MarketWise, Inc.

Standing by and welcome to the MarketWise fourth quarter 2022 earnings call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would now like to hand the conference over to Jonathan Shenfield, Vice President of Investor Relations at MarketWise. Please go ahead, sir.

Thank you, Operator, and good morning. Thank you all for joining us on today's conference call to discuss MarketWise's full year and fourth quarter financial results. With me on the call today, we have Amber Mason, our Chief Executive Officer, Stephen Park, our Interim Chief Financial Officer, and Lee Harris, our Senior Vice President of Financial Planning and Analysis. 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 subscribers. 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 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 in our earnings press release and SEC filing. Now I'll turn the call over for Amber.

Thanks, John, and good morning, everybody. Welcome to our fourth quarter 2022 earnings call. I'll get to the numbers in a moment, but since this is my first official public appearance as CEO, I'd like to take a few minutes to introduce myself, tell you a little bit about my views of MarketWise, and show you some of the opportunities that I see ahead for our company and all of our stakeholders. I've been in this business for 17 years. I've worked in all levels of the organization. I've been a proofreader, an editor, an analyst, a copywriter, perhaps not a very good one, a publisher, and vice president of business development. I was then promoted to Chief Operating Officer during Steve Sugarwood's stint as interim CEO. My experience in a MarketWise ecosystem gives me a unique and broad perspective that I bring to the role of CEO. Importantly, I bring an operator's perspective to my role. During my career, I transformed two of MarketWise's businesses. The largest was Legacy Research Group, where I served as co-CEO for more than five years. My partners and I built Legacy by merging three separate newsletter businesses. Each business had a different culture, different leadership, and different strengths and weaknesses. The first year was a huge challenge. We had to integrate the teams, right-size compensation, determine the appropriate people and products, and exit those businesses that were not a long-term fit. And I'm very proud of our results. We delivered a seven-fold increase in profits in just our first year. And over the next few years, we built legacy into MarketWise's largest business. Now, as CEO of MarketWise, I'm not on the front lines. But I know what it means to be in that role, and I understand how all of the pieces of the publishing business fit together, including marketing, copy, editorial, and operations. I have years of experience acquiring, retaining, and motivating key talent within our publishing businesses. And I've worked side by side with all of the remarkable individuals currently running our affiliates. I've also been on the inside of our acquisition machine, a key driver of MarketWise's extraordinary growth. Looking forward, my goal is to position the business for its next phase of growth and unlock the enormous value that exists right now in our shares. I'm currently working with all of our executives to do a deep dive into our centralized operations to understand how we can improve our efficiency. I'm working with the affiliates and our business development team to find opportunities to grow in this more challenging environment. And I'm exploring ways to deploy our capital for the benefit of shareholders. Next time we talk, I'll cover all of that in more detail. For now, let me share what I've found so far and my priorities for immediate improvement at MarketWise. First, my overall focus is on serving our subscribers by producing great products with quality themes and investing ideas. This is what has made us successful over time and will continue to do so. So I'm revamping our system for tracking the performance of our analyst recommendations on specific investments, which we use to evaluate talent. These results provide the information necessary to promote publications, investing themes, and our star analysts, as well as provide a kind of report card that will allow us to quickly pivot or even retire products when they are underperforming. Second, we must improve the financial performance of the company. We've already reduced our overhead and direct marketing spend. We'll get into more specifics about what we did last year in a bit. This year, there's more to do. We are aggressively looking for further expense reductions and opportunities to improve our overall efficiency. For example, as we transition from a private partnership to a public company, we incurred a huge amount of professional fees. As we move toward the second anniversary of our transaction, we are working to bring much of that expertise in-house, which will create significant data. Third, talent acquisition and retention are incredibly important parts of our business. Our stellar analysts, copywriters, marketers, and operations staff are what make this company successful. We are always on the lookout for new talent with new ideas and energy to add to our team. Fortunately, we have lots of ways to do this. We can hire through acquisitions, through the efforts of our publishers who are always looking for new voices, and even from our subscriber list. Some of our most successful employees were readers before they joined us. Fourth, our public shares have not performed the way we'd like. We've got headwinds. The overall stock market conditions since we've gone public has hurt our share price and our billing, and we continue to get lumped into the post-fac universe of troubled companies, despite the fact that we're one of the few who have maintained profitability and positive cash flow. Obviously, we need to improve our operating performance, which I already discussed. We can also look to the company's long history of generating cash and rewarding our shareholders. Fifth, I'm directing an effort to find a new permanent chief financial officer, ideally one with public company and capital markets experience, who can partner with me and my staff and guide us as we mature as a public company. This effort is underway, and I'm hoping to introduce someone to you very soon. In the meantime, I want to thank Lee Harris here and Steve Park for their incredible work. Steve just joined us in the past month, and he's been a clutch addition to the team. And finally, I also plan on bringing in a chief operating officer to backfill the role I had briefly prior to this one. Having a talented and experienced COO is critical to delivering improved operating efficiencies. I look forward to expanding upon our initiatives in our first quarter earnings call, and I'm very excited about what the future holds for MarketWise. Turning to our results, the market dynamics that began in early 2022 continued in the fourth quarter. Investor engagement fell as volatility and economic uncertainty increased. For the full year, we generated $512.4 million in revenues measured on a gap basis. a decline of 6.7% as compared to the prior year. Billings declined 37% year-over-year to $459.5 million, and our adjusted cash flow from operations was $59.3 million, down from $197.1 million for all of 2021. One of the strengths of our business, what has made it so resilient over the last 20 years, is our ability to manage costs in response to various market environments. In 2022, we quickly implemented a series of measures aimed at lowering our marketing and overhead costs and improving overall cash flow and margin through the second half of the year. We achieved our target of approximately $74 million in total savings, $40 million from direct marketing, which was realized over the second half of 2022, and overhead reductions representing $36 million of annualized run rate savings. It's important to note that these savings are on a cash basis, and a portion of them are not immediately reflected in our gap results. but will be recognized over time. Because we took action, we have realized significant improvement in our margins since last summer. Specifically, in the first half of 2022, we collected $254 million in billing and recognized $28 million in adjusted CSFO, resulting in an adjusted CSFO margin of 11%. In the second half of the year, even though billings declined to $206 million, we recognized $31.5 million in adjusted CSFO, for an adjusted CFFO margin of 15.3%. Additionally, our adjusted CFFO margin for fourth quarter 2022 improved to 18.2%. This margin improvement is a direct result of our cost-cutting initiative, and we continue to focus on our margins this year. Beyond our financial results, the team had many notable accomplishments in 2022, including the introduction of 49 new publications to the market, covering a range of relevant investing topics, such as healthcare, options trading strategies, and energy. In addition, as we strive to be more efficient, we retired 33 publications that were not as effective or were focused on themes that did not reflect the current market. We also focused on integrating some of our technology products with our research brands to further enhance our product offerings. In 2021, we brought the Chaiken brand to our platform and experienced tremendous success and growth in billing. Similarly, last year, we successfully marketed our Altimetry brand to a much larger audience. As a result, our most recent marketing campaign for Altimetry proved to be their most successful in terms of billings over the last two years. Additionally, we aligned another of our technology brands, Tradesmith, with our InvestorPlace business. Tradesmith, our leading financial technology and quantitative systems brand, began as a simple way to track portfolios using trailing stocks and has evolved into a powerful suite of risk management and portfolio analysis tools. This suite of tools features volatility-based buy and sell alerts, stock screener tools, a robust rating system, and a very successful options trading tool, all of which further empower the self-directed investor. Our experience with these recent combinations has proven that offering technology products to our subscribers, along with our content brands, leads to higher average revenue per user for ARPU and better subscriber retention. As we go forward, we look to offer more quantitative tools and products with our investment research, both through our existing brands as well as in our M&A efforts. We also took a meaningful step to improve our capital structure during 2022. In the third quarter, we completed a tender offer to exchange all outstanding warrants for shares of Class A common stock. Through this exchange, we retired a total of 31 million outstanding public and private warrants. As a result, we issued approximately 6 million Class A common shares, which increased our public shares by approximately 26%. This increase in shares added to our public flow and our trading liquidity will be less than 2% dilutive to our total shareholder base. From a corporate finance perspective, we believe eliminating the warrant simplifies our capital structure, making it easier to execute future corporate financing activities. We know that individuals are the key to the success of our organization, and we continue to recruit talented analysts and teams to join our organization, including those coming to us from our YNNS media transaction, and we look forward to their contributions. The overall market for M&A remains attractive, and we continue to look for ways to enhance and further combine editorial teams, software, and technologies, as well as looking to add existing businesses to complement market-wise. However, we also realize it is important that even in a period of active M&A, we continue to be diligent in terms of evaluating risk, strategic alignment, and determining proper valuation and pricing. And while we continue to be active and interested in certain opportunities, we are also committed to sound financial transactions with acceptable levels of risk and return for our shareholders. Looking to the year ahead, we believe we are in an advantageous position to capitalize on opportunities as they unfold. Now, let me turn the call over to Steve to discuss the financial results. Steve came on recently as our Interim Chief Financial Officer. Steve is an accomplished financial executive with significant experience in the CFO role across many companies, both private and public. He has a history of driving change in accounting and finance organizations, building teams, improving processes, and implementing systems and controls throughout various organizations. Earlier in his career, Steve was an audit partner at Ernst & Young. We welcome Steve to MarketWise and appreciate him lending a hand as we work through our transition period where we look to bring in a permanent CFO. Thank you, Steve.