Q3 2021 MarketWise Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the market Wise third quarter 2021 earnings call.

During todays presentation, all parties will be in a listen only mode.

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Following the presentation.

The conference will be opened for questions with instructions to follow at that time.

As a reminder, this conference call is being recorded.

And Alex it's hand to hand, the conference over to Jonathan Chan field head of Investor Relations at market Wise. Please go ahead.

Thank you and good morning, Thanks for joining us on today's conference call to discuss market wise its third quarter 2021 financial results on the call today, we have Mark Arnold, our Chief Executive Officer, and Dale Lynch, Our Chief Financial Officer.

During the course of today's call, we may make forward looking statements, including but not limited to statements regarding our guidance on future financial performance market demand growth prospects business strategies, and plans and our ability to attract and retain customers. These forward looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date.

We disclaim any obligation to update any forward looking statements.

Actual results may vary materially from today's statements information concerning our risks uncertainties and other factors that could cause results to differ from these forward looking statements are contained in the company's SEC filings earnings press release and supplemental information posted on the investors section of the company's website.

Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to but not as a substitute for or in isolation from GAAP measures reconciliations to non-GAAP measures can be found in our earnings press release, and SEC filings I will now turn the call over to Mark.

Thanks, Sean and good morning, everybody welcome to our third quarter 2021 earnings Conference call.

As you all know we successfully closed our transactions with ascendant and began trading publicly in late July.

We're pleased to have completed the transactions and the transition to operating as a public company.

There was a lot of hard work by our team and all of our advisers to get through our current state we have a lot to be proud of but that said we're excited about the opportunities that we see in front of us as a newly public company.

We're going to discuss the highlights of our third quarter results and some of the trends we're seeing in our marketplace, but first I would like to touch on a couple of recent developments.

As you saw in our press release yesterday.

For the past two weeks, we haven't made a number of significant announcements.

First a couple of weeks ago, we announced that we successfully entered into a credit facility with a syndicate of five banks that will provide a revolving line of credit for up to $150 million.

This is a significant milestone for market wise.

It is the first committed credit facility in our history.

We did not draw on your funding at closing and do not have any immediate plans to borrow but this facility will provide important backup liquidity for the company as well as capacity for acquisition financing.

One thing I'd like to note, while the headline number of $150 million provides meaningful capacity that accompany it is still small relative to our adjusted cash flows from operations, representing less than one turn of leverage.

And while we may use this debt facility as part of our acquisition strategy. One thing you should not expect is for us to become a highly levered company.

Additionally, giving the amount of cash we generate we would expect to be able to pay down any borrowings relatively quickly over time.

We're very pleased with the participation of all our new lenders and I want to thank each of them publicly now for their support.

An important step forward for the company.

We achieved this quarter.

We announced yesterday that our board of directors authorized the repurchase of up to $35 million in shares of class a common stock.

Purchases under this program and we May add from time to time at the discretion of the management of the company.

The timing of the repurchases will depend on market conditions and other requirements. We anticipate that the share repurchase program will extend over a two year period or earlier, if $35 million in aggregate of shares have been repurchased.

This program does not obligate us to repurchase any certain dollar amount or a certain number of shares and the program may be extended modified suspended or discontinued at any time.

Philosophically, we believe repurchasing shares when it is highly accretive to do so as a proper deployment of capital and provides support for our investors. When we view the stock is significantly undervalued.

We believe our share price recently by most any measure is undervalued and we intend to repurchase shares when the returns realized from those repurchases are highly accretive to our investors.

We are reaffirming the strength of the business and with the adoption of this plan.

The tremendous value we believe exists at these prices.

Our business is Capex light and we have sufficient excess cash on our balance sheet today, which could be put to work for a buyback without impacting our company's ability to grow.

Turning to third quarter in 2020 one results.

Our business continued to perform well as our subscribers continue to engage with and explore our research products and software solutions.

During the third quarter, our revenues grew 43% and our total subscribers free and paid grew 54%.

Our year to date billings totaled $578 million and have already exceeded last year's total billings of $549 million.

Our year to date adjusted cash flow from operations grew to $192 million as compared to $134 million for all of 2020.

So we continue to have a very good year with our third quarter results.

We're very happy with the performance of the company and now that they go public transaction is complete we are focused on executing on our strategy going forward.

As I had mentioned in the past I would encourage our shareholders to keep the long view in mind, we have been in business for over 20 years always been profitable and always treated our equity holders well and.

And during that long history, there have been periods like this one where year over year growth has been up significantly.

Can't promise to our investors that our results will always go up what we can do as promised to do our best to run the business with the best interests of our shareholders in mind.

Our leadership team has a tremendous amount of skin in the game owning nearly 29% of the new company post closing so our economic interests are very aligned with yours.

On the long term nature of our business in a minute.

But first I want to briefly touch on some quarterly trends that we highlighted in our second quarter call.

Throughout this quarter, we saw a continuation of market dynamics from late spring and summer related to the travel and leisure boom, we have discussed previously.

As Covid statistics improved people began to re engage in activities outside the home and we saw a movement of eyes off screens as travel and leisure activities increased and online engagement leveled off.

As you May recall on our second quarter earnings call. We described this pattern of behavior and shared at what we had seen at the end of the second quarter was continuing through the summer and possibly into September or was there a thought that as the summer ended and as the school year began in the fall people would begin re engaging in a more normalized fashion.

While this took a bit longer than we would've liked we have begun to see some early signs of this normalization throughout the month of October.

Typically we have 11 4 million total landing page visits in October which was a 17.5% increase over the June to September four month average.

We've also seen early signs of an uptick in the rate of new paid subscriber additions in the month of October and a modest decrease in our per unit subscriber acquisition costs.

And while it may be too early to extend this trend throughout the balance of the year. What I can say is that we have a very busy schedule planned for the fourth quarter and I expect us to finish the year strong.

As I've said throughout the year, our goal is to be the trusted resource of financial information and a leading financial wellness platform for self directed investors.

To that end, we continue to deliver high quality research and our community continues to grow with almost 14 total subscribers now.

14 million excuse me.

[laughter], we continue to expand the breadth and depth of our products and brands and continue to look for ways to expand our reach engage our readers and provide best in class actionable research for the self directed investing community.

Our business has been profitable from 20 years, we have never had an unprofitable year and I can tell you with certainty that our business does not always move in a straight line. There are times when subscriber growth is rapid and other times when it pauses over.

Over the long term, we've been very successful in maintaining a balance between growth and profitability, but always with an eye towards profitability.

We make decisions with a long term in mind, which we know could adversely impact our short term metrics.

But the beauty of our business is our ability to capture trends real time.

And pivot to maintain that balance so quickly as we saw digital AD costs began to escalate. This year on a per subscriber basis, we were able to reduce the spend very quickly.

The key value driver of our business is the relationship between our subscribers and our analysts are matters and as our metrics show the value of our subscribers increases over time as they move through the lifecycle of a paid subscriber to high value to ultimately ultra high value customers overtime.

Again, I can't stress. This enough. This is a relationship business and we believe even a proven overtime, but the quality of our research and content is highly valuable to our customer base.

I'll now turn it over to Dale to discuss more of the specific financial results.

Thanks Mark.

This has been an extremely busy quarter for market wise.

So real milestone events as Mark mentioned before.

Before I get into a discussion of our third quarter results I first of all not recap two of those items that Mark mentioned in his comments.

First on October 29, close to $150 million revolving credit facility with a syndicate of five banks with HSBC Bank and bank of Montreal Capital markets is a joint lead Arrangers and joint book runners the.

The rest of the Syndicate included Silicon Valley Bank Wells Fargo Bank and PNC Bank.

We're thrilled to be working with these five bank partners and again as Mark mentioned I want to thank them for joining our team.

This facility provides for an additional $65 million accordion feature.

It has a three year term.

And borrowings of spread the LIBOR will range at a 150 to 225 basis points. There's also an unused commitment fee of 25% to 35 basis points, we did not make any borrowings on our facility at closing, but it does provide us important financial flexibility serving as a backup source of liquidity and additionally, providing capacity to execute on our M&A.

And as Mark mentioned and just emphasize we plan to pursue a conservative approach to leverage.

Second as we announced yesterday our board of Directors has approved a share repurchase program of up to $35 million of our class a common stock over a two year period.

As a new public company, we've seen a lot of volatility in our shares since our public listing and frankly, we believe the true value of the stock seems disconnected from these current valuation metrics.

Mark did a very good job summarizing that we intend to repurchase shares when we purchase price with highly accretive to our many shareholders.

Our cash generation and low capex requirements makes us repurchase program, an opportunity to put some of that excess cash to work.

Okay. So turning now to our financial results third quarter, 2021 revenue was $147 million compared to $98 1 million in third quarter of 2020.

Which reflects a 43, 1% increase.

We continue to see the results of these investments that we made over the past several years across our business.

Billings decreased by $11 8 million or 8% to $138 1 million this quarter compared to $1 $49 9 million in third quarter of 2020.

We believe this decrease is due in large part to reduced engagement of our subscribers are potential subscribers.

Continued to prioritize travelling leisure spending time on their devices.

The restrictions are eased in late spring and continue through September.

We believe this travel and leisure boom and related decrease in Investor engagement began in earnest in mid second quarter of 2021.

Throughout the third quarter.

Approximately 38% of our billings this quarter came from lifetime sales, 61% from term sales and 1% from other billings.

As we've mentioned before billions can vary quarter to quarter due to the nature of us collecting all these voices upfront as well as campaign mix and efficacy.

So moving on down the income statement cost of revenue was $62 million this quarter compared to $26 $7 million for the year ago quarter.

Included in the cost of revenue was $46 3 million of stock based compensation compared to $13 seven nine in the year ago quarter.

If you were to exclude stock based compensation from cost of sales sales margins as a percent of revenue would have been 89% this quarter as compared to 87% in the year ago quarter and generally in line with our historical averages.

One thing I'd like to emphasize.

Is that from the time of the combination with ascend it and going forward the stock based compensation attributable to our original class B units will cease easier.

These units were attributed treated as derivative liabilities rather than equity prior to our merger with the Senate.

As such they had to be re measured each quarter and the change in fair value was included in stock based compensation.

Also any distributions of profits paid class b holders were treated as stock based compensation on a go forward basis.

And so as the original class B units converted to straight common units meeting straight common equity.

We expect to incur significantly lower stock based compensation at a level that would be consistent with a traditional stock based compensation plan for our employees.

Sales and marketing costs were $82 6 million this quarter compared to $56 9 million in last year's quarter, an increase of $25 $6 million.

Included in these amounts were stock based compensation of $32 6 million this quarter compared to <unk> 9 million in the year ago quarter.

As we mentioned previously as you saw on a per unit acquisition costs. As you saw our accretive acquisition costs remain higher throughout the third quarter, we reduced our marketing spend.

Excluding stock based compensation in our sales and marketing costs decreased by $6 $1 million.

This quarter as compared to second quarter of 2021.

If you recall included on an assumptions page on various slide deck that we posted to our website. We included an assumption that on a GAAP basis. The average cost to acquire a new subscriber in 2021 would approximate the average of those pass through 2019 in 2020.

Despite the higher unit cost we have seen over the past several months year.

Year to date, the average cost to acquire a customer in 2021 is in line with to slightly below the average of 2019 and 2020.

General and administrative costs this quarter were $356 3 million as compared to $79 9 million in the year ago quarter.

Included in these amounts were stock based compensation of $333 6 million this quarter as compared with $58 8 million in the year ago quarter.

Excluding stock based compensation, our G&A costs increased about $1 $6 million year over year.

That was driven by $2 million increase in payroll due to increased head count $1 six $9 increase in software costs and is there a point $8 million increase in travel related expenses.

These increases were partially offset by $3 million decrease in professional fees.

So we ended the quarter with a net loss of 360 629 compared to a net loss of $68 3 million in the third quarter last year.

The increase in the loss was due to an increase in stock based compensation of $339 1 million.

Partially offset by $42 $5 million increase in net revenues.

Well look we think cash flow should matter most investors and therefore, our non-GAAP measure as adjusted cash flow from operations to be cleared this metric adjusts for stock based compensation associated with our old classic profit distributions historically.

And only unusual and nonrecurring items going forward.

This quarter adjusted cash flow from operations was $34 $7 million compared to $55 million third quarter 2020.

Our adjusted cash flow from operations margin, which has adjusted cash flow from operations as a percent of billings.

With 25, 2% in third quarter 2021, compared to 36, 7% in the third quarter of 2020.

As Mark mentioned this brings our year to date total adjusted cash flow from operations to $192 $1 million as compared to $134 3 million for all of 2020.

Now, let's turn to some of our key metrics are paid subscribers grew from 786000 in third quarter 2020.

965000, this quarter, which represents a 22, 8% increase.

We saw our free subscribers increased from $8 1 million a year ago to $12 8 million this quarter.

<unk> has improved to $772 from $752 last year.

Total pesos paid subscribers of 965000 this quarter did decrease by 30000 as compared to second quarter 2021.

We discussed last quarter decline in paid subs. This quarter was due to factors, which we believe are related to the travel and leisure boom.

Associated with the dramatic reopening of the economy that began in second quarter and continued through the summer.

First the cost of advertising began to increase in the second quarter and continued throughout the third quarter, that's the travel and hospitality industry significantly increase the usage of digital mediums to market the products.

This has tended to increase our per unit acquisition costs.

Focus clearly look closely on our breakeven metrics and as our per unit cost increase we will adjust and reduce our marketing spend to adapt to the changing market conditions.

We continue to evaluate our unit costs and believe that there should be some normalization here as we get into the fall.

Importantly, and in fact, Mark mentioned earlier, we have seen signs of this improvement already with.

Improving customer engagement increases in landing page visits and increases in direct to paid conversion rates.

This has resulted in an uptick in the rate of new paid subscriber additions in the month of October and through the month of November so far.

This has reduced our per unit acquisition cost is.

As Mark highlighted earlier, we do have a very active campaign scheduled for the fourth quarter and expect to finish the year strong.

Having said that the lower engagement that we've been talking about since the second quarter did persist for about five months.

And therefore reduce the ability to add paid subs significantly during that period.

Therefore, we're going to take this opportunity to modestly adjust our forecast largely to reflect this last period of time for which customer engagement was reduced for.

We're adjusting our 2021 full year paid subscriber forecast 970000 from $1 8 million.

As a result of the teams and paid subscriber forecast, we're reducing our full year 2021 billings forecast to $740 million down from our original 759 forecast.

Our adjusted cash flow from operations forecast $210 million from $212 million.

Our RPI forecast increases to $753 from $717.

As a result of the <unk>.

Load forecast paid subscriber amount combined with the other forecast changes I just mentioned.

We're also adjusting our GAAP revenue forecast of $540 million down from $560 million, but this change is mostly to reflect a higher sales mix of billings toward lifetime sales versus term sales than we estimated at the beginning of the year.

This mix shift towards higher lifetime sales is ultimately a good long term story for us as lifetime subscribers continued to purchase high value subscriptions at higher rates through time and stay with us for a long period of time.

I'd like to reiterate an important concept in our business operations contributed to our financial success over 20 years, we're very disciplined around our marketing spend and we closely watch our unit costs versus the revenue that we can bring in.

If our per unit cost decrease overtime, we will ramp our spend and take advantage of that situation. That's certainly what you saw in the first quarter of this year throughout the second quarter or second half of 2019 excuse me in all of 2020.

Conversely, as unit cost increase for whatever reason will decrease our spend we will evaluate and we will test. This is what we saw during second and third quarter of this year. This is our business model at work.

The beauty of this business models that we can adjust quickly redirect dollars to other campaigns and if need be pulled back and pause of new subscriber acquisitions for a period of time until our unit cost decrease or market conditions improve.

When we do this subscriber additions will slow and that's what you've seen in the past few quarters.

On the other hand, and customer acquisition cost decline or our marketing ROI increases.

You will see us increase our direct marketing spend and potentially significantly and will add new subscribers.

With that let's turn it back to Mark for some closing comments.

Yeah. Thanks Neal.

So before we take your questions I want to thank everybody in the market Wise organization all of our employees our partners and our affiliates.

So hard over many years to getting things point.

And one last thought before we move to questions.

When I look at what we accomplished this past quarter and what I see is putting into place many of the fundamental pieces that we need for our next leg of growth and execution of our strategic plan going forward.

It started with the closing of our go public transaction in July.

Closing of the transaction gives us the public company platform to grow going forward and in my eyes being public should help us to attract more readers attract more talent and provide currency for M&A strategy.

Closing on the transaction also afforded us the opportunity to adopt an incentive compensation plan for employees.

We adopted that plan and made meaningful awards to more than 150 of our colleagues.

We were not able to have an equity plan of the scope as a partnership previously we had ever taken in venture capital and private equity money. So this was a key step for us because it accomplish two things.

<unk> expanded the number of people working at the company, we have an equity interest in our business and investing in financial stake in our results.

From roughly a dozen or so people can now over 150 of our most talented and senior folks.

Second it puts those recipients shoulder to shoulder with our public shareholders and directly aligns their economic interests with the economic interests of our investors.

Incentivizing, our senior leaders to drive results that are good for our investing public there's a basic but an important step forward for our business. One that I think is crucial to our future performance.

And as we indicated we also closed on the credit facility.

Adding this facility will give us much more flexibility from an operating capital perspective, and it's something that we've never had in place in our 20 year history, Despite all our growth and profitability.

But the public company float cash on the balance sheet and a debt facility in place. We are now very well positioned to execute on our organic and our inorganic growth priorities going forward. We have the key pieces in place now that will complement our strategic plans going forward.

And finally, we also adopted the buyback plan to expand our ability to make capital allocation decisions that are accretive to our owners but.

These important fundamentals now in place I feel like we have all the tools, we need tools that we did not have in our Arsenal previously take advantage of the opportunities in front of us.

With that said I'll turn the call over now to the operator, so that we can take some questions.

Yes.

Thank you at this time, we will be conducting a question and answer session.

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One moment, please while we poll for questions.

Our first question comes from the line of Devin Ryan with JMP Securities. You May proceed with your question.

Great Good morning, Mark and deal how are you.

Good day, Evan Thank you.

Good.

Great first question just wanted to dig in a little bit on the environment and kind of the travel and leisure boom obviously.

Yes.

A couple of aspects of that that you guys highlighted there is one.

Yes.

The impact on advertising and marketing and pushing rates higher, but then to just people taking vacations and traveling for the first time since the pandemic, which makes sense and it's good to hear that people are now spending more time online and you're seeing it in the landing page of data in some of the other.

Data you shared I'm curious how.

The marketing and advertising market is around travel and leisure today are you seeing them pull back kind of where that pendulum is.

And then also you know as we think about maybe not the fourth quarter, but looking into next year. If you do have maybe still a little bit higher rates of advertising marketing, but people are engaging more I mean, you're still generating very good returns on investment I know, it's not where it was in the first half of this year, but.

Would you maybe lean in more just because ultimately growth is important and youre still getting you very good long term returns on that investment.

Yeah look them in the second half what you just said there is spot on exactly I mean, we have not seen a significant reduction.

And the volume of advertising.

On the travel and leisure crew.

I mean, it isn't that it met up tailed off here, a little bit, but but but nominally that wasn't a change what we are seeing instead.

And that's sort of the numerator effect right in and our and our costs right. That's kind of the that's just the AD costs. The other component is conversion rates engagement and conversion rates and that's what we're alluding to that's what we're seeing the improvement.

In October we.

We did mention that the stats for engagement were noticeably better than October.

Both in terms of like landing page visits. We also said that conversion rates were higher kind of across the board free to paid.

And our direct to take for you to pay and then within our existing subscribers. We also saw improved conversion rates in October so.

We're starting to see that and that has continued basically through the November month to date, so to your point.

First quarter of 2021.

Sort of one of those anomalous quarters, where everything was incredible cost for LOE conversions or high engagement was full throated.

We can be very successful and produce very good returns even with these higher elevated display ad costs.

As long as we can get back to some normal level of customer engagement right, we're pretty good connecting directly with customers.

And we think our marketing copy is good we think our content is very good.

And with those two parts of those two ingredients. The only third degree we really need is some eyes back windscreen people paying attention to these sorts of things and we are starting to see that and that's very encouraging.

Great. Thanks, very very helpful.

And then I guess.

Follow up here on the buyback you know great I think you'll see that and it just shows how you guys are thinking about the stock and also just if.

Evolving the capital deployment strategy.

As we think about the $35 million, how does that factor into the bigger picture view affirm around excess capital I appreciate you're generating a lot of excess capital in the business model, but.

Maybe the question is more how you guys are thinking about your excess capital position and then just just now that you're public and I know having dialogues around.

New opportunities you know how.

Your mental investments evolving or the pipeline of inorganic any more color you can share around kind of just developments that have happened kind of post you being a public company would be helpful.

Sure. So look I mean, so we've gone through some changes recently historically.

We have generally aspired to keep at least $100 million of cash on the balance sheet and frankly, we've always been I think pretty much well in excess of that we'd been at $240 million of cash on the balance sheet.

But generally I would say that our target has been $100 million.

It's mostly just for.

Rainy day for M&A, but basically it's primarily a contingency its backup as Mark mentioned, we've been profitable every year of our of our existence.

But.

Generally speaking I would still target cash of around $100 million, we have a backup line of credit now which helps tremendously. So if you look at that liquidity you've got essentially.

We've got 130 plus million of cash and $250 million to $150 million of incremental capacity, you've got 280 million of total capacity.

And if you look at our earnings rate through that through the course of the year, we've been earning something between $12 million to $17 million a month.

So we're going to build cash pretty quickly given that we're retaining earnings not paying them out in form of dividends.

So we will see a cash build on the balance sheet. We do have very active interest in M&A and that was one of the primary motivations for going public. So you should think of the most likely use of funds.

So the cash on the balance sheet will ultimately be rebuilding a chest to be active in the M&A markets.

We intend to.

Retained earnings for now right and build that that war chest for acquisitions.

So I think right around 100, I would still target as the minimum but frankly, you're going to see the cash kind of from where it is now it should just continue to grow through time.

Okay, great and just on that point on acquisitions, just to kind of follow up.

Follow the logic here.

No you can't be probably explicit but.

Yeah, just how the dialogues are going in the pipeline developing.

As you again are building cash and have I think a little bit more visibility here.

As a public company.

Mark you want to chime in yeah, I'll jump in I appreciate the question Devin.

I can't of course comment on specific targets or ongoing discussions that we're having what I will reiterate it's something I've said before which is the number of inbound inquiries that we've had a increase dramatically and the skies and scale of those inquiries has gone up as we had.

Not only planned for but hoped.

And so I think we're very very well positioned now as I mentioned a minute ago.

With more tools in our tool kit.

From a capital perspective public company float a debt facility growing cash on the balance sheet and ability to buy back shares. When we think it's highly accretive to do so to me those are the capital allocation tools that good management teams need in order to treat the shareholders well manage the business going forward and still allow themselves.

Currency for M&A activity and so now I feel like we've got all of the things we need.

Two to embark upon that bigger broader M&A strategy that I have alluded to throughout the year.

And so that's why I think when I look back on the third quarter I think it was tremendously productive from our standpoint, because now were.

Think prepped and ready to go.

To execute on our strategy going forward. So I can't comment on specific targets, but I'm very excited about what we have going on in our M&A activity and I've got the team and the tools now to execute on that strategy going forward and that was a key key milestone for us to get to.

After the closing and we've done that in the first quarter that we've been public.

And Mark do you have the visibility.

The extent that we have the public presence now we're getting more inbound phone calls about other firms that either are interested in potentially selling themselves or part of themselves to us are partnering with us in some in some form or fashion too. So I think it's just you've always said that in the past too, but it's a very good point to emphasize the visibility is helping a lot too in that channel.

Correct.

Yes.

Great well that's it.

The color I was looking for thank you guys and we'll talk soon.

Thanks, David.

Our next question comes from the line of Alex Kramm with UBS. You May proceed with your question.

Yeah, Hey, Hello, everyone.

Starting with the commentary about October or maybe even November that you've given a lot of good color. There I think I heard you say that subscribers increased I don't know if that was on a gross basis. So maybe to put you on the spot on on a net basis have you been adding subscribers so far.

This quarter.

So what we said was the growth we alluded to we gave you two comparisons one was year over year, but grew about round it up about 20% year over year and paid subs on a sequential basis. We declined in that 30000, who went from 994 to.

Roughly nine.

964, and change rounds up to 965, so we declined about 30000 sequentially and the driver of that was really related to much more of a.

The reduction in gross adds right and that's what we've been alluding to since second quarter and now in third quarter. It began in mid may of last year.

Took hold in sort of enforcing June and remain in pretty much in force for July and August September was marginally better.

October is noticeably better.

But it really was it that that net reduction in paid subs was essentially almost entirely due to the slowdown in gross new subscriber adds.

Right. So so again.

So in October you.

We have added paid subscribers on a net basis.

Versus the end of it what would happen.

We haven't disclosed that specific number but we're telling you is we've had a significant uptick in gross ads in October okay. So unless churn has changed.

We have added on a net basis, if I if I hear you correct correct, yes, that's a logical that's a good aside serological okay.

Good and then and then maybe another quick one going back to the third quarter I mean, obviously as you just.

So again the paid subscriber number declined.

The good thing I would say is that if you look at your your.

I guess high value in ultra high value clients that that that those who still went up quarter over quarter. So good to see that I will say that the growth rate slowed. So you did add but it slowed side just curious with all the talk about being more focused on upselling et cetera, I would've liked.

See a little bit of an increase there but is that just a function of the same environment, even hitting at all.

Yeah, Yeah, I look at all this.

Engagement dynamic it is.

The key here right when the engagement was less we saw that kind of effect across the board.

Gateway and impact of free to pay conversions directly taken version high value conversions ultra high value conversions people simply we're away from their devices and so with that that kind of that event all of our conversion curve down in the second quarter, but were trying to tell you now is that a month and a couple of weeks doesn't that quarter make but having said that the mud.

On a couple of weeks that we've seen in October and the first part of November here, we have seen a reversal of that in an improvement in all of those metrics.

Great and then just lastly, and I made this maybe too far forward looking but clearly I think last quarter, you took away the fiscal year 'twenty to forecast or guidance rather.

Clearly you know we already telling us subscribers are going to be lower at year end and then obviously.

You know things things could improve next year, but I guess how are you thinking.

More broadly about fiscal year 'twenty two.

If if the subscriber growth is a little bit slower to what degree do you think you still have an ability to to make billings or and then maybe most importantly, since you said.

Right thing for shareholders.

Over on the on the on the operating cash flow line, all else equal if you're not seeing a lot a lot of improvement to my point to thanks.

So look we're going to come out with our 2022 guidance in the fourth quarter cycle. I think we mentioned that better that previously on another call. So and that's still the plan. So stay tuned for that we'll have a lot more specific let's say than your question just broadly around the outlook for the future. What we're seeing is some norm.

Motivation right in the environment here, so far in the fourth quarter.

Mark and I, both look at these trends, we both things that we're going to finish the year strong here we're.

We're going to end up going to hit our new adjusted forecast, which I think were adjusted down by a percent in terms of billings in something like 10% in terms of subs now.

That reduction in sub forecast that kind of flowed through to the future now having said that you are building off a smaller base, but if things begin to normalize as we are seeing them. We would expect things to get back to a more normal rate of conversion of free to pay directly paid and then ultimately ensure existing subscribers high value in ultra high value conversion rates.

When you look throughout the past two years right 2020 was a good year second half of <unk> 19 was a good year first quarter of 2021 was in the same quarter.

We're not gonna have conversion rates like you did in the first quarter of 'twenty. One you should never model those right I mean that was an incredible quarter, but what we are seeing higher conversion rates.

In line with the averages that we really saw in the second half of 2019 and throughout much of 2020 and those were very good years.

Why don't we get back as long as we get back to adding net paid subs right and we can continue that engagement and then work on the and convert at those rates that I just alluded to sort of the average is between the second half of 19 throughout most of 'twenty.

And frankly, the second quarter of 2001 was a pretty good quarter and in line with previous quarters conversion rates those conversion rates worked very well.

Long as you have a growing paid sub base.

We've seen a pause here for five or six months to quarters essentially.

We're starting to see some normalization of that and we'll come out with specific numbers and forecast for you here in a couple of months.

We're very encouraged by what we're seeing.

We caution investors two things Marc alluded to this one taking a long term view, we are gonna steadfastly resists this sort of quarter to quarter momentum and constantly emphasize year over year comparisons because that's how our business really functions. We did make some decisions in the third quarter. We could have added more subs, we could've done it would have cost us a lot more than we would have.

Reduced our breakeven and maybe not got New York marketing ROI that we wanted we could have added probably tens of thousands of additional subscribers in the third quarter. If we wanted but uneconomic, we chose not to we knew it was going to result in a reduction in ads and it did result in that and resulted in a modest decline, but that was the right decision to do for our shareholders.

In terms of maintaining our returns so you'll continue to see that flex and we just encourage everybody to take that 12 to 24 month view on the business model that works very long over that period of time.

Carriage, what we're seeing here in the first part of the fourth quarter and just give US a couple more months to firm up exactly how we're going to think about our guidance and then we'll get you guys numbers, but so far we're encouraged by what we're seeing.

Alright, very good I'll jump back in the queue. Thank you.

Our next question comes from the line of Kyle Peterson with Needham <unk> Co. You May proceed with your question.

Hey, good morning, Thanks, guys for taking the questions.

Just wanted to touch on churn and what what you guys saw in the third quarter I think in the second quarter. You guys mentioned kind of it was it was towards the high end of what you guys. Historically see did that continue in the in the third quarter just trying to get an estimate on what you guys are seeing and in terms of gross adds in both CAC and <unk>.

Yeah, I mean, we said that I mean, we saw at <unk> and <unk> were pretty similar in terms of the <unk>.

Run rate, we alluded to at the higher end of that range. That's in our assumptions page in our slide decks and that's when we saw the same thing in the third quarter no no substantial change in that in that metric at all this is really all related to the gross add signing more than more than any change in churn dynamic.

Okay.

That's helpful. And then I guess, just one quick follow up I know.

'twenty, one forecast is coming down a little bit from kind of where it is the last quarter, but it still is above what you guys. Originally had when you announced the deal back in March. So maybe if you could just walk us through some of the things that have changed because it seems like if you compare.

Things from March things are better and maybe just kind of travel and leisure boom is just kind of weighing on kind of short term. So like how should we think about some of the other progress that's been made across the rest of the business.

Well look I mean, I think mark can chime in here too, but obviously, we're continuing to push on all the things that we've been talking to you and other investors about which are strategic.

These are priorities for the firm we want to develop a pan market wide technology platform to integrate all of our brands.

Or are all of our brands could ultimately be fulfilled.

Mark with the products build an aggregation of traffic.

<unk> and energy with that traffic and we think better reduce our cost of acquisition ultimately through time by doing that build some brand awareness and we think build some more stickiness. If you have a lot of technology oriented products.

We had one aggregate.

That form those technology products with greater uptake.

Technology products, we have tend to add a lot of stickiness to our customer base. They just need more exposure.

So we're certainly focused on that Mark has talked a lot about M&A. We're obviously always looking to recruit new analysts new writers and editors and content and products that will continue at pace.

So I think that those business initiatives that Mark has talked about for a long time are all enforced financially again as far as outlook.

We've always said look give us until our fourth quarter cycle to firm up what our guidance content will be and then what the specifics will be and we plan to do that so stay tuned on that front, we don't necessarily need a dramatic decline and display AD costs as long as we have decent engagement.

What we're seeing right now that costs are kind of the thing maybe down a little bit.

But our cpas are down because engagement is higher and our conversion rates are improved as we starting to see some of these engagement metrics improve with that improvement engagement metrics and getting some better conversion rates and that helps so it helps reduce the CPA, even though the display AD costs are still elevated.

Got it that's.

That's really helpful color. Thanks, guys.

Thanks. The next question comes from the line of Jason <unk> with Oppenheimer. You May proceed with your question.

A few questions. So there's been a ton of articles just about you know the focus of self directed investors I think there was another one this week.

I think this rhetorical talked about younger investors right now theyre kind of issuing away from paying people to manage their wealth because they need the value. So one I guess the question is how are you thinking about doing a better job attracting younger readers.

Is this part of the M&A strategy as their economy. That's meant to recruit authors who tend to focus more on kind of content that is more appealing to younger.

Crypto or you know I don't know <unk> or other things like that so that's question number one.

Question number two.

Look I mean.

The.

It's been well publicized.

That advertising team hasn't gone up.

You have all these kind of.

The headwinds going on in advertising so.

It wouldn't have been a surprise that your kind of cost per AD would've gone up.

Obviously exacerbated maybe talk a little more about how you think about kind of playing.

The kind of add inflation cycle to your benefit so I would imagine that TPN tend to be lower in the first half and the second half and like in the first half differently better time to be more aggressive on subscriber acquisition just relative to overall anything if you see seasonality kind of in your bed.

So kind of.

Two questions. There and then just you know kind of applaud the buyback I think its smart there's clearly a lot of technical factors that are kind of weighing on your stock right now and I think revisions and generate significant free cash.

It's a good idea and I have one more follow up after those two questions.

Mark you want to.

The first one.

One.

Yeah, Yeah, I was going to say, let me kick it off.

And thanks for your question, Jason I appreciate that and appreciate the kudos on the buyback program. We agree obviously that we just think it's <unk>.

Smart thing to do given the price dynamics, we're seeing in our attitude about shareholder returns.

As far as focusing on younger investors go.

Think we're talking about the same articles.

One I think in the Wall Street Journal recently, and I'm, just talking about a guy that Goldman Sachs has been recruited.

I think he said he puts 90% of investable assets and equipped us.

I don't know if that's the one you're referencing or not but yeah. It's a good question and so the answer is yes, right certainly M&A and focusing on the younger generation of folks who haven't basketball assets.

<unk> is one of the things we have looked at and our M&A criteria.

Also you mentioned the editorial recruiting we're also doing things along those lines as well if you look at the average age of our editors and it's not.

Uh huh.

Up in the Sixty's at all we tend to over time with crude sort of younger folks who are looking towards the future and thinking about investing trends.

Going for a decade or two.

But who also have some experience in this space and have to think about how the future is going to develop and that's certainly something we do too.

That we do that you didn't mention is.

As always and I think I mentioned in the past our marketing groups are always looking for pockets of subscribers.

And all kinds of different channels, including channels that are more focused upon by.

Younger folks.

Having said all of that.

As I've said before we do not consider ourselves a boomer company or a millennial company, we focus on attracting investors.

And to the extent that investors with real assets and real portfolios tend to be younger.

As this whole market is run on great. We want those folks and those folks tend to like the Guy in your article in the Wall Street Journal article.

Tend to focus on more exciting.

Asset classes like Cryptos.

Cannabis.

Sometimes they are more frequent traders.

And so our job is to put.

Products that espouse investing strategies that we think will be comparable indices and put those products in front of those groups, whether they're young or old. So long is there an investor willing to spend the time have the focus.

And have the portfolio size to deploy that's when our business, saying. So so yes, we're focused on that younger generation, but not just them. We're also focused on the investors that are older in age.

Dale do you want to take the second part.

Sure so.

And just add to that too look we have a pretty rich portfolio of cryptos, So and I would assume the customer sat on that skews younger than some of our other asset classes. So.

One of our most successful campaigns. This year have been crypto based campaign. So we're certainly seeing that interest and I think through time, you're going to naturally gravitate and see our customer base.

I would say were younger up it had become younger I guess.

Say it become younger we're seeing it happen, it's still a lot of little or numbers, but having said that like our youngest end of our customer distribution grew 400% last year. So we're seeing that change and we're always thinking about the channels that we market through and the techniques that we use to market and how we can start to reach.

Through some adjusted channels. This younger customer set we think we have the product set to appeal to young customers.

We're experimenting with is some.

Some of the techniques of marketing in the channels through which we market to specifically get more access to younger customers organically and then as Mark mentioned too just the M&A strategy.

<unk> is an obvious thing to think up there too.

On the question around seasonality around.

Display AD costs and how we manage that I mean this is a really this is a really key point.

What we've seen in Q2 Q3 is this is not normal for summer for us.

You might see some reduced engagement, particularly in the month of August but what happens is July is okay and September is usually pretty good. So August kind of gets lost in the rounding you don't necessarily see a summer slowdown for us what.

What we're seeing here is very uniquely related to this massive pandemic and then the massive reengage reengagement and travel and the different gauge meant a lot of peoples eyes on devices. So.

So I would not take this and say you should be modeling some sort of huge bulge in Q1 necessarily and then a big win in the summer for like Ford periods necessarily.

It's going to kind of go with the cycle or if theres something affecting the market and that was what we saw in Q2 and Q3 now we watch cpm's very closely our marketers are.

I can't talk very deeply about this these guys are really experts at it but they are watching CPM very closely they're seeing what's happening bill passed those tests and see whether our conversion rates can overcome higher CPM rate higher CPM doesn't necessarily mean, we're not going to pursue it we are going to pursue we're going to test it.

If our conversion rates and engagement can overcome those higher CPM is guess, what that's great you maintain our ROI.

It's marginally more expensive, but as long as we're getting the revenue associated with that all work. So I would I would answer it simply by saying I would not forecast necessarily quarter by quarter seasonality, but what we will do and should do as a management team is.

Make sure you do each quarter, what we're doing with you in the past two quarters just to tell you like if we see things exogenous things impacting our market rate or are there dynamics are going to cost.

Our unit cost to go up and we can't maintain our returns therefore, we're going to slow down the spend or Conversely, we're seeing massive conversion rates are huge engagement or a massive reduction in C. P ends right and will tell you that too. So I think it's really up to us to give you sort of the anecdotal feedback about what we're seeing in the industry and that should help.

<unk> sort of quarter to quarter outlook strategics.

Strategically Mark and I are focused on year by year I understand you guys are focused on quarter to quarter, we'll always try and give you that color, but I would not model.

Winter boom summer when it doesn't really work that way and maybe Mark I'll give you a chance to expand on it because you've been here longer than I have.

Okay.

I have but I would concur I don't I don't see.

And the seasonal seasonality or a month to month seasonality.

Ron those metrics a number times just out of curiosity, if nothing else.

Haven't seen any correlated trend relative.

Relative to the time on the calendar nor season of the year.

And just a quick comment I think looking at your churn is attractively low.

We love it if you gave that out clearly it kind of worked well for peloton and some others.

But I would just add that perhaps you guys at least update that once a year.

Perhaps when you report your December quarter thing.

Yeah I appreciate the feedback I appreciate that.

Yeah.

Our next question comes from the line of Jeff Miller with Baird. You May proceed with your question.

Yes. Thank you paid subs engagement I understand the environmental factors that are outside of your control, but what are you doing differently to drive increased engagement among the paid subs and then <unk>.

Part of it.

I.

Understand that the engagement is going to impact current period net revenue retention, but I guess, what I'm wondering is how much of a leading indicator is it for future paid subs retention and upselling.

You said earlier this is a very unique period, obviously I get that but I don't know if theres other historical parallels where you've had a three or six months.

Engagement wall, and if theres anything to draw from that.

In terms of predicting that thank you.

So on the last part first.

Jeff If you look you look historically.

I only see one sort of.

Really kind of strong parallel and that was the period of time post financial crisis, we did see.

You know the market crash it tried to recover it bouncing stuck in the mud for a period of time.

Right and with that sort of stuck in the mud environment, where things werent moving up volatility headwind and investor interest in the market. When we did see a pause in new subscriber ads for I think three or so quarters post financial crisis, and that's probably the closest parallel that we're seeing to this current down into notices totally <unk>.

Causal factor right.

But the end result is somewhat similar in terms of a pause in new subscriber growth that lasted more than three months. So I mean this is almost two full quarters that we saw right. So.

What we saw after that was.

As the market eventually did begin to recover and faith in the market began to return fund inflows trading volume increase.

And the stock market began its gradual March higher we saw significant growth. That's following year billings growth profit growth margin expansion everything subscriber growth.

So that's but that's probably the most distinct parallel in our 20 year history to what we're seeing right now.

Your question around engagement and like how we handle it I mean I didn't totally followed the question.

I think youre asking what did we do to improve engagement.

Two things on that like what.

Kind of initiatives do you have in place in this environment.

Tried to control it a little bit more.

Yeah, well it looks like so and this was the point that mark with pound. He's like look we're not we don't stop trying like we're always trying and testing. The question is we're cautious in what we do is we try new ideas. We're trying new ideas, we're trying new marketing copy.

Testing product emphasis redirecting dollars to a given product that is working in a given environment, even if other products aren't working and frankly, we did see a shift to more crypto in recent months because crypto was really working.

So, but we can't broadly make engagement just better holistically, maybe we can through time, I think with with a pan market wise technology platform, where we have.

A critical mass of aggregation of traffic right I think that better protects us against broader industry downturns and engagement and that was one of the main reason its mark and I want to pursue this path. So I think that will help that's a complicated effort that takes time and we're working on it but it doesn't happen overnight, but I think that will help be a strategic offset too.

Going forward right now the way, we adjust as we keep testing all the time, new editors are different editors different product emphasis different marketing copy or throw some marketing dollars at it to see if it works if it does great. We push harder if it doesn't we take it and put it towards a different campaign. We've had a number of campaigns in the last four weeks that were crypto that worked.

It really well.

It's really ideas and content, where our portfolio of investment ideas and so if the engagement is down it really comes down to conversion rates and our ideas and our successful communication that our marketers have with our customers and that's really what the pushes.

Thank you.

Yeah.

Yeah.

Our next question comes from the line of Yigal <unk> with Wedbush Securities. You May proceed with your question.

Hey, guys. Thanks for squeezing me in here.

We've exhausted most of the AD.

Our questions, but maybe just just one more.

Like Big picture.

Well, let's say, let's just play out the scenario that AD rates don't normalize they continue to stay elevated for a protracted period.

Maybe even go higher from where we are what would that mean for your strategy. How would you approach. It would you have to raise prices to keep her that threshold would you lowered the threshold just wanted to think about think that scenario through and then but love to hear an update on terminal.

Chicken of analytics that some of the software tool but.

Felt pretty promising when you guys first one public.

Just Cheryl who'll update with what's going on there. Thanks.

So I'll handle the financial part first marketing.

We can handle the strategic part there.

In terms of how we hire handle sort of higher or elevated look to be clear elevated CAC is not a new thing that the degree of elevation and the suddenness of it in the second quarter was striking that has not been something that we've seen so fast so quick to such a magnitude having said that.

CPA from cap are going up 20% to 25% a year really from 2015 through 2000 Twenty's constant that was that was the CAGR growth. If you look at industry studies. So we can handle elevating CPA because we handle that by.

A couple of methods. One is we're always adjusting the pricing of our campaign products in relation to the cost that it costs to bring in that paid so we're always looking at LTV to card value carve out or get them CPA is rather rate, meaning the initial price versus the cost per that acquisition. That's a constant metric. It's real time, it's sort of the Holy Grail that our marketers will look.

So and so the price component is an important part of that too.

To a degree and we can handle that right. It's also the efficacy of marketing copies. When we're looking at our forecast, though we're always assuming elevating cactus. That's just the industry trend right and we've been able to maintain a breakeven it's really from 15 to 20.

And into 'twenty one.

Through the first quarter, our sort of Holy Grail for targets are to pay off our variable CPA.

In 90 days and to get to full CAC breakeven in seven to nine months, I guess, what even with cat going up 20% to 25% a year, but in the period I. Just mentioned, we maintained all of those breakeven metrics cpa's within 90 days and full breakeven in seven to nine months. So it's a combination of knowing how to price the product in relation to the cost.

And if the conversion rates arent successful then you pause and you redirect those marketing dollars to a different campaign that can hit its metrics. So it's an idea being fleet of foot with your capital being real time testing with your your LTV your cart values to the CPA.

And those sorts of things. So we can manage and then escalating cat. It was just the suddenness of it and the fact that the denominator wasn't working in Q2 and Q3 because of the engagement fell very sharply that was that really was the differential thing primarily was the engagement was the primary problem.

Okay.

As far as your other question Yigal.

You asked about.

So called terminal.

Yes that pan market wise platform that we've been excited and working on behind the scenes is really meant to be that all in one tool contact platform across all of the market wise brands and properties.

But right now the current state of it is its been built out for one of the brands.

It has a significant and long standing subscriber base that has been very loyal with really really high ltvs and long are definitely long term subscribers. The early feedback from that group has been really encouraging and so what we're doing behind the scenes as we're working hard to try to build out.

Didn't call the plumbing to plug in the rest of the brands and elevate that property across all of our properties.

We own across market wise and so.

I alluded to earlier that doesn't that doesn't happen overnight. There's a lot of testing that has to happen in a lot of migration of data.

And.

Plug ins, what I would call plug ins.

Technology, so that all of that content can flow seamlessly and we're working hard on that we expect to have something more to report on that.

Towards the first part of next year.

As we continue to work on it through the fourth quarter.

But we definitely want that platform I think it will do some of the things that <unk> described which is give us another.

<unk> platform on which to attract subscribers and show them.

How good and high quality, our researches and will also give us an ability to.

Put other content from across all of those brands in front of subscribers to one brand or another and so we're excited about that as far as shaken goes.

We couldn't be more pleased with Mark and Ed.

His group is plugged into our <unk>.

<unk> system.

If you know Mark at all you know he's very high energy very smart and very experienced in the financial markets I saw him recently and I swear he acts like a teenager right now he is so excited.

With both how things performed and how our relationship has gone in and I too and equally excited because I think what.

That's shaken team has produced in terms of tools and content is fantastically beneficial to our leader base and I'm excited to put.

Put that content in front of more and more of our readers across market wise and both continue to do so.

And I also think that'll be a vehicle by which we can attract new subscribers from outside of our ecosystem and we are.

Seeing that recently as well so that's going very very well I'm happy with it and.

I think market is too.

Great Super helpful. Thank you.

Our next question comes from the line of Alex Kramm with UBS. You May proceed with your question.

Yeah, Hey, Hello, again, I realize it's a little over an hour into this call, but just a couple quick follow ups and hopefully this is quick.

One on the AR on the editorial side not sure. If you disclosed this but can actually give us a number in terms of how many editors.

You've hired or any new products you've launched.

So we can kind of see what you're doing on that end.

Quarter over quarter.

Yeah, I don't have the specific yeah.

I don't have the specific numbers for you Alex in terms of plus minus.

What I would say is.

Someone that you might know Herb Greenberg has joined Empire financial you only just recently joined.

But that's that information is out in the public he has written a very nice.

Editorial piece on.

Why he made a career change of what prompted it and what motivated handling some of the some of the thoughts he had is making through making that decision and we're excited about the plugging into Empire financial.

And launch products and content around him using his experience as a long time investor and as well as his experience as a.

Short seller and bit of a analyst through lots of different properties and lots of different investing season. So we're excited about that but it's very early days I cant.

Can't give you any indication of what that product set will look like quite yet we're talking about those things, but he is an exciting addition to what is already a growing quickly growing franchise in Empire financial.

Yeah, I didn't actually see that but thanks for the reminder, and then just one quick one or maybe two quick ones on the on the capital front.

Dale I guess.

Can you just remind us what your minimum cash kind of is like how you feel about the cash balance going going forward. As you. Obviously you are starting to deploy a little bit more potentially and then just a outside of that on the buybacks, maybe just a little bit more specific and maybe you've answered. This already but you know you obviously have flexibility in terms of what youre going to.

Do open markets and maybe some private transactions.

Transactions, though so I guess the question is do you have a <unk>.

Small float right and you also have some lockups and do you have a stock price that's below that magic $10. So just right just curious like in terms of like on the on the private side.

Not sure how motivated insiders are so maybe two to be very blunt in specific I mean are you basically planning to do open market purchases this quarter and any any numbers in mind to to help us here.

So yeah sure look we're not going to deploy your plan and not use it. So absolutely we have intentions to as soon as we can get the documentation done and get our can be five one plan put in place. Our open window occurs two days after we're going to file our Q today veterans day, we cant tell today or we would have a filing tomorrow Q and then two days after that.

Our open window begins and yes, our plan is to get the.

The <unk> can be five one plan document and with our underwriter brokers can handle it for this and then.

Get all the parameters set and there is some some brief cooling off period, but then right after that should be active right.

We have calibrated the plan, though we don't want to.

This plan to you.

I want it to be well within the <unk> 18 rules right.

Once the plan to be durable long to last a long enough period of time.

So we don't consume it in three months. So we've calibrated some of our instructions around the <unk> five wanted to make sure. It's a durable plan, but yes, we are.

The market is below our price threshold.

Which obviously won't be a public number we will be buying but look I mean.

Some rough math right now, where if you take our $210 million adjusted cash flow from ops number and divide it by 316 million shares.

Roughly 66.

Cents a share.

At seven Bucks a share that you know.

Like our book value of 10 Bucks.

Right that 66 cents a share I mean, it's like 45% accretive to to buy that share back so that obviously makes a wildly.

Good sense to do and so that's what we're looking at when it's when it's highly accretive.

Do it then we will.

And we went to the margin of safety that we're not going to be here fine tune in corporate finance, but but if the price threshold, we're setting the price thresholds such that when we do buy it back it will be materially accretive with a margin of safety.

Versus our book returns $10, a share I think of that as our book value right.

The idea is yes through time, it could reduce the float and we have a small float but we have pipe investors that are largely back a couple of large spec centric pipe investors. They may want to look to continue selling we want to provide some outlet for that sales volume our float will increase as a result of those pipe shares coming in so it's not obvious.

To me that necessarily that the share buyback program will necessarily reduce the float one for one as we buy back shares because some of those sales may well come from some of our large.

No more spec hedge funds centric pipe water so.

But the ultimate goal here guys is to get our stock to a better fundamental value right.

And ask that better fundamental value, then presumably there'll be some sort of secondary offering right that secondary offering is a real chance to increase the float. The magic here is to get the float to be large enough where large investors can participate right now.

Big investors cannot I mean anybody like fidelity that wants to build a $50 million position.

They can't do that right.

So there's not enough volume it would take them eight months to build that in eight months to get out. So so that the real strategic solution is yes, we might decrease the float marginally over the next whatever six months.

But we've calibrated the program so it's not going to dramatically reduce the float.

Two weeks.

It should be impactful on the price of the stock, though but then the ultimate goals with a better price that better fundamental value that enables a secondary offering in that secondary offering is the real solution, we get a real float.

Upwards of 100 million shares whatever the number is and then we can start to attract real investors value investors, who can invest in scale and size right now we're pretty much limit at the microcap funds. So that that's the ultimate solution here.

And then on the thanks for that by the way and then and then on the minimum cash balance sorry, if I missed that.

I know myself.

But we usually target is $100 million.

And that was prior to having a debt facility. So we might rethink that balance a little bit now that we have a backup source of liquidity, that's pretty decent sized but historically, it's been in and around $100 $100 million.

But if you saw some good M&A acquisition opportunities it could run below that right now were earning $12 million to $17 million a month.

It's been the run rate.

So we can we can replenish that cash pretty quickly and since we're not distributing dividends profits.

Cash balance should build pretty quickly. So we're not really worried about a minimum cash balance right now and if we did a large large acquisition you'd probably see some debt that would go into that right and a couple of turns of debt.

But the cash build is really a war chest for our M&A strategy, there's $35 million that we're using for share buybacks.

You know that that's a quarters worth of cash flow this quarter right. So that it's not really strategically impactful it really is a cat.

Cash that can be replenished pretty quickly.

Yeah excellent. Thank you very much again.

Thanks, Alex.

At this time, we have reached the end of the question and answer session I'll turn the call back over to Mark Hong for any closing remarks.

Yes. Thanks, I just wanted to thank everybody for their time once again I think of said why don't wanted to which is as I as I look at our quarter performance.

We've continued what he is going to be a fantastic year and we now have all the pieces in place that I feel like our necessary needed.

To fuel our.

Ability to execute on our strategic plan going forward from a both an organic standpoint as well as inorganic we're very excited about that and excited for the fourth quarter with that.

You all for your time.

And look forward to continuing the discussion going forward.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

[music].

[music].

Ladies and gentlemen, thank you for standing by and welcome to the market Wise third quarter 2021 earnings call.

During todays presentation, all parties will be in a listen only mode. If anyone should require operator assistance during the call. Please press star zero.

Following the presentation. The conference will be opened for questions with instructions to follow at that time.

As a reminder, this conference call is being recorded.

I would now like to turn to hand, the conference over to Jonathan Shenfield head of Investor Relations at market Wise. Please go ahead.

Thank you good morning, Thanks for joining us on today's conference call to discuss market wise its third quarter 2021 financial results on the call today, we have Mark Arnold, our Chief Executive Officer, and Dale Lynch, Our Chief Financial Officer during.

During the course of today's call, we may make forward looking statements, including but not limited to statements regarding our guidance on future financial performance market demand growth prospects business strategies, and plans and our ability to attract and retain customers. These forward looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date.

We disclaim any obligation to update any forward looking statements.

Actual results may vary materially from today's statements information concerning our risks uncertainties and other factors that could cause results to differ from these forward looking statements are contained in the company's SEC filings earnings press release and supplemental information posted on the investors section of the company's website.

Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to but not as a substitute for or in isolation from GAAP measures reconciliations to non-GAAP measures can be found in our earnings press release, and SEC filings I will now turn the call over to Mark.

Thanks, Sean and good morning, everybody welcome to our third quarter 2021 earnings Conference call.

As you all know we successfully closed our transactions with ascendant and began trading publicly in late July.

We're pleased to have completed the transactions and the transition to operating as a public company.

There was a lot of hard work by our team and all of our advisers to get through our current state. We have a lot to be proud of with that said, we're excited about the opportunities that we see in front of us as a newly public company.

We're going to discuss the highlights of our third quarter results and some of the trends we're seeing in our marketplace, but first I would like to touch on a couple of recent developments.

As you saw in our press release yesterday and over the past two weeks, we have made a number of significant announcements.

First a couple of weeks ago, we announced that we successfully entered into a credit facility with a syndicate of five banks that will provide a revolving line of credit for up to $150 million.

This is a significant milestone for market wise as it is the first committed credit facility and our history now.

Now we did not draw on your funding at closing and do not have any immediate plans to borrow but this facility will provide important backup liquidity for the company as well as capacity for acquisition financing.

One thing I'd like to note, while the headline number of $150 million provides meaningful capacity to the company and is still <unk>.

Small relative to our adjusted cash flows from operations, representing less than one turn of leverage.

And while we may use this debt facility as part of our acquisition strategy. One thing you should not expect is for us to become a highly levered company.

Additionally, given the amount of cash we generate we would expect to be able to pay down any borrowings relatively quickly over time.

Pleased with the participation of all our new lenders and I want to thank each of them publicly now for their support.

An important step forward for the company.

We achieved this quarter.

Additionally, we announced yesterday that our board of directors authorized the repurchase of up to $35 million in shares of class a common stock.

Purchases under this program, while we may add from time to time at the discretion of the management of the company.

The timing of the repurchases will depend on market conditions and other requirements. We anticipate that the share repurchase program will extend over two year period or earlier, if $35 million in aggregate of shares have been repurchased.

This program does not obligate us to repurchase any certain dollar amount or certain number of shares and the program may be extended modified suspended or discontinued at any time.

Philosophically, we believe repurchasing shares when it is highly accretive to do so is the proper deployment of capital and provides support for our investors when we view the stock is significantly undervalued.

We believe our share price recently by most any measure is undervalued and we intend to repurchase shares when the returns realized from those repurchases are highly accretive to our investors.

We are reaffirming the strength of the business and with the adoption of this plan.

The tremendous value we believe exists at these prices.

Our business is Capex light and we have sufficient excess cash on our balance sheet today, which could be put to work for a buyback without impacting our company's ability to grow.

Turning to third quarter in 2020 one results.

Our business continued to perform well as our subscribers continue to engage with and explore our research products and software solutions.

During the third quarter, our revenues grew 43%.

And our total subscribers free and paid grew 54%.

Our year to date billings totaled $578 million and have already exceeded last year's total billings of $549 million.

Our year to date adjusted cash flow from operations grew to $192 million as compared to $134 million for all of 2020.

So we continue to have a very good year with our third quarter results.

We're very happy with the performance of the company and now that did go public transaction is complete we are focused on executing on our strategy going forward.

As I had mentioned in the past I would encourage our shareholders to keep the long view in mind, we have been in business for over 20 years always been profitable and always treated our equity holders well and.

And during that long history, there have been periods like this one where year over year growth has been up significantly.

Can't promise to our investors that our results will always go up what we can do as promised to do our best to run the business with the best interests of our shareholders in mind.

Our leadership team has a tremendous amount of skin in the game owning nearly 29% of the new company post closing so our economic interests are very aligned with yours.

On the long term nature of our business in a minute.

But first I want to briefly touch on some quarterly trends that we highlighted in our second quarter call.

Throughout this quarter, we saw a continuation of market dynamics from late spring and summer related to the travel and leisure boom and we have discussed previously.

As Covid statistics improved people began to re engage in activities outside the home and we saw a movement of eyes off screens as travel and leisure activities increased and online engagement leveled off.

As you May recall on our second quarter earnings call. We described this pattern of behavior and shared at what we have seen at the end of the second quarter was continuing through the summer and possibly into September but was there a thought that as the summer ended and as the school year began in the fall people would've began re engaging in a more normalized fashion.

While this took a bit longer than we would've liked we have begun to see some early signs of this normalization throughout the month of October.

Typically we have 11 4 million total landing page visits in October which was a 17, 5% increase over the June to September four month average.

We've also seen early signs of an uptick in the rate of new paid subscriber additions in the month of October and a modest decrease in our per unit subscriber acquisition costs.

And while it may be too early to extend this trend throughout the balance of the year. What I can say is that we have a very busy schedule planned for the fourth quarter and I expect us to finish the year strong.

As I've said throughout the year, our goal is to be the trusted resource for the financial information and a leading financial wellness platform for self directed investors.

To that end, we continue to deliver high quality research and our community continues to grow but almost 14 total subscribers now.

14 million excuse me.

We continue to expand the breadth and depth of our products and brands and continue to look for ways to expand our reach engage our readers and provide best in class actionable research for the self directed investing community.

Our business has been profitable from 20 years, we have never had an unprofitable year and I can tell you with certainty that our business does not always moving in a straight line. There are times when subscriber growth is rapid and other times when it pauses over.

Over the long term, we've been very successful in maintaining a balance between growth and profitability, but always with an eye towards profitability.

We make decisions with the long term in mind, which we know could adversely impact our short term metrics, but.

But the beauty of our business is our ability to capture trends real time.

And tenet to maintain that balance.

Quickly and we saw digital AD costs began to escalate this year on a per subscriber basis, we were able to reduce the spend very quickly.

The key value driver of our business is the relationship between our subscribers and our analysts matters and as our metrics show the value of our subscribers increases over time as they move through the lifecycle of a paid subscriber to high value to ultimately ultra high value customers overtime.

I can't stress. This enough. This is a relationship business and we believe even a proven overtime, but the quality of our research and content is highly valuable to our customer base.

I'll now turn it over to Dale to discuss more of the specific financial results.

Thanks Mark.

This has been an extremely busy quarter for market wise.

He has some real milestone events as Mark mentioned.

Before I get into a discussion of our third quarter results. The first one I'll recap two of those items that Mark mentioned in his comments.

First on October 29, we closed on $150 million revolving credit facility with a syndicate of by banks with HSBC Bank and bank of Montreal Capital markets has a joint lead Arrangers and joint book runners the.

The rest of the Syndicate's included Silicon Valley Bank Wells Fargo Bank and PNC Bank.

We're thrilled to be working with these five bank partners and again as Mark mentioned I want to thank them for joining our team.

This facility provides for an additional $65 million accordion feature it.

It has a three year term.

And borrowings a spread to LIBOR will range at 150 to 225 basis points. There's also an unused commitment fee of 25 to 35 basis points.

We did not make any borrowings on our facility at closing, but it does provide us important financial flexibility serving as a backup source of liquidity and additionally, providing capacity to execute on our M&A transactions and as Mark mentioned and just to emphasize we plan to pursue a conservative approach to leverage.

Second as we announced yesterday our board of Directors has approved a share repurchase program of up to $35 million of our class a common stock over a two year period.

As a new public company, we've seen a lot of volatility in our shares since our public listing and frankly, we believe the true value of the stock seems disconnected from these current valuation metrics.

Mark did a very good job summarizing that we intend to repurchase shares when we purchase price with highly accretive to our many shareholders.

Our cash generation and low Capex requirements makes this repurchase program an opportunity to put some of that excess cash to work.

Okay. So turning now to our financial results third quarter, 2021 revenue was $147 million compared to $98 1 million in third quarter 2020.

Which reflects a 43, 1% increase.

We continue to see the results of these investments that we made over the past several years across our business.

Billings decreased by $11 8 million or 8% to $138 1 million this quarter compared to $1 $49 9 million in third quarter 2020.

We believe this decrease is due in large part to reduced engagement of our subscribers are potential subscribers to <unk>.

Continued to prioritize travelling leisure and loop spending time on their devices.

The restrictions are eased in late spring and continue through September.

We believe this travel and leisure boom and related decrease in Investor engagement began in earnest in mid second quarter of 2021.

Throughout the third quarter.

Approximately 38% of our billings this quarter came from lifetime sales, 61% from term sales and 1% from other billings.

As we've mentioned before billings can vary quarter to quarter due to the nature of us collecting all of the invoices upfront as well as campaign mix and efficacy.

So moving on down the income statement cost of revenue was $62 million this quarter compared to $26 $7 million for the year ago quarter.

Included in the cost of revenue was $46 3 million of stock based compensation compared to $13 seven nine in the year ago quarter.

If you were to exclude stock based compensation from cost of sales sales margins as a percent of revenue would have been 89% this quarter as compared to 87% in the year ago quarter and generally in line with our historical averages.

One thing I'd like to emphasize.

Is that from the time of the combination with ascend that and going forward the stock based compensation attributable to our original class B units will cease easier.

These units were attributed treated as derivative liabilities rather than equity prior to our merger with the Senate.

As such they had to be re measured each quarter and the change in fair value was included in stock based compensation.

Also any distributions of profits paid to class B holders were treated as stock based compensation on a go forward basis as those original class b units converted to straight common units, meaning straight common equity.

We expect to incur significantly lower stock based compensation at a level that would be consistent with a traditional stock based compensation plan for our employees.

Sales and marketing costs were $82 6 million this quarter compared to $56 9 million in last year's quarter, an increase of $25 $6 million.

Included in these amounts were stock based compensation of $32 6 million this quarter compared to <unk> 9 million in the year ago quarter.

As we mentioned previously as you saw on a per unit acquisition costs. As you saw our per unit acquisition costs remain higher throughout the third quarter, we reduced our marketing spend.

Excluding stock based compensation in our sales and marketing costs decreased by $6 $1 million.

This quarter as compared to second quarter 2021.

If you recall included on an assumptions page on various slide deck that we posted to our website. We included an assumption that on a GAAP basis. The average cost to acquire new subscribers 2021 would approximate the average of those past 2019 in 2020.

Despite the higher unit costs, we've seen over the past several months year to date, the average cost to acquire a customer in 2021 is in line with to slightly below the average of 2019 and 2020.

General and administrative costs this quarter were $356 3 million as compared to $79 9 million in the year ago quarter.

And these amounts were stock based compensation of $333 $6 million this quarter as compared with $58 8 million in the year ago quarter <unk>.

Excluding stock based compensation, our G&A cost increased about $1 $6 million year over year.

That was driven by $2 million increase in payroll due to increased head count.

One $6 million increase in software costs and is there a point $8 million increase in travel related expenses.

These increases were partially offset by $3 million decrease in professional fees.

So we ended the quarter with a net loss of $366 two nine compared to a net loss of $668 3 million in the third quarter last year the.

The increase in the loss was due to an increase in stock based compensation of $339 $1 million.

Firstly offset by $42 $5 million increase in net revenues.

Well look we think cash flow should matter most investors and therefore, our non-GAAP measure is adjusted cash flow from operations to be clearer. This metric adjusted for stock based compensation associated with our old classic profit distributions historically.

Only unusual and nonrecurring items going forward.

This quarter adjusted cash flow from operations was $34 $7 million compared to $55 million in third quarter of 2020.

Our adjusted cash flow from operations margin, which has adjusted cash flow from operations as a percent of billings.

With 25, 2% in third quarter 2021, compared to 36, 7% in the third quarter of 2020.

As Mark mentioned this brings our year to date total adjusted cash flow from operations to $192 $1 million as compared to $134 3 million for all of 2020.

Now, let's turn to some of our key metrics are paid subscribers grew from 786000 in third quarter of 2020.

965000, this quarter, which represents a 22, 8% increase.

We saw our free subscribers increased from $8 1 million a year ago to $12 8 million this quarter.

<unk> has improved to $772 from $752 last year.

Total pesos paid subscribers of 965000 this quarter did decrease by 30000 as compared to second quarter 2021.

We discussed last quarter decline in paid subs. This quarter was due to factors, which we believe are related to the travel and leisure boom.

As I stated with the dramatic reopening of the economy that began in second quarter and continued through the summer.

First the cost of advertising began to increase in the second quarter and continued throughout the third quarter, that's the travel and hospitality industries significantly increase the usage of digital mediums to market the products.

This has tended to increase our per unit acquisition costs.

Focus clearly look closely on our breakeven metrics and as our per unit cost increase we will adjust and reduce our marketing spend to adapt to the changing market conditions.

Continue to evaluate our unit costs and believe that there should be some normalization here as we get into the fall.

Importantly, and in fact, Mark mentioned earlier, we have seen signs of this improvement already with improving customer engagement and increases in landing page visits increases in direct to paid conversion rates.

This has resulted in an uptick in the rate of new paid subscriber additions in the month of October and through the month of November so far.

Has reduced our per unit acquisition costs.

As Mark highlighted earlier, we do have a very active campaign scheduled for the fourth quarter and expect to finish the year strong.

Having said that the lower engagement that we've been talking about since the second quarter did persist for about five months.

And therefore reduce the ability to add paid subs significantly during that period.

Therefore, we're going to take this opportunity to modestly adjust our forecast largely to reflect this last period of time for which customer engagement was reduced for.

We are adjusting our 2021 full year paid subscriber forecast 970000 from $1 8 million.

As a result of a change in paid subscriber forecast, we're reducing our full year 2021 billings forecast the $740 million down from our original 759 forecast.

Taking our adjusted cash flow from operations forecast $210 million from $212 million.

Our RP forecast increased to $753 from $717.

As a result of the load forecast paid subscriber amount combined with the other forecast changes I just mentioned.

We're also adjusting our GAAP revenue forecast of $540 million down from $560 million. This change is mostly to reflect a higher sales mix of billings toward lifetime sales.

Term sales than we estimated at the beginning of the year.

This mix shift towards higher lifetime sales is ultimately a good long term story for us as lifetime subscribers continued to purchase high value subscriptions at higher rates through time and stay with us for a long period of time.

I'd like to reiterate an important concept in our business operations contributed to our financial success over 20 years, we're very disciplined around our marketing spend and we closely watch our unit costs versus the revenue that we can bring in.

If our per unit cost to decrease over time, we will ramp our spend and take advantage of that situation. That's certainly what you saw in the first quarter of this year throughout the second quarter or the second half of 2019 excuse me in all of 2020.

Conversely, as unit cost increase for whatever reason will decrease our spend we will evaluate and we will test.

This is what we saw during second and third quarter of this year. This is our business model at work.

Beauty of this business models that we can adjust quickly redirect dollars to other campaigns and if need be pulled back and pause in new subscriber acquisitions for a period of time until our unit cost decreased or market mutations improves well.

When we do this subscriber additions will slow and Thats, what <unk> seen in the past two quarters.

On the other hand, when customer acquisition cost decline or our marketing ROI increases youll.

You will see us increase our direct marketing spend and potentially significantly and will add new subscribers.

With that I'd like to turn it back to Mark for some closing comments.

Yeah. Thanks Neal.

So before we take your questions I want to thank everybody in the market Wiser organization all of our employees our partners and our affiliates.

So hard over many years getting to this point.

One last thought before we move to questions.

When I look at what we accomplished this past quarter, what I see is putting into place many of the fundamental pieces that we need for our next leg of growth and execution of our strategic plan going forward.

It started with the closing of our public transaction in July.

The transaction gives us the public company platform to grow going forward.

In my eyes, being public should help us to attract more readers attract more talent and provide currency for M&A strategy.

Closing on the transaction also afford us the opportunity to adopt and incentive compensation plan for employees.

We adopted that plan and made meaningful wars to more than 150 of our colleagues.

We were not able to have an equity plan of the scope as a partnership previously we haven't ever taken in venture capital or private equity money. So this was a key step for us because it accomplished two things first it expanded the number of people working at the company, we have an equity interest in our business and investing in financial stake in our results.

From roughly a dozen or so people can now over 150 of our most talented and senior folks.

Second it puts those recipients shoulder to shoulder with our public shareholders and directly aligns their economic interests with the economic interest of our investors.

Incentivizing, our senior leaders to drive results that are good for our investing public as a basic but an important step forward for our business. One that I think is crucial to our future performance.

And as we indicated we also closed on the credit facility.

Adding this facility will give us much more flexibility from an operating capital perspective, and it's something that we've never had in place in our 20 year history, Despite all of our growth and profitability.

But the public company float cash on the balance sheet and a debt facility in place. We are now very well positioned to execute on our organic and our inorganic growth priorities going forward. We have the key pieces in place now that will complement our strategic plans going forward.

And finally, we also adopted the buyback plan to expand our ability to make capital allocation decisions that are accretive to our owners.

But these important fundamentals now in place I feel like we have all the tools, we need tools that we did not have in our Arsenal previously take advantage of the opportunities in front of us and with that said I'll turn the call over now to the operator, so that we can take some questions.

Yes.

Thank you at this time, we will be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate that Youre line is in the question queue. You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we pull for questions.

Our first question comes from the line of Devin Ryan with JMP Securities. You May proceed with your question.

Great Good morning, Mark and deal how are you.

Good day and thank you.

Good.

Great first question just wanted to dig in a little bit on the environment and kind of the travel and leisure boom obviously.

Yes, there is.

A couple of aspects of that that you guys highlighted there is one.

<unk>.

The impact on advertising and marketing and pushing rates higher, but then to just people taking vacations and traveling for the first time since the pandemic, which makes sense and it's good to hear that people are now kind of spending more time online and you're seeing it in the landing page for data and some of the other data you shared I'm curious how.

The marketing and advertising market is around travel and leisure today are you seeing them pull back kind of where that pendulum is.

And then also as we think about maybe not the fourth quarter, but looking into next year. If you do have maybe still a little bit higher rates of advertising and marketing, but people are engaging more I mean, youre still generating very good returns on investment I know, it's not where it wasn't the first half of this year, but.

Would you maybe lean in more just because ultimately growth is important and youre still getting you very good long term return on that investment.

Yeah. It looked out in the second half what you just said there is spot on exactly I mean, we have not seen a significant reduction.

And the volume of advertising.

On the travel and leisure group.

I mean, it isn't that it met up till it off here, a little bit, but but but nominally that wasn't a change what we are seeing instead.

And that's sort of the numerator effect right in and our and our costs right. That's kind of the that's just the AD costs. The other component is conversion rates engagement and conversion rates and that's what we're alluding to that's what we're seeing the improvement.

In October we.

We did mention that the stats for engagement were noticeably better than October.

Both in terms of like landing page visits. We also said that conversion rates were higher kind of across the board free to paid.

Those who are directed to a free to paid and then within our existing subscribers. We also saw improved conversion rates in October so.

We're starting to see that and that has continued basically through the November month to date, so to your point.

First quarter of 2021 was it was.

Sort of one of those anomalous quarters, where everything was incredible costs were low conversions or high engagement was full throated we.

We can be very successful and produce very good returns even with these higher elevated display ad costs.

As long as we can get back to some normal level of customer engagement right were pretty good connecting directly with customers and and we think our marketing copy is good we think our content is very good.

And with those two parts of those two ingredients. He only third we really need is some eyes back one screen people paying attention to these sorts of things and we are starting to see that and that's very encouraging.

Great.

Very very helpful.

And then I guess.

Follow up here on the buyback you know great I think you'll see that and just shows how you guys are thinking about the stock and then also just.

Evolving our capital deployment strategy.

As we think about the $35 million, how does that factor into the bigger picture view affirm around excess capital I appreciate you're generating a lot of excess capital in the business model, but.

I guess, maybe the question is more how you guys are thinking about your excess capital position and then just now that you're public and I know having dialogues around.

New opportunities how Inc.

Rental investments evolving are the pipeline have you been inorganic any more color you can share around kind of developments that are happening kind of post you being a public company would be helpful.

Sure. So look I mean, so we've gone through some changes recently historically.

We have generally aspired to keep at least $100 million of cash on the balance sheet and frankly, we've always been I think pretty much well in excess of that we've been at $240 million of cash on the balance sheet.

But generally I would say that our target has been $100 million.

It's mostly just for.

Rainy day for M&A, but basically it's primarily it's the contingency it's backup as Mark mentioned, we've been profitable every year of our of our existence.

But but but generally speaking I would still target cash of around $100 million, we have a backup line of credit and which helps tremendously. So if you look at that liquidity you've got essentially.

If you've got 130 plus million of cash and 250 $150 million of incremental capacity, you've got $280 million of total capacity.

And if you look at our earnings rate through that through the course of the year, we've been earning something between $12 million to $17 million a month.

So we're going to build cash pretty quickly given that we're retaining earnings not paying them out in the form of dividends.

And so we will see a cash build on the balance sheet. We do have very active interest in M&A and that was one of the primary motivations for going public. So you should think of the most likely use of funds.

For the cash on the balance sheet will ultimately be we're building a chest to be active in the M&A markets.

We intend to retain earnings for now right and build that that war chest for acquisitions.

But I think right around 100, I would still target as the minimum but frankly, you're going to see the cash kind of from where it is now it should just continue to grow through time.

Yeah, Great and then just on that point on acquisitions, just to kind of follow up.

Follow the logic here I know you can't be probably explicit but.

Just how the dialogues are going in the pipeline developing.

As you again are building cash and have I think a little bit more visibility here.

As a public company.

Mark do you want to chime in yeah, I'll jump in I appreciate the question Devin.

I can't of course comment on specific targets or ongoing discussions that we're having what I will reiterate it's something I've said before which is the number of inbound inquiries that we've had have increased dramatically and the skies and scale of those inquiries has gone up as we had.

Not only planned for but hoped.

And so I think we're very very well positioned now as I mentioned a minute ago.

With more tools in our tool kit.

From a capital perspective public company float a debt facility growing cash on the balance sheet and ability to buy back shares. When we think it's highly accretive to do so to me those are the capital allocation tools that good management teams need in order to treat the shareholders well manage the business going forward and still allow themselves.

Currency for M&A activity and so now I feel like we've got all of the things we need.

Two to embark upon that bigger broader M&A strategy that I've alluded to throughout the year.

And so that's why I think when I look back on the third quarter I think it was tremendously productive from our standpoint, because now were.

Think prepped and ready to go.

To execute on our strategy going forward. So I can't comment on specific targets, but I'm very excited about what we have going on in our M&A activity.

And I've got the team and the tools now to execute on that strategy going forward and that was a key key milestone for us to get to.

After the closing and we've done that in the first quarter that we've been public.

And Mark do you have the visibility.

Extent that we have the public presence now we're getting more inbound phone calls about other firms that either are interested in potentially selling themselves or part of themselves to us are partnering with us in some in some form or fashion too. So I think it's just you've always said that in the past too, but it's a very good point to emphasize the visibility is helping a lot too in that channel.

Correct.

Great color.

Color I was looking for thank you guys and we'll talk soon.

Thanks, David.

Our next question comes from the line of Alex Kramm with UBS. You May proceed with your question.

Yeah, Hey, Hello, everyone.

Starting with the commentary about October or maybe even November that you've given a lot of good color. There I think I heard you say that subscribers increased I don't know if that was on a gross basis. So maybe to put you on the spot on a net basis have you been adding subscribers so far.

This quarter.

So what we said was the growth we alluded to we gave you two comparisons one was year over year, but grew about round it up about 20% year over year and paid subs on a sequential basis. We declined in that 30000, who went from 994 to <unk>.

Roughly 99.

964, and change rounds up to 90 65, So we declined about 30000 sequentially and the driver of that was really related to much more of a.

The reduction in gross adds right and that's what we've been alluding to since second quarter and now in third quarter. It began in mid may of last year.

Took hold in sort of enforcing June and remain in pretty much in force for July and August September was marginally better.

October is noticeably better.

But it really was it that that net reduction in paid subs was essentially almost entirely due to the slowdown in gross new subscriber adds.

Right. So so again.

So in October.

You have added paid subscribers on a net basis.

Versus the end of it.

We havent disclose that specific number but we're telling you is we've had a significant uptick in gross ads in October okay. So on the churn has changed.

We have added on a net basis, if I if I hear you correct correct, yes, that's a logical that's a good thoughts illogical.

Good and then and then maybe another quick one going back to the third quarter I mean, obviously as you just.

But again the paid subscriber number declined.

The good thing I would say is that if you look at your your.

High value in ultra high value clients that are those who still went up quarter over quarter. So good to see that I will say that the growth rate slowed.

Did add but it has slowed so I'm just curious with all the talk about being more focused on upselling et cetera.

Like to see a little bit of an increase there but is that just a function of the same environment, even hitting at all.

Yeah.

Yeah look at all this.

The engagement dynamic is.

The key here right when the engagement was less we saw that kind of effect across the board I mean, the engagement impact of free to pay conversions directly taking version high value conversions ultra high vacuum versus people simply we're away from their devices and so with that kind of that event all of our conversion curves down the second.

But we're trying to tell you now is that a.

A month and a couple of weeks doesn't a quarter make but having said that the month on a couple of weeks that we've seen in October and the first part of November here, we have seen a reversal of that in an improvement in all of those metrics.

Great and then just lastly, and I made this may be too far forward looking but clearly I think last quarter, you took away to fiscal year 'twenty to forecast or guidance rather.

Clearly you know we already telling us subscribers are going to be lower at year end and then obviously.

You know things things could improve next year, but I guess how are you thinking.

More broadly about fiscal year 'twenty two.

If the subscriber growth is a little bit slower to what degree do you think you still have an ability to to make billings or and then maybe most importantly, since you said do the right thing for shareholders deliver on the on the on the operating cash flow line all else equal if not seen.

A lot a lot of improvement if I point to thanks.

So look we're going to come out with our 2022 guidance in the fourth quarter cycle. I think we mentioned that better that previously on another call. So and that's still the plan. So stay tuned for that we'll have a lot more specific.

Then your question just broadly around the outlook for the future. What we're seeing is some normalization right in the environment here, so far in the fourth quarter.

Mark and I, both look at these trends, we both think that we're going to finish the year strong here we're.

We're gonna and then we're going to hit our new adjusted forecast, which I think were adjusted down by a percent in terms of billings in something like 10% in terms of subs now.

Now that that reduction in sub forecast that kind of flows through to the future now having said that you are building off a smaller base, but if things begin to normalize as we are seeing them. We would expect things to get back to a more normal rate of conversion of free to pay directly paid and then ultimately ensure existing subscribers high value in ultra high value conversion rates.

When you look throughout the past two years right 2020 was a good year second half of <unk> 19 was a good year first quarter of 2021 was in the same quarter.

We're not gonna have conversion rates like you did in the first quarter of 'twenty. One you should never model those right I mean that was an incredible quarter, but what we are seeing higher conversion rates that are in line with the averages that we really saw in the second half of 2019 and throughout much of 2020 and those were very good years. So.

Why don't we get back as long as we get back to adding net paid subs right and we can continue that engagement and then work on the and convert at those rates that I just alluded to it sort of averages between the second half of 19 throughout most of 'twenty.

And frankly, you know the second quarter of 2001 was a pretty good quarter and in line with previous quarters conversion rates those conversion rates worked very well.

Long as you have a growing paid sub base.

We've seen a pause here for five or six months to quarters essentially.

We're starting to see some normalization of that and we'll come out with specific numbers and forecast for you here in a couple of months.

But we're very encouraged by what we're seeing.

We caution investors two things Marc alluded to this one taking a long term view, we are going to steadfastly resist this sort of quarter to quarter momentum.

Constantly emphasize year over year comparisons because that's how our business really functions. We did make some decisions in the third quarter. We could've added more subs, we could've done it would have cost us a lot more than we would've reduced our breakeven and maybe not gotten the Arctic marketing ROI that we wanted we could have added probably tens of thousands of additional subscribers in the third quarter. If we wanted.

But on economically we chose not to we knew it was going to result in a reduction in ads and it did result in that and resulted in a modest decline, but that was the right decision to do for our shareholders in terms of maintaining our returns. So you'll continue to see that flex and we just encourage everybody to take that 12 to 24 month view on the business model that works very long over that period.

Time.

We're encouraged what we're seeing here in the first part of the fourth quarter and just give US a couple more months to firm up exactly how we're going to think about our guidance and then we'll get you guys numbers, but so far we're encouraged by what we're seeing.

Alright, very good I'll jump back in the queue. Thank you.

Our next question comes from the line of Kyle Peterson with Needham <unk> Co. You May proceed with your question.

Hey, good morning, Thanks, guys for taking the questions.

I just wanted to touch on churn and what what you guys saw in the third quarter I think in the second quarter. You guys mentioned kind of it was it was towards the high end of what you guys. Historically see did that continue in the in the third quarter just trying to get an estimate on what you guys are seeing and in terms of gross adds and both CAC and <unk>.

Yeah, I mean, we've said that I mean, we saw <unk> and <unk> were pretty similar in terms of.

Right, we alluded to at the higher end of that range. That's in our assumptions page in our slide deck and that's when we saw the same thing in the third quarter no substantial change in that in that metric at all this is really all related to the gross add side, even more than more than any change in churn dynamic.

Okay.

That's helpful. And then I guess, just one quick follow up I know.

'twenty one forecast as it comes.

Ming down a little bit from kind of where it is the last quarter, but it still is above what you guys. Originally had when you announced the deal back in March. So maybe if you could just walk us through some of the things that have changed because it seems like if you compare.

Things from March things are better and maybe just kind of travel and leisure boom is just kind of weighing on kind of short term. So like how should we think about some of the other progress that's been made across the rest of the business.

Well look I mean, I think mark can chime in here too, but obviously, we're continuing to push on all the things that we've been talking to you and other investors about which are.

It's a crowded for the firm we want to develop a pan market wide technology platform to integrate all of our brands.

All of our brands could ultimately be fulfilled.

Mark with the products build an aggregation of traffic.

Some energy with that traffic and we think better reduce our cost of acquisition ultimately through time by doing that build some brand awareness and we think build some more stickiness, we have a lot of technology oriented products.

We had one aggregate Pla.

Platform those technology products with greater uptake those technology products, we have tend to add a lot of stickiness to our customer base. They just need more exposure.

So we're certainly focused on that Mark has talked a lot about M&A. We're obviously always looking to recruit new analysts new writers and editors and content and products that will continue at pace.

So I think that those business initiatives that Mark has talked about for a long time or are all enforce financially again as far as outlook.

We've always said look give us until our fourth quarter cycle to firm up what our guidance content will be and then what the specifics will be and we plan to do that so.

Tuned on that front, we don't necessarily need a dramatic decline and display ad costs.

Long as we have decent engagement.

And that's what we're seeing right now they had costs are kind of the thing maybe down a little bit.

But our cpas are down because engagement is higher and our conversion rates are improved as we are starting to see some of these engagement metrics improve with that improvement engagement metrics youre getting some better conversion rates and that helps so that helps reduce the CPA, even though the display AD costs are still elevated.

Got it.

That's really helpful color. Thanks, guys.

Thanks. Your next question comes from the line of Jason <unk> with Oppenheimer. You May proceed with your question.

A few questions. So there's been a ton of articles about.

The focus of self directed investors I think there was another one this week.

I think this rhetorical talked about younger investors right now theyre kind of issuing away from paying people to manage it well, it's because they didn't see the value. So one I guess the question is how are you thinking about doing a better job attracting younger readers.

It is part of the M&A strategy as their economy. That's meant to recruit authors who tend to focus more on kind of content that is more appealing to younger.

As crypto or.

I don't know <unk> or other things like that so that's question number one.

Question number two.

I mean.

It's been well publicized.

Advertising team haven't gone up.

You have all these kind of.

The headwinds going on in advertising so it.

It wouldn't have been a surprise that your kind of cost per AD would've gone up.

Obviously exacerbated maybe talk a little more about how you think about kind of playing.

Kind of add inflation cycle to your benefit, though I would imagine that TPN tend to be lower in the first half and second half and like in the first half differently better time to be more aggressive unsubscribe recommendation just relative to overall do you see seasonality kind of in your bedroom.

So kind of two.

Two questions there.

Kind of applaud the buyback I think its smart there's clearly a lot of technical factors that are kind of weighing on your stock right now and I think and generate significant free cash.

It's a good idea and I have one more follow up after those two questions. Thanks.

Yeah.

Mark you want to firstly.

Firstly I wonder.

Yeah, I was going to say, let me kick it off.

And thanks for your question, Jason I appreciate that and appreciate the kudos on the buyback program. We agree obviously that we just think it's <unk>.

Right thing to do given the price dynamics, we're seeing in our attitude about shareholder returns.

As far as focusing on younger investors go.

We're talking about the same articles.

One I think in the Wall Street Journal recently, and I'm, just talking about a guy that Goldman Sachs has been recruited.

I think he said he puts 90% of investable assets and equipped us I don't know if that's the one you're referencing or not but yeah. It's a good question and so the answer is yes, right, certainly M&A and focusing on younger generation of folks who haven't basketball assets.

Is one of the things we have looked at and our M&A criteria.

Also you mentioned the editorial recruiting we're also doing things along those lines as well if you look at the average age of our editors it's not.

Uh huh.

Up in the Sixty's at all we tend to over time recruit sort of younger folks who are looking towards the future and thinking about investing trends.

Going for a decade or two but who also have some experience in this space.

I have to think about how the future is going to develop and that's certainly something we do to the other thing that we do that you didn't mention is.

As always and I think I mentioned in the past our marketing groups are always looking for pockets of subscribers.

And all kinds of different channels, including channels that are more focused upon by.

Younger folks.

Having said all of that.

As I've said before we do not consider ourselves a boomer company or a millennial company, we focus on attracting investors.

And to the extent that investors with real assets and real portfolios tend to be younger.

As this whole market is run on great. We want those folks and those folks tend to like the Guy in your article in the Wall Street Journal article.

Tend to focus on more exciting.

Asset classes like Cryptos.

Cannabis.

Sometimes they are more frequent traders.

So our job is to put.

Products that espouse investing strategies that we think will be there are comparable indices and put those products in front of those groups, whether they're young or old. So long is there an investor willing to spend the time have the focus.

And have the portfolio size to deploy that's when our business things. So so yes, we're focused on that younger generation, but not just them. We're also focused on investors that are older in age.

Dale do you want to take the second part.

Sure so.

And just to add to that too look we have a pretty rich portfolio of crypto, so and I would assume the customer sat on that skews younger than some of our other asset classes. So.

And a lot of our most successful campaigns. This year had been crypto based campaign. So we're certainly seeing that interest and I think through time, you're going to naturally gravitate and see our customer base.

I would say younger up it will become younger I guess, the better way to say it become younger we're seeing it happen, it's still a lot of little hard numbers, but having said that like our youngest end of our customer distribution grew 400% last year. So we're seeing that change and we're always thinking about the channels that we market through and the techniques that we use to market and how we can start.

To reach.

<unk>.

Through some adjusted channels. This younger customer set we think we have the product set to appeal to young customers.

But we're experimenting with is some.

Some of the techniques of marketing in the channels through which we market to specifically get more access to younger customers organically and then as Mark mentioned too just the M&A strategy.

It isn't obvious thing to think up there too.

On the question around seasonality around.

Display AD costs and how we manage that I mean this is a really this is a really key point.

What we've seen in Q2 Q3 is this is not normal for summer for us.

You might see some reduced engagement, particularly in the month of August but what happens is July is okay and September is usually pretty good. So August kind of gets lost in the rounding you don't necessarily see a summer slowdown for us what.

What we're seeing here is very uniquely related to this massive pandemic and then the massive reengage reengagement and travel and the disengagement of a lot of peoples eyes on devices. So.

So I would not take this and say you should be modeling some sort of huge bulge in Q1 necessarily and then a big win in the summer for like Ford periods necessarily.

It's going to kind of go with the cycle or if theres something affecting the market and that was what we saw in Q2 and Q3 now we watch cpm's very closely our marketers are.

I can't talk very deeply about this these guys a real expert at it but they are watching CPM very closely they're seeing what's happening built passed those tests and see whether our conversion rates can overcome higher CPM rate higher CPM doesn't necessarily mean, we're not going to pursue it. We are we're going to pursue we're going to test it.

If our conversion rates and engagement can overcome those higher CPM is guess, what that's great you maintain our ROI.

It's marginally more expensive, but as long as we're getting the revenue associated with that all work. So I would I would answer it simply by saying I would not forecast necessarily quarter by quarter seasonality, but what we will do and should do as a management team is.

Just make sure that we do each quarter, what we're doing with you in the past two quarters just to tell you like if we see things exogenous things impacting our market rate or are there dynamics are going to cost.

Unit costs to go up and we can't maintain our returns therefore, we're going to slow down the spend or Conversely, we're seeing massive conversion rates are huge engagement or a massive reduction in C. P M.

I will tell you that too so I think it's really up to us to give you sort of the anecdotal feedback about what we're seeing in the industry and that should help guide your sort of quarter to quarter outlook strategics.

Strategically Mark and I are focused on year by year I understand you guys are focused on quarter to quarter, we'll always try and give you that color, but I would not model.

Winter boom summer when it doesn't really work that way and maybe Mark I'll give you a chance to expand on that because you've been here longer than I have.

I have but I would concur I don't I don't see.

And the season seasonality or a month to month seasonality.

Ron those metrics a number of times just out of curiosity, if nothing else.

Haven't seen any correlated trend.

Relative to time on the calendar nor season every year.

And just a quick comment I think look your churn is attractively low.

We love it if you gave that out clearly kind of well for peloton and some others.

But I would just add that perhaps you guys at least update that once a year.

Perhaps when you report your December quarter thing.

Yeah I appreciate the feedback I appreciate that.

Yeah.

Our next question comes from the line of Jeff Miller with Baird. You May proceed with your question.

Yes. Thank you paid subs engagement I understand the environmental factors that are outside of your control, but what are you doing differently to drive increased engagement among the paid subs and then <unk>.

Part of it.

I understand that the engagement is going to impact current period net revenue retention, but I guess, what I'm wondering is how much of a leading indicator is it for future paid subs retention and upselling.

You said earlier this is a very unique period, obviously I get that but I don't know if theres other historical parallels where you've had a three or six months.

Engagement wall, and if theres anything to draw from that.

In terms of predicting thank you.

So on the last part first.

Jeff If you look you look historically.

I only see one sort of.

Really kind of strong in parallel and that was the period of time post financial crisis, we did see.

You know the market crash it tried to recover it bouncing stuck in the mud for a period of time.

Right and with that sort of stuck in the mud environment, where things weren't moving up volatility headwind and investor interest in the market. When we did see a pause in new subscriber ads for three or four or so quarters post financial crisis, and that's probably the closest parallel that we're seeing to this current down into notes is totally <unk>.

Causal factor right.

But the end result is somewhat similar in terms of a pause in the subscriber growth that lasted more than three months. I mean this was almost two full quarters that we saw right. So.

What we saw after that was.

As the market eventually did begin to recover and faith in the market began to return fund inflows trading volume increase.

And the stock market began its gradual March higher we saw significant growth. That's following year billings growth profit growth margin expansion everything subscriber growth.

So that's but that's probably the most distinct parallel in our 20 year history to what we're seeing right now.

Your question around engagement and like how we handle it I mean I didn't totally followed the question.

I think youre asking what did we do to improve engagement.

Two things on that like what.

Kind of initiatives do you have in place in this environment.

Try to control it a little bit more.

Yeah, well look it looks like and this was the point that mark with pound he's like well, we don't stop trying like we're always trying and testing. The question is we're cautious in what we do is we try new ideas. We're trying new ideas, we're trying new marketing copy.

Adjusting product emphasis redirecting dollars to a given product that is working in a given environment, even if other products aren't working and frankly, we did see a shift to more crypto in recent months because crypto was really working.

So, but we can't broadly make engagement just better holistically, maybe we can through time, I think with with a pan market wise technology platform, where we have them.

A critical mass of aggregation of traffic right I think that better protects us against broader industry downturns and engagement and that is one of the main reasons Martin I want to pursue this path. So I think that will help that's a complicated effort that takes time and we're working on it but it doesn't happen overnight, but I think that will help be a strategic offset to.

That going forward right now the way, we adjust as we keep testing all the time new editors are different editors different product emphasis different marketing copy, we'll throw some marketing dollars at it and see if it works if it does great. We push harder if it doesn't we take it and put it toward a different campaigns and we've had a number of campaigns in the last four weeks that were crypto that worked.

Really well.

It's really ideas and content, where our portfolio of investment ideas and so if the engagement is down it really comes down to conversion rates and our ideas and our successful communication that our marketers have with our customers and that's really what the pushes.

Thank you.

Yeah.

Our next question comes from the line of Yigal <unk> with Wedbush Securities. You May proceed with your question.

Hey, guys. Thanks for squeezing me in here.

I think we've exhausted most of the AD.

Add questions, but maybe just just one more.

Like Big picture.

Well, let's say, let's just play out the scenario that AD rates don't normalize that continue to stay elevated for a protracted period.

Maybe even go higher from where we are what would that mean for your strategy. How would you approach. It would you have to raise prices to keep her that threshold would you lowered the threshold just wanted to think about think that scenario through and then but love to hear an update on terminal.

Chicken of analytics that are some of the software tool but.

Felt pretty promising when you guys first of all public.

Just Cheryl who'll update with what's going on there. Thanks.

So I'll handle the financial part first Mark and then.

We can handle the strategic part there.

In terms of how we hire handle sort of higher or elevated look to be clear elevated CAC is not a new thing that the degree of elevation and the suddenness of it in the second quarter was striking that has not been something that we've seen so fast so quick to such a magnitude having said that.

CPA from cap are going up 20% to 25% a year really from 2015 through 2020 constant that was that was the CAGR growth. If you look at industry studies. So we can handle elevating CPA, we handle that by.

A couple of methods. One is we're always adjusting the pricing of our campaign products in relation to the cost that it costs to bring in that paid so we're always looking at LTV to card value core value to CPA is rather rate, meaning the initial price versus the cost per that acquisition. That's a constant metric. It's real time, it's sort of the Holy Grail that our marketers will look.

So and so the price component is an important part of that too.

To a degree and we can handle that right. It's also the efficacy of marketing copies. When we're looking at our forecast, but we're always assuming elevating cactus. That's just the industry trend right and we've been able to maintain our breakeven is really for.

15 to 20.

And into 'twenty one.

Through the first quarter, our sort of Holy Grail for for targets are to pay off our variable CPA.

In 90 days and to get to full CAC breakeven in seven to nine months guess, what even with cat going up 20% to 25% a year, but in the period I. Just mentioned, we maintained all of those breakeven metrics cpa's within 90 days and full breakeven in seven to nine months.

So it's a combination of knowing how to price the product in relation to the cost and if the conversion rates arent successful then you pause and you redirect those marketing dollars up to a different campaign that can hit its metrics. So it's an idea.

Being cleaned a foot with your capital being real time testing with your your LTV your cart values to the CPA.

And those sorts of things. So we can manage and then escalating cat. It was just the suddenness of it and the fact that the denominator wasn't working in Q2 and Q3 because of the engagement fell very sharply that was that really was the differential thing primarily was the engagement with the primary problem.

Okay.

As far as your other question Yigal.

You asked about.

So called terminal.

Yes that pan market wise platform that we've been excited and working on behind the scenes is really meant to be that all in one tool content platform across all of the market was brands and properties.

But right now the current state of it is its been built out for one of the brands, which has a significant and long standing subscriber base that has been very loyal with really really high ltvs and <unk>.

Long are definitely long term subscribers. The early feedback from that group has been really encouraging and so what we're doing behind the scenes as we're working hard to try to build out.

I call the plumbing to plug in the rest of the brands and elevate that property across all of our properties.

We own across market wise and.

So.

I alluded to earlier that doesn't that doesn't happen overnight. There's a lot of testing that has to happen in a lot of migration of data.

And.

Plug ins, what I would call plug ins.

Technology, so that all of that content can flow seamlessly and we're working hard on that we expect to have something more to report on that.

Towards the first part of next year.

As we continue to work on it through the fourth quarter.

But we definitely want that platform I think it will do some of the things that <unk> described which is give us another.

<unk> platform on which to attract subscribers and show them.

How good and high quality, our researches and will also give us an ability to.

Put other content from across all of those brands in front of subscribers to one brand or another.

So we're excited about that as far as shaken goes.

We couldn't be more pleased with mark.

How his group is plugged into our ecosystem.

If you know mark at all.

Hi, energy very smart and very experienced in the financial markets.

Saw him recently and I swear he acts like a teenager right now he is so excited.

With both how things performed and how our relationship has gone in and I too am equally excited because I think what.

Shaken team has produced in terms of tools and content is fantastically beneficial to our leader base and I'm excited that put.

Put that content in front of more and more of our readers across market wise in both continuing to do so.

And I also think that'll be a vehicle by which we can attract new subscribers from outside of our ecosystem and we are.

Seeing that recently as well so that's going very very well I'm happy with it.

I think market is too.

Great Super helpful. Thank you.

Our next question comes from the line of Alex Kramm with UBS. You May proceed with your question.

Yeah, Hey, Hello, again, I realize it's a little over an hour into the call, but just a couple quick follow ups and hopefully this is quick.

One on the on the editorial side not sure. If you disclosed this but can you actually give us a number in terms of how many editors.

You've hired or any new products you've launched.

So we can kind of see what you're doing on that end.

Quarter over quarter.

Yeah, I don't have the specific yeah.

I don't have the specific numbers for you Alex in terms of plus minus.

What I would say is.

Someone that you might know Herb Greenberg has joined Empire financial.

We just recently joined.

But that's that information is out in the public he has written a very nice.

Editorial piece on.

Why he made a career change of what prompted it and what motivated him on some of the some of the thoughts he had is making through making that decision that we're excited about the plugging into Empire financial.

And launch products and content around him using his experience over a long time investor.

And as well as his experiences.

Short seller and bit of a analyst through lots of different properties lots of different investing season. So we're excited about that but it's very early days I cant.

Can't give you any indication of what that product set will look like quite yet we're talking about those things, but he is an exciting addition to what is already a growing quickly growing franchise in Empire financial.

Yeah, I did actually see that but thanks for the reminder, and then just one quick one or maybe two quick ones on the on the capital front.

Dale I guess can you just remind us what your minimum cash kind of is like how you feel about the cash balance going going forward. As you. Obviously you are starting to deploy a little bit more potentially and then just a outside of that on the buybacks, maybe just a little bit more specific and maybe you've answered this already but.

You, obviously have flexibility in terms of what you're going to do open markets and maybe some private transactions.

Transactions, though so I guess the question is.

Do you have a small float right and you also have some lockups and do you have a stock price that's below that magic $10. So.

Just curious like in terms of like on the on the private side.

I'm not sure how motivated insiders are so maybe two to be very blunt in specific I mean are you basically planning to do open market purchases this quarter and any any numbers in mind to help us here. Thanks.

So yeah sure look we're not going to deploy a plant and not use it. So absolutely we have intentions to as soon as we can get the documentation done and get our <unk> five one plan put in place. Our open window occurs two days after we're going to file our Q today is veterans day, we cant tell today or we would've we're filing tomorrow I'll queue and then two days after that.

Our open window begins and yes, our plan is to get the.

The <unk> can be five one plan documented with our underwriter brokers can handle it for this and then.

Our parameter set and there's some some brief cooling off period, but then right after that should be active right.

We have calibrated the plan, though we don't want to we want this plan.

We want it to be well within the <unk> 18 rules right, we want to plan to be durable long to last a long enough period of time.

So we don't consume it in three months. So we've calibrated some of our instructions around <unk> <unk> five wanted to make sure. It's a durable plan, but yes, we are.

If the market's below our price threshold.

Which obviously won't be a public number we will be buying but look I mean do some rough math right now where if you take our $210 million adjusted cash flow from ops number and divide it by 316 million shares.

Roughly 66.

The cents a share.

At seven Bucks a share that you know.

Versus like our book value of 10 Bucks.

Right that 66 cents a share I mean, it's like 45% accretive to to buy that share back so that obviously makes a wildly.

Good sense to do and so that's what we're looking at when it's when it's highly accretive.

To do that then we will.

And we went to some margin of safety that we're not gonna be here fine tuned in corporate finance, but but if the price threshold, we're setting the price thresholds such that when we do buy it back it will be materially accretive with a margin of safety.

Versus our book returns $10, a share I think of that as our book value right.

Yes, yes, yes through time, it could reduce the float and we have a small float but we have pipe investors that are largely back a couple of large spec centric type investors that may want to look to continue selling we want to provide some outlet for that sales volume our float will increase as a result of those pipe shares coming in so it's not obvious.

To me that necessarily that the share buyback program will necessarily reduce the float one for one as we buy back shares because some of those sales may well come from some of our large you know.

No more spec hedge funds centric pipe water so.

But the ultimate goal here guys is to get our stock to a better fundamental value right.

And at that better fundamental value, then presumably there'd be some sort of a secondary offering right that secondary offering is a real chance to increase the float. The magic here is to get the float to be large enough with where large investors can participate right now.

Big investors cannot I mean anybody like fidelity that wants to build a $50 million position.

They can't do that right.

So there's not enough volume it would take them eight months to build that in eight months to get out. So so that the real strategic solution is yes, we might decrease the float marginally over the next whatever six months.

But we've calibrated the program so it's not going to dramatically reduce the float.

Two weeks.

It should be impactful on the price of the stock, though but.

But then the ultimate goals with a better price that better fundamental value that enables a secondary offering in that secondary offering is the real solution, we get a real float.

Upwards of 100 million shares whatever the number is and then we can start to attract real investors value investors, who can invest in scale and size right now we're pretty much limit at the microcap funds. So that that's the ultimate solution here.

And then on the thanks for that by the way and then and then on the minimum cash balance sorry, if I missed that.

But we usually targeted $100 million.

And that was prior to having a debt facility. So we might rethink that balance a little bit now that we have a backup source of liquidity, that's pretty decent sized but historically, it's been in and around $100 $100 million.

But if you saw some good M&A acquisition opportunities it could run below that right now, we're earning $12 million to $17 million a month.

It's been the run rate.

So we can we can replenish that cast pretty quickly and since we're not distributing dividends profits.

Cash balance should build pretty quickly. So we're not really worried about a minimum cash balance right now and if we did a large large acquisition you'd probably see some debt that would go into that right and a couple of turns of debt.

But the cash build is really a war chest for our M&A strategy. This $35 million that we're using for share buybacks.

You know that that's a quarters worth of cash flow this quarter right. So that it's not really strategically impactful it really is cash.

Cash that can be replenished pretty quickly.

Yeah excellent. Thank you very much again.

Thanks, Alex.

At this time, we have reached the end of the question and answer session I'll turn the call back over to Mark Hong for any closing remarks.

Yes. Thanks, I just wanted to thank everybody for their time and once again I think of said would've wanted to which is as I as I look at our quarter performance.

We've continued what he's going to be a fantastic year and we now have all the pieces in place that I feel like are necessary and needed.

To fuel our.

Ability to execute on our strategic plan going forward from a both an organic standpoint as well as inorganic we're very excited about that and excited for the fourth quarter with that.

You all for your time and look forward to continuing the discussion going forward.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.