# Marketwise, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Marketwise, Inc.](/companies/mktw.md) (CIK 1805651)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 06:45 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038021
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1805651/000162828023038021/mktw-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1805651/000162828023038021/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $106.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $336.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $13.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $43.7m | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $6.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $11.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $50.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $691.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $140.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $1.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 33,632,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 31,996,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $44.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $60.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $299.0k | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $194.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $313.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $451.9m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $362.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $698.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | −$13.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 69,175 characters.

*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, 2022 (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, Palm Beach 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.

In October 2023, the Company announced a number of board and leadership changes that included the Company’s founder returning as Chairman of the Board and CEO, and that it has initiated an internal review of current operations with the intent to enhance alignment, improve efficiency, and increase cash flow and intrinsic value of the business.

As a result of continuing losses, the Company recorded an impairment loss on Buttonwood Publishing’s intangible assets totaling $584 during the third quarter of 2023. We will continue to evaluate our Buttonwood Publishing business for additional impairment (if any), which could have a material impact on our results of operations. The remaining intangible assets of Buttonwood Publishing comprised $7.7 million of our remaining $14.3 million balance of intangible assets, net as of September 30, 2023. See *Note 5 – Goodwill and Intangible Assets, Net* to our unaudited condensed consolidated and combined financial statements included elsewhere in this Form 10-Q for further details.

### 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 of December 31, 2022 generated average customer lifetime Billings of approximately $1,815, resulting in a LTV/CAC (as defined below) ratio of approximately 2.0x. On average, it takes us approximately 0.6 to 1.5 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 our LTV/CAC ratio and the components of this ratio, see “—*Definitions of Metrics.”*

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 90-day payback periods to cover this variable component of the direct marketing spend.

As of September 30, 2023, our Paid Subscriber base was 774 thousand, down 120 thousand, or 13.4% as compared to 894 thousand at September 30, 2022. Our Paid Subscriber 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 since 2019. Our free-to-paid and active free-to-paid conversion rate reflects the rate at which Free Subscribers and Active Free Subscribers purchase paid subscription products. Our annual free-to-paid and annual active free-to-paid conversion rates were approximately 1% to 2% and 2% to 4%, respectively, between 2020 and 2022. Over that same three year period, our cumulative free-to-paid and cumulative active free-to-paid conversion rates were 4% and 10%, respectively.

***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 September 30, 2023 was $496, which decreased 10.8% from $556 as of September 30, 2022. 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 portion of our Paid Subscribers that, over their lifetime, purchased more than $600 of our products. 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 ultra high-value composition rate reflects the portion of our high-value subscribers that have purchased more than $5,000 of our products over their lifetime. 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. These high-value and ultra high-value subscribers are at the heart of our business model, and are particularly important in periods of time when we are bringing in fewer new subscribers. These high-value and ultra high-value subscribers continue to see the value in our products and are continuing to purchase products at rates similar to historic trends, which is currently driving the majority of our Billings. As of September 30, 2023, our high-value composition rate was 47%. Our ultra high-value composition rate – ultra high-value subscribers as a percent of high-value subscribers – was 39%.

### 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 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 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, *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 September 30, 2023 | 2022 | % change | As of and for the Nine Months Ended September 30, 2023 | 2022 | % change | As of and for the Three Months Ended June 30, 2023 % change |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Free Subscribers | 16,341,577 | 15,415,263 | 6.0% | 16,341,577 | 15,415,263 | 6.0% | 15,948,652 | 2.5% |
| Paid Subscribers | 773,827 | 893,764 | (13.4)% | 773,827 | 893,764 | (13.4)% | 750,287 | 3.1% |
| ARPU | $496 | $556 | (10.8)% | $496 | $556 | (10.8)% | $490 | 1.2% |
| Billings (in thousands) | $95,513 | $105,062 | (9.1)% | $288,854 | $358,564 | (19.4)% | $96,170 | (0.7)% |

***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 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 0.9 million, or 6.0%, to 16.3 million at September 30, 2023 as compared to 15.4 million at September 30, 2022. As of September 30, 2023, Active Free Subscribers decreased by 0.3 million, or 6.9%, to 4.0 million, compared to 4.3 million as of September 30, 2022. The year over year decline in Active Free Subscribers is a result of decreased engagement with our Free Subscriber community as consumer engagement continues to be soft.

Free Subscribers increased by 0.4 million, or 2.5% to 16.3 million as of September 30, 2023 as compared to 15.9 million as of June 30, 2023. As of September 30, 2023, Active Free Subscribers increased by 41 thousand, or 1.0% to 4.0 million, compared to 3.9 million as of June 30, 2023.

***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 acquisitions. We grow our Paid Subscriber base through marketing directly to prospective and existing subscribers across a variety of media, channels, and platforms.

Total Paid Subscribers decreased by 120 thousand, or 13.4%, to 774 thousand as of September 30, 2023 as compared to 894 thousand at September 30, 2022, driven by softening consumer engagement that began in third quarter 2022 as well as a significant decrease in direct marketing spend over the past four quarters in total as we focus on maintenance of profitability.

Total Paid Subscribers increased by 24 thousand, or 3.1%, to 774 thousand as of September 30, 2023 as compared to 750 thousand as of June 30, 2023. Gross new subscribers increased 87% compared to second quarter 2023 as we increased our marketing spend significantly in the face of favorable per unit costs and acceptable paybacks on these investments.

Subscriber count churn has ranged from approximately 1.8% to 2.7% per month between 2020 and 2022. As of September 30, 2023, the average monthly churn over the trailing twelve months was near the higher end of this range. Almost all of the subscribers who churned in third quarter 2023 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 80% from 2020 to 2022, is a more meaningful gauge of subscriber satisfaction.

***Average Revenue Per User.*** 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 $60, or 10.8%, to $496 as of September 30, 2023 as compared to $556 as of September 30, 2022. The year-over-year decrease was driven by a 24% decrease in trailing four quarter Billings, while trailing four quarter Paid Subscribers only decreased by 14%. The decrease in trailing four quarter Billings was driven by reduced engagement of prospective and existing subscribers, as further discussed in —*Billings* below.

ARPU increased by $6, or 1.2%, to $496 as of September 30, 2023 as compared to $490 as of June 30, 2023. The sequential increase was driven by a 4% decrease in trailing average Paid Subscribers, while trailing four-quarter Billings decreased only 2%.

While they have been in decline up until this quarter, 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, 0.9 years, and 0.6 years for the years ended December 31, 2022, 2021 and 2020, respectively. We have experienced an increase in the 2022 payback period primarily due to a combination of increased customer acquisition costs and the hesitancy of these subscribers to make additional purchases. The payback period reached the low side of the historical range in 2020 as a result of expanded conversion rates and, to a far lesser degree, decreasing costs for media spend as demand dropped as a result of the pandemic. We have seen the costs for media spend revert back to higher rates in 2021 which continued through third quarter 2023.

***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.

Billings decreased by $9.5 million, or 9.1%, to $95.5 million for the three months ended September 30, 2023 as compared to $105.1 million for the three months ended September 30, 2022. We believe the decrease is due in large part to reduced engagement of prospective and existing subscribers. Levels of engagement had plateaued during the second half of 2021 and first half of 2022. The second half of 2022 saw further declines with uncertainty stemming from external factors such as 40-year high inflation, volatility across asset classes, federal reserve tightening, and the war in Ukraine, which we believe further contributed to prospective and existing subscribers delaying their purchases through third quarter 2023.

Approximately 40% of our Billings during the three months ended September 30, 2023 came from membership subscriptions, 59% from term subscriptions, and 1% from other Billings, as compared to 33% from membership subscriptions, 66% from term subscriptions, and 1% from other Billings during the three months ended September 30, 2022.

Billings decreased by $0.7 million, or 0.7%, to $95.5 million for the three months ended September 30, 2023 as compared to $96.2 million for the three months ended June 30, 2023. With overall consumer engagement, as measured by landing pages, as well as overall conversion rates up versus second quarter 2023, we attribute the modest decline in Billings to a continuance of subscriber delays in purchasing higher price point subscriptions as they continue to navigate the uncertain economy.

### Components of Our Results of Operations

### Net Revenue

We generate net revenue primarily from 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.

Net revenue is recognized ratably over the duration of the subscriptions, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. In addition to term subscriptions, we offer membership subscriptions where we receive a large upfront payment when the subscriber enters into the contract, and for which we will receive a lower annual maintenance fee thereafter. Subscribers are typically billed in advance of the subscriptions. Much of our net revenue is generated from subscriptions entered into during previous periods. Consequently, any decreases in new subscriptions or renewals in any one period may not be immediately reflected as a decrease in net revenue for that period, but could negatively affect our net revenue in future quarters. This also makes it difficult for us to rapidly increase our net revenue through the sale of additional subscriptions in any period, as net revenue is recognized over the term of the subscription agreement. We expect subscription net revenue to fluctuate due to the timing and relative mix in recent and prior periods between term subscriptions and related renewals, and membership subscriptions and related maintenance fees.

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.

We recognized stock-based compensation expenses related to our 2021 Incentive Award Plan, our ESPP, and our profits interests awards of $3.6 million and $2.2 million during the three months ended September 30, 2023 and 2022, and $11.0 million and $7.2 million during the nine months ended September 30, 2023 and 2022, respectively.

The total amount of stock-based compensation expense included within each of the respective line items in the condensed consolidated statement of operations is as follows:

*(In thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $688 | $438 | $2,379 | $1,496 |
| Sales and marketing | 711 | 514 | 2,519 | 1,655 |
| General and administrative | 2,176 | 1,201 | 6,058 | 4,039 |
| Total stock based-compensation expense | $3,575 | $2,153 | $10,956 | $7,190 |

### Cost of Revenue

Cost of revenue consists of costs associated with producing and publishing our content, including payroll, payroll-related costs and stock-based compensation expenses related to the 2021 Incentive Award Plan and the ESPP, 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.

We expect cost of revenue to increase as our business grows, including as a result of new acquisitions, joint ventures, and other strategic transactions. However, the level and timing of our variable compensation may not match the pattern of how net revenue is recognized over the subscription term. Therefore, we expect that our cost of revenue will fluctuate as a percentage of net revenue in the future.

### Sales and Marketing

Sales and marketing consists of costs associated with marketing and selling our products and services, including payroll, payroll-related costs and stock-based compensation expenses related to the 2021 Incentive Award Plan and the ESPP, 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.

We expect that our sales and marketing expense will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts. However, because we incur sales and marketing expenses up front when we launch campaigns to drive sales, while we recognize net revenue ratably over the underlying subscription term, we expect that our sales and marketing expense will fluctuate as a percentage of our net revenue over the long term. Sales and marketing expenses may fluctuate further as a result of acquisitions, joint ventures, or other strategic transactions we undertake in the future.

### Research and Development

Research and development consists of costs associated with technical services, including payroll, payroll-related costs and stock-based compensation expenses related to the 2021 Incentive Award Plan and the ESPP, software expenses, and hosting expenses. Research and development expenses are exclusive of depreciation and amortization shown as a separate line item.

We expect that our research and development expense will increase in absolute dollars as our business grows, including as a result of new acquisitions, joint ventures, and other strategic transactions, particularly as we incur additional costs related to continued investments in our platform.

### General and Administrative

General and administrative consists of costs associated with our finance, legal, information technology, human resources, executive, and administrative personnel, including payroll, payroll-related costs and stock-based compensation expenses related to the 2021 Incentive Award Plan, the ESPP, and profits interests awards, legal fees, corporate insurance, office expenses, professional fees, and travel and entertainment costs.

We expect to continue to incur general and administrative expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations, and professional services. General and administrative expenses may fluctuate further as a result of acquisitions, joint ventures, or other strategic transactions we undertake in the future.

### 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. We expect depreciation and amortization expenses to increase on an absolute dollar basis as our business grows, including as a result of new acquisitions, joint ventures, and other strategic transactions, but to remain generally consistent as a percentage of total net revenue.

### Impairment of Intangible Assets

Impairment of intangible assets consists of impairment losses related to our Buttonwood Publishing business.

### Related Party Expense

Related party expenses primarily consist of board of director compensation, revenue share expenses, and costs for certain corporate functions performed by a related party.

### Other Income, Net

Other income, net primarily consists of the net gains on our embedded derivative instruments.

### Interest Income (Expense), Net

Interest income (expense), net primarily consists of interest income from our money market accounts, as well as interest expense related to our 2021 Credit Facility.

### Net Income Attributable to Noncontrolling Interests

As of September 30, 2023, MarketWise, Inc.’s controlling interest in MarketWise, LLC was 10.6% and the noncontrolling interest was 89.4%. For the three and nine months ended September 30, 2023, net income attributable to controlling interests included a $0.7 million tax provision and a $2.0 million tax provision, respectively, both of which were solely attributable to the controlling interest.

As of September 30, 2022, MarketWise, Inc.’s controlling interest in MarketWise, LLC was 9.0% and the noncontrolling interest was 91.0%. For the three months ended September 30, 2022 net income attributable to controlling interests included a $3.9 million loss on warrant liabilities and a $1.4 million tax provision, and for the nine months ended September 30, 2022 net income attributable to controlling interests included a $14.9 million gain on warrant liabilities and a $3.9 million tax provision, both of which were solely attributable to the controlling interest.

### Results of Operations

The following table sets forth our results of operations for the periods presented:

*(In thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $105,799 | $119,297 | $334,777 | $383,383 |
| Related party revenue | 351 | 637 | 1,250 | 1,363 |
| Total net revenue | 106,150 | 119,934 | 336,027 | 384,746 |
| Operating expenses: |  |  |  |  |
| Cost of revenue(1) | 13,812 | 14,482 | 43,737 | 48,328 |
| Sales and marketing(1) | 52,466 | 51,635 | 150,226 | 184,922 |
| General and administrative(1) | 25,005 | 28,986 | 80,667 | 79,895 |
| Research and development(1) | 2,085 | 2,173 | 6,778 | 6,740 |
| Depreciation and amortization | 1,001 | 836 | 2,979 | 2,053 |
| Impairment of intangible assets | 584 | — | 584 | — |
| Related party expense | 155 | 96 | 487 | 290 |
| Total operating expenses | 95,108 | 98,208 | 285,458 | 322,228 |
| Income from operations | 11,042 | 21,726 | 50,569 | 62,518 |
| Other income (expense), net | 182 | (3,651) | 807 | 15,568 |
| Interest income (expense), net | 1,511 | (183) | 3,062 | (572) |
| Income before income taxes | 12,735 | 17,892 | 54,438 | 77,514 |
| Income tax expense | 691 | 1,383 | 2,046 | 3,945 |
| Net income | 12,044 | 16,509 | 52,392 | 73,569 |
| Net income attributable to noncontrolling interests | 11,904 | 20,521 | 50,749 | 59,875 |
| Net income (loss) attributable to MarketWise, Inc. | $140 | $(4,012) | $1,643 | $13,694 |

(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 following table sets forth our consolidated statements of operations data expressed as a percentage of net revenue for the periods indicated:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | 100.0% | 100.0% | 100.0% | 100.0% |
| Operating expenses: |  |  |  |  |
| Cost of revenue(1) | 13.0% | 12.1% | 13.0% | 12.6% |
| Sales and marketing(1) | 49.4% | 43.1% | 44.7% | 48.1% |
| General and administrative(1) | 23.6% | 24.2% | 24.0% | 20.8% |
| Research and development(1) | 2.0% | 1.8% | 2.0% | 1.8% |
| Depreciation and amortization | 0.9% | 0.7% | 0.9% | 0.5% |
| Impairment of intangible assets | 0.6% | —% | 0.2% | —% |
| Related party expense | 0.1% | 0.1% | 0.1% | 0.1% |
| Total operating expenses | 89.6% | 81.9% | 85.0% | 83.8% |
| Income from operations | 10.4% | 18.1% | 15.0% | 16.2% |
| Other income (expense), net | 0.2% | (3.0)% | 0.2% | 4.0% |
| Interest income (expense), net | 1.4% | (0.2)% | 0.9% | (0.1)% |
| Income before income taxes | 12.0% | 14.9% | 16.2% | 20.1% |
| Income tax expense | 0.7% | 1.2% | 0.6% | 1.0% |
| Net income | 11.3% | 13.8% | 15.6% | 19.1% |
| Net income attributable to noncontrolling interests | 11.2% | 17.1% | 15.1% | 15.6% |
| Net income (loss) attributable to MarketWise, Inc. | 0.1% | (3.3)% | 0.5% | 3.6% |

(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 September 30, 2023 and Three Months Ended September 30, 2022

### Net Revenue

*(In thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $106,150 | $119,934 | $(13,784) | (11.5)% |

Net revenue decreased by $13.8 million, or 11.5%, from $119.9 million for the three months ended September 30, 2022 to $106.2 million for the three months ended September 30, 2023. The decrease in net revenue was primarily driven by a $14.7 million decrease in term subscription revenue, partially offset by a $1.3 million increase in membership subscription revenue.

Term subscription revenue decreased during the three months ended September 30, 2023 primarily due to lower Billings as compared to the 2022 period, which was driven by reduced engagement of prospective and existing subscribers in the 2022 period. Membership subscription revenue, which is initially deferred and recognized over a five-year period, increased during the three months ended September 30, 2023 as a result of an increase in Billings related to membership subscriptions in the current period.

### Operating Expenses

*(In thousands)*

| Operating expenses: | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $13,812 | $14,482 | $(670) | (4.6)% |
| Sales and marketing | 52,466 | 51,635 | 831 | 1.6% |
| General and administrative | 25,005 | 28,986 | (3,981) | (13.7)% |
| Research and development | 2,085 | 2,173 | (88) | (4.0)% |
| Depreciation and amortization | 1,001 | 836 | 165 | 19.7% |
| Impairment of intangible assets | 584 | — | 584 | N/M |
| Related party expenses | 155 | 96 | 59 | 61.5% |
| Total operating expenses | $95,108 | $98,208 | $(3,100) | (3.2)% |

### Cost of Revenue

Cost of revenue decreased by $0.7 million, or 4.6%, from $14.5 million for the three months ended September 30, 2022 to $13.8 million for the three months ended September 30, 2023, primarily driven by a $0.7 million decrease in salaries, taxes and benefits, and a $0.2 million decrease in credit card fees. This was partially offset by a $0.2 million increase in stock-based compensation expense related to awards under the 2021 Incentive Award Plan.

### Sales and Marketing

Sales and marketing expense increased by $0.8 million, or 1.6%, from $51.6 million for the three months ended September 30, 2022 to $52.5 million for the three months ended September 30, 2023, primarily driven by a $3.4 million increase in amortization of deferred contract acquisition costs, a $0.3 million increase in outside labor, and a $0.2 million increase in stock-based compensation expense related to awards under the 2021 Incentive Award Plan. This was partially offset by a $3.0 million decrease in marketing expense, as we have reduced our marketing spend as part of our cost reduction initiatives.

### General and Administrative

General and administrative expense decreased by $4.0 million, or 13.7%, from $29.0 million for the three months ended September 30, 2022 to $25.0 million for the three months ended September 30, 2023, primarily driven by a $2.9 million decrease in professional fees, a $1.0 million decrease in severance expense, a $0.4 million decrease in salaries, taxes and benefits, a $0.3 million decrease in software expense, and a $0.3 million decrease in insurance expense. This was partially offset by a $1.6 million increase in incentive compensation, and a $1.0 million increase in stock-based compensation expense related to awards under the 2021 Incentive Award Plan, the ESPP, and profits interests awards.

### Impairment of Intangible Assets

During the three months ended September 30, 2023, we determined that impairment indicators were present with respect to our Buttonwood Publishing business which we had acquired during 2022, due to continuing losses. As a result, we recorded an impairment loss on Buttonwood Publishing’s intangible assets totaling $584.

### Comparison of Nine Months Ended September 30, 2023 and Nine Months Ended September 30, 2022

### Net Revenue

*(In thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $336,027 | $384,746 | $(48,719) | (12.7)% |

Net revenue decreased by $48.7 million, or 12.7%, from $384.7 million for the nine months ended September 30, 2022 to $336.0 million for the nine months ended September 30, 2023. The decrease in net revenue was primarily driven by a $37.9 million decrease in term subscription revenue, a $10.2 million decrease in membership subscription revenue and a $0.5 million decrease in non-subscription revenue.

Term subscription revenue decreased during the nine months ended September 30, 2023 primarily due to lower Billings as compared to the 2022 period, which was driven by reduced engagement of prospective and existing subscribers in the 2022 period. Membership subscription revenue, which is initially deferred and recognized over a five-year period, decreased during the nine months ended September 30, 2023 as a result of lower volume of membership subscriptions in current and prior years.

### Operating Expenses

*(In thousands)*

| Operating expenses: | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $43,737 | $48,328 | $(4,591) | (9.5)% |
| Sales and marketing | 150,226 | 184,922 | (34,696) | (18.8)% |
| General and administrative | 80,667 | 79,895 | 772 | 1.0% |
| Research and development | 6,778 | 6,740 | 38 | 0.6% |
| Depreciation and amortization | 2,979 | 2,053 | 926 | 45.1% |
| Impairment of intangible assets | 584 | — | 584 | N/M |
| Related party expenses | 487 | 290 | 197 | 67.9% |
| Total operating expenses | $285,458 | $322,228 | $(36,770) | (11.4)% |

### Cost of Revenue

Cost of revenue decreased by $4.6 million, or 9.5%, from $48.3 million for the nine months ended September 30, 2022 to $43.7 million for the nine months ended September 30, 2023, primarily driven by a $2.1 million decrease in salaries, taxes and benefits, a $1.6 million decrease in credit card fees, a $1.3 million decrease in outside labor, primarily related to customer service, and a $0.6 million decrease related to subscription printing and postage. This was partially offset by a $0.9 million increase in stock-based compensation expense related to awards under the 2021 Incentive Award Plan and the ESPP, and a $0.3 million increase in freelance editorial expense.

### Sales and Marketing

Sales and marketing expense decreased by $34.7 million, or 18.8%, from $184.9 million for the nine months ended September 30, 2022 to $150.2 million for the nine months ended September 30, 2023, primarily driven by a $47.2 million decrease in marketing expense as we have reduced our marketing spend as part of our cost reduction initiatives and due to higher per unit subscriber acquisition costs, and a $0.7 million decrease in conference expense. This was partially offset by a $11.5 million increase in amortization of deferred contract acquisition costs, a $1.1 million increase in salaries, taxes and benefits, and a $0.9 million increase in stock-based compensation expense related to awards under the 2021 Incentive Award Plan and the ESPP.

### General and Administrative

General and administrative expense increased by $0.8 million, or 1.0%, from $79.9 million for the nine months ended September 30, 2022 to $80.7 million for the nine months ended September 30, 2023, primarily driven by a $6.3 million increase in incentive compensation, a $2.8 million increase related to sales tax, a $2.0 million increase in stock-based compensation expense related to awards under the 2021 Incentive Award Plan, the ESPP, and profits interests awards, and a $1.0 million increase in outside labor. This was partially offset by a $3.3 million decrease in salaries, taxes and benefits, a $2.8 million decrease in professional fees, a $1.4 million decrease in severance expense, a $1.3 million decrease in professional fees, a $0.8 million decrease in insurance expense, a $0.8 million decrease in non-software subscriptions, and a $0.7 million decrease in software expense.

### Impairment of Intangible Assets

During the nine months ended September 30, 2023, we determined that impairment indicators were present with respect to our Buttonwood Publishing business which we had acquired during 2022, due to continuing losses. As a result, we recorded an impairment loss on Buttonwood Publishing’s intangible assets totaling $584.

### 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 ability to generate cash. 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 September 30, 2023 | 2022 | % change | Nine Months Ended September 30, 2023 | 2022 | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Adjusted CFFO | $12,055 | $13,091 | (7.9)% | $44,901 | $40,953 | 9.6% |
| Adjusted CFFO Margin | 12.6% | 12.5% |  | 15.5% | 11.4% |  |

### Adjusted CFFO / Adjusted CFFO Margin

In addition to our results determined in accordance with GAAP, we disclose the non-GAAP financial measures Adjusted CFFO and Adjusted CFFO Margin. 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.

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 (without the effects of non-recurring items), 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 September 30, 2023 | 2022 | % change | Nine Months Ended September 30, 2023 | 2022 | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | $12,055 | $9,901 | 21.8% | $44,901 | $37,763 | 18.9% |
| Non-recurring expenses | — | 3,190 | (100.0)% | — | 3,190 | (100.0)% |
| Adjusted CFFO | $12,055 | $13,091 | (7.9)% | $44,901 | $40,953 | 9.6% |

N/M: Not meaningful

The following table provides the calculation of net cash provided by operating activities 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 September 30, 2023 | 2022 | % change | Nine Months Ended September 30, 2023 | 2022 | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | $12,055 | $9,901 | 21.8% | $44,901 | $37,763 | 18.9% |
| Total net revenue | 106,150 | 119,934 | (11.5)% | 336,027 | 384,746 | (12.7)% |
| Net cash provided by operating activities margin | 11.4% | 8.3% |  | 13.4% | 9.8% |  |
| Adjusted CFFO | $12,055 | $13,091 | (7.9)% | $44,901 | $40,953 | 9.6% |
| Billings | 95,513 | 105,062 | (9.1)% | 288,854 | 358,564 | (19.4)% |
| Adjusted CFFO Margin | 12.6% | 12.5% |  | 15.5% | 11.4% |  |

Net cash provided by operating activities margin increased from 8.3% for the three months ended September 30, 2022 to 11.4% for the three months ended September 30, 2023 primarily due to the increase in net cash provided by operating activities. Cash flow from operations increased by $2.2 million, or 21.8%, from $9.9 million for the three months ended September 30, 2022 to $12.1 million for the three months ended September 30, 2023, primarily due to net income of $12.0 million, adjusted for net non-cash items which increased cash by $7.4 million, and net changes in our operating assets and liabilities which reduced cash by $7.4 million. Third quarter 2022 included certain one-time costs related to our cost reduction initiatives and professional fees related to our warrant exchange transaction.

Net cash provided by operating activities margin increased from 9.8% for the nine months ended September 30, 2022 to 13.4% for the nine months ended September 30, 2023 primarily due to the increase in net cash provided by operating activities. Cash flow from operations increased by $7.1 million, or 18.9%, from $37.8 million for the nine months ended September 30, 2022 to $44.9 million for the nine months ended September 30, 2023, primarily due to net income of $52.4 million, adjusted for net non-cash items which increased cash by $19.8 million, and net changes in our operating assets and liabilities which reduced cash by $27.3 million.

Billings represents amounts invoiced to customers. We generally bill our subscribers at the time of sale and receive full cash payment up front, and in accordance with GAAP, we 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.

Adjusted CFFO margin increased from 12.5% for three months ended September 30, 2022 to 12.6% for the three months ended September 30, 2023 primarily due to the decrease in Billings. Adjusted CFFO decreased by $1.0 million, or 7.9%, from $13.1 million for the three months ended September 30, 2022 to $12.1 million for the three months ended September 30, 2023. The difference between Adjusted CFFO and CFFO in third quarter 2022 is $3.2 million, which are one-time costs related to our cost reduction initiatives and professional fees related to our warrant exchange transaction.

Adjusted CFFO margin increased from 11.4% for the nine months ended September 30, 2022 to 15.5% for the nine months ended September 30, 2023 due to the increase in Adjusted CFFO and the decrease in Billings. Adjusted CFFO increased by $3.9 million, or 10%, from $41.0 million for the nine months ended September 30, 2022 to $44.9 million for the nine months ended September 30, 2023, primarily driven by a decrease in operating expenses as a result of cost reduction initiatives.

### 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.

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 $108.6 million and $94.1 million as of September 30, 2023 and December 31, 2022, respectively.

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 three and nine months ended September 30, 2023, the Company earned interest income of $1.7 million and $3.6 million, respectively, on our cash portfolio.

As of September 30, 2023, our principal sources of liquidity were cash, cash equivalents, and restricted cash of $194.0 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.

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. While 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 the long term, 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 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 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%. Such amounts will be reflected in MarketWise, Inc.’s statement of cash flows as cash used in financing activities, and so will not decrease the amount of cash from operations or net income reflected in MarketWise, Inc.’s financial statements. However, such distributions will decrease the amount of cash available to us 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.

### Share Repurchase Program

As previously disclosed in our Annual Report, on November 4, 2021, our Board authorized the repurchase of up to $35.0 million in aggregate of shares of the Company’s Class A common stock. We did not repurchase any shares during the three months ended September 30, 2023. During the nine months ended September 30, 2022, we repurchased 2,484,717 shares totaling $13.1 million in the aggregate, including fees and commissions of $25. Since the inception of the program, we have repurchased 2,984,987 total shares. The share repurchase program expired by its terms on November 3, 2023.

For each share of Class A common stock the Company repurchased under the share repurchase program, MarketWise, LLC, the Company’s direct subsidiary, redeemed one LLC Unit held by the Company, decreasing the percentage ownership of MarketWise, LLC by the Company and relatively increasing the ownership by the other unitholders.

### Credit Facility

In 2021, MarketWise, LLC, entered into a loan and security agreement (as amended 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 September 30, 2023, 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 September 30, 2023, we were in compliance with these covenants.

### 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)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $44,901 | $37,763 |
| Net cash used in investing activities | (1,658) | (13,238) |
| Net cash used in financing activities | (7,806) | (16,787) |

### Operating Activities

For the nine months ended September 30, 2023, net cash provided by operating activities was $44.9 million, primarily due to net income of $52.4 million, adjusted for net non-cash items which increased cash by $19.8 million, and net changes in our operating assets and liabilities which reduced cash by $27.3 million, largely due to timing differences in the net receipt of cash. The non-cash items include stock-based compensation expense and depreciation and amortization of $10.3 million and $3.0 million, respectively. The changes in operating assets and liabilities were primarily driven by a decrease in deferred revenue, which reduced cash by $44.3 million due to our overall decrease in sales, a decrease in other current and long-term liabilities which reduced cash by $3.2 million, and a decrease in accrued expenses, which decreased cash by $3.3 million, partially offset by a decrease in deferred contract acquisition costs, which increased cash by $23.6 million.

For the nine months ended September 30, 2022, net cash provided by operating activities was $37.8 million, primarily due to net income of $73.6 million, adjusted for net non-cash items which reduced cash by $0.9 million, and net changes in our operating assets and liabilities which reduced cash by $34.9 million, largely due to timing differences in the net receipt of cash. The non-cash items include a change in fair value of derivative liabilities of $15.6 million, which was partially offset by stock-based compensation expense and deferred income taxes of $7.2 million and $3.6 million, respectively. The changes in operating assets and liabilities were primarily driven by a decrease in deferred revenue, which reduced cash by $24.8 million due to our overall decrease in sales, a decrease in accrued expenses, which decreased cash by $7.2 million, a decrease in other current and long-term liabilities, which decreased cash by $4.2 million, partially offset by a decrease in accounts receivable due to our overall decrease in sales, which increased cash by $3.2 million.

### Investing Activities

For the nine months ended September 30, 2023, net cash used in investing activities was $1.7 million, primarily driven by $1.4 million of capitalized software development costs.

For the nine months ended September 30, 2022, net cash used in investing activities was $13.2 million, primarily driven by the payment of $12.8 million related to the Buttonwood Publishing transaction.

### Financing Activities

For the nine months ended September 30, 2023, net cash used in financing activities was $7.8 million, primarily due to $6.3 million in distributions to noncontrolling interests and $1.5 million in restricted stock units withheld to pay taxes.

For the nine months ended September 30, 2022, net cash used in financing activities was $16.8 million, primarily due to $13.1 million in share repurchases and $4.5 million in distributions to noncontrolling interests.

On August 3, 2023, the Board declared a cash dividend to the Company’s Class A common stockholders in the amount of $0.01 per share and a cash distribution to its common unit holders in the amount of $0.01 per unit. The dividend and distribution was paid on October 26, 2023, to stockholders and unitholders of record as of the close of business on September 5, 2023. The total amount of the dividend payment to Class A common stockholders was $0.5 million and the total amount of the distribution payment to common unit holders was approximately $2.9 million. The Company intends to pay dividends quarterly in the future, subject to Board approval of any such dividends.

On October 18, 2023, our Board declared a cash dividend to its Class A common stockholders in the amount of $0.01 per share, totaling $0.4 million, and a cash distribution to holders of LLC Units in the amount of $0.01 per unit, totaling $2.9 million, to stockholders and unitholders of record as of the close of business on December 25, 2023. The dividend and distribution will be paid on January 25, 2024.

On October 18, 2023, our Board also declared a special cash dividend to the Company’s Class A common stockholders in the amount of $0.15 per share and a special cash distribution to holders of LLC Units in the amount of $0.15 per unit, totaling approximately $50 million in the aggregate, to stockholders and unitholders of record as of the close of business on November 10, 2023. The special dividend and distribution will be paid on December 1, 2023.

### 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, 2022 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 2022 Annual Report on Form 10-K for further discussion of these two policies. During the three months ended September 30, 2023, there were no material changes to these policies.

## Controls and procedures

As filed, 6,116 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal 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

Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, and as a result of the material weaknesses described below, our principal executive officer and principal financial officer concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, 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.

As previously reported, in connection with the audit of our consolidated financial statements for the year ended December 31, 2020, our management determined that material weaknesses existed in our internal control over financial reporting related to: (i) a lack of contemporaneous documentation and account reconciliation, and (ii) the lack of a formal or documented risk assessment process. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

### Remediation Efforts to Address the Material Weaknesses

We have taken a number of remediation actions since the identification of the material weakness through September 30, 2023, including:

- hiring personnel with appropriate levels of experience in accounting, technology, risk assessment, and internal controls;
- establishing a comprehensive SOX program that includes the documentation and assessment of the Company’s risks and internal controls over financial reporting to comply with the Sarbanes-Oxley Act;
- implementing an annual risk assessment process over financial reporting;
- implementing an annual cyber security risk assessment process;
- establishing a Disclosure Task Force with participants across business units to ensure the completeness and accuracy of financial reporting disclosures;
- establishing regular director and executive management meetings to oversee Company risks and performance;
- implementing a new revenue recognition application and associated internal controls over financial reporting; and
- enhancing account reconciliation processes and internal controls, leveraging the use of a reconciliation application, and training of accounting personnel.

While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing our processes, procedures, and controls. Additional time is required to complete the remediation of these material weaknesses and the assessment to ensure the sustainability of these remediation actions. We believe the above actions, when complete, will be effective in the remediation of the material weaknesses described above. As such, we have not concluded that the material weaknesses have been fully remediated as of September 30, 2023.

### Changes in Internal Control Over Financial Reporting

Other than as described above, there have been no changes in 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 that occurred during the period covered by this Quarterly Report on Form 10-Q that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### 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.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038021. Last ingested by Listed: Nov 5, 2026, 12:24 ET. No prices; not investment advice.