Good day, and thank you for standing by. Welcome to the NerdWallet, Inc. Q3 2022 Earnings Call. 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. Please go ahead. Thank you, Liz. Welcome to the NerdWallet Q3 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 our annual report on Form 10-K for the year ended December 31, 2021, and other 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. As we approach NerdWallet's first anniversary as a public company on Friday, I've been reflecting on the past year. I think we can all agree it's been an interesting one. In many ways, this year has played out differently from everyone's expectations, with the current macroeconomic environment creating uncertainty and challenges for consumers and businesses alike. But in looking back at the past year, I'm incredibly proud of the work we have done. In a testament to NerdWallet's trusted brand and our strong diversification, we have met or exceeded all the goals we outlined for our financial performance despite headwinds in mortgages, insurance, and student loans, all while making progress towards our vision of becoming a trusted financial ecosystem for consumers and small- and mid-sized businesses. In Q3, we continued executing against our three pillars of growth: Land and Expand, Vertical Integration and Registrations, and Data-Driven Engagement, which ladder up to our financial ecosystem vision; a vision where we will provide a single platform that consumers and SMBs can rely on to learn about various financial topics, shop for products, connect their data and receive data-driven nudges. This will not only provide our users with more clarity and confidence around their finances but also help grow and diversify our business through recurring engagement and revenue. As a result of our work, in Q3, we exceeded our revenue and adjusted EBITDA outlook driven by growth across credit cards, banking, personal loans, and SMB verticals. Our Q3 performance was predicated on building and extending NerdWallet's unique strengths. With our reach and brand as key advantages, our Nerds spent Q3 driving critical initiatives in our three pillars of growth to provide consumers and SMBs with clarity and confidence. In particular, this quarter, we saw further evidence of our distinct ability to Land and Expand, leveraging our trusted brand to cover new topics and play in new geographies. We are seeing early signals that our exploratory vertical expansion efforts in topics like Medicare and cryptocurrency are gaining traction, paving the way for new lines of business to match consumer demand. We also continue to grow our international presence. In Q3, we accelerated our Canada expansion with monthly unique users up 59% quarter-over-quarter as we executed our playbook. Elsewhere in the business, SMB delivered another quarter of outsized performance with triple-digit year-over-year growth for the third quarter in a row. The SMB team has invested in significant improvements to their personal loans prequalification flow, improving the loan application experience and enabling us to more efficiently monetize our growing traffic. SMB is a successful example of Vertical Integration or our strategy of pairing NerdWallet's massive top-of-funnel reach and trusted brand with best-in-class user experiences. In July, we began our latest vertical integration effort: our acquisition of On the Barrelhead or OTB. As we initiated integration efforts throughout the quarter, we saw OTB's primary contribution in our personal loans vertical in Q3. We are in the process of integrating OTB into our user flows and onboarding new partners. We're seeing signs that our vertical integration strategy is working, with conversion and pricing benefits when we attach their consumer flows to our organic traffic. We also see the potential to pair the technology with our traffic across additional verticals to help more people in more ways. I look forward to sharing more updates in the quarters to come. Registering and engaging users will allow us to drive repeat visits, collect data and provide users with unique insights and nudges. This work is critical to our aspiration of creating a trusted financial ecosystem. In Q3, we made more progress in our Registrations and Data-Driven Engagement efforts, with registrations up more than 60% year-over-year, in part due to product experimentation on registration modules. Additionally, we continue to iterate on our nudges to drive engagement, providing our users with better matching and more relevant smart money moves. And these efforts have resulted in improvements to our engagement metrics. In Q3, registered user revenue grew more than 70% year-over-year. These results and the opportunity our OTB integration will provide on our ability to reengage and register more users are promising and indicate that our strategy has traction. Now more than ever, I am grateful for the principles that have shaped NerdWallet's growth. We are long-term thinkers, but we're also nimble, able to adjust course because we have invested accordingly. While the rate environment prior to this year meant mortgages were up and banking was not, our commitment to diversification and investments and thinking mean that today, with the situation flipped, we are ready and able to meet consumer demand and our financial commitments. And though we cannot predict the future, we intend to focus on our long-term goals and execute against our strategy. For example, we are actively investing in improvements to our insurance marketplace, ready to capture market share when the industry rebounds. And I feel confident in NerdWallet's strong position as the macroeconomic environment evolves. In a minute, I'll pass it over to Lauren St. Clair, our CFO, to share more about how these results translate into our financial performance this past quarter. But I want to reiterate that I am very proud of the work we've done and the way in which NerdWallet has risen to the occasion. These attributes have helped us weather a number of storms in the past, and they will continue to serve us well. In all of this, we strive and will continue to strive to operate responsibly, aligned with our mission-driven consumer-first ethos. Yesterday, we published our first-ever environmental, social and governance report to highlight how we achieve our goals with integrity. While today, we're focused on our business and financial performance in Q3, I encourage you to seek out the report for insight on our commitments, approach and progress. With that, I'm going to hand it over. Lauren?

Thanks, Tim. Nine months into a year that remains uncertain for consumers and small businesses, we are once again proud that our diversified portfolio has put us in a position of strength in the midst of a challenging macro environment. We delivered Q3 revenue of $143 million, up 45% year-over-year and above the high end of our guidance. Let's take a deeper look at the revenue performance during the quarter within each category. Credit cards delivered Q3 revenue of $57 million, growing 59% year-over-year. Our credit card vertical has consistently performed throughout this year from product improvements and pricing recovery. And in the third quarter, we reached record levels of transactions and revenue. We believe we've returned to a pre-COVID normalized seasonal cadence for our credit card vertical. And while the market feels healthy today, we are keeping our eyes on metrics such as unemployment to help inform where we believe the industry might trend in the near term. Loans generated Q3 revenue of $28 million, declining 12% year-over-year. Our mortgage vertical continued to be pressured by the rising interest rate environment, but offsetting that decline was another quarter of strong growth in personal loans due to our improved user experience and the addition of our recent acquisition of OTB. As of today, we anticipate that the impact from the rising interest rate environment will extend into 2023 and believe that the integration of our recent acquisition will set us up to take market share when the macro environment stabilizes. Finally, other verticals finished Q3 with revenue of $57 million, growing 87% year-over-year, delivering yet another quarter of triple-digit growth in both SMB products and banking. As Tim discussed, we are encouraged by the enhancements we've made in SMB this year as well as our ability to leverage our strong top of funnel, combined with Fundera's efficient conversion engine for another quarter of strong performance. Banking grew over 250% year-over-year as we saw more consumer interest in this rising interest rate environment and more efficiently converted high-intent consumers. In fact, the growth we saw in banking more than offset the corresponding decline in mortgages. Moving on to investments and profitability. We earned $14.5 million of adjusted EBITDA at a 10% margin, an 11-point decline versus the prior year as we ran our first Q3 national brand campaign. We had GAAP net income of $0.7 million, which includes a tax benefit of $9.9 million primarily driven by a one-time benefit resulting from the intangibles acquired during the acquisition of On the Barrelhead. Please refer to today's earnings press release for a full reconciliation of our GAAP to non-GAAP measures. Consumers continue to turn to the Nerds for their money questions. We provided trustworthy guidance to 19 million average monthly unique users in Q3, up 11% year-over-year. We are now incorporating the impact of our acquisition of OTB combined with strength in many areas across NerdWallet such as banking, travel, and SMB products. We're still seeing the same headwinds as earlier in the year, with pressure from mortgages and investing, given the current macro environment. On to our financial outlook. As we prepare to close out the end of 2022, we expect that during the fourth quarter, we will deliver revenue in the range of $138 million to $141 million, which, at the midpoint, represents 40% growth year-over-year. This also implies approximately 41% revenue growth for the full year 2022. We expect the fourth quarter to include a higher contribution from our recent acquisition, given the full quarter combined with the continued ramp in integration discussed previously. As a reminder, our ability to disclose the exact contribution of the acquisition on our business is and will continue to be limited. We expect Q4 adjusted EBITDA in the range of $26 million to $28 million or approximately 19% of revenue at the midpoint. The majority of our brand spend occurred during the first three quarters of this year, and we currently expect to have minimal brand spend in the fourth quarter, a cadence we anticipate to continue in 2023. As a result, our expected Q4 adjusted EBITDA margin will be much higher than the first three quarters of this year. As we have discussed during each quarterly earnings, we plan to deliver a year-over-year increase in our 2022 annual adjusted EBITDA margin. At the midpoint of our Q4 guidance, our annual adjusted EBITDA margin would be approximately 12% of revenue, a 5-point increase versus the prior year. This is one more step on our journey to strategically invest in our long-term vision, and we expect to deliver continued annual adjusted EBITDA margin increases in 2023 and beyond. We are optimistic about the opportunities ahead, our future growth, and the strides we're making towards achieving our vision. With that, we're ready for questions.

Our first question comes from Justin Patterson with KeyBanc Capital Markets.

Great. Lauren, I was hoping you could unpack a little bit more some of the assumptions driving the Q4 guidance. Obviously, there's a lot of moving parts in the macro environment there, so any more color would be appreciated. And then perhaps for both you and Tim, diving into your final comment, annual EBITDA margin improvements in 2023 and beyond. Could you talk about just some of the drivers there? We've gone through a lot of base level of investments that, between marketing, the tech stack, and the rest, we can now see the faster cadence of margin expansion ahead.

Sure. Thanks, Justin. I'll comment for your first question on guidance for Q4 and unpack that a little bit more. I think Tim can add some color as well from a top-line perspective. And then we'll both actually tackle the '23 margin question. I think Tim will talk a little bit more about our brand spend and how to think about that moving forward, and I can talk about future margin leverage as well. So if we kick off first with just a little bit more guidance on Q4. As we said, our revenue guidance implies a midpoint growth rate of 40% year-over-year. A lot of this is the same story that we've talked about over the last couple of quarters. We continue to expect strong performance across many of the verticals despite headwinds from areas such as mortgages, investing, student loans, and insurance. As a reminder, the outlook remains inclusive of our recent acquisition. We'll now have a full quarter of financials included with the NerdWallet core business, and we also expect that the integration will continue to ramp. Maybe, Tim, do you want to talk a little bit more about some of the color you're seeing on the top line, and then we can go back to margins?

Yes, sure. So I guess as we think about the macro, both for Q4 and looking into 2023, for us, the big picture is that as I talk through the puts and takes of some of the macro here, we've managed to grow our business in both years where there's been a really strong cycle versus years where the cycle has been really weak. And if you step back and dissect why, it comes down to one, a high underlying growth rate as we land and expand and vertically integrate. But then second, also just the inverse correlation between various parts of our business, right? And so diving into the macro, I mean, you can really think of parts of our business as being pro-cyclical, some parts of our business being counter-cyclical, and some parts not really being directly tied to the cycle. So the pro-cyclical parts are like cards and personal loans and SMB. We actually see some latent demand here, given credit card loan balances are still below pre-pandemic levels if you look at Federal Reserve data, right? And then counter-cyclical parts of our business include anything, really, that benefits from rate cuts. So as you think about mortgage refinance, auto refinance, student loan refinance, things like that, those are all pretty weak right now. And then there's the parts of our business that are uncorrelated, like insurance. It's legally mandated, not as directly tied to the credit cycle. And in sum, what this all means is that you're going to see various parts of our business growing and contracting through the cycle, but we think we can grow in a variety of climates. And it's really something we've lived during the past three years, where the weather changed a lot, but we've managed a healthy three-year growth rate. So that's how we're thinking a little further out.

Yes. And let's go back now to adjusted EBITDA margin. So as a reminder, the midpoint of our Q4 guide implies an adjusted EBITDA margin of roughly 19%. As we've talked about in the past, we're not making as material of investments in brand this quarter, and as a result, the margin in Q4 is expected to be much higher than the first three quarters of the year, which averaged roughly 9%. And then as a result of the Q4 outlook, we expect that our full year adjusted EBITDA margin to be roughly 12%, which is a 5-point improvement over last year and consistent with the expectations that we've been setting all year long. Now as we think about moving into 2023 and even beyond, we have said that margin and profitability are important to us, and that we would expect margin improvement in three big areas. One, and I'll hand it over to Tim to comment more, but we expect to hit a logical ceiling on our brand spend. At that point, it will become a fixed cost, and we'll get significant leverage there. The second piece is increasing our registered users and overall engagement on the site is going to make all of our acquisition channels much more efficient. And then the third piece, which is not as large, but it's probably worth calling out that we're not expecting to have that step up in expenses as a result of becoming a public company. So you see that step up in areas like G&A, and then also in some of our stock-based compensation. I wouldn't expect that same step up as we think about next year and further into the future.

We do expect brand spend to grow next year, but really not to the extent that we grew our brand spend in 2022. So yes, like Lauren mentioned, as of this year, we think we've found a good cadence with spending in the first three quarters and with Q4 being a lower quarter of spend there. And we think we're getting, yes, right to like the long-term cadence and aggregate spend level. So we're going to continue to iterate on our campaigns and test into the best channels and get more and more efficient. So we're going to scale these investments efficiently over time where we think they make the most sense, but feeling more closer to steady state now.

The next question comes from Ralph Schackart with William Blair.

First one for Tim. Just in terms of some of the product enhancements that you called out, I think making the prequalification flow a little bit easier, also product improvements that you called out and the ability to monetize traffic more effectively. Maybe kind of talk to some of the enhancements you made there and sort of the opportunity to really drive that forward, enhance that in 2023 and then the opportunity and impact on the business? And then just on brand spend, I'll touch on the last question. Just curious how happy you've been with the brand spend. How have the campaigns performed versus expectations? So any color on that would be great.

Yes. Thanks for the question. So I guess just at a very high level, I always point back to Page 2 of our shareholder letter for a visual of the scaffolding from which we think about our product development really around landing, expanding, vertical integration and increasing engagement. So specifically, we called out improvements to the prequalification flows. I mean, that really comes down to asking the customer the right questions to really better match them to the right solutions and just getting more efficient at getting them to a great match quickly. So in terms of that opportunity, that broadly exists across pretty much any vertical where there's risk-based pricing, whether it's lending or insurance, and we're investing pretty broadly there. So yes, the impact to the business is pretty meaningful. I mean, driving conversion improves the customer experience. It improves revenue and conversion. So it's a virtuous cycle, and we love the effects of that. In terms of brand spend, brand spend, we continue to have record levels of brand awareness. We think that's a result of the brand campaigns, and we're very happy with the results there. As with anything where you're doing it for the first time in the third quarter of the year, you're going to learn things about how to optimize both channels and the messaging. And so that's definitely something we're iterating on and hope to be even more effective next time around.

The next question comes from Youssef Squali with Truist Securities.

I have two. One, Lauren, can you maybe just quantify mortgage revenues for us as a percentage of the loans business in Q3 and what it was last year just to kind of get a sense of how important mortgage now is to the business? I'm assuming it's a lot lower, but it would be great to quantify. And then either you or Tim, as you look at 2023, thanks for the color on the margin. But on the top line, can you maybe just help us think through the base case that you are working under for your budgeting process?

Yes. First off, so I'll take mortgage, and Tim, jump in. So what we said is when you think about mortgage last year and how quickly it was growing and how the interest rate environment was making it very favorable for folks to continue to refinance, we said that mortgage was growing incredibly quickly, and it was the largest part of that loans category. Given the headwinds, given the rising interest rate environment, that is no longer the largest in the loans category. We have not quantified exactly how large that is, but through the growth rates, you can see that, that's declined pretty considerably. But offsetting that, as we've talked about, is growth in personal loans, which we feel good about. And then in terms of revenue for next year, again, we have not provided any sort of forward-looking guidance on revenue for '23. What we can say though and point to is that you can see from our Q4 guide that we are still feeling good. There's certainly some tailwinds. There are still some headwinds in the business today. But we're confident in our ability to execute no matter the macro environment or situation because of the diversification that we've had. And then, Tim, if there's anything else you want to add in terms of revenue and how we're thinking about it?

Yes, I’d like to add some context. Generally, the fourth quarter is a seasonally slower period for us. Additionally, the most macro-sensitive areas of our business are likely credit cards and personal loans. There are two main factors influencing this: credit quality and demand pull-through. Regarding credit quality, we have observed some proactive tightening in the riskier segments of partner portfolios, which has been ongoing for some time. While there has been a decline in credit quality metrics, we remain at healthy levels compared to pre-pandemic times. In terms of demand, we anticipate some latent tailwinds that may emerge heading into 2023. The trajectory of revolving credit card balances is on the rise but has not yet returned to pre-pandemic levels. It’s important to note that consolidating credit card debt is the primary driver of personal loan demand. This overall scenario suggests potential future strength in both credit cards and personal loans as we move into 2023. Currently, we are optimistic about the trends but are incorporating a degree of conservatism into our outlook due to macroeconomic uncertainties.

The next question comes from Jed Kelly with Oppenheimer & Co.

Great. Just going back, Tim, you mentioned more users and driving more integration in the data funnel. Can you talk about where you are on like sort of your larger issuers' appetite to have more integration or you to do more integration for qualification? Sorry. And then my second question, you did mention insurance. And I know it's a smaller vertical, but we've seen the insurtech industry have a pretty tough year. I mean, where is your appetite for strategic acquisitions in that sector?

Yes, thank you for the question. In terms of the interest from issuers and partners for more integrations, it’s definitely a mutually beneficial situation. It enhances user experience, increases conversion rates, reduces declines, and can potentially lower underwriting costs. These discussions are ongoing and prioritize our efforts moving forward, especially across various sectors, including cards. Regarding insurance, it’s indeed a challenging market currently. As we mentioned last quarter, difficult macro conditions can create opportunities, so we will assess whether this aligns with our long-term product strategy. However, I can't provide any additional comments on that at this time.

Just in insurance, just following up. I know you want a good customer experience. The customer experience for insurance, is that still really tricky just with issuers? If you go on other sites, they call you, and it's not the best consumer experience?

Right. Yes. So we care deeply about that, and that's definitely top of mind in terms of thinking about the long-term strategy and brand in NerdWallet. So it's a big part of the consideration.

The next question comes from Ross Sandler with Barclays.

Question about the other revenue line, which showed strong acceleration in the quarter. Can you explain what is driving that? I believe you mentioned that consumers are seeking higher deposit rates and that small and medium businesses are also performing well. Any additional insights on that? Also, I need to ask the standard question regarding performance marketing, which appears to be more deleveraged this quarter compared to the usual trend. Is there a different strategy for performance marketing as you aim to attract more registered users? Or is it related to a mix dynamic, where deposits have a different customer acquisition cost to lifetime value profile than mortgages? What is causing the deleverage there?

I'll take the first question. Yes. So other revenue, very strong, certainly driven by high-yield savings accounts. A lot of demand for that is the interest rates pick up and then yes, also strength in SMB. I guess if I were to add a little bit of color to that, banking as a vertical grew 250% year-over-year in the quarter, and that more than offset the declines that we saw in mortgages and really highlights the inverse correlation between those businesses. In terms of where banking can go, we're in an environment we really haven't experienced in 15 years. So candidly, we don't know, right? We see cost of capital going up for financial institutions. And as a result, the value of gathering deposits is also going up. Now we think we're delivering a lot of value to both depositors and banks right now. And if rates remain elevated, we'd expect this to continue. So I guess another way of looking at that is, in hindsight, the zero rate environment was really masking the potential for this part of the business. And then yes, in terms of small business, right, like, we're not going to grow triple digits forever. But there's just so much opportunity in SMB to expand into new financial products and services. And definitely, there's the dynamic of registering small businesses and seeing repeat and reoccurring engagement with them over time, which we've talked about in the past. So our loan scores are getting stronger. The new origination growth has been great recently as well, and that sets us up for more renewal growth in future periods, and we're seeing this as a great proof point for vertical integration.

Great. Let me comment on performance marketing. First, just as a reminder, 70% of our traffic comes from organic channels, which has allowed us to diversify into other channels like performance marketing that we believe are incremental and help us expand our top of funnel. As we've mentioned before, we consider performance marketing a variable expense that we can adjust as needed. In Q3, we focused on certain verticals where we saw improvements in conversion and pricing, and we will continue to approach this in a disciplined manner. Additionally, while it wasn't the main reason for the acquisition, one immediate benefit of adding the expertise of the OTB team has been their success in new traffic channels that we haven't fully scaled yet, which will be reflected in our sales and marketing expenses in the short term. However, we maintain our philosophy regarding performance marketing expansion, aiming to be profitable each quarter. Regarding your point, Ross, we consider performance marketing as a tool to achieve our goals. We will use it judiciously, but ultimately, the long-term advantage is to attract more individuals we can assist in registering and collecting valuable first-party data, which will enable us to guide consumers to make smart financial decisions at the right time.

The next question comes from James Faucette with Morgan Stanley.

Obviously, it's been a very dynamic environment, and you guys have managed through that really well. I'm wondering, though, with how much movement we're seeing at different parts and products in your business, if your visibility into next year and what your partners are planning is changing at all? Is it shortened up? Is it lengthened? Just wondering like what that opportunity to plan in looks like for the time being.

Yes, I'll take that one. I'd really say it doesn't feel that different from prior years. I think we are always in active discussions with, for example, lending partners in terms of underwriting. Like are they in the process of tightening near prime? Or are they super ambitious and aggressive with prime and super prime? So those conversations are ongoing, and we definitely keep an eye on that. But nothing really has changed in our outlook there in the past quarter.

Got it. Got it. And then, I guess, when you think about, once again, planning assumptions, etc., like how are you taking into account or what's your sense as to what you need to do, both in terms of being prepared for changes in the competitive environment as well as other factors like the impact of student loan forgiveness or the end of this moratorium there? Any more color on your planning assumptions around kind of the environment itself would be helpful, especially as it relates to potential competition and these other exogenous factors.

So I'd say broadly speaking, we try to run our long-term playbook. So just as an example, right, insurance is in a pretty weak spot right now, but we're investing in marketplaces that we think are going to be very important during a rebound, same with certain parts of mortgage like refinance. We think that market comes back eventually. We think we have a lot of progress to make in terms of making the product more compelling for consumers there. So we're investing now. It's kind of an all-weather type approach. Just focus on the long run. And so yes, I haven't seen any big changes in terms of competitive dynamics or anything like that. But yes, just focus on the long run.

Yes, I want to emphasize that we are committed for the long term. We will continue to follow our established strategy. We feel optimistic about the upcoming year, despite some uncertainties, due to our diversification. As Tim mentioned, there are various factors at play. Therefore, we believe we are well positioned to execute our strategy, no matter what next year may bring.

At this time, I would like to turn it back to the CEO, Tim Chen, for closing remarks.

Thanks, all, for the questions today. And as always, I want to give a huge shout out to our Nerds, whose hard work and dedication make all of these results possible. Because of our Nerds and our unfair advantages, we continue to do what we say we'll do, and in most cases, more. And I still see a lot of opportunities ahead. So in particular, it's clear that our diversification efforts continue to pay dividends, allowing us to adjust course depending on macro factors to meet our goals while still executing our larger strategy. As a result, our revenue growth is intact, diversified, and can be resilient, even in an uncertain economy. This enables us to continue investing efficiently in what matters, and I'm particularly looking forward to sharing updates towards our progress of becoming a trusted financial ecosystem in the quarters to come. And with that, we'll be back next quarter with a look at both Q4 and the full year. Thanks again, and have a great rest of your day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.