MarketWise(MKTW) - 2023 Q2 - Quarterly Report

Subscriber Metrics - As of June 30, 2023, MarketWise had 750,287 Paid Subscribers, a decrease of 148,000 or 16.4% compared to 898,000 Paid Subscribers on June 30, 2022[129] - Free Subscribers increased by 1,000,000, or 6.5%, to 15,948,652 as of June 30, 2023, compared to 14,972,985 a year earlier[145] - Active Free Subscribers decreased by 0.4 million, or 9.5%, to 3.9 million as of June 30, 2023, compared to 4.3 million a year earlier[145] - Total Paid Subscribers decreased by 148 thousand, or 16.4%, to 750 thousand as of June 30, 2023, compared to 898 thousand at June 30, 2022[148] - Total Paid Subscribers decreased by 27 thousand, or 3.5%, to 750 thousand as of June 30, 2023, compared to 777 thousand as of March 31, 2023[149] Revenue and Financial Performance - Net revenue for Q2 2023 was $103.6 million, a decrease of $24.4 million or 19.0% from $128.0 million in Q2 2022, primarily due to a $15.6 million decrease in term subscription revenue and an $8.4 million decrease in membership subscription revenue[183] - For the six months ended June 30, 2023, net revenue was $229.9 million, a decrease of $34.9 million or 13.2% from $264.8 million in the same period of 2022, driven by a $23.3 million decrease in term subscription revenue[190] - Billings for the three months ended June 30, 2023 were $96,170,000, representing an 18.2% decline from $117,507,000 in the same period of 2022[143] - Billings decreased by $21.3 million, or 18.2%, to $96.2 million for the three months ended June 30, 2023, compared to $117.5 million for the same period in 2022[157] - The company experienced a significant decrease in membership subscription revenue due to lower volumes in current and prior years, impacting overall revenue performance[192] Customer Acquisition and Marketing - MarketWise's LTV/CAC ratio was approximately 2.0x, indicating a focus on efficient and profitable customer acquisition[127] - The company aims for a 90-day payback period on marketing spend to ensure efficient customer acquisition[128] - MarketWise's marketing strategy includes a mix of direct-to-paid acquisition and free-to-paid conversions, with direct-to-paid accounting for approximately two-thirds of annual Paid Subscriber acquisition since 2019[129] - The average monthly churn rate as of June 30, 2023, was near the higher end of the range of 1.8% to 2.7% observed between 2020 and 2022[150] - The payback period for subscriber acquisition costs was estimated at 1.5 years for the year ended December 31, 2022, reflecting increased customer acquisition costs[154] Operating Expenses - Total operating expenses for Q2 2023 were $94.7 million, down $9.9 million or 9.5% from $104.6 million in Q2 2022, with significant reductions in sales and marketing expenses by $16.0 million or 24.6%[186] - Total operating expenses for the six months ended June 30, 2023 were $190.4 million, a decrease of $33.7 million or 15.0% from $224.0 million in the same period of 2022[194] - General and administrative expenses increased by $7.3 million or 35.7% in Q2 2023 compared to Q2 2022, primarily due to increases in sales and franchise taxes and incentive compensation[189] - Research and development expenses remained relatively stable, with a slight increase of $0.1 million or 2.6% in Q2 2023 compared to Q2 2022[186] Cash Flow and Liquidity - Adjusted cash flow from operations (CFFO) for Q2 2023 was $29.0 million, an increase of 8.2% from $26.8 million in Q2 2022, with an adjusted CFFO margin of 30.1%[201] - Adjusted CFFO for the three months ended June 30, 2023, was $28.978 million, an increase of 8.2% from $26.794 million in the same period of 2022[206] - Net cash provided by operating activities for the six months ended June 30, 2023, was $32.846 million, up 17.9% from $27.862 million in 2022[227] - The net cash provided by operating activities margin increased from 10.5% for the six months ended June 30, 2022, to 14.3% for the same period in 2023[209] - Cash flow from operations increased by $5.0 million, or 17.9%, for the six months ended June 30, 2023, primarily due to net income adjustments[209][228] Shareholder Returns and Dividends - On May 11, 2023, the Board declared a cash dividend of $0.01 per share, totaling $0.4 million for Class A common stockholders[233] - The total amount of the distribution payment to common unit holders was approximately $2.9 million[233] - The company did not repurchase any shares during the three months ended June 30, 2023, but has repurchased a total of 2,984,987 shares since the program's inception[221] Deferred Revenue and Future Expectations - Deferred revenue as of June 30, 2023, was $628.4 million, with $288.4 million expected to be recognized as net revenue over the next 12 months[217] - The company expects operating cash flows to improve as operational efficiency increases and economies of scale are realized[215] - The company anticipates that net revenue will fluctuate due to the timing and mix of term and membership subscriptions[161] Accounting Policies - Management believes that "Revenue Recognition" and "Transactions and Valuation of Goodwill and Other Acquired Intangible Assets" are critical accounting policies for understanding financial condition[236]