NerdWallet, Inc.

Good day, and thank you for standing by. Welcome to the NerdWallet Inc. Q2 2024 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin McNamee, Investor Relations. Please go ahead.

Thank you, Operator. Welcome to the NerdWallet Q2 2024 earnings call. Joining us today are 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 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. Over the past several years, I've spoken to you frequently about NerdWallet's long-term orientation. Our business is cyclical, and headwinds and tailwinds will offset each other over time. So our priority is growing from cycle to cycle, which we've done through a pandemic, a regional banking crisis, a prolonged zero interest rate period, and a series of rate hikes. A large part of our ability to grow consistently through such a varied set of cycles has been our diversification, since macroeconomic conditions pressuring one area of our business will tend to lift another area of our business. In Q2, we hit an air pocket in the cycle. The banking market started to decelerate as consumer demand for products like high-interest savings accounts waned. But the absence of rate cuts and elevated delinquency rates mean we have not yet seen a corresponding uptick in our loans business. We expect a tailwind in loans and credit cards when widely anticipated rate cuts materialize and as delinquency rates stabilize then improve. However, this quarter we saw a significant uptick in our insurance business, which grew revenue 196% year-over-year as carriers came back online and consumer demand increased. Because insurance is legally mandated, it is not subject to the same credit cycle drivers as our other verticals. And our results in the category this quarter further highlight the benefit of our diversification. Through this transition period, we've shown our businesses durability. We ended Q2 in line with our expectations for revenue, growing 5% year-over-year despite headwinds, and monthly unique users, while down quarter-over-quarter, still grew 7% year-over-year. With that said, we fell short of our goal for non-GAAP operating income due to a higher mix of paid marketing-based revenue. We attribute this to two factors. First, in Q2, we saw unexpected headwinds in organic search traffic. Although we are seeing early signs of recovery here, our expectations bake in a conservative outlook in terms of the timing and magnitude of a full recovery. Second, we have made significant improvements to our insurance marketplaces that have opened up the ability to scale performance marketing channels while registering a large percentage of traffic. allowing us to proactively re-engage these consumers over time. This contributed to increasing our cumulative registration base to 22 million users in Q2. We've extended these improvements to other verticals, which should increase our ability to pay to acquire users profitably while registering more of our traffic as macro conditions accelerate our loans business. These registered users should lead to future organic growth as registered users have five times the lifetime value of non-registered users, Moreover, with early signals indicating organic search traffic recovery, I continue to feel we have a path to achieve the mid- and long-term targets we shared in March of this year. We have made strategic decisions to reduce portions of our cost base. As a result, yesterday we completed a reduction in force, which we expect to lead to approximately $30 million in annualized cost savings. I would like to take a moment and reiterate my sentiments from the statement contained in yesterday's 8-K filing. Saying goodbye to fellow nerds is never easy, and we're dedicated to supporting each of them through this transition. The primary objective behind our continued push for efficiency is to invest more in our most important long-term strategic initiatives. Previously, I've shared our focus on bringing more consumers and SMBs to NerdWallet directly by making it a no-brainer to shop for financial products in our trusted financial ecosystem. We see our vertical integration efforts as key to achieving this vision. Earlier this year, we also launched a paid membership offering that will help us make this vision a reality. NerdBullet Plus, which rewards members for healthy financial behavior and provides access to better rates on certain products from participating financial institutions. This initiative is in its early days, but our increased efficiency will allow us to double down on improved consumer experiences like this, in addition to relentlessly improving our core business. In Q2, we continued investing across our strategic pillars. Land and expand is a significant driver of our diversification, extending our brand and reach to new categories and geographies, as well as audiences. In Q2, we made progress in international expansion as we launched our first credit cards product overview in Australia. Our Canada team also continues to expand in key categories like mortgages, capitalizing on the Bank of Canada's recent rate cut to drive traffic to our site. growing MUUs by 20% year-over-year. Meanwhile, in the U.S., we continued to invest in building strong off-page audiences, including on YouTube and TikTok, but most notably with our Smart Money podcast. Since the start of the year, we have more than doubled our podcast follower count, and we ended Q2 consistently ranking as one of Apple's top investing podcasts. As we look to drive more direct traffic to NerdWallet, we've invested significantly in vertical integration with the hypothesis that offering consumers more convenient, personalized shopping experiences will increase their likelihood of registering and overall brand loyalty. In Q2, NerdWallet advisors expanded to offer NerdWallet Coach, an AI-enhanced financial planning tool, while also scaling our digital RIA offering. At the same time, our loans team continued to extend our loan matching technology to provide shoppers with better outcomes. directing personal loan shoppers who could also qualify for home equity loan to a new cross-sell experience. In SMB, we introduced new AI-trained models to replace a third-party processing service with the goal of saving significant time off our human-assisted brokering process. We also continued to optimize our use of machine learning to route shoppers to the best experience based on their needs, a model that we recently introduced in our auto insurance marketplace with further expansion plans in the future. As I shared in Q2, we increased our cumulative registration base to 22 million users. We know there is considerable long-term upside to registering users. Registered users are easier for us to re-engage to come back to NerdWatt directly, and as discussed, they have five times the lifetime value of non-registered visitors. We attribute our growth this quarter to our push to offer more personalized shopping experiences. Additionally, we have made significant progress on our ability to re-engage users with more personalized, targeted, cross-sell offers once they've registered with us. We also made progress in our new paid membership initiative, NerdWild+. In Q2, we launched our first NerdWild Plus banking offer, providing members with a $100 reward after opening a high-yield savings account and setting up direct deposit. We also introduced Ask a Nerd, which offers NerdWild Plus members more personalized financial guidance. Before I hand it over to Lauren, I want to thank the nerds for their hard work and focus this past quarter as we navigated headwinds in areas of our business, including those nerds we unfortunately had to part ways with yesterday. These decisions were not a reflection on them, but rather a necessary step to right-size and align to meet the needs of our consumers and the business as we pursue sustainable long-term growth. Lauren?