MarketWise, Inc. — Q1 2024 Form 10-Q
Business context and period. MarketWise provides subscription-based investment research, software, education and tools. This unaudited filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. MarketWise, Inc. is the holding company and owned an 11.7% interest in MarketWise, LLC at quarter-end; the LLC is consolidated, with most earnings attributable to noncontrolling interests.
Financial results and liquidity
- Revenue: Total net revenue was $109.0 million, down 13.7%. Subscription revenue was $108.3 million; membership subscription revenue increased $1.2 million, while term subscription revenue decreased $18.4 million.
- Profit and margins: Operating income was $21.6 million, down from $30.6 million; operating margin was 19.8%, versus 24.2%. Consolidated net income was $22.7 million, versus $30.6 million. Net income attributable to MarketWise, Inc. was $1.7 million, versus $1.5 million; diluted EPS was $0.04, versus $0.05.
- Costs: Operating expenses declined 8.6% to $87.4 million, less than the revenue decline. Sales and marketing was $47.3 million (43.4% of revenue, versus 38.6%); general and administrative expense fell 15.1% to $23.8 million.
- Cash flow: Operating cash flow was negative $18.5 million, compared with positive $3.9 million. Management attributed the outflow chiefly to $46.8 million of net cash use from changes in operating assets and liabilities, including lower deferred revenue and accrued expenses. Adjusted CFFO, a company-defined non-GAAP measure, was also negative $18.5 million; its margin on Billings was negative 24.0%, versus positive 4.0%.
- Cash, debt and liquidity: Cash and cash equivalents were $131.2 million at March 31, down from $155.2 million at year-end. Current assets were $232.6 million and current liabilities $333.9 million, largely reflecting deferred revenue and contract liabilities. No advances were outstanding under the $150 million revolving credit facility; it matures October 29, 2024, and the company said it was discussing an amendment or replacement. The company reported covenant compliance.
- Other balance-sheet items: Total liabilities were $628.7 million; stockholders’ deficit was $269.4 million. Deferred revenue and other contract liabilities totaled $565.5 million. The company estimated its subscription-business cash “float” at $127.0 million.
Material changes and operating trends
- Billings fell 20.5% to $77.2 million: new marketing Billings declined 17.9% to $54.8 million and net renewal Billings declined 26.3% to $21.4 million.
- Paid Subscribers decreased 12.1% year over year to 683,436; ARPU was $492, down 0.2%. Free Subscribers increased 6.2% to 16.7 million, while Active Free Subscribers decreased 6.2% to 3.8 million.
- Management cited soft consumer engagement and the Legacy Research wind-down as factors affecting Billings, revenue and churn. Gross new subscribers increased 16.4% year over year, but elevated churn—particularly expiring Legacy Research subscriptions—contributed to the decline in Paid Subscribers.
- The company acquired certain Money Map Press assets and liabilities in January. The preliminary purchase allocation included $2.5 million of goodwill and $2.5 million of identifiable intangible assets; approximately 25,000 Paid Subscribers were added. Contingent consideration was valued at $0.7 million.
Outlook, risks and unusual items
- Legacy Research reorganization: The company committed to wind down Legacy Research after discovering that certain managers violated company policies. New marketing was curtailed, while existing subscriptions continued to be served. The company expected completion in the first half of fiscal 2024; as of May 15, it had not approved plans for remaining employees or potential asset sales. Separation costs were about $0.2 million in Q1 and $0.5 million through May 15. Refund activity increased and the refund accrual rose by $1.6 million.
- Management outlook: No specific revenue or earnings guidance is provided. Management said cash and expected operating cash flows should support working capital and capital expenditure needs for at least 12 months, while noting results and cash flows may fluctuate. It expects tax distributions to LLC members could begin as early as the second half of 2024, reducing cash available for the business.
- Capital allocation and other risks: The company began paying quarterly dividends in 2023 but gave no assurance they will continue. It may invest a portion of cash in U.S.-listed equity securities; resulting gains and losses could affect results. The filing highlights risks involving subscriber acquisition and retention, market conditions, the Legacy Research reorganization, the credit facility’s upcoming maturity, future tax distributions and Tax Receivable Agreement payments. Risk factors were reported as unchanged from the 2023 Form 10-K.
- Post-quarter event: In April 2024, MarketWise, LLC purchased 7.2 million LLC Units for $10.8 million and canceled an equal number of Class B shares.
Important facts for investors to verify
- Whether the Legacy Research wind-down, subscriber transfers, refund accrual and remaining employee actions proceed as planned, and their ultimate financial effects.
- Whether the revolving credit facility is amended or replaced before its October 2024 maturity, and any resulting borrowing terms or covenant changes.
- Whether subscriber retention, renewal Billings and operating cash flow stabilize; track these alongside Billings and Paid Subscriber trends.
- The timing and amount of member tax distributions and potential Tax Receivable Agreement payments, which could reduce available cash.
- The final purchase accounting and contingent consideration for the Money Map Press acquisition, and any future dividend decisions.