven, versus a 7% loss margin. Q3 net loss included a $5.2 million income-tax provision despite $4.7 million of pretax income. The company reported a full valuation allowance against deferred tax assets and changed to a discrete effective tax-rate method in 2023. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock-based compensation and depreciation and amortization.
Cash flow, liquidity and debt
For the first nine months, operating cash flow was $42.5 million, compared with $4.9 million in 2022; investing cash outflow was $20.1 million, compared with $94.3 million; and financing cash outflow was $19.8 million, versus $60.3 million of inflow. Cash increased $2.7 million to $86.6 million from December 31, 2022. Operating cash-flow improvement reflected lower net loss, higher noncash charges and improved working-capital cash flows. Investing outflow was lower largely because the prior-year period included the OTB acquisition.
At September 30, 2023, current assets were $194.8 million and current liabilities $45.0 million; total liabilities were $56.6 million. The company had no debt outstanding and $123.5 million available under a new $125 million senior secured revolving credit facility, maturing September 26, 2028, with an option to increase commitments by up to $75 million. The facility includes financial covenants, which the company reported it was meeting. Management stated that cash, expected operating cash flow and facility access should cover liquidity needs for at least 12 months from the filing date.
Material changes, outlook and risks
- Sales and marketing expense rose 11% year to date to $321.1 million, mainly from increased performance and organic marketing, partly offset by lower brand marketing. Cost of revenue increased 46% to $40.2 million, including higher software and acquired-intangible amortization.
- The company paid $32.6 million related to acquisition earnouts and deferred compensation during the first nine months; the contingent-consideration liability was fully paid.
- In May 2023, the board authorized up to $20 million of share repurchases. The company repurchased 1.3 million shares for $12.1 million through September 30. After quarter-end, it authorized a new plan for up to $30 million.
- No numerical financial guidance is provided in the supplied filing. Management expects to invest in personnel and the business, with timing and amounts dependent on financial condition, growth and macroeconomic conditions. It expects to fund operations and investments primarily with operating cash flow and existing cash.
- Risks highlighted include macroeconomic uncertainty, rising interest rates and tightening credit, partner marketing and underwriting changes, mortgage-market weakness, competition, user and partner growth, platform security and availability, regulatory compliance, and the sufficiency of liquidity. Management reported no legal matter expected to have a material financial effect and no material loss accrual.
Investor facts to verify
- Whether growth in MUUs and other verticals can offset continued weakness in mortgages and credit-card partner spending.
- Whether operating cash generation remains robust after working-capital movements and elevated marketing investment.
- The effect of the discrete tax method and full deferred-tax valuation allowance on reported earnings and future tax expense.
- Credit-facility availability, covenant headroom and borrowing costs under floating-rate terms.
- The pace and price of repurchases under the new $30 million authorization, alongside ongoing investment and share-based compensation.