MarketWise, Inc.

Thank you for standing by and welcome to the Market Wise second quarter 2023 earnings call. During today's presentation, all parties on the webcast will be in a listen only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. In addition, for those on the live webcast, you may submit a question using the chat feature on the site. As a reminder, this call is being recorded. I would now like to hand the conference over to Jonathan Shanfield, Vice President of Investor Relations at MarketWise. Please go ahead, sir.

Thank you and good morning. We appreciate you joining us on today's conference call to discuss MarketWise's second quarter 2023 financial results. With me today on the call, we have Amber Mason, our Chief Executive Officer, Stephen Park, our Interim Financial Officer, and Lee Harris, our Senior Vice President in Financial Planning and Analysis. Before we get started, I want to point out that we also have published a supplemental earnings presentation on the Investors section of our website at www.marketwise.com under the Quarterly Results tab. This document is designed to provide additional information and context to our current earnings release and 10-Q filing. For those of you participating in our conference call via live webcast, we are sharing a few slides to highlight certain information we are discussing during this call. All the information presented in those slides is also available in the content of this call, our earnings press release, 10-Q filing, or in the supplemental earnings presentation I described above. 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 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 may disclaim obligation to update any forward-looking statements. Actual results may vary from today's statements, including 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 Investors 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 our SEC filings. Now I'll turn the call over to Amber.

Thanks, John, and good morning, everybody. Welcome to our second quarter 2023 earnings call. Before we get started, I want to welcome everyone watching us via webcast. I'm really excited about this. It's new for us on the investor relations side, but we've been talking to our subscribers and potential subscribers like this for years. Today, we're coming to you live from our Baltimore studio, where we create content for our subscribers, host webinars, and reach out to our audience of self-directed investors. I wanted to give you insight into our operations and let you see us at work. I hope that you like the format as well as the content, and I'm looking forward to your feedback. You can send it to ir at marketwise.com. Turning to this morning's call, I will provide a brief overview of our second quarter results. I'll give you an update on the progress we're making with the goals I outlined on prior calls, and I'll give you a peek into what's going on at our affiliates, a look into our process, what we see working, and some new initiatives. Steve will then take over and provide a more detailed review of our financial results. Let's get started. First, let's discuss our Q2 results. Frankly, what we experienced in the second quarter is a lot like what we've seen in the past few quarters. Investors and subscribers are still engaged in buying financial research, but at lower levels than we saw during the boom years of 2020 and 2021. The good news is that many of our internal metrics show that we've reached a plateau of sorts. Our billings and expenses are fairly flat to the prior quarter. Engagement, as measured by landing page visits, is slightly up over the past three quarters. And our overall conversion rates are starting to show signs of improvement. Stock market sentiment seems to be shifting back to equities as inflation looks to moderate over the next year, and it's very encouraging to see signs of stabilization in our results. While market volatility and economic uncertainty persisted through the second quarter, which continued to weigh on our results, We focused on creating new content and reaching new subscribers, and we remain committed to managing our overhead costs and to directing our marketing spend where it is most efficient. Importantly, we successfully maintained our expense discipline during the quarter, as we have over the past year. In the second quarter of 2023, direct marketing spend was roughly $23 million lower on a cash basis than the second quarter of 2022. Additionally, our overhead costs were down $1.5 million on the same basis. As I mentioned last quarter, As I mentioned last quarter, we know our cost structure and we work hard to rein in costs when times are tough so that we can maintain our cash flow and profitability. Turning to our results in more detail, revenues on a GAAP basis were $103.6 million, a decline of 19% as compared to the prior year. Billings declined 18.2% year-over-year to $96.2 million. Importantly, our adjusted cash flow from operations was $29 million in 2Q 2023, an increase from $26.8 million in the second quarter 2022, and a clear sign of our ability to generate positive cash flow in a challenging market. Furthermore, our adjusted cash flow from operations margin for the first half of 2023 improved to 17% as compared to 11% for the first half of 2022, reflecting the success of our cost reduction efforts over the past year. I would add that while GAAP revenues declined $22.6 million from the prior quarter, billings declined only $1 million. As a reminder, for GAAP purposes, we defer revenue over the life of a subscription, while non-GAAP billings represent current period cash received. In 2020 and 2021, we generated record quarterly billings, which increased our GAAP revenues for the subsequent quarters. But that's beginning to tail off, and our GAAP comparisons reflect that. Despite the difficult market environment, we're pleased with our ability to cut spending and increase our cash flow on both a quarterly and year-over-year basis. We will continue to look for ways to improve efficiencies, cash flow, and profitability. Additionally, we have started to see improving trends in our business through June and July. Well, it's early, and we remain conservative. It's an encouraging trend. These green shoots appeared, as they always do, in our subscriber acquisition efforts. On previous calls and in some of my conversations with you, I've noted that the most important thing we needed to do to start improving results was to figure out how to talk to prospective readers again. These are the folks we saw sitting on the sidelines. They required a new message that would give us a click, a sign-up, an order, a new subscriber. Of course, the backbone of our business is the folks who've been with us for a long time. I'll get into that more later. But to kickstart the business, we need to bring on new, high-quality readers, folks who will become long-term membership subscribers. And to bring on new, high-quality readers, we need to find the right message. In 2022, the message changed. Themes that had been working for years stopped generating the same level of engagement. So we dialed back our marketing spend to focus on only the most efficient campaigns, and we dialed up our efforts to find the next big idea. Each of our publishers is equipped to do this on their own very effectively. Each operates multiple brands that can feature different angles on the market. And when you put all of our publishers and all of our 13 brands together, we have a formidable engine of discovery. This, I believe, is a key driver of our durability as a business. We have multiple affiliates that are essentially competitors, targeting the same potential customers. Where other businesses try to reduce redundancy, we embrace it because it means that every month we can run dozens of different campaigns and every day we can run dozens of different marketing experiments. In fact, during 2022, we ran almost 470 individual marketing campaigns. This is what allows us to find what works faster than any single affiliate could on its own. And that's always been in place. It's allowed us to manage the business through decades of boom and bust markets and stocks, commodities, cryptos, you name it. but I'm working to accelerate learning throughout the business. I've put in place programs to identify and spread best practices, and I've increased the amount of reporting we share across the business. Today, our key personnel can quickly seize on innovations and put them to work. Now, I'm focusing on marketing here, but this principle applies to every area of operations, from customer service to website design to new technologies, like artificial intelligence. It's early days, but I'm excited about the efficiencies we could achieve by integrating some of the newly available tech into our operations. Right now, though, I'm even more excited by the new line of business that AI is creating for us. Predictive Alpha Prime, for example, is a new AI powered tool from our Tradesmith affiliate. It had a very successful launch in the quarter, which led to additional products leveraged from this launch, including an options trading product, a new entry level product, and a bundled offering of all Predictive Alpha publications. AI themes are driving new subscriptions at InvestorPlace, where the focus is on how to invest in AI and related products. And we expect to see multiple new products and campaigns focusing on this sector throughout the rest of the year. we are always looking for ways to add value to our subscribers, the folks who know us well, including our high and ultra high value subscribers who remain loyal to us over the long term. In fact, we have over 290,000 membership subscribers whose cumulative spend continues to increase despite the challenging environment. These membership subscribers typically sign on for an additional five subscriptions, including one additional membership subscription, after their initial membership purchase. These long-term subscribers are the core of our renewal revenue, which is one of the best measures of the success of our business. Over the past five quarters, we've averaged a total of $37 million in upgrade and renewal billings each quarter. These metrics support what we've known for over 20 years, that long-term subscribers are the heart of our business, and their trust and confidence in our publications reflect the value they find in our products. As I touched on earlier, we have started to see improving trends through the end of the second quarter and into July. Both investor engagement and conversions have improved slightly, as we've seen some success in recent campaigns. And as a result, we have begun to strategically increase some of our direct marketing spend. Consequently, we're starting to see an increase in subscriber acquisition, which is encouraging. That said, I still want to caution that these results reflect only a few weeks of results, and it remains to be seen if this is a trend in overall subscriber activity or specific to certain campaigns that we have recently launched. Direct marketing spend is our largest variable spend, and while we have reduced that spend over the past year, we fully anticipate increasing our marketing expense as market conditions indicate. We also continue to work on ways to reward our shareholders. Last week, we announced our second quarterly dividend of one cent per share to our Class A shareholders and an equivalent distribution for our Class B shareholders. As of this morning, this represents a 2.2% annual yield. We're pleased to continue this dividend as it highlights our ability to generate positive annual cash flow even near the bottom of the cycle. Over our 20-plus year history, our company has consistently returned capital to its owners. We are pleased to reward our shareholders with another dividend while working to increase total shareholder returns. We continue to also look for ways to add existing businesses that will complement our operations, including bringing on new editorial teams, software, and technologies. While we are actively looking for M&A opportunities, we are also committed to sound financial transactions with acceptable levels of risk and return for our shareholders. In terms of talent retention and acquisition, I'm happy to share that we've completed our search to bring a permanent CFO to MarketWise. As we announced a few weeks ago, Eric Mickles will be joining us later this month in the role of CFO. Eric is an experienced public company CFO and brings with him a wealth of knowledge in financial management, accounting, and navigating the public markets. He also has hands-on experience bringing a private company to the public market via SPAC and all that comes with that transaction. We welcome Eric and look forward to his contributions going forward. I also want to take this opportunity to thank Steve Park for his service to us as our interim CFO over the past few months. Steve is the consummate professional and joined us during a hectic time. He helped us get to the finish line for a year-end and first quarter reporting cycles. And as Steve finishes his engagement with us, we wish him well and nothing but success for what comes ahead. The whole team, myself in particular, is very grateful for your expertise, time, and guidance. Thank you, Steve. With that said, I'll turn the call over to Steve to review the financial results of the quarter.