Q2 2023 NerdWallet Inc Earnings Call
Good day and thank you for standing by welcome to the Nurse Wallet, Inc. Q2, 2023 earnings call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to your Speaker today Kaitlyn Mcnamee. Please go ahead.
Thank you operator welcome to the Nerd wallet Q2 2023 earnings call joining.
Joining us today are co founder and Chief Executive Officer, Tim Chen and Chief Financial Officer, Lauren Sinclair.
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 todays 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 calculated certain reconciling items with confidence.
With that I will now turn it over to Tim Chen our co founder and CEO of Nerd wallet Tim.
Thanks, Caitlin <unk> mission is to provide clarity for all of life's financial decisions.
Operator within the larger financial services market and our strategy is to supply consumers and smbs with the most trusted guidance to grow our share of this market cycle to cycle.
Cheating this requires a long term vision for success.
Doing right by our users to build our brand affinity in the long run rather than operating solely to maximize profits in the short run.
Today, we'll be sharing quarterly results in the context of short term cyclical headwinds and tailwind.
We expect headwinds to outweigh tailwind through at least the second half of this year, but if I could ask you to remember one thing today and in the years to come is that those headwinds and tailwind offset each other over time.
Independent of these external macro factors, we are taking share in a large and growing market and a durable sustainable way.
Our primary addressable market U S financial services digital advertising is expanding with the 2022 three year CAGR of approximately 23%.
And <unk> share in this growing market has also increased with a three year CAGR of 33% driven by robust top of funnel gains and all time highs and aided brand awareness.
In Q2, our brands resonance with consumers and smbs across verticals helped mitigate severe cyclical headwinds and consumer loans.
And carrier profitability challenges in insurance driven by inflation.
As a result, we achieved year over year revenue and adjusted EBITDA growth in spite of those factors.
We attribute our growing market share to our track record of providing the most trusted financial guidance across verticals, including those experiencing headwinds we continue to provide trusted financial guidance for all of consumers' questions and we've seen significant consumer engagement and credit cards travel home invest.
<unk> and SMB.
At the same time, our team has recognized the new ways. Many consumers find financial information we are.
<unk> audience of our smart money podcast, which has been downloaded over $1 5 million times, so far this year.
We're also developing content for platforms like tick tock, Instagram and Youtube and embracing emerging technologies.
In late Q2, we launched a beta of nerd AI chatbot trained on <unk> content to give our consumers a new way to engage with our guidance.
Increasing our consumer mind share will fuel our long term vision of trusted financial ecosystem or a single platform, where consumers and smbs can learn shop and make decisions about their money.
In Q2, we made meaningful progress across our three growth pillars land and expand vertical integration and registration and data driven engagement.
In addition to the strong traffic we've seen across verticals. This quarter, we leveraged our reach and brand to further our expansion in emerging verticals and serve more consumers and.
In Canada, we launched a number of new consumer experiences and grew IMMU use over 150% year over year.
For U S consumers, we've made progress in building out our auto loans, Medicare and social security verticals and relaunched in a state planning marketplace.
These land and expand wins cross pollinate, our other strategic objectives.
And not only grow our overall traffic. They also contribute to a registration goals with recent emerging vertical content a top driver of registrations.
Vertical integration refers to the alchemy, we achieved by pairing <unk> brand and reach with best in class consumer experiences.
In Q2 are on the barrel head integration continued with a focus on cross sell.
The Luna team, where OTB as primarily integrated.
We're able to leverage Otv's technology to identify when a personal loans customer would be better served by advanced transfer credit card bundling these consumers to our credit cards experience instead.
Meanwhile, our SMB team has begun testing experiences that direct business owners, who may not qualify for traditional business loans to our personal loans product.
In doing this we believe we can provide consumers with improved outcomes. They can explore alternative products that may be better for them or that they wouldn't have considered while laying the groundwork for more effective monetization.
We look forward to relentlessly improving these cross sell experiences and bringing our learnings to other <unk> shopping funnel.
As we grow our percentage of consumer mind share. We are also motivated to register and engage <unk> wallet users.
This will allow us to build relationships with our consumers that ensure they turn and return to nerd wallet for all their money questions.
In Q2, we drove a 37% year over year increase in our cumulative number of registered users at.
At the same time, we have invested in enhanced consumer experiences that give our users a reason to return to us again and again.
We launched additional search and categorization functionality in our app, allowing users to better track their financial health over time.
As a result of this work we have driven improvements to our user engagement.
In a moment, our CFO Oren Sinclair, who will provide more insight into our financial performance this past quarter.
While I am proud of our results, especially given the current climate and particularly energized by the focus and velocity earners have brought to executing on our strategy this quarter.
We are leveraging our competitive advantage in consumer trust to find new ways to serve and delight, our customers to reach new consumers and to relentlessly improve our business with that I'll pass it over to Warren.
Thanks, Tim we're proud of the quarter that we achieved in the face of a tough lending and insurance environment delivering.
Delivering Q2 revenue of $143 million.
Up 14% year over year and above the high end of our guidance.
Since last quarter, we've seen that credit quality and unemployment outlooks seem to be trending better than was previously feared.
This should improve sub and near Prime lending first.
But things are still taking a conservative approach to balance sheet lending.
This conservatism is driven by uncertainty around possible rate hikes, the impacts of upcoming Basel III revisions and the stickiness of their deposit base as consumers spend the last of their excess savings from the pandemic.
Now we will take a deeper look at the revenue performance during the quarter within each category.
Credit cards delivered Q2 revenue of $51 million declining 6% year over year.
As we mentioned last quarter, we're facing headwinds in our credit cards vertical and the partner tightening that increased during Q1 by extending to prime consumer related products.
Led to a larger than typical seasonal quarter over quarter decline.
Consumer demand remains healthy and we believe that the strength we've seen in matches with our financial partners indicates we are still taking share in the market though.
Though challenges and balance sheet intensive areas such as balance transfer card is more than offsetting us.
Partner behavior was relatively consistent throughout the quarter and while we believe that current trends will persist during the second half of the year.
We should see tailwind when card issuers regain confidence and expanding their balance sheets.
Loans generated Q2 revenue of $23 million declining 4% year over year.
Our mortgage vertical while still declining on a year over year basis as the market faces significant headwinds is now starting to comp slightly easier time periods from 2022, which we expect to continue throughout the rest of this year.
On the back of our progress integrating the acquisition of OTB and personal loans.
We saw accelerating growth during Q2, as we were able to match consumer demand at a better rate with our partners.
Just to reiterate what we mentioned last quarter.
We are committed to making investments in key loans technologies to set us up to take market share when the macro environment recovers.
Finally, other verticals finished Q2 with revenue of $69 million growing 48% year over year.
Banking growth, while still above 100% year over year decelerated versus previous quarters as we begin to compare to last year's high growth levels combined with signs of softening consumer demand as interest rate increases slow.
As mentioned last quarter, we believe we've been over earning a bit in our banking vertical.
And as consumer interest starts to moderate growth should slow further.
Our insurance vertical had a strong quarter, despite persistent inflationary headwinds with revenue growth of 41% year over year as recent product improvements allowed us to gain share in a challenging environment.
SMB revenue grew 13% year over year as we are still seeing conservative underwriting for smbs impact our growth rates.
We still expect near term growth rates to be at more muted levels compared to last year, but the long term opportunity in SMB and the benefit of our vertical integration strategy has years of <unk> remaining.
Moving on to investments and profitability.
During Q2, we earned $27 million of adjusted EBITDA at a 14% margin.
A four point increase versus last year.
We had a GAAP net loss of $10 7 million.
Which includes a $7 $1 million income tax provision.
Similar to what we mentioned last quarter, we expect to be in a tax expense position for the remainder of the year.
Please refer to today's earnings press release for a full reconciliation of our GAAP to non-GAAP measures.
Consumers continue to turn to the nurse for their many questions.
We provided trustworthy guidance to 22 million average monthly unique users in Q2 up 9% year over year.
Growth was a result of strength in many areas across nerd wallet, such as banking insurance and travel as.
As well as the impact of our acquisition of OTV.
We're still seeing similar year over year headwinds from mortgages as the macro environment for both refinance and purchase has yet to recover.
Given current revenue pressure combined with consistent consumer demand for our learn and shop content. We now expect that Mou growth should outpace revenue growth during Q3.
Onto our financial outlook.
As we look forward to the remainder of 2023, we remain in a challenging macro environment for many of our verticals and.
And expect recent headwinds to persist.
We plan to continue providing quarterly guidance and will also provide qualitative commentary for full year expectations.
For the third quarter, we expect to deliver revenue in the range of $142 million to $147 million.
Which at the midpoint would grow 1% versus prior year.
We expect to see continued, albeit slowing growth from banking as well as slightly easier comps and our loans verticals with.
With minimal expected near term changes in the macro outlook.
Our typical seasonal increase of high single digits from Q2 to Q3 will be more muted this year given the partner conservatism we're seeing.
Insurance is expected to decline year over year during the second half as we believe it will still take several quarters for the industry to digest the latest profitability issues.
We continue to see partners value the quality of our consumers, putting us in a position of relative strength and while consumer fundamentals and demand still seem relatively healthy we will face a tougher comparison from the second half of last year when deposit demand was extremely strong and.
Underwriting was a bit looser across the board, especially in prime consumer products.
This all led to an expectation that revenue growth levels will remain lower than what we delivered in Q2 for the remainder of the year.
Moving to profitability.
We expect Q3 adjusted EBITDA in the range of 18 million to $20 million.
Or approximately 13% of revenue at the midpoint of.
A three point increase versus prior year.
Our dedication to delivering year over year margin improvement in the face of significant revenue deceleration showcases the benefit of our organic traffic as well as the flexibility of our business model.
We are still running a large scale brand campaign during the third quarter. So we expect to have another period of reduced spend versus last year.
Aligned with how we've previously described our approach to our performance marketing lever.
We will lean into verticals, where we're seeing positive momentum to deliver profitable growth.
Yes.
Given our similar quarterly brand cadence to last year, we still expect relative adjusted EBITDA margins to be lower during the first three quarters of the year compared to Q4.
We are also reconfirming that we plan to deliver a year over year increase in our annual adjusted EBITDA margin for yet another year and now expect that full year 2023, adjusted EBITDA margin should be over 15%, resulting in roughly three points of incremental margin.
Versus 2022.
Okay.
I also want to take a moment to discuss the new metric disclosure that we provided within our earnings press release and shareholder letter today.
We are now disclosing non-GAAP operating income.
Or adjusted EBITDA less stock based compensation and internally developed software costs, which were capitalized during the period.
We will continue to report on both non gap, Hawaii as well as adjusted EBITDA and make progress towards improved levels of profitability in both.
We expect to deliver approximately 2% non-GAAP Oi margin for the full year 2023, as well as mid single digit margin for 2024 and.
And we believe we are getting closer to a mature annualized run rate per employee for stock based compensation.
We believe that the additional expenses included in the newly disclosed metric or a part of doing business and hold ourselves accountable both internally as well as with you our fellow shareholders for the efficiency of those investments.
Delivering on our financial commitments, even during challenging conditions reinforces the resilience of our business model.
We remain a key destination for consumers to navigate their financial questions during uncertain economic times and.
And believe that our mission to provide clarity for all of life's financial decisions and relentless dedication to consumer first experiences will help us grow across credit cycles with that we're ready for questions operator.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Justin Patterson with Keybanc. Please proceed with your question.
For organic traffic, we feel confident that we can continue to show margin accretion in both adjusted EBITDA margins as well as our newly disclosed non-GAAP operating income metric, regardless of what type of macro environment. We're in uhm as you've seen over the past couple of quarters were continuing to show.
Oh nice leverage in areas like R and D. As we're more efficient with our use of head count and the investments and product in engineering.
We've also talked about being incredibly disciplined about our sales and marketing spend we've you know proactively reduced some of our brand spend as you can see this year and then we really see performance marketing as a variable costs that we can liver up or pull back on as needed.
And then we talked a little bit about and our G&A you know as the result of becoming a public company you see sort of a step up in cost and we don't expect those to step up any further and so you can see how we've been showing that leverage over the last couple of quarters and we expect all those those same thing to happen as we move into the short term and into the new year.
<unk> as well.
In addition, we've talked a little bit in the prepared remarks around stock based compensation and how we're seeing us to reach more mature levels on a per head basis, and so that will also help with margin accretion from a non-GAAP Oh I perspective.
Yeah, I can speak a bit to the 2024, you know big picture macro before I dive into a.
<unk> you know generally speaking on the consumer demand said, we continue to grow or reach an increase the value of our franchise.
We hit records in just about every traffic and brand metric, where you track during the first half you know things like brand awareness M. U U brand affinity and so I'd say it would change your the last quarter right like the credit default risk and unemployment outlook seem to be training better than what was previously feared but.
Lauren mentioned in her remarks, there's a bit of conservatism and balance sheet management happening up in <unk>.
As you know consumers worked through there uhm excess deposits deposits are a bit flightier there might be a few more rate hikes coming in the regulatory rules are kind of finalising. So that means and consumer lending you have a dynamic were in your prime lending his probably found a floor, but prime lending appetite is lagging a bit as banks manner.
<unk> their balance sheets.
<unk>, you know subprime being subdued versus a second half of 22 and Ah recovery, there will probably follow a recovery in your prime and you're seeing this show up as personal loans is growing sequentially, whereas in credit cards. You know you've got areas like dawn's transfer that are facing headwinds relative to the second half of last year.
And so anyway as we look into 2024, I'd say, there's a few possible scenarios next year right and a soft landing scenario, we'd probably look back in a few years and say that 2023 was blower normalised revenue growth rate and exiting 2024, we were about it because if if those recoveries in cards loans and insurance not the fed me.
The high grades materially more than people are expecting in order to fight off inflation that could lead to another set down a longer period in a more dramatic recovery on the back and so we we we think in either scenario, we've got our game plan and we're pushing internally on being efficient.
In terms of a yeah. You know we remain excited by the possibilities here <unk> is a chatbot trained on nearby content and it's giving our consumers a new way to engage with our financial guidance feel free to play around with it. It's on a lot of our personal finance pages. It can do things.
Like summarize an article or help you navigate to the next relevant article you know <unk> is live now and like all product features we see these things as hypotheses to be integrated on overtime and excited to have this one life.
One moment for our next question.
Okay.
Our next question comes from the line of Yusuf Squali from Truest. Please proceed with your question.
Hi, This is Robert Zeller on producer Thanks for taking the questions.
On your guys AD spend so it looks like brand was down year over year performance was off based on the restroom. It's I'm just curious why that was in.
On the new channels like short form video are you guys taking.
Taking <unk> off of different channels versus incremental Smith. Thanks.
Yeah, I can I can take that.
So just as a reminder, and the shareholder letter as well as in the queue. We do provide a breakdown of our sales and marketing spend and you can see the percentage splits between our three big investment areas, which we call out as organic performance marketing and brand. So so you can see those in there.
We've mentioned on the last call as well, we are reducing brand spend while still you know investing in large scale campaigns things like that we're adjusting to be nimble and flexible based on the macro conditions that we're seeing and we're being proactive in that area.
Performance marketing, we think about slightly differently, we really see this as a variable costs that we can dial up or pull back as needed and so in areas, where we're seeing nice returns will continue to lean in and in areas, where we're not seeing the returns either because of consumer behavior, changing and or partner.
You know demand changing we can easily pull back as well. So you you can expect us to do that the other thing I'll mention on performance marketing, we see it almost as a means to an end as well, it's a way for us to get folks to the site get them registered when it makes sense and then we can reach out to them and proactively nudge them when it's time.
To come back and make a smart money move or to re engage them with the new thing. So again, we see it variable costs, but also see it as a means to an end by getting more registrations.
Yeah, let's just.
Yeah, I mean, I think it's exciting to see record brand awareness.
In the first half and record and use along with 37% growth and cumulative registrations, despite pulling back a bit on on our brand I think you know relatively new to this right 20 twenty-two as her first full year of spinning on brand campaigns, and we learned some things and that means we're gonna get <unk>.
Order about are treated and where are we spend and hopefully we can get a bigger bang for buck each and some in your so yeah.
Yeah, well, we'll keep on making adjustments I've been down as we get more info.
Okay, Thanks, and if I could just ask one more on <unk> I thought that was very interesting I just wanted to clarify it.
<unk> through a partnership with you guys or building it out in house and what the cost impact will be you know over the next year or so and if that's related to the <unk>.
Like out of a non-GAAP operating income if that's responsible for expectations of software development costs increasing.
Going forward and that and that's.
Falls were tied into the.
non-GAAP operating disclosure from from AI, or if I'm thinking about that wrong feel free to also let me know thanks.
Yeah, I'd say, where we're leveraging uhm third parties I mean open a I and so it's really not a big operating expense on a variable basis. The training said as her own content, that's really the secret sauce behind this thing. So you know from a consumer perspective I think it.
Can really help you know summarize things as well as give people to the right content on our site more effectively and but again, yet and I'm not a huge impact on cost yeah, and I can comment on the non-GAAP L. Y question as it relates to to AI AI. We're looking at it's still early days, though we don't see.
This very different than we see other initiatives that we're doing and so we're continuing to invest for the long term, while getting more efficient in areas like R&D and so again, we treat AI similar to other initiatives and so uhm. Your question around Noncapital I know that's not the reason why we disclose the new metric this.
Quarter again, it's part of the way, we think about all of our investment our need to disclose or want to disclose the the non-GAAP . A line metric was really around aligning how we operate things internally and providing that clarity for investors as well and it turns talks about in the past you know stock based compensation.
Capitalized software are true cost of doing business, whether their cash or non-cash and so we felt that the increased disclosure with something that shareholders should hold us accountable for.
Okay. Thank you.
One moment for our next question.
Our next question comes from the line of James Fossette Morgan Stanley . Please proceed with your question.
Hi, everyone. It's Michael M Farm town for James Thanks for taking my question.
Tim I'm curious if you could help us sort of decompose the mix between lead pricing verse volume of matches.
Sort of trying to understand you know <unk>.
While volume of matches might be migrating lower.
Sort of how is pricing evolving and are both decelerating.
Yeah. So.
I'd characterize this as having similar dynamics to say in 2020 right to the core underlying franchise value to me is really around matches and match volume. So that that's actually quite healthy right uhm, what's really happening is that the financial institutions are pulling back on how much lending they wanted.
<unk> right now in some areas, especially in those areas that are more balance sheet intensive like you mentioned the balance transfer rate imagine you're really subsidizing zero percent interest for a year or more and that that can be kind of a consideration given all the other stuff that's happening right now with deposits stickiness, an interest rate hikes and <unk>.
Tori changes and so we just think that's a bit of conservatism, we think it's immoral and it's very similar to past cycles.
Understood.
Maybe just on the other vertical as in particular, you know, obviously understand sort of the high yield savings account <unk> over the last several quarters How're you guys sort of thinking about the back half and sort of what that taught him. How are you going to mean for near to medium term Rev. Gross out as we got some normalization there.
Alright, well, it's specific to banking just just a reminder for everyone in the call. It's part of our other verticals category and it more than doubled in queue too so.
So yeah, we're starting to see a bit of deceleration, but if rates stay where they are we'd expect to see a higher new normal and banking they'll probably a little lower than where we are currently.
The macro it really depends on where rates go like if we revert back to a zero rate environment. We go back to levels, we probably saw a few years ago, but Conversely, we'd also expect to pick up in our mortgages business that cause such this so big picture, we <unk> with banking, we really Wanna make hay, while the sunshine's one of our group pillars is register and and <unk>.
<unk> and I know that this is a bit of a different audience than for example, personal loan choppers. So it's a great opportunity to register a broader audience and expand our reach.
Thanks, Tim.
One moment for our next question.
Our next question comes from the line of Chad Kelly with Oppenheimer. Please proceed with your question.
Okay, Great just Wanna talk about two vertical where it looks like you're you're driving up more <unk> more share games.
<unk> to your competitors one <unk> personal loans can can you sort of talk about what what's working there and then on the strength you called out an insurance obviously the underwriting headwind are are are pretty self explanatory, but.
You know what is going on with your carrier relationships, it's allowing you or your consumers.
Allowing you to drive growth in both those seconds. Thanks.
Yeah, I'll I'll take those one at a time so in terms of personal loans, we got two underlying factors that drive the broader industry and then I'll I'll talk about our market you are in a second but yeah, the broader factors or credit quality trends in demand pull through so in terms of credit quality. We you know we've seen three quarters of tightening in.
We're finding a floor I'd say there haven't been major surprises on the credit quality side things are tracking roughly where lenders expected them to be but as a reminder of letter lenders are expecting unemployment close to 6% exiting 2023, and they are factoring that into their underwriting the past couple of quarters, and that's proving pretty conservative I think that's causing there's a bit of.
Loosening up there those still stalled near pretty trough levels.
Then on the demand side I think there's some pretty good longterm tailwinds there because it's personal loan demand is driven by mostly people consolidated credit card debt and we're seeing in demand tailwind in terms of rising credit card balances I think in terms of our market share. Their we mentioned last quarter. We've managed to double her match right on people looking for personal loans.
By integrating the OTB technology, and then Iterating from there it's everything from a more comprehensive marketplace to you know asking people to write questions and better matching technology on the back end. So that's that's definitely helping US you know serve the consumers better but also gain a little bit on the top of final uhm.
And then in terms of insurance yeah. It's it's.
I mean, even though we're up 41% year over year.
You know then there's carrier profitability headwinds their carriers are probably losing money in half the states right now in terms of writing new policies. So there's this really low visibility there I think what ultimately causes. This the pass is you know inflation calming down and then carrier is getting a.
<unk> chance to reset pricing in terms of relative market sure I think we talked about it last quarter about you know a more personalized marketplace experience and we think that's really driving the share gains there and are really excited to continue investing there. Despite this being a hard market.
Got it and then just just to follow up given that when you look at your results you're you're obviously operating from a physician a strength and a lot of smaller competitors are facing tough times, how should we view the acquisition environment right now and how you're thinking about it. Thank you.
Yeah more broadly speaking right you know, we think about capital allocation is having a few outlets right. It's everything from returning capital to investing in organic growth in organic growth and you know where we just gotta be opportunistic we care a lot about pricing and relative value.
And so yeah.
Unsurprisingly, it's Ah you know there there's definitely a lot of activity out there in terms of potential acquisition. So we're trying to be disciplined and.
Think hard about what makes a ton of sense and or we can have a pretty good margin for as we as we execute.
Thank you.
One moment fire next question.
Our next question comes from the line of Ralph Carr from William Blair. Please proceed with your question.
Good afternoon. Thanks for taking my question too if I could please first I'm a strong like 37 per cent growth that you had year over year registered users you know where some of the top factors driving back and maybe your opportunity to continue to drive can registered users going forward.
Secondary Tim kind of going back to the other day I chatbot more broadly I know, it's super early but you know how is that sort of I guess in forming or shaping your view on <unk> more broadly you know in terms of its impact of opportunity for the the plot from going for it. Thank you.
Yeah. Thanks for the question on the registered users I'd say the top drivers are really around our success and land and expand we're we're just getting into more verticals and covering the our existing vehicles more deeply which is giving us a larger surface area.
By which to registered users Ah. So for example, you know.
He was like social security Medicare small business, we're really building things out and I'm getting people onboard there and the second driver. There I would say is shopping you know as we get more personalized with our shopping experiences. There's a really good reason for users to register to get more Personalised results and that's also driving more registration. So we're <unk>.
Getting more organize and iterating aggressively there.
<unk> I I I I like to go back to first principles you know what are the consumer problems that need to be solved I.
I think the biggest opportunities for us or can we democratize access to great financial guidance. You know typically you would need a human that's very expensive managing a lot of <unk> to justify the expense. So how do we make that more mass market rate and in terms of.
Other opportunities I mean, obviously every function Edward why it should be thinking about using generative AI to be more productive that probably applies to every company out there not just us you're just gonna get left behind in two or three years, if you're not figuring that part out.
So those are kind of like two big areas, we were thinking a lot about.
Alright, thanks mm.
One moment for our next question.
Our next question comes from the line F. P. Christian thing what city. Please proceed with your question.
Thank you good afternoon, Hi, guys Smith nice job on the <unk> growth.
That's pretty impressive.
I was wondering team.
If you could talk about the health of or at least the health of your partner's budgets.
On the loan side.
And I was I was wondering if you could.
Tell US you know have you seen any differences between some of the smaller banks like the community banks, which I believe are still <unk>.
Aggressively spending there to to drive share versus some of the larger players in and if you're seeing differences between those those two groups. Thank you.
I would call out that most of our revenue in the different parts of learning.
Well, so I'll go buy cards, and then brought her loans and cards, we've really.
The U S heavily index two stores six credit card issuers. Many of them are money center banks. So we are definitely seeing uhm the effect that the money center banks.
And then in terms of other vehicles, you might index more towards non-bank lenders and mortgage or syntax and personal loans. So you know like less of an obvious and back there.
I'll be how I characterize it.
That's fair. Thank you and then I thought it was interesting your comment earlier.
Know, what I'm, saying, perhaps where we're at the bottom of a personal loan issuance side of just just curious we get this dig into that comment a little bit gives you confidence that you.
You think.
That that vertical can prove at least from here.
Or at least not go down further.
Alright. So you know internally, we're seeing you know sequential growth and personal loans things seem to have stabilized it seemed like.
Ever since the middle of 2022 is incremental tightening every quarter.
More talk of this impending spike in unemployment.
And so I I feel like more recently that that tune has changed a little bit even some of the personal lending partners out there you know they they don't learn from their own balance sheet in some cases and their access to capital it seems to be improving a little bit too. So it's just a general sense that things are stabilizing of it there and.
People are starting to look for volume again.
That's that's helpful. I'm, sorry, with just one more for me I'm. Just curious have you seen any heightened activity around the student loan news. That's that's been out recently and do you think that's been a driver of some of your traveling.
Alright. So this so certain student loans, you know high level, there's been the Supreme Court ruling followed by the bite and administration, putting out several initiatives for forgiveness.
So applicable to a smaller subset of borrowers at this point, we're really waiting for the outcome of the current forgiveness proposals and just taking into account the frequent litigation and policy changes.
Which on all gives us pretty low visibility in terms of predicting the timing or outcome of <unk>.
Critical and legal activities and playwright so from a forecasting perspective, we're really not expecting much of a change in 2023.
Mmk.
That's helpful. Thank you very much yep.
Yep.
I'm showing no further questions at this time I would now like to turn the conference back to management for closing remarks.
Alright, thanks, everyone before we wrap up I really wanted to give us sincere thanks to our nerds for their hard work during the quarter through this credit cycle and the next we remain committed to executing on our strategy by investing Opportunistically and our business and building on our significant reached to capture more consumer mindshare and our <unk>.
Market I'll look forward to sharing more highlights and examples of our relentless improvements in Q3.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
[music].
[music].
Good day, and thank you for standing by and welcome to the Nurse Wallet, Inc. Q2, 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your <unk>.
Allophone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Kaitlyn Mcnamee. Please go ahead.
Thank you operator, welcome to the Nerd wallet Q2 2023 earnings call.
Joining us today are co founder and Chief Executive Officer, Tim Chen and Chief Financial Officer, Lauren Sinclair.
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 todays 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.
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 calculated certain reconciling items with confidence.
With that I will now turn it over to Tim Chen our co founder and CEO of Nerd wallet Tim.
Thanks, Caitlin <unk> mission is to provide clarity for all of life's financial decisions.
Operate within the larger financial services market and our strategy is to supply consumers and smbs with the most trusted guidance to grow our share of this market cycle to cycle.
Achieving this requires a long term vision for success doing.
Doing right by our users to build our brand affinity in the long run rather than operating solely to maximize profits in the short run.
Today, we will be sharing quarterly results in the context of short term cyclical headwinds and tailwind.
We expect headwinds to outweigh tailwind through at least the second half of this year, but if I could ask you to remember one thing today and in the years to come is that those headwinds and tailwind offset each other overtime and independent of these external macro factors, we are taking share in a large and growing market and a durable.
Sustainable way.
Our primary addressable market U S financial services digital advertising is expanding.
With the 2022 three year CAGR of approximately 23%.
<unk> share in this growing market has also increased with a three year CAGR of 33% driven by robust top of funnel gains and all time highs and aided brand awareness.
In Q2, our brands resonance with consumers and smbs across verticals helped mitigate severe cyclical headwinds and consumer loans.
And carrier profitability challenges in insurance driven by inflation.
As a result, we achieved year over year revenue and adjusted EBITDA growth in spite of those factors.
We attribute our growing market share to our track record of providing the most trusted financial guidance across verticals, including those experiencing headwinds we continue to provide trusted financial guidance for all of consumers' questions and we've seen significant consumer engagement and credit cards travel home invest.
<unk> and SMB.
At the same time, our team has recognized the new ways. Many consumers find financial information, we are growing the audience of our smart money podcast, which has been downloaded over $1 5 million times. So far this year.
We're also developing content for platforms like tick tock, Instagram and Youtube and embracing emerging technologies.
In late Q2, we launched a beta of nerd AI chatbot trained on <unk> content to give our consumers a new way to engage with our guidance.
Increasing our consumer mind share will fuel our long term vision of trusted financial ecosystem or a single platform, where consumers and smbs can learn shop and make decisions about their money.
In Q2, we made meaningful progress across our three growth pillars land and expand vertical integration and registration and data driven engagement.
In addition to the strong traffic we've seen across verticals. This quarter, we leveraged our reach and brand to further our expansion in emerging verticals and serve more consumers.
In Canada, we launched a number of new consumer experiences and grew IMMU use over 150% year over year.
For U S consumers, we've made progress in building out our auto loans, Medicare and social security verticals, and we launched an estate planning marketplace.
These land and expand wins cross pollinate, our other strategic objectives.
And not only grow our overall traffic. They also contribute to a registration goals with recent emerging vertical content a top driver of registrations.
Vertical integration refers to the alchemy, we achieved by pairing <unk> brand and reach with best in class consumer experiences.
In Q2 are on the barrel head integration continued with a focus on cross sell.
The Luna team, where OTB as primarily integrated.
We're able to leverage Otv's technology to identify when a personal loans customer would be better served by a balance transfer credit card bundling these consumers to our credit cards experience instead.
Meanwhile, our SMB team has begun testing experiences that direct business owners, who may not qualify for traditional business loans to our personal loan product.
In doing this we believe we can provide consumers with improved outcomes. They can explore alternative products that may be better for them or that they wouldn't have considered while laying the groundwork for more effective monetization.
We look forward to relentlessly improving these cross sell experiences and bringing our learnings to other <unk> shopping funnel.
As we grow our percentage of consumer mind share. We are also motivated to register and engage users. This will allow us to build relationships with our consumers that ensure they turn and return to nerd wallet for all their money questions.
In Q2, we drove a 37% year over year increase in our cumulative number of registered users at.
At the same time, we have invested in enhanced consumer experiences that give our users a reason to return to us again and again.
We launched additional search and categorization functionality in our app, allowing users to better track their financial help over time.
As a result of this work we have driven improvements to our user engagement.
In a moment, our CFO Oren Sinclair will provide more insight into our financial performance this past quarter.
While I am proud of our results, especially given the current climate and particularly energized by the focus and velocity earners have brought to executing on our strategy of this quarter.
We are leveraging our competitive advantage in consumer trust to find new ways to serve and delight, our customers to reach new consumers and to relentlessly improve our business with that I'll pass it over to Warren.
Thanks, Tim we're proud of the quarter that we achieved in the face of a tough lending and insurance environment deliver.
Delivering Q2 revenue of $143 million.
Up 14% year over year and above the high end of our guidance.
Since last quarter, we've seen that credit quality and unemployment outlooks seem to be trending better than was previously feared and this should improve sub and near prime lending first.
The banks are still taking a conservative approach to balance sheet lending.
This conservatism is driven by uncertainty around possible rate hikes.
The impacts of upcoming Basel, III revisions and the stickiness of their deposit base as consumers spend the last of their excess savings from the pandemic.
Now, we'll take a deeper look at the revenue performance during the quarter within each category.
Credit cards delivered Q2 revenue of $51 million declining 6% year over year.
As we mentioned last quarter, we're facing headwinds in our credit cards vertical and the partner tightening that increased during Q1 by extending to prime consumer related products.
Led to a larger than typical seasonal quarter over quarter decline.
Consumer demand remains healthy and we believe that the strength we've seen in matches with our financial partners indicates we are still taking share in the market though.
Though challenges and balance sheet intensive areas such as balance transfer cards is more than offsetting us.
Partner behavior was relatively consistent throughout the quarter and while we believe that current trends will persist during the second half of the year, we should see tailwind when card issuers regain confidence and expanding their balance sheets.
Loans generated Q2 revenue of $23 million does.
Declining 4% year over year.
Our mortgage vertical while still declining on a year over year basis as the market faces significant headwinds is now starting to comp slightly easier time periods from 2022, which we expect to continue throughout the rest of this year.
On the back of our progress integrating the acquisition of OTB and personal loans we.
We saw accelerating growth during Q2, as we were able to match consumer demand at a better rate with our partners.
Just to reiterate what we mentioned last quarter.
We are committed to making investments in key loans technologies to set us up to take market share when the macro environment recovers.
Finally, other verticals finished Q2 with revenue of $69 million growing 48% year over year.
Banking growth, while still above 100% year over year decelerated versus previous quarters as we begin to compare to last year's high growth levels combined with signs of softening consumer demand as interest rate increases slow.
As mentioned last quarter, we believe we've been over earning a bit and our banking vertical.
And as consumer interest starts to moderate growth should slow further.
Our insurance vertical had a strong quarter, despite persistent inflationary headwinds with revenue growth of 41% year over year as recent product improvements allowed us to gain share in a challenging environment.
SMB revenue grew 13% year over year as we are still seeing conservative underwriting for smbs impact our growth rates.
We still expect near term growth rates to be at more muted levels compared to last year, but the long term opportunity in SMB and the benefit of our vertical integration strategy has years of tailwind remaining.
Moving on to investments and profitability.
During Q2, we earned $27 million of adjusted EBITDA at a 14% margin.
A four point increase versus last year.
We had a GAAP net loss of $10 7 million.
Which includes a $7 $1 million income tax provision.
Similar to what we mentioned last quarter, we expect to be in a tax expense position for the remainder of the year.
Please refer to today's earnings press release for a full reconciliation of our GAAP to non-GAAP measures.
Consumers continue to turn to the nerds for their many questions.
We provided trustworthy guidance to 22 million average monthly unique users in Q2 up 9% year over year.
Growth was the result of strength in many areas across Nord wallet, such as banking insurance and travel as.
As well as the impact of our acquisition of OTV.
We're still seeing similar year over year headwinds from mortgages as the macro environment for both refinance and purchase has yet to recover.
Given current revenue pressure combined with consistent consumer demand for our learn and shop content. We now expect that Mou growth should outpace revenue growth during Q3.
Onto our financial outlook.
As we look forward to the remainder of 2023, we remain in a challenging macro environment for many of our verticals and.
And expect recent headwinds to persist.
We plan to continue providing quarterly guidance and will also provide qualitative commentary for full year expectations.
For the third quarter, we expect to deliver revenue in the range of $142 million to $147 million, which at the midpoint would grow 1% versus prior year.
We expect to see continued, albeit slowing growth from banking as well as slightly easier comps and our loans verticals.
With minimal expected near term changes in the macro outlook.
Our typical seasonal increase of high single digits from Q2 to Q3 will be more muted this year given the partner conservatism we're seeing.
Insurance is expected to decline year over year during the second half as we believe it will still take several quarters for the industry to digest the latest profitability issues.
We continue to see partners value the quality of our consumers, putting us in a position of relative strength and while consumer fundamentals and demand still seem relatively healthy we will face a tougher comparison from the second half of last year when deposit demand was extremely strong and.
Underwriting was a bit looser across the board, especially in prime consumer products.
This all led to an expectation that revenue growth levels will remain lower than what we delivered in Q2 for the remainder of the year.
Moving to profitability.
We expect Q3 adjusted EBITDA in the range of 18 million to $20 million or approximately 13% of revenue at the midpoint.
A three point increase versus prior year.
Our dedication to delivering year over year margin improvement in the face of significant revenue deceleration showcases the benefit of our organic traffic as well as the flexibility of our business model.
We are still running a large scale brand campaign during the third quarter. So we expect to have another period of reduced spend versus last year.
Aligned with how we have previously described our approach to our performance marketing lever.
We will lean into verticals, where we're seeing positive momentum to deliver profitable growth.
Yes.
Given our similar quarterly brand cadence to last year, we still expect relative adjusted EBITDA margins to be lower during the first three quarters of the year compared to Q4.
We are also reconfirming that we plan to deliver a year over year increase in our annual adjusted EBITDA margin for yet another year and now expect that full year 2023, adjusted EBITDA margin should be over 15%, resulting in roughly three points of incremental margin.
Versus 2022.
Okay.
I also want to take a moment to discuss the new metric disclosure that we provided within our earnings press release and shareholder letter today.
We are now disclosing non-GAAP operating income.
Or adjusted EBITDA less stock based compensation and internally developed software costs, which were capitalized during the period.
We will continue to report on both non gap, Hawaii as well as adjusted EBITDA and make progress towards improved levels of profitability in both.
We expect to deliver approximately 2% non-GAAP Oi margin for the full year 2023, as well as mid single digit margin for 2024 and.
And we believe we are getting closer to a mature annualized run rate per employee for stock based compensation.
We believe that the additional expenses included in the newly disclosed metric or a part of doing business and hold ourselves accountable both internally as well as with you our fellow shareholders for the efficiency of those investments.
Delivering on our financial commitments, even during challenging conditions reinforces the resilience of our business model.
We remain a key destination for consumers to navigate their financial questions during uncertain economic times and.
And believe that our mission to provide clarity for all of life's financial decisions and relentless dedication to consumer first experiences will help us grow across credit cycles with that we're ready for questions operator.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Justin Patterson with Keybanc. Please proceed with your question.
Great. Thank you and good afternoon.
Lauren I wanted to stick with where you just ended our non-GAAP operating margin.
Sounds like great progress in the next year mid single digit target I'm curious just given all the moving parts in the macro environment.
What's giving the confidence behind just that progression into next year is there any assumption of just getting past some of these revenue headwinds to achieve that target.
And that person in the letter you did talk a little bit about a third AI chat bot data.
Love to hear a little bit more about just how you think that.
Chatbot.
<unk>, how consumers and advertisers engage with nerd wallet over time. Thank you.
Thanks, Justin I'll take the first part here.
So I'll just remind everyone given the op related operating leverage that we have as a result of our organic traffic. We feel confident that we can continue to show margin accretion in both adjusted EBITDA margins as well as our newly disclosed non-GAAP operating income metric, regardless of what type of macro environment.
We're in.
As <unk> seen over the past couple of quarters, we're continuing to show nice leverage in areas like R&D as we're more efficient with our use of head count and the investments in product and engineering.
We've also talked about being incredibly disciplined about our sales and marketing spend.
<unk>.
Proactively reduced some of our brand spend and as you can see this year and then we really see performance marketing as a variable cost that we can lever up or pull back on as needed.
And then we talked a little bit about in our G&A as the result of becoming a public company you see sort of a step up in cost and we don't expect those to set up any further and so you can see how we've been showing that leverage over the last couple of quarters and we expect all those to those same thing to happen as we move into the short term and into the new year.
<unk> as well.
In addition, we've talked a little bit in the prepared remarks around stock based compensation and how we're seeing us reach more mature levels on a per head basis, and so that will also help with margin accretion from a non-GAAP perspective.
Yes, I can.
Speak a bit to the 2024.
Big picture macro before I dive into AI. So generally speaking on the consumer demand side, we continue to grow our reach and increase the value of our franchise.
We hit records in just about every traffic and brand metric we track during the first half things like brand awareness and brand.
Brand affinity.
And so I'd say what changed over the last quarter right like the credit default risk and unemployment outlook seem to be trending better than what was previously feared but as Lauren mentioned in her remarks, there's a bit of conservatism in balance sheet management happening at the banks post Seb.
Consumers worked through their excess deposits.
Deposits are a bit slight year, there might be a few more rate hikes coming in the regulatory rules are kind of finalizing so that means in consumer lending you have a dynamic where near prime lending has probably found a floor, but prime lending appetite is lagging a bit as banks manage their balance sheets and subprime being subdued versus a second.
Half of 'twenty, two and a recovery there will probably follow a recovery and near Prime.
And you're seeing this show up as personal loans is growing sequentially, whereas in credit cards, you've got areas like dance transfer that are facing headwinds relative to the second half of last year.
And so anyway as we look into 2024.
I would say there is a few possible scenarios next year and a soft landing scenario, we'd probably look back in a few years.
Say that 2023 was below our normalized revenue growth rate and exiting 2024, we were about it because as those recoveries in cards loans and insurance not the fed needs to hike rates materially more than people are expecting in order to fight off inflation that could lead to another step down.
Longer period in a more dramatic recovery on the back end. So we think in either scenario, we've got our game plan and we're pushing internally on being efficient.
In terms of AI.
Yes, we.
We remain excited by the possibilities here.
As a chatbot trained on <unk> content, and it's giving our consumers a new way to engage with our financial guidance.
Feel free to play around with it it's on a lot of our personal finance pages.
It can do things like summarized and article are helping us navigate to the next relevant article.
I'd now like all product features we see these things as hypotheses to be Iterating on overtime and excited to have this one life.
One moment for our next question.
Okay.
Our next question comes from the line of Youssef Squali from Truest. Please proceed with your question.
Hi, This is Robert Taylor on for Youssef, Thanks for taking the questions.
Yes.
Your guidance is AD spend so it looks like brand was down year over year performance was up based on our estimates I'm just curious why that was.
On the new channels like short form video are you guys, taking spanned all from different channels versus incremental Smith.
Okay.
Yes, I can take that.
So just as a reminder, in the shareholder letter as well as in the Q, we do provide a breakdown of our sales and marketing spend and you can see the percentage splits between our three big investment areas, which we call out as organic performance marketing and brand. So so you can see those in there as we've mentioned.
On the last call as well, we are reducing brand spend while still investing in large scale campaigns things like that we're adjusting to be nimble and flexible based.
Based on the macro conditions that we're seeing and we are being proactive in that area performance marketing, we think about slightly differently. We really see this as a variable cost that we can dial up or pull back as needed and so in areas, where we're seeing nice returns will continue to lean in and in <unk>.
But we're not seeing the returns either because of consumer behavior changing and our partner.
Demand changing we can easily pull back as well. So you can expect us to do that the other thing I'll mention on performance marketing, we see it almost as a means to an end as well, it's a way for us to get folks to the site get them registered when it makes sense and then we can reach out to them proactively nudge them when its time to come back.
I can make a smart money move her to reengage them.
With the new thing so again, we see it variable costs, but also see it as a means to an end by getting more registrations.
Just to add on.
Yes.
I think it is exciting to see record brand awareness.
In the first half and record any used along with 37% growth in cumulative registrations, despite pulling back a bit on our brand.
<unk>.
We're relatively new to this rate 2022 was our first full year of spending on brand campaigns and we learned some things and that means we're going to get smarter about our accretive and where we spend and hopefully we can get a bigger bang for buck each ensuing year.
So, yes, we'll keep on making adjustments up and down as we get more info.
Okay. Thanks, and if I can just ask one more on <unk>.
Very interesting.
I just wanted to clarify if this is Pete.
AI Chatbot is through a partnership where you guys are building it out in house.
What the cost impact will be over the next year or so and if thats related to the breakout of the non-GAAP operating income.
If that is responsible for expectations of software development costs increasing.
Going forward and Thats.
Pauls were tied into the.
non-GAAP operating disclosure from from AI or the phone.
I'm thinking about that wrong feel free to let me know thanks.
Yes, I'd say, we're leveraging.
Third parties I mean open AI.
So it's really not a big operating expense on a variable basis.
The training side as our own content.
It's really the secret sauce behind this thing so.
From a consumer perspective, I think it can really help.
Summarized things as well as give people to the right content on our site more effectively.
But again not a huge impact on cost and I can comment on the non-GAAP , Hawaii question as it relates to AI.
AI, we're looking at it's still early days, but we don't see this very different than we see other initiatives that we're doing and so we're continuing to invest for the long term, while getting more efficient in areas like R&D.
And so again, we treat AI similar to other initiatives and so your question around non gap Hawaii No. That's not the reason why.
We disclosed a new metric this quarter again, it's part of the way, we think about all of our investments.
Our need to disclose or want to disclose the non-GAAP aligned metric was really around aligning how we operate things internally and providing that clarity for investors as well and as Tim talked about in the past.
Stock based compensation as well as capitalized software our true cost of doing business, whether they're cash or noncash and so we felt that the increased disclosure.
Something that shareholders should hold us accountable for.
Okay. Thank you.
One moment for our next question.
Our next question comes from the line of James Faucette Morgan Stanley . Please proceed with your question.
Hi, everyone. It's Michael in Fontana for James Thanks for taking our question.
Lauren Tim I'm curious, if you could help us sort of decompose the mix between lead pricing versus volume of matches, just sort of trying to understand while volume of matches might be migrating lower.
Sort of how is pricing evolving in our both decelerating.
Yes so.
I'd characterize this as having similar dynamics to say in 2020 rate than our core underlying franchise value to me is really around matches and match volumes. So that's actually quite healthy rate.
What's really happening is that the financial institutions are pulling back on how much lending they want to do right now in some areas, especially in those areas that are more balance sheet intensive like we mentioned balanced transfer rate imagine youre really subsidizing zero percent interest for a year or more than that.
That can be kind of a consideration given all the other stuff that's happening right now with deposit stickiness and interest rate hikes and regulatory changes and so we just think that's a bit of conservatism. We think it's in portal and it's very similar to past cycles.
Understood.
Maybe just on the other verticals in particular.
Obviously understand sort of the high yield savings account tailwind over the last several quarters. How are you guys sort of thinking about the back half and sort of what that is ultimately going to mean for near to medium term Rev growth as we get some normalization there.
Specific to banking just a reminder for everyone on the call. It's part of our other verticals category.
Yes more than doubled in Q2 so.
So yes, we're starting to see a bit of deceleration, but if rates stay where they are we would expect to see a higher new normal in banking.
Probably a little lower than where we are currently.
The macro really depends on where rates go if we revert back towards zero rate environment. We go back to levels, we probably saw a few years ago.
But conversely, we'd also expect to pick up in our mortgages business that such this so big picture with banking, we really want to make hay, while the sunshine's one of our growth pillars is register and engage and I'd note that this is a bit of a different audience than for example, personal loan shoppers. So it's a great opportunity to register a broader audience.
And expand our reach.
Thanks, Tim.
Yes.
One moment for our next question.
Our next question comes from the line of Jed Kelly with Oppenheimer. Please proceed with your question.
Hey, Greg.
Just wanted to talk about two verticals, where it looks like you're driving more share more share gains relative to your competitors. One just on personal loans can you sort of talk about what's working there and then on the strength you called out an insurance obviously, the underwriting headwinds are pretty self explanatory.
Atlantic Tory, but.
What is going on with your carrier relationships, that's allowing you or your consumers that allow.
Allowing you to drive growth in both those segments. Thanks.
Yeah, I'll take those one at a time so in terms of personal loans. We've got two underlying factors that drive the broader industry and then I'll talk about our market share in a second but yes, the broader factors or credit quality trends and demand pull through so in terms of credit quality.
We've seen three plus quarters of tightening and were finding a floor I would say there haven't been major surprises on the credit quality side things are tracking roughly where lenders expected them to be but as a reminder, a lot of lenders are expecting unemployment at close to 6% exiting 2023, and they are factoring that into their underwriting in the past couple of quarters and thats proving pretty conservative.
I think thats, causing a bit of loosening up there those still stalled near pretty trough levels.
And then on the demand side I think there is some pretty good long term tailwind is there because it's personal loan demand is driven by.
Mostly people consolidated credit card.
And we're seeing a demand tailwind in terms of rising credit card balances I think in terms of our market share. There. We mentioned last quarter, we managed to double our match rate on people looking for personal loans by integrating the OTV technology, and then iterating from there.
Anything from a more comprehensive marketplace.
Asking people the right questions and better matching technology on the backend. So that's that's definitely helping us.
<unk> serves the consumers better, but also gain a little bit on the top of funnel.
And then in terms of insurance.
Yes.
Ross I mean, even though were up 41% year over year.
<unk>.
There is carrier profitability headwinds their carriers are probably losing money and half the states right now in terms of writing new policies.
And there's just really low visibility there.
I think what ultimately causes this the pass is.
Inflation coming down and then carriers getting a chance to reset pricing in terms of relative market share.
I think we talked about a bit last quarter about.
A more personalized marketplace experience.
And we think Thats really driving the share gains there and are really excited to continue investing there. Despite this being a hard market.
Got it and then just just a follow up given that when you look at your results, you're obviously operating from a position of strength and a lot of smaller competitors are.
Facing tough times, how should we view the acquisition environment right now and how youre thinking about it. Thank you.
Yeah more broadly speaking right.
We think about capital allocation is having a few outlets rate is everything from returning capital to investing in organic growth and organic growth.
We just got to be opportunistic.
We care a lot about pricing and relative value.
And so yes.
Unsurprisingly.
There is definitely a lot of activity out there in.
In terms of potential acquisitions. So we're trying to be disciplined and think hard about what makes a ton of sense and where we can have a pretty good margin for error as we as we execute.
Thank you.
One moment for our next question.
Our next question comes from the line of Ralph <unk> from William Blair. Please proceed with your question.
Good afternoon. Thanks for taking the question two if I could please.
First on the strong 37% growth that you had year over year and registered users.
Whereas some of the top factors driving that and maybe your opportunity to continue to drive rents.
Registered users going forward.
Secondly, Tim kind of going back to the nerd AI chatbot more broadly I know, it's super early but how is that sort of I guess informing our shaping your view on gen. AI more broadly in terms of its impact or opportunity for the platform going forward. Thank you.
Okay.
Yes. Thanks for the question on the registered users I would say the top drivers are really around our success in land and expand.
We're just getting into more verticals and covering our.
Our existing vehicles more deeply which is giving us a larger surface area.
By which to registered users.
So for example areas.
Areas like social security Medicare small business, we're really building things out.
Getting people on board there and the second driver there I would say is shopping you know as we get more personalized with our shopping experiences Theres a really good reason for users to register to get more personalized results and Thats also driving more registration. So we're just getting more.
Organize and Iterating aggressively there.
On G&A.
I like to always go back to first principles.
What are the consumer problems that need to be solved.
I think the biggest opportunities.
For us or can we democratize access to great financial guidance.
Typically you would need a human that's very expensive managing a lot of investable AAM to justify the expense. So how do we make that more mass market right.
And in terms of other opportunities I mean, obviously every function at <unk> it should be thinking about using generative AI to be more productive that probably applies to every company out there not just us.
Youre just going to get left behind in two or three years, if youre not figuring that part out.
So those are kind of like two big areas, we were thinking a lot about.
Great. Thanks, Sam.
One moment for our next question.
Okay.
Our next question comes from the line of Pete Christiansen with Citi. Please proceed with your question.
Thank you good afternoon.
Nice job on the <unk> growth.
Well that's pretty impressive.
Yes.
I was wondering Tim.
If you could talk about the health of or at least the health of your partner's budgets.
On the loan side.
I was wondering if you could.
Tell us have you seen any differences between some of the smaller banks community banks, which I believe are still good.
We'll be spending there.
To drive share versus some of the larger players and if you're seeing differences between those two groups. Thank you.
I would call out that most of our revenue in the different parts of lending.
So I'll go by cards, and then broader loans and cards, we really do.
The U S heavily indexed towards six credit card issuers. Many of them are money center banks. So we are definitely seeing the.
Fact at the money center banks.
And then in terms of other verticals you might index more towards non bank lenders and mortgage or fintech and personal loans. So.
Less of an obvious impact there.
How I characterize it.
That's fair Thank you and then.
I thought it was interesting your comment earlier.
I think perhaps we're at the bottom on the personal loan issuance side I'm. Just curious if we could just dig into that comment a little bit what gives you confidence that you think.
That vertical can improve at least from here.
Or at least not go down further.
Right.
Yes.
Internally, we are seeing sequential growth in personal loans things seemed to have stabilized it seemed like you know.
Ever since the middle of 2022, it was incremental tightening every quarter.
More talk of this impending spike in unemployment.
And so I feel like more recently that.
That June has changed a little bit even some of the personal lending partners out there.
They don't lend from their own balance sheet in some cases and their access to capital seems to be improving a little bit too.
Just general sense that things are stabilizing a bit there and people are starting to look for volume again.
That's helpful. I'm, sorry, just one more for me.
Just curious have you seen any heightened activity around the student loan.
News.
In our recently and do you think thats been a driver of some of your traffic.
Alright, so this so in student loans.
High level Theres been the Supreme Court ruling followed by the bite and administration, putting out several initiatives for forgiveness.
So applicable to a smaller subset of bulk borrowers at.
At this point, we're really waiting for the outcome of the current forgiveness proposals.
And just taking into account the frequent litigation and policy changes, which all in all it gives us pretty low visibility in terms of predicting the timing or outcome.
Political and legal activities and play right. So.
From a forecasting perspective, we're really not expecting much of a change in 2023.
Okay. That's helpful. Thank you very much.
Yes.
I'm showing no further questions at this time I would now like to turn the conference back to management for closing remarks.
Alright, thanks, everyone before we wrap up I really wanted to give a sincere thanks to our <unk> for their hard work during the quarter.
Through this credit cycle in the next we remain committed to executing on our strategy by investing opportunistically in our business and building on our significant reach to capture more consumer mind share and our growing market.
Look forward to sharing more highlights and examples of our relentless improvements in Q3.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.