NerdWallet, Inc.

Thank you for standing by and welcome to NerdWallet, Inc.' 's third quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Caitlin McNamee, Head of Investor Relations. Please go ahead.

Thank you, Operator. Welcome to the NerdWallet Q3 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 the 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 Q3, we exceeded our outlook for both revenue and non-GAAP operating income. despite continued headwinds in organic search and anemic loans and market. Our business is cyclical, but headwinds and tailwinds will offset each other over time, so our priority is growing from cycle to cycle. To that end, I am especially proud of the share gains we have made cycle over cycle in insurance and small and medium-sized businesses, which are more than offsetting lending headwinds. Our insurance business has grown 6x versus the 2021 peak pre-hard market, While this is partly due to higher than normal levels of reshopping happening as premiums have increased, we have also made significant investments to improve our insurance shopping experience. These efforts have enabled us to scale performance marketing in the category more efficiently as both carrier and consumer demand have increased. At the same time, premiums have increased dramatically since 2021, increasing the size of the end market. Similarly, in Q3, our SMB vertical saw double-digit year-over-year growth driven by our renewals business and SMB products categories in spite of a tough macro environment in SMB loans. With these strong results in insurance and SMB, we grew revenue 25% year-over-year. However, credit cards revenue declined 16% year-over-year. We attribute this to both underwriting constraints and pressure in organic traffic in certain subcategories. After a stronger start of the quarter, we saw some additional deterioration in our search visibility in mid-Q3. While traffic to our monetizing, shopping-oriented content started to rebound as we exited the quarter, traffic to our non-monetizing, learning-oriented content did not. As a result, monthly unique users were down 7% year-over-year in Q3. Looking forward, we expect to see a full quarter of impact from search headwinds to our higher volume learning-oriented content in Q4, which means MUU growth will decelerate. However, we anticipate eventual normalization back to year-over-year MUU growth. We earned $23 million in non-GAAP operating income of $13 million year-over-year. We are on track to deliver the $30 million in annualized savings from the reduction in force we announced in July 2024, and we will see our first full quarter of benefit in Q4. We also adjusted the seasonality of our brand spend to drive more impact, spending less year over year in Q3, but with plans to spend more year over year in Q4. In my Q2 shareholder letter, I outlined strategic areas of investment as we sought to operate more efficiently while investing in our vision. One of them is vertical integration, which I believe will be key to bringing more people to us directly by improving our shopping experiences and building deep and reoccurring relationships. We recently closed the acquisition of Next Door Lending, a mortgage brokerage, to provide mortgage shoppers with more hands-on guidance. I've really enjoyed getting to know Next Door Lending's principals, Doug and Jonathan, through this process. They're kindred spirits who bootstrap their business and share our focus on operational efficiency, as well as a consumer-first orientation with the customer reviews to match While the upfront deal consideration is small, the strategic alignment presents a significant opportunity for us to drive better outcomes for consumers, lenders, and NerdWallet. We expect the acquisition to contribute approximately one to two percentage points of growth to our Q4-24 revenue outlook. Although I have highlighted vertical integration as a key focus area for our team, we continue to drive progress across all of our strategic pillars in Q3, land and expand, vertical integration, and registrations and data-driven engagement. Our land and expand efforts increase the breadth and depth of guidance we provide across financial topics, as well as the diversity of our audience. In Q3, we continued our early expansion efforts in Australia with the launch of our first comparison shopping marketplace for this audience. Additionally, we're seeing our efforts to nurture our smart money podcast audience pay off. Our analysis shows that our Smart Money podcast audience is increasingly valuable, and we have scaled monthly average downloads to 250,000. We will continue to invest in meeting consumers where they are on podcast platforms, YouTube, and TikTok to drive brand loyalty and expand our overall audience. As I shared, this quarter we have made significant investments in vertical integration for the process of pairing NerdWog's brand and reach with best-in-class user experiences. Efforts included extending human-assisted support to our home and life insurance experiences. Additionally, our SMB team continued our efforts to improve our sales concierge experience to improve our renewal process. I look forward to taking learnings from our acquisition of Fundera, the origin of our SMB business, and applying them to next-door lending and our mortgage vertical, especially as the rate environment improves for shoppers. The acquisition is an exciting step forward in our ability to offer more do it together and do it for me services. As with Fundera, we believe we have an opportunity to leverage NerdWallet's trusted brand to enhance next-door lending's existing business during a cyclical recovery while providing our consumers with a better experience. We believe this partnership will enable us to build deep and reoccurring relationships with consumers and take more market share while improving mortgage unit economics. Part of the reason for our focus on vertical integration is that these improved shopping experiences allow us to register more consumers, in turn allowing us to re-engage them over time with new features and opportunities to save or earn more money. As in Q2, the enhancements to our insurance shopping flows drove significant registered user growth this quarter, with cumulative registered users now over 23 million. Additionally, we continue to invest in NerdWallet Plus, our new membership product, As a reminder, NerdWalk Plus rewards members for making smart financial decisions and provides access to exclusive rates on certain products from participating financial institutions. This quarter, we launched Insurance Assistant, a tool that analyzes members' insurance rates and automatically reshops for better policies, if available, as well as a Treasury bills account. Although NerdWalk Plus is in its early days, we have already seen that members have a higher lifetime value than other registered users. who themselves have five times the lifetime value of overall visitors, suggesting significant opportunity as we relentlessly improve the product. Before I pass it over to Lauren, I want to extend my thanks to her. As you may have read, Lauren will be leaving NerdWallet in March. Lauren joined NerdWallet in 2020 to lead our initial public offering and transition to a public company, and she has been a great partner to me in this process. In particular, she has done a fantastic job of building a great team. I'm grateful that we will have Lauren's assistance with ensuring an orderly transition. In the meantime, thank you, Lauren.