What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-03-24 · 80 added, 138 removed, 350 unchanged (38% of the section changed)

6 unchanged sentences

A discussion and analysis of our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below.

For a discussion of our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our final prospectus filed with the SEC on November 5, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

For a discussion of our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Our mission is to provide clarity for all of life’s financial decisions.

4 unchanged sentences

At NerdWallet, we are leveraging this transformation to democratize access to trustworthy financial guidance by incorporating our proprietary data science models into our platform—ultimately helping to improve the financial well-being of consumers and the financial services industry as a whole.

As the financial industry becomes more fragmented and complex, our value proposition as a trusted, independent and centralized platform for consumers only increases.

As the financial services industry becomes more fragmented and complex, we believe the need for trustworthy and knowledgeable financial guidance increases.

Our objective remains the same:

serve as a trusted financial ecosystem that consumers and SMBs can rely on to learn about various financial topics, shop for products, connect their data and receive data-driven nudges.

We deliver guidance to consumers through educational content, tools and calculators, product marketplaces and our app.

Our platform delivers unique value across many financial products, including credit cards, mortgages, insurance, SMB products, personal loans, banking, investing and student loans.

We expanded our guidance to the UK with our acquisition of Know Your Money (KYM) in 2020, expanded organically into Canada during 2021, and have further plans to expand internationally .

We expanded our guidance to the UK with our acquisition of Know Your Money (KYM) in 2020, and expanded organically into Canada during 2021 as well as Australia during 2022.

Across every touchpoint, the cornerstone of our platform is consumers’ trust in the independent, objective and relevant guidance we provide, free of charge.

19 unchanged sentences

We received net proceeds from the IPO of $140.0 million after deducting underwriting discounts and commissions of $10.1 million.

COVID-19 Impact on our Business

The world has dramatically changed since the World Health Organization categorized COVID-19 as a global pandemic in March 2020.

The pandemic caused millions of people to reevaluate many aspects of their lives, with many choosing to pay closer attention to their personal finances.

We benefited from industry-wide tailwinds driven by consumers increasingly managing their money online, but also faced the headwinds related to an unstable socioeconomic backdrop, which impacted consumers’ finances.

While consumer demand for many financial services products was high in 2020, for portions of the year some of our financial services partners tightened underwriting criteria or were slower to approve applications for certain products and some reduced advertising budgets given the inherent economic uncertainty.

Due to these factors, we experienced lower growth in 2020 as compared to our growth rate in 2019, particularly in the second half of the year.

In 2020, our revenue increased 7% versus an increase of 32% in 2019.

Our 2020 annual growth was bolstered by a strong first quarter, during which revenue grew 64% when compared to the same period a year prior.

Beginning in the second quarter of 2020, we saw a mix of financial services partner activity across our verticals.

Many partners reduced their activity on our platform while others maintained or increased their activity.

Credit card approvals slowed during the height of the economic uncertainty and credit card revenue declined 30% compared to 2019.

Conversely, revenue from loans and other verticals increased by 44% compared to 2019 as we saw increased demand in investing, mortgages, and insurance.

As a result, we benefited from the diversification of the products and providers available on our platform.

We are seeing revenue trends start to return closer to pre-COVID-19 pandemic levels.

However, the full impact of the COVID-19 pandemic on the global economy and the extent to which the COVID-19 pandemic will continue to impact our results of operations and cash flows remains uncertain as different variants of the coronavirus emerge.

Our credit cards revenue increased 58% for 2021 compared to 2020, primarily driven by increased activity amid recovery from the economic impacts of the COVID-19 pandemic and higher pricing with our financial services partners.

Our credit cards revenue decreased 30% for 2020 compared to 2019, primarily due to lower approval rates in the market due to economic uncertainty resulting from the pandemic and tighter underwriting criteria.

Our loans revenue increased 55% for 2021 compared to 2020, and 48% for 2020 compared to 2019.

Mortgage loans revenue increased due to a sustained low interest rate environment in 2020 and higher demand from consumers in 2021.

Our other verticals revenue increased 51% for 2021 compared to 2020, and 41% for 2020 compared to 2019.

The other verticals revenue increase in 2021 was primarily attributable to higher SMB revenue following our acquisition of Fundera, and the increase in 2020 was attributable to higher consumer demand for insurance and investing activities.

Key Factors Affecting Our Performance

19 unchanged sentences

Our business is reliant on economic conditions in the U.S.

Any changes in the financial well-being of consumers, including as a result of the COVID-19 pandemic, unemployment, government stimulus, or changes in monetary policy will affect the demand for various financial services products and therefore impact the number of individuals visiting our platform and our ability to earn revenue from matches completed on our platform.

Any changes in the financial well-being of consumers, including as a result of inflation, economic recession, unemployment, government stimulus, or changes in monetary policy will affect the demand for various financial services products and therefore impact the number of individuals visiting our platform and our ability to earn revenue from matches completed on our platform.

In particular, fluctuations in interest rates affect many of the products offered by our financial services partners, especially mortgages, personal loans, and banking products.

6 unchanged sentences

and organic and other, primarily personnel-related costs for content and other marketing and sales teams.

In 2021, approximately 35% of our total marketing expense was attributable to brand marketing, 36% to performance marketing, and the remainder to organic marketing and other marketing expenses.

In 2020, approximately 39% of our total marketing expense was attributable to brand marketing, 34% to performance marketing, and the remainder to organic marketing and other marketing expenses.

In 2022, approximately 28% of our total marketing expense was attributable to brand marketing, 45% to performance marketing, and the remainder to organic and other marketing expenses.

In 2021, approximately 35% of our total marketing expense was attributable to brand marketing, 36% to performance marketing, and the remainder to organic and other marketing expenses.

We evaluate the success of our brand marketing by measuring aided brand awareness, which has grown consistently on an annual basis since 2019.

1 unchanged sentence

Performance marketing spend can be adjusted more quickly than brand marketing, which typically involves pre-committing to spend in future periods.

During the first and second quarters of 2020, we increased brand marketing by over 100% compared to the same periods in 2019 to increase awareness, but reduced our spend as quickly as possible for the third and fourth quarters by approximately 30% compared to the same periods in 2019 due to the impacts of COVID-19 on our business.

We reduced performance marketing earlier in the second, third and fourth quarters of 2020 by approximately 15% compared to the same periods in 2019 in response to fewer financial services partners choosing to market through our platform in certain verticals.

As the COVID-19 headwinds subsided in 2021, we increased both brand and performance marketing to again drive more MUUs to our platform.

During 2021, we increased sales and marketing expense by 88% compared to 2020.

As the COVID-19 headwinds subsided in 2021, we increased both brand and performance marketing to drive more MUUs to our platform.

We increased sales and marketing expense in 2021 by 88% compared to 2020, and in 2022 by 38% compared to 2021.

In 2022, over 70% of all traffic to NerdWallet came organically through direct or unpaid channels, reflecting the strength of our brand and organic marketing efforts.

1 unchanged sentence

Our editorial team also optimizes page structure to increase visibility, not only for organic search results, but also for Google’s premium features such as FAQs, featured snippets, and video results.

Personnel-related expenses within organic marketing were up 33% in 2021 compared to 2020, which is a reflection of our continued investment in building a comprehensive set of skills and expertise across our editorial team.

We will continue to invest heavily in our marketing channels going forward, and believe that our marketing strategy will continue to position NerdWallet as the trusted brand of choice in personal finance, improve traffic acquisition at all levels of the funnel, drive engagement and enable us to scale quickly across new consumer finance verticals and geographies.

Personnel-related expenses within organic marketing reflect our continued investment in building a comprehensive set of skills and expertise across our editorial team.

We will continue to invest in our marketing channels going forward, and believe that our marketing strategy will continue to position NerdWallet as the trusted brand of choice in personal finance, improve traffic acquisition at all levels of the funnel, drive engagement and enable us to scale quickly across new consumer finance verticals and geographies.

We have made acquisitions to expand into new verticals;

1 unchanged sentence

and to grow our platform so that our users have better outcomes.

In the second half of 2020, we made two acquisitions:

Our recent acquisitions include:

• On the Barrelhead.

In July 2022, we acquired On the Barrelhead, Inc.

(OTB), a data-driven platform that provides consumers and small and mid-sized businesses (SMBs) with credit-driven product recommendations.

Given the success of our Fundera acquisition within our SMB vertical, we are leveraging our vertical integration playbook to fully integrate OTB’s technology and expertise within our Loans portfolio.

By pairing OTB’s loan matching platform with NerdWallet’s trusted brand and massive reach, we can offer our users more personalized and compelling recommendations, leading to better customer experiences and improved monetization.

In October 2020, we acquired Fundera, Inc.

14 unchanged sentences

We measure MUUs during a time period longer than one month by averaging the MUUs of each month within that period.

We track MUUs to frame the number of users who may transact with the financial services partners on our platform during a given period.

During 2021, we grew MUUs by 23% compared to 2020 as we increased our sales and marketing expenditures in light of the continued economic recovery we experienced.

During 2020, we grew MUUs by 25% compared to 2019.

We experienced the strongest growth in MUUs during the first and second quarters of 2020, and slower growth during the third and fourth quarters as we reduced sales and marketing spend by over 35% as compared to the first half of 2020 due to underlying economic conditions.

We track MUUs to frame the number of users who may transact with our financial services partners on our platform during a given period.

During 2022, we grew average MUUs to 20 million, which was up 4% compared to 2021, as we saw strong engagement in areas such as banking, travel and SMB products, and also began incorporating our acquisition of OTB in July 2022.

Partially offsetting growth were declines from a continued challenging macroeconomic environment in both mortgages and investing.

During 2021, we grew average MUUs to 19 million, which was up 23% compared to 2020, as we increased our sales and marketing expenditures in light of the continued economic recovery we experienced.

While we expect MUUs to grow over time, the metric may fluctuate from period to period based on economic conditions and our strategic marketing decisions.

1 unchanged sentence

We use Adjusted EBITDA in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our Board of Directors concerning our financial performance.

We define Adjusted EBITDA as net income (loss) from continuing operations adjusted to exclude depreciation and amortization, interest expense, net, provision (benefit) for income taxes, and further exclude (1) loss (gain) on impairment and on disposal of assets, (2) remeasurement of the embedded derivative in long-term debt, (3) change in fair value of contingent consideration related to earnouts, (4) deferred compensation related to earnouts, (5) stock-based compensation, and (6) acquisition-related costs.

We define Adjusted EBITDA as net income (loss) from continuing operations adjusted to exclude depreciation and amortization, interest expense, net, provision (benefit) for income taxes, and further exclude (1) losses (gains) on disposals of assets, (2) remeasurement of the embedded derivative in our previously outstanding long-term debt, (3) change in fair value of contingent consideration related to earnouts, (4) deferred compensation related to earnouts, (5) stock-based compensation, and (6) acquisition-related costs.

The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount is not driven by core operating results and renders comparisons with prior periods less meaningful.

4 unchanged sentences

These limitations include the following:

• Adjusted EBITDA does not reflect interest income (expense) and other gains (losses), net, which include unrealized and realized gains and losses on foreign currency exchange and the derivative previously embedded in long-term debt, as well as certain nonrecurring gains (losses);

• Adjusted EBITDA excludes certain recurring, non-cash charges, such as depreciation of property and equipment and amortization of intangible assets, and although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect all cash requirements for such replacements or for new capital expenditure requirements;

• Adjusted EBITDA excludes stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;

• Adjusted EBITDA does not include the impact of impairment of assets previously acquired, acquisition-related transaction expenses, contingent consideration fair value adjustments related to earnouts, and deferred compensation related to earnouts.

• Adjusted EBITDA does not reflect interest income (expense) and other gains (losses), net, which include unrealized and realized gains and losses on foreign currency exchange and the embedded derivative in our previously outstanding long-term debt, as well as certain nonrecurring gains (losses);

• Adjusted EBITDA excludes certain recurring, non-cash charges, such as depreciation of property and equipment, amortization of intangible assets, and (losses) gains on disposals of assets.

Although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect all cash requirements for such replacements or for new capital expenditure requirements;

• Adjusted EBITDA excludes stock-based compensation, including for acquisition-related inducement awards, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;

• Adjusted EBITDA excludes acquisition-related costs, including acquisition-related retention compensation under compensatory retention agreements with certain key employees, acquisition-related transaction expenses, contingent consideration fair value adjustments related to earnouts, and deferred compensation related to earnouts.

In addition, Adjusted EBITDA as we define it may not be comparable to similarly titled measures used by other companies.

8 unchanged sentences

Credit cards revenue includes revenue from consumer credit cards.

Loans revenue includes revenue from home mortgages, personal loans, student loans and auto loans.

Loans revenue includes revenue from personal loans, home mortgages, student loans and auto loans.

Other verticals revenue includes revenue from other product sources, including insurance, banking, investing, and SMB products.

Cost of revenue

Cost of revenue consists primarily of amortization expense and impairment charges associated with capitalized software development costs and developed technology intangible assets related to our acquisitions of Fundera and KYM, credit scoring fees, account linking fees , and third-party data center costs.

Cost of revenue consists primarily of amortization expense associated with capitalized software development costs and developed technology intangible assets related to our acquisitions, credit scoring fees, account linking fees , and third-party data center costs.

We expect our cost of revenue to increase in absolute dollars for the foreseeable future to the extent that our business continues to grow.

4 unchanged sentences

Research and development expenses primarily consist of personnel related costs, including stock-based compensation, technology and facility-related expenses and contractor expense for our engineering, product management, data and other personnel engaged in maintaining and enhancing the functionality of our platform.

We expect our research and development expenses to increase in absolute dollars for the foreseeable future, primarily for increased headcount to further develop and innovate our platform.

We expect our research and development expenses to increase in absolute dollars for the foreseeable future, primarily for increased headcount costs to further develop and innovate our platform.

Over time, we expect research and development expenses to decrease as a percentage of revenue as our business grows and recognizes economies of scale.

13 unchanged sentences

Change in fair value of contingent consideration related to earnouts

Our recent acquisitions include earn-out provisions which require us to pay additional consideration based on the achievement of certain performance measures for a stated period after the acquisition date.

Our acquisitions of Fundera and KYM include earn-out provisions which require us to pay additional consideration based on the achievement of certain performance measures for a stated period after the acquisition date.

We measure this contingent consideration at fair value as of the acquisition date and record it as a liability on our consolidated balance sheet.

4 unchanged sentences

Interest expense consists of interest costs related to our revolving credit facility and long-term debt, including amortization of the debt premium on our long-term debt.

Other gains (losses), net is primarily related to changes in the fair value of the embedded derivative in our long-term debt, as well as realized and unrealized gains and losses on foreign currency transactions and balances.

Other gains (losses), net is primarily related to changes in the fair value of the embedded derivative in our previously outstanding long-term debt, as well as realized and unrealized gains and losses on foreign currency transactions and balances.

Other gains (losses), net for 2021 includes a gain on extinguishment of debt as well as a nonrecurring gain.

25 unchanged sentences

Income (loss) from operations ( 19.0 ) ( 39.0 ) 1.9

Other income (expense):

Other income (expense), net:

Interest income 1.5 — 0.2

1 unchanged sentence

Other gains (losses), net — 2.6 ( 0.1 )

Total other income (expense) 1.3 (1.0) (0.5)

Total other income (expense), net ( 1.0 ) 1.3 ( 1.0 )

Income (loss) before income taxes ( 20.0 ) ( 37.7 ) 0.9

2 unchanged sentences

______________

(1) Includes stock-based compensation expense as follows:

(1) Includes stock-based compensation as follows:

(in millions)

15 unchanged sentences

Income (loss) from operations (4) (10) 1

Other income (expense):

Other income (expense), net:

Interest income — — —

1 unchanged sentence

Other gains (losses), net — — —

Total other income (expense) — (1) —

Total other income (expense), net — — (1)

Income (loss) before income taxes (4) (10) —

8 unchanged sentences

Total revenue $ 538.9 $ 379.6 $ 159.3 42 %

Revenue increased $134.3 million, or 55%, for 2021 compared to 2020, with revenue increases across all verticals.

Credit cards revenue increased $45.6 million, or 58%, for 2021 compared to 2020, primarily driven by increased activity amid recovery from the economic impacts of the COVID-19 pandemic and higher pricing with our financial services partners.

Loans revenue increased $45.1 million, or 55%, for 2021 compared to 2020, primarily driven by increases of 56% in home mortgages revenue and 94% in personal loans revenue, both reflecting higher consumer demand for loans in the sustained low interest rate environment.

Other verticals revenue increased $43.6 million, or 51%, for 2021 compared to 2020, primarily attributable to higher SMB revenue following our acquisition of Fundera as well as higher revenue in the UK following our acquisition of KYM.

The increase also included a 26% increase in insurance revenue, partially offset by decreases of 10% in investing revenue due to lower consumer demand for investing activities and 5% in banking revenue due to the low interest rate environment.

Revenue increased $159.3 million, or 42%, for 2022 compared to 2021, driven by strong growth in credit cards and other verticals revenues, partially offset by lower loans revenue.

Credit cards revenue increased $86.5 million, or 70%, for 2022 compared to 2021, reflecting our ability to capitalize on higher consumer intent through improved user experiences combined with our deep alignment with our financial services partners to deliver quality matches.

Loans revenue decreased $17.3 million, or 14%, for 2022 compared to 2021, primarily due to a 44% decrease in mortgages revenue primarily attributable to higher interest rates and continuing macroeconomic headwinds, partially offset by a 72% increase in personal loans revenue driven by both organic growth as well as incorporating our acquisition of OTB in July 2022.

Other verticals revenue increased $90.1 million, or 70%, for 2022 compared to 2021, primarily driven by increases of 130% in SMB products revenue following our acquisition of Fundera and 179% in banking revenue primarily due to the rising interest rate environment.

Costs and Expenses

5 unchanged sentences

General and administrative 58.2 38.5 19.7 51 %

Change in fair value of contingent consideration related to earnouts 18.1 (0.8) 18.9 NM

Change in fair value of contingent consideration related to earnouts 6.7 18.1 (11.4) (63 %)

Total costs and expenses $ 557.9 $ 418.6 $ 139.3 33 %

1 unchanged sentence

Cost of revenue increased $11.3 million, or 39%, for 2022 compared to 2021.

The increase was primarily attributable to a $6.0 million increase in amortization expense related to capitalized software development costs and intangible assets related to our acquisitions of Fundera and KYM in the second half of 2020, as well as a $0.8 million increase in third-party data center costs in connection with the growth in our traffic and ongoing product and feature development.

The increase was primarily attributable to a $10.2 million increase in amortization expense related to capitalized software development costs and intangible assets.

Amortization of intangible assets increased $4.9 million related to our acquisition of OTB in the second half of 2022.

Research and development expense

Research and development expenses increased $15.4 million, or 25%, for 2022 compared to 2021.

The increase was primarily attributable to increases of $9.8 million in personnel-related costs for our engineering, data, and product management personnel and contractors to support our continued growth, and $1.8 million in software and technology costs related to our platform, partially offset by a $1.0 million decrease in allocated costs due to lower facilities costs from the shift to remote work due to the COVID-19 pandemic.

The increase was primarily attributable to a $14.3 million increase in personnel-related costs for our engineering, data, and product management personnel and contractors to support our continued growth.

Sales and marketing expense

2 unchanged sentences

Sales and marketing expenses increased $104.3 million, or 38%, for 2022 compared to 2021.

The increase was primarily attributable to increases of $49.9 million in performance marketing expenses and $39.2 million in brand marketing expenses.

The increase was also attributable to higher organic and other marketing expenses, including a $24.9 million increase in personnel-related costs due to our efforts to grow and increase our user base, and $4.8 million of amortization expense of intangible assets from our acquisitions of Fundera and KYM in the second half of 2020.

The increase was primarily attributable to increases of $70.3 million in performance marketing expenses, $23.3 million in organic and other marketing expenses primarily due to higher personnel-related costs due to our efforts to grow and increase our user base, and $10.7 million in brand marketing expenses.

General and administrative expense

General and administrative expenses increased $10.5 million, or 38%, for 2021 compared to 2020, primarily attributable to increases of $9.2 million in personnel-related costs mainly due to increased headcount and $1.0 million in director and officer liability insurance costs.

General and administrative expenses increased $19.7 million, or 51%, for 2022 compared to 2021, primarily attributable to increases of $9.5 million in personnel-related costs mainly due to higher stock-based compensation and increased headcount, $3.2 million in director and officer liability insurance costs, and $3.4 million in acquisition-related costs primarily due to costs related to our acquisition of OTB.

Change in fair value of contingent consideration related to earnouts

5 unchanged sentences

Year Ended December 31, 2022 2021 $ Change % Change

Interest income $ — $ 0.2 $ (0.2) (92 %)

Interest income $ 1.5 $ — $ 1.5 NM

Interest expense ( 2.5 ) ( 1.3 ) (1.2) 91 %

Other gains, net — 2.6 (2.6) NM

Other income (expense), net $ 1.3 $ (1.0) $ 2.3 NM

Other income (expense), net increased $2.3 million for 2021 compared to 2020, primarily attributable to a $1.5 million gain on extinguishment of debt and a $1.3 million nonrecurring gain.

Total other income (expense), net $ ( 1.0 ) $ 1.3 $ (2.3) NM

The change in other income (expense), net for 2022 compared to 2021 was primarily attributable to a $ 1.5 million gain on extinguishment of debt and a $1.3 million nonrecurring gain, both in 2021.

Income tax provision (benefit)

We had an income tax provision of $4.8 million for 2021, as compared to an income tax benefit of $4.4 million in 2020.

Our effective tax rate was (12.8%) and (488.4%) for 2021 and 2020, respectively.

Our effective tax rate for 2021 was lower than the U.S.

federal statutory income tax rate of 21% primarily due to the increase in the valuation allowance recorded against our net U.S.

We had an income tax benefit of $ 9.8 million for 2022, as compared to an income tax provision of $ 4.8 million in 2021.

Our effective tax rate was 49.2% and (12.8%) for 2022 and 2021, respectively, as compared to the U.S.

federal statutory income tax rate of 21%.

During 2022, we recognized a tax benefit of $ 12.1 million related to the change in our existing full valuation allowance on deferred tax assets resulting from our acquisition of OTB, which was partially offset by higher capitalization of research and development expenses under new tax regulations effective in 2022.

Our effective tax rate for 2021 reflects the impact of the valuation allowance recorded against our net U.S.

deferred tax assets.

Our effective tax rate for 2020 was lower than the U.S.

federal statutory income tax rate of 21% primarily due to excess tax benefits related to stock-based compensation, and research and development credits, partially offset by non-deductible stock-based compensation.

Non-GAAP Financial Measure

7 unchanged sentences

Depreciation and amortization 37.0 27.1 15.1

Stock-based compensation 34.4 17.9 6.4

Acquisition-related retention 2.8 — —

Deferred compensation related to earnouts 1.7 2.1 —

Loss on disposal of assets — 0.8 0.2

Change in fair value of contingent consideration related to earnouts 6.7 18.1 (0.8)

Acquisition-related expenses 3.5 0.1 1.6

Interest expense, net 1.0 1.3 0.9

Other (gains) losses, net — (2.6) 0.1

Income tax provision (benefit) (9.8) 4.8 (4.4)

Other losses (gains), net (2.6) 0.1 0.5

Loss on impairment and on disposal of assets 0.8 0.2 1.3

Change in fair value of contingent consideration related to earnouts 18.1 (0.8) —

Deferred compensation related to earnouts 2.1 — —

Stock-based compensation 17.9 6.4 5.0

Acquisition-related expense 0.1 1.6 —

Adjusted EBITDA $ 67.1 $ 27.1 $ 24.4

4 unchanged sentences

(1) Represents adjusted EBITDA as a percentage of revenue.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” for a discussion of the decrease in net loss for 2022 compared to 2021.

Adjusted EBITDA increased $40.0 million, or 148%, for 2022 compared to 2021.

The increase was attributable to a $134.3 million increase in revenue amid recovery from the economic impacts of the COVID-19 pandemic, substantially offset by higher expenses primarily driven by a $127.3 million increase in sales and marketing expense as we continued to invest in our business.

The increase was attributable to a $32.3 million decrease in net loss and increases in adjustments to reconcile Adjusted EBITDA to net loss, including $16.5 million for stock-based compensation and $9.9 million for depreciation and amortization, offset by decreases of $14.6 million for income taxes.

Liquidity and Capital Resources

7 unchanged sentences

More broadly, we also have purchase obligations under contractual arrangements with vendors and service providers, including for certain web-hosting and cloud computing services, which do not qualify for recognition on our consolidated balance sheets but which we consider non-cancellable.

At December 31, 2021, amounts to be spent under non-cancellable purchase obligations were $3.7 million over the next twelve months and annual amounts of approximately $4 million to $5 million from 2023 through 2026.

As of December 31, 2022, amounts to be spent under non-cancellable purchase obligations were $5.7 million over the next twelve months, and annual amounts of approximately $4 million to $5 million from 2024 through 2026.

In addition, as part of the acquisitions of Know Your Money and Fundera, both in 2020, the Company committed to pay additional amounts of up to $11 million and $66 million, respectively, related to contingent earn-out consideration over the succeeding years based, in part, on the achievement of certain financial metrics related to 2021 and 2022.

Based on fair value measurements for these contingent consideration liabilities as of December 31, 2021 (see Note 3 – Fair Value Measurements in the notes to the consolidated financial statements), $30.5 million relates to amounts to be paid over the next twelve months and $24.2 million relates to amounts to be settled beyond the next twelve months.

In 2021, there was an inflow of $100.2 million cash from financing activities, primarily driven by net proceeds from our IPO of $140.0 million partially offset by $28.5 million to repay in full our subordinated promissory notes, and an outflow of $23.0 million of cash used in investing activities primarily related to capitalization of software development costs.

As of December 31, 2022, Fundera’s revenue and profitability milestones for 2022 have been achieved and the contingent consideration liability was recorded at the full payout amount of $30.9 million (see Note 3–Fair Value Measurements in the notes to the consolidated financial statements), with the liability to be paid over the next twelve months.

In 2022, there was an outflow of $100.3 million of cash used in investing activities, primarily due to $68.1 million of cash paid, net of cash acquired, for our acquisition of OTB, as well as $27.6 million of capitalized software development costs.

Additionally in 2022, there was an outflow of $8.4 million of cash used in financing activities, primarily driven by a $19.0 million payment of contingent consideration, partially offset by proceeds of $7.7 million from exercise of stock options and $4.5 million from issuance of common stock under our ESPP.

Trends, Uncertainties and Anticipated Sources of Funds

In order to grow our business, we intend to increase our personnel and related expenses and to make significant investments in our business.

The timing and amount of these investments will vary based on our financial condition, the rate at which we add new personnel and the scale of our development, as well as the extent and duration of the COVID-19 pandemic and its impact on the macro-economic environment.

The timing and amount of these investments will vary based on our financial condition, the rate at which we add new personnel and the scale of our development, as well as the macro-economic environment.

Many of these investments will occur in advance of our experiencing any direct benefit from them, which could negatively impact our liquidity and cash flows during any particular period and may make it difficult to determine if we are effectively allocating our resources.

However, we expect to fund our operations, capital expenditures and other investments principally with cash flows from operations, and to the extent that our liquidity needs exceed our cash from operations, we would look to our cash on hand to satisfy those needs.

We believe our current cash and cash equivalents, future cash flow from operations, and access to our credit facility will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for at least twelve months from the date of this filing.

If necessary, we may borrow up to $100 million under our credit facility with Silicon Valley Bank and certain other lenders, subject to borrowing conditions.

We believe our current cash and cash equivalents and future cash flow from operations, as well as access to our credit facility, will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for at least twelve months from the date of this filing.

If necessary, we may borrow up to $100 million under our credit facility with Silicon Valley Bank and certain other lenders, subject to borrowing conditions, which terminates on December 2, 2023.

We had no outstanding balance on our credit facility as of December 31, 2022 or 2021.

13 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents (0.2) — 0.1

Net increase in cash and cash equivalents $ 84.4 $ 15.8 $ 15.2

Net increase (decrease) in cash and cash equivalents $ (83.9) $ 84.4 $ 15.8

A discussion and analysis of our changes in cash flows for 2022 compared to 2021 is presented below.

For a discussion of our cash flows for 2020 and 2019, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity, Cash Flows, and Obligations” in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended on November 5, 2021.

For a discussion of our cash flows for 2021 and 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Operating activities

Net cash provided by operating activities decreased $8.2 million in 2021 compared to 2020 due to a net loss of $42.5 million in 2021, as compared to net income of $5.3 million in 2020, and a $10.9 million increase in net cash outflow from changes in operating assets and liabilities, largely offset by a $50.5 million increase in non-cash charges.

The increase in net cash outflow from changes in operating assets and liabilities was primarily due to a $21.2 million increase in accounts receivable, a $5.8 million decrease in accounts payable, and a $4.8 million increase in prepaid expenses and other assets, partially offset by a $21.9 million increase in accrued and other current liabilities.

The increase in non-cash charges was primarily due to increases of $18.9 million in change in fair value of contingent consideration related to earnouts, $12.0 million in depreciation and amortization, $11.5 million in stock-based compensation and $9.0 million in deferred taxes.

Net cash provided by operating activities increased $17.8 million in 2022 compared to 2021 driven by a $32.3 million decrease in net loss, partially offset by an $10.6 million increase in net cash outflow from changes in operating assets and liabilities and a $3.9 million decrease in non-cash charges.

The increase in net cash outflow from changes in operating assets and liabilities was primarily due to an $11.5 million payment of contingent consideration and a $10.8 million decrease in accrued expenses and other current liabilities, partially offset by an $8.9 million decrease in prepaid expenses and other assets.

The decrease in non-cash charges was primarily due to decreases of $17.0 million in deferred taxes, $11.4 million in change in fair value of contingent consideration related to earnouts, and $5.3 million in non-cash lease costs, substantially offset by increases of $16.5 million in stock-based compensation, $9.9 million in depreciation and amortization, and $3.4 million in other, net.

Investing activities

Net cash used in investing activities decreased $32.4 million in 2021 compared to 2020, primarily due to $36.7 million of cash paid for business combinations, net of cash acquired, in 2020.

Net cash used in investing activities increased $77.3 million in 2022 compared to 2021, primarily due to $68.1 million of cash paid, net of cash acquired, for our acquisition of OTB, and a $6.9 million increase in capitalized software development costs.

Financing activities

Net cash provided by financing activities increased $44.5 million in 2021 compared to 2020, primarily due to net proceeds from our IPO of $140.0 million, after deducting underwriting discounts and commissions of $10.1 million, partially offset by decreases of $54.3 million from issuances of Class A common stock in 2020, $28.5 million to repay in full our subordinated promissory notes, and $12.4 million for repurchases of Class F common stock.

Other Capital Resource Matters

On October 17, 2021 and October 18, 2021, our Board of Directors and stockholders, respectively, approved a one-for-two reverse stock split of our common and preferred stock which was effectuated on October 20, 2021 upon our filing of an amended and restated certificate of incorporation with the Delaware Secretary of State.

As a result, each stockholder of record on October 20, 2021 received one share of common or preferred stock for every two shares held on the record date.

All share, equity award, and per share amounts presented herein have been retroactively adjusted to reflect this reverse stock split.

We had $8.4 million of net cash used in financing activities in 2022, as compared to $100.2 million of net cash provided by financing activities in 2021, primarily due to $140.0 million of net proceeds from our IPO in 2021, and a $19.0 million payment of contingent consideration in 2022, partially offset by a $28.5 million repayment in full of our subordinated promissory notes and $12.4 million of repurchases of Class F common stock, both in 2021.

Additionally, we had $70.0 million of proceeds from our line of credit to finance the cash portion of the purchase consideration for our acquisition of OTB, with a $70.0 million repayment in full in December 2022.

Critical Accounting Policies and Estimates

25 unchanged sentences

Unforeseen events, changes in circumstances and market conditions and material differences in estimates of future cash flows could adversely affect the fair value of our assets and could result in future impairment charges.

Contingent consideration

We have recorded contingent consideration in connection with certain business combinations that require us to pay cash consideration to the seller upon achievement of certain metrics during the years ending December 31, 2021 and 2022.

We record the fair value of contingent consideration at the date of the acquisition and measure it using unobservable, Level 3 inputs, due to the absence of quoted market prices.

Subsequent to the acquisition date, at each reporting date, the contingent consideration liability is remeasured to fair value with changes in fair value recorded in operating expenses, net on the consolidated statement of operations.

We value contingent consideration using a Monte Carlo simulation model, which requires critical estimates to be made, including projected financial information, market volatility, risk-adjusted discount rates and timing of contractual payments.

Changes in any one of these inputs may result in a significantly different fair value of the contingent consideration.

Deferred Tax Asset Valuation Allowances

33 unchanged sentences

We recognize forfeitures as they occur, rather than estimate expected forfeitures.

Common Stock Valuations

Prior to our IPO, given the absence of a public trading market for our Class A common stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our Board of Directors exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of fair value of our Class A common stock underlying the stock options and RSUs, including:

• contemporaneous valuations of our Class A common stock by an independent valuation specialist;

• the prices at which others have sold our common and redeemable convertible preferred stock to outside investors in arms-length transactions;

• the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our Class A common stock;

• our financial condition, results of operations and capital resources;

• the industry outlook;

• the fact that option and RSU grants have involved rights in illiquid securities in a private company;

• the valuation of comparable companies;

• the lack of marketability of our Class A common stock;

• the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company given prevailing market conditions;

• the history and nature of our business, industry trends and competitive environment;

• general economic outlook including economic growth, inflation, unemployment, interest rate environment and global economic trends.

To determine the fair value of our Class A common stock, we first determined our enterprise value and then allocated that enterprise value among the various classes of our equity securities.

Our enterprise value was estimated using two generally accepted approaches:

the income approach and the market approach.

The income approach estimates enterprise value based on the estimated present value of future cash flows the business is expected to generate over its remaining life.

The estimated present value is calculated using a discount rate reflective of the risks associated with an investment in a similar company in a similar industry or having a similar history of revenue growth.

The market approach measures the value of a business through an analysis of recent sales or offerings of comparable investments or assets, and in our case, focused on comparing us to a group of our peer companies.

In applying this method, valuation multiples are derived from historical operating data of the peer company group.

We then apply multiples to our operating data to arrive at a range of indicated values of the company.

In addition, we also considered any secondary transactions, including third party tender offers, involving our capital stock.

In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange and assigned the transactions an appropriate weighting in the valuation of our Class A common stock.

Factors considered include the number of different buyers and sellers;

transaction volume;

timing relative to the valuation date;

whether the transactions occurred between willing and unrelated parties;

and whether the transactions involved investors with access to our financial information.

Application of these approaches and methodologies involves the use of estimates, judgments and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows;

discount rates;

market multiples;

the selection of comparable public companies;

and the probability of and timing associated with possible future events.

Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our Class A common stock.

For valuations after the completion of our IPO, our Board of Directors determines the fair value of each share of underlying Class A common stock based on the closing price of our Class A common stock as reported on the date of grant.

Recently Issued and Adopted Accounting Pronouncements

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis