MarketWise, Inc.

Thank you for standing by and welcome to the Market Wise first quarter 2022 earnings call. I'd now like to hand the conference over to Jonathan Shanfield, head of investor relations at Market Wise. Thank you. Please go ahead.

Thank you and good morning. Thanks for joining us on today's conference call to discuss Market Wise first quarter 2022 financial results. On the call today, we have Mark Arnold, our chief executive officer, and Dale Lynch, our chief financial officer. During the course of today's call, we may make forward looking statements, including but not limited to statements regarding our guidance and future financial performance market demand growth prospects business strategies and plans and our ability to attract and retain customers. These forward looking statements are based on management's current views and assumptions should not be relied upon as of any subsequent date and we disclaim any obligation to update any forward looking statements. Actual results may vary materially from today's statements. Information concerning a risk, uncertainties, and other factors that could cause results to differ from these four statements are contained in the company's SEC filings, earnings press release, and supplemental information posted on the investor section of the company's website. Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, or in isolation from GAAP measures. Reconciliations to non-GAAP measures can be found on earnings press release and SEC filings. Now I'll turn the call over to Mark.

Thanks, John, and good morning, everybody. Welcome to our first quarter earnings call. Before we get into the financial results for the quarter, I'd like to talk a bit about some of the dynamics that we're seeing in the markets and in our business right now. At MarketWise, our vision is to be the platform of choice for the self-directed investor. And to that end, Our relationship with our subscribers is of the utmost importance, and we believe it's our greatest asset. That is why at times like these, when we are seeing disruptive forces in the financial markets, we seek to provide the subscribers with the research and tools that they need to navigate the current situation. In the first quarter of this year, as the world and the U.S. increasingly returned to the pre-pandemic activity, Russia invaded Ukraine, and we saw the first full-scale war in Europe since World War II. This accelerated inflationary pressure caused by global supply constraints, and it showed in the data as inflation spiked to 40-year highs. The Fed in turn signaled that it is prepared to combat inflation through a series of interest rate increases. We also experienced havoc in the bond market throughout the first quarter. Against this backdrop, it is no wonder that investors in general, including our subscribers, have stepped back to evaluate the situation and determine whether to continue with their previous investment strategies or change course. This has resulted in what seems to be some consumer hesitance and indecision regarding their investments. We believe this combination of factors also impacted our current financial performance. For the first quarter of 2022, our revenues grew 14% year-over-year to $136.8 million, Our billings declined 47% year-over-year to $136 million, and our adjusted cash flow from operations was $1.1 million. They will provide more color on this shortly, but our adjusted cash flow from operations was lower this quarter for several distinct reasons. First, we continued to invest in marketing spend longer than we might have otherwise, as we felt it was important to continue to test what investment ideas would resonate in these volatile markets. We also had some timing differences in working capital accruals that temporarily reduced cash flow by approximately $18.1 million. Additionally, as we have discussed for several quarters now, and as other direct-to-consumer businesses have recently discussed in their quarterly results, we experienced higher subscriber acquisition costs and somewhat lower consumer engagement. They will also discuss this in more detail shortly, but engagement metrics for us were relatively flat in the first quarter of 2022, as compared to fourth quarter 2021. However, they remain approximately 18% below the average engagement metrics we observed over the past two years during the pandemic. With the great reemergence trend continuing at pace, cost to market through display ad channels remain elevated, causing us to add fewer new subscribers in recent quarters. I should note that we are not strangers to these types of challenges. We have faced similar situations over our 22-year history, and successfully navigated periods of volatility like the one that we are experiencing now. While this market has been volatile so far this year, it has not been near as difficult as the financial crisis in 2008 and 2009. During that period, we managed our business through the cycle by developing new content that addressed the financial environment in that post-crisis world and ultimately resumed significant organic growth. So what are we doing to address these market conditions? First of all, we believe consumer reaction to this market is entirely understandable. In light of the downdraft in many asset classes, we believe investors are weighing more offensive growth-oriented investment ideas that have been successful in recent years versus more defensive strategies. Investors are taking time to weigh the alternatives and evaluate their risk appetite. We see this in lower overall paid conversion rate among our lower ARPU subscribers. However, our high value and ultra-high value conversion rates remain in line with historic levels, indicating that our best subscribers are continuing to purchase from us at similar rates. Our professionals are accustomed to changing market forces, and we are adjusting to these forces like we have previously. Our teams are hard at work calibrating our content to help self-directed investors navigate this uncertainty. They are also hard at work to ensure that we can address today's markets and return our business to attractive organic growth levels. We believe these efforts will show up in our performance as the year progresses. Remember, our research covers a broad variety of investment strategies, appropriate for both bull markets and bear markets, and for traders as well as long-term investors. This helps ensure that we have content that resonates in changing market conditions. There appear to be some major thematic changes occurring in the United States and globally as investors shun riskier assets and retreat to safer ones. So as the market shifts, our editorial teams are contemplating where things are headed and developing additional content that they believe will fit these emerging trends. Some of these themes that our research teams have been emphasizing include the following, deglobalization and shortening supply chains, trends in oil prices and U.S. energy independence, broader-based commodity price inflation, inflation protection themes, such as gold and other metals, real estate, inflation-protected bonds, investing in income, like high-quality dividend-paying stocks, deep value themes across asset classes, and the critical need to keep asset allocation and position size in mind as our readers go forward. In addition to increasing the emphasis on these investment themes, we are looking at ways to mitigate subscriber acquisition costs while driving incremental sales. Given that unit costs to acquire new subscribers are high, we continue to focus on enhancing incentives to cross-sell content between our operating brands. And we have been working on a number of these campaigns recently. There are no incremental acquisition costs paid to third parties when we do this. We have seen significant ARPU and retention benefits from similar initiatives in the past. As we think about the future, and as we have communicated over the past year, there are a number of very important strategic initiatives that we continue to execute on that should drive extractive growth. One area of focus for us is more explicitly marrying our investment research with technology. We have been moving in this direction for some time now, and a good example of this is our recent acquisition of Chaykin Analytics, which has been tremendously successful for us. Chaykin Analytics was founded by Mark Chaykin, a 40-year Wall Street veteran, and Mark developed a series of proven quantitative stock selection tools and indicators, including the Chaykin Power Gauge and Chaykin Money Flow, that help investors make better investments. When we introduced Mark's products to our audience, they loved it. Last year, Chaiken Analytics generated $27 million in billings, which is far beyond the revenue it had before we partnered with him and far beyond what we paid for the business. This is truly a trifecta, a win for Mark Chaiken and his team, a win for us at MarketWise, and most importantly, a win for the subscribers. When we combine technology products with our content brands, we have found significant ARPU improvements as well as better subscriber retention. Going forward, we plan on further offering additional quantitative tools and products with our investment research, both in our existing brands as well as in our M&A efforts. We have previously spoken about the development and rollout of a pan-market-wise content and tech platform for our subscribers. Our technology team continues to develop this platform to accommodate our multiple brands and allow consumers to explore the investment content that we publish. The vision that we are pursuing is that this umbrella platform will host a community of millions of readers, enabling us to enhance engagement, improve our marketing efficiency, and ultimately provide us with a source of traffic to expose our investment research to at scale. This platform will also encourage more cross-selling between brands, which should drive better retention and ARPU. We've completed our full rollout of this new platform for our Stansberry Research brand this quarter, And we've had a strong initial response to the platform from users. Here are a few of the highlights. We've seen a threefold increase in average time on page on our new investor platform since its launch. And helping to drive this increased engagement time are a series of new interactive features that were recently developed, including our new member dashboard, enhanced interactive charting tools, and video and media engagements. And so far, we're doing well against other investing sites. with our members now spending more time on our site as compared to alternative investment content providers. We also continue to develop a broader way to integrate affiliates and their marketing onto the platform as a precursor to our larger PanMarketWise efforts in 2022. We now feel confident that we'll have most, if not all, of our affiliate content on this new platform over the course of this year. We also have previously described our plan to make greater use of data science throughout our business. In fact, this is one of the primary reasons we partnered with Ascendant Digital last year. Last week, we announced an engagement with SubScale and its founder, Michael Birdsell, to provide data science, enhanced analytics, artificial intelligence, and machine learning to MarketWise. We believe this effort will lead to improved performance in several ways, including increased intelligence about consumer behavior, higher subscriber engagement, better free-to-paid conversion rates, improved subscriber retention, greater marketing efficiencies, and ultimately hire ARPUs. Our goals are no different today than they have been since our founding, and that is to be the platform of choice for self-directed investors. Our subscriber community relies on our analysts for rich investment research, educational content, and valuable technology and tools in order to better navigate the financial markets. We continue to strive to meet these goals and deliver the high-quality research products that our subscribers are accustomed to receiving and for which we are known. And with that, I'll turn the call over to Dale to discuss some of our financial results in more detail.