d
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-39405
(Exact Name of Registrant as Specified in Its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | ||||||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☑ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 12 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
As of May 10, 2024, there were 43,173,283 shares of the registrant’s Class A common stock and 280,390,147 shares of the registrant’s Class B common stock, each with a par value of $0.0001 per share, outstanding.
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TABLE OF CONTENTS
| Page | ||||||||
| PART I. | FINANCIAL INFORMATION | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of federal securities law, and as such are not historical facts. This includes, without limitation, statements regarding our financial position and business strategy, and the plans and objectives of management for our future operations. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this report, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this report, including, but not limited to:
▪our ability to attract new subscribers and to persuade existing subscribers to renew their subscription agreements with us and to purchase additional products and services from us;
▪our ability to adequately market our products and services, and to develop additional products and product offerings;
▪our ability to manage our growth effectively, including through acquisitions;
▪failure to maintain and protect our reputation for trustworthiness and independence;
▪our ability to attract, develop, and retain capable management, editors, and other key personnel;
▪our ability to grow market share in our existing markets or any new markets we may enter;
▪adverse or weakened conditions in the financial sector, global financial markets, and global economy;
▪our ability to respond to and adapt to changes in technology and consumer behavior;
▪failure to successfully identify and integrate acquisitions, or dispose of assets and businesses;
▪our public securities’ potential liquidity and trading;
▪the impact of the regulatory environment and complexities with compliance related to such environment;
▪our future capital needs;
▪our ability to maintain an effective system of internal control over financial reporting, and to address and remediate existing material weaknesses in our internal control over financial reporting;
▪our ability to maintain and protect our intellectual property; and
▪other factors detailed under the section of this report entitled “Risk Factors.”
These forward-looking statements are based on information available as of the date of this report and current expectations, forecasts, and assumptions, and involve a number of judgments, risks, and uncertainties. Additionally, as a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements for any reason, except as may be required under applicable securities laws.
PART 1—FINANCIAL INFORMATION
4
MARKETWISE, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
Item 1. Financial Statements.
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses | |||||||||||
| Related party receivables | |||||||||||
| Deferred contract acquisition costs | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Deferred contract acquisition costs, noncurrent | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ deficit | |||||||||||
| Current liabilities: | |||||||||||
| Trade and other payables | $ | $ | |||||||||
| Related party payables, net | |||||||||||
| Accrued expenses | |||||||||||
| Deferred revenue and other contract liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities - related party | |||||||||||
| Deferred revenue and other contract liabilities, noncurrent | |||||||||||
| Related party tax receivable agreement liability, noncurrent | |||||||||||
| Other liabilities, noncurrent | |||||||||||
| Operating lease liabilities, noncurrent | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders’ deficit: | |||||||||||
Common stock - Class A, par value of $ | |||||||||||
Common stock - Class B, par value of $ | |||||||||||
Preferred stock - par value of $ | |||||||||||
5
MARKETWISE, INC.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ deficit attributable to MarketWise, Inc. | ( | ( | |||||||||
| Noncontrolling interest | ( | ( | |||||||||
| Total stockholders’ deficit | ( | ( | |||||||||
| Total liabilities and stockholders’ deficit | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
MARKETWISE, INC.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net revenue | $ | $ | |||||||||
| Related party revenue | |||||||||||
| Total net revenue | |||||||||||
| Operating expenses: | |||||||||||
Cost of revenue (1) | |||||||||||
Sales and marketing (1) | |||||||||||
General and administrative (1) | |||||||||||
Research and development (1) | |||||||||||
| Depreciation and amortization | |||||||||||
| Related party expense | |||||||||||
| Total operating expenses | |||||||||||
| Income from operations | |||||||||||
| Other income, net | |||||||||||
| Interest income, net | |||||||||||
| Income before income taxes | |||||||||||
| Income tax expense | |||||||||||
| Net income | |||||||||||
| Net income attributable to noncontrolling interests | |||||||||||
| Net income attributable to MarketWise, Inc. | $ | $ | |||||||||
| Net income per Class A common share – basic | $ | $ | |||||||||
| Net income per Class A common share – diluted | $ | $ | |||||||||
| Weighted average shares outstanding – basic | |||||||||||
| Weighted average shares outstanding – diluted | |||||||||||
(1) Cost of revenue, sales and marketing, general and administrative, and research and development expenses are exclusive of depreciation and amortization shown as a separate line item | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
MARKETWISE, INC.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive (loss) income: | |||||||||||
| Cumulative translation adjustment | ( | ||||||||||
| Total comprehensive income | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
MARKETWISE, INC.
Condensed Consolidated Statement of Stockholders’ Deficit (Unaudited)
(In thousands, except share and per share data)
| Common Stock - Class A | Common Stock - Class B | Preferred Stock | Additional paid-in capital | Accumulated deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit Attributable to MarketWise, Inc. | Noncontrolling Interest | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock units withheld to pay taxes | — | — | — | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9
MARKETWISE, INC.
Condensed Consolidated Statement of Stockholders’ Deficit (Unaudited)
(In thousands, except share and per share data)
| Common Stock - Class A | Common Stock - Class B | Preferred Stock | Additional paid-in capital | Accumulated deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit Attributable to MarketWise, Inc. | Noncontrolling Interest | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock units withheld to pay taxes | ( | — | — | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | — | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions declared to noncontrolling interests | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance per redemption of Class B shares for Class A shares | — | ( | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Remeasurement of deferred taxes due to change in noncontrolling interest | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2024 | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
MARKETWISE, INC.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Change in fair value of derivative liabilities | |||||||||||
| Deferred taxes | |||||||||||
| Unrealized gains on foreign currency | ( | ( | |||||||||
| Noncash lease expense | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Related party receivables and payables, net | |||||||||||
| Prepaid expenses | ( | ( | |||||||||
| Other current assets and other assets | |||||||||||
| Deferred contract acquisition costs | |||||||||||
| Trade and other payables | |||||||||||
| Accrued expenses | ( | ( | |||||||||
| Deferred revenue | ( | ( | |||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other current and long-term liabilities | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ||||||||||
| Capitalized software development costs | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Restricted stock units withheld to pay taxes | ( | ( | |||||||||
| Dividends paid | ( | ||||||||||
| Distributions to noncontrolling interests | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash — beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash — end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
1. Organization
Description of Business and Basis of Presentation
MarketWise, Inc. (“MarketWise,” “the Company,” “we,” “us,” or “our”) is a holding company that has no material assets other than its ownership in MarketWise, LLC, and operates and controls all of the businesses and operations of MarketWise, LLC and its subsidiaries. The Company provides independent investment research for investors around the world. We believe we are a leading content and technology multi-brand platform for self-directed investors. We offer a comprehensive portfolio of high-quality, independent investment research, as well as several software and analytical tools, on a subscription basis.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of MarketWise, Inc. and its subsidiary, MarketWise, LLC, a variable interest entity (“VIE”) for which MarketWise, Inc. is deemed to be the primary beneficiary.
MarketWise, Inc. is a holding company that owns a minority economic interest in MarketWise, LLC but, through its role as the managing member of MarketWise, LLC, controls all of the business and operations of MarketWise, LLC. Therefore, MarketWise, LLC and its subsidiaries are included in the Company’s condensed consolidated financial statements. As of March 31, 2024, MarketWise, Inc. had a 11.7 % ownership interest in MarketWise, LLC.
The Company determined that MarketWise, LLC is the primary beneficiary of a VIE, and therefore, the assets, liabilities, and results of operations of that VIE are included in the Company’s consolidated financial statements.
Unaudited Interim Financial Information
12
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to, the fair value of common units, derivatives, valuation of assets acquired and liabilities assumed in business combinations, useful lives of intangible assets with definite lives, benefit period of deferred contract acquisition costs, determination of standalone selling prices, estimated life of lifetime customers, recoverability of goodwill and long-lived assets, valuation allowances on deferred tax assets, the incremental borrowing rates to calculate lease liabilities and right-of-use (“ROU”) assets and certain accruals. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.
Emerging Growth Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our unaudited condensed financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Noncontrolling Interest
Noncontrolling interest represents the Company’s noncontrolling interest in consolidated subsidiaries which are not attributable, directly or indirectly, to the controlling Class A common stock ownership of the Company.
Net income for the three months ended March 31, 2024 and 2023 was fully attributable to consolidated MarketWise, Inc. and its respective noncontrolling interests.
As of March 31, 2024, MarketWise, Inc.’s controlling interest in MarketWise, LLC is 11.7 % and the noncontrolling interest was 88.3 %. For the three months ended March 31, 2024, net income attributable to controlling interests included a $735 tax provision, which is 100% attributable to the controlling interest.
As of March 31, 2023, MarketWise, Inc.’s controlling interest in MarketWise, LLC was 9.3 % and the noncontrolling interest was 90.7 %. For the three months ended March 31, 2023 net income attributable to controlling interests included a $0.9 million tax provision, which was 100% attributable to the controlling interest.
13
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
3. Revenue Recognition
Disaggregation of revenues
The following table depicts the disaggregation of revenue according to customer type and is consistent with how we evaluate our financial performance. We believe this depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||
| Subscriptions | Advertising | Revenue Share (Related Party) | Revenue Share (Third-party) | Total | |||||||||||||||||||||||||
| Timing of transfer: | |||||||||||||||||||||||||||||
| Transferred over time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Transferred at a point in time | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| Subscriptions | Advertising | Revenue Share (Related Party) | Revenue Share (Third-party) | Total | |||||||||||||||||||||||||
| Timing of transfer: | |||||||||||||||||||||||||||||
| Transferred over time | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Transferred at a point in time | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Revenue recognition by subscription type was as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Membership subscriptions | $ | $ | |||||||||
| Term subscriptions | |||||||||||
| Non-subscription revenue | |||||||||||
| Total | $ | $ | |||||||||
Revenue for the Membership and Term subscription types are determined based on the terms of the subscription agreements. Non-subscription revenue consists of revenue from advertising and other revenue.
Net revenue by principal geographic areas was as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| United States | $ | $ | |||||||||
| International | |||||||||||
| Total | $ | $ | |||||||||
Revenue by location is determined by the billing entity for the customer.
Contract Balances
The timing of revenue recognition, billings, cash collections and refunds affects the recognition of accounts receivable, contract assets and deferred revenue. Our current deferred revenue balance in the condensed consolidated
14
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
balance sheets includes an obligation for refunds for contracts where the provision for refund has not lapsed. Accounts receivable, deferred revenue and obligation for refunds are as follows:
| As of | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Contract balances | |||||||||||
| Accounts receivable | $ | $ | |||||||||
| Obligations for refunds | $ | $ | |||||||||
| Deferred revenue – current | $ | $ | |||||||||
| Deferred revenue – non-current | $ | $ | |||||||||
We recognized $92,561 and $104,035 of revenue during the three months ended March 31, 2024 and 2023, respectively, that was included within the beginning contract liability balance of the respective periods. The Company has collected all amounts included in deferred revenue other than $3,350 and $4,528 as of March 31, 2024 and December 31, 2023, respectively, related to the timing of cash settlement with our credit card processor.
Assets Recognized from Costs to Obtain a Contract with a Customer
The following table presents the opening and closing balances of our capitalized costs associated with contracts with customers:
| Balance at January 1, 2024 | $ | ||||
| Royalties and sales commissions – additions | |||||
| Revenue share and cost per acquisition fees – additions | |||||
| Amortization of capitalized costs | ( | ||||
| Balance at March 31, 2024 | $ | ||||
We did no
Remaining Performance Obligations
As of March 31, 2024, the Company had $565,545 of remaining performance obligations presented as deferred revenue in the condensed consolidated balance sheets. We expect to recognize approximately 50 % of that amount as revenues over the next twelve months , with the remainder recognized thereafter.
4. Legacy Reorganization
On February 8, 2024, the Company reported that its Board of Directors had committed to a strategic realignment and reorganization (the “Reorganization”) whereby the Company will wind-down the operations of its Legacy Research Group business (“Legacy Research”) in response to misconduct discovered at Legacy Research where certain managers violated the Company’s policies.
Following the commitment to the Reorganization, Legacy Research began to significantly curtail business activities including any marketing efforts to acquire new subscribers, but continued to serve existing subscribers and fulfill existing subscriptions during the first quarter of 2024. At the time of the announcement, there were 104 employees at Legacy Research, which represented approximately 18 % of the Company’s total employees. As of March 31, 2024, 12 employees were either terminated or resigned, and separation costs incurred in the three months ended March 31, 2024 totaled approximately $200 . As of March 31, 2024, the Company was still evaluating a range of potential actions related to the Reorganization, including the sale of certain Legacy Research assets to other businesses within MarketWise, and actions with respect to the remaining employees, and had not approved any such plans.
15
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
Legacy Research has leased office space and the current lease end date for this property is December 2028. As of March 31, 2024, the operating lease right-of-use asset and related leasehold improvements totaled approximately $2.9 million. The Company was still using this property in its operations, and evaluating various future alternatives with respect to this property as of March 31, 2024.
The Company expects that the Reorganization will be completed in the first half of fiscal 2024.
5. Acquisitions
MMP Acquisition
In January 2024, we acquired 100 % ownership of certain assets and liabilities from Money Map Press, LLC (“MMP Acquisition”), a provider of financial newsletters, which is a related party. The Company will pay contingent consideration based on the level of subscription sales it achieves from certain customers beginning from the sale date through January 1, 2026, as defined in the sale agreement. The fair value of the contingent consideration was estimated to be $707 . The contingent consideration will be remeasured at the end of each reporting period. The MMP Acquisition was accounted for using the acquisition method of accounting for business combinations. The purchase price allocation is preliminary pending completion of valuations of certain acquired assets and liabilities. The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:
| Goodwill | $ | ||||
| Tradenames | |||||
| Customer relationships | |||||
| Total assets acquired | |||||
| Deferred revenue, current | ( | ||||
| Deferred revenue, noncurrent | ( | ||||
| Liabilities assumed | ( | ||||
| Net assets acquired | $ | ||||
The excess purchase consideration over the fair values of assets acquired and liabilities assumed was recorded as goodwill. The acquired intangible assets related to the MMP Acquisition are amortized over their estimated useful lives. Accordingly, the tradenames are amortized over 8.7 years and customer relationships are amortized over 6.2 years. Amortization for the acquired intangible assets was $97 for the three months ended March 31, 2024.
6. Goodwill and Intangible Assets, Net
Goodwill
The carrying amounts of goodwill are as follows:
| Balance at January 1, 2024 | $ | ||||
MMP Acquisition | |||||
| Balance at March 31, 2024 | $ | ||||
16
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
Intangible assets, net
Intangible assets, net consisted of the following as of the dates indicated:
| March 31, 2024 | |||||||||||||||||||||||
| Cost | Accumulated Amortization | Net Book Value | Weighted-Average Remaining Useful Life (in years) | ||||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||
| Tradenames | ( | ||||||||||||||||||||||
| Capitalized software development costs | ( | ||||||||||||||||||||||
| Finite-lived intangible assets, net | ( | ||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||
| Internet domain names | — | ||||||||||||||||||||||
| Indefinite-lived intangible assets, net | — | ||||||||||||||||||||||
| Intangible assets, net | $ | $ | ( | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Cost | Accumulated Amortization | Net Book Value | Weighted-Average Remaining Useful Life (in years) | ||||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||
| Tradenames | ( | ||||||||||||||||||||||
| Capitalized software development costs | ( | ||||||||||||||||||||||
| Finite-lived intangible assets, net | ( | ||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||
| Cryptocurrencies | — | ||||||||||||||||||||||
| Internet domain names | — | ||||||||||||||||||||||
| Indefinite-lived intangible assets, net | — | ||||||||||||||||||||||
| Intangible assets, net | $ | $ | ( | $ | |||||||||||||||||||
We recorded amortization expense related to finite-lived intangible assets of $633 and $914 for the three months ended March 31, 2024 and 2023, respectively, within depreciation and amortization in the accompanying condensed consolidated statement of operations. These amounts include amortization of capitalized software development costs of $264 and $143 for the three months ended March 31, 2024 and 2023, respectively.
We recorded additions to capitalized software development costs of $297 and $382 for the three months ended March 31, 2024 and 2023, respectively.
17
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
As of March 31, 2024, the total expected future amortization expense for finite-lived intangible assets is as follows:
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Finite-lived intangible assets, net | $ | ||||
7. Fair Value Measurements
The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of the dates indicated:
| March 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Aggregate Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration receivable | |||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Profits interests, noncurrent | |||||||||||||||||||||||
| Contingent consideration liability | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Aggregate Fair Value | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration receivable | |||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Profits interests, noncurrent | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
The level 3 assets relate to contingent consideration receivable from a related party associated with the Buttonwood Publishing sale, see Note 4 - Acquisitions and Disposals in our Annual Report on Form 10-K for the year ended December 31, 2023, and the level 3 liabilities relate to contingent consideration liability to a related party associated with the MMP Acquisition and profits interests, see Note 5 - Acquisitions and Note 9 – Stock-Based Compensation, respectively.
18
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
The following table provides quantitative information regarding the recurring Level 3 fair value measurements inputs for the contingent consideration receivable, profits interests, and contingent consideration liability at their measurement dates:
| As of | |||||
| March 31, 2024 | |||||
| Contingent consideration receivable | |||||
| Discount rate | % | ||||
| Revenue discount rate | % | ||||
| Profits interests | |||||
| Discount rate | % | ||||
| Discount for lack of marketability | % | ||||
| Contingent consideration liability | |||||
| Discount Rate | % | ||||
The Company held no derivative liabilities as during the three months ended March 31, 2024. The following table summarizes the change in fair value of the derivative liabilities during the three months ended March 31, 2023:
| Balance at January 1, 2023 | $ | ||||
| Change in fair value of derivative instruments | |||||
Balance at March 31, 2023 | $ | ||||
8. Balance Sheet Components
Capitalized Implementation Costs
We capitalized cloud computing implementation costs for customer-relationship management, revenue management, and enterprise resource planning systems of $0 and $5 for the three months ended March 31, 2024 and 2023, respectively. The capitalized implementation costs are capitalized within other current assets and other assets on the condensed consolidated balance sheets. Amortization expense related to capitalized cloud computing implementation costs was $238 and $222 for the three months ended March 31, 2024 and 2023, respectively.
Property and Equipment, Net
Property and equipment, net consists of the following:
| As of | |||||||||||||||||
| Estimated Useful Lives | March 31, 2024 | December 31, 2023 | |||||||||||||||
| Furniture and fixtures | $ | $ | |||||||||||||||
| Computers, software and equipment | |||||||||||||||||
| Leasehold improvements | Shorter of estimated useful life or remaining term of lease | ||||||||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||||||||
| Total property and equipment, net | $ | $ | |||||||||||||||
19
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
Depreciation and amortization expense for property and equipment was $60 and $70 for the three months ended March 31, 2024 and 2023, respectively.
Accrued Expenses
Accrued expenses consist of the following:
| As of | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Commission and variable compensation | $ | $ | |||||||||
| Payroll and benefits | |||||||||||
| Other accrued expenses | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
9. Stock-Based Compensation
Included within cost of revenue, sales and marketing, and general and administrative expenses are total stock-based compensation expenses as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cost of revenue | $ | $ | |||||||||
| Sales and marketing | |||||||||||
| General and administrative | |||||||||||
| Total stock based-compensation expense | $ | $ | |||||||||
Total stock-based compensation expense for the three months ended March 31, 2024 and 2023 includes expenses related to our 2021 Incentive Award Plan, our ESPP and profits interests, as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| 2021 Incentive Award Plan | $ | $ | |||||||||
| Employee Stock Purchase Plan | |||||||||||
| Profits interests | |||||||||||
| Total stock-based compensation expense | $ | $ | |||||||||
2021 Incentive Award Plan
During the three months ended March 31, 2024, we granted 955,035 restricted stock units (“RSUs”) to certain employees and service providers in aggregate under our 2021 Incentive Award Plan.
For employees and service providers, both RSUs and stock appreciation rights (“SARs”) are primarily time based and typically vest ratably over four years , as specified in the individual grant notices. The RSUs may entitle the recipients to dividend equivalents if approved by the Plan Administrator, which are subject to the same vesting terms and accumulate during the vesting period. Upon vesting, the RSU holder will be issued the Company’s Class A common stock. The SARs will be settled in the Company’s Class A common stock upon exercise. The shares to be issued upon exercise will have a total market value equal to the SAR value calculated as (x) number of shares underlying SAR, multiplied by (y) any excess of the Company’s share value on the date of exercise over the exercise price set in each individual grant notice.
The fair value of the RSU is the same as the Company’s share price on the date of grant. The fair value of the SARs was determined using a Black-Scholes model.
20
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
The activities of the RSUs and SARs and the related weighted average grant-date fair value of the respective share classes are summarized as follows, including granted, exercised and forfeited from January 1, 2024 to March 31, 2024.
| RSUs | SARs | ||||||||||||||||||||||
| Units | Weighted-Average Grant Date Fair Value | Units | Weighted-Average Grant Date Fair Value | ||||||||||||||||||||
Outstanding at January 1, 2024 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised or vested | ( | ||||||||||||||||||||||
| Forfeited | ( | ( | |||||||||||||||||||||
| Expired | |||||||||||||||||||||||
Outstanding at March 31, 2024 | $ | $ | |||||||||||||||||||||
Exercisable at March 31, 2024 | $ | $ | |||||||||||||||||||||
The stock compensation expense related to the RSU and SAR grants was $2,087 and $3,603 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, 761,219 SARs were exercisable and they have a remaining contractual term of 7.3 years.
Employee Stock Purchase Plan
The Company recognized $89 and $100 of stock-based compensation expense related to the Employee Stock Purchase Plan ("ESPP”) during the three months ended three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, $189 has been withheld on behalf of employees for the June 30, 2024 purchase date.
Profits Interests
The Company recognized $1,632 of stock-based compensation expense related to the profits interests during the three months ended March 31, 2024.
21
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
10. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2024 and 2023:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Basic earnings per share: | |||||||||||
| Numerator: | |||||||||||
| Net income | $ | $ | |||||||||
| Less: Net income attributable to noncontrolling interests | |||||||||||
| Net income attributable to Class A common stockholders | $ | $ | |||||||||
| Denominator: | |||||||||||
| Weighted average shares outstanding (in thousands) | |||||||||||
| Basic earnings per share | $ | $ | |||||||||
| Diluted earnings per share: | |||||||||||
| Numerator: | |||||||||||
| Net income | $ | $ | |||||||||
| Less: Net income attributable to noncontrolling interests | |||||||||||
| Net income attributable to Class A common stockholders | $ | $ | |||||||||
| Denominator: | |||||||||||
| Weighted average shares outstanding (in thousands) | |||||||||||
| Diluted earnings per share | $ | $ | |||||||||
The Company’s potentially dilutive securities and their impact on the computation of diluted earnings per share is as follows:
▪Sponsor and MarketWise Management Member Earnout Shares: the 3,051,000 Sponsor Earnout Shares and the 2,000,000 MarketWise Management Member Earnout Shares (as defined and discussed in our Current Report on Form 8-K filed with the SEC on July 28, 2021) held in escrow are excluded from the earnings per share computation in both periods since the earnout contingency has not been met.
▪Restricted stock units: The basic earnings per share calculation includes the impact of vested RSUs. The diluted earnings per share calculation includes the impact of unvested RSUs, where the impact is dilutive, unless the Company has a net loss.
▪Stock appreciation rights: The diluted earnings per share calculation excludes the impact of SARs since the effect was antidilutive.
▪ESPP: The diluted earnings per share calculation includes the impact of dilutive shares and excludes the impact of antidilutive shares under the ESPP as of March 31, 2024 and 2023.
11. Income Taxes
We are subject to U.S. federal and state taxes with respect to our allocable share of any taxable income or loss of MarketWise, LLC, as well as any stand-alone income or loss we generate. MarketWise, LLC is treated as a
22
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
partnership for U.S. income tax purposes and for most applicable state and local income tax purposes and generally does not pay income taxes in most jurisdictions. Instead, MarketWise, LLC’s taxable income or loss is passed through to its members, including us.
Our effective income tax rate was 3.1 % and 2.9 % for the three months ended March 31, 2024 and 2023, respectively. The main driver of the rate for the three months ended March 31, 2023 was the income allocation to the non-controlling interest. The main driver of the increase in the effective tax rate from the three months ended March 31, 2023 is the change in the income allocation to the non-controlling interest. Our effective tax rate for the three months ended March 31, 2024 differs from the U.S. federal statutory rate primarily because we generally do not record income taxes for the noncontrolling portion of pre-tax income.
As a result of the reverse capitalization in 2021, we recorded a deferred tax asset resulting from the outside basis difference in our interest in MarketWise, LLC. The company considers both positive and negative evidence when measuring the need for a valuation allowance. A valuation allowance is not required to the extent that, in management’s judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not (a likelihood of more than 50%) that the Company’s deferred tax assets will be realized.
In evaluating the need for a valuation allowance on the deferred tax asset, the company considered positive evidence related to its historic earnings, forecasted income and reversal of temporary differences. Therefore, the Company recorded a valuation allowance in the amount of $29,869 for certain deferred tax assets that are not more likely than not to be realized.
As part of Transactions, we entered into Tax Receivable Agreements (“TRAs”) with certain shareholders. Pursuant to our election under Section 754 of the Code, as amended, and the regulations issued thereunder, we expect to receive a step up in the tax basis of our ownership in MarketWise, LLC as exchanges of the LLC Units (as defined herein) occur. These increases in tax basis may reduce the amount we may otherwise pay to various tax authorities in the future. The TRA liability will represent approximately 85 % of the calculated tax savings based on basis adjustments and other carryforward attributes assumed that we anticipate to be able to utilize in future years. We will retain the remaining 15 % of calculated tax savings. The payments contemplated by the TRA are not conditioned upon any continued ownership interest in MarketWise, LLC. The timing and amount of aggregate payments due pursuant to the TRA may vary based on several factors including the timing and amount of future taxable income, as well as future applicable tax rates. As such, significant inputs and assumptions are used to estimate the future expected payments under the TRA. During the three months ended March 31, 2024, Members of MarketWise, LLC exchanged an aggregate of 500,000 500,000 newly-issued shares of Class A common stock. As a result, we have recorded a cumulative liability of $2,470 under the TRA as of March 31, 2024. No payments have been made under the TRA and no payments are expected in the next 12 months.
As of March 31, 2024, we had no unrecognized tax positions and believe there will be no changes to uncertain tax positions within the next 12 months.
12. Related Party Transactions
We have certain revenue share agreements with related parties. Accordingly, we recognized revenue from related parties of $379 and $618 for the three months ended March 31, 2024 and 2023, respectively.
We also incurred revenue share expenses paid to related parties of $1,306 and $1,152 which were capitalized as contract origination costs for the three months ended March 31, 2024 and 2023, respectively.
A related party provided call center support and other services to the Company for which we recorded an expense within cost of revenue of $134 and $136 for the three months ended March 31, 2024 and 2023, respectively.
23
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
A related party provided marketing and copywriting services to the Company for which we recorded an expense within cost of revenue of $0 and $253 for the three months ended March 31, 2024 and 2023, respectively.
A related party also provided certain corporate functions to MarketWise and the costs of these services are charged to MarketWise. We recorded $23 and $27 for the three months ended March 31, 2024 and 2023, respectively, within related party expense in the accompanying condensed consolidated statement of operations. We held balances of $563 and $1,220 as of March 31, 2024 and December 31, 2023 of related party payables related to revenue share expenses, call center support, and the services noted above. The balances with our related party are presented net and are included in related party payables, net in the condensed consolidated balance sheet.
We earned fees and provided certain accounting and marketing services to companies owned by certain of MarketWise’s Class B stockholders. As a result, we recognized $155 and $302 in other income, net for the three months ended March 31, 2024 and 2023, respectively. Related party receivables related to these services were $155 and $239 as of March 31, 2024 and December 31, 2023, respectively.
We lease offices from related parties. Lease payments made to related parties were $435 and $433 for the three months ended March 31, 2024 and 2023, respectively, and related party rent expense of $603 and $605 were recognized in general and administrative expenses for the three months ended March 31, 2024 and 2023. At March 31, 2024 and December 31, 2023, ROU assets of $6,771 and $7,261 and lease liabilities of $5,403 and $5,740 are associated with leases with related parties.
13. Supplemental Cash Flow Information
Supplemental cash flow disclosures are as follows:
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Supplemental Disclosures of Cash Flow Information: | |||||||||||
| Cash paid for interest | $ | ( | $ | ( | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | ( | ( | |||||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities: | |||||||||||
| Capitalized software included in accounts payable | |||||||||||
| As of March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Reconciliation of Cash and Cash Equivalents and Restricted Cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Total cash and cash equivalents | $ | $ | |||||||||
14. Stockholders’ Equity
The Company’s capital stock consists of (i) issued and outstanding Class A common stock with a par value of $0.0001 per share, and (ii) issued and outstanding Class B common stock with a par value of $0.0001 per share.
The table set forth below reflects information about the Company’s equity as of March 31, 2024. The 3,051,000 Sponsor Earnout Shares held in escrow and the 2,000,000 Management Member Earnout Shares are considered contingently issuable shares and therefore excluded from the number of Class A common stock issued and outstanding in the table below.
24
MARKETWISE, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except share, unit, per share, and per unit data)
| Authorized | Issued | Outstanding | |||||||||||||||
| Common stock - Class A | |||||||||||||||||
| Common stock - Class B | |||||||||||||||||
| Preferred stock | |||||||||||||||||
| Total | |||||||||||||||||
Each share of Class A and Class B common stock entitles the holder one vote per share. Only holders of Class A common stock have the right to receive dividends. In the event of liquidation, dissolution or winding up of the affairs of the Company, only holders of Class A common stock have the right to receive liquidation proceeds, while the holders of Class B common stock are entitled to only the par value of their shares. Class B common stock can be issued only to members of MarketWise, LLC, their respective successors and permitted transferees. Under the terms of the Third Amended and Restated Limited Liability Company Operating Agreement of MarketWise, LLC (the “MarketWise Operating Agreement”), and subject to certain restrictions set forth therein, the MarketWise Members are entitled to have their LLC Units redeemed or exchanged for shares of our Class A common stock, at our option. If redeemed for cash at the Company’s option, such cash would have to be generated through an offering of shares to the market such that there would not be any situation where there would be a net cash obligation to the Company for such redemption. Shares of our Class B common stock held by any such redeeming or exchanging MarketWise Member will be canceled for no additional consideration on a one -for-one basis with the redeemed or exchanged LLC Units whenever the MarketWise Members’ LLC Units are so redeemed or exchanged. The MarketWise Members may exercise such redemption rights for as long as their LLC Units remain outstanding. Our Board has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
In 2023, we commenced paying quarterly dividends on shares of our Class A common stock and distributions on our LLC Units. There can be no assurance that we will continue to pay dividends in the future. The payment of any future dividends and distributions will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in any debt agreements, and other factors that our Board of Directors may deem relevant.
The dividends and distributions declared during the three months ended March 31, 2024 were as follows:
| Dividends | Distributions | |||||||||||||||||||||||||
| Date declared | Date paid | per share | Total | per unit | Total | |||||||||||||||||||||
| October 18, 2023 | January 25, 2024 | $ | $ | $ | $ | |||||||||||||||||||||
| March 5, 2024 | April 25, 2024 | $ | $ | $ | $ | |||||||||||||||||||||
15. Subsequent Events
Subsequent events have been evaluated through May 15, 2024, which is the date that the financial statements were issued.
With respect to the Legacy Research Reorganization described in Note 4 – Legacy Reorganization, as of May 15, 2024, the Company was still evaluating a range of potential actions related to the Reorganization, including the sale of certain Legacy Research assets to other businesses within MarketWise, and actions with respect to the remaining employees, and had not approved any such plans.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of MarketWise, Inc., a Delaware corporation (“MarketWise,” “we,” “us,” and “our”), should be read together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”). The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this report.
Overview
We are a leading multi-brand platform of subscription businesses that provides premium financial research, software, education, and tools for self-directed investors. We offer a comprehensive portfolio of high-quality, independent investment research, as well as several software and analytical tools, on a subscription basis.
MarketWise started in 1999 with the simple idea that, if we could publish intelligent, independent, insightful, and in-depth investment research and treat the subscriber the way we would want to be treated, then subscribers would renew their subscriptions and stay with us. Over the years, we have expanded our business into a comprehensive suite of investment research products and solutions. We now produce a diversified product portfolio from a variety of financial research brands such as Stansberry Research, Chaikin Analytics, and InvestorPlace. Our entire investment research product portfolio is 100% digital and channel agnostic, and we offer all of our research across a variety of platforms, including desktop, laptop, and mobile devices, including tablets and mobile phones.
Today, we benefit from the confluence of a leading editorial team, diverse portfolio of content and brands, and comprehensive suite of investor-centric tools that appeal to a broad subscriber base.
First Quarter 2024 Highlights
On February 8, 2024, the Company reported that its Board of Directors had committed to a strategic realignment and reorganization (the “Reorganization”) whereby we will wind-down the operations of our Legacy Research Group business (“Legacy Research”) in response to misconduct discovered at Legacy Research where certain managers violated the Company’s policies. For more information on the Legacy Reorganization, see “— Legacy Reorganization.”
The following table presents net cash provided by operating activities, and the related margin as a percentage of net revenue, and Adjusted CFFO, a non-GAAP measure, and the related margin as a percentage of Billings, for each of the periods presented. For more information on Adjusted CFFO and Adjusted CFFO Margin, see “— Non-GAAP Financial Measures.”
| (In thousands) | Three Months Ended March 31, | |||||||||||||||||||
| 2024 | 2023 | % Change | ||||||||||||||||||
| Net cash provided by operating activities | $ | (18,511) | 3,868 | (578.6) | % | |||||||||||||||
| Total net revenue | 108,991 | 126,233 | (13.7) | % | ||||||||||||||||
| Net cash provided by operating activities margin | (17.0) | % | 3.1 | % | ||||||||||||||||
| Adjusted CFFO | $ | (18,511) | $ | 3,868 | (578.6) | % | ||||||||||||||
| Billings | 77,222 | 97,171 | (20.5) | % | ||||||||||||||||
| Adjusted CFFO Margin | (24.0 | %) | 4.0 | % | ||||||||||||||||
26
Key Factors Affecting Our Performance
We believe that our growth and future success are dependent upon several factors, including those below and those noted in the “Risk Factors” section in the Annual Report. The key factors below represent significant business opportunities as well as challenges that we must successfully address in order to continue our growth and improve our financial results.
Growing our subscriber base with compelling unit economics. We are highly focused on continuing to acquire new subscribers to support our long-term growth. Our marketing spend is a large driver of new subscriber growth. At the heart of our marketing strategy is our compelling unit economics that combine long-term subscriber relationships, highly scalable content delivery, cost-effective customer acquisition, and high-margin conversions.
Our Paid Subscribers (as defined below) as of December 31, 2023 generated average customer lifetime Billings of approximately $1,494, resulting in a LTV/CAC (as defined below) ratio of approximately 2.3x. On average, it takes us approximately 1.1 to 1.6 years for a Paid Subscriber’s cumulative net revenue to exceed the total cost of acquiring that subscriber (which includes fixed costs, such as marketing salaries). For more information on Billings and our LTV/CAC ratio and the components of this ratio, see “—Key Business Metrics” and “—Definitions of Metrics,” respectively.
We adjust our marketing spend to drive efficient and profitable customer acquisition. We can adjust our marketing spend in near real-time, and we monitor costs per acquisition relative to the cart value of the initial subscription. We seek and typically achieve 90-day payback periods to cover this variable component of the direct marketing spend.
As of March 31, 2024, our paid subscriber base was 683 thousand, down 94 thousand, or 12.1% as compared to 777 thousand at March 31, 2023. Our base is comprised of subscribers obtained through both direct-to-paid acquisition and free-to-paid conversions. Since 2019, direct-to-paid acquisition has accounted for approximately two-thirds of our annual Paid Subscriber acquisition, and is largely driven by display ads and targeted email campaigns.
Our free subscription products also serve as a significant source of new Paid Subscribers, accounting for approximately one-third of our annual Paid Subscriber acquisition.
Retaining and expanding relationships with existing subscribers. We believe that we have a significant opportunity to expand our relationships with our large base of Free and Paid Subscribers. Thanks to the quality of our products, we believe our customers will continue their relationship with us and extend and increase their subscriptions over time. As we deepen our engagement with our subscribers, our customers tend to purchase more and higher-value products. Our ARPU (as defined below) as of March 31, 2024 was $492, which decreased 0.2% from $493 as of March 31, 2023. For more information on ARPU, see “Key Business Metrics—Average Revenue Per User.”
Conversion rates are important to our business because they are an indicator of how engaged and how well we are connecting with our subscribers. The time it takes our customers to move from our free products to our lower-priced paid subscriptions and eventually to high-end products and membership “bundled” offerings impacts our growth in net revenue, Billings, and ARPU.
Our high-value composition rate reflects the rate at which Paid Subscribers that have purchased less than $600 of our products over their lifetime convert into subscribers that have purchased more than $600. We believe our high-value composition rate reflects our ability to retain existing subscribers through renewals and our ability to expand our relationship with them when those subscribers purchase higher-value subscriptions. Our cumulative ultra high-value composition rate reflects the rate at which high value Paid Subscribers that have purchased more than $600 of our products over their lifetime convert into subscribers that have purchased more than $5,000. We believe our ultra high-value composition rate reflects our ability to successfully build lifetime relationships with our subscribers, often across multiple products and brands. As of March 31, 2024, our high-value composition rate and ultra high-value composition rate were 49% and 42%, respectively.
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Definitions of Metrics
Throughout this discussion and analysis, a number of our financial and operating metrics are referenced which we do not consider to be key business metrics, but which we review to monitor performance, and which we believe may be useful to investors. These are:
Annual free-to-paid and annual active free-to-paid conversion rates: The Company has historically defined free-to-paid conversion rate as the number of Free Subscribers (as defined below) who purchased a subscription during the period divided by the average number of Free Subscribers during the period. In addition, the Company has historically defined active free-to-paid conversion rate as the number of Active Free Subscribers (as defined below) who purchased a subscription during the period divided by the average number of Active Free Subscribers during the period. There have been no changes to the calculation of free-to-paid or active free-to-paid conversion rates. However, the Company has revised the definition of free-to-paid and active free-to-paid conversion rates to provide clarity in how they are calculated.
We calculate our free-to-paid conversion rate as the sum of (i) the number of Free Subscribers who purchased their first subscription during the period and (ii) the number of Free Subscribers who purchased their first subscription during the period after six months of not having an active paid subscription across all of MarketWise divided by the average number of Free Subscribers during the period. We calculate our active free-to-paid conversion rate as the sum of (i) the number of Active Free Subscribers who purchased their first subscription during the period and (ii) the number of Active Free Subscribers who purchased their first subscription during the period after six months of not having an active paid subscription across all of MarketWise divided by the average number of Active Free Subscribers during the period. We believe our free-to-paid and active free-to-paid conversion rates are indicators of the type of Free Subscribers that we are signing up and the quality of our content and marketing efforts. Investors should consider free-to-paid and active free-to-paid conversion rates as two of the factors in evaluating our ability to maintain a robust pipeline for new customer acquisition.
Cumulative free-to-paid and cumulative active free-to-paid conversion rates: We calculate our cumulative free-to-paid conversion rate as the sum of (i) the number of Free Subscribers who purchased their first subscription during the trailing three-year period and (ii) the number of Free Subscribers who purchased their first subscription during the trailing three-year period after six months of not having an active paid subscription across all of MarketWise divided by the average number of Free Subscribers during the trailing three-year period. We calculate our cumulative active free-to-paid conversion rate as the sum of (i) the number of Active Free Subscribers who purchased their first subscription during the trailing three-year period and (ii) the number of Active Free Subscribers who purchased their first subscription during the trailing three-year period after six months of not having an active paid subscription across all of MarketWise divided by the average number of Active Free Subscribers during the trailing three-year period.
High-value composition rate: Our high-value composition rate reflects the number of Paid Subscribers who have purchased >$600 in aggregate over their lifetime as of a particular point in time divided by the total number of Paid Subscribers as of that same point in time.
Landing Page Visits: The cumulative number of visits to our standalone web pages created specifically for each marketing campaign. We believe landing page visits are a measure of customer engagement.
LTV/CAC ratio: We calculate LTV/CAC ratio as LTV divided by CAC. We use LTV/CAC ratio because it is a standard metric for subscription-based businesses, and we believe that an LTV/CAC ratio above 3x is considered to be indicative of strong profitability and marketing efficiency. We believe that an increasing LTV per subscriber reflects our existing subscribers recognizing our value proposition, which will expand their relationship with us across our platform over time, either through a combination of additional product purchases or by joining our membership offerings. Investors should consider this metric when evaluating our ability to achieve a return on our marketing investment. Lifetime value (“LTV”) represents the average margin on average customer lifetime Billings (that is, the estimated cumulative spend across a customer’s lifetime). Customer acquisition cost (“CAC”) is defined as direct marketing spend, plus external revenue share expense,
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plus retention and renewal expenses, plus copywriting and marketing salaries, plus telesales salaries and commissions, plus customer service commissions.
Net revenue retention: Net revenue retention is defined as Billings from all prior period cohorts in the current period, divided by all Billings from the prior period. We believe that a high net revenue retention rate is a measure of customer retention and an indicator of the engagement of our subscribers with our products. Investors should consider net revenue retention as an ongoing measure when evaluating our subscribers’ interest in continuing to subscribe to our products and spending more with us over time.
Ultra high-value composition rate: Our ultra high-value composition rate reflects the number of Paid Subscribers who have purchased >$5,000 in aggregate over their lifetime as of a particular point in time divided by the number of high-value subscribers as of that same point in time. We believe our ultra high-value composition rate reflects our ability to successfully build lifetime relationships with our subscribers, often across multiple products and brands. Investors should consider ultra high-value composition rate as a factor in evaluating our ability to retain and expand our relationship with our subscribers.
Key Business Metrics
We review the following key business metrics to measure our performance, identify trends, formulate financial projections, and make strategic decisions. We are not aware of any uniform standards for calculating these key metrics, which may hinder comparability with other companies who may calculate similarly titled metrics in a different way.
| As of and for the Three Months Ended March 31, | As of and for the Three Months Ended December 31, | |||||||||||||||||||||||||||||||
| 2024 | 2023 | % change | 2023 | % change | ||||||||||||||||||||||||||||
| Free Subscribers | 16,655,670 | 15,678,205 | 6.2% | 16,446,752 | 1.3% | |||||||||||||||||||||||||||
| Active Free Subscribers | 3,784,280 | 4,033,987 | (6.2)% | 4,067,199 | (7.0)% | |||||||||||||||||||||||||||
| Paid Subscribers | 683,436 | 777,397 | (12.1)% | 737,140 | (7.3)% | |||||||||||||||||||||||||||
| ARPU | $ | 492 | $ | 493 | (0.2)% | $ | 503 | (2.2)% | ||||||||||||||||||||||||
| New Marketing Billings (in thousands) | $ | 54,788 | $ | 66,746 | (17.9)% | $ | 67,732 | (19.1)% | ||||||||||||||||||||||||
| Net Renewal Billings (in thousands) | $ | 21,439 | $ | 29,101 | (26.3)% | $ | 21,575 | (0.6)% | ||||||||||||||||||||||||
| Other Billings (in thousands) | $ | 995 | $ | 1,324 | (24.8)% | $ | 4,250 | (76.6)% | ||||||||||||||||||||||||
| Total Billings (in thousands) | $ | 77,222 | $ | 97,171 | (20.5)% | $ | 93,557 | (17.5)% | ||||||||||||||||||||||||
Free Subscribers. Free Subscribers are defined as unique subscribers who have subscribed to one of our free investment publications via a valid email address and continue to remain directly opted in, excluding any Paid Subscribers who also have free subscriptions. Free subscriptions are often daily publications that include some commentary about the stock market, investing ideas, or other specialized topics. Included within our free publications are advertisements and editorial support for our current marketing campaigns. While subscribed to our publications, Free Subscribers learn about our editors and analysts, get to know our products and services, and learn more about ways we can help them be a better investor.
In order to better describe our universe of Free Subscribers, we recognize sub-categories of Free Subscribers – Active and Passive Free Subscribers. Active Free Subscribers are those Free Subscribers with whom we have engaged during the most recent quarter and represent those individuals who have received and/or consumed our content on a regular basis during that same quarter. Our analysis indicates that this population of Active Free Subscribers is more likely to continue to consume content and convert to a Paid Subscriber. Passive Free Subscribers represent those individuals who have not directly received our content during the most recent quarter, however, they remain included in our Free Subscriber population as defined above and may continue to consume content from our platforms. We expect the composition of our Active and Passive Free
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Subscribers will change over time as we refine our marketing and data analysis techniques aimed at converting Free Subscribers to Paid Subscribers.
Free Subscribers increased by 1.0 million, or 6.2%, to 16.7 million at March 31, 2024 as compared to 15.7 million at March 31, 2023. As of March 31, 2024, average Active Free Subscribers decreased by 0.2 million, or 6.2%, to 3.8 million, compared to 4.0 million as of March 31, 2023. The year over year decline in Active Free Subscribers is a result of cessation of engagement with our Legacy Research Group free subscribers as the wind down of this business began in February 2024.
Free Subscribers was flat at 16.7 million as of March 31, 2024 as compared to 16.4 million as of December 31, 2023. As of March 31, 2024, average Active Free Subscribers decreased by 0.3 million, or 7.0% to 3.8 million, compared to 4.1 million as of December 31, 2023, again as a result of cessation of engagement with our Legacy Research Group free subscribers as the wind down of this business began in February 2024.
Paid Subscribers. We define Paid Subscribers as the total number of unique subscribers with at least one paid subscription at the end of the period. We view the number of Paid Subscribers at the end of a given period as a key indicator of the attractiveness of our products and services, as well as the efficacy of our marketing in converting Free Subscribers to Paid Subscribers and generating direct-to-paid Paid Subscribers. We grow our Paid Subscriber base through performance marketing directly to prospective and existing subscribers across a variety of media, channels, and platforms.
Total Paid Subscribers decreased by 94 thousand, or 12.1%, to 683 thousand as of March 31, 2024 as compared to 777 thousand at March 31, 2023, driven by continued soft consumer engagement. While gross new subscribers increased 16.4% over the same quarter in the prior year, churn was elevated due to expiring subscriptions in our Legacy Research Group which likely came as a result of the wind down of this business which began in February 2024. The decreases from these factors were partially offset by the addition of approximately 25 thousand Paid Subscribers that joined our list with the MMP acquisition in first quarter 2024.
Total Paid Subscribers decreased by 54 thousand, or 7.3%, to 683 thousand as of March 31, 2024 as compared to 737 thousand as of December 31, 2023. Gross new subscribers were flat compared to fourth quarter 2023. However, we saw elevated churn in the quarter primarily as a result of expiring subscriptions within our Legacy Research Group as the wind down of this business began in February 2024. The decreases from these factors were partially offset by the addition of approximately 25 thousand Paid Subscribers that joined our list with the MMP acquisition in first quarter 2024.
Subscriber count churn has ranged from approximately 2.4% to 2.7% per month between 2021 and 2023. As of March 31, 2024, the average monthly churn over the trailing twelve months was at the higher end of the this range. Almost all of the subscribers who churned in first quarter 2024 did so having owned only one entry level publication. This is evidenced by the fact that their ARPU approximately matched the subscription price of our entry level publications. We believe our net revenue retention rate, which has averaged over 70% from 2021 to 2023, is a more meaningful gauge of subscriber satisfaction.
Average Revenue Per User (“ARPU”). We calculate ARPU as the trailing four quarters of net Billings divided by the average number of quarterly total Paid Subscribers over that period. We believe ARPU is a key indicator of how successful we are in attracting subscribers to higher-value content. We believe that our high ARPU is indicative of the trust we build with our subscribers and of the value they see in our products and services.
ARPU decreased by $1, or 0.2%, to $492 as of March 31, 2024 as compared to $493 as of March 31, 2023. Both trailing four quarter Billings and trailing four quarter Paid Subscribers decreased by 14%. The decrease in
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trailing four quarter Billings was driven by reduced engagement of prospective and existing subscribers, as further discussed in Billings below.
ARPU decreased by $11, or 2.2%, to $492 as of March 31, 2024 as compared to $503 as of December 31, 2023. The sequential decrease was driven by a 5% decrease in trailing four-quarter Billings, while trailing four-quarter average Paid Subscribers only decreased 3%.
While they have declined somewhat recently, our ARPUs remain high relative to other subscription businesses, and we attribute this to the quality of our content and effective sales and marketing efforts regarding higher value content, bundled subscriptions and membership subscriptions. These subscriptions have compelling economics that allow us to recoup our initial marketing spend made to acquire these subscribers. Specifically, our payback period was estimated at 1.5 years, 1.5 years, and 0.9 years for the years ended December 31, 2023, 2022 and 2021, respectively. Our payback period remains elevated primarily due to a combination of increased customer acquisition costs and the hesitancy of these subscribers to make additional purchases. The payback period was lower in 2021 with conversion rates still relatively high and, to a far lesser degree, lower costs for media spend as demand was somewhat constrained as the pandemic lingered.
Billings. Billings represents amounts invoiced to customers. We measure and monitor our Billings because it provides insight into trends in cash generation from our marketing campaigns. We generally bill our subscribers at the time of sale and receive full cash payment up front, and defer and recognize a portion of the related revenue ratably over time for term and membership subscriptions. For certain subscriptions, we may invoice our Paid Subscribers at the beginning of the term, in annual or monthly installments, and, from time to time, in multi-year installments. Only amounts invoiced to a Paid Subscriber in a given period are included in Billings. While we believe that Billings provides valuable insight into the cash that will be generated from sales of our subscriptions, this metric may vary from period to period for a number of reasons and, therefore, Billings has a number of limitations as a quarter-over-quarter or year-over-year comparative measure. These reasons include, but are not limited to, the following: (i) a variety of contractual terms could result in some periods having a higher proportion of annual or membership subscriptions than other periods; (ii) fluctuations in payment terms may affect the Billings recognized in a particular period; and (iii) the timing of large campaigns may vary significantly from period to period.
We break down our Billings into three sub-categories: New Marketing Billings, Net Renewal Billings, and Other Billings.
New Marketing Billings are Billings from all new subscription sales. New Marketing Billings decreased by $12.0 million, or 17.9%, to $54.8 million for first quarter 2024 as compared to $66.7 million for first quarter 2023. The decrease was primarily driven by ceasing new sales campaigns within our Legacy Research Group brands, which began winding down operations in mid-February 2024.
New Marketing Billings decreased by $12.9 million, or 19.1% to $54.8 million for first quarter 2024 as compared to $67.7 million in fourth quarter 2023. The decrease was primarily driven by ceasing new sales campaigns within our Legacy Research Group brands, which began winding down operations in mid-February 2024.
Net Renewal Billings are Billings from renewals and maintenance fee payments. Net Renewal Billings decreased by $7.7 million, or 26.3%, to $21.4 million for first quarter 2024 as compared to $29.1 million for first quarter 2023. This is primarily a function of a significant decrease (approximately 120 thousand) in average Paid Subscribers for the trailing twelve months ended March 31, 2024 versus the trailing twelve months ended March 31, 2023.
Net Renewal Billings decreased by $0.1 million, or 0.6%, to $21.4 million for first quarter 2024 as compared to $21.6 million for fourth quarter 2023. While new sales campaigns ceased within Legacy Research Group beginning with the wind down in February 2024, existing subscription renewals continued to be fulfilled throughout the quarter contributing to flat Net Renewal Billings.
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Other Billings are Billings from revenue share, advertising and conferences. Other Billings decreased by $0.3 million, or 24.8% to $1.0 million for first quarter 2024 as compared to $1.3 million for first quarter 2023.
Other Billings decreased by $3.3 million or 76.6% to $1.0 million for first quarter 2024 as compared to $4.3 million for fourth quarter 2023 as a result of decreasing revenue share activity with external parties.
Total Billings decreased by $19.9 million, or 20.5%, to $77.2 million for the first quarter 2024 as compared to $97.2 million for first quarter 2023. While consumer engagement remains soft, we believe the decrease was primarily driven by our Legacy Research Group brands, which began winding down operations in mid-February 2024.
Total Billings decreased by $16.3 million, or 17.5%, to $77.2 million for first quarter 2024 as compared to $93.6 million for fourth quarter 2023. The decrease was primarily driven by our Legacy Research Group brands, which began winding down operations in mid-February 2024.
Components of MarketWise’s Results of Operations
Net Revenue
We generate net revenue primarily from services provided in delivering term and membership subscription-based financial research, publications, and SaaS offerings to individual subscribers through our online platforms, advertising arrangements, print products, events, and revenue share agreements.
We earn net revenue from the sale of advertising placements on our websites and from the sale of print products and events. We also recognize net revenue through revenue share agreements where we earn a commission for successful sales by other parties generated through the use of our customer list. We expect advertising and other net revenue to increase in absolute dollars as our business grows.
Employee Compensation Costs
Employee compensation costs, or payroll and payroll-related costs, include salaries, bonuses, benefits, and stock-based compensation for employees classified within cost of revenue, sales and marketing, and general and administrative, and also includes sales commissions for sales and marketing employees. Stock-based compensation includes amounts related to our 2021 Incentive Award Plan, our ESPP, and profits interests.
Cost of Revenue
Cost of revenue consists primarily of employee compensation costs associated with producing and publishing MarketWise’s content, hosting fees, customer service, credit card processing fees, product costs, and allocated overhead. Cost of revenue is exclusive of depreciation and amortization, which is shown as a separate line item.
Sales and Marketing
Sales and marketing expenses consist primarily of employee compensation costs, amortization of deferred contract acquisition costs, agency costs, advertising campaigns, and branding initiatives. Sales and marketing expenses are exclusive of depreciation and amortization shown as a separate line item.
Research and Development
Research and development expenses consist primarily of employee compensation costs, technical services, software expenses, and hosting expenses. Research and development expenses are exclusive of depreciation and amortization shown as a separate line item.
General and Administrative
General and administrative expenses consist primarily of employee compensation costs associated with our finance, legal, information technology, human resources, executive, and administrative personnel, legal fees, corporate insurance, office expenses, professional fees, and travel and entertainment costs.
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Depreciation and Amortization
Depreciation and amortization expenses consist of amortization of trade names, customer relationship intangibles, and software development costs, as well as depreciation on other property and equipment such as leasehold improvements, furniture and fixtures, and computer equipment.
Related Party Expense
Related party expenses primarily consist of Board of Director compensation, revenue share expenses, and expenses for certain corporate functions performed by a related party for certain historic periods.
Other Income (Expense), Net
Other income (expense), net primarily consists of the net gains on our embedded derivative instruments.
Interest (Expense) Income, Net
Interest (expense) income, net primarily consists of interest income from our money market accounts, as well as interest expense related to the 2021 Credit Facility.
Net Income Attributable to Noncontrolling Interests
As of March 31, 2024, MarketWise, Inc.’s controlling interest in MarketWise, LLC was 11.7% and the noncontrolling interest was 88.3%. For the three months ended March 31, 2024 net income attributable to controlling interests included a $0.7 million tax provision, which is 100% attributable to the controlling interest.
As of March 31, 2023, MarketWise, Inc.’s controlling interest in MarketWise, LLC was 9.3% and the noncontrolling interest was 90.7%. For the three months ended March 31, 2023 net income attributable to controlling interests included a $0.9 million tax provision, which is 100% attributable to the controlling interest.
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Results of Operations
The following table sets forth our results of operations for the periods presented:
| (In thousands) | Three Months Ended March 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
| Net revenue | $ | 108,612 | $ | 125,615 | ||||||||||
| Related party revenue | 379 | 618 | ||||||||||||
| Total net revenue | 108,991 | 126,233 | ||||||||||||
| Operating expenses: | ||||||||||||||
Cost of revenue(1) | 13,368 | 15,290 | ||||||||||||
Sales and marketing(1) | 47,297 | 48,727 | ||||||||||||
General and administrative(1) | 23,802 | 28,033 | ||||||||||||
Research and development(1) | 2,149 | 2,463 | ||||||||||||
| Depreciation and amortization | 693 | 984 | ||||||||||||
| Related party expense | 127 | 128 | ||||||||||||
| Total operating expenses | 87,436 | 95,625 | ||||||||||||
| Income from operations | 21,555 | 30,608 | ||||||||||||
| Other income, net | 234 | 387 | ||||||||||||
| Interest income, net | 1,658 | 538 | ||||||||||||
| Income before income taxes | 23,447 | 31,533 | ||||||||||||
| Income tax expense | 735 | 928 | ||||||||||||
| Net income | 22,712 | 30,605 | ||||||||||||
| Net income attributable to noncontrolling interests | 21,055 | 29,138 | ||||||||||||
| Net income attributable to MarketWise, Inc. | $ | 1,657 | $ | 1,467 | ||||||||||
__________________
(1)Cost of revenue, sales and marketing, general and administrative, and research and development expenses are exclusive of depreciation and amortization shown as a separate line item.
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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of net revenue for the periods indicated:
| Three Months Ended March 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Net revenue | 100.0 | % | 100.0 | % | ||||||||||
| Operating expenses: | ||||||||||||||
Cost of revenue(1) | 12.3 | % | 12.1 | % | ||||||||||
Sales and marketing(1) | 43.4 | % | 38.6 | % | ||||||||||
General and administrative(1) | 21.8 | % | 22.2 | % | ||||||||||
Research and development(1) | 2.0 | % | 2.0 | % | ||||||||||
| Depreciation and amortization | 0.6 | % | 0.8 | % | ||||||||||
| Related party expense | 0.1 | % | 0.1 | % | ||||||||||
| Total operating expenses | 80.2 | % | 75.8 | % | ||||||||||
| Income from operations | 19.8 | % | 24.2 | % | ||||||||||
| Other income, net | 0.2 | % | 0.3 | % | ||||||||||
| Interest income, net | 1.5 | % | 0.4 | % | ||||||||||
| Income before income taxes | 21.5 | % | 25.0 | % | ||||||||||
| Income tax expense | 0.7 | % | 0.7 | % | ||||||||||
| Net income | 20.8 | % | 24.2 | % | ||||||||||
| Net income attributable to noncontrolling interests | 19.3 | % | 23.1 | % | ||||||||||
| Net income attributable to MarketWise, Inc. | 1.5 | % | 1.2 | % | ||||||||||
__________________
(1)Cost of revenue, sales and marketing, general and administrative, and research and development expenses are exclusive of depreciation and amortization shown as a separate line item.
Comparison of Three Months Ended March 31, 2024 and Three Months Ended March 31, 2023
Net Revenue
| (In thousands) | Three Months Ended March 31, | $ Change | % Change | ||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net revenue | $ | 108,991 | $ | 126,233 | $ | (17,242) | (13.7) | % | |||||||||||||||
The decrease in net revenue was primarily driven by a $18.4 million decrease in term subscription revenue, partially offset by a $1.2 million increase in membership subscription revenue.
Term subscription revenue decreased during the three months ended March 31, 2024 primarily due to lower Billings as compared to the 2023 period which was driven by reduced engagement of prospective and existing subscribers in the 2024 period.
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Operating Expenses
| (In thousands) | Three Months Ended March 31, | $ Change | % Change | ||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of revenue | $ | 13,368 | $ | 15,290 | $ | (1,922) | (12.6) | % | |||||||||||||||
| Sales and marketing | 47,297 | 48,727 | (1,430) | (2.9) | % | ||||||||||||||||||
| General and administrative | 23,802 | 28,033 | (4,231) | (15.1) | % | ||||||||||||||||||
| Research and development | 2,149 | 2,463 | (314) | (12.7) | % | ||||||||||||||||||
| Depreciation and amortization | 693 | 984 | (291) | (29.6) | % | ||||||||||||||||||
| Related party expenses | 127 | 128 | (1) | (0.8) | % | ||||||||||||||||||
| Total operating expenses | $ | 87,436 | $ | 95,625 | $ | (8,189) | (8.6) | % | |||||||||||||||
Cost of Revenue
Cost of revenue decreased primarily driven by a $1.0 million decrease in salaries, taxes and benefits, a $0.5 million decrease in credit card fees, and a $0.4 million decrease in stock-based compensation expense.
Sales and Marketing
Sales and marketing expense decreased primarily driven by a $2.2 million decrease in salaries, taxes and benefits, and a $0.5 million decrease in stock-based compensation expense. This was partially offset by a $1.3 million increase in amortization of deferred contract acquisition costs.
General and Administrative
General and administrative expense decreased primarily driven by a $3.3 million decrease in incentive compensation, and a $1.1 million decrease in professional fees.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe that the below non-GAAP financial measures are useful in evaluating our operating performance. We use the below non-GAAP financial measures, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. This non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
| (In thousands) | Three Months Ended March 31, | |||||||||||||||||||
| 2024 | 2023 | % Change | ||||||||||||||||||
| Adjusted CFFO | $ | (18,511) | $ | 3,868 | (578.6)% | |||||||||||||||
| Adjusted CFFO Margin | (24.0) | % | 4.0 | % | ||||||||||||||||
Adjusted CFFO / Adjusted CFFO Margin
In addition to our results determined in accordance with GAAP, we disclose the non-GAAP financial measure Adjusted CFFO. We define Adjusted CFFO as cash flow from operations plus or minus any non-recurring items. We define Adjusted CFFO Margin as Adjusted CFFO as a percentage of Billings.
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We believe that Adjusted CFFO and Adjusted CFFO Margin are useful indicators that provide information to management and investors about our ability to generate cash, and for internal planning and forecasting purposes.
Adjusted CFFO and Adjusted CFFO Margin have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of other GAAP financial measures, such as cash flow from operations or operating cash flow margin. Some of the limitations of using Adjusted CFFO and Adjusted CFFO Margin are that these metrics may be calculated differently by other companies in our industry.
We expect Adjusted CFFO and Adjusted CFFO Margin to fluctuate in future periods as we invest in our business to execute our growth strategy. These activities, along with any non-recurring items as described above, may result in fluctuations in Adjusted CFFO and Adjusted CFFO Margin in future periods.
The following table provides a reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted CFFO for each of the periods presented:
| (In thousands) | Three Months Ended March 31, | |||||||||||||||||||
| 2024 | 2023 | % Change | ||||||||||||||||||
| Net cash provided by operating activities | $ | (18,511) | $ | 3,868 | (578.6)% | |||||||||||||||
| Nonrecurring expenses | — | — | N/M | |||||||||||||||||
| Adjusted CFFO | $ | (18,511) | $ | 3,868 | (578.6)% | |||||||||||||||
The following table provides the calculation of net cash provided by operating activities margin as a percentage of total net revenue, the most directly comparable financial measure in accordance with GAAP, and Adjusted CFFO Margin for each of the periods presented:
| (In thousands) | Three Months Ended March 31, | |||||||||||||||||||
| 2024 | 2023 | % change | ||||||||||||||||||
| Net cash provided by operating activities | $ | (18,511) | 3,868 | (578.6)% | ||||||||||||||||
| Total net revenue | 108,991 | 126,233 | (13.7)% | |||||||||||||||||
| Net cash provided by operating activities margin | (17.0) | % | 3.1 | % | ||||||||||||||||
| Adjusted CFFO | $ | (18,511) | $ | 3,868 | (578.6)% | |||||||||||||||
| Billings | 77,222 | 97,171 | (20.5)% | |||||||||||||||||
| Adjusted CFFO Margin | (24.0 | %) | 4.0 | % | ||||||||||||||||
CFFO and Adjusted CFFO for the three months ended March 31, 2024 was primarily due to net changes in our operating assets and liabilities which reduced cash by $46.8 million, including incentive compensation payouts and payments related to two renegotiated employment agreements. This was partially offset by net income of $22.7 million, adjusted for net non-cash items which increased cash by $5.6 million.
Liquidity and Capital Resources
General
A substantial portion of our cash on hand is the result of the nature of our subscription business. We receive cash up front from our sales of annual, multi-year, and membership subscriptions. For tax and GAAP purposes, however, this revenue is deferred and recognized over the term of the subscription, or in the case of membership subscriptions, over four years for tax and five years for GAAP. Tax distributions are made to MarketWise Members to satisfy their tax obligations when revenue is recognized for tax purposes, not when cash is received. The timing difference between when cash is received and when tax distributions are made results in an accumulation of cash on our balance sheet.
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We refer to this accumulation of cash as our “float” which we view as a valuable resource that we may invest or use to expand our operations. We expect that as we grow our business, the amount of our float will increase. The Company estimates that the amount of float was approximately $127.0 million and $120.5 million as of March 31, 2024 and December 31, 2023, respectively. As part of the Company's broader capital allocation strategy, our consolidated cash balance may from time to time decline below our estimate of the long term float requirement.
The Company invests a portion of this cash in financial instruments to achieve reasonable returns on a risk-adjusted basis. The investment allocation decisions are based in part on the anticipated liquidity requirements of the Company including working capital, estimated tax related distributions, and broader capital allocation objectives.
For the quarter ended March 31, 2024, the Company earned interest income of $1.7 million on our cash portfolio.
The Company may allocate a portion of our “float” to investments meeting pre-determined guidelines, including U.S.-listed equity securities, with the objective to provide an acceptable rate of return while complying with established risk tolerances and liquidity parameters. The Board of Directors is responsible for approving investment decisions. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of operations.
As of March 31, 2024, our principal sources of liquidity were cash, cash equivalents, and restricted cash of $131.2 million. Cash and cash equivalents are comprised of bank deposits, money market funds, and certificates of deposit. Restricted cash is comprised of reserves held with credit card processors for chargebacks and refunds. We have financed our operations primarily through cash received from operations, and our sources of liquidity have enabled us to make continued investments in supporting the growth of our business. Our 2021 Credit Facility (as defined and further discussed below) can be used to finance permitted acquisitions, for working capital and general corporate purposes. We expect that our operating cash flows, in addition to cash on hand, will enable us to continue to make investments in the future, and to pay dividends. We expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.
In 2023, we commenced paying quarterly dividends on shares of our Class A common stock and distributions on our LLC Units. There can be no assurance that we will continue to pay dividends in the future. The payment of any future dividends and distributions will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in any debt agreements, and other factors that our Board of Directors may deem relevant.
We believe that our existing cash and cash equivalents and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from subscribers, the pace of expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, and the level of costs to operate as a public company. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies.
We have incurred and we will continue to incur public company expenses related to our operations, plus we expect to incur payment obligations under the Tax Receivable Agreement in the future, which we expect to be significant. MarketWise, Inc. intends to cause MarketWise, LLC to make distributions to MarketWise, Inc. in an amount sufficient to allow MarketWise, Inc. to pay its tax obligations and operating expenses, including distributions to fund any payments due under the Tax Receivable Agreement. If MarketWise, LLC does not have sufficient cash to fund distributions to MarketWise, Inc. in amounts sufficient to cover MarketWise, Inc.’s obligations under the Tax Receivable Agreement, it may have to borrow funds, which could materially adversely affect its liquidity and financial condition and subject it to various restrictions imposed by any such lenders. To the extent that MarketWise, Inc. is unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. For additional information regarding the Tax Receivable Agreement, see the section entitled “ Management’s Discussion and Analysis of Financial
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Condition and Results of Operations—Liquidity and Capital Resources—Tax Receivable Agreement” in the Annual Report.
Furthermore, to the extent we have taxable income, we will make distributions to the MarketWise Members in amounts sufficient for the MarketWise Members to pay taxes due on their share of MarketWise income at prevailing individual income tax rates, which for the 2023 tax year the highest federal, state and local tax rate the Company used was 49.75%. While historically we have not been required to make tax distributions, we expect to begin making required tax distributions to MarketWise Members, along with a proportionate payment to MarketWise Inc., as early as the second half of 2024. Such amounts will be reflected in our statement of cash flows as cash used in financing activities, and will not decrease the amount of cash from operations or net income reflected in our financial statements. However, such distributions will decrease the amount of cash available for use in our business.
We may be required to seek additional equity or debt financing. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition.
In April 2024, MarketWise, LLC purchased 7.2 million LLC Units for $10.8 million from two MarketWise Members. For each LLC Unit purchased, MarketWise, Inc. cancelled one Class B share, thereby decreasing the total outstanding Class B shares by 7.2 million. MarketWise, LLC purchased the LLC Units according to the terms of the Third Amended and Restated Limited Liability Company Operating Agreement of MarketWise, LLC (the “MarketWise Operating Agreement”).
Legacy Reorganization
On February 8, 2024, the Company reported that its Board of Directors had committed to a strategic realignment and reorganization (the “Reorganization”) whereby the Company will wind-down the operations of its Legacy Research Group business (“Legacy Research”) in response to misconduct discovered at Legacy Research where certain managers violated the Company’s policies.
At the time of the announcement, there were 104 employees at Legacy Research, which represented approximately 18% of the Company’s total employees. We currently estimate that approximately half of these employees will be offered a new role within the Company and the remainder will have their positions eliminated, however, we continue to evaluate. Separation costs incurred in the first quarter 2024 were approximately $0.2 million and approximately $0.5 million in total through May 15, 2024. The annualized compensation costs associated with the terminated employees through May 15, 2024 is approximately $6.1 million.
Following the commitment to the Reorganization, Legacy Research began to significantly curtail business activities including any marketing efforts to acquire new subscribers. As a result of the Reorganization, the Billings of Legacy Research declined from $30.1 million during the fourth quarter 2023, to $15.8 million in Billings during the first quarter 2024. Legacy Research continued to serve existing subscribers and fulfill existing subscriptions during the first quarter 2024. While subscriber refund activity as a percent of Billings increased in the first quarter 2024 relative to prior quarter levels, the amounts were not material. As a result of this increase in refund activity, the Company recorded an increase of $1.6 million to the refund accrual as of March 31, 2024.
As part of the Reorganization, the Company continues to make efforts to serve existing Legacy Research customers. In April 2024, the Company began offering certain Legacy Research subscribers similar products published by other MarketWise brands, consistent with past Company practice when we cease a publication.
Legacy Research has leased office space and the current lease end date for this property is December 2028. As of March 31, 2024, the operating lease right-of-use asset and related leasehold improvements totaled approximately $2.9 million. The Company was still using this property in its operations and evaluating various alternatives with respect to this property as of March 31, 2024.
The Company expects that the Reorganization will be completed in the first half of fiscal 2024.
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Credit Facility
In 2021, MarketWise, LLC, entered into a loan and security agreement (the “Loan and Security Agreement”) providing for up to $150 million of commitments under a revolving credit facility (the “2021 Credit Facility”), including a $5 million letter of credit sublimit, and allows for revolving commitments under the 2021 Credit Facility to be increased or new term commitments to be established by up to $65 million. The existing lenders under the 2021 Credit Facility are entitled, but not obligated, to provide such incremental commitments. The 2021 Credit Facility has a term of three years, maturing on October 29, 2024. On May 2, 2023, MarketWise, LLC entered into the First Amendment to the Loan and Security Agreement, which provides, among other things, a transition away from LIBOR to SOFR as the basis for the interest rate.
The 2021 Credit Facility is guaranteed by MarketWise, LLC’s direct and indirect material U.S. subsidiaries, subject to customary exceptions (the “Guarantors”), pursuant to a guaranty by the Guarantors in favor of HSBC Bank USA, National Association, as agent (the “Guaranty”). Borrowings under the 2021 Credit Facility are secured by a first-priority lien on substantially all of the assets of MarketWise, LLC and the Guarantors, subject to customary exceptions.
Borrowings will bear interest at a floating rate depending on MarketWise, LLC’s Net Leverage Ratio (as defined in the Loan and Security Agreement). As of March 31, 2024, there were no outstanding advances under the 2021 Credit Facility.
The Loan and Security Agreement contains customary affirmative and negative covenants for transactions of this type, and contains financial maintenance covenants that require MarketWise, LLC to maintain an Interest Coverage Ratio and Net Leverage Ratio (both as defined in the Loan and Security Agreement), and provides for a number of customary events of default, which could result in the acceleration of obligations and the termination of lending commitments under the Loan and Security Agreement. As of March 31, 2024, we were in compliance with these covenants. The Company is currently in discussions with lenders to amend or replace the Credit Facility. While we have no amounts borrowed on the existing Credit Facility, we intend to amend or replace it prior to the maturity date.
Cash Flows
The following table presents a summary of our consolidated cash flows provided by (used in) operating, investing, and financing activities for the periods indicated:
| (In thousands) | Three Months Ended March 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
| Net cash (used in) provided by operating activities | $ | (18,511) | $ | 3,868 | ||||||||||
| Net cash used in investing activities | (252) | (395) | ||||||||||||
| Net cash used in financing activities | (5,198) | (610) | ||||||||||||
Operating Activities
For the three months ended March 31, 2024, net cash used in operating activities was $18.5 million, primarily due to net changes in our operating assets and liabilities which reduced cash by $46.8 million, partially offset by net income of $22.7 million, adjusted for net non-cash items which increased cash by $5.6 million. The non-cash items include stock-based compensation expense of $3.8 million, and depreciation and amortization of $0.7 million. The changes in operating assets and liabilities were primarily driven by an decrease in deferred revenue, which decreased cash by $30.9 million due to our overall decrease in sales, a decrease in accrued expenses, which decreased cash by $33.0 million, and a net increase due to deferred contract acquisition costs of $13.8 million.
For the three months ended March 31, 2023, net cash provided by operating activities was $3.9 million, primarily due to net income of $30.6 million, adjusted for net non-cash items which increased cash by $7.1 million, and net changes in our operating assets and liabilities which reduced cash by $33.8 million. The non-cash items
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include a change in fair value of derivative liabilities of $1.0 million, and stock-based compensation expense of $3.7 million. The changes in operating assets and liabilities were primarily driven by an decrease in deferred revenue, which decreased cash by $29.3 million due to our overall decrease in sales, a decrease in accrued expenses, which decreased cash by $16.2 million, and a net increase due to deferred contract acquisition costs of $9.8 million.
Investing Activities
For the three months ended March 31, 2024, net cash used in investing activities was $0.3 million.
For the three months ended March 31, 2023, net cash used in investing activities was $0.4 million.
Financing Activities
For the three months ended March 31, 2024, net cash used in financing activities was $5.2 million, primarily driven by dividends and distributions paid.
For the three months ended March 31, 2023, net cash used in financing activities was $0.6 million.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses, and related disclosures. On an ongoing basis, management evaluates its estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Management believes that, of our significant accounting policies, which are described in Note 2 to our consolidated financial statements for the year ended December 31, 2023 in our Annual Report, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, management believes that “Revenue Recognition” and “Transactions and Valuation of Goodwill and Other Acquired Intangible Assets” are the two policies that are the most critical to aid in fully understanding and evaluating our condensed consolidated financial condition and results of operations. Refer to the 2023 Annual Report on Form 10-K for further discussion of these two policies. During the three months ended March 31, 2024, there were no material changes to these policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act.
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Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 1A. Risk Factors.
The risks described below could have a material adverse impact on our business, financial condition, or operating results. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the factors discussed below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business or results of operations
There have been no material changes in the risk factors disclosed in Part 1, Item 1A, of our Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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| Exhibit No. | Description | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | XBRL Instance Document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MARKETWISE, INC. | ||||||||
Date: May 15, 2024 | By: | /s/ Erik Mickels | ||||||
Name: | Erik Mickels | |||||||
Title: | Chief Financial Officer | |||||||
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