Good day and thank you for standing by. Welcome to the NerdWallet, Inc. Q4 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Caitlin MacNamee, Head of IR. Please go ahead.

Thank you, operator and welcome to the NerdWallet Q4 2022 earnings call. Joining us today are Co-Founder and Chief Executive Officer, Tim Chen; and Chief Financial Officer, Lauren StClair. 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. With that, I will now turn it over to Tim Chen, our Co-Founder and CEO of NerdWallet. Tim?

Thanks, Caitlin. Here at NerdWallet, our 2023 plans are well underway. We started the year on the right foot, ready to capitalize on new opportunities, grow our business, and help more people in more ways, and this is thanks to the hard work Nerd's put in throughout the last year. In that spirit, today, I am proud to share a strong finish to 2022 as we exceeded our revenue and adjusted EBITDA guidance in Q4. We achieved this in the face of continued tightening in underwriting across lower credit bands during the quarter. Some of our resilience is driven by the fact that our revenue skews towards consumers with prime credit, but it is also a testament to our investment in building a brand that is trusted across a diverse set of consumer and SMB verticals. Our brand's appeal across multiple verticals has an important follow-on benefit. It becomes easy for us to land-and-expand into more verticals and many of those verticals are inversely correlated to each other, allowing us to grow even during challenging environments. For example, the rising rate environment has created a tailwind in our banking vertical offsetting headwinds in mortgage refinancing. Whereas during the COVID-19 pandemic, we saw a massive increase in unemployment over a very short timeframe, creating headwinds in credit cards, but driving tailwinds in verticals that benefited from fiscal and monetary stimulus. These results are great in and of themselves, but I also value them because they reflect a concerted effort across NerdWallet to execute on our strategy. With progress every quarter in our land-and-expand vertical integration and registration and engagement growth pillars, we ended 2022 several steps further in our journey towards building a trusted financial ecosystem or a single platform where consumers and SMBs can learn, shop, and manage their money.…

Thanks Tim. We're proud of the execution we delivered throughout this past year exceeding our financial commitments in every quarter and expanding our adjusted EBITDA as a result of our incremental margins and maturing cost base. We delivered Q4 revenue of $142 million, up 43% year-over-year and above the high end of our guidance. We finished the year with $539 million in revenue, a 42% increase versus 2021. While the focus of today's commentary will be on our fourth quarter performance, we are encouraged by the full year growth we've been able to achieve highlighting years' long success in areas such as credit cards and SMB as well as strength in our banking vertical, offsetting the pressure we saw in mortgages. We know that certain macroeconomic factors will impact individual areas of our business from time-to-time, but we remain confident that our level of diversification and our continued ability to expand on that in the future will provide growth tailwinds for us for years to come. Now, let's take a deeper look at the revenue performance during the quarter within each category. Credit cards delivered Q4 revenue of $53 million, growing 52% year-over-year. Our credit cards vertical has shown resilience and sustainable growth in Q4 and also reflects what we believe is a normalized seasonal cadence. While the market still feels in good shape, we continue to monitor consumer health. Our focus on providing the guidance and products that are most important to our site and are keeping our eye on key metrics, such as unemployment, to help inform where the industry might trend in the near-term. For the full year, credit cards delivered $210 million of revenue, growing 70% year-over-year. Loans generated Q4 revenue of $22 million, declining 24% year-over-year. Our mortgage vertical saw another quarter of increasing pressure…

Thank you. [Operator Instructions] And I show our first question comes from the line of Ross Sandler from Barclays. Please go ahead.

Hey guys. Congrats on a good quarter. Can I ask two questions? First is on just overall engagement of registered users compared to regular users. How is that trending? And is the 38% growth in registered users a decent kind of proxy for or a leading indicator for what you tend to see on the revenue side? It kind of seems like those two are converging. And then similarly on that, why do you think your growth rates overall are diverging so much from Credit Karma of late? What do you think the biggest factors are that are allowing you guys to outperform them so significantly? So, that would be the first question. The second question is just the obligatory performance marketing. That was up another triple-digits in the fourth quarter running ahead of revenue. How do you think about that as we move through 2023? Thanks a lot.

Yes, I'll take the first one. Throughout this past year, we've been prioritizing user registration as a focus area, and that's really helped us to drive growth there, ending the year with 14 million cumulative registered users, which is up 39% year-over-year. We're also starting to see the benefits of the OTB integration and driving even more registrations. So, what we're seeing is that, unsurprisingly, personalization drives engagement and the key to driving personalization is first-party data. And so that's all about registration. And so from a product development perspective, we're improving registration on ramps throughout the site, improving on those personalized nudges, and we've launched things like courses during Q4, which provides registered users with curated content on financial topics they're interested in. So, yes, I think the growth in registered users is going to continue and we really think about that in relation to our registered user revenue growth, which was up 80% year-over-year in 2022. There can be some puts and takes there, but we expect that to continue outpacing registered user growth. In terms of the divergence with Credit Karma or other people in the industry, we really have two factors going on. One is that our revenue mix skews upmarket relative to some others. We're more prime and super prime. And then I guess the second factor is that we're pretty diversified across a wide variety of verticals. And some of them are inversely correlated to the credit cycle like our banking business.

And I'll take the second part of that question regarding performance marketing. So, just taking a step back and as a reminder, 70% of our traffic comes through organic channels, which over time has allowed us to diversify into other channels like performance marketing and brand. We've always thought about performance marketing as a variable expense that we can dial up or down depending on the returns. And when we see better conversion or pricing, we're able to lean in with more efficient spend. I think more importantly, we view performance marketing as a means to an end as part of our registration and engagement initiatives. And as we create more seamless registration experiences, starting to connect more first-party data, we're able to proactively nudge our users to make smart money moves. In Q4, we were able to continue that recent pace of investing and growing users through these channels. And where we see similar opportunities during 2023, you should expect us to continue to lean in.

Thank you. And I show our next question comes from the line of Justin Patterson from KeyBanc. Please go ahead.

Great. Thanks. Two if I can. Just building off of personalization, I know with the OTB acquisition, one of the key levers there was to improve personalization across the rest of the portfolio. I just would love to hear an update on just how that integration is proceeding? And whether we've seen that conversion benefit take place yet? And then secondarily, there's been a lot of talk about chat out there. So, I'm curious whether trust the bot becomes a potential threat or even opportunity for NerdWallet over time? thank you.

Yes, I'll take that one. So, as a reminder, our general M&A thesis is that we can pair our top-of-funnel brand and reach with these best-in-class shopping experiences like OTB. So, the key components of the acquisition thesis look very promising. So, most notably, we're seeing conversion from integrating their technology where, as I mentioned, we're seeing double the match rate now for consumers coming through our improved personal loans flow. And we're serving a larger audience, and we're registering a lot more people than we were previously. That gives us a lot more to work with in terms of those personalized nudges going forward. That said, yes, the macro for loans is more challenging than we anticipated going into the second half of 2022. So, we're still working through certain components of integration as well. So, that's kind of a headwind. But taking all that into consideration, super positive about what OTB will contribute to NerdWallet in the long-term, especially as we go into more of a recovery. Yes. In terms of the chat AI question, we see both risks and opportunities for NerdWallet. There are some obvious benefits in terms of using chat AI as a productivity tool for teams like content and engineering. I think more relevant to NerdWallet is how chat AI affects the future of search engines. And we really think about that by stepping back and thinking about what consumers are trying to do. So, today, you might go to a search engine to find a quick factual answer or you might also be looking for a more nuanced answer. So, for quick answers, like what's the temperature outside, the search engine gives you an answer immediately. For those more nuanced answers, there's often subjectivity involved and more data needed. And that's why you…

Great. Thank you.

Thank you. And I show our next question comes from the line of Youssef Squali from Truist. Please go ahead.

Great. Thank you very much. A couple of questions here. First, can you maybe just elaborate a little more on what you're seeing on the insurance business. I think you've actually turned the corner there. I think it was up 43% year-on-year in Q4. You talked about launching a new house marketplace. Can you expand on kind of your experience there so far? And kind of within insurance, what are kind of the bright spots that you've seen, is it kind of across the board or just one or two products. And then on the credit card revenues were down sequentially. Can you maybe speak to the level of credit tightening out there? And maybe just how much of that may be seasonal versus just softening demand? Thank you.

Yes. Okay. I'll take the first one. Yes. So, we spent the past year or so facing all the same headwinds in insurance that you've heard about from others, inflation and supply chain issues, making it more expensive to fix a car or replace or fix a house, right? But during that time, we launched this enhanced marketplace experience. And we're going to soon follow-up with marketplaces in home and life insurance. That was all about improving the user experience, giving more personalized responses and increasing conversion rates. So, that was successful, and that drove the success here. So, really excited about the investments we made during the downturn and how that will help us as things recover -- things are looking strong going into 2023.

Yes. Maybe I'll comment on sort of the credit card performance quarter-over-quarter. And then Tim, if you want to maybe add more color on just the environment right now and what you're seeing for credit cards overall. We've talked about credit cards performing incredibly well over the course of 2022. And we talked about two things. One was the pricing recovery from the lows of COVID. And the second piece that we've talked about has been conversion improvements that we've made within our product. And so the expectation around credit cards is that, that pricing improvement and the growth that we are getting from the pricing improvement is going to level off as we move into this year and a little bit as we talked about in of 2022. But again, we still expect lots of headroom there, lots of opportunity, and we will continue with those product improvements.

In terms of seasonality, yes, Q4 traditionally is seasonally weak in credit cards, so no surprises there. And yes, I'd say more broadly, it's a healthy environment out there for prime and up, and there's a pretty broad expectation from loan officers about unemployment increasing 100 basis points throughout the course of 2023 as kind of a low case scenario. And so assuming we don't go too far beyond those levels, we're expecting to be kind of in line with our expectations.

Okay, great. Thanks and contrast.

Thank you. And I show our next question comes from the line of James Faucette from Morgan Stanley. Please go ahead.

Hi Tim and Lauren, it's Michael Infante I'm for James. Congrats on the quarter. Lauren, I know you mentioned Q1 being the toughest mortgage comp, but what are your general perspectives on the extent of the recovery we may potentially see in 2023 in mortgage specifically, particularly given some of the bank executives has started to note that a lot of the excess capacity has already been drained from the system?

Yes, I'll maybe reiterate some of my commentary from my prepared remarks, and then I'll also hand it over to Tim to give his perspective. So, yes, as we said, in Q1 of this year, we expect this to still have really tough comps relative to a year ago when the environment was not quite as bad. We're not expecting any massive change in sort of the macro environment around mortgages for the rest of this year.

Yes. And I guess I'd just add, it's a challenging macro environment for both refi and purchase, volumes are low, interest rates are high. So, we're really using this slowdown as an opportunity to invest in our home equity marketplace. It's a really small part of our business today, but in the spirit of landing and expanding, we've launched new comparison tools here and continue to onboard partners. And so our longer term outlook really incorporates the view that it's going to be challenging, as Lauren mentioned. So, yes.

Understood. Thanks for that. And secondly, I know Ross asked earlier about the relative outperformance vis-à-vis is one of your competitors, but I wanted to dig in a little bit deeper you've seen an acceleration in partners that perhaps previously, we're allocating marketing dollars across a variety of financial marketplaces but now maybe sort of consolidating that spend on your platform just given the quality of the user base that we've talked about previously.

Yes. So, I'd characterize the primary driver is just the deterioration in really near-prime has been -- and sub-prime has been just much more accelerated than prime. I think that's probably something you would typically see in a normal credit cycle and that's probably driving a higher beta. Yes, of course, like, we 'reinvesting in our experiences and the OTB integration, I think, has really leveled up our product experience in our personal loans search, for example. But the first one is probably the major driver.

Great. Thanks guys.

Thank you. And I show next question comes from the line of Jed Kelly from Oppenheimer. Please go ahead.

Hey, great. Thanks for taking my questions. Just going back to insurance. You mentioned the new consumer experience. I mean I think insurance has always typically been a product that's hard to sell and probably some of your competitors, it's a lot of phone calls. So, can you just touch on like where you're sort of disrupting you think the consumer experience in insurance. And do you see that becoming a big enough segment where you could break that out separately one day?

Yes. So, great question. I mean, of course, that's something we think about all the time in terms of user experience. And so internally, the conversation is often, can we do better than that user experience while leveraging our brand and our brand trust to drive parity in terms of things like conversion rates, right? And so -- without getting into specifics, those were a lot of the iterations we're trying to drive with an in-house experience. And yes, I mean, the results have been pretty promising.

Yes, I'll take the second part of that question around breaking it out. As you know, we have three revenue categories with increased disclosure. It's credit cards. We have loans, and we have the other verticals. Insurance today within that other verticals. For right now, that is the plan that we will continue to provide that level of disclosure, but we are always looking at sub verticals and making sure that we are disclosing the right information externally. And so we'll continue to evaluate that.

Thanks. And then just a follow-up. You've obviously generated a lot of synergies with your past acquisitions On the Barrel being the most recent. Can you give us an update on any potential acquisition opportunities or products you would want to add to the NerdWallet platform?

Sure. Yes. Just a quick reminder, general M&A thesis has been match our brand and reach with these better converting user experiences, right? So, where you tend to find opportunities is areas where there is complexity, where you see humans like advisers, agents and brokers trying to help people through transactions and so we're looking at quite a wide variety of things. Just trying to be opportunistic and disciplined from a capital allocation perspective about what we take on next.

Thank you.

Thank you. And I show our next question comes from the line of Ralph Schackart from William Blair. Please go ahead.

Good afternoon. Thanks for taking the question. Just on Australia launch, I know it's very, very early, but just curious what are the signs that you're seeing there? And how would that compare to other markets, similar launch stages? And just more broadly, how are you thinking about the opportunity compared to other markets? And then I'll have a follow-up.

Yes. So, just to level set, I mean, the US is our ordinary priority, right? It's just a huge market. We feel like we have so much room to land-and-expand within the US and vertically integrate given our existing reach and traffic and brand trust. In terms of Australia, it's really early. We're excited to see, hopefully, a repeat of Canada. It feels like running a similar playbook. It's something we're very familiar with and just feels very familiar to, for example, the early days of the US market. And we'll keep giving you updates as we progress in these areas. But yes, the real priority is the US market.

Great. And then just on the loan segment, you talked about on the call about investing in consumer experience before an improving -- or potentially improving macro. And I think you also talked about some positive signals in the shareholder letter. Just curious if you could provide some more color there. What are the positive signals there that you're seeing?

So, to be clear, we're -- yes, we have a pretty muted outlook for 2023 in terms of the macro. We expect unemployment to keep on rising throughout the year. We think that's largely what loan officers are pricing into both their underwriting models and their pricing. So, not baking in much optimism about a recovery there. Yes, if we deviate from those expectations, then we could see upside or downside on the margin. But I think we're a bit lower beta with regards to others, given just the skew towards prime.

Okay. Thank you.

Thank you. [Operator Instructions] And I show our next question comes from the line of Nicolette Radomski from Citi. Please go ahead.

Hi, this is Nicky Radomski for Peter Christiansen, Citi Research. Thanks for taking my question. Have you -- do you expect to see an impact from Goldman's removal of markets in the personal lending space? Any details regarding timing or quantity would be helpful. Thank you.

Could you repeat the question? We didn't -- it didn't come across very clearly.

Sorry. Have you or do you expect to see an impact from Goldman's removal of markets in the personal lending space? Any details regarding timing or quantity would be helpful.

Right. Yes. Okay, got it. Yes, so we do see lenders pulling out of the space and going into the space. pretty frequently, right? I think the way I would think about personal loans is there's a few players competing in the different bands -- credit bands within that market. So you typically have two, three, four, five lenders in the, for example, super prime and or the near prime, et cetera. So, any one lender pulling out or coming in doesn't tend to have a huge impact on the marketplace overall. We really tried to just make sure we're presenting the right options and the set of options to the consumer and balance that.

Makes sense. Thank you.

Thank you. I'm showing no further questions in the queue. At this time, I'd like to turn the call over back to management for closing remarks.

All right. Thanks all. Before we wrap-up, I want to be sure to thank the Nerds for their hard work which made these results possible. As I reflect on this past year and our plans for 2023, I'm really encouraged by the progress we've made, the financial performance we've achieved, and the opportunities available to us as a result. Looking ahead, we know this financial environment will continue to challenge our consumers and SMBs and we plan to meet this moment with ingenuity, focus, and meaningful investments, specifically around driving engagement, iterating quickly, and providing clarity for all of life's financial decisions. Thankyou.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.