Q2 2022 MarketWise Inc Earnings Call
Thank you for standing by and welcome to market why second quarter 2022 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to Jonathan Sheffield head of Investor Relations at market wise. Thank you.
Good morning, and thank you for joining us on today's conference call to discuss market wide in the second quarter 2020 to 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.
These data 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 knock him measures can be found in our earnings press release, and SEC filings now I'll turn the call over to Mark.
Yeah.
Thanks, John and good morning, everybody.
Welcome to our second quarter 2022 earnings call. The second quarter of 2020 to continue in the same market and industrial dynamics, we experienced through the first quarter of the year.
Reflecting increased volatility and uncertainty in the U S and the global markets.
Record of inflation prompted the federal reserve's embark upon an aggressive monetary tightening cycle and this prompted concerns across the investment community and investors that a recession or a hard landing as possible or even probable which contributed to the market sell off that continued through the second quarter and ultimately resulted in what has been.
Highly reported is the worst first half of the year for stocks in 50 years.
Given this environment and the uncertainty in the economy and the market is not surprising that investors have remained cautious as the.
A market Selloff has continued through the middle of the summer.
Subscribers, continuing to evaluate and assess the market to determine how to adjust their investment strategies.
The situation has resulted in a hesitance regarding their investments similar to what we saw earlier in the year.
We believe this combination of factors continues to impact our current financial performance can be seen in our second quarter results, where our revenues declined nine 9% year over year to $128 million.
Our billings declined 36, 5% year over year to 117, and a half million dollars and our adjusted cash flow from operations was $26 8 million down from $59 4 million in the second quarter of 2021.
Our quarter's results continued to reflect lower consumer engagement.
Fewer new subscribers as compared to the prior year as a result of the economy post COVID-19 market influences.
They all will give you more details on our subscriber engagement in a few minutes.
As students of the markets and investors ourselves, we believe the individual investor is reacting in this environment in an understandable way by stepping to the sidelines are taking time to evaluate markets and that's.
Based on their own risk appetite.
This is not a new phenomenon, we've been through challenging markets before.
We've seen periods like this during the dotcom crash in the early two thousands and again during the 2008 2009 financial crisis.
And each of those cases, it took time for individual investors to fully reengage in market activities. During those periods, we manage our business through the cycle by developing new content that address the correct financial environment managed our marketing spend and costs appropriately.
We experienced significant organic growth went individual investors re entered the market.
We understand that to position the company for long term growth, we need to maintain and improve profitability and continue to generate strong cash flows and we are focused on doing just that.
Fortunately, we are in a lumpy at all position with positive cash flow strong balance sheet and no debt.
Which allows us to take advantage of opportunities where many of our competitors cannot.
As a result, we are adjusting to the current market cycle, both from a content perspective, and operationally as we focus internally to improve efficiencies and execute on our strategic objectives.
Along those lines there are several initiatives that I had mentioned previously that I want to provide an update on.
As we have discussed before our editors and analysts are adjusting to the current market environment and working hard to produce new content and investing ideas for our subscribers.
Our analysts continue to cover most major investment asset classes, which helps ensure that we have content that resonates and changing market conditions.
As we have seen major changes in investing sentiment occurred in the United States and globally. Our editorial teams are analyzing and writing about where markets are headed and developing additional content that they believe will fit these market conditions.
During the second quarter, we launched several new publications, which reflect our analysts best ideas for addressing the current investing environment.
Additionally, as we reflected on current market conditions, we retired a consolidated a half dozen other publications from our portfolio, which either don't fit the current investing environment for overlap content wise with other products we offer.
This will result in cost savings and greater operational efficiency going forward.
We also expanded our effort to further incorporate data science and artificial intelligence in our operations.
We partnered with subscale in the second quarter to accelerate our progress and we believe this effort will lead to substantial long term benefits to Martin.
Integrating data science and artificial intelligence further in our business will be a multiyear process that starts with a deep dive in the data collection analysis and modeling ultimately generating insights and results, which turn information into action.
Initial phase of this project with subscales focus on customer and transaction with that.
Moving out of conversion rates, increasing our direct mail conversions and working to decrease the rate of customer charge backs.
These are short term goals, we expect to realize in the next 12 months and our initial efforts are currently underway.
Ultimately, we believe greater integration with data science under our business will significantly improve our overall free to paid conversion rates helped to improve and lower our subscribers shrunk.
And increase engagement in terms of active users and paid content and improve Oh two overtime.
We are also actively working to integrate our technology products with our research brands.
To further enhance our product offerings to subscribers.
Last quarter, we detailed the success, we realized spring and shaking their analytics onto our platform generating over $27 million in billings on 2020 one.
More recently, we've had similar success with our oximetry brand.
Cemetery is one of our research brands that combined with a proprietary method of deconstructing GAAP financial statements and Reassembling, those financials and a way to assess a company's true value.
Air processing deconstructing GAAP financials into a uniform accounting standard provides insight into the company's valuation potential and profitability. So that retail investors can better identify public companies that are undervalued and poised for growth.
During the quarter altimetry marketed their product is stands ready researches audience, resulting in $3 $4 million and bill its highest billings, where an individual oximetry campaign in almost two years.
When we promote technology products with our content brands, we have found significant Oslo improvement as well as better subscriber retention.
We have another significant internal technology and content brand combination that we are actively working on and hope to complete in the third quarter.
In the future we plan on offering additional quantitative tools and products with her Washington research, but then our existing brands as well as in our M&A efforts.
I also want to provide an update on the development and rollout of a pan market wise technology platform.
Our technology team has made significant progress over the past quarter and continues to develop this platform. So accommodate our multiple brands and allow consumers to explore investment content from all of our brands in one location.
Our vision is it does umbrella platform will host a community of millions of readers, enabling us to enhance engagement improve our marketing efficiency and ultimately provide us with a source of traffic for new customers.
We completed the full rollout of this new platform for Stanford research earlier in the year and we have seen positive results from users already including increased time on page for investors researching new content products enhanced engagement with insight tools, including charged from dashboards and greater access to our video media.
This platform will also encourage more cross selling between brands, which should drive better retention and all the while providing a digital advertising revenue stream.
We began beta testing of the bolt platform in July and look to launch the platform platform more broadly in early 2023.
As you can see we have a number of initiatives underway that we believe will drive growth and profitability overtime.
Because of our strong balance sheet and positive cash flow. We are in a unique position to be able to make the necessary investments to drive long term value for our shareholders.
We're also cognizant that our company has experienced a period of significant growth over the last three years, having increased the number of product offerings publications analysts and associates, while transitioning to be a publicly listed company in more than a year ago.
Along with that growth and scale increases in overhead and overall corporate it stops.
After this period of significant growth and considering current market conditions, we launched a cost reduction effort and have found opportunities to increase efficiencies and optimize our expense structure.
Because our direct marketing spend is highly variable and we can react quickly to changes in advertising costs and given the persistent high unit subscriber acquisition costs and lower conversion rates, we tightened our marketing metrics during the second quarter to preserve margins and enhanced profitability.
We're also targeting total overhead expense reductions of approximately $37 million on an annualized basis, which we hope to have completed in the next month and much of which has already been completed.
I'll, let Jay I'll provide more detail in a moment. This effort reflects an approximate 15% annualized reduction in overhead expense.
This cost initiative again in the second quarter, and we expect to see incremental run rate benefits in third and fourth quarters of this year.
Additionally, in light of the sustained high cost of marketing and hesitancy on the part of investors, we have tightened our marketing metrics and are expecting an approximate $37 million.
Reduction in direct marketing expenditures in the second half of the year.
However, this reduction will be dependent on market factors, if marketing efficiency improves we may decide not to cut marketing spend to this degree and instead focus on more efficient subscriber acquisition.
To conclude the markets have certainly been challenging this quarter and that is reflected in our first half results that said, we've been in business for more than two decades, and I've seen many market cycles like this.
That uniquely positions us to not only weather the current market volatility, but thrive going forward.
Execute our strategic initiatives, which we will which should ultimately translate to improved revenue growth profitability and cash flow generation.
Now, let me turn the call back over to Dale.
Good morning, Thanks, Mark as Mark touched on in the second quarter continued the challenging trends first quarter marked by high inflation and the fed's aggressive tightening policy.
Recession fears and an equity market that fell into their territory.
Combination of these market influences has impacted our business as we continue to see hesitancy on the part self directed investors complete purchases of financial research.
In terms of overall interest investors continued to seek our products. That's our engagement metrics remain consistent with prior quarters. However, our purchase conversion rates from landing page visits the final after purchasing content continues the same low rate seen in the first quarter of this year Andrew.
And remains approximately 20% below fourth quarter 2021 levels.
However, it is also important to note that our higher by your customers conversion rates remain solid.
High value and also high value subscribers are at the heart of our business model and are particularly important in periods of time, when we're bringing in fewer new subscribers as is currently the case.
These subscribers continued to see the value in our products and are still purchasing products at rates similar to historic trends, which is currently driving the majority of our billings.
As of June 30 of 2022 are cumulative high value conversion rate and our cumulative ultra high value conversion rates for 42% and 32% respectively.
Each representing all time highs.
It is understandable and not surprising at the retail investors continue to be unsure of their next move in the market for all the factors mentioned previously we believe that many retail investors remain on the sidelines Act.
Actively monitoring market activities, but possibly delaying purchases.
Especially for our lower arps customers and prospective customers.
Let me provide an update on consumer engagement and conversion rates before I turn to the financial review.
And second quarter of 2022, our landing page visits were approximately $31 million.
It remains stable on a sequential basis and roughly the same average level seen since last summer.
However, this level remains approximately 18% lower than the average quarterly rate over the past two years.
While we've seen stabilization in this metric over the past four quarters as.
As we reduce our marketing spend you should expect to see declines in this metric. These.
These declines wont be market, driven necessarily but rather will be driven by the reduced level of our marketing if unit costs remain high.
Our landing page.
<unk> subscriber conversion rates were exactly the same as our first quarter 2022 levels, which was about 16 basis points or approximately 20% less than fourth quarter 2021 levels.
Similar to the prior quarter the decline had an impact on both billings and new subscriber acquisitions this quarter.
We continue to see these low conversion rates be driven by our low RP customers are high value and ultra high value conversion rates this quarter.
Remain in line with our historical averages over the past year.
Indicating that our most valuable subscribers continue to purchase additional content.
It's also important to note that subscriber memberships, which we previously termed lifetime subscriptions continued to grow in both the number of memberships and the active cumulative spend by those members.
This is another indication of customer satisfaction, and we take great confidence in the fact that these subscribers found buying a product and remain with us for the long term.
Turning to the financials.
Revenue was $128 million this quarter compared to $142 1 million in the year ago quarter, a decrease of 14 1.1 million or nine 9%.
The decrease in revenue was driven by a $13 $6 million decrease in term subscription revenue.
We recognized $84 million in deferred revenue this quarter.
Billings were $117 5 million compared to $185 1 million for the year ago quarter.
The decline of $67 6 million.
We believe the decrease was due in large parts of the post COVID-19 reduced engagement of consumers and lower overall direct to paid conversion rates.
The challenges that emerged in the first quarter 2022 continued into this quarter, which we believe further contributed to the subscribers and potential subscribers delaying their purchases.
Essentially $117 5 million.
Second quarter billings declined $18 5 million or 14% from the first quarter's level driven.
Driven by a decline in the average cart value or average expenditure for new purchase in the second quarter.
Approximately 38% of our billings came from membership subscriptions, 61% from term subscriptions and 1% mother billings in second quarter 2022.
This compares to 45% of our billings from membership subscriptions, 54% from term subscriptions and 1% from other billings in the second quarter 2021.
Cost of revenue was $16 2 million this quarter compared to $26 89 for the year ago quarter.
The decline at some point $6 million.
This decline was primarily driven by decrease of $10 6 million in stock based compensation related to the holders of class B units.
1.3 million dollar decrease in credit card fees, which was partially offset by $1 million increase in salaries and benefits due to higher head count.
The current quarter stock based compensation included zero point $5 million of expense related to our current incentive stock Award plan and our employee stock purchase plan.
This compares to $10 $6 million in class B stock based compensation expense in the year ago quarter.
As a reminder, from the time of the combination with Ascendant in July 2021, and through the end of second quarter 2022.
There was no longer any stock based compensation attributable to our original class B units recognized prior to the transaction. These units are treated as derivative liabilities rather than equity and.
And therefore had to be re measured each quarter with the change in fair value included in stock based comp.
Also any distributions of profits paid to class b holders for TD to stock based compensation expense.
Since the transaction and going forward as those original class B units converted to common units or straight common equity, we have and continue to expect to recognize significantly lower stock based compensation.
Our comp at a level that is consistent with the traditional stock based compensation plan.
For the second quarter of 2022, our total stock based compensation expense was $2 $4 million.
Sales and marketing costs were $65 1 million this quarter compared to $56 9 million in the year ago quarter, an increase of $8 1 million.
This increase was primarily driven by a $6 $5 million increase in deferred cat.
And at $1.7 million increase in salaries and benefits due to higher head count.
General and administrative costs this quarter were $20 4 million as compared to $64 7 million in the year ago quarter decline of $44 3 million.
This decline was primarily driven by a $36 million decrease in class B stock based compensation expense.
$4.2 million decrease in incentive compensation and profit interest expenses.
And a $1 $9 million decrease in other G&A, primarily related to sales tax exposure.
This was partially offset by a $1.3 million increase in payroll and benefit costs due to higher head count.
Included in these amounts are stock based compensation of $1 3 million this quarter as compared to 36 million in the year ago quarter.
Excluding stock based compensation costs, our G&A costs declined $9 $6 million from second quarter of 2021.
And finally net income in the second quarter was two.
2022 was $34.0 million compared to $8 $4 million loss in the year ago quarter.
We recognized stock based compensation of $2 4 million this quarter and stock based comp related to the class B units up $47 5 million in the year ago quarter.
Turning to cash flow adjusted cash flow from operations was $26 8 million in second quarter of 2022.
Compared to $59 4 million in the year ago quarter.
With the decline primarily due to the decrease in billings.
Just the cash flow from operations margin was 22, 8% in second quarter 2022, compared to 32, 1% last year.
Additionally, while per unit costs remain high in the second quarter of 2022, we didn't initially decreased our marketing expenditures as much as it might have otherwise.
However, as marketers continue to test their investment teams throughout the quarter and unit costs remain high we began to reduce our spend as the quarter progressed.
Just the cash flow from operations. This quarter was impacted by net changes in working capital excluding changes in deferred revenue and changes in deferred tax which increased cash by $35 million.
Our paid subscriber base declined from 994000 at the end of second quarter 2021 to 898000 this quarter of nine 7% decline.
The decline was driven by a decrease in overall consumer engagement and lower direct to pay conversion rates.
We saw a free subscriber base continued to grow from 12 million a year ago to $15 million 15 million subscribers this quarter.
25% increase.
<unk> declined to $508 this quarter from $823 last year, driven by a 3% increase in average trailing four quarter paid subscribers.
Mining for 27% decrease in average trailing four quarter billings.
The increase in trailing four quarter paid subscribers as still being significantly impacted by the rapid increase in our subscriber base in the first half of last year.
Decrease in trailing four quarter billings is due in part to second quarter 2021, our second largest quarter ever falling out of the trailing 12 month calculation. Additionally.
Additionally, we believe that the billings declined as al also due to the volatile economy that has persisted since first quarter 2022.
Leaving subscribers and potential subscribers hesitant to engage for the time being.
As Mark mentioned earlier, we're actively working to reduce our expenditures both through reduction in overhead and to a reduction in direct marketing expense.
Initially in our phase one effort, which has been largely completed we identified $27 million in annualized reductions to budgeted overheads, which represents an approximate 11% reduction.
Approximately $20 million of about $27 million were in the March year to date run rates of overhead expenditures and approximately $7 million represents eliminated future budgeted spend.
Going forward this should represent approximately a $1.7 million reduction to monthly overhead costs beginning in July .
This is before any severance expense that will be charged and disclosed with our third quarter report.
In addition, we're planning a second phase of the overhead reductions that were currently identifying and we approximate that amount as an additional $10 million on an annualized basis.
We estimate that all of this $10 million would have been in the June year to date run rate.
This would take our total overhead reductions to approximately $37 million on an annualized basis.
Approximately.
15% of our 2022 budgeted overhead.
Once the second phase is completed.
Over the next couple of months this would take our total monthly reduction to overhead and expenses two approximately $2 $5 million per month in aggregate and this should begin roughly in the fourth quarter.
Additionally in led.
Staying high cost of marketing, we're targeting an approximate $37 million reduction.
Direct marketing expenditures in the second half of the year as compared to the first half of 2022.
This equates to an approximate $6 million reduction to monthly cash direct marketing expenditures in the second half of 'twenty to <unk>.
As compared to the average monthly amount in the first half of the year. However.
However, as Mark mentioned this reduction will be dependent on market factors.
Getting efficiency improves we may decide not to cut marketing to this degree and instead focus on efficient subscriber acquisition.
But we believe these are both necessary and prudent steps as we look to navigate the current macro environment as the market stabilize future opportunities for growth and expansion will present themselves and we'll be in a much better position to execute after having taken these actions.
Until that time, we're focused on increasing the efficiency of our cost structure and their overall business.
Finally during the quarter, we repurchased about 300000 shares of common stock for approximately $1 $5 million in total value.
However, such purchases were ceased in early April .
Graham to date, we've repurchased 3.0 million shares for $16 $4 million.
And with that I'll turn the call back over to Mark.
Thanks, Dale just a final thought for me before we moved here taking your questions.
As you all know financial markets are cyclical and our business react and adapt to changes in the market environment.
That is what we have done throughout our company's history and that is what we've done so far this year.
As the market has come down in customer acquisition costs remain high we are adjusting our marketing spend and our overhead accordingly.
I expect that will continue through the second half of the year.
As I've said before we make decisions with a long term view in mind and try to balance growth with profitability, but always with an eye on profitability.
The recent market disruption, we are fortunate to be financially strong with positive cash flow a strong cash position and no debt.
And the actions we are taking now will put us in an even stronger position going forward.
As a significant shareholder that is what I would want to see from management and that is what we're doing.
Thanks, and I'll turn the call back over to the operator for your questions operator.
If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Our first question is from Devin Ryan with JMP Securities. Please proceed.
Hey, good morning, Mark and Bill how are you guys.
Hey, Devin.
Wanted to start with a question just on kind of the interplay between free and paid subs obviously.
Great growth still on the free side and so we don't want to dig in a little bit is when you think about kind of that new product development and what you guys are working on is there an evolution of demand at all meaning the types of products that customers may want or when you think about that huge tale of a free customers.
B other types of products that arent in.
Call it the Arsenal today that you should be delivering.
And maybe even low cost products just to get them into the platform paying something and then you can grow with them from there. So I'm just curious as you think about that new product development.
The ability to convert more of those free and maybe the strategy evolved a little bit.
Yeah. Thanks, Kevin I, a couple of issues you can touch on there one is price and so as.
As you know I think we feel like we cover the price spectrum pretty well, we've got certainly expensive high priced products.
That cost upwards in the thousands of dollars per year in subscription and we've seen nice conversion rates from our historic customer base in that category, but I think to your question goes more to how do you get more free period for.
What are your customers to convert over to the page status could you change your pricing strategy.
To increase the number of conversions coming across.
And I appreciate the logic of what you're describing of course as I've described in the past.
What our marketers are doing is constantly testing a.
Price sensitivities around our offerings, but I think as you also know in our introductory price points, we go under $200 and often under $100.
Sometimes at price points that looked like 29, 39 to $49 for a yearly subscription and when matched control monthly we think that's very very approachable from a price standpoint and.
And so we are continuing to test around those things, but those are pretty well established price points for us and we feel like that's an incredible value to the subscriber base.
Even at the free status.
Those price points.
In terms of the content offering that's exactly what I was trying to describe.
In my comments earlier, what are others are doing is as the markets have changed and come off of the bull market run.
I'm trying to think I don't know if you saw any kessler and the Wall Street Journal had a nice article about that this morning.
Yeah.
But as folks have reevaluated what their investment strategies are.
What we have done that in turn is put greater emphasis on investment strategies that are more appropriate for this economic environment. So we've toned down our marketing messages around the Gogo Alpha Susan.
<unk> and turned our marketing emphasis more towards a more value creation and often more trading type products. So a lot of what we're seeing now are leaders respond to.
Late to macroeconomic.
Products and messages as well as more short term.
Strategies and messages as well.
And so we continue to experiment around that and that's that's kind of the color we were trying to describe.
<unk> spend as our editors try to.
Put forth ideas in content and marketing around what the subscriber base, we will respond to them and that that's a little color on what we do there.
Okay terrific. Thanks, Mark and then just a follow up.
Yeah, you guys have weathered many environments.
Come out on the other side stronger right now you have a very strong capital base and solid footing I've covered this space for 20 years and you know there is cyclicality.
Doesn't feel normal in any way the pendulum will come back but.
You guys are on the larger end of the spectrum. When you look at kind of the individual publisher side what else is out there in the market like are we seeing capitulation or close to it yet where where folks may understand that like now is the time to partner with market wise and so there is maybe an acceleration in appreciation that being a part of your platform could really.
It'd be helpful, especially one engagement not at a call it a normal level or close to peak levels.
Yeah. That's a good question I appreciate that and it's timely I can tell you I can't speak to where maximum market capitulation errors for smaller publishers, because we've never been public until now and so we haven't been through one of these cycles with a public company platform.
And with the name recognition that people would normally respond to it but what I can say is I can tell you that we're receiving more inbound inquiries going over on our M&A pipeline and in particular around smaller publishers to your point I think.
We have some <unk>.
Qualities of our business in both scale and financial strength that others don't.
And I think people are recognizing that and in our M&A.
Assesses, reflecting that we we have had a number of inbound.
He is from folks and we're in discussions I can't I can't comment on specifics, but we we are busier than ever on the M&A side and a lot of that volume includes small to medium sized publishers, who who don't necessarily have the financial strength that we did.
Okay.
Okay, Great I'll leave it there thanks very much.
Our next question is from Kyle Peterson with Needham and company. Please proceed.
Hey, good morning, guys. Thanks for taking the questions I just wanted to dive a little bit in our capital allocation.
No no.
You guys bought back.
It seems a pretty small amount of stock this quarter and that's been a cash build seems like cash flow is improving.
You mentioned the strong M&A pipeline.
Should we kind of think about your priorities for free cash flow.
And to weaponize some of that cash that you guys have on the balance sheet over the next couple of quarters.
Yeah.
Yeah. So yeah go.
Go ahead bill.
You want me to start and I'm.
Sure I'm chairman on the referral.
Referring back to your other answer but yes.
So generically, we're hovering in and around $150 million in cash.
Which is a nice cushion and we have 150 million line of credit, which we've never drawn on.
We do have plenty of access to capital as Mark mentioned, we do have a number of smaller and midsized sort.
Sort of M&A opportunities that are out there, we'll see how many of those we can get done.
Applying dollars toward that makes perfect sense it'll be accretive at these levels.
Particularly using cash in terms of the share buybacks. There's some technical suspecting that you might as you might expect with all the redemptions. We had upon the transaction completing a year ago. Our float is small now we've seen you know a decent number of pipes here has come into the flow but.
You can do your own cats and get to the fact that our float is probably around 9 million shares.
We didn't want our tape our float below 9 million as we got close to that 9 million share number basically it was kind of the breakeven number between what you know it came out of the pipe relative to the initial count and and so we sort of stopped purchases there technically the volume.
Trading volume, we think might be impactful.
And then there's some basic regulatory requirements by the NASDAQ around shares held by the public. So we just didn't feel comfortable well obviously be highly accretive at these levels. Those technical considerations are offsetting the fundamental corporate finance argument right. Now so we still have the program is still effective we could use it.
And we might well use it for pipe shares that are not delays you didnt, meaning not in the float potentially one of those type orders wants to sell we could look at that that would be accretive and it wouldn't be reducing our public float.
But but in terms of buying more shares from the public float right now I think we're on one pause for that and I think we'd rather use our cash to marks earlier commentary around some of these M&A opportunities and why don't I turn it back to Mark.
No I think that's right does that does that cover your question Kyle.
Yeah, Yeah, no that's I'm really helpful and I guess, just a follow up.
You guys don't provide any guidance, but I'm just wanted to see.
What you guys are seeing you know, particularly in the month of.
July has there been any change in whether it's you know landing page visits or conversion rates you know in the month of July versus you know what you guys saw you know over the first six months of the year.
Yeah. It looks so great question and you know.
Remember back in my prepared comments, a little bit ago.
One of the things I mentioned, we are reducing our marketing spend and you will see a decline in our market that landing page visits as a direct result of that right, we're doing less activity there.
Less opportunities for landing pages. So you will see that decline if you look at things that we look at like.
Daily average trading volumes.
From certain brokers for example, schwab's they publish the data very reliably it's nice.
Their daily volumes are off about 12% July and August to date compared to the second quarter 22 average.
About 12% decline you know in that that's an important metric for us the conversion rates that we talked about in the second quarter have largely persisted throughout the summer those haven't really changed it feels like that level.
The first quarter second quarter and sort of July August at eight are all exactly in line plus or minus one basis point so.
It feels like what happened what's happening right now is that.
We're sort of we've hit this floor and conversion rates the individual investor is delayed.
They're collecting themselves I think and then they will reengage at some point here back in the financial crisis, So eight or nine.
The time from disengagement to Reengage engagement was about a year right.
So you know if we look at things generically and we get some stabilization in known pass on rates by the fed and we get some stabilization in inflation.
And therefore the markets you know markets are already recovering a bit you know those things kind of all play to our favor.
And so hopefully by the end of the year.
Turning to the fourth quarter.
We will start to see some things that might be more of a tailwind and less of a headwind, but but right. Now we are sort of in this little zone, where the conversion rates are low.
Reducing our spend because that makes perfect sense, that's going to drive huge.
Cost savings for us.
But secondly think see things turn we're constantly testing, we see things turn youre going to see US go back after marketing so.
But we are seeing the summer persist here some of the dynamics you talked about persistent in the case of the swap volumes are off a little bit further still so I'm not sure if that provide you enough color but.
It does.
Yeah, Yeah, no. That's helpful. I appreciate the color guys I'll leave it there.
Our next question is from Jeff Mueller with Baird. Please proceed.
Yes. Thank you.
So just trying to understand the Q2 G&A.
Expense figure, obviously, a big step down and I guess, what I'm wondering is.
Hmm.
What drove it is it a good baseline to work off of as we think about.
Layering on some of the incremental cost saves that you've more recently action or to what extent is there some benefit already seen in that number.
Yeah. So the question Jack Good question Geoff So what's a couple of things going on in second quarter that are important to note that.
That roughly $10 million decline nine or $10 million decline in G&A.
Ex stock based comp about.
$4 million of that was driven by reduced bonus accruals right. Our operating income is down and so direct results that directly results in a decline in and an incentive comp a lot of our incentive comp is formulaic based off of operating income.
So $4 million 10 million was driven by that another roughly $4 million was a decline in sales state sales tax.
That liability for states for but yeah.
European sales tax.
Right, that's kind of an anomalous thing that would not be reoccurring to your point.
You know the $4 million reduction in incentive comp if run rates continue similarly in terms of operating margins.
That that should be inadequate reflection of the ongoing level of accrual. So that one is more fundamental the other $4 million from state sales tax is a one time benefit.
And then the other couple of million dollars to round out the $10 million just due to the fact that last year in the second quarter of 'twenty. One we were headed into our our transaction and so we had some elevated expenses.
Legal and other otherwise.
With consultants and so forth and that's not that's not in this year's quarter right. So that goes away. So fundamentally the way I would think about it is I would say, okay. You add together like the G&A over the first six months of the year right.
Just take an average of that and take that and divide it by six you get a monthly average.
We've given you some proxies in our press release and in our conference call script today, and how you might expect to see that run rate decline as you go through the third quarter and then through the fourth quarter. The one seven to $2 5 million, we'd referenced there those are decent proxy, but I wouldn't just use the second quarter's run rate I would use the pool.
First six months of the year as an average and then get your average amount for that that would be a better smooth proxy I think.
So that helped.
That does and then I guess the second question is on the old adage of you know with marketing spend half as waste you just don't know which half.
Why do you dynamically kind of adjusted spend levels for challenging environments in the past.
How efficiently are you able to do so I'm just trying to think through how much kind of self inflicted a foregone billings, we should be bracing for as you make this adjustment in a challenging environment.
Marcia.
Yeah I.
So when we talk about our marketing spend and ratcheting it down what we do during a growing environment is we will ramp up that spend and test more campaigns across more products across more channels.
In each of our brands and daily Okay. So so what I'm, describing is a scope of breadth and depth across multiple campaigns through multiple channels multiple brands on a daily basis.
We're experiencing a different environment right now one that's more challenging and so that happened in reverse so the breadth of what gets tested and the depth of the spend in each camp.
Campaign goes down and as well as the channels or just a contraction across.
The board and our marketing department on a daily basis on that spend however.
That doesn't mean, it's a rote.
Lash of the budget, we're constantly measuring these things on a daily basis based on ROI. So when we see.
And I'm talking about tightening our marketing metrics, but I'm talking about as well.
Kind of breakeven at an ROI on the spend that's made on a daily basis.
So while those metrics are tightening up where campaigns hit the mark and in a range of what that breakeven and ROI it looks like our.
Our markets are still well accelerate into that channel when they see those marketing metrics on a tightened the basis of.
Being hit and.
So what you're seeing across our marketing department is like I described a pure campaigns and and.
Our reservation of our marketing spend for the best campaigns with the best ROI breakeven metrics and that's how they were managing that spend and so.
I hope that gives you a little bit of color.
Got it okay. Thank you.
Add to that too.
Yeah.
On that topic.
There is a generic sort of you know.
Brute force reduction in direct marketing and then there was a more tailored approach to reducing your spend we're starting with a more tailored approach first which means we can we can look at various categories of spend they are different flavors and see what the return is.
And we're cutting the least high return marketing efforts first for example, we've reduced certain lead Gen spend that was just not bearing fruit and too costly in this market.
We've reduced certain direct mail campaigns that were a.
Costly and in this market not worth the the lower returns.
So we cut those first right in that and then generically we get into the system more broad based direct marketing reduction as unit costs persisted kind of where they are but.
But we did cut the the lowest return highest cost efforts first and then towards the end of the quarter and we got into a little bit more broad based reduction but.
You know as we see things turn in and they will.
Marketers are testing. This every day, they're gonna get leading indicators real time, and we can move that back up as we see things improve pretty quickly.
Got it thank you.
And our final question is from Jason <unk> with Oppenheimer and company. Please proceed.
Oh, Hey, guys I'm going to have three so first mark I guess, what's around the content and product changes just I guess what's different.
I mean have you if somebody that's a change in strategy is some of it just you kind of you know.
You just been enough time that you're like okay. We need to make changes has there been changes in the senior management, who make content.
Help us understand like like what's different and why now.
As opposed to just you know they did.
The regular analysis you do around content.
The second question.
If the equity markets have bottomed and who knows combined with your product initiatives. I mean, do you think that would roughly assume that you can get back to billings growth by early.
Call. It six months from now and then kind of revenue growth like another six months later, just given you know obviously the delayed impact on billings versus revenue growth and then the last question and cost per day.
How.
Are you committing to like a minimum level of cash flow from operation for next year, just to help investors kind of think about their model. Thanks.
Okay.
Thanks, Jason.
I'll I'll kick off the first one.
Yeah. So so you were asking about our content and marketing changes in what's different and why now.
Generally the way I would describe that as a shift from risk on to risk off or whatever.
I mean by that is as as.
I referenced that Andy Kessler article.
He he kind of declared the bull market over one that ranges for decades, which I thought was interesting but.
But as that if you take that as a fact.
As as investors are pulling back and looking more towards wealth preservation.
Posed to wealth accumulation there.
Their appetite for more alpha seeking strategies, just wanes and that makes sense to us and so what you're seeing in our content in both our marketing content and our editorial content is a shift from alpha seeking high growth.
Products and strategies to one that's more about wealth preservation.
Preservation and avoidance of locks.
And so you're seeing that shift in our content across our marketing messages where and.
What's happening is people are more worried about losing what's in their portfolio as opposed to adding to it and so that's the general shift in content and that's taking place both in.
And a described this earlier.
Watching of new products in some cases with additional editors.
That works here, otherwise where different research brands, we're looking at folks and saying gosh I think we should bulk up and in some of these strategies, where we haven't had a need to because we've been on a long term or in the markets and so you're seeing an addition of editorial teams as well as products later and upholding products were.
The strategies, just don't seem right anymore, where are they investing strategy. Just we don't see an outlook on the longer term for the use of it so we're shipping customers in that.
Since we will fold them into other products, which we think will be better for the for the environment.
So that's generally what we're seeing in the content and product changes in terms of your second question.
<unk>.
If you assume the equity market has bottomed and that's a big assumption because I think a lot of our editorial and market pundits are looking at things and have difference of opinion about that some of them think that it's true that what you're seeing right. Now is showing nice signs of hope in that going forward. There is an opportunity to do that.
Essentially buy at the bottom and write up from here and there is ample economic evidence for that but other editors of ours, having any sort of difference of opinion I think that we're in for a tougher slog.
So but to your question if you assume that's true yes. It does take some time for the readers to sort of shake off the pain that they have experienced so far in the first half of the year and get back into their portfolio and Reengage with now.
Not only paid products, but higher price products, we've seen that in our past market cycles. Historically, we would expect that to continue now.
That happened in six months well a lot of that depends on whether you think the equity market's bottomed or not some folks will based on their own risk appetite.
We reached that conclusion and start to buy and what they think is a value based price.
Other folks who are more risk off may wait longer.
Just going to have to monitor that through our subscriber acquisition techniques and also our conversion rates, which of course, we will report two years.
Accordingly.
Okay.
Dale you want to take the third one.
Sure So look I think.
As we've talked about before Jason.
Providing guidance.
So having said that if you think about the dynamics that you see in our business right now right now.
Probably the closest parallel for us today.
It was the financial crisis right now they are not in.
And you saw it cut our expenditures back in that time period, as well, we kind of direct marketing on margins actually expanded but the revenue decline there wasn't as pronounced as it is here.
For whatever reason.
So look the reality is what are we bumping.
He looked at our margins the last several years it was roughly 20 or 22% I guess 19, 24% in 'twenty, one and 27% excuse me, 20% 19, 24% in 2020, 7% in 'twenty one.
So you're sort of in the low 20% area sort of in sort of normalized markets. You've got you've got a bit of a boost throughout the COVID-19 period 24, 27, right now we are kind of chugging along in the high teens right.
20% just mentally is something that we strive for you now.
So look for us to argue and try and get to that level right now even in a tough market.
You can see that's sort of what we're triangulating at when you look at our cost cuts and you take some run rates out.
So I can't give you a cash flow number, but what I can do is say that historically in a tough period of time like this sort of high teens to 20% is something we're really trying hard to maintain and even given these low conversion rates and when things. Eventually do turn you do get that uptick in billings that you're questioning about then you'll see some <unk>.
Margin expansion, if those incremental revenues.
The incremental margins on that are incredibly high 88% or more on a lot of those incremental revenues backend campaigns. So.
The margin expansion should be material when things do recover on as to when that timing comes.
You know you know eight or nine or 12 for 12 months from shock to recovery for the individual investor to really Reengage and so.
No that would argue all else being equal if we get some stability here, whether it's completely over or not but we get some stability.
Argues for as you get into the fourth quarter and the beginning of the first quarter.
In that zone right you know the fed pass would be now and the election should be over lots.
Lots of things should be playing to a little bit more stability and hopefully that will indicate a turn in the markets.
And in turn a little bit improvement in sentiment.
So that would be impactful for us.
Thank you that's helpful.
Do you have reached the end of our question and answer session I would like to turn the conference back over to Mark for closing remarks.
Well. Thank you I just wanted to thank everyone for your participation in today's call and thank you very much for your interest in market wise have a good day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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