Good day and thank you for standing by. Welcome to the NerdWallet, Inc. Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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 your speaker today Caitlin MacNamee.

Thank you, operator. Welcome to the NerdWallet Q4 2023 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 except where we are unable without reasonable efforts to calculate certain reconciling items with confidence. With that I will now turn it over to Tim Chen, our Co-Founder and CEO. Tim?

Thanks, Caitlin. In 2023 headwinds outweighed tailwinds in our business. In the spring we faced increasing macroeconomic headwinds following the regional banking crisis as well as ongoing rate hikes. This affected several verticals, including loans, credit cards and SMB and they have not all fully recovered yet. In addition, the strong insurance rebound we saw in Q1 of 2023 was premature. The industry pulled back through the remainder of the year while the rising rate environment did create tailwinds in areas like banking which continued to outperform our expectations through the end of the year. This did not offset the headwinds in our other verticals. We did not meet our revenue or adjusted EBITDA outlook in Q4 and this is the first time as a public company when we have fallen short of our outlook. We attribute our Q4 miss to underperformance in credit cards and personal loans. While consumer demand remained strong for balance transfer products incremental underwriting tightening and balance sheet constraints limited issuer appetite. We also encountered unexpected growing pains with matching sub and near-prime users with the best products which required us to take a step back. But we believe we're making progress in writing these consumers to the right offers. Our business is cyclical. While I believe there are positive signals to suggest that conditions will improve in 2024 we know that headwinds and tailwinds offset each other over time. So our priority is growing from cycle to cycle. We continue to take share across the cycle in a large and growing market independent of macroeconomic factors. Our primary addressable market US financial services digital advertising is expanding with a 2023 four-year CAGR of approximately 15%. And normalized share in this market has also increased with a four year revenue CAGR of 27% and in…

Thanks Tim. We delivered Q4 revenue of $134 million, down 6% year-over-year and we finished the year with $599 million in revenue, an 11% increase versus prior year. We remain in a cyclically depressed macroeconomic environment, particularly in interest-rate sensitive areas such as loans, as well as balance sheet intensive prime lending. We also ended 2023 with a bit more headwinds in credit cards and personal loans than originally anticipated, causing us to deliver revenue below our previous outlook for the quarter. But we are cautiously optimistic about the macro outlook, as well as partner sentiments and we believe that the beginning of recovery is within sight. Let's take a deeper look at the revenue performance during the quarter within each category. Credit cards delivered Q4 revenue of $43 million declining 18% year-over-year. As we've spoken about previously, the regional banking crisis in the spring of 2023 drove increased balance sheet constraints and issuer conservatism. We believe these dynamics are temporal rather than structural, and are weighing on our year-over-year results. During Q4, we experienced a higher than usual seasonal decline versus Q3 and slightly worse than our expectations driven by moderately increased levels of issuer conservatism in balance sheet intensive areas such as balance transfer cards. We will continue to leverage our strong top of funnel and maintain the discipline to lean back into profitable paid acquisition, once we see issuer demand and monetization recover. For the full year, credit cards delivered $210 million of revenue roughly flat to the prior year. Loans generated Q4 revenue of $24 million growing 5% year-over-year. Q4 delivered a larger than normal seasonal decline from Q3, primarily driven by incremental lenders tightening as delinquency rates continue to rise and personal loans as well as coming off a strong Q3 in student loan originations.…

Thank you. [Operator Instructions] Our first question comes from James Faucette with Morgan Stanley. You may proceed.

Sorry about that. I was online with the mute button. I wanted to ask quickly it sounds like you're seeing some indications that things can improve and specifically you mentioned small medium-sized business and insurance and seem pretty confident about that. Can you just describe like what is driving your confidence in that particularly for the second half of the year? And I'll just tie on my second question which is kind of related in the broader credit market. We've seen lots of comments around prime and subprime, credit, performance, et cetera. Seems like there may be some improvements there. But in your conversations with your partners, how do you usually see that communicated to you and what kinds of things should we be tracking to see if the potential for so the credit part of the market to contribute to the second half growth as they materialize? Thanks.

Thanks. Yes, thanks for the question. So, I'll take those one piece at a time. I guess in terms of insurance, the inflation driven insurance industry headwinds continued through throughout all of last year, right, and into Q4. So, we saw a 22% decline on a year-over-year basis. We started to see a recovery at the end of last year and into Q1, which is represented in our outlook for Q1. Exiting Q1 carriers seem to be expecting a pretty broad-based and durable recovery throughout 2024. So, for some context large parts of the US population today still aren't being served from the perspective of carriers wanting to write home and auto policies. So, you can imagine that as this resolves itself, there will be a medium term tailwind as those markets open back up. And so that's one of the main drivers in terms of our 2024 outlook where we're expecting double-digit year-over-year growth in the back half really that -- yes that recovery from the worst insurance hard market in a few decades. And then in terms of small business, I'd say with that when we saw a lot of progress, we just crossed the three-year anniversary of integrating Pandora. We more than tripled revenue, a lot of success in vertical integration, and land and expand within SMB. So, really happy with that. That being said, we're still in a really tough macro right now. A lot of the underwriting is a bit tighter than what we've seen historically. And so we do expect at some point for that to become a tailwind as there's a macro recovery. The timing on that one is a little bit harder to call and then yeah you're certainly right on that. And the commentary around prime consumers, we're hearing the same…

Great. Thanks for that, Tim.

Yeah.

One moment for questions. Our next question comes from Ralph Schackart with William Blair. You may proceed.

Good afternoon. Thanks for taking the question. Just on credit cards. Just maybe talk about I think recoveries might be saying that can I have called out maybe some early signs. So any color on that and spending kind of broader just from the credit card issuers you know what are they sharing with you just in terms of what they're watching for before they may return back to kind of more normalized levels that you've seen historically? Then I have a follow-up.

Sure. Yeah. I think it's largely around -- there's two factors happening, right? Like so, in some prime areas like say data transfer that are a bit more balance sheet intensive. I mean I think there's non-credit related factors, just kind of affecting how many units of demand that balance sheets can handle, right. So I think some of that will resolve itself as we move through the cycle of it. And then from a credit specific perspective, I think it's really tracking these early delinquency trends and making sure that they've adjusted underwriting appropriately to be comfortable with some of the trajectories there. So I'd really point to this quarter quite a lot of commentary from card issuers, if you're feeling a little bit more optimistic there and ICE4 and in terms of a recovery.

Great. And just maybe a follow-up to that. As we think about credit cards and sort of modeling that for I guess Q1, what's sort of contemplated in guidance. And I know you can't give specific numbers, but just maybe kind of think -- help us think through some of the puts and takes as we sort of recalibrate our models? Thank you.

Sure.

Yeah, let me take that, Tim. I can go over Q1 guidance specifically. So -- and your question around credit cards and what's contemplated. First, I'll just remind everyone that the guide for Q1 for revenue is $155 million to $160 million, which at the midpoint would be declining 7% year-over-year, but up 18% quarter-over-quarter. And some context on that from Q4 to Q1, we would typically expect to see a material increase quarter-over-quarter, which in a normal year is driven primarily by consumer demand at the start of the new year supported by our brand efforts. Last year was a fairly typical Q1 for us, and while we are seeing our typical Q4 to Q1 step-up this year, we are still facing many of the headwinds from prior quarters, and so becomes a tougher comp year-over-year. So to your question, we are still experiencing headwinds in credit cards, but we have called out that we're starting to see a recovery in areas like insurance and also SMB products. But just as a reminder, insurance is still going to have a tough comp in Q1. So even though we expect a material increase quarter-over-quarter, the comp on a year-over-year basis will be tough.

Yeah. And I'll add on, I guess credit card specific, as we look at our 2024 outlook, it's kind of hard to call exactly when underwriting start solution again. So we're being relatively conservative about that. I would definitely encourage you to look at 2019 seasonality and cards as being kind of a more normal historical year. We saw some pretty unusual patterns in the years following as we recovered from COVID. But yet in 2019 you saw had a pretty large sequential decline from Q3 to Q4 and then I think that matches more of a normal seasonality pattern.

Thanks, Tim. Thanks, Lauren.

Thank you. One moment for question. Our next question comes from Ross Sandler with Barclays. You may proceed.

Tim you mentioned the challenges in matching the credit card business that you realized in the fourth quarter. Can you just elaborate a little bit more on that? Was this technical issue on your side or something external? And did you leave any money on the table as a result of this? And kind of can you just walk us through? When do you think that will be resolved?

Sure. So right, I describe us as being matchmaker is right. So we just got some things wrong in Q3 and over earned in terms of our matching algorithm for near and subprime consumers and extrapolated incorrectly from there. But we want to get this right for consumers and financial institutions. So, we basically hit pause and rebuild things from the ground up and this is not the first time this has happened, right? When you go into a new market sometimes it takes a few cycles and some feedback to get that matching rate. But we feel like we're back on the right path now. So we are encouraged going forward.

Yes maybe I just wanted to clarify, the commentary around challenges with matching was not in credit cards. It is in personal loan to Tim's commentary right now it's about personal loans not card.

One moment for question. Our next question comes from Jed Kelly with Oppenheimer. You may proceed.

Hey, great. Thanks for taking my questions. Just two on, can you talk about how we should think about margins if marketer demand comes back and how you would lean into it I assume you would you wouldn't mind sacrificing some margin at the gross profit dollars. Makes sense. And then how should we think about the overall opportunity in insurance? It's a huge market, but the customer service isn't always the best. So how do you think about leaning into that market and trying to grow your percentage of the overall carrier budget? Thanks.

Great. I'll take the first part of your question and then I'll hand it off to Tim for the insurance piece. I'll just to your question around margins. I'll just remind everyone that Timberland or wallet for the long-term and this is also how we think about margins, we've been working towards margin accretion that would get us back to and eventually surpass our 2019 adjusted EBITDA levels, which in the range of our outlook for full year 2024, we would get back to this year. And we've worked to achieve this through getting leverage in the portion of our cost base that is relatively fixed in nature. That includes one, hitting a logical ceiling on our brand spend; two, no longer having the step change in G&A expenses as a result of becoming a public company; and three, continuing to gain leverage in areas such as R&D and the organic portion of our sales and marketing. We're really proud that we've been able to deliver consistent margin accretion on an annual basis since our IPO in late 2021 even in difficult macroeconomic environment. And our outlook showcases our commitment to continuing this trend. So if the top line picks up faster than what we are currently contemplating. We will clearly lean in on things like variable expenses that we've talked about. So when it's profitable and period, we will lean into things like performance marketing, you could expect those costs to come up. But for the fixed and a portion of our cost base, I would expect to get leverage out of those over the long-term.

And it's a great question on insurance, if it is a big strategic question that we're constantly trying to work our way towards, you're right, it's a huge market there. And there are a lot of challenges in terms of providing consumers with a sensible experience there. And all I can say is that we're trying to be creative and exploring a bunch of different avenues and hope to have something to talk about in the coming years there. But it's going to be a long investment.

Thank you.

[Operator Instructions] Our next question comes from Youssef Squali with Truist Securities. You may proceed.

Hi. Thank you. Couple of questions. One for Lauren – maybe for Lauren. You talked about for full year adjusted EBITDA margin, the 18% to 19.5% of revenues. And so thanks for that. And now the obvious question is kind of what's your base case on to get either to the low end or the high end and that in terms of growth, I'm assuming it's a mix and kind of the – the acceleration in the second half. But any kind of guardrails you can you can kind of share that for that would be helpful. And kind of related to that, is that also kind of related somehow to changes in the rate environment? Just maybe Tim, what's your – what's your some kind of base case for further rate environment as we go through it because obviously, it's been very, very fluid in the last four weeks.

So the first part of your question Youssef, in terms of full year adjusted EBITDA. As we said before, we're really proud of the margin accretion that we've been able to continue to show for full year even despite some volatility in the macro. But what we're expecting in terms of full year on the top line, we said that we currently expect to return to double-digit rates of revenue growth starting in the second half. This would be led by SMB product and insurance. And I will reiterate what I said in my remarks though that the exact timing of the recovery, especially in areas such as balance transfer cards as well as any interest rate driven demand changes in both banking and loans will influence how high those double-digit growth rates will be and by wind.

Yes. And in terms of the base case, we're trying to be – it's hard to call exact timing on a lot of these things. So we're definitely trying to be conservative. I will paint the overall macro picture just as being, if there is a soft landing scenario that would be pretty ideal for us because what would happen is you'd see, easing headwinds in credit cards and loans businesses, balance sheet constraints in underwriting loosen and you'd also see an increase in refi demand across all lending areas as rates decline. And then we'd also see easing headwinds in our insurance business as inflation continues to moderate and carriers get back on their feet as this pricing flows through, so should we experience more of a hard landing scenario? You should expect revenue recovery to take a bit longer possibly even getting more challenged in the near-term and all we'll be prudent with our expense management in order to deliver on our margin commitments. The timing of any material changes in the macro environment could impact shorter term progress in some of those margin efforts.

Thank you. Just one quick clarification maybe Lauren, when you talk about same brand spend levels in 2020 as in 2023. Is that on a percentage base or is that in aggregate dollars?

That's for the full year in absolute dollars.

Absolute dollars, okay. Great. Thank you both.

Thank you. Our next question comes from Justin Patterson with KeyBanc. You may proceed.

Hi. Thank you very much. Good afternoon. Tim, could you talk about some of your top priorities each year across your big three growth pillars but what we expect around land and expand, vertical integration and engagement initiatives? And then I'll have a follow-up to Lauren.

Yes. Thanks for the question. So those are three growth pillars, right? I'd say, land and expand is really more of our tried-and-true playbook. I mean we're always pushing on that in terms of the as stuff that's going to be a bit more novel over the coming several years. I think it's really in terms of the vertical integration and the registration and data-driven engagement. So we're thinking really hard about where there's still gaps and customer experiences, where we can uniquely play on NerdUp is a great example of that. But also things like we've launched late drive like a Nerd. We've launched NerdWallet Advisors. So there's a lot of different thought processes that were explaining a lot of hypotheses that we're eager to evaluate.

Got it. Thanks. And then the follow-up for Lauren. I appreciate the details you gave around just the revenue growth in the second half of the year. I wanted to confirm was that double-digit growth on the second half as a whole or on a quarterly basis? And then as you're thinking about just the growth vectors in there, how should we think about the puts and takes between user growth versus just brand spend or advertiser spend starting to improve again, thank you.

Sure. So the first part of your question Justin was around revenue growth. So what we said was that we expect to return to double digit rates of growth for revenue year-over-year starting in the second half. And then, the second part of the question was, I believe around MAU growth and user growth as well as brand spend. Is that correct? Q – Justin Patterson: Yes. Just thinking about the buckets in there, user growth is obviously, well above total revenue growth right now. So just wondering, if there's any views off of, how users persist versus say pricing recovery that's driving that reacceleration?

Yes. Let's talk a little bit about a new use, and we're really proud of that growth in Q4, we grew roughly 24% year-over-year from strength in many verticals both from high levels of consumer intent, as well as our success in landing and expanding similar to areas where we saw growth in revenue. We see growth in MUU. You can think of banking and personal loans, and we also saw high consumer interest in areas like travel and investing. As we expected to your point and MUU grew faster than revenue again in Q4. This trend gives us confidence that consumer demand remains healthy despite ongoing partner conservatism, and we expect that this outperformance of MUU versus revenue. We expect that to continue into Q1, as we see really strong engagement, with our learning content as consumers are continuously looking for unbiased guidance and financial content during this complex, macroeconomic times and despite some of the near term revenue pressure, we expect that the strength in MUU combined with our ability to match consumers, with our financial service providers will accelerate our growth as the macro environment improves. Q – Justin Patterson: Yes.

I guess just to add on about there? Yes, in past cycles right as the macro recovers, you definitely get this tailwind is you know, partners are loosening underwriting. They're getting more aggressive around acquisition. So, and pricing should definitely be a tailwind as well. Q – Justin Patterson: Got it. Thank you.

Thank you. One moment for questions. Our next question comes from Pete Christiansen with Citi. You may proceed. Q – Pete Christiansen: Thanks. Good evening. And appreciate you asking answering questions here on Tom. I know you called out prime as an issue earlier, and we've heard it in other areas as well. I'm just curious, what you're seeing on the subprime side in terms of partner willingness to extend offers or to invest there? While I understand the delinquencies kind of peak there already things are kind of stabilizing, at least on the subprime, near prime area. Just curious, if you're seeing any improving activity there.

So, I think then certainly subprime is more stable that we had limited surprises there. I think really the timing there started probably the middle of 2022, probably 2Q 3Q and kind of incrementally got tighter and tighter. I think that feels like it's on more of a more of a floor. Q – Pete Christiansen: And then Tim and comment real quick just curious, you called that trial will still be a nice growth vertical there within card. I'm just curious, if you can put some color on that in terms of travel related products, and how they're faring on the platform.

And maybe I'll clarify with that one. So to the commentary around travel was the travel sort of vertical as a whole, not related specifically to credit cards although that is a piece of it. But the commentary was around the user growth and MUU growth specifically, in Q4 and where areas where we saw strength, one of those areas was travel. Q – Pete Christiansen: Okay. Yes.

So we've got a lot of great and great content, and insights around travel. And I think it's a amazing way to get in front of users and introduce from an inner voice and reengagement as well. Q – Pete Christiansen: That's super helpful. Thank you, both.

Thank you. I would now like to turn the call back over to management for any closing remarks.

Thanks all for your questions today. And as always, I'd like to thank the Nerds for their hard work in 2023 their efforts to drive progress towards our vision last year. I mean, we are well set up for 2024 and beyond to learn more about NerdWallet business condition mark your calendars for March 4 when we plan to release a new Investor video on our IR website, and looking forward to hearing your thoughts. With that, we'll see you next quarter.

Thank you for your participation. You may now disconnect.