MarketWise, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. MarketWise provides subscription-based independent investment research, publications, software, education, and tools. The filing is unaudited. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $126.2 | $136.8 | Down 7.7% |
| Operating income | $30.6 | $17.4 | Up 75.7% |
| Operating margin | 24.2% | 12.7% | Up 11.5 percentage points |
| Net income, consolidated | $30.6 | $23.0 | Up 32.9% |
| Net income attributable to MarketWise, Inc. | $1.5 | $5.8 | Down 74.8% |
| Basic and diluted EPS | $0.05 | $0.24 | Down |
| Operating cash flow | $3.9 | $1.1 | Up $2.8 |
- Revenue was primarily subscription revenue: $125.4 million from subscriptions, including $48.4 million from membership subscriptions and $77.0 million from term subscriptions.
- Sales and marketing expense fell 28.6% to $48.7 million, largely reflecting $25.1 million less marketing spend. Total operating expenses declined 19.9% to $95.6 million.
- Cash and cash equivalents were $161.5 million at March 31, 2023, versus $158.6 million at year-end 2022. Current assets were $280.9 million and current liabilities $333.7 million; current liabilities include substantial deferred revenue.
- Total liabilities were $696.4 million, including $634.2 million of deferred revenue and contract liabilities. There were no borrowings under the $150 million revolving credit facility; the company reported covenant compliance. The facility matures October 29, 2024.
- Investing activities used $0.4 million and financing activities used $0.6 million. Cash increased $2.9 million during the quarter.
Operating trends and changes versus prior period
- Billings, a company-defined measure of amounts invoiced, declined 28.5% to $97.2 million. Management attributed the decline to weaker prospective and existing customer engagement and lower conversion rates.
- Paid subscribers fell 14.5% year over year to 777,397 and 7.6% from December 31, 2022. Free subscribers increased 8.0% year over year to 15.7 million, while average active free subscribers declined 11.5% to 4.0 million.
- ARPU decreased 22.5% year over year to $493. Management cited lower trailing-four-quarter billings and subscribers’ reluctance to purchase or upgrade amid market volatility, inflation, and recession concerns.
- Revenue declined $10.6 million, driven by lower term and membership subscription revenue. Despite lower revenue, operating income rose as expenses—especially marketing—fell. Parent-attributable income declined, in part because Q1 2022 included a $6.7 million warrant-liability gain attributable to the controlling interest.
- Operating cash flow improved to $3.9 million, but cash conversion was affected by a $29.3 million decrease in deferred revenue and a $16.2 million decrease in accrued expenses.
Outlook, risks, and unusual items
- No specific financial guidance or quantified forecast is provided. Management expects existing cash and operating cash flows to cover working capital and capital expenditure needs for at least the next 12 months, while noting future capital needs depend on subscriber growth, renewals, marketing, product investment, and other factors.
- Management said it reduced marketing further as engagement and billings remained weak, prioritizing profitability. It cited persistent inflation, financial-market volatility, Federal Reserve tightening, and the war in Ukraine as factors weighing on customer purchasing.
- Management reported that disclosure controls and procedures were not effective as of March 31, 2023 because previously identified material weaknesses in financial reporting controls had not been fully remediated. Remediation work is ongoing; management said additional analyses and procedures supported the fair presentation of the reported financial statements.
- MarketWise, Inc. owned 9.3% of MarketWise, LLC at quarter-end; 90.7% was reported as noncontrolling interest. Consequently, consolidated net income substantially exceeded income attributable to MarketWise, Inc.
- The company had not recorded a Tax Receivable Agreement liability as of quarter-end because no relevant MarketWise, LLC unit exchanges had occurred; management cautioned future payment obligations could be significant.
- On May 9, 2023, the company declared a $0.01-per-share Class A dividend and a $0.01-per-unit distribution, payable July 20, 2023. The filing reports no material changes to risk factors and no legal proceedings.
Important facts for investors to verify
- Whether paid-subscriber declines, weak engagement, and lower billings persist, and how they affect revenue and cash generation in subsequent quarters.
- Whether expense reductions—particularly lower marketing spend—can support profitability without further weakening subscriber acquisition and growth.
- Progress and evidence of completion of remediation for the disclosed material weaknesses in internal controls.
- The composition and expected recognition timing of deferred revenue, and the liquidity implications of customer refunds, member distributions, the declared dividend, and potential future Tax Receivable Agreement payments.
- The distinction between consolidated results and the much smaller earnings attributable to MarketWise, Inc., given its 9.3% economic ownership interest in MarketWise, LLC.