NerdWallet, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the NerdWallet Q4 2021 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 1 on your telephone. If you require any further assistance, please press star then 0. I would like to hand the conference over to your speaker, Mr. Jack Nichols. Please go ahead, sir.

Thank you, operator. Welcome to the NerdWallet Q4 2021 earnings call. Joining us today, our co-founder and chief executive officer, Tim Chen, and chief financial officer, Lauren St. Clair. 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 the 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 forward-looking statements as a result of the factors discussed in our prospectus dated November 3rd, 2021 and in other reports filed or to be filed with the SEC. We urge you to consider these 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.

Thanks, Jack. Good afternoon and thanks for being here. I'm excited to share our results for the first time as a public company. NerdWallet's mission is to provide clarity for all of life's financial decisions. Today, more than ever, financial decisions are relevant and important in people's lives as the pandemic has made economic situations difficult for many. Being a public company gives us a stronger platform and more resources to achieve our vision of a world where everyone makes financial decisions with confidence. We strive to make this vision a reality by empowering consumers and SMBs with trustworthy and knowledgeable financial guidance, while helping our financial services partners cost-effectively reach well-informed consumers who are a great match for their products. To accomplish this, we focus on three key areas. First, blending and expanding in new verticals and geographies. Second, deepening our integration within existing verticals. And lastly, engaging our consumers. We're happy to say that efforts in these areas are paying off. 2021 was a year of sustained momentum at NerdWallet, culminating in unseasonably high Q4 revenue. While COVID-19 impacted our business in 2020, we saw several positive signs of recovery last year, both in our financial performance and in our ability to make progress on several initiatives. there were plenty of accomplishments to celebrate in 2021. To name a few, we drove an average of 19 million monthly unique users, or MUUs, to our platform, and we continued our efforts to register and engage those MUUs, ending the year with over 10 million registered users. We grew across every revenue category. Credit cards, loans, and other verticals all posted over 50% growth in 2021, generating $380 million in total revenue. We continued the integration of Fundera by NerdWallet, resulting in strong engagement in SMB loans with a net dollar repeat rate for our Q1 2021 cohort exceeding 65%, which is even better than our pre-COVID cohorts. And we followed our 2020 launch of NerdWallet UK with the launch of NerdWallet Canada in July 2021. leveraging our extensible organic playbook to bring trusted financial guidance to our second international market. We're excited about our Q4 results in particular. In the fourth quarter, we achieved strong year-over-year revenue and MUU growth and generated positive adjusted EBITDA while investing both in our trusted brand and in our nerds. Our vertical integration of Fundera by NerdWallet continued to gain momentum. During the second half of the year, we launched two new SMB marketplaces, one for payment processors and one for insurance providers. Both of these marketplaces enable small business owners to get qualified for and matched with multiple providers at once, putting the power to make the right financial decision in their hands. We believe that product developments like these play an important role in driving the momentum of our other verticals and increasing our share of revenue from existing customers. At the end of Q4, we launched our Unlock Your Dreams brand campaign, highlighting how NerdWallet's financial guidance, tools, and products enable consumers to reach their dreams. The campaign has already appeared across a variety of notable media spots and will also be featured on new to NerdWallet marketing channels such as TikTok, HBO Max, and Peacock. We believe these investments will continue to build our brand awareness and establish NerdWallet as the trusted source consumers turn to and return to for all their money questions. Between stock market volatility, rising inflation, and the extension of student loan forbearance, the financial complexities confronting consumers today are unprecedented. To help them navigate these challenges and cultivate user engagement, our nerds have been disseminating high-quality guidance across all of these timely topics and more on various channels, including our Smart Money podcast, Instagram, YouTube, as well as in our CRM newsletter. Additionally, we made a key leadership hire in John Kane, our new Chief Product Officer, to accelerate our product development and deliver even more engaging product experiences. John has over 20 years of experience in building, scaling, and optimizing consumer products across desktop and mobile. We're confident that John will help us build products that better serve our consumers and also drive improvements in our conversion and monetization. Looking ahead, We will build on the momentum we saw in 2021 by finding new ways to engage our users, helping more consumers and SMBs, and serving our financial services partners even more effectively. We're confident that the investments we're making in these areas will enable us to address significant market opportunities ahead. At the same time, the events of the past several years have made it clear how critical it is for NerdWallet to do our part in creating a more equitable world. To that end, we will be investing in the growth of our nerds, helping to provide underserved communities with access to equitable financial products and services through our corporate social responsibility program, and doing all of the work necessary to achieve our vision, a world where everyone makes financial decisions with confidence. With that, I'm going to hand it over to Lauren St. Clair, our CFO, who will discuss our Q4 and 2021 full-year results. Lauren?

Thanks, Tim. We are proud to have closed out 2021 with a strong fourth quarter reflective of our diversification efforts and the strong brand that we've built with consumers. We delivered Q4 revenue of $100 million up 75% year over year. We recognize that the high year over year growth rate is partially driven by lapping the fourth quarter of 2020, which was significantly impacted by COVID-19. Given this, we also look at our two year revenue CAGR, which at roughly 30% is consistent with our historical growth. In addition to strong year over year growth, Q4 also grew quarter over quarter, which we attribute to the momentum that we are experiencing as we emerged from the lows of 2020. We were also buoyed by a number of one-time events, which I'll cover shortly. Quarter-over-quarter growth is not our typical seasonality, and we do not expect a similar trend this year. For the full year, we finished on a high note, delivering $380 million of revenue, growing 55% year-over-year. Let's take a deeper look at the revenue performance within each category. Credit cards delivered Q4 revenue of $35 million, growing 109% year over year. This substantial growth stems from multiple quarters of continued category recovery. As the year came to a close, we were happy to see our credit card partners back on the site partner pricing outpacing pre-pandemic levels, and consumer demand continuing to improve. For the full year, credit cards delivered $124 million of revenue, growing 58% year over year. Loans generated Q4 revenue of $30 million, growing 46% year over year across all verticals. Personal loans grew significantly as we saw reinvigorated consumer demand and the loosening of lenders' approval criteria. Mortgages posted encouraging growth amidst a favorable but increasing interest rate environment. Student loans revenue grew despite refinance demand being impacted by the federal government's forbearance program. We saw a one-time boost in student loans as consumers locked in rates in anticipation of the end of forbearance before it was extended to May of this year. Across our loans businesses, we continue to deepen our partner relationships, improve our user targeting in the form of prequalification, and focus on content for the evolving needs of our consumers. For the full year, loans generated $126 million of revenue growing 55% year-over-year. Finally, other verticals delivered Q4 revenue of $35 million, growing 76% year-over-year. SMB products grew across all major sub-verticals, most importantly in loans, where we are seeing strong repeat revenue. Our investing and banking verticals growth exceeded our expectations driven by additional partners launched in the second half of the year and limited time offers. Those verticals were able to offset the headwinds we faced in insurance as a result of carrier profitability constraints. For the full year, other verticals delivered $129 million of revenue, growing 51% year over year. Moving on to investments and profitability. We earned $13 million of adjusted EBITDA in Q4 at a 14% margin. For the full year, we earned $27 million of adjusted EBITDA at a 7% margin as we consciously leaned in and invested heavily in marketing to capitalize on the continuing shift from offline to online and the proliferation of choice for consumers. please refer to today's earnings press release for reconciliations of our GAAP net loss of $8 million for the quarter and $43 million for the full year to our non-GAAP adjusted EBITDA figures. Consumer demand for our financial guidance remains stronger than ever. We provided trustworthy guidance to 18 million average monthly unique users in Q4 a 22% increase year-over-year and in line with our annual growth. As a reminder, in the first quarter of 2021, we experienced abnormally high user engagement in our investing vertical, stemming from the social media-driven meme stock phenomenon. As we look to Q1 of this year, we do not expect to see year-over-year MUU growth as we lap this atypical event. On to our financial outlook. We exited 2021 on a high note thanks to our strong execution, an earlier than expected seasonal ramp, and certain one-time events that we mentioned in student loans and investing. Q4 positions us well for 2022, and in the first quarter we expect revenue in the range of $122 million to $125 million, which at the midpoint represents 37% growth year over year. For the time being, our plan is to provide quarterly guidance. We also expect Q1 adjusted EBITDA in the range of $3 million to $6 million as we continue to invest heavily in our long-term strategy to drive sustainable top-of-funnel growth with the launch of our latest brand campaign. Our investments in brand are based on the best times to reach consumers and will not be consistent across our fiscal quarters. While these investments will create variability in our quarterly margins over the short term, we do expect year-over-year accretion in our 2022 annual adjusted EBITDA margin. And over the long term, as we reach our awareness goals and our brand spend hits a logical ceiling and becomes a fixed cost, we expect adjusted EBITDA margins to get back to historical highs and ultimately exceed those levels. We're proud of the progress we made in 2021 and are confident about the journey ahead of us. Operator, we're now ready for questions.

Okay, at this time, I would like to remind everyone, in order to ask a question, you will need to press star 1 on your telephone. Again, to ask a question, you will need to press star 1 on your telephone. Our first question is coming from the line of Justin Patterson of KeyBank. Sir, your line is open.

Great. Thank you very much. Tim, you mentioned the addition of John Kane as Chief Product Officer. What are some of the key product initiatives for the year that could benefit engagement, conversion, and monetization? And then, Lauren, how should we think about the puts and takes around accretion potential of the 2022 EBITDA? Thank you.

Thanks for the question. Yeah, I think we think hard about driving member engagement as one of our core vectors of growth. So along those lines, we've got a number of initiatives across the company, and John is really helping to get us aligned and executing well against those initiatives.

Great, and I'll take the second part of that question around some of the puts and takes on EBITDA margins. So if I take a step back and look at the past couple years, There's two big dynamics that have impacted our margins. So the first one is around pricing, which put downward pressure on margins. And we see that as a result of the COVID impact, both in 2020 and in the early parts of 2021. And then the second dynamic is really about our conscious investment into more top of the funnel channels like our brand spend. And so as I think about going into 2022, we see that pricing, as we've talked about, is recovering from the lows of 2020. And so I would expect that to be, you know, some of the help in margin accretion. But at the same time, we are staying the course and we're going to continue to invest in our marketing initiatives, specifically brand, which we know will put downward pressure on margins in the short term. But over the long term, when that becomes a fixed cost, We know that we'll get some leverage over that. And I'll just remind everyone that we did say that we do expect a bit of margin accretion in 2022 on a full year basis relative to 2021.

Great. Thank you.

Next question from the line of Yusef Squali of Truist Securities. Your line is open.

Excellent. Thank you so much, Tim and Lauren and Jack and the gang. Congratulations on a strong quarter out of the IPO gate. So just two questions here. Maybe starting with you, Lauren, just as a follow-up to what you were talking about in terms of guidance, trying to understand kind of the puts and takes around maybe MUUs versus kind of pricing. I think you mentioned in your prepared remarks kind of maybe a one-time or disproportionate impact to Q1 MUU growth. Maybe you can just speak to how you're seeing that metric in particular throughout 2022. And then, Tim, maybe just kind of stepping back and looking at Q4 relative to kind of your original expectations, can you maybe just speak to what kind of surprised you the most across your varied products offerings and what gives you kind of that confidence as you kind of go through starting your year. Thank you.

Thank you, Zip. I'll start with the first one in terms of MUU growth and how we think about it. So just as a reminder, we were growing consistently last year at over 20% year over year. And similar to revenue, we typically see an increase from Q4 into Q1. We expect that same seasonality quarter over quarter this year. However, we know that we had a large benefit in Q1 of 21 from the meme stock phenomenon. That drove a ton of user engagement to our investing vertical, which is going to make our year over year comp much tougher. But we are seeing that normal seasonal pickup in traffic from Q4 into the early parts of Q1, which we think set us up well for the full year.

Yeah, and I'll take the other part in terms of what surprised us the most in Q4. I mean, historically, Q4 has typically been seasonally weak. So we spoke to some of the factors that were driving a lot of strength in Q4. I mean, part of it was our continued recovery from COVID. But yeah, also we saw consumers getting more proactive in terms of repositioning their finances ahead of interest rate increases, student loan forbearance, etc. I'll also double click into SMB. I mean, we saw some real strength there closing out the year. And I'm going to zoom out a bit since this is our first earnings call, but we expect SMB to be one of our fastest growing verticals in 2022 and beyond. The team is absolutely killing it. Things are going well, both in terms of user acquisition and retention. So in terms of user acquisition, we're up materially in loan originations from pre-COVID levels. So that means a ton of new SMBs are coming into our ecosystem. And then in terms of re-engagement, our pre-COVID loan cohorts were generating LTVs of two and a half times the initial transaction over four years. And our recent cohorts are doing better than that. And so while it's early, this is really better than our pre-COVID cohorts. And we think that's a great leading indicator. And I'll just close out with one quick anecdote there. We have SMBs. that have been with us since 2015 that monetized more than ever last year. And so this is an inherently sticky business as SMBs need our help with their money year after year. And as we continue to bulk up our offerings in that area, we think that this will just get better and better in terms of engagement.

That's great. Great to hear. Thank you.

Next question from the line of Nat Schindler of Bank of America. Your line is open.

Yes. Hi, guys. Hey, I was wondering if you could give us any detail or any thoughts on how the banks have been responding to rising interest rates, particularly in the mortgage market, and how that affects both the consumer demand on your portal, but as well as the demand for those leads from banks.

Yeah, absolutely. I'll take that. So, As you mentioned, it's a rising rate environment and we expect more increases throughout 2022. So that makes refinancing less attractive for consumers and industry estimates would all point to shrinking refinance volumes. So despite this, there's a few things going on. So first, we're taking share. We're actually confident that we can grow our overall loans category during the year, of which mortgage is the biggest component. And the other thing that you got to understand is that we've historically actually over indexed to purchase as opposed to refi Because we have really popular educational guides and calculators geared towards helping first-time homebuyers So, you know purchase was the bulk of our mix in q4 and so that also means that we're less affected by some of the boom and bust cycles of refi and

Makes sense. And what does bank demand for leads look like, though? Is there a shift as people are less likely – when fewer people are refining or even doing purchase, regardless of how that's being affected by the rising rate environment, does that drive additional interest by the banks to buy leads, or does it not change in those environments?

It actually – It does. So we see pricing tailwinds in times like these. Banks are getting more aggressive and competitive in terms of getting high-quality referrals.

And then anything that you could give us any more detail, and I know you mentioned personal loans in your letter earlier, but could you go into a little more detail on personal loans and how – the environment was affected by stimulus checks and really low credit card balances and how that is changing, particularly as we see it into Q1.

So, yeah, personal loans are doing well. Pricing recovered throughout last year. You know, we haven't seen any major shifts going into Q1. So, yeah, we're pretty consistent with the trends exiting in the year.

Great, thank you.

Next question from the line of James Fawcett of Morgan Stanley. Your line is open.

Great, thank you. Kind of following up on kind of how your customers and partners are reacting, you made the comment that they're looking to be a bit more aggressive. Can you give some detail there, firstly, and And secondly, I realize that it is a very dynamic environment. You gave some outlook in terms of how 21 impacted your visibility, but how should we think about the potential growth and what you're planning for and modeling for beyond the first quarter, even if it's just ranges or directionally, et cetera? Thanks.

Yeah, thanks for the question. I'll kick off with the first part. You know, just some color there around consumers getting more proactive. You know, there's an expectation broadly, both in the industry and by consumers, that student loan forbearance would end in January. Now, over the holidays, it was announced that it was extended to May. But, you know, in December, we actually saw quite an uptick of people who are interested in, you know, refinancing ahead of this event. So we saw a bit of a pickup in December. Also, I'd say I think there's quite a bit of expectation of rising rates throughout the year in the mortgage industry. That can drive people to get more proactive on things like refinance as well. We think there was some marginal proactivity and pull in in December.

I'll take the question about how we think about long-term growth. So as a reminder, we feel really proud. We've had a history of consistent growth. And as we talked about, we look at our two-year CAGR and we see roughly 30%, which is consistent with past trends. And as we think about moving through the rest of the year, you know, as I mentioned, we're not going to guide for the full year at this point. But, you know, what we see is lots of headroom across all the verticals. You know, Tim's talked about some of the tailwinds. We've talked about a little bit of some of the headwinds that we're still seeing. But we think there's lots of room to grow in terms of product improvements and things like that. But we also think there's still a ton of opportunity as we look at the addressable market. As we see that continued shift from offline to online, this really will only increase the whole size of the pie. And so we feel really good about the outlook for the rest of the year and even beyond. And I'll just remind everyone, our Q1 guidance on revenue implies a 30% growth at the midpoint.

Thanks for that, Tim. Thanks, Lauren.

Next question from the line of Ross Sandler of Barclays. Your line is open.

Hey, everybody. We've covered a lot already, but one area I wanted to drill in on is sales and marketing. So performance marketing spend has been down for two quarters in a row, and your traffic and revenue continues to scale nicely. So can you just talk about the relationship between your performance marketing and revenue as we kind of progress through 22? And then stepping back from the near term, Lauren, you stated that there's a cap on brand advertising at some point here. There's probably also a ceiling around editorial spend or organic sales and marketing. How do you think about the level of sales and marketing intensity long-term relative to revenue in the business. Thanks a lot.

Thanks, Ross. Given it's our first, as Tim said, our first earnings call as a public company, I think it might be helpful if I just take a step back for everyone and talk about how we think about sales and marketing, and then I'll address your very specific questions, Ross. First off, we think about sales and marketing as three main areas of investment. We break it down into organic, brand, and then performance marketing. If we look at organic, this is really headcount when you think about the editorial team that provides the great trusted and comprehensive guidance. This includes some of the sales and commercial teams. And what we see here is we invest early on, and then we get leverage over the longer term. So as we are entering a new vertical, we'll staff up. And we'll spend in this area or as we're integrating a newly acquired company, we'll also run our organic playbook and we will ramp spend here. But over the long term, that spend doesn't need to scale with revenue. And so that's how we think about getting leverage over the long term with organic. In terms of brand, We're actually really excited about this channel because we have a unique ability to leverage brand spend, given that all of our verticals sit under one brand as opposed to under a confederation of brands. And we do think about brand as a fixed cost over time. Like we've talked about in most recent years, we've been leaning in and investing. We're testing the right times to reach our consumers. So you can expect us to continue to invest in that area. But over the mid to long term, we do really think there's a logical ceiling of spend. And at that point, it's a fixed cost and you get a ton of leverage there. And then performance marketing, we really see this as a variable cost. We aim to be in-quarter profitable. And we use this channel as a lever that we can dial up or down as needed. And as we think about brand overall, we think this brings a halo effect to some of the other channels as we go. And to answer your question about performance marketing, I'll just remind everyone that over 70% of our traffic today comes organically through direct or unpaid channels. And so we really look at performance marketing as a way to open up top of the funnel even more. So it's not our main lever for driving traffic to the site, but it is something that we think does drive incremental traffic.

Next question from the line of William Blair. Your line is open.

Thanks for taking the question. On international, it seems like you're having some good success in both the UK and Canada. Maybe sort of walk us through the international strategy. In particular, how is the brand resonating outside the United States? And then maybe some perspective on your thoughts or ability to enter new markets either by acquisitions or organics.

Thanks for the question. Just for some context setting, our ordinal priority is the US market. We've got this huge brand in reach here, and it gives us a big opportunity to land and expand and vertically integrate, like in the case of small business. But that being said, we're super excited about international. In both the UK and Canada, we're executing our playbook that we're very familiar with. We call it Land and Expand, and we lead with content we deliver consumers really trusted guidance. And with that, we build up a base over time. And so, you know, between Canada and the UK, we now have two proof points that show that our organic playbook is extensible to other markets. So, you know, as we think about markets beyond UK and Canada, you know, we're going to take it one market at a time. And we've got to weigh that against just really great opportunities in the US as well. So that's kind of how we think about it internally.

Great. And if I could just add one more. On the new Unlock Your Dreams brand campaign, just curious sort of what the response has been relative to your expectations. And is it simply just to drive awareness? Is it also introducing consumers to products? Just perhaps give us a sense how that's going for how you thought it would go at this point. Thanks.

Yeah, we're very pleased with the results of the campaign. You know, it's got a few different goals. We're always targeting increasing brand awareness, but we also care about brand affinity metrics. Is NerdWallet showing up? Is, you know, the place you turn to for all of your money questions? And so we do all sorts of evaluation internally regarding those things and feel good about the progress there.

Okay, great. Thanks, Tim.

Again, to ask a question, you will need to press star one on your telephone. Next question from the line of Jed Kelly of Oppenheimer. Your line is open.

Hey, great, great. Thanks for taking my questions. Just circling back on credit cards, can you sort of talk about marketers' appetites to lean in more to credit card marketing as we get the benefit of some of the reopenings, particularly on travel? And then assuming we get back to a more normalized spending environment here in 22, as consumers build up the revolving loan balances, how should we think about your personal loans business in the back half of 22? Great.

I'll take the first part of that and credit cards, and then I'll hand it off to Tim for the second part of the question about personal loans. So first maybe I'll just remind everyone, In Q4, credit cards grew 109% year over year, and for the full year, 58%. And so as a reminder, credit card pricing was hit the hardest during COVID. So we were really happy to see the recovery throughout 2021. And we saw that in a couple places. So obvious one is with pricing and partner budgets. We also saw the loosening of some of our partners, you know, risk modeling and application criteria. And then we also started to see consumer demand returning. So we feel great about performance to date. We think that as we head into the new year here and in Q1, given that pricing was still depressed from the early part of 2021, we would expect to see continued recovery in that area. And as you mentioned before, we do see consumer demand coming back. In terms of travel in particular, You know, we do see, and we've read the reports as well, we see domestic travel back. I think there's been some good reports from companies over the last couple of days in terms of increasing travel. How much of that is international? We don't know. So there could be some mix shift within the types of products and the types of cards that our consumers are looking for. But overall, we feel really good that, you know, we have room to grow the business between, you know, both consumer demand and traffic, but also pricing.

In terms of personal loans, we're not forecasting anything super unusual going into the back half of the year. You're absolutely right in the sense that the number one use case for personal loans is refinancing credit card debt. So as those balances build up, we think there will be a strong pull from consumers. Thank you.

Again, to ask a question, you will need to press star one on your telephone. There are no further questions at this time. I would like to turn the call over to management to wrap up the call.

All right, well, thank you for all the questions today. We really appreciate everyone joining our first earnings call and for your continued confidence and support. and also just wanted to extend a big thank you to our nerds for executing throughout the year. Without all of your hard work, none of this would be possible. There's a lot to be excited about at NerdWild. We delivered stronger than expected Q4 results, and as we look ahead, we've got SMB exceeding expectations and demonstrating strong repeat revenue, and the diversification of our business continues to help us grow despite challenging and uncertain environments. We're optimistic about the opportunities ahead, our future growth, and the strides we're making towards achieving our vision, a world where everyone makes financial decisions with confidence. Thank you.

And that concludes today's conference. Thank you, everyone, for participating. You may now all disconnect.