MarketWise, Inc.

Thank you for standing by and welcome to MarketWise second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Jonathan Shanfield, head of investor relations at MarketWise. Thank you.

Good morning, and thank you for joining us on today's conference call to discuss MarketWise's second 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 on 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 and 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 our risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements are contained in the company's SEC filings, earnings press release, and supplemental information posted on the investor's 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 an isolation from GAAP measures. Reconciliation to non-GAAP measures can be found in our earnings press release and SEC filings. Now I'll turn the call over to Mark.

Thanks, John, and good morning, everybody. Welcome to our second quarter 2022 earnings call. The second quarter of 2022 continued the same market and investor dynamics we experienced through the first quarter of the year, reflecting increased volatility and uncertainty in the U.S. and the global markets. Record inflation prompted the Federal Reserve to embark upon an aggressive monetary tightening cycle, and this prompted concerns across the investment community and investors that a recession or hard landing is possible or even probable. which contributed to the market sell-off that continued through the second quarter and ultimately resulted in what has been highly reported as the worst first half of the year for stocks in 50 years. Given this environment and the uncertainty in the economy and the markets, it is not surprising that investors have remained cautious as the market sell-off has continued through the middle of the summer. Subscribers continue to evaluate and assess the markets to determine how to adjust their investment strategies. This situation has resulted in a hesitance regarding their investments, similar to what we saw earlier in the year. We believe this combination of factors continues to impact our current financial performance that can be seen in our second quarter results, where our revenues declined 9.9% year-over-year to $128 million. Our billings declined 36.5% year-over-year to $117.5 million, and our adjusted cash flow from operations was $26.8 million. down from 59.4 million in the second quarter of 2021. Our quarter's results continue to reflect lower consumer engagement and fewer new subscribers as compared to the prior year as a result of the economy and post-COVID market influences. Dale will give you more details on our subscriber engagement in a few minutes. As students of the markets and investors ourselves, we believe the individual investor is reactive in this environment in an understandable way. by stepping to the sidelines or taking time to evaluate market sentiment based on their own risk appetites. This is not a new phenomenon, as we have been through challenging markets before. We've seen periods like this during the dot-com crash in the early 2000s, and again during the 2008-2009 financial crisis. In each of those cases, it took time for individual investors to fully reengage in market activities. And during those periods, we managed our business through the cycle by developing new content that addressed the current financial environment, managed our marketing spending costs appropriately, and ultimately we experienced significant organic growth when individual investors reentered the market. We understand that to position the company for long-term growth, we need to maintain and improve profitability and continue to generate strong cash flows, and we are focused on doing just that. Fortunately, we are in an enviable position with positive cash flow, a strong balance sheet, and no debt. which allows us to take advantage of opportunities where many of our competitors cannot. As a result, we are adjusting to the current market cycle, both from a content perspective and operationally, as we focus internally to improve efficiencies and execute on our strategic objectives. Along those lines, there are several initiatives that I mentioned previously that I want to provide an update on. As we have discussed before, our editors and analysts are adjusting to the current market environment and working hard to produce new content and investing ideas for our subscribers. Our analysts continue to cover most major investment asset classes, which helps ensure that we have content that resonates in changing market conditions. As we have seen major changes in investing sentiment occur in the United States and globally, our editorial teams are analyzing and writing about where markets are headed and developing additional content that they believe will fit these market conditions. During the second quarter, we launched several new publications which reflect our analysts' best ideas for addressing the current investing environment. Additionally, as we reflected on current market conditions, we retired or consolidated a half dozen other publications from our portfolio which either don't fit the current investing environment or overlapped content-wise with other products we offer. This will result in cost savings and greater operational efficiency going forward. We also expanded our effort to further incorporate data science and artificial intelligence in our operations. We partnered with SubScale in the second quarter to accelerate our progress, and we believe this effort will lead to substantial long-term benefits to Marketwise. Integrating data science and artificial intelligence further in our business will be a multi-year process that starts with a deep dive into data collection, analysis, and modeling, ultimately generating insights and results which turn information into action. The initial phase of this project with SubScale is focused on customer and transactional data, improving our conversion rates, increasing our direct mail conversions, and working to decrease the rate of customer chargebacks. These are short-term goals that we expect to realize in the next 12 months, and our initial efforts are currently underway. Ultimately, we believe greater integration of data science into our business will significantly improve our overall free-to-pay conversion rates, help to improve and lower our subscriber churn, and increase engagement in terms of active users of paid content and improve our ARPU over time. We are also actively working to integrate our technology products with our research brands as a way to further enhance our product offerings to subscribers. Last quarter, we detailed the success we realized bringing Chaking Analytics onto our platform, generating over $27 million in billings in 2021. More recently, we have had similar success with our altimetry brand, Altimetry is one of our research brands that combines its proprietary method of deconstructing GAAP financial statements and reassembling those financials in a way to assess a company's true value. Their process of deconstructing GAAP financials into a uniform accounting standard provides insight into a company's valuation potential and profitability so that retail investors can better identify public companies that are undervalued and poised for growth. During the quarter, Altimetry marketed their product to Stansberry Research's audience resulting in $3.4 million in billing. It's highest billing for an individual altimetry campaign in almost two years. When we promote technology products with our content brands, we have found significant ARPU improvement as well as better subscriber retention. We have another significant internal technology and content brand combination that we are actively working on and hope to complete in the third quarter. In the future, we plan on offering additional quantitative tools and products with our investment research. both in our existing brands as well as in our M&A efforts. I also want to provide an update on the development and rollout of our TAN MarketWise technology platform. Our technology team has made significant progress over the past quarter and continues to develop this platform to accommodate our multiple brands and allow consumers to explore investment content from all of our brands in one location. Our vision 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 for new customers. We completed the full rollout of this new platform for Stansberry Research earlier in the year, and we have seen positive results from users already, including increased time on page for investors researching new content and products, enhanced engagement within site tools, including charts and dashboards, and greater access to our video media. This platform will also encourage more cross-selling between brands, which should drive better retention in our crew while providing a digital advertising revenue stream. We began beta testing of the full platform in July and looked to launch the platform more broadly in early 2023. As you can see, we have a number of initiatives underway that we believe will drive growth and profitability over time. Because of our strong balance sheet and positive cash flow, we are in a unique position to be able to make the necessary investments to drive long-term value for our shareholders. We are also cognizant that our company has experienced a period of significant growth over the last three years, having increased the number of product offerings, publications, analysts, and associates, while transitioning to be a publicly listed company more than a year ago. Along with that growth and scale came increases in overhead and overall corporate expense. After this period of significant growth and considering current market conditions, we launched a cost reduction effort and have found opportunities to increase efficiencies and optimize our expense structure. Because our direct marketing spend is highly variable, and we can react quickly to changes in advertising costs, and given the persistent high unit subscriber acquisition costs and lower conversion rates, we tightened our marketing metrics through the second quarter to preserve margins and enhance profitability. We are also targeting total overhead expense reductions of approximately $37 million on an annualized basis, which we hope to have completed in the next month and much of which has already been completed. I'll let Dale provide more detail in a moment, but this effort reflects an approximate 15 percent annualized reduction in budgeted overhead expense. This cost initiative began in the second quarter, and we expect to see incremental run rate benefits in the third and fourth quarters of this year. Additionally, in light of the sustained high cost of marketing and hesitancy on the part of investors, we have tightened our marketing metrics and are expecting an approximate $37 million reduction to direct marketing expenditures in the second half of the year. However, this reduction will be dependent on market factors. If marketing efficiency improves, we may decide not to cut marketing spend to this degree and instead focus on more efficient subscriber acquisition. To conclude, the markets have certainly been challenging this quarter, and that is reflected in our first half results. That said, we have been in business for more than two decades and have seen many market cycles like this. That uniquely positions us to not only weather the current market volatility, but thrive going forward as we execute our strategic initiatives, which should ultimately translate to improved revenue growth, profitability, and cash flow generation. Now let me turn the call back over to Dale.