MarketWise, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. MarketWise operates a digital, multi-brand subscription platform for investment research, software, education, and tools for self-directed investors.
Key financial results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total net revenue | $512.4 million | $549.2 million |
| Operating income (loss) | $87.3 million | $(967.6) million |
| Net income (loss) | $101.2 million | $(953.9) million |
| Net income (loss) attributable to MarketWise, Inc. | $18.0 million | $(1,013.3) million |
| Net cash provided by operating activities | $48.4 million | $63.6 million |
| Billings | $459.5 million | $729.9 million |
| Adjusted CFFO, non-GAAP | $59.3 million | $197.1 million |
Operating margin was 17.0%; reported net margin was 19.7%. Results include a $15.7 million gain in other income, primarily associated with derivative and warrant liabilities. FY 2022 earnings per share were $0.73 basic and diluted. MarketWise, Inc. held a 9.1% controlling economic interest in MarketWise, LLC at year-end; 90.9% was noncontrolling interest.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $158.6 million at December 31, 2022, compared with $139.1 million a year earlier.
- Operating cash flow fell 24.0% to $48.4 million. Adjusted CFFO fell 69.9% to $59.3 million, and its margin on Billings declined to 12.9% from 27.0%.
- Investing cash outflow was $13.2 million, mainly for the Buttonwood Publishing acquisition. Financing cash outflow was $16.2 million, including $13.1 million of share repurchases and $4.6 million of distributions to noncontrolling interests.
- No borrowings were outstanding under the $150 million revolving credit facility; it matures October 29, 2024. The company reported compliance with its covenants.
- Deferred revenue was $663.5 million, including $315.2 million current; the filing expects approximately 48% of remaining performance obligations to be recognized as revenue in the next 12 months. Current liabilities exceeded current assets; deferred revenue is a major component of current liabilities.
Changes versus prior year and operating metrics
- Revenue declined 6.7%, led by a $38.1 million decrease in term subscription revenue; membership subscription revenue rose $3.1 million. Subscription revenue totaled $508.9 million.
- Billings declined 37.0%, which management attributed to weaker prospective and existing subscriber engagement, economic uncertainty, inflation, market volatility, Federal Reserve tightening, and the war in Ukraine.
- Paid Subscribers declined 13.4% to 841,277, while Free Subscribers increased 14.6% to 15.7 million. ARPU fell 30.1% to $519.
- Management reduced marketing spend amid higher customer-acquisition costs. Advertising expense was $97.7 million, versus $144.6 million in 2021.
- Operating expenses dropped substantially, primarily because FY 2021 included $1.06 billion of stock-based compensation tied largely to pre-transaction Class B Units. FY 2022 stock-based compensation was $9.0 million; the year-over-year expense change is not a like-for-like indicator of underlying operating performance.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management stated that cash on hand and operating cash flow should support working capital and capital expenditure needs for at least the next 12 months.
- The company acquired Buttonwood Publishing in 2022 for $12.8 million in cash; it contributed approximately $2.0 million of revenue. Management cited the acquisition as expanding editorial and copywriting capacity.
- The company exchanged all outstanding warrants for Class A shares in September 2022, issuing approximately 5.9 million shares in total; no warrants remained at year-end. The transaction incurred $2.1 million of costs.
- The $35 million share-repurchase authorization had $18.6 million remaining at year-end. The company does not currently pay dividends.
- Material risks include subscriber acquisition and renewal, dependence on marketing channels and key editors, competition, economic and financial-market conditions, privacy and cybersecurity, regulatory compliance, and reliance on third-party technology providers.
- The Tax Receivable Agreement generally requires payment to former MarketWise LLC members of 85% of certain realized tax benefits. No TRA liability had been recorded at year-end because there had been no unit exchanges; future payments could affect liquidity.
- Disclosure controls and internal control over financial reporting were reported ineffective as of December 31, 2022 due to material weaknesses involving contemporaneous documentation/account reconciliations and formal risk assessment. Management described remediation efforts, but had not concluded the weaknesses were fully remediated. The auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal controls.
- Management said ordinary-course legal matters were not expected to have a material adverse effect; the filing does not quantify a material litigation contingency.
Investor verification priorities
- Track Billings, paid subscriber counts, ARPU, renewal behavior, and marketing acquisition costs for evidence of stabilization or further deterioration.
- Reconcile GAAP cash flow and earnings with non-GAAP Adjusted CFFO, and assess the impact of deferred revenue movements and one-time costs.
- Monitor remediation and independent validation of the disclosed material weaknesses in financial reporting controls.
- Assess cash available after member tax distributions, potential Tax Receivable Agreement payments, buybacks, and any future debt needs.
- Review the performance and integration of Buttonwood and the company’s ability to retain subscribers and key editorial talent.