MarketWise, Inc. — Q2 2023 Form 10-Q
Business context and reporting period
MarketWise provides subscription-based investment research, financial publications, software, education, and tools for self-directed investors. This unaudited quarterly report covers the three and six months ended June 30, 2023; comparisons are to the corresponding 2022 periods unless noted. MarketWise, Inc. owned 10% of MarketWise, LLC at quarter-end, with the remaining 90% reflected as noncontrolling interest.
Financial and operating performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $103.6 million | $128.0 million | $229.9 million | $264.8 million |
| Operating income | $8.9 million | $23.4 million | $39.5 million | $40.8 million |
| Consolidated net income | $9.7 million | $34.0 million | $40.3 million | $57.1 million |
| Net income attributable to MarketWise, Inc. | $36,000 | $11.9 million | $1.5 million | $17.7 million |
| Operating margin | 8.6% | 18.3% | 17.2% | 15.4% |
- Q2 revenue declined 19.0%; six-month revenue declined 13.2%. Lower term and membership subscription revenue drove the declines.
- Q2 sales and marketing expense fell 24.6%, primarily from reduced marketing spend; general and administrative expense rose 35.7%, including higher sales and franchise taxes, incentive compensation, and stock-based compensation.
- Billings were $96.2 million in Q2, down 18.2%, and $193.3 million for six months, down 23.7%. Paid subscribers fell 16.4% year over year to 750,287; ARPU declined 15.6% to $490.
- Cash from operations was $32.8 million for six months, versus $27.9 million in 2022. Investing used $1.0 million and financing used $3.4 million. Cash and cash equivalents were $187.0 million at June 30, up from $158.6 million at year-end.
- Adjusted cash flow from operations, a non-GAAP measure, was $29.0 million for Q2 and $32.8 million for six months; adjusted margins on Billings were 30.1% and 17.0%, respectively. The company attributed improvement primarily to cost reductions and lower Billings.
- Total liabilities were $702.8 million and total assets were $445.6 million, resulting in a stockholders’ deficit of $257.3 million. Deferred revenue and other contract liabilities totaled $628.4 million. The filing reports no outstanding borrowings under the $150 million revolving credit facility; it matures October 29, 2024.
Material changes, outlook, and risks
- Management cited softer consumer engagement, lower marketing investment, higher subscriber acquisition costs, and churn near the upper end of the company’s historical monthly range as factors affecting subscriber growth and Billings. Gross new subscribers rose 11% from Q1, but remained below historical levels.
- Remaining performance obligations were $628.4 million at June 30; approximately 46% was expected to be recognized as revenue over the next 12 months. The filing provides no formal earnings or revenue guidance.
- The Board declared a $0.01-per-share Class A dividend and a $0.01-per-unit distribution; payment occurred July 20, 2023. Management said it intends to pay quarterly dividends subject to Board approval.
- Q2 2022 results included a $12.1 million gain on warrant liabilities; the warrants were exchanged in September 2022. This contributed to the year-over-year decline in other income and parent-attributable earnings. In 2023, the company recorded a $1.1 million Tax Receivable Agreement liability following unit exchanges; no payments were expected in the next 12 months.
- Management stated that existing cash and operating cash flow should cover working capital and capital expenditures for at least the next 12 months. It also noted that future capital needs depend on subscriber trends, marketing, product investment, and other factors, and additional financing may not be available on acceptable terms.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2023 because previously identified material weaknesses in internal controls over financial reporting had not been fully remediated. Management reported remediation work in progress and said additional time was needed to assess its sustainability.
- Key stated risks include subscriber acquisition and renewal, reduced engagement, financial-market and macroeconomic conditions, regulatory compliance, technology and consumer behavior changes, and remediation of internal-control weaknesses. The filing lists no legal proceedings as applicable and reports no material risk-factor changes for this quarter.
Important facts for investors to verify
- Whether subscriber counts, churn, ARPU, and Billings stabilize, and whether lower marketing spend affects future customer acquisition and revenue.
- Whether cost reductions can offset revenue pressure without impairing subscriber engagement or product growth, particularly given higher general and administrative expense.
- The timing and cash implications of deferred revenue recognition, customer refunds, distributions to noncontrolling interests, and potential Tax Receivable Agreement payments.
- Progress in remediating internal-control material weaknesses and the effect, if any, on the reliability of future reporting.
- Dividend continuation, credit-facility covenant compliance, and liquidity needs as the facility approaches its October 2024 maturity.