Thank you for standing by and welcome to MarketWise's Second Quarter 2022 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Jonathan Shanfield, Head of Investor Relations at MarketWise.

Thank you. Good morning and thank you for joining us on today's conference call to discuss MarketWise's second quarter 2022 financial results. On the call today, we have Mark Arnold, our Chief Executive Officer; and Dale Lynch, our Chief Financial Officer. During the course of today's call, we may make forward-looking statements, including but not limited to, statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies and plans, and our ability to attract and retain customers. These forward-looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date, and we disclaim any obligation to update any forward-looking statements. Actual results may vary materially from today's statements. Information concerning our risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements are contained in the company's SEC filings, earnings press release, and supplemental information posted on the Investors section of the company's website. Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to but not as a substitute for or in isolation from GAAP measures. Reconciliation to non-GAAP investors can be found in our earnings press release and SEC filings. Now, I’ll turn the call over to Mark.

Thanks, John, and good morning, everybody. Welcome to our second quarter 2022 earnings call. The second quarter of 2022 continued the same market and investor dynamics we experienced through the first quarter of the year, reflecting increased volatility and uncertainty in the U.S. and the global markets. Record inflation prompted the Federal Reserve to embark upon an aggressive monetary tightening cycle and this prompted concerns across the investment community and investors that a recession or hard landing is possible or even likely, which contributed to the market sell-off that continued through the second quarter and ultimately resulted in what has been highly reported as the worst first half of the year for stocks in 50 years. Given this environment and the uncertainty in the economy and the markets, it's not surprising that investors have remained cautious as the market sell-off has continued through the middle of the summer. Subscribers continue to evaluate and assess the market to determine how to adjust their investment strategies. This situation has resulted in a hesitance regarding their investments, similar to what we saw earlier in the year. We believe this combination of factors continues to impact our current financial performance as can be seen in our second quarter results, where our revenues declined 9.9% year-over-year to $128 million. Our billings declined 36.5% year-over-year to $117.5 million, and our adjusted cash flow from operations was $26.8 million, down from $59.4 million in the second quarter of 2021. Our results also continue to reflect lower consumer engagement and fewer new subscribers as compared to the prior year due to economic and post-COVID market influences. Dale will give you more details on our subscriber engagement in a few minutes. We believe the individual investor is reactive in this environment by understandably stepping to the sidelines to evaluate market segments based on their own risk appetite. This is not a new phenomenon as we have been through challenging markets before. During the dot-com crash in the early 2000s and again, during the 2008-2009 financial crisis, we saw similar behaviors. In each of those cases, it took time for individual investors to fully reengage in market activities. During those periods, we managed our business by developing new content that addressed the current financial environment, managed our marketing spend and costs appropriately, and ultimately, we experienced significant organic growth when individual investors re-entered the market. To position the company for long-term growth, we need to maintain and improve profitability and continue to generate strong cash flows, and we are focused on doing just that. Fortunately, we are in a strong financial position with positive cash flow, a robust balance sheet, and no debt, which allows us to take advantage of opportunities where many of our competitors cannot. As a result, we are adjusting to the current market cycle, both from a content perspective and operationally, as we focus on improving efficiencies and executing on our strategic objectives. We have launched several new publications reflecting our analysts' best ideas for addressing the current investment environment. Additionally, we've retired or consolidated a half dozen other publications from our portfolio that either don't fit the current investing environment or overlap content-wise with other products we offer. This will result in cost savings and greater operational efficiency going forward. We also expanded our effort to further incorporate data science and artificial intelligence into our operations. We partnered with SubScale in the second quarter to accelerate our progress, expecting substantial long-term benefits. Integrating data science into our business will be a multi-year process starting with thorough analysis and modeling, ultimately generating insights that lead to action. Our initial phase is focused on customer and transaction data, improving conversion rates, increasing direct mail conversions, and reducing customer chargebacks. These short-term goals are in progress over the next 12 months and will significantly improve our free-to-pay conversion rates, subscriber churn, user engagement, and ARPU over time. We are also actively working on integrating our technology products with our research brands to enhance our offerings. Our technology team has made commendable progress in developing the TAM MarketWise technology platform, designed to accommodate our multiple brands and provide a centralized investment content location for consumers. We completed the rollout earlier this year and have already seen positive results, including increased engagement and access to our video media. This platform will also drive cross-selling between brands, enhancing retention and ARPU while providing a digital advertising revenue stream. We have many initiatives underway that we believe will drive growth and profitability in the long term. Our strong balance sheet and positive cash flow position us uniquely to invest in long-term value for shareholders. The company has experienced significant growth over the last three years, increasing product offerings and corporate expenses. Given current market conditions, we launched a cost-reduction effort, targeting annualized reductions of approximately $37 million. Much of this has already been accomplished. While the markets have been challenging this quarter, we've been in business for over two decades and have seen many market cycles. This uniquely positions us to navigate the current volatility and thrive as we execute our strategic initiatives for improved revenue growth, profitability, and cash flow generation. Now, let me turn the call to Dale.

Good morning. Thanks, Mark. The second quarter continued the challenging trend from the first quarter, influenced by high inflation and the Fed's aggressive tightening policy, resulting in recession fears and an equity market that fell into bear territory. These market influences have impacted our business as we continue to see hesitancy among self-directed investors completing purchases of financial research. Overall interest in our products remains solid, with consistent engagement metrics, but our purchase conversion rates from landing page visits remain approximately 20% below fourth quarter 2021 levels. However, it's important to note that our higher-value customers’ conversion rates remain solid, continuing to drive most of our billings. As of June 30, 2022, our cumulative high-value conversion rate and our cumulative ultra-high-value conversion rate were 42% and 32%, respectively, each representing all-time highs. It is understandable that retail investors continue to be unsure about the market. Retail investors are actively monitoring but possibly delaying purchases, especially for lower ARPU customers. In the second quarter, our landing page visits were approximately 31 million, remaining stable but about 18% lower than the highest averages we have seen. Our landing page subscriber conversion rates were about 16 basis points and mirrored the first quarter levels. These figures highlight the impact of our low ARPU customers. Despite the low conversions, our high-value and ultra-high-value subscriber rates indicate that those who value our products are still engaging with our content. Revenue for the quarter was $128 million, down 9.9% from $142.1 million last year, primarily driven by a decrease in term subscription revenue of $13.6 million. Billings were $117.5 million, down from $185.1 million year-over-year, due to reduced consumer engagement and lower direct-to-pay conversion rates. During the second quarter 2022, approximately 38% of our billings were from membership subscriptions, 61% from term subscriptions, and 1% from other billings. Cost of revenue declined due to decreased stock-based compensation and credit card fees but was offset by increased headcount-related costs. Overall, net income for the second quarter was $34 million. Adjusted cash flow from operations was $26.8 million, reflecting the decrease in billings. Our paid subscriber base declined from 994,000 to 898,000 this quarter, indicating a decrease driven by lower engagement and conversion rates. However, our free subscriber base grew from 12 million to 15 million, a 25% increase. ARPU declined to $580 due to a combination of increased paid subscribers and decreased billings. We are actively working to reduce expenditures, targeting a total reduction of approximately $37 million on an annualized basis. Essential initiatives focus on optimizing overhead and direct marketing expenses while maintaining prudent management strategies. Looking ahead, we are determining the appropriate levels of flexibility to navigate this macro environment. As mentioned earlier, we began a second phase of overhead reductions and are targeting a similar assist for direct marketing expenses if efficiencies improve. Our approach aims to ensure our business can evolve effectively in response to challenging market dynamics.

Thanks, Dale. Just a final thought from me before taking your questions. Financial markets are cyclical, and our business reacts and adapts to changes in the market environment, as we have done throughout our company's history. As the market has come down and customer acquisition costs remain high, we are adjusting our marketing spend and overhead accordingly. My expectations are that will continue through the second half of the year. Despite recent market disruptions, we are fortunate to be financially strong with positive cash flow and no debt. The actions we are taking now will put us in an even stronger position moving forward. I would like to turn the call back to the operator for your questions.

Our first question is from Devin Ryan with JMP Securities.

I want to start with a question just on the interplay between free and paid subs. You're not seeing great growth still on the free side. What I want to dig into is whether you think about that new product development in relation to the demand evolution among customers? Are there other types of products you should deliver to free customers just to get them into the platform?

Thanks, Devin. You touched on a couple of important points. Regarding pricing strategy, we feel we cover the price spectrum well. We have high-priced products that have seen nice conversion rates from our historic customer base. However, the challenge is how to get more free customers to convert to paid. We continue to test price sensitivities around our offerings and feel our introductory price points, often under $200, are highly approachable. Regarding content offering, our editorial teams are adjusting to the market environment, putting greater emphasis on investment strategies appropriate for the current economic conditions. This includes marketing efforts that shift towards value creation and trading-type products as opposed to growth-seeking products. Our teams are focusing on what subscribers respond to in these changing market conditions.

Okay, terrific. And then, just a follow-up. You have weathered many environments and come out stronger. Right now, you have a very strong capital base and solid footing. Looking at the market landscape for individual publishers, are we seeing capitulation yet, where companies realize now is the time to partner with MarketWise? Is there enthusiasm around being part of your platform to help during these times?

That's a good question, Devin. I can't speak to where maximum market capitulation is for smaller publishers since we've never been public until now. However, we're receiving more inbound inquiries than ever, particularly around smaller publishers, with many recognizing our scale and financial strength. We are seeing an increasing volume in our M&A process, indicating that our qualities are becoming more attractive to various companies.

I wanted to dive a bit on capital allocation. I know you bought back a modest amount of stock this quarter, and cash flow seems to be improving. How should we consider your priorities for free cash flow moving forward?

So, we have around $150 million in cash and a line of credit we have never drawn on, giving us ample access to capital. As Mark mentioned, we have several M&A opportunities that make strategic sense at these levels. Regarding share buybacks, we've halted them as we've reached a flow limit. We aim to employ our cash strategically towards M&A opportunities instead of public share buybacks right now.

That’s right, Dale. The focus is on our M&A pipeline and how we can leverage our strong cash position for strategic investments.

Just a follow-up. You don’t provide guidance, but could you share insights on landing page visits or conversion rates in July compared to earlier in the year?

Yes, great question. Due to our reduced marketing spend, we anticipate seeing a decline in landing page visits. Average daily trading volumes for brokers are down around 12% compared to the second quarter average. Conversion rates have remained steady and have not improved significantly over the summer. Investors appear to be on the sidelines, awaiting stabilization in the market.

I’m trying to understand the G&A expense figure for the second quarter. What drove that significant decrease, and is it a reliable baseline for future budgeting?

That's a good question, Jeff. The decrease in G&A was primarily due to reduced bonus accruals and a decline in one-time expenses tied to last year's transaction. If margins stay consistent, the reduced bonus accrual should serve as a reliable baseline going forward.

To follow that up, marketing spend will see a contraction under current conditions, and we'll be adjusting based on daily ROI assessments. We've tightened our marketing metrics significantly, focusing on campaigns that yield solid returns. The breadth and depth of our marketing efforts will be contingent on what we see working.

Exactly. Our strategy is to prioritize targeting low-return efforts first, and as we see favorable trends, we can ramp our marketing activities back accordingly.

I have three questions. First, regarding content and product changes, what is different now? Have market strategies shifted or have management changes occurred?

The shift is largely characterized by moving from risk-on to risk-off strategies, focusing more on wealth preservation due to current market concerns. This strategy adjustment has influenced our content offerings, and we've also introduced new products and editorial teams. Our marketing messages are aligning with what subscribers seem to respond to in these market conditions.

If the equity markets have bottomed, what could that mean for your billings and revenue growth in the future?

If you assume that the markets have bottomed, subscriber reengagement typically takes time. Historical patterns suggest it may take a few months for trends to shift towards billings growth, leading to revenue growth thereafter. Our experience indicates that it can take about 12 months for consumers to fully reengage after significant market corrections.

While we can't commit to specific cash flow targets, our goal is to maintain operations in the high teens to low 20% margin range regardless of current challenges. We believe we can achieve this through our current restructuring and reduced expenditures.

Exactly, and historically, we see considerable margin expansion when billings recover, which can lead to significant profitability improvements. Thank you for your participation in today’s call and for your interest in MarketWise. Have a good day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.