What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-23 · 136 added, 78 removed, 352 unchanged (38% of the section changed)

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Our vision is a world where everyone makes financial decisions with confidence.

At NerdWallet, we empower consumers—both individual consumers and small and mid-sized businesses (SMBs)—to make smarter financial decisions with confidence.

At NerdWallet, we empower consumers—both individuals and SMBs—to make smarter financial decisions with confidence via our digital platform.

Technology, paired with the dramatic growth in innovative financial products, has changed the way consumers manage their financial lives;

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Ability to Deepen Our Relationships with Our Financial Services Partners

We worked wit h over 400 financial services partners as of December 31, 2022.

We worked wit h hundreds of financial services partners during 2023.

These companies are essential to helping us serve consumers and grow our business .

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

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 2022 by 38% compared to 2021, and in 2023 by 7% compared to 2022.

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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.

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

Given the success of our Fundera acquisition within our SMB products verticals, 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.

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We believe the acquisition will allow us to accelerate our international growth.

Key Operating Metric and Non-GAAP Financial Measure

Key Operating Metric and Non-GAAP Financial Measures

We collect, review and analyze operating and financial data of our business to assess our ongoing performance and compare our results to prior period results.

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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.

During 2023, we grew average MUUs to 23 million, which was up 15% compared to 2022, as we saw strong engagement in areas such as travel, banking, and insurance, 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.

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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.

Non-GAAP Financial Measures

We use non-GAAP operating income (loss) and 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.

Non-GAAP operating income (loss):

We define non-GAAP operating income (loss) as income (loss) from operations adjusted to exclude depreciation and amortization, and further exclude (1) impairment of right-of-use asset, (2) losses (gains) on disposals of assets, (3) change in fair value of contingent consideration related to earnouts, (4) deferred compensation related to earnouts, and (5) acquisition-related costs.

We also reduce income from operations, or increase loss from operations, for capitalized internally developed software costs.

Adjusted EBITDA:

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) 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.

We believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results and in comparing operating results across periods.

Moreover, we have included Adjusted EBITDA in this Annual Report on Form 10-K because it is a key measurement used by our management internally to make operating decisions, including those related to analyzing operating expenses, evaluating performance, and performing strategic planning and annual budgeting.

However, the use of this non-GAAP measure has certain limitations because it does not reflect all items of income and expense that affect our operations.

Adjusted EBITDA has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with GAAP.

We define adjusted EBITDA as net income (loss) from continuing operations adjusted to exclude depreciation and amortization, interest income (expense), net, provision (benefit) for income taxes, and further exclude (1) impairment of right-of-use asset, (2) losses (gains) on disposals of assets, (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 non-GAAP operating income (loss) and adjusted EBITDA measures because these items are non-cash in nature, or because the amounts are not driven by core operating results and renders comparisons with prior periods less meaningful.

We deduct capitalized internally developed software costs in our non-GAAP operating income (loss) measure to reflect the cash impact of personnel costs incurred within the time period.

We believe that non-GAAP operating income (loss) and adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results and in comparing operating results across periods.

Moreover, non-GAAP operating income (loss) and adjusted EBITDA are key measurements used by our management internally to make operating decisions, including those related to analyzing operating expenses, evaluating performance, and performing strategic planning and annual budgeting.

However, the use of these non-GAAP measures have certain limitations because they do not reflect all items of income and expense that affect our operations.

Non-GAAP operating income (loss) and adjusted EBITDA have limitations as financial measures, should be considered as supplemental in nature, and are not meant as substitutes for the related financial information prepared in accordance with GAAP.

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 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;

• Non-GAAP operating income (loss) and adjusted EBITDA exclude certain recurring, non-cash charges, such as amortization of software, depreciation of property and equipment, amortization of intangible assets, impairment of right-of-use asset, 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 non-GAAP operating income (loss) and adjusted EBITDA do not reflect all cash requirements for such replacements or for new capital expenditure requirements;

• Non-GAAP operating income (loss) and adjusted EBITDA exclude 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;

• 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.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income (loss) and our other GAAP results.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Components of Our Results of Operations—Non-GAAP Financial Measure” for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.

In addition, non-GAAP operating income (loss) and adjusted EBITDA as we define them may not be comparable to similarly titled measures used by other companies.

Because of these limitations, you should consider non-GAAP operating income (loss) and adjusted EBITDA alongside other financial performance measures, including income (loss) from operations, net loss and our other GAAP results.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Components of Our Results of Operations—Non-GAAP Financial Measures” for reconciliations of non-GAAP operating income (loss) to income (loss) from operations, and adjusted EBITDA to net loss, the most directly comparable financial measures calculated in accordance with GAAP.

Key Components of Our Results of Operations

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For some of our arrangements, the transaction price is considered variable and an estimate of the constrained transaction price is recorded when the match occurs.

Our revenue generally includes three product categories:

credit cards, loans and other verticals.

Our revenue generally includes four product categories:

Credit cards, Loans, SMB products and Emerging verticals.

Credit cards revenue includes revenue from consumer credit cards.

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.

SMB products revenue includes revenue from loans, credit cards and other financial products and services intended for small and mid-sized businesses.

Emerging verticals revenue includes revenue from other product sources, including banking, insurance, investing and international.

Cost of revenue

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

We expect our cost of revenue to decrease over time as a percentage of revenue as we recognize economies of scale.

However, this percentage may fluctuate from year to year in the short term.

We expect our cost of revenue to vary as a percentage of revenue in the near term, and it may eventually decrease over time as a percentage of revenue as our business grows and recognizes economies of scale.

However, this percentage may fluctuate from year to year depending on the timing and extent of our investments in experiences requiring third-party data, credit scoring and account linking fees.

Research and development

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General and administrative

General and administrative expenses consist of personnel related costs, including stock-based compensation, for certain of our executives as well as our legal, finance, human resources, and other administrative employees;

General and administrative expenses consist primarily of personnel related costs, including stock-based compensation, for certain of our executives as well as our legal, finance, human resources, and other administrative employees;

and professional services fees.

We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future primarily to support the growth of our business and our public company operations.

We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future primarily to support the growth of our business.

Additional expenses may include increased headcount, enhanced systems, processes, and controls as well as increased expenses in the areas of insurance, compliance, investor relations, and professional services.

For these reasons, we expect general and administrative expenses to increase as a percentage of revenue in the near term, but eventually to decrease as a percentage of revenue as our business grows and recognizes economies of scale.

For these reasons, we expect general and administrative expenses to vary as a percentage of revenue in the near term, but eventually to decrease as a percentage of revenue as our business grows and recognizes economies of scale.

This percentage may fluctuate from period to period depending on the timing and extent of our general and administrative expenses.

Change in fair value of contingent consideration related to earnouts

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.

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

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

The fair value of each contingent consideration liability is remeasured at the end of each reporting period, with any changes in fair value recognized as income or expense from operations in our consolidated income statement.

As of December 31, 2022, Fundera Inc.’s revenue and profitability milestones for 2022 were achieved and the contingent consideration liability was recorded at the full payout amount, with the contingent consideration liability paid in full during 2023.

Other income (expense), net

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Income tax provision (benefit) 18.1 (9.8) 4.8

Net income (loss) $ ( 10.2 ) $ ( 42.5 ) $ 5.3

$ (11.8) $ (10.2) $ (42.5)

______________

(1) Includes stock-based compensation as follows:

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Income tax provision (benefit) 3 (2) 1

Net income (loss) (2 %) (11 %) 2 %

(2 %) (2 %) (11 %)

Comparison of the Years Ended December 31, 2023 and 2022

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Loans 101.6 109.1 (7.5) (7 %)

Other verticals 219.5 129.4 90.1 70 %

101.2 91.4 9.8 11 %

Emerging verticals

186.9 128.1 58.8 46 %

Total revenue $ 599.4 $ 538.9 $ 60.5 11 %

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.

Revenue increased $60.5 million, or 11%, for 2023 compared to 2022, driven by strong growth in Emerging verticals and SMB products revenues, partially offset by lower Loans revenue.

Credit cards revenue decreased $0.6 million for 2023 compared to 2022, as strong growth in the first quarter of 2023, 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, was offset by reduced marketing spending by our financial services partners during the remainder of 2023 amidst a combination of increasingly cautious underwriting and heightened balance sheet conservatism following the regional banking crisis.

Loans revenue decreased $7.5 million, or 7%, for 2023 compared to 2022, primarily due to decreases of 41% in mortgages revenue and 23% in student loans revenue, mainly attributable to higher interest rates driving lower demand for refinancing and continuing macroeconomic headwinds, partially offset by a 29% increase in personal loans revenue driven by both organic growth as well as incorporating our acquisition of OTB in July 2022.

SMB products revenue increased $9.8 million, or 11%, for 2023 compared to 2022, reflecting our ability to drive diversified revenue growth across SMB products such as business credit cards, despite macroeconomic headwinds for the loans industry broadly.

Emerging verticals revenue increased $58.8 million, or 46%, for 2023 compared to 2022, primarily driven by increases of 74% in banking revenue mainly due to the higher interest rate environment and 30% in insurance products mainly driven by auto insurance.

Costs and Expenses

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Cost of revenue increased $14.2 million, or 36%, for 2023 compared to 2022.

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.

The increase was primarily attributable to an $11.0 million increase in amortization expense related to capitalized software development costs and intangible assets from our acquisition of OTB in July 2022, as well as a $2.2 million increase primarily related to third-party service charges.

Research and development expense

Research and development expenses increased $2.9 million, or 4%, for 2023 compared to 2022.

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.

The increase was primarily attributable to increases of $1.6 million in personnel-related costs for our engineering, data, and product management personnel and contractors to support our continued growth, and $1.5 million in software and technology costs related to our platform.

Sales and marketing expense

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Sales and marketing expenses increased $25.9 million, or 7%, for 2023 compared to 2022.

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.

The increase was primarily attributable to increases of $38.1 million in performance marketing expenses and $9.7 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, partially offset by a $21.9 million decrease in brand marketing expenses.

General and administrative expense

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.

General and administrative expenses increased $1.6 million, or 3%, for 2023 compared to 2022, primarily attributable to a $5.7 million increase in personnel-related costs mainly due to higher stock-based compensation, and a $1.4 million impairment of right-of-use asset, partially offset by decreases of $3.4 million in acquisition-related costs primarily related to our acquisition of OTB in July 2022, and $1.8 million primarily related to director and officer liability insurance costs.

Change in fair value of contingent consideration related to earnouts

The change in fair value of contingent consideration relates to our acquisitions of Fundera and KYM in the second half of 2020.

The fair value of the estimated contingent considerations is subject to remeasurement at each reporting date until the payments are made.

See Note 1–The Company and its Significant Accounting Policies in the notes to our consolidated financial statements for further discussion regarding how we estimated the fair value of these contingent considerations.

The fair value of the contingent considerations was subject to remeasurement at each reporting date until the payments were made.

See Note 1–The Company and its Significant Accounting Policies and Note 3–Fair Value Measurements in the notes to our consolidated financial statements for further discussion on these contingent considerations.

Other income (expense), net

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Year Ended December 31, 2023 2022 $ Change % Change

Interest income $ 1.5 $ — $ 1.5 NM

Interest income $ 3.6 $ 1.5 $ 2.1 135 %

Interest expense (0.8) (2.5) 1.7 (69 %)

Other gains, net — 2.6 (2.6) NM

Other losses, net

(0.1) — (0.1) 85 %

Total other income (expense), net $ 2.7 $ (1.0) $ 3.7 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.

The change in other income (expense), net for 2023 compared to 2022 was primarily attributable to higher interest income reflecting higher interest rates and average cash balances, and lower interest expense related to debt activity.

Income tax provision (benefit)

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.

We had an income tax provision of $18.1 million for 2023, as compared to an income tax benefit of $9.8 million in 2022.

Our effective tax rate was 286.7% and 49.2% for 2023 and 2022, 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.

Our effective tax rate for 2023 differs from the U.S.

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

deferred tax assets and state taxes, partially offset by research and development credits.

Our tax provision for 2023 primarily resulted from the requirement for us to capitalize and amortize research and development expenses, and an overall increase in our profitability before taxes.

As a result, we recorded a significant U.S.

current tax provision in 2023 with no corresponding deferred tax benefit for such capitalized expenses due to the valuation allowance maintained against our net U.S.

deferred tax assets.

Non-GAAP Financial Measure

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

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income (loss) and our other GAAP results.

We compensate for these limitations by reconciling Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure.

The following table presents a reconciliation of Adjusted EBITDA for each of the periods presented:

During 2022, we recognized a nonrecurring 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 in July 2022, which was partially offset by higher capitalization of research and development expenses under new tax regulations effective in 2022.

Non-GAAP Financial Measures

Non-GAAP operating income (loss) and adjusted EBITDA as we define them may not be comparable to similarly titled measures used by other companies.

We compensate for these limitations by reconciling non-GAAP operating income (loss) to income (loss) from operations, and adjusted EBITDA to net loss, the most comparable GAAP financial measures, as follows:

(in millions)

Year Ended December 31, 2023 2022 2021

Net income (loss) $ (10.2) $ (42.5) $ 5.3

Income (loss) from operations

$ 3.6 $ (19.0) $ (39.0)

Depreciation and amortization 48.2 37.0 27.1

Acquisition-related retention 5.3 2.8 —

Deferred compensation related to earnouts — 1.7 2.1

Impairment of right-of-use asset

Loss on disposal of assets 0.2 — 0.8

Change in fair value of contingent consideration related to earnouts — 6.7 18.1

Acquisition-related expenses 0.1 3.5 0.1

Capitalized internally developed software costs (32.4) (33.7) (24.0)

Non-GAAP operating income (loss) $ 26.4 $ (1.0) $ (14.8)

Operating income (loss) margin

1 % (4 %) (10 %)

Non-GAAP operating income (loss) margin 1

4 % (0 %) (4 %)

$ (11.8) $ (10.2) $ (42.5)

Depreciation and amortization 48.2 37.0 27.1

Stock-based compensation 38.8 34.4 17.9

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Deferred compensation related to earnouts — 1.7 2.1

Impairment of right-of-use asset 1.4 — —

Loss on disposal of assets 0.2 — 0.8

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Acquisition-related expenses 0.1 3.5 0.1

Interest expense, net 1.0 1.3 0.9

Interest (income) expense, net

(2.8) 1.0 1.3

Other (gains) losses, net 0.1 — (2.6)

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Adjusted EBITDA $ 97.6 $ 67.1 $ 27.1

Net income (loss) margin (2 %) (11 %) 2 %

Stock-based compensation (38.8) (34.4) (17.9)

Capitalized internally developed software costs

(32.4) (33.7) (24.0)

Non-GAAP operating income (loss)

$ 26.4 $ (1.0) $ (14.8)

Net loss margin

(2 %) (2 %) (11 %)

Adjusted EBITDA margin 2

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______________

(1) Represents non-GAAP operating income (loss) as a percentage of revenue.

(2) 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.

We had income from operations of $3.6 million for 2023, as compared to a loss from operations of $19.0 million for 2022, The change was driven by a $60.5 million increase in revenues, partially offset by a $37.9 million increase in operating expenses primarily due to increases of $25.9 million in sales and marketing expenses and $14.2 million in cost of revenue.

Our loss from operations decreased $20.0 million or 51% for 2022 compared to 2021.

The decrease was driven by a $159.3 million increase in revenues, largely offset by a $139.3 million increase in operating expenses primarily due to increases of $104.3 million in sales and marketing expenses, $19.7 million in general and administrative expenses, and $15.4 million in research and development expenses.

We had non-GAAP operating income of $26.4 million for 2023, as compared to a non-GAAP operating loss of $1.0 million for 2022.

The change was primarily driven by $3.6 million of income from operations in 2023, as compared to a loss from operations of $19.0 million in 2022, as well as increases in adjustments to reconcile income (loss) from operations to non-GAAP operating income (loss), including $11.2 million for depreciation and amortization and $2.5 million for acquisition-related retention, partially offset by decreases of $6.7 million for the change in fair value of contingent consideration related to earnouts and $3.4 million for acquisition-related expenses, as well as $2.8 million of net interest income in 2023 as compared to net interest expense of $1.0 million in 2022.

Non-GAAP operating loss decreased $13.8 million, or 93%, for 2022 compared to 2021.

The decrease was primarily driven by a $20.0 million decrease in loss from operations, partially offset by decreases in adjustments to reconcile loss from operations to non-GAAP operating loss, including $11.4 million for the change in fair value of contingent consideration related to earnouts and $9.7 million for capitalized internally developed software costs, partially offset by increases of $9.9 million for depreciation and amortization, and $3.4 million for acquisition-related expenses and $2.8 million for acquisition-related retention.

Our net loss increased $1.6 million or 16% for 2023 compared to 2022.

The increase reflects $3.6 million of income from operations for 2023 as compared to a loss from operations of $19.0 million for 2022, and $2.7 million of other income, net in 2023 as compared to other expense, net of $1.0 million in 2022, which were more than offset by an $18.1 million income tax provision in 2023 as compared to an income tax benefit of $9.8 million in 2022.

Adjusted EBITDA increased $30.5 million, or 45%, for 2023 compared to 2022.

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.

The increase was primarily attributable to increases in adjustments to reconcile adjusted EBITDA to net loss, including$27.9 million for income taxes, $11.2 million for depreciation and amortization, and $4.4 million for stock-based compensation, partially offset by decreases of $6.7 million for the change in fair value of contingent consideration related to earnouts, $3.4 million for acquisition-related expenses, and $3.8 million for interest income (expense), net.

Liquidity and Capital Resources

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A description of contractual commitments as of December 31, 2023 is included in Note 8–Commitments and Contingencies in the notes to the consolidated financial statements.

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.

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.

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.

As of December 31, 2023, amounts to be spent under non-cancellable purchase obligations were $6.8 million over the next twelve months, and approximately $6 million in 2025 and $5 million in 2026.

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.

In order to grow our business, we intend to make significant investments in our business, which may result in increases in our personnel and related expenses.

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.

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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 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 announced on May 2, 2023 that our Board of Directors authorized a plan under which we may repurchase up to $20 million of our Class A common stock and, following our utilization of that share repurchase authorization, we announced on October 26, 2023 that our Board of Directors approved a new share repurchase authorization under which we may repurchase up to an additional $30 million of our Class A common stock (collectively, the Repurchase Plans).

Subject to market conditions and other factors, the Repurchase Plans are intended to make opportunistic repurchases of our Class A common stock to reduce our outstanding share count.

Under the Repurchase Plans, shares of Class A common stock may be repurchased in the open market through privately negotiated transactions or otherwise, in accordance with applicable securities laws and other restrictions.

The Repurchase Plans do not have fixed expiration dates and do not obligate us to acquire any specific number of shares.

The timing and terms of any repurchases under the Repurchase Plans are at management’s discretion and depend on a variety of factors, including business, economic and market conditions, regulatory requirements, prevailing stock prices and other considerations.

Additionally, we may, from time to time, enter into Rule 10b-5 trading plans to facilitate repurchases.

Shares repurchased under the Repurchase Plans are retired.

We expect to fund repurchases with existing cash and cash equivalents.

During 2023, we repurchased 2.3 million shares of Class A common stock for $20.0 million, including costs associated with the repurchases.

We believe our current cash and cash equivalents and future cash flow from operations, as well as access to our credit facility with JPMorgan Chase Bank and a syndicate of other lenders, subject to customary borrowing conditions, will be sufficient to meet our ongoing working capital, capital expenditure and other liquidity requirements for the next twelve months and beyond.

On September 26, 2023, we, including three of our wholly-owned subsidiaries, entered into a credit agreement (the Credit Agreement) with JPMorgan Chase Bank, National Association.

as Administrative Agent, and a syndicate of lenders.

The Credit Agreement provides for a $125.0 million senior secured revolving credit facility (the Credit Facility), with the option to increase up to an additional $75.0 million, and is available to be used by us and certain of our domestic subsidiaries for general corporate purposes, including acquisitions.

The Credit Facility matures on September 26, 2028.

See Note 7–Debt in the notes to our consolidated financial statements for further discussion.

The Credit Facility replaced our prior credit facility under the Amended and Restated Senior Secured Credit Facilities Credit Agreement dated February 19, 2021 between us and Silicon Valley Bank, as administrative agent (the Prior Credit Agreement), which was terminated substantially concurrently with the Company’s entering into the Credit Agreement.

Under the terms of our Prior Credit Agreement, we could have borrowed up to $100.0 million, subject to borrowing conditions.

We had no outstanding balance on our credit facility as of December 31, 2023 or 2022.

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Operating activities

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.

Net cash provided by operating activities increased $47.1 million in 2023 compared to 2022 driven by a $25.9 million decrease in net cash outflow from changes in operating assets and liabilities and a $22.8 million increase in non-cash charges, partially offset by a $1.6 million increase in net loss.

The decrease in net cash outflow from changes in operating assets and liabilities was primarily due to decreases of $29.4 million for accounts receivable, and $7.8 million for other liabilities, partially offset by an $8.2 million increase for accrued expenses and other current liabilities.

The increase in non-cash charges was primarily due to increases of $12.1 million in deferred taxes, $11.2 million in depreciation and amortization, and $4.4 million in stock-based compensation, partially offset by a $6.7 million decrease in change in fair value of contingent consideration related to earnouts.

Investing activities

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.

Net cash used in investing activities decreased $70.8 million in 2023 compared to 2022, primarily due to $68.1 million of cash paid, net of cash acquired, for our acquisition of OTB in 2022, as well as a $3.9 million decrease in purchases of property and equipment.

Financing activities

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.

Net cash used in financing activities increased $17.8 million in 2023, primarily due to $20.0 million for repurchases of Class A common stock, partially offset a $2.5 million increase from exercises of stock options and a $2.1 million decrease in payments for contingent consideration recorded at the acquisition date.

Additionally, in 2022, 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 in 2022, with a $70.0 million repayment in full in December 2022.

Critical Accounting Policies and Estimates

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We test goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable.

As a result of the goodwill impairment assessment in 2022, 2021 and 2020, we determined that it was not more likely than not that the fair value of its single reporting unit was less than its carrying amount.

As a result of the goodwill impairment assessments in 2023, 2022 and 2021, we determined that it was not more likely than not that the fair value of its single reporting unit was less than its carrying amount.

As such, goodwill was not impaired during 2023, 2022 and 2021.

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Our judgment regarding the likelihood of realization of these deferred tax assets could change in future periods, which could result in a material impact to our income tax provision in the period of change.

Given our current earnings projections, sufficient positive evidence may become available for us to release all, or a portion, of the valuation allowance within the next twelve months.

However, the timing and amounts of such valuation allowance releases are subject to change based on the level of profitability achieved in future periods.

Stock-Based Compensation

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The fair value of RSUs that are expected to vest is recognized as compensation expense over the requisite service period.

The fair value of purchase rights granted under its ESPP is estimated using the component measurement approach with valuations of the components based on the Company’s stock price on the date of the grant and/or the Black-Scholes-Merton option-pricing model, as appropriate for the applicable components.

The fair value of purchase rights granted under our employee stock purchase plan (ESPP) is estimated using the component measurement approach with valuations of the components based on the Company’s stock price on the date of the grant and/or the Black-Scholes-Merton option-pricing model, as appropriate for the applicable components.

The fair value of the purchase rights is recognized over the requisite service period.

8 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