Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-258734
MARKETWISE, INC.
311,076,515 SHARES OF CLASS A COMMON STOCK
5,382,666 WARRANTS TO PURCHASE SHARES OF CLASS A COMMON
STOCK
30,980,000 SHARES OF CLASS A COMMON STOCK UNDERLYING
WARRANTS
This prospectus relates to the resale from time to time of (i) an
aggregate of 17,984,212 shares of Class A common stock, par value
$0.0001 per share (the “Class A common stock”), of MarketWise,
Inc., a Delaware corporation, issued in connection with the
Transactions (as defined below) by the selling securityholders
named in this prospectus (each a “selling securityholder” and,
collectively, the “selling securityholders”) and (ii) 5,382,666
warrants to purchase Class A common stock at an exercise price of
$11.50 per share by certain of the selling securityholders. This
prospectus also relates to the issuance by us of (i) up to
291,092,303 shares of Class A common stock in exchange for common
units (“MarketWise Units”) of MarketWise, LLC, a Delaware limited
liability company and a direct subsidiary of MarketWise, Inc.,
tendered for redemption by one or more of the members of
MarketWise, LLC (the “MarketWise Members”), and including the
possible resale from time to time of some or all of such shares of
Class A common stock by certain of the selling securityholders,
(ii) up to 30,979,993 shares of Class A common stock upon the
exercise of outstanding private placement warrants (the “private
placement warrants”) and public warrants (the “public warrants”
and, together with the private placement warrants, the “warrants”),
and (iii) up to 2,000,000 shares of Class A common stock issued
pursuant to the Transaction Agreement and the Escrow Agreement
(each as defined below) and subject to release to certain members
of MarketWise, Inc.’s management team upon the occurrence of
certain contingencies, and the possible resale from time to time of
some or all of such shares.
On July 21, 2021, we consummated the transactions contemplated by
that certain Business Combination Agreement, dated as of March 1,
2021, by and among Ascendant Digital Acquisition Corp., a Cayman
Islands exempted company (“ADAC”), MarketWise, LLC (formerly known
as Beacon Street Group, LLC), the MarketWise Members, and
Shareholder Representative Services LLC, a Colorado limited
liability company, solely in its capacity as the representative of
the MarketWise Members thereunder (as amended, the “Transaction
Agreement”), which provided for: (1) the domestication of ADAC as a
Delaware corporation; (2) ADAC’s capital contribution to
MarketWise, LLC in exchange for certain units and warrants in
MarketWise, LLC; (3) the issuance of shares of Class B common
stock, par value $0.0001 per share, of MarketWise, Inc. to the
MarketWise Members (the “Class B common stock” and, together with
the Class A common stock, the “common stock”); and (4) the other
transactions contemplated therein. Upon the closing of the
Transactions (as defined herein), ADAC changed its name to
“MarketWise, Inc.” and became the sole manager of MarketWise, LLC.
MarketWise, Inc.’s only direct assets consist of MarketWise Units
and warrants of MarketWise, LLC, and substantially all of the
assets and the business of MarketWise, Inc. are held by MarketWise,
LLC and its subsidiaries.
We are registering the resale of shares of Class A common stock and
private placement warrants as required by (i) that certain Amended
and Restated Registration Rights Agreement, dated as of July 21,
2021, by and among us, Ascendant Sponsor LP (the “Sponsor”),
certain members of the Sponsor, and the MarketWise Members (the
“Registration Rights Agreement”), and (ii) those certain
subscription agreements, each dated March 1, 2021, entered into by
and between ADAC and certain qualified institutional buyers and
accredited investors that purchased shares of Class A common stock
in private placements consummated in connection with the
Transactions (the “Subscription Agreements”). We are registering
the issuance of shares of Class A common stock upon redemption of
MarketWise Units as required by the Registration Rights Agreement,
and are registering the issuance of shares of Class A common stock
upon exercise of warrants as required by that certain Warrant
Agreement, dated as of July 23, 2020, between ADAC and Continental
Stock Transfer & Trust Company.
We will receive the proceeds from any exercise of the warrants for
cash, but not from the issuance of any shares of Class A Common
Stock upon exchange of MarketWise Units or the resale of any shares
of Class A common stock or private placement warrants by the
selling securityholders covered by this prospectus.
We will bear all costs, expenses, and fees in connection with the
registration of the shares of Class A common stock and private
placement warrants. The selling securityholders will bear all
commissions and discounts, if any, attributable to their respective
sales of the shares of Class A common stock and private placement
warrants.
Our shares of Class A common stock are listed on The Nasdaq Global
Market (the “Nasdaq”) under the symbol “MKTW.” On March 14, 2022,
the closing sale price of our Class A common stock was $4.26 per
share. Our public warrants are listed on the Nasdaq under the
symbol “MKTW W.” On March 14, 2022, the closing sale price of our
public warrants was $0.55 per warrant.
We are an “emerging growth company” and a “smaller reporting
company” under the federal securities laws and will be subject to
reduced disclosure and public reporting requirements. See
“Summary—Implications of Being an Emerging Growth Company and a
Smaller Reporting Company.”
Investing in shares of our Class A common stock or warrants
involves risks that are described in the “Risk Factors” section
beginning on page
13
of this prospectus.
Neither the U.S. Securities and Exchange Commission (the “SEC”) nor
any state securities commission has approved or disapproved of the
securities to be issued under this prospectus or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is March 15, 2022.
TABLE OF CONTENTS
You should rely only on the information contained in this
prospectus or any amendment or supplement to this prospectus. This
prospectus is an offer to sell only the securities offered hereby,
but only under the circumstances and in jurisdictions where it is
lawful to do so. Neither we nor the selling securityholders have
authorized anyone to provide you with information different from
that contained in this prospectus or any amendment or supplement to
this prospectus. Neither we nor the selling securityholders take
any responsibility for, or can provide any assurance as to the
reliability of, any information other than the information in this
prospectus or any amendment or supplement to this prospectus. The
information in this prospectus or any amendment or supplement to
this prospectus is accurate only as of its date, regardless of the
time of delivery of this prospectus or any amendment or supplement
to this prospectus, as applicable, or any sale of the securities
offered by this prospectus. Our business, financial condition,
results of operations, and prospects may have changed since that
date.
For Investors Outside the United States:
We and the selling securityholders are offering to sell, and
seeking offers to buy, the securities offered by this prospectus
only in jurisdictions where offers and sales are permitted. Neither
we nor the selling securityholders have done anything that would
permit this offering or the possession or distribution of this
prospectus in any jurisdiction where action for that purpose is
required, other than in the United States. Persons outside the
United States who come into possession of this prospectus must
inform themselves about, and observe any restrictions relating to,
the offering of the securities offered by this prospectus and the
distribution of this prospectus outside the United
States.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-1
that we filed with the SEC using the “shelf” registration process.
Under the shelf registration process, the selling securityholders
may, from time to time, sell the securities offered by them
described in this prospectus through any means described in the
section titled “Plan of Distribution.” More specific terms of any
securities that the selling securityholders and their permitted
transferees offer and sell may be provided in a prospectus
supplement that describes, among other things, the specific amounts
and prices of the securities being offered and the terms of the
offering. This prospectus also relates to the issuance by us of
shares of Class A common stock from time to time upon the
occurrence of the events described in this prospectus.
We may also provide a prospectus supplement or post-effective
amendment to the registration statement of which this prospectus
forms a part to add information to, or update or change information
contained in, this prospectus. Any statement contained in this
prospectus will be deemed to be modified or superseded for purposes
of this prospectus to the extent that a statement contained in such
prospectus supplement or post-effective amendment modifies or
supersedes such statement. Any statement so modified will be deemed
to constitute a part of this prospectus only as so modified, and
any statement so superseded will be deemed not to constitute a part
of this prospectus. You should read both this prospectus and any
applicable prospectus supplement or post-effective amendment to the
registration statement of which this prospectus forms a part
together with the additional information to which we refer you in
the sections of this prospectus titled “Where You Can Find More
Information.”
This prospectus contains summaries of certain provisions contained
in some of the documents described herein, but reference is made to
the actual documents for complete information. All of the summaries
are qualified in their entirety by the actual documents. Copies of
some of the documents referred to herein have been filed, will be
filed, or will be incorporated by reference as exhibits to the
registration statement of which this prospectus forms a part, and
you may obtain copies of those documents as described below under
“Where You Can Find More Information.”
BASIS OF PRESENTATION
We were incorporated on February 11, 2020 as a Cayman Islands
exempted company under the name Ascendant Digital Acquisition Corp.
for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business
combination with one or more businesses. On July 21, 2021, we
completed the Transactions, following which we were renamed
“MarketWise, Inc.” and we act as the managing member of MarketWise,
LLC. Following the Transactions, we are a holding company, and,
accordingly, all of our assets are held directly by, and all of our
operations are conducted through, MarketWise, LLC, of which we are
the managing member, and our only direct asset consists of
MarketWise Units. As the managing member of MarketWise, LLC, we
have the full, exclusive, and complete discretion to manage and
control the business of MarketWise, LLC and to take all action we
deem necessary, appropriate, advisable, incidental, or convenient
to accomplish the purposes of MarketWise, LLC set forth in its
operating agreement, and, accordingly, the financial statements of
MarketWise, LLC for periods following the Transactions will be
prepared on a consolidated basis with ours. We may not be removed
as managing member of MarketWise, LLC.
References to a year refer to our fiscal years ended on December 31
of the specified year.
Certain monetary amounts, percentages and other figures included
herein have been subject to rounding adjustments. Accordingly,
figures shown as totals in certain tables and charts may not be the
arithmetic aggregation of the figures that precede them, and
figures expressed as percentages in the text may not total 100% or,
as applicable, when aggregated may not be the arithmetic
aggregation of the percentages that precede them.
Unless the context otherwise requires, references in this
prospectus to the “Company,” “MarketWise,” “we,” “us,” or “our”
refer to the business of MarketWise, Inc. and its subsidiaries,
including MarketWise, LLC.
MARKET AND INDUSTRY DATA
This prospectus includes, and any amendment or supplement to this
prospectus may include, estimates regarding market and industry
data and forecasts, which are based on our own estimates utilizing
our management’s knowledge of and experience in, as well as
information obtained from our subscribers, trade and business
organizations, and other contacts in the market sectors in which we
compete, and from statistical information obtained from publicly
available information, industry publications and surveys, reports
from government agencies, and reports by market research firms. We
confirm that, where such information is reproduced herein, such
information has been accurately reproduced and that, so far as we
are aware and are able to ascertain from information published by
publicly available sources and other publications, no facts have
been omitted that would render the reproduced information
inaccurate or misleading. Industry publications, reports, and other
published data generally state that the information contained
therein has been obtained from sources believed to be reliable, but
we cannot assure you that the information contained in these
reports, and therefore the information contained in this prospectus
or any amendment or supplement to this prospectus that is derived
therefrom, is accurate or complete. Our estimates of our market
position may prove to be inaccurate because of the method by which
we obtain some of the data for our estimates or because this
information cannot always be verified with complete certainty due
to the limits on the availability and reliability of raw data, the
voluntary nature of the data gathering process, and other
limitations and uncertainties. As a result, although we believe our
sources are reliable, we have not independently verified the
information and cannot guarantee its accuracy and
completeness.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains statements that are forward-looking and as
such are not historical facts. This includes, without limitation,
statements regarding our financial position and business strategy,
and the plans and objectives of management for our future
operations. Such statements can be identified by the fact that they
do not relate strictly to historical or current facts. When used in
this prospectus, words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,”
“possible,” “potential,” “predict,” “project,” “should,” “strive,”
“would,” and similar expressions may identify forward-looking
statements, but the absence of these words does not mean that a
statement is not forward-looking. Forward-looking statements are
predictions, projections, and other statements about future events
that are based on current expectations and assumptions and, as a
result, are subject to risks and uncertainties. Many factors could
cause actual future events to differ materially from the
forward-looking statements in this prospectus, including, but not
limited to:
•our
ability to attract new subscribers and to persuade existing
subscribers to renew their subscription agreements with us and to
purchase additional products and services from us;
•our
ability to adequately market our products and services, and to
develop additional products and product offerings;
•our
ability to manage our growth effectively, including through
acquisitions;
•failure
to maintain and protect our reputation for trustworthiness and
independence;
•our
ability to attract, develop, and retain capable management,
editors, and other key personnel;
•our
ability to grow market share in our existing markets or any new
markets we may enter;
•adverse
or weakened conditions in the financial sector, global financial
markets, and global economy;
•our
ability to respond to and adapt to changes in technology and
consumer behavior;
•failure
to successfully identify and integrate acquisitions, or dispose of
assets and businesses;
•our
public securities’ potential liquidity and trading;
•the
impact of the regulatory environment and complexities with
compliance related to such environment;
•the
impact of the COVID-19 pandemic;
•our
future capital needs;
•our
ability to maintain an effective system of internal control over
financial reporting, and to address and remediate existing material
weaknesses in our internal control over financial
reporting;
•our
ability to maintain and protect our intellectual property;
and
•other
factors detailed under the section of this prospectus entitled
“Risk Factors.”
These forward-looking statements are based on information available
as of the date of this prospectus and current expectations,
forecasts, and assumptions, and involve a number of judgments,
risks, and uncertainties. Accordingly, forward-looking statements
should not be relied upon as representing our views as of any
subsequent date, and we do not undertake any obligation to update
forward-looking statements to reflect events or circumstances after
the date they were made, whether as a result of new information,
future events, or otherwise, except as may be required under
applicable securities laws.
As a result of a number of known and unknown risks and
uncertainties, our actual results or performance may be materially
different from those expressed or implied by these forward-looking
statements. You should not place undue reliance on these
forward-looking statements.
SUMMARY
This summary highlights selected information from this prospectus
and may not contain all of the information that is important to you
in making an investment decision. Before investing in our
securities, you should read this entire document carefully,
including our financial statements and the related notes included
in this prospectus and the information set forth under the headings
“Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” Some of the
statements in this prospectus constitute forward-looking
statements. See “Cautionary Statement Regarding Forward-Looking
Statements.”
Overview
We started in 1999 with the simple idea that, if we could publish
intelligent, independent, insightful, and in-depth investment
research and treat the subscriber the way we would want to be
treated, then subscribers would renew their subscriptions and stay
with us. That simple idea worked and has guided our decisions ever
since.
Today, we are a leading multi-brand platform of subscription
businesses that provides premium financial research, software,
education, and tools for self-directed investors. We provide our
subscribers with the research, education, and tools that they need
to navigate the financial markets.
We have evolved significantly since our inception in
1999.
Over the years, we have expanded our business into a comprehensive
suite of investment research products and solutions. We now produce
a diversified product portfolio from a variety of financial
research companies such as Stansberry Research, Palm Beach Research
Group, TradeSmith, Casey Research, InvestorPlace, and Empire
Financial Research. Our entire investment research product
portfolio is 100% digital and channel agnostic. We offer our
research across a variety of platforms, including desktop, laptop,
and mobile devices, including tablets and mobile
phones.
As a result of the expansion of the business, we now have 98
editors and analysts covering a broad spectrum of investments,
ranging from commodities to equities, to distressed debt and
cryptocurrencies. We offer 42 free and 135 paid products on
multiple platforms through our 12 customer-facing brands. This
diversity of content has allowed our business to succeed and our
subscription base to grow through the many economic cycles in our
over 20-year history.
We have an engaged subscriber base of approximately 972 thousand
Paid Subscribers (as defined below) and a large and growing
audience of over 13.7 million Free Subscribers (as defined
below).
The Transactions
On July 20, 2021, as contemplated by the Transaction Agreement,
ADAC filed a notice of deregistration with the Cayman Islands
Registrar of Companies, together with the necessary accompanying
documents, and filed a
certificate of incorporation (our “Charter”) and a certificate of
corporate domestication with the Secretary of State of the State of
Delaware, under which ADAC was domesticated and continues as a
Delaware corporation, changing its name to “MarketWise, Inc.” (the
“Domestication”).
As a result of, and upon the effective time thereof, among other
things: (1) each of the then issued and outstanding Class A
ordinary shares, par value $0.0001 per share, of ADAC (the “ADAC
Class A ordinary shares”) automatically converted, on a one-for-one
basis, into a share of Class A common stock; (2) each of the then
issued and outstanding redeemable warrants of ADAC automatically
converted into a redeemable warrant to acquire one share of Class A
common stock; and (3) each of the then issued and outstanding units
of ADAC that had not been previously separated into the underlying
ADAC Class A ordinary shares and underlying warrants upon the
request of the holder thereof were cancelled and entitled the
holder thereof to one share of Class A common stock and one-half of
one warrant. No fractional warrants were issued upon such
separation.
On July 21, 2021, as contemplated by the Transaction Agreement,
MarketWise, Inc. and MarketWise, LLC consummated the business
combination contemplated by the Transaction Agreement whereby (i)
MarketWise, LLC restructured its capitalization, appointed
MarketWise, Inc. as its managing member, and issued to MarketWise,
Inc. 28,003,096 MarketWise Units, which units entitle the holder to
the distributions, allocations, and other rights under the Third
Amended and Restated Operating Agreement of MarketWise, LLC (the
“MarketWise Operating Agreement”), and 30,979,993 warrants to
purchase MarketWise Units and (ii) MarketWise, Inc. issued
291,092,303 shares of Class B common stock to the MarketWise
Members. Furthermore, simultaneously with the closing of the
Transactions, MarketWise, Inc., MarketWise, LLC, and the MarketWise
Members entered into a tax receivable agreement (the “Tax
Receivable Agreement”) which provides for, among other things,
payment by MarketWise, Inc. to the MarketWise Members of 85% of the
U.S. federal, state, and local income tax savings realized by
MarketWise, Inc. as a result of the increases in tax basis and
certain other tax benefits related to the exchange of MarketWise
Units for Class A common stock or cash. For additional information,
see “Certain Relationships and Related Party Transactions—Tax
Receivable Agreement.”
On March 1, 2021, concurrently with the execution of the
Transaction Agreement, ADAC entered into subscription agreements
(the “Subscription Agreements”) with certain investors
(collectively, the “PIPE Investors”) pursuant to, and on the terms
and subject to the conditions of which, the PIPE Investors
collectively subscribed for 15,000,000 shares of Class A common
stock at $10.00 per share for an aggregate commitment amount of
$150,000,000 (the “PIPE Investment” and, together with the other
transactions described above and all transactions contemplated by
or pursuant to the Transaction Agreement and all other agreements,
documents, instruments, and certificates entered into in connection
therewith and any and all exhibits and schedules thereto, the
“Transactions”). The PIPE Investment was consummated on July 21,
2021 substantially concurrently with the closing of the other
Transactions.
Pursuant to the Transaction Agreement and the escrow agreement
entered into at the closing of the Transactions (the “Escrow
Agreement”), on September 30, 2021 we issued and placed into escrow
2,000,000 shares of Class A common stock in the aggregate (the
“Management Members Earnout Shares”) subject to release to certain
members of our management (the “Management Members”) as described
below. Also pursuant to the Transaction Agreement, at the closing
of the Transactions, the Sponsor placed 3,051,000 shares of Class A
common stock (the “Sponsor Earnout Shares”) into escrow. The
Management Members Earnout Shares and Sponsor Earnout Shares will
be released and delivered upon the achievement of certain
triggering events, and if such events do not occur prior to the
expiration of the post-closing period ending on July 21, 2025 (the
“Earnout Period”), any remaining Management Members Earnout Shares
or Sponsor Earnout Shares will be automatically released to us for
cancellation.
Upon the consummation of the Transactions, ADAC’s Class A ordinary
shares, warrants, and units ceased trading on The New York Stock
Exchange, and MarketWise, Inc.’s Class A common stock and warrants
began trading on the Nasdaq under the symbols “MKTW” and “MKTW W,”
respectively. Immediately after giving effect to the Transactions,
(1) ADAC’s public shareholders owned approximately 0.8% of the
outstanding MarketWise, Inc. common stock, (2) the MarketWise
Members (without taking into account any public shares held by the
MarketWise Members prior to the consummation of the Transactions)
owned approximately 91.2% of the outstanding MarketWise, Inc.
common stock, (3) the Sponsor and related parties collectively
owned approximately
3.2% of the outstanding MarketWise, Inc. common stock (including
3,051,000 Sponsor Earnout Shares), and (4) the PIPE Investors owned
approximately 4.7% of the outstanding MarketWise, Inc. common
stock
Summary Risk Factors
Our business is subject to numerous risks and uncertainties,
including those highlighted in the section entitled “Risk Factors”
following this prospectus summary, that represent challenges that
we face in connection with the successful implementation of our
strategy and the growth of our business. In particular, the
following considerations, among others, may offset our competitive
strengths or have a negative effect on our business strategy, which
could cause a decline in the price of shares of our securities and
result in a loss of all or a portion of your
investment:
•Our
business depends on our ability to attract new subscribers and to
persuade existing subscribers to renew their subscription
agreements with us and to purchase additional products and services
from us. If we are unable to attract new subscribers, or continue
to engage existing subscribers, our revenue and operating results
may be adversely affected.
•If
we fail to adequately market our products and services, or to
monitor and manage our use of social media platforms as marketing
tools, it could have a material adverse effect on our business,
results of operations, and financial condition.
•Failure
to maintain and protect our reputation for trustworthiness and
independence may harm our business. In addition, in the event the
reputation of any of our current or former directors, officers, key
contributors, editors, or staff were harmed for any reason, our
business, results of operations, and financial condition could
suffer.
•If
we fail to effectively manage our growth, our business, results of
operations, and financial condition could be harmed.
•Our
future success depends on attracting, developing, and retaining
capable management, editors, and other key personnel.
•Our
success depends on our ability to respond to and adapt to changes
in technology and consumer behavior.
•If
we are unable to successfully integrate acquisitions, identify and
integrate future acquisitions, or dispose of assets and businesses,
our results of operations could be adversely affected.
•Because
we recognize revenue from subscriptions for our services over the
term of the subscription, downturns or upturns in new business may
not be immediately reflected in our operating results.
•Our
business, products, and facilities are at risk of a number of
material disruptive events that our operational risk management and
business continuity programs may not be adequate to
address.
•Disruptions
to our third-party technology providers and management systems
could harm our business and lead to loss of
subscribers.
•We
are subject to payment processing risk.
•Failure
to comply with laws and regulations or other regulatory action or
investigations, including with respect to the federal and state
securities laws, could adversely affect our business.
•We
could face liability for the information and data we collect and
distribute or the reports and other documents produced by our
software products.
•Any
failure of our internal security measures or breach of our privacy
protections could cause us to lose subscribers and subject us to
liability.
•We
are subject to laws, regulations, and industry standards related to
data privacy, data protection, and information security, including
industry requirements such as the Payment Card Industry Data
Security Standard. Our actual or perceived failure to comply with
such obligations could harm our business.
•Changes
in our provision for income taxes or adverse outcomes resulting
from examination of our income or other tax returns or changes in
tax legislation could adversely affect our business, financial
condition, and results of operations.
•MarketWise,
Inc.’s sole material asset is its interest in MarketWise, LLC, and,
accordingly, it will depend on distributions from MarketWise, LLC
to pay its taxes and expenses, including payments under the Tax
Receivable Agreement. MarketWise, LLC’s ability to make such
distributions may be subject to various limitations and
restrictions.
•The
Tax Receivable Agreement requires MarketWise, Inc. to make cash
payments to the MarketWise Members in respect of certain tax
benefits to which MarketWise, Inc. may become entitled, and no such
payments will be made to any holders of our Class A common stock
unless such holders are also MarketWise Members. The payments
MarketWise, Inc. will be required to make under the Tax Receivable
Agreement may be substantial.
•The
MarketWise Members have significant influence over us, including
control over decisions that require the approval of MarketWise,
Inc. stockholders.
•The
MarketWise Members have the right to have their MarketWise Units
redeemed or exchanged into shares of Class A common stock, which,
if exercised, will dilute your economic interest in MarketWise,
Inc.
•A
significant portion of the total outstanding shares of our Class A
common stock (or shares of our Class A common stock that may be
issued in the future pursuant to the exchange or redemption of
MarketWise Units) are restricted from immediate resale but may be
sold into the market in the near future. This could cause the
market price of our securities to drop significantly, even if our
business is doing well.
•Under
certain circumstances, the Sponsor and certain members of our
management team will be entitled to the Sponsor Earnout Shares and
the Management Member Earnout Shares, as applicable, which will
increase the number of shares eligible for future resale in the
public market and result in dilution to our
stockholders.
•We
have identified material weaknesses in our internal control over
financial reporting and may identify additional material weaknesses
in the future that may cause us to fail to meet our reporting
obligations or result in material misstatements of our financial
statements. If we fail to remediate any material weaknesses or if
we fail to establish and maintain effective control over financial
reporting, our ability to accurately and timely report financial
results could be adversely affected.
Organizational Structure
The diagram below depicts our organizational structure as of the
date of this prospectus:
_________________
(1)For
additional information regarding the MarketWise Units and our Class
B common stock, see “Certain Relationships and Related Party
Transactions—MarketWise Operating Agreement” and “Description of
Capital Stock—Common Stock—Class B Common Stock.”
(2)Voting
power and economic interest in MarketWise, Inc. does not include
shares of Class A common stock issuable upon exercise of warrants
or any Management Earnout Shares. Assuming exercise of all
outstanding warrants and issuance of all Management Earnout Shares,
the MarketWise Members would hold 83.0% of the voting power of the
common stock and 83.0% of the MarketWise Units, public stockholders
would hold 17.0% of the voting power of the common stock, and
MarketWise, Inc. would hold 17.0% of the MarketWise Units. See
“Certain Relationships and Related Party Transactions—Earnout”
“Certain Relationships and Related Party Transactions—MarketWise
Operating Agreement,” and “Description of Capital Stock—Common
Stock—Class B Common Stock.”
Corporate Information
ADAC was a blank check company incorporated on February 11, 2020 as
a Cayman Islands exempted company for the purpose of effecting a
merger, share exchange, asset acquisition, share purchase,
reorganization, or similar business combination with one or more
businesses. On July 21, 2021, ADAC domesticated into a Delaware
corporation and changed its name to “MarketWise, Inc.” in
connection with the Domestication. MarketWise, Inc. is a holding
company whose principal assets are the MarketWise Units it holds in
MarketWise, LLC.
Our principal executive office is located at 1125 N. Charles St.,
Baltimore, Maryland 21201. Our telephone number is (888) 261-2693.
Our website address is www.marketwise.com. Information contained on
our website is not a part of this prospectus, and the inclusion of
our website address in this prospectus is an inactive textual
reference only.
This prospectus contains references to trademarks and service marks
belonging to other entities. Solely for convenience, trademarks and
trade names referred to in this prospectus may appear without the ®
or TM symbols, but such references are not intended to indicate, in
any way, that the applicable licensor will not assert, to the
fullest extent under applicable law, its rights to these trademarks
and trade names. We do not intend our use or display of other
companies’ trade names, trademarks, or service marks to imply a
relationship with, or endorsement or sponsorship of it by, any
other companies.
Implications of Being an Emerging Growth Company and a Smaller
Reporting Company
We qualify as an “emerging growth company” as defined in the
Jumpstart Our Business St artups Act of 2012 (the “JOBS Act”). For
so long as we remain an emerging growth company, we are permitted,
and currently intend, to rely on the following provisions of the
JOBS Act that contain exceptions from disclosure and other
requirements that otherwise are applicable to public companies and
file periodic reports with the SEC. These provisions include, but
are not limited to:
•being
permitted to present only two years of audited financial statements
and selected financial data and only two years of related
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our periodic reports and registration
statements, including this prospectus, subject to certain
exceptions;
•not
being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, as amended
(“SOX”);
•reduced
disclosure obligations regarding executive compensation in our
periodic reports, proxy statements, and registration statements,
including in this prospectus;
•not
being required to comply with any requirement that may be adopted
by the Public Company Accounting Oversight Board (the “PCAOB”)
regarding mandatory audit firm rotation or a supplement to the
auditor’s report providing additional information about the audit
and the financial statements; and
•exemptions
from the requirements of holding a nonbinding advisory vote on
executive compensation and stockholder approval of any golden
parachute payments not previously approved.
We will remain an emerging growth company until the earliest to
occur of:
•December
31, 2025 (the last day of the fiscal year that follows the fifth
anniversary of the completion of ADAC’s initial public
offering);
•the
last day of the fiscal year in which we have total annual gross
revenue of at least $1.07 billion;
•the
date on which we are deemed to be a “large accelerated filer,” as
defined in the U.S. Securities Exchange Act of 1934, as amended
(the “Exchange Act”); and
•the
date on which we have issued more than $1 billion in
non-convertible debt over a three-year period.
We have elected to take advantage of certain of the reduced
disclosure obligations in this prospectus and may elect to take
advantage of other reduced reporting requirements in our future
filings with the SEC. As a result, the information that we provide
to our Class A stockholders may be different than what you might
receive from other public reporting companies in which you hold
equity interests.
We have elected to avail ourselves of the provision of the JOBS Act
that permits emerging growth companies to take advantage of an
extended transition period to comply with new or revised accounting
standards applicable to public companies. As a result, we will not
be subject to new or revised accounting standards at the same time
as other public companies that are not emerging growth
companies.
We are also a “smaller reporting company” as defined in the
Exchange Act. We may continue to be a smaller reporting company
even after we are no longer an emerging growth company. We may take
advantage of certain of the scaled disclosures available to smaller
reporting companies until the fiscal year following the
determination that our voting and non-voting common stock held by
non-affiliates is $250 million or more measured on the last
business day of our second fiscal quarter, or our annual revenues
are less than $100 million during the most recently completed
fiscal year and our voting and non-voting common stock held by
non-affiliates is $700 million or more measured on the last
business day of our second fiscal quarter.
For additional information, see the section titled “Risk
Factors—Risks Related to this Offering and Ownership of Our Class A
Common Stock—We qualify as an “emerging growth company” and a
smaller reporting company, and the reduced disclosure requirements
applicable to emerging growth companies and smaller growth
companies may make its securities less attractive to
investors.”
THE OFFERING
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Issuer
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MarketWise, Inc. |
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Securities Being Registered
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We are registering the resale by the selling securityholders of an
aggregate of 17,984,212 shares of Class A common stock and
5,382,666 private placement warrants.
We are also registering (i) up to 291,092,303 shares of Class A
common stock issuable in exchange for MarketWise Units tendered for
redemption or exchange by the MarketWise Members, and including the
possible resale from time to time of some or all of such shares of
Class A common stock by certain of the selling securityholders,
(ii) up to 30,979,993 shares of Class A common stock upon the
exercise of outstanding warrants, and (iii) up to 2,000,000 shares
of Class A common stock issued pursuant to the Transaction
Agreement and the Escrow Agreement and subject to release to
members of MarketWise, Inc.’s management team upon the occurrence
of certain contingencies, and the possible resale from time to time
of some or all of such shares.
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Terms of the Offering
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The selling securityholders will determine when and how they will
dispose of any shares of Class A common stock or private placement
warrants registered under this prospectus for resale.
We will issue shares of Class A common stock (i) upon the
redemption or exchange of MarketWise Units pursuant to the terms of
the MarketWise Operating Agreement, (ii) upon exercise of warrants
pursuant to the terms of the Warrant Agreement, and (iii) to
members of MarketWise, Inc.’s management team upon the occurrence
of certain contingencies pursuant to the terms of the Transactions
Agreement.
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MarketWise, Inc. Securities Outstanding Before this
Offering
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•28,518,135
shares of Class A common stock, representing approximately 9.0% of
the combined voting power of all of MarketWise, Inc.’s common
stock, 100% of the economic interest in MarketWise, Inc., and 9.0%
of the indirect economic interest in MarketWise, LLC.
•291,092,303
shares of Class B common stock, representing approximately 91.0% of
the combined voting power of all of MarketWise, Inc.’s common
stock, none of the economic interest in MarketWise, Inc., and,
together with the related MarketWise Units, 91.0% of the economic
interest in MarketWise, LLC.
•30,979,993
warrants (including 10,280,000 private placement warrants), each
exercisable for one share of Class A common stock at a price of
$11.50 per share.
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MarketWise, Inc. Securities Outstanding After this
Offering
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350,590,431
shares of Class A common stock, representing approximately 100% of
the combined voting power of all of MarketWise, Inc.’s common stock
and 100% of the economic interest in MarketWise, Inc. (assuming the
exercise for cash of all warrants). |
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Use of Proceeds
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All of the shares of Class A common stock and private placement
warrants offered by the selling securityholders will be sold by
them for their respective accounts. We will not receive any of the
proceeds from these sales.
The selling securityholders will pay any underwriting fees,
discounts, selling commissions, stock transfer taxes, and certain
legal expenses incurred by such selling securityholders in
disposing of their shares of Class A common stock and private
placement warrants, and we will bear all other costs, fees, and
expenses incurred in effecting the registration of such securities
covered by this prospectus, including, without limitation, all
registration and filing fees, Nasdaq listing fees, and fees and
expenses of our counsel and our independent registered public
accountants.
We will receive any proceeds from the exercise of the warrants for
cash, but not from the issuance of any shares of Class A common
stock upon exchange of MarketWise Units or the resale of the shares
of Class A common stock issuable upon such exercise or
exchange.
We intend to use the proceeds received from the exercise of the
warrants, if any, for general corporate purposes, which may include
capital expenditures, potential acquisitions, growth opportunities,
strategic transactions, and purchases of MarketWise Units from
MarketWise Members. However, we have not designated any specific
uses and have no current agreement with respect to any acquisition
or strategic transaction. See “Use of Proceeds.”
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Risk Factors
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See “Risk Factors” beginning on page
13
and other information included in this prospectus for a discussion
of factors you should carefully consider before deciding to invest
in the securities being offered by this prospectus.
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Material U.S. Federal Tax Considerations for Holders of Class A
Common Stock and Warrants
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For
a discussion of material U.S. federal tax consequences that may be
relevant to holders of Class A common stock and warrants, see
“Material U.S. Federal Tax Considerations for Holders of Class A
Common Stock and Warrants.” |
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Trading Symbols
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Our Class A common stock and public warrants are listed and traded
on the Nasdaq under the symbols “MKTW” and “MKTW W,”
respectively. |
In this prospectus, unless otherwise indicated, the number of
shares of Class A common stock outstanding and the other
information based thereon reflects 28,518,135 shares of Class
A common stock outstanding as of March 4, 2022 and does not
reflect:
•291,092,303 shares
of Class A common stock issuable upon exchange of 291,092,303
MarketWise Units and the related shares of Class B common stock
that are held by the MarketWise Members;
•32,045,000 shares
of Class A common stock reserved for future grant or issuance under
the MarketWise, Inc. 2021 Incentive Award Plan (the “2021 Incentive
Award Plan”); or
•6,409,000
shares of Class A common stock reserved for future issuance under
the MarketWise, Inc. 2021 Employee Stock Purchase Plan (the “2021
ESPP”).
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The following table presents the summary historical consolidated
financial and other data for MarketWise, Inc. for the periods and
at the dates indicated. MarketWise, Inc. is a holding company, and
its sole material asset is a controlling equity interest in
MarketWise, LLC. MarketWise, Inc. operates and controls all of the
business and affairs of MarketWise, LLC and, through MarketWise,
LLC and its subsidiaries, conducts our business. MarketWise, Inc.
consolidates MarketWise, LLC in its consolidated financial
statements and records a non-controlling interest related to the
MarketWise Units held by the MarketWise Members on its consolidated
balance sheets and statements of operations. The summary
consolidated statements of operations data and summary consolidated
statements of cash flows data presented below for the years ended
December 31, 2019, 2020, and 2021 and the summary consolidated
balance sheet data presented below as of December 31, 2020 and 2021
have been derived from the consolidated financial statements of
MarketWise, Inc. included elsewhere in this
prospectus.
Historical results are not necessarily indicative of the results
expected for any future period. You should read the summary
historical consolidated financial data below, together with our
audited consolidated financial statements and related notes thereto
included elsewhere in this prospectus, as well as “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and the other information appearing elsewhere in this
prospectus.
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(in millions) |
Year Ended December 31, |
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2021 |
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2020 |
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2019 |
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Consolidated Statements of Operations Data: |
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Net revenue |
$ |
541.4 |
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$ |
360.8 |
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$ |
265.4 |
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Related party revenue |
1.3 |
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3.4 |
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6.8 |
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Total net revenue |
542.7 |
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364.2 |
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272.2 |
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Operating expenses: |
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Cost of revenue(1)(2)
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239.3 |
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154.6 |
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42.6 |
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Sales and marketing(1)(2)
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296.9 |
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214.3 |
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106.1 |
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General and administrative(1)(2)
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960.2 |
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526.6 |
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91.7 |
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Research and development(2)
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7.5 |
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4.8 |
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3.7 |
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Depreciation and amortization |
2.7 |
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2.6 |
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2.3 |
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Related party expense |
10.2 |
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0.1 |
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0.3 |
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Total operating expenses |
1,516.8 |
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902.9 |
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246.7 |
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(Loss) income from operations |
(974.1) |
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(538.7) |
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25.6 |
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Other (loss) income, net |
16.2 |
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(2.9) |
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0.9 |
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Interest income, net |
(0.1) |
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0.5 |
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1.6 |
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Net (loss) income |
(958.0) |
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(541.1) |
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28.0 |
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Net (loss) income attributable to non-controlling
interests |
53.4 |
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(2.7) |
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— |
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Net (loss) income attributable to MarketWise |
$ |
(1,013.8) |
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$ |
(538.4) |
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$ |
28.0 |
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(in millions) |
Year Ended December 31, |
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2021 |
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2020 |
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2019 |
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Consolidated Statements of Cash Flows Data: |
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Net cash provided by operating activities |
$ |
63.6 |
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$ |
55.9 |
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$ |
54.2 |
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Net cash (used in) provided by investing activities |
(8.3) |
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(9.6) |
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12.4 |
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Net cash used in financing activities |
(30.7) |
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(103.4) |
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(27.3) |
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(in millions) |
As of December 31, |
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2021 |
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2020 |
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
$ |
139.1 |
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$ |
114.4 |
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Restricted cash |
0.5 |
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0.5 |
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Total current assets |
246.4 |
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180.6 |
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Total assets |
421.6 |
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284.8 |
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Deferred revenue and other contract liabilities |
319.0 |
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278.3 |
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Total current liabilities |
391.4 |
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345.5 |
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Deferred revenue and other contract liabilities,
noncurrent |
397.7 |
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254.5 |
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Total liabilities |
833.3 |
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1,205.4 |
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Total members’ deficit(3)
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(49.1) |
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(914.7) |
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Total deficit |
(411.8) |
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(920.6) |
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__________________
(1)Included
within cost of revenue, sales and marketing, and general and
administrative expenses are stock-based compensation expenses as
follows:
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Year Ended December 31, |
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2021 |
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2020 |
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2019 |
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Vested Class B units and change in fair value of Class B liability
awards |
$ |
935.0 |
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$ |
475.2 |
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$ |
5.6 |
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Profits distributions to Class B unitholders |
123.4 |
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78.4 |
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14.8 |
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Total stock-based compensation expense |
$ |
1,063.4 |
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$ |
553.6 |
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$ |
20.4 |
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(2)Cost
of revenue, sales and marketing, general and administrative, and
research and development expenses are exclusive of depreciation and
amortization shown as a separate line item.
(3)Historically,
total members’ equity is in a deficit position because
distributions to unitholders are made based on a modified basis of
accounting used for internal purposes, which incorporates net
revenue reported on a cash basis instead of accrual basis as
required under accounting principles generally accepted in the
United States (“GAAP”). As a result, distributions are typically
made in advance of GAAP basis subscription revenue, which is
recognized on a straight line basis over the subscription
term.
RISK FACTORS
An investment in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all of the other information contained in this
prospectus, before deciding to invest in our securities. If any of
the following events occur, our business, financial condition and
operating results may be materially adversely affected. In that
event, the trading price of our securities could decline, and you
could lose all or part of your investment. The risks and
uncertainties described below are not the only ones we face.
Additional risks and uncertainties that we are unaware of, or that
we currently believe are not material, may also become important
factors that adversely affect our business or results of
operations.
Risks Related to Our Business and Industry
Our business depends on our ability to attract new subscribers and
to persuade existing subscribers to renew their subscription
agreements with us and to purchase additional products and services
from us. If we are unable to attract new subscribers, or continue
to engage existing subscribers, our revenue and operating results
may be adversely affected.
To increase our revenue and maintain profitability, we must attract
new subscribers and retain, and expand the subscriptions of,
existing subscribers. Our ability to successfully attract and
retain subscribers to our subscription products depends in part on
the quality of the content, including the performance of any
investment ideas published. To the extent the returns on such
investments fail to meet or exceed the expectations of our
subscribers or the performance of relevant benchmarks, our ability
to attract new subscribers or retain existing subscribers to such
services will be adversely affected.
A substantial amount of our revenue is typically generated from
existing subscribers through their recurring subscriptions. Our
subscribers have no obligation to renew their subscriptions for
products after the expiration of the subscription period, which is
typically one year, and in the normal course of business some
subscribers have elected not to renew their subscriptions. In
addition, our subscribers may renew for lower subscription amounts
or for shorter contract lengths. We may not accurately predict
renewal rates for our subscribers, and our renewal rates may
decline or fluctuate as a result of a number of factors, including
subscribers usage, pricing changes, expiration of temporary product
promotions, number of products or services used by our subscribers,
customer satisfaction or dissatisfaction with our products or
services, pricing or capabilities of the products and services
offered by our competitors, increased competition, reduction in
customer spending levels, changes in our renewal policies or
practices for subscribers, and deteriorating general economic
conditions. If our subscribers do not renew their subscriptions,
buy additional content, or maintain or increase the amount they
spend with us, our revenue will decline and our business will
suffer.
Our success also depends on our ability to sell additional
products, more subscriptions, or higher-priced and premium editions
of our products and services to our current subscribers, which
requires increasingly sophisticated and costly sales efforts. We
seek to expand existing subscriptions by deepening customer
engagement through new touchpoints and expanding our portfolio of
tools and products for purchase. The rate at which our existing
subscribers purchase new or enhanced services depends on a number
of factors, including the quality of our content, general economic
conditions, the level of interest and investment in individual
stocks and other self-directed investment vehicles versus index
funds, exchange-traded funds and other passive investment vehicles,
and our subscribers’ receptiveness to higher-priced and premium
tools and products.
If we fail to adequately market our products and services, or to
monitor and manage our use of social media platforms as marketing
tools, it could have a material adverse effect on our business,
results of operations, and financial condition.
Our marketing efforts are designed to identify and attract
prospective subscribers primarily within our target market and
ultimately convert them into full lifetime subscribers. We also
employ marketing to promote our content, drive conversation about
our content and services, and promote visits by our subscribers.We
utilize a broad mix of marketing programs and platforms, including
social media sites, to promote our services and content to current
and prospective subscribers.
In order to successfully reach a larger number of prospective
subscribers and attract new subscribers, we must continually assess
the manner and platforms on which we are marketing our products and
services. Rapid changes in technology and the ways in which people
are reached can make this process more difficult. If we are unable
to effectively and efficiently market our products and services,
our business, results of operations, and financial condition may be
adversely affected.
For example, historically one of our primary means of communicating
with our subscribers and keeping them engaged with our products has
been via email communication. Our ability to communicate via email
enables us to keep our subscribers updated on new products and
present discount and promotional offers, among other things. As
consumer habits evolve in the era of web-enabled mobile devices and
messaging/social networking apps, usage of email, particularly
among the younger demographic, has declined. In addition,
deliverability and other restrictions imposed by third-party email
providers and/or applicable law could limit or prevent our ability
to send emails to our current or prospective users. While we
continually work to find new means of communicating and connecting
with our subscribers, there is no assurance that such alternative
means of communication will be as effective as email has been. Any
failure to develop or take advantage of new means of communication
or limitations on those means of communications imposed by laws,
device manufacturers, or other sources could have an adverse effect
on our business, financial condition, and results of
operations.
We may also limit or discontinue use or support of certain
marketing sources or activities if advertising rates increase or if
we become concerned by perceptions that certain marketing platforms
or practices are intrusive or damaging to our brand. If available
marketing channels are restricted, our ability to engage with and
attract subscribers may be adversely affected. In addition,
companies that promote our services or permit us to use their
marketing platforms may decide that their relationship with us
negatively impacts their business, or they may make business
decisions that negatively impact us. For example, if a company that
currently promotes our business decides to compete directly with
us, enter a similar business, deny us access to its platform, or
exclusively support our competitors, we may no longer have access
to their marketing channels.
Such companies may also disagree with, or choose to take a public
stance against, the editorial content produced by certain of our
operating brands, or otherwise decide to publicly cease providing
services to us. This may result in, among other things, loss of
access to the marketing channels provided by these companies,
copycat behavior by other of our vendors, difficulty retaining or
attracting employees, or negative media attention.
Furthermore, if we are unable to cost-effectively use social media
platforms or ad networks as marketing tools, our ability to acquire
new subscribers and our financial condition may suffer.
Unauthorized or inappropriate use of our social media channels
could result in harmful publicity or negative customer experiences,
which could have an adverse impact on the effectiveness of our
marketing in these channels. In addition, substantial negative
commentary by others on social media platforms could have an
adverse impact on our ability to successfully connect with
consumers.
Furthermore, there are extensive and rapidly evolving regulations
governing our ability to market to subscribers, whether via post,
email, or social media platforms, and our marketing is subject to
the rules and regulations of the U.S. Federal Trade Commission (the
“FTC”) and state consumer protection agencies. The failure by us,
our employees, or third parties acting at our direction to comply
with applicable laws and regulations could subject us to regulatory
investigations, lawsuits, including class actions, liability,
fines, or other penalties and could result in a material adverse
effect on our business, results of operations, and financial
condition. In addition, an increase in the use of social media
platforms for product promotion and marketing may cause an increase
in our burden to monitor compliance of such platforms, and increase
the risk that such materials could contain problematic product or
marketing claims in violation of applicable
regulations.
To the extent we promote our content inefficiently or
ineffectively, we may not be able to obtain expected subscriber
acquisition and retention benefits, and our business, results of
operations, and financial condition may be adversely
affected.
Failure to maintain and protect our reputation for trustworthiness
and independence may harm our business. In addition, in the event
the reputation of any of our current or former directors, officers,
key contributors, editors, or editorial staff were harmed for any
reason, our business, results of operations, and financial
condition could suffer.
We believe our portfolio of brands are highly regarded because of
the integrity of their editorial content. Independence is at the
core of our brands and business, and we believe that our reputation
and the reputation of our brands is one of our greatest corporate
assets. Importantly, we believe that one of our greatest
competitive advantages is the loyalty that we have gained from our
subscribers as a direct result of our brand, reputation for
integrity, and ability to deliver high-quality products and
services. To protect our brands, our corporate policies, codes of
conduct, and workplace culture demand that all of our content
providers, whether employees or outside contributors, adhere to
rigorous standards of integrity and independence, including
guidelines that are designed to prevent any actual, potential, or
perceived conflict of interest, and to comply with all applicable
laws, including securities laws. The occurrence of events such as
our misreporting a market event, the non-disclosure of a security
ownership position by one or more of our content providers, the
manipulation of a security by one or more of our content providers,
or any other breach of our compliance policies could harm our
reputation for trustworthiness and reduce readership.
In the event the reputation of any of our current or former
directors, officers, key contributors, editors, or staff were
harmed for any reason, we could suffer as a result of our
association with such individual, including if the quantity or
value of future services we received from the individual was
diminished. In particular, we and our operating brands depend
heavily on the ideas and reputation of their editors and editorial
teams, and often name products and operating companies after
members of those editorial teams. To the extent that any such
editors or editorial team members have, in the past, been the
subject of regulatory actions, accusations, claims, investigations,
lawsuits, or settlements, such actions may have or may continue to
have a negative impact on our reputation, readership and financial
results. Furthermore, if, at any point in the future, any editors,
contributors, or other personnel associated with our, our products,
or brands, or businesses that we may acquire become the subject of
regulatory actions, accusations, claims, investigations, lawsuits,
or settlements, any such action may have a negative impact on our
reputation, readership, and financial results. These risks apply to
editors, contributors, or other personnel of us that are currently
part of our organization, as well as any such people that were part
of us in the past or become part of us in the future, whether by
acquisition or otherwise. In addition, any failures by us to
continue to effectively instill in our employees the expectation of
independence and integrity may devalue our reputation over time.
Our reputation may also be harmed by factors beyond our control,
such as adverse news reports about our products and services,
negative publicity about the investment newsletter industry
generally, or negative publicity about key personnel associated
with our business. These events could materially adversely affect
our business, results of operations, and financial
condition.
If we fail to effectively manage our growth, our business, results
of operations, and financial condition could be
harmed.
The scope and complexity of our business have increased
significantly in recent years. The growth and expansion of our
business creates significant challenges for our management,
operational, and financial resources. In the event of continued
growth of our operations or the number of our third-party
relationships, our information technology systems and our internal
controls and procedures may not be adequate to support our
operations. To effectively manage our growth, we must continue to
improve our operational, financial, and management processes and
systems and to effectively expand, train, and manage our employee
base. As our organization continues to grow and we are required to
implement more complex organizational management structures, we may
find it increasingly difficult to maintain the benefits of our
corporate culture, including our ability to quickly develop and
launch new and innovative products and solutions. This could
negatively affect our business performance.
We continue to experience growth in our headcount and operations,
which will continue to place significant demands on our management
and our operational and financial infrastructure. As we continue to
grow, we must effectively integrate, develop, and motivate new
employees, and we must maintain the beneficial aspects of our
corporate culture. If we fail to effectively manage our hiring
needs and successfully integrate our new hires, our
efficiency, ability to meet our forecasts, and employee morale,
productivity, and retention could suffer, and our business, results
of operations, and financial condition could be adversely
affected.
In addition, our rapid growth may make it difficult to evaluate our
future prospects. Our ability to forecast our future results of
operations is subject to a number of uncertainties, including our
ability to effectively plan for and model future growth. We have
encountered in the past, and may encounter in the future, risks and
uncertainties frequently experienced by growing companies in
rapidly changing industries. If we fail to achieve the necessary
level of efficiency in our organization as we grow, or if we are
not able to accurately forecast future growth, our business,
results of operations, and financial condition could be
harmed.
Our future success depends on attracting, developing, and retaining
capable management, editors, and other key personnel.
Our ability to compete in the marketplace depends upon our ability
to recruit and retain key employees, including executives to
operate our business, technology personnel to run our publishing,
commerce, communications, video, and other systems, direct
marketers to sell subscriptions, and salespersons to sell our
subscriptions.
Many of our key employees are bound by agreements containing
non-competition provisions. There can be no assurances that these
arrangements with key employees will provide adequate protections
to us or will not result in management changes that would have
material adverse impact on us. In addition, we may incur increased
costs to continue to compensate our key executives, as well as
other employees, through competitive salaries, stock ownership, and
bonus plans. Nevertheless, we can make no assurances that these
programs will allow us to retain our management or key employees or
hire new employees. The loss of one or more of our key employees,
or our inability to attract experienced and qualified replacements,
could materially adversely affect our business, results of
operations, and financial condition.
In addition, some of our products, particularly our editorial
products, reflect the talents, efforts, personalities, investing
skills, portfolio returns, and reputations of their respective
editors. As a result, the services of these key editors and
analysts form an essential element of our revenue. There is a
limited pool of editors and analysts who have the requisite skills,
training, and education necessary to meet our standard for our
editorial products. We compete with many businesses and
organizations that are seeking skilled individuals, particularly
those with experience in the financial industry and those with
degrees in technical fields, who are particularly critical to our
editorial products. Competition for such professionals can be
intense, as other companies seek to enhance their positions in the
markets we serve.
If we are unable to retain key editors and analysts, or should we
lose the services of one or more of them to death, disability, loss
of reputation, or any other reason, or should their popularity
diminish or their investing returns and investing ideas fail to
meet or exceed benchmarks and investor expectations, we may fail to
attract new editors and analysts acceptable to our readers.
Therefore, the loss of services of one or more of our key editors
and analysts could have a material adverse effect on our business,
results of operations, and financial condition.
We face significant competition. Many of our competitors and
potential competitors have larger customer bases, more established
brand recognition, and greater financial, marketing, technological,
and personnel resources than we do, which could put us at a
competitive disadvantage. Additionally, some of our competitors and
potential competitors are better capitalized than we are and able
to obtain capital more easily, which could put us at a competitive
disadvantage.
We experience intense competition across all markets for our
products, with competitors ranging in size from smaller,
specialized publishers to multimillion dollar corporations. Some of
our competitors have larger customer bases, more established name
recognition, a greater market share, and larger financial,
marketing, technological, and personnel resources than we do. In
particular, our services face intense competition from other
providers of business, personal finance, and investing content,
including:
•free
online financial news aggregators and content providers, like
Yahoo! Finance and Seeking Alpha;
•traditional
financial news publishers, like The Wall Street Journal, Investor’s
Business Daily, and Barron’s;
•consumer-focused
online subscription businesses, such as The Motley Fool;
and
•institutional
financial software providers, such as Bloomberg, FactSet, and
S&P Global.
Our ability to compete successfully depends on many factors,
including the quality, originality, timeliness, insightfulness, and
trustworthiness of our content and that of our competitors, the
popularity and performance of our contributors, the success of our
recommendations and research, our ability to introduce products and
services that keep pace with new investing trends, our ability to
adopt and deploy new technologies for running our business, the
ease of use of services
developed
by us or our competitors, and the effectiveness of our sales and
marketing efforts. Future competitive pressure may result in price
reductions, lower sales volumes, reduced margins, or loss of market
share, any of which could materially adversely affect our business,
results of operations, and financial condition. Accordingly, we
cannot guarantee that we will be able to compete effectively with
our current or future competitors or that this competition will not
significantly harm our business.
Additionally, advances in technology have reduced the cost of
production and online distribution of print, audio, and video
content, including content like podcasts, which has lowered the bar
for market entry to providers of both free and paid content. While
our platform does not rely on ad-sponsored content, many of our
competitors offer ad-sponsored content that enables them to deliver
content for low, or no, subscription costs. We compete with these
other publications and services for customers, employees, and
contributors. In addition, media technologies and platforms are
rapidly evolving, and the technologies and platforms through which
data is consumed can shift quickly. Certain of our competitors may
be better situated to quickly take advantage of consumer preference
for new technologies and platforms, and the economics of
distributing content through the use of new technologies and
platforms may be materially different from the economics of
distributing content through our current platforms. If we fail to
offer our content in the manner or on the platforms in which our
audience desires to consume it, or if we do not have offerings that
are as compelling and/or cost effective as those of our
competitors, our business, results of operations, and financial
condition may be materially adversely affected.
Adverse or weakened conditions in the financial sector, global
financial markets, and global economy may impact our
results.
Our business results are partly driven by factors outside of our
control, including general economic and financial market trends.
Any unfavorable changes in the environment in which we operate
could cause a corresponding negative effect on our business
results, as they may cause customers to become particularly
cautious about capital and data content expenditures. As a result,
we may experience lower revenue, cash flow, and other financial
results in the event of a market downturn. In addition, global
macroeconomic conditions and U.S. financial markets remain
vulnerable to potential risks posed by exogenous shocks, which
could include, among other things, political and financial
uncertainty in the United States and Europe, concerns about China’s
economy, complications involving terrorism, armed conflicts, civil
unrest around the world, or other challenges to global trade or
travel, such as the effect on the global economy posed by the
COVID-19 pandemic.
Furthermore, our average customers are people at or approaching
retirement age who may be particularly vulnerable during economic
downturns. Therefore, a prolonged period of contraction in the
global economy could adversely affect our business, results of
operation, and financial condition.
Our success depends on our ability to respond to and adapt to
changes in technology and consumer behavior.
We believe the technology landscape has been changing at an
accelerating rate over the past several years. Advances in
technology have led to an increasing number of methods for delivery
of content and have resulted in a wide variety of consumer demands
and expectations, which are also rapidly evolving. The increasing
number of digital media options available on the Internet, through
social networking tools and through mobile and other devices
distributing content, is expanding consumer choice significantly.
In addition, there has been an increasing focus on technology not
merely supplying additional tools for users, but also offering
solutions to specific customer problems. Given a multitude of media
choices and a dramatic increase in accessible information,
consumers may place greater value on when, where, how, and at what
price they consume digital content. If we are unable to
exploit
new and existing technologies to distinguish our products and
services from those of our competitors or adapt to new distribution
methods that provide optimal user experiences, our business,
results of operations, and financial condition may be adversely
affected. In addition, our reputation could suffer if we are
perceived as not moving quickly enough to meet the changing needs
of investors.
Our future success will continue to depend upon our ability to
identify and develop new products and enhancements that address the
future needs of our target markets and respond to their changing
standards and practices. We may not be successful in developing,
introducing, marketing, licensing, and implementing new products
and enhancements on a timely and cost-effective basis or without
impacting the performance, stability, security, or efficiency of
existing products and customer systems. Further, any new products
and enhancements may not adequately meet the needs of our target
markets. Our failure or inability to anticipate and respond to
changes in the marketplace, including competitor and supplier
developments, may also adversely affect our business, operations,
and growth.
Furthermore, the success of our software products depends on
frequently rolling out new features so that we can quickly
incorporate user feedback, and we cannot guarantee that we will
successfully adapt our software to meet such evolving customer
needs. Our competitive position and business results may suffer if
we fail to meet client demands, if our execution speed is too slow,
or if we adopt a technology strategy that does not align with
changes in the market.
As technology continues to evolve, the expenditures necessary to
integrate new technology into our products and services could be
substantial, and we may incur additional operating expenses if such
integration projects take longer than anticipated. Other companies
employing new technologies before we are able to do so could
aggressively compete with our business. If we are not successful in
responding to changes in technology and consumer behavior, we may
lose new business opportunities or potential renewals or upgrades
from existing subscribers and our business, financial condition,
and prospects may be adversely affected.
If we are unable to successfully integrate acquisitions, identify
and integrate future acquisitions, or dispose of assets and
businesses, our results of operations could be adversely
affected.
As a part of our strategic plan, we have acquired businesses and we
intend to continue to pursue selective acquisitions to support our
business strategy. These acquisitions can involve a number of risks
and challenges, any of which could cause significant operating
inefficiencies and adversely affect our growth and profitability.
Such risks and challenges include:
•underperformance
relative to our expectations and the price paid for the
acquisition;
•unanticipated
demands on our management and operational resources;
•failure
to improve scalability;
•difficulty
in integrating personnel, operations, and systems;
•retention
of customers of the combined businesses;
•inability
to maintain relationships with key customers, suppliers, and
partners of an acquired business;
•assumption
of contingent liabilities; and
•acquisition-related
earnings charges.
The benefits of an acquisition or an investment may take
considerable time to develop, and certain acquisitions may not
advance our business strategy and may fall short of expected return
on investment targets. If our acquisitions are not successful, we
may record impairment charges. Our ability to continue to make
acquisitions will depend upon our success at identifying suitable
targets at acceptable prices, which requires substantial judgment
in assessing their values, strengths, weaknesses, liabilities, and
potential profitability, as well as the availability of
capital.
We expect to continue making acquisitions and establishing
investments and joint ventures as part of our long-term business
strategy. Acquisitions, investments, and joint ventures involve a
number of risks. They can be time-consuming and may divert
management’s attention from day-to-day operations, particularly if
numerous acquisitions or joint ventures are in process at the same
time. Financing an acquisition could result in dilution from
issuing equity securities, reduce our financial flexibility because
of reductions in our cash balance, or result in a weaker balance
sheet from incurring additional debt.
The effect of the COVID-19 pandemic on our business is currently
unknown, but a worsening or prolonging of its effects may adversely
affect our business, financial condition, and results of
operations.
The novel coronavirus (“COVID-19”) was first reported in Wuhan,
China in December 2019 and subsequently spread to the United States
in January 2020. Since then, COVID-19 has spread across the globe
and was declared a pandemic by the World Health Organization in
March 2020. COVID-19 has had a significant impact on the global
supply chain, financial markets, trading activities, and consumer
behavior, and the expected duration of these impacts remains
uncertain. While the COVID-19 pandemic has not adversely affected
our business and results of operations so far, it remains uncertain
how the pandemic will impact our business in the future, and the
COVID-19 pandemic may have a negative impact on our business,
liquidity, and results of operations due to the occurrence of some,
or all, of the following events or circumstances:
•extreme
volatility in financial and other capital markets;
•Our
inability to manage our business effectively due to key employees
becoming ill, working from home inefficiently, and being unable to
travel to our offices;
•the
requirement that our management team shift its focus to mitigating
risks related to COVID-19 and away from day-to-day operations and
initiatives;
•the
inability of existing and prospective subscribers to purchase or
renew paid subscriptions;
•disruptions
to our marketing campaigns;
•fewer
opportunities for analysts to attend conferences, symposia, and
other research activities;
•disruptions
in our ability to conduct product development;
•potential
postponement or cancellation of previously planned initiatives or
strategic transactions; and
•system
interruptions that slow our websites or make our websites
unavailable as our third-party software and service providers
experience increased usage.
The extent to which the COVID-19 outbreak impacts our financial
condition will depend on future developments that are highly
uncertain and cannot be predicted, including new government actions
or restrictions, new information that may emerge concerning the
severity of COVID-19, the longevity of COVID-19, and the impact of
COVID-19 on economic activity. We are actively monitoring our
business and operations to take appropriate actions with the
intention to mitigate risks arising from the COVID-19 pandemic, but
there can be no guarantee that the actions we take will be
successful. Should the situation worsen and not improve, or our
steps for risk mitigation fail, our business, financial condition,
results of operations, and prospects may be materially and
adversely affected. To the extent the COVID-19 pandemic adversely
affects our business and financial results, it may also have the
effect of heightening many of the other risks described in this
“Risk Factors” section.
Because we recognize revenue from subscriptions for our services
over the term of the subscription, downturns or upturns in new
business may not be immediately reflected in our operating
results.
We generally recognize revenue from subscribers ratably over the
terms of their subscription agreements, which are typically one
year, although we also offer our services for a term of one month,
occasionally multiple years and often for a lifetime membership. As
a result, most of the revenue we report in each period is the
result of subscription agreements entered into during prior
periods. Consequently, a decline in new or renewed
subscriptions
in any one period may not be reflected in our revenue results for
that period. However, any such decline will negatively affect our
revenue in future periods. Accordingly, the effect of significant
downturns in sales, our failure to achieve internal sales targets,
a decline in the market acceptance of our services, or potential
decreases in our retention rate may not be fully reflected in our
operating results until future periods. Our subscription model also
makes it difficult for us to rapidly increase our revenue through
additional sales in any period, as revenue from additional sales
must be recognized over the applicable subscription term. By
contrast, a significant portion of our operating costs are expensed
as incurred, which occurs as soon as a subscriber purchases a
product. As a result, an increase in subscribers could result in
recognition of more costs than revenue in the earlier portion of
the subscription term. We may not attain sufficient revenue to
maintain positive cash flow from operations or achieve
profitability in any given period.
Our business, products, and facilities are at risk of a number of
material disruptive events that our operational risk management and
business continuity programs may not be adequate to
address.
Our business and products are dependent on our ability to provide
investment research, software applications, and other products and
services on a current and time-sensitive basis. We rely extensively
on our computer systems and other network infrastructure, which are
located across multiple facilities in the United States. Problems
in our network systems may lead to cascading effects involving
downtime, overloading of third-party data centers, and other issues
that may affect our subscribers. We and our vendors are at risk of
disruptions from numerous factors, including major weather events,
fires, droughts, floods, earthquakes, volcanic activity, diseases,
epidemics, pandemics, violent incidents, terrorist attacks, natural
disasters, power loss, telecommunications, Internet, and other
critical infrastructure failures, governmental actions, strikes and
labor disturbances, riots, civil unrest, terrorism, war, abrupt
political change, viruses, cybersecurity attacks and breaches,
responses by various governments and the international community to
any such acts, and other events beyond our control. Such events
could cause delays in initiating or completing sales, impede our
subscribers’ access to our products and services, disrupt or shut
down critical client-facing and business processes, impede the
travel of our personnel, dislocate our critical internal functions
and personnel, and in general harm our ability to conduct normal
business operations, any of which could negatively impact our
financial condition and operating results.
Our database and network facilities, and those of our third-party
service providers, may also be vulnerable to security breaches,
including cyberattacks, viruses, and denial of service attacks that
could lead to misappropriation of our data, corruption of our
databases, or limitation of access to our information systems. To
defend against these threats, we implement a series of controls
focusing on both prevention and detection, including firewalls,
intrusion detection systems, automated scanning and testing, server
hardening, antivirus software, training, and patch management. We
make significant investments in servers, storage, and other network
infrastructure to prevent incidents of network failure and
downtime, but we cannot guarantee that these efforts will work as
planned. These risks may be increased with respect to operations
housed at facilities outside of our direct control, and currently
all of the communications, networks, and computer hardware used to
operate the cloud for our platforms are located at facilities
maintained by third parties that we do not own or
control.
We may modify, enhance, upgrade, and implement new systems,
procedures, and controls to reflect changes in our business,
technological advancements, and industry trends. These upgrades can
create risks associated with implementing new systems and
integrating them with existing ones. We may also incur additional
costs in relation to any new systems, procedures, and controls, and
additional management attention could be required in order to
ensure an efficient integration, placing burdens on our internal
resources.
Most of our products and services depend heavily on our electronic
delivery systems and the Internet. Our ability to deliver
information using the Internet may be impaired because of
infrastructure failures or outages in our systems or those of our
third-party service providers or Internet providers, malicious
attacks, or other factors. If disruptions, outages, failures, or
slowdowns of our electronic delivery systems or the Internet occur,
our ability to distribute our products and services effectively and
to serve our subscribers may be impaired.
We are also subject to potential shortcomings in our own business
resilience practices, such as failures to fully understand
dependencies between different business processes across the
locations at which they are performed, inadequate vendor risk
assessment and management processes and critical vendor
dependencies, concentration of
certain critical activities in areas of geopolitical risk or with
“single point of failure” employees or employee groups, and
possibly ineffective location recovery strategies in the event of a
location disruption.
Disruptions to our third-party technology providers and management
systems could harm our business and lead to loss of
subscribers.
We depend on third-party technology providers and management
systems to distribute our content and process transactions. We
exercise no control over our third-party vendors or the
infrastructure or networks under which they operate, which makes us
vulnerable to any errors, interruptions, or delays in their
operations. Any disruption in the services provided by these
vendors, or an inability to keep up with our growing demands for
capacity, could have significant adverse impacts on our business
reputation, customer relations, and operating results. Upon
expiration or termination of any of our agreements with third-party
vendors, we may not be able to replace the services provided to us
in a timely manner or on terms and conditions, including service
levels and cost, that are favorable to us, and a transition from
one vendor to another vendor could subject us to operational delays
and inefficiencies until the transition is complete.
Moreover, our third-party technology providers may disagree with,
or choose to take a public stance against, the editorial content
produced by certain of our operating brands, or otherwise decide to
publicly cease providing services to us. This may result in, among
other things, disruption in our operations, copycat behavior by
other of our vendors, difficulty retaining or attracting employees,
or negative media attention.
We may require additional capital to support business growth, and
such capital might not be available on acceptable terms, if at
all.
We intend to continue to make investments to support our business
growth and may require additional funds to respond to business
challenges, including the need to develop new features and products
or enhance our existing services, improve our operating
infrastructure, or acquire complementary businesses and products.
Accordingly, we may need to engage in equity or debt financings to
secure additional funds. If we raise additional funds through
future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences, and
privileges superior to those of holders of Class A common stock.
Any debt financing we may pursue in the future could involve
restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. We may
not be able to obtain additional financing on terms favorable to
us, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us when we require it, our
ability to continue to support our business growth and to respond
to business challenges could be significantly impaired, and our
business may be harmed.
Furthermore, our Credit Facility (as defined below) provides for
the ability to borrow up to $150 million, and includes an
uncommitted incremental facility feature that permits us to incur
up to an additional $65 million of total borrowings, subject to
obtaining the consent of each lender providing the additional
commitments and other conditions as set forth in the Loan and
Security Agreement (as defined below) governing the Credit
Facility. Borrowings under our Credit Facility are secured by
substantially all the properties, rights, and assets of our direct
subsidiary, MarketWise, LLC, as well as certain of its direct and
indirect material U.S. subsidiaries. Additionally, the Loan and
Security Agreement contains certain customary restrictive covenants
that limit our ability to incur additional indebtedness and liens,
merge with other companies or consummate certain changes of
control, acquire other companies, engage in new lines of business,
make certain investments, pay dividends, and transfer or dispose of
assets, as well as financial covenants that require us to maintain
specified leverage ratios. These covenants could limit our ability
to seek capital through the incurrence of new indebtedness or, if
we are unable to meet our financial covenants, require us to repay
any outstanding amounts with sources of capital we may otherwise
use to fund our business, operations, and strategy.
We are subject to payment processing risk.
Our subscribers pay for our services using a variety of different
payment methods, including credit and debit cards, prepaid gift
cards, and direct debit. We rely on internal systems, as well as
those of third parties, to process payments. Acceptance and
processing of these payment methods are subject to certain rules
and regulations,
including additional authentication requirements for certain
payment methods, and require payment of interchange and other fees.
To the extent there are increases in payment processing fees,
material changes in the payment ecosystem, such as large
re-issuances of payment cards, changes in public perception and
confidence in the payment systems we are utilizing, delays in
receiving payments from payment processors, changes to rules or
regulations concerning payments, loss of payment partners, and/or
disruptions or failures in our payment processing systems, partner
systems, or payment products, including products we use to update
payment information, our revenue, operating expenses, and results
of operations could be adversely impacted. In addition, from time
to time, we encounter fraudulent use of payment methods, which
could impact our results of operations and, if not adequately
controlled and managed, could create negative consumer perceptions
of our products and services. If we are unable to maintain our
fraud and chargeback rate at acceptable levels, card networks may
impose fines, our card approval rate may be impacted, and we may be
subject to additional card authentication requirements. The
termination of our ability to process payments on any major payment
method would significantly impair our ability to operate our
business.
Risks Related to Legal and Regulatory Matters
Failure to comply with laws and regulations or other regulatory
action or investigations, including with respect to the federal and
state securities laws, could adversely affect our
business.
Various aspects of our business and services are subject to
federal, state, and local regulation, as well as regulation outside
the United States. We rely upon the “publisher’s exclusion” from
the definition of “investment adviser” under Section 202(a)(11)(D)
of the Investment Advisers Act of 1940, as amended (the “Advisers
Act”), and corresponding state securities laws for our investment
newsletter business. In order to maintain our qualification for
this exclusion, our newsletter publications must be: (1) of a
general and impersonal nature, in that the advice provided is not
adapted to any specific portfolio or any client’s particular needs;
(2) “bona fide” or genuine, in that it contains disinterested
commentary and analysis as opposed to promotional material; and (3)
of general and regular circulation, in that it is not timed to
specific market activity or to events affecting, or having the
ability to affect, the securities industry. The United States
Supreme Court in
Lowe v. Securities and Exchange Commission,
472 U.S. 181 (1985), held that a publisher of advice concerning
securities, even where that advice consisted of specific
recommendations to buy, sell, or hold particular securities, is
entitled to rely on the publisher’s exclusion where the publisher
does not offer individualized advice tailored to any specific
portfolio or to any client’s particular needs. As long as
communications between the publisher and its subscribers remain
entirely impersonal and do not develop into the kind of fiduciary
relationships that are characteristic of investment adviser-client
relationships, the
Lowe
court held that such products and publications presumptively fall
within the exclusion and thus the publisher is not subject to
registration under the Advisers Act.
We believe our provision of financial research products meets the
requirements of the publisher’s exclusion. The financial research
products we offer to our clients are of a general and impersonal
nature and are not individualized or tailored to any client’s
particular needs. We do not collect any investor suitability
information, nor do we perform any suitability analysis. The
products are marketed to the general public and do not reflect any
fiduciary or person-to-person relationships that are characteristic
of investment adviser-client relationships. Our financial research
offerings are genuine publications, providing disinterested and
impersonal commentary and analysis to our subscribers. We are not
compensated by the sponsors or distributors of any investment
products highlighted in our publications. We publish our research
reports on a routine or periodic basis, and publication is not
timed to specific market activity or to events affecting or having
the ability to affect the securities industry. The publication
frequency of our newsletters varies based on the subject product,
though newsletters are generally published on a monthly basis. If
we change our business practices in such a way as to not satisfy
the publisher’s exclusion, or otherwise fails to comply with the
regulatory requirements concerning this exclusion, we may face
sanctions as an unregistered investment adviser or other results
that could have a negative effect on our business.
In recent years, consumer protection regulations, particularly in
connection with marketing on the Internet and consumer privacy,
have become more aggressive, and we expect that new laws and
regulations will continue to be enacted at the local, state,
national, and international levels. In addition, there is extensive
regulatory scrutiny of financial publishers and investment
newsletters because of concerns over schemes involving touting,
front running, “pumping and dumping,” scalping, undisclosed
conflicts of interest, deceptive marketing, and false
performance
claims. Any new legislation and enhanced scrutiny, alone or
combined with increasingly aggressive enforcement of existing laws,
could make our ability to comply with applicable laws and
regulations more difficult and expensive. In addition, we have
been, and may in the future continue to be, the subject of requests
from or investigations by state and federal regulatory bodies, and
may be subject to continued or increased regulatory scrutiny in the
future. Any of the foregoing could have a material adverse effect
on our business, results of operations, and financial
condition.
We could face liability for the information and data we collect and
distribute or the reports and other documents produced by our
software products.
We may be subject to claims for securities law violations,
defamation (including libel and slander), negligence, or other
claims relating to the information we publish, including our
research. For example, investors may take legal action against us
if they rely on published information that contains an error, or a
company may claim that we have made a defamatory statement about it
or its employees.
We rely on a variety of outside parties as the original sources for
the information we use in our published data. These sources include
securities exchanges and other data providers. We also incorporate
data from a variety of third-party sources. Accordingly, in
addition to possible exposure for publishing incorrect information
that results directly from our own errors, we could face liability
based on inaccurate data provided to us by others.
We could be subject to claims by providers of publicly available
data and information we compile from websites and other sources
that we have improperly obtained that data in violation of the
source’s copyrights or terms of use or based on the provisions of
legislation that limit the bases on which businesses can collect
personal information from and about individuals. We could also be
subject to claims from third parties, such as securities exchanges,
from which we license and redistribute data and information that we
have used or redistributed the data or information in ways not
permitted by our license rights, or that we have inadequately
permitted our subscribers to use such data. The agreements with
such exchanges and other data providers give them extensive data
use audit rights, and such audits can be expensive and time
consuming and potentially result in substantial fines. Defending
claims based on the information we publish could be expensive and
time-consuming and could adversely impact our business, operating
results, and financial condition.
We may not adequately protect or enforce our own intellectual
property and may incur costs to defend against, or face liability
for, intellectual property infringement claims (or related claims)
of others.
To protect our intellectual property, we rely on a combination of
trademarks, copyrights, confidentiality agreements, and various
other contractual arrangements with our employees, affiliates,
customers, strategic partners, and others. We own several trademark
registrations and copyright registrations, and have pending
trademark applications, including in the United States and Canada.
We may seek additional trademark, patent, and other intellectual
property filings, which could be expensive and time-consuming.
These trademarks, patents, and other registered intellectual
property rights may not be granted and, even if they are, it could
be expensive to maintain these rights and the costs of defending
our rights could be substantial. Moreover, our failure to develop
and properly manage new intellectual property could hurt our market
position and business opportunities.
Our code of conduct, employee handbook, and other internal policies
seek to protect our intellectual property against misappropriation,
infringement, and unfair competition. We also utilize various tools
to police the Internet to monitor piracy and unauthorized use of
our content. In addition, whether we grant access to our
intellectual property via contract or license third-party content
and/or technology, we incorporate contractual provisions to protect
our intellectual property and seek indemnification for any
third-party infringement claims.
However, we cannot provide any guarantee that the foregoing
provisions will be honored by or enforceable against the
counterparties to such arrangements, or adequate to protect us from
third-party claims, suits, government investigations, and other
proceedings involving alleged infringement, misappropriation,
dilution, or violation of, or conflict with, third-party
intellectual property rights or other related matters, or that
these provisions will prevent the theft of our intellectual
property, as we may be unable to detect the unauthorized use of, or
take appropriate steps to enforce, our intellectual property
rights. Our intellectual property rights may not survive a legal
challenge to their validity or provide significant protection for
us. In addition, our ability to enforce and protect our
intellectual
property rights may be limited in certain countries outside the
United States because of the differences in foreign laws concerning
proprietary rights, which could make it easier for competitors to
capture a market position in such countries by utilizing
technologies and products that are similar to those developed or
owned by or licensed to us. Failure to adequately protect our
intellectual property could harm our brand, devalue our proprietary
content, and affect our ability to compete effectively. Further,
any infringement claims, even if not meritorious, could result in
the expenditure of significant financial and managerial resources
on our part, which could materially adversely affect our business,
results of operations, and financial condition. In addition, the
various agreements, policies, procedures, and contractual
provisions that we rely on to protect our proprietary rights do not
prevent our competitors from independently developing technologies
that are substantially equivalent or superior to those contained in
our products and services. Although we have generally taken
measures to protect our proprietary rights, there can be no
assurance that others will not offer products or concepts that are
substantially similar to ours and compete with our
business.
The software and Internet industries are characterized by the
existence of a large number of patents, trademarks, and copyrights
and by frequent litigation based on allegations of infringement,
misappropriation, dilution, conflict with, or other violations of
intellectual property rights. In addition, various “non-practicing
entities” that own patents and other intellectual property rights
often attempt to aggressively assert their rights in order to
extract value from providers of software products or services. From
time to time we may introduce or acquire new products, including in
areas where we historically have not competed, which could increase
our exposure to patent and other intellectual property claims from
competitors and non-practicing entities. We have from time to time
been subject to claims by third parties alleging infringement,
misappropriation, dilution, or violation of, or conflict with,
their intellectual property rights and other related claims. Such
claims can also be alleged against clients, customers, or
distributors of our products or services whom we have agreed to
indemnify against third-party claims of infringement. The defense
of such claims can be costly and consume valuable management time
and attention. We may be faced with an adverse determination in
respect of such claims, or we may be forced to settle such claims
on unfavorable terms, which in each case can include the payment of
damages, the entry into royalty or licensing arrangements on
commercially unfavorable terms, or the suspension or cessation of
our ability to offer affected products or services, or the
requirement that we redesign such affected products or services. If
litigation were to arise from any such claim, there can be no
certainty we would prevail. If any of these risks were to
materialize, we could have a material adverse effect on our
business, financial condition, or results of operations. In
addition, depending on the nature and timing of any such dispute,
an unfavorable resolution of a legal matter could materially affect
our current or future results of operations or cash flows in a
particular quarter.
Any failure of our internal security measures or breach of our
privacy protections could cause us to lose subscribers and subject
us to liability.
Our business requires that we securely collect, process, store,
transmit, and dispose of confidential information relating to our
operations, subscribers, employees, and other third parties. In
particular,
Paid Subscribers
are required to furnish certain information (including name,
mailing address, phone number, email address, and credit card
information) (collectively “personal information”), which we use to
administer our services. We also require Free Subscribers (as
defined below) to provide us with some personal information during
the membership registration process. Additionally, we rely on
security and authentication technology licensed from third parties
to perform real-time credit card authorization and verification,
and at times rely on third parties, including technology consulting
firms, to help protect our infrastructure from security threats. We
strive to invest in systems, processes, controls, and other
security measures to guard against the risk of improper access to
or release of such information.
However, despite our investments, these measures do not guarantee
absolute security, and improper access to or release of
confidential information may still occur through employee error or
malfeasance, system error, other inadvertent release, failure to
properly purge and protect data, or cyberattack. Any security
incident, including those resulting from a cyberattack, phishing
attack, or any unauthorized access, unauthorized usage, virus, or
similar incident or disruption, could result in the loss or
destruction of, inaccessibility or unauthorized access to, or use,
alteration, disclosure, or acquisition of, data, damage to our
reputation, litigation, regulatory investigations, or other
liabilities. These attacks may come from individual hackers,
criminal groups, and state-sponsored organizations.
We have suffered in the past, and may in the future suffer,
malicious attacks by individuals or groups (including those
sponsored by nation-states, terrorist organizations, or global
corporations seeking to illicitly obtain technology or other
intellectual property) seeking to attack our products and services
or penetrate our network infrastructure to gain access to
confidential information, including personal information, or to
launch or coordinate distributed denial of service attacks. While
we have dedicated resources intended to maintain appropriate levels
of cybersecurity and implemented systems and processes intended to
help identify cyberattacks and protect our network infrastructure,
these attacks have become increasingly frequent, sophisticated, and
difficult to detect, and often are not detected until after they
have been launched against a target. We may be unable to anticipate
these attacks or implement sufficient preventative measures, and we
therefore cannot assure you that our preventative measures will be
successful in preventing compromise and/or disruption of our
information technology systems and related data. We furthermore
cannot be certain that our remedial measures will fully mitigate
the adverse financial consequences of any cyber-attack or
incident.
Recent well-publicized security breaches at other companies have
led to enhanced government and regulatory scrutiny of the measures
taken by companies to protect against cyberattacks and may in the
future result in heightened cybersecurity requirements, including
additional regulatory expectations for oversight of customers,
vendors, and service providers. Our information technology systems
interact with those of customers, vendors, and service providers.
Our contracts with those parties typically require them to
implement and maintain adequate security controls, but we may not
have the ability to effectively monitor the security measures of
all our customers, vendors, and service providers and otherwise
meet such additional regulatory expectations.
Additionally, we engage third-party vendors and service providers
to store and otherwise process some of our customers’ personal
information, and they may be the targets of cyberattacks, malicious
software, phishing schemes, and fraud. Our ability to monitor our
vendors’ and service providers’ data security is limited, and, in
any event, third parties may be able to circumvent those security
measures, resulting in the unauthorized access to, misuse,
acquisition, disclosure, loss, alteration, or destruction of our
and our customers’ data, including confidential, sensitive, and
other information about individuals.
If our security measures are breached as a result of third-party
action, employee error, a defect or bug in our products or those of
our third-party service providers, malfeasance, or otherwise and,
as a result, someone obtains unauthorized access to our data,
including our confidential, sensitive, or other information about
individuals or the confidential, sensitive, or other information
about individuals of our customers, or other persons, or any of
these types of information is lost, destroyed, or used, altered,
disclosed, or acquired without authorization, our reputation may be
damaged, our business may suffer, and we could incur significant
liability. Even the perception of inadequate security may damage
our reputation and negatively impact our ability to win new
customers and retain and receive timely payments from existing
customers. Furthermore, we could be required to expend significant
capital and other resources to address any data security incident
or breach, which may not be covered or fully covered by our
insurance and which may involve payments for investigations,
forensic analyses, legal advice, public relations advice, system
repair or replacement, or other services.
We are subject to laws, regulations, and industry standards related
to data privacy, data protection, and information security,
including industry requirements such as the Payment Card Industry
Data Security Standard. Our actual or perceived failure to comply
with such obligations could harm our business.
Our products and websites routinely collect, store, process, and
transmit personal information about an individual, including
personally identifiable information and personal financial
information such as credit card information. We are subject to
various laws and related regulations relating to data privacy, data
protection, and information security. Such laws and regulations
restrict how personal information is collected, processed, stored,
used, and disclosed, and set standards for our security, implement
notice requirements regarding privacy practices, and provide
individuals with certain rights regarding the use, disclosure, and
sale of their protected personal information. If we are found to
have breached any such laws, regulations, or industry standards, we
may be subject to enforcement actions that require us to change our
business practices in a manner that may negatively impact our
revenue, as well as expose us to litigation, fines, civil and/or
criminal penalties, and adverse publicity that could cause our
customers to lose trust in us, negatively impacting our reputation
and business in a manner that harms our financial
position.
In the United States, both federal and various state governments
have adopted or are considering, laws, guidelines, or rules for the
collection, distribution, use, and storage of information collected
from or about consumers or their devices. For example, California
enacted the California Consumer Privacy Act of 2018 (the “CCPA”),
which came into force in 2020. The CCPA creates individual privacy
rights for California residents and increases the privacy and
security obligations of businesses handling personal information.
The CCPA is enforceable by the California Attorney General and
there is also a private right of action relating to certain data
security incidents. Furthermore, California voters approved the
California Privacy Rights Act (the “CPRA”) on November 3, 2020,
which will amend and expand the CCPA, including by providing
consumers with additional rights with respect to their personal
information. The CPRA will come into effect on January 1, 2023,
applying to information collected by businesses on or after January
1, 2022. Our compliance with these changing and increasingly
burdensome, and sometimes conflicting, regulations and requirements
may cause us to incur substantial costs or require us to change our
business practices, which may impact financial results. If we fail
to comply with these regulations or requirements, we may be exposed
to litigation expenses and possible significant liability, fees, or
fines.
We are also subject to payment card association operating rules,
certification requirements, and rules governing electronic funds
transfers, including the Payment Card Industry Data Security
Standard (the “PCI DSS”), a security standard applicable to
companies that collect, store, or transmit certain data regarding
credit and debit cards, holders, and transactions. Under the PCI
DSS and our contracts with our card processors, if there is a
breach of payment card information that we store, we could be
liable to the banks that issue the payment cards for their related
expenses and penalties. In addition, if we fail to follow payment
card industry data security standards, even if there is no
compromise of customer information, we could incur significant
fines or lose our ability to give our customers the option of using
payment cards. If we were unable to accept payment cards, our
business would be materially harmed.
In addition, laws in countries outside of the United States create
significant compliance obligations and liability. For example, to
the extent our operations are subject to the General Data
Protection Regulation (the “GDPR”), this will create an ongoing
compliance commitment and substantial costs. Ensuring compliance
with the GDPR could involve substantial costs, and it is possible
that, despite our efforts, governmental authorities or third
parties will assert that our business practices fail to comply. If
our operations are found to be in violation of the GDPR, we may be
required to change our business practices and/or be subject to
significant civil penalties, business disruption, and reputational
harm, any of which could have a material adverse effect on our
business. In particular, serious breaches of the GDPR can result in
administrative fines of up to the higher of 4% of annual worldwide
revenues and €20 million.
Additionally, we make disclosures and statements regarding our use
of personal information through our privacy policies and statements
through our products and websites as required by privacy or data
protection regulations. Failure (or perceived failure) to comply
with our public statements or to adequately disclose our privacy or
data protection practices could result in costly investigations by
governmental authorities, litigation, and fines, as well as
reputational damage and customer loss, which could have material
impacts on our revenue and operations.
We also from time to time acquire other companies that collect and
process personal information. While we perform extensive due
diligence on the technology systems of these companies, there can
be no assurance that such companies have not suffered data breaches
or system intrusions prior to, or continuing after, our acquisition
for which we may be liable.While we maintain insurance coverage
that is intended to address certain aspects of cybersecurity and
data protection risks, such coverage may not be sufficient to cover
all or the majority of the costs, losses, or types of claims. Our
insurance covers reimbursement for lost net profits or increased
net loss of profits resulting from adverse publicity concerning an
actual or alleged network impairment or privacy event. While it
does not cover the costs for improvements to our systems, it does
cover costs to restore our system operations.
Adverse litigation judgments or settlements resulting from legal
proceedings relating to our business operations could materially
adversely affect our business, results of operations, and financial
condition.
From time to time, we are subject to allegations, and may be party
to legal claims and regulatory proceedings, relating to our
business operations. Such claims may include defamation, libel,
intellectual property infringement,
securities law violations, misappropriation, dilution, violation,
fraud or negligence, or other theories of liability, in each case
relating to the articles, commentary, investment recommendations,
or other information we provide through our services. Such
allegations, claims, and proceedings may be brought by third
parties, including customers, partners, employees, governmental or
regulatory bodies, or competitors, and may include class
actions.
Defending against such claims and proceedings is costly and time
consuming and may divert management’s attention and personnel
resources from our normal business operations. The outcome of many
of these claims and proceedings cannot be predicted, and any claims
asserted against us regardless of merit or eventual outcome, may
harm our reputation. Our insurance or indemnities may not cover all
claims that may be asserted against us. If any of these claims or
proceedings were to be determined adversely to us, a judgment,
fine, or settlement involving a payment of a material sum of money
were to occur, or injunctive relief were issued against us, our
business, results of operations, and financial condition could be
materially adversely affected.
Our failure to comply with the anti-corruption, trade compliance,
and economic sanctions laws and regulations of the United States
and applicable international jurisdictions could materially
adversely affect our reputation and results of
operations.
We must comply with anti-corruption laws and regulations imposed by
governments around the world with jurisdiction over our operations,
which may include the U.S. Foreign Corrupt Practices Act of 1977
(the “FCPA”) and the U.K. Bribery Act 2010 (the “Bribery Act”), as
well as the laws of the countries where we do business. These laws
and regulations apply to companies, individual directors, officers,
employees, and agents, and may restrict our operations, trade
practices, investment decisions, and partnering activities. Where
they apply, the FCPA and the Bribery Act prohibit us and our
officers, directors, employees, and business partners acting on our
behalf, including joint venture partners and agents, from corruptly
offering, promising, authorizing, or providing anything of value to
public officials for the purposes of influencing official decisions
or obtaining or retaining business or otherwise obtaining favorable
treatment. The Bribery Act also prohibits non-governmental
“commercial” bribery and accepting bribes. As part of our business,
we may deal with governments and state-owned business enterprises,
the employees and representatives of which may be considered public
officials for purposes of the FCPA and the Bribery Act. We are also
subject to the jurisdiction of various governments and regulatory
agencies around the world, which may bring our personnel and agents
into contact with public officials responsible for issuing or
renewing permits, licenses, or approvals or for enforcing other
governmental regulations. In addition, some of the international
locations in which we operate lack a developed legal system and
have elevated levels of corruption.
Our business also must be conducted in compliance with applicable
economic sanctions laws and regulations, such as laws administered
by the U.S. Department of the Treasury’s Office of Foreign Assets
Control, the U.S. Department of State, the U.S. Department of
Commerce, the United Nations Security Council, and other relevant
sanctions authorities. Our operations expose us to the risk of
violating, or being accused of violating, anti-corruption, trade
compliance, and economic sanctions laws and regulations, and those
risks may be heightened as we continue to expand globally. Our
failure to successfully comply with these laws and regulations may
expose us to reputational harm, significant sanctions, including
criminal fines, imprisonment, civil penalties, disgorgement of
profits, injunctions, and debarment from government contracts, and
other remedial measures. Investigations of alleged violations can
be expensive and disruptive. Despite our compliance efforts and
activities, we cannot assure compliance by our employees or
representatives for which we may be held responsible, and any such
violation could materially adversely affect our reputation,
business, financial condition, and results of
operations.
Changes in our provision for income taxes or adverse outcomes
resulting from examination of our income or other tax returns or
changes in tax legislation could adversely affect our business,
financial condition, and results of operations.
Our provision for income taxes is subject to volatility and could
be adversely affected by a number of factors, including earnings
differing materially from our projections, changes in the valuation
of our deferred tax assets and liabilities, expected timing and
amount of the release of any tax valuation allowances, tax effects
of share-based compensation, outcomes as a result of tax
examinations, or by changes in tax laws, regulations, accounting
principles, including accounting for uncertain tax positions, or
interpretations thereof.
To the extent that our provision for income taxes is subject to
volatility or adverse outcomes as a result of tax examinations, our
operating results could be harmed. Significant judgment is required
to determine the recognition and measurement attribute prescribed
in GAAP relating to accounting for income taxes. In addition, we
are subject to examinations of our income tax returns by the U.S.
Internal Revenue Service (the “IRS”) and other tax authorities. We
assess the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of our provision for income
taxes. There may be exposure that the outcomes from these
examinations will have an adverse effect on our business, financial
condition, and results of operations.
Risks Related to Our Organizational Structure
MarketWise, Inc.’s sole material asset is its interest in
MarketWise, LLC, and, accordingly, it will depend on distributions
from MarketWise, LLC to pay its taxes and expenses, including
payments under the Tax Receivable Agreement. MarketWise, LLC’s
ability to make such distributions may be subject to various
limitations and restrictions.
MarketWise, Inc. is a holding company and has no material assets
other than its ownership in MarketWise, LLC. As such, MarketWise,
Inc. has no independent means of generating revenue or cash flow,
and its ability to pay taxes and operating expenses or declare and
pay dividends in the future, if any, will be dependent upon the
financial results and cash flows of MarketWise, LLC and its
subsidiaries, and distributions MarketWise, Inc. receives from
MarketWise, LLC. There can be no assurance that MarketWise, LLC and
its subsidiaries will generate sufficient cash flow to distribute
funds to MarketWise, Inc., or that applicable state law and
contractual restrictions, including negative covenants in any debt
agreements of MarketWise, LLC or its subsidiaries, will permit such
distributions. Although MarketWise, LLC is not currently subject to
any debt agreement or other agreements that would restrict its
ability to make distributions to MarketWise, Inc., the terms of
future debt instruments or other agreements may restrict the
ability of MarketWise, LLC to make distributions to MarketWise,
Inc. or of MarketWise, LLC’s subsidiaries to make distributions to
MarketWise, LLC.
MarketWise, LLC is treated as a partnership for U.S. federal income
tax purposes and, as such, generally will not be subject to any
entity-level U.S. federal income tax. Instead, taxable income will
be allocated to holders of MarketWise Units, including MarketWise,
Inc. Accordingly, MarketWise, Inc. will incur income taxes on its
allocable share of any net taxable income of MarketWise, LLC. Under
the terms of the MarketWise Operating Agreement, MarketWise, LLC is
obligated, subject to various limitations and restrictions,
including with respect to any debt agreements, to make tax
distributions to holders of MarketWise Units, including MarketWise,
Inc. In addition to tax expenses, MarketWise, Inc. will also incur
expenses related to its operations, including payments under the
Tax Receivable Agreement, which could be substantial. See “Certain
Relationships and Related Party Transactions—Tax Receivable
Agreement.” MarketWise, Inc. intends, as its sole manager, to cause
MarketWise, LLC to make cash distributions to the owners of
MarketWise Units in an amount sufficient to (i) fund all or part of
such owners’ tax obligations in respect of taxable income allocated
to such owners and (ii) cover MarketWise, Inc.’s operating
expenses, including payments under the Tax Receivable Agreement.
However, MarketWise, LLC’s ability to make such distributions may
be subject to various limitations and restrictions, such as
restrictions on distributions under contracts or agreements to
which MarketWise, LLC is then a party, including debt agreements,
or any applicable law, or that would have the effect of rendering
MarketWise, LLC insolvent. If we do not have sufficient funds to
pay tax or other liabilities or to fund our operations, we may have
to borrow funds, which could materially adversely affect our
liquidity and financial condition and subject us to various
restrictions imposed by any such lenders. To the extent that
MarketWise, Inc. is unable to make timely payments under the Tax
Receivable Agreement for any reason, the unpaid amounts will be
deferred and will accrue interest until paid. MarketWise, Inc.’s
failure to make any payment required under the Tax Receivable
Agreement (including any accrued and unpaid interest) within 90
calendar days of the date on which the payment is required to be
made will constitute a material breach of a material obligation
under the Tax Receivable Agreement, which will terminate the Tax
Receivable Agreement and accelerate future payments thereunder,
unless the applicable payment is not made because (i) MarketWise,
LLC is prohibited from making such payment under the terms of the
Tax Receivable Agreement or the terms governing certain of its
indebtedness or (ii) MarketWise, LLC does not have, and despite
using commercially reasonable efforts cannot obtain, sufficient
funds to make such payment. See “Certain Relationships and Related
Party Transactions—Tax Receivable Agreement” and “Certain
Relationships and Related Party Transactions—
MarketWise Operating Agreement.”
In addition, if MarketWise, LLC does not have sufficient funds to
make distributions, its ability to declare and pay cash dividends
will also be restricted or impaired.
Under the MarketWise Operating Agreement, MarketWise, LLC will,
from time to time, make distributions in cash to its equityholders
(including MarketWise, Inc.)
pro rata,
in amounts at least sufficient to cover the taxes on their
allocable share of taxable income of MarketWise, LLC. As a result
of (i) potential differences in the amount of net taxable income
allocable to MarketWise, Inc. and to MarketWise, LLC’s other
equityholders, (ii) the lower tax rates currently applicable to
corporations as opposed to individuals, and (iii) the favorable tax
benefits that MarketWise, Inc. anticipates from any redemptions or
exchanges of MarketWise Units for our Class A common stock or cash
pursuant to the MarketWise Operating Agreement in the future, tax
distributions payable to MarketWise, Inc. may be in amounts that
exceed its actual tax liabilities with respect to the relevant
taxable year, including its obligations under the Tax Receivable
Agreement. MarketWise, Inc.’s board of directors will determine the
appropriate uses for any excess cash so accumulated, which may
include, among other uses, the payment of other expenses or
dividends on MarketWise, Inc.’s stock, although MarketWise, Inc.
will have no obligation to distribute such cash (or other available
cash) to its stockholders. Except as otherwise determined by
MarketWise, Inc. as the sole manager of MarketWise, LLC, no
adjustments to the exchange ratio for MarketWise Units and
corresponding shares of our Class A common stock will be made as a
result of any cash distribution by MarketWise, Inc. or any
retention of cash by MarketWise, Inc. To the extent MarketWise,
Inc. does not distribute such excess cash as dividends on its our
Class A common stock, it may take other actions with respect to
such excess cash—for example, holding such excess cash or lending
it (or a portion thereof) to MarketWise, LLC, which may result in
shares of our Class A common stock increasing in value relative to
the value of MarketWise Units. The holders of MarketWise Units may
benefit from any value attributable to such cash balances if they
acquire shares of our Class A common stock in exchange for their
MarketWise Units, notwithstanding that such holders may previously
have participated as holders of MarketWise Units in distributions
by MarketWise, LLC that resulted in such excess cash
balances.
The Tax Receivable Agreement requires MarketWise, Inc. to make cash
payments to the MarketWise Members in respect of certain tax
benefits to which MarketWise, Inc. may become entitled, and no such
payments will be made to any holders of our Class A common stock
unless such holders are also MarketWise Members. The payments
MarketWise, Inc. will be required to make under the Tax Receivable
Agreement may be substantial.
MarketWise, Inc. is party to the Tax Receivable Agreement with the
MarketWise Members and MarketWise, LLC. Under the Tax Receivable
Agreement, MarketWise, Inc. generally is required to make cash
payments to the MarketWise Members equal to 85% of the tax
benefits, if any, that MarketWise, Inc. actually realizes, or in
certain circumstances is deemed to realize, as a result of (1) the
increases in the tax basis of assets of MarketWise, LLC resulting
from any redemptions or exchanges of MarketWise Units for our Class
A common stock or cash by the MarketWise Members pursuant to the
MarketWise Operating Agreement as described under “Certain
Relationships and Related Party Transactions—MarketWise Operating
Agreement,” or certain distributions (or deemed distributions) by
MarketWise, LLC and (2) certain other tax benefits arising from
payments under the Tax Receivable Agreement. No such payments will
be made to any holders of our Class A common stock unless such
holders are also MarketWise Members.
The amount of the cash payments that MarketWise, Inc. will be
required to make under the Tax Receivable Agreement may be
substantial. Any payments made by MarketWise, Inc. to the
MarketWise Members under the Tax Receivable Agreement will not be
available for reinvestment in the business and will generally
reduce the amount of cash that might have otherwise been available
to MarketWise, Inc. and its subsidiaries. To the extent MarketWise,
Inc. is unable to make timely payments under the Tax Receivable
Agreement for any reason, the unpaid amounts will be deferred and
will accrue interest until paid. Furthermore, MarketWise, Inc.’s
future obligations to make payments under the Tax Receivable
Agreement could make MarketWise, Inc. and its subsidiaries a less
attractive target for an acquisition, particularly in the case of
an acquirer that cannot use some or all of the tax benefits that
are the subject of the Tax Receivable Agreement. For more
information, see “Certain Relationships and Related Party
Transactions—Tax Receivable Agreement.”
Payments under the Tax Receivable Agreement are not conditioned on
the MarketWise Members’ continued ownership of MarketWise Units or
our Class A common stock or our Class B common stock.
The actual amount and timing of any payments under the Tax
Receivable Agreement will vary depending upon a number of factors,
including the timing of redemptions or exchanges by the MarketWise
Members, the price of shares of our Class A common stock at the
time of any exchange, the extent to which such exchanges are
taxable, the amount of gain recognized by the MarketWise Members,
the amount and timing of the taxable income MarketWise, LLC
generates in the future, and the tax rates and laws then
applicable.
In certain cases, future payments under the Tax Receivable
Agreement to the MarketWise Members may be accelerated or
significantly exceed the actual benefits MarketWise, Inc. realizes
in respect of the tax attributes subject to the Tax Receivable
Agreement.
The Tax Receivable Agreement provides that if (i) MarketWise, Inc.
materially breaches any of its material obligations under the Tax
Receivable Agreement, (ii) certain mergers, asset sales, other
forms of business combinations, or other changes of control were to
occur, or (iii) MarketWise, Inc. elects an early termination of the
Tax Receivable Agreement, then MarketWise, Inc.’s future
obligations, or its successor’s future obligations, under the Tax
Receivable Agreement to make payments thereunder would accelerate
and become due and payable, based on certain assumptions, including
an assumption that MarketWise, Inc. would have sufficient taxable
income to fully utilize all potential future tax benefits that are
subject to the Tax Receivable Agreement, and an assumption that, as
of the effective date of the acceleration, any MarketWise Member
that has MarketWise Units not yet exchanged shall be deemed to have
exchanged such MarketWise Units on such date, even if MarketWise,
Inc. does not receive the corresponding tax benefits until a later
date when the MarketWise Units are actually exchanged.
As a result of the foregoing, MarketWise, Inc. would be required to
make an immediate cash payment equal to the estimated present value
of the anticipated future tax benefits that are the subject of the
Tax Receivable Agreement, based on certain assumptions, which
payment may be made significantly in advance of the actual
realization, if any, of those future tax benefits and, therefore,
MarketWise, Inc. could be required to make payments under the Tax
Receivable Agreement that are greater than the specified percentage
of the actual tax benefits it ultimately realizes. In addition, to
the extent that MarketWise, Inc. is unable to make payments under
the Tax Receivable Agreement for any reason, the unpaid amounts
will be deferred and will accrue interest until paid. MarketWise,
Inc.’s failure to make any payment required under the Tax
Receivable Agreement (including any accrued and unpaid interest)
within 90 calendar days of the date on which the payment is
required to be made will constitute a material breach of a material
obligation under the Tax Receivable Agreement, which will terminate
the Tax Receivable Agreement and accelerate future payments
thereunder, unless the applicable payment is not made because (i)
MarketWise, LLC is prohibited from making such payment under the
terms of the Tax Receivable Agreement or the terms governing
certain of its indebtedness or (ii) MarketWise, LLC does not have,
and despite using commercially reasonable efforts cannot obtain,
sufficient funds to make such payment. In these situations,
MarketWise, Inc.’s obligations under the Tax Receivable Agreement
could have a substantial negative impact on MarketWise, Inc.’s
liquidity and could have the effect of delaying, deferring, or
preventing certain mergers, asset sales, other forms of business
combinations, or other changes of control. There can be no
assurance that MarketWise, LLC will be able to fund or finance
MarketWise, Inc.’s obligations under the Tax Receivable
Agreement.
MarketWise, Inc. will not be reimbursed for any payments made to
the MarketWise Members under the Tax Receivable Agreement in the
event that any tax benefits are disallowed.
Payments under the Tax Receivable Agreement will be based on the
tax reporting positions that MarketWise, Inc. determines, and the
U.S. Internal Revenue Service (the “IRS”) or another tax authority
may challenge all or part of the tax basis increases or other tax
benefits MarketWise, Inc. claims, as well as other related tax
positions it takes, and a court could sustain any such challenge.
MarketWise, Inc.’s ability to settle or to forgo contesting such
challenges may be restricted by the rights of the MarketWise
Members pursuant to the Tax Receivable Agreement, and such
restrictions apply for as long as the Tax Receivable Agreement
remains in effect. In addition, MarketWise, Inc. will not be
reimbursed for any cash payments previously made to the MarketWise
Members under the Tax Receivable Agreement in the event that any
tax benefits initially claimed by MarketWise, Inc. and for which
payment has been made to the MarketWise Members are subsequently
challenged by a taxing authority and are ultimately disallowed.
Instead, any excess cash payments made by MarketWise, Inc. to the
MarketWise Members will be netted against any future cash payments
that MarketWise, Inc. might otherwise be required to make to
the
MarketWise Members under the terms of the Tax Receivable Agreement.
However, MarketWise, Inc. might not determine that it has
effectively made an excess cash payment to the MarketWise Members
for a number of years following the initial time of such payment,
and, if any of its tax reporting positions are challenged by a
taxing authority, MarketWise, Inc. will not be permitted to reduce
any future cash payments under the Tax Receivable Agreement until
any such challenge is finally settled or determined. Moreover, the
excess cash payments MarketWise, Inc. previously made under the Tax
Receivable Agreement could be greater than the amount of future
cash payments against which MarketWise, Inc. would otherwise be
permitted to net such excess. The applicable U.S. federal income
tax rules for determining applicable tax benefits MarketWise, Inc.
claims are complex and factual in nature, and there can be no
assurance that the U.S. Internal Revenue Service (the “IRS”) or a
court will not disagree with MarketWise, Inc.’s tax reporting
positions. As a result, payments could be made under the Tax
Receivable Agreement in excess of the tax savings that MarketWise,
Inc. actually realizes in respect of the tax attributes with
respect to the MarketWise Members that are the subject of the Tax
Receivable Agreement.
If MarketWise, Inc. were deemed to be an investment company under
the Investment Company Act of 1940 as a result of its ownership of
MarketWise, LLC, applicable restrictions could make it impractical
for us to continue our business as contemplated and could have a
material adverse effect on our business.
Under Sections 3(a)(1)(A) and (C) of the U.S. Investment Company
Act of 1940, as amended (the “Investment Company Act”), a company
generally will be deemed to be an “investment company” for purposes
of the Investment Company Act if (1) it is, or holds itself out as
being, engaged primarily, or proposes to engage primarily, in the
business of investing, reinvesting, or trading in securities or (2)
it engages, or proposes to engage, in the business of investing,
reinvesting, owning, holding, or trading in securities and it owns
or proposes to acquire investment securities having a value
exceeding 40% of the value of its total assets (exclusive of U.S.
government securities and cash items) on an unconsolidated basis.
MarketWise, Inc. does not believe that it is an “investment
company,” as such term is defined in either of those sections of
the Investment Company Act.
As the sole managing member of MarketWise, LLC, MarketWise, Inc.
will control MarketWise, LLC. On that basis, MarketWise, Inc.
believes that its interest in MarketWise, LLC is not an “investment
security” as that term is used in the Investment Company Act.
However, if MarketWise, Inc. were to cease participation in the
management of MarketWise, LLC, its interest in MarketWise, LLC
could be deemed an “investment security” for purposes of the
Investment Company Act.
MarketWise, Inc. and MarketWise, LLC intend to conduct their
respective operations so that MarketWise, Inc. will not be deemed
an investment company. However, if MarketWise, Inc. were to be
deemed an investment company, restrictions imposed by the
Investment Company Act, including limitations on MarketWise’s
capital structure and its ability to transact with affiliates,
could make it impractical for us to continue our business as
contemplated and could have a material adverse effect on our
business.
Risks Related to this Offering and Ownership of Our Class A Common
Stock
We qualify as an “emerging growth company” and a smaller reporting
company, and the reduced disclosure requirements applicable to
emerging growth companies and smaller growth companies may make its
securities less attractive to investors.
We qualify as an “emerging growth company,” as defined in Section
2(a)(19) of the U.S. Securities Act of 1933, as amended (the
“Securities Act”). For as long as we continue to be an emerging
growth company, we may choose to take advantage of certain
exemptions and relief from various reporting requirements that are
applicable to other public companies, including, but not limited
to: (i) not being required to comply with the auditor attestation
requirements of Section 404 of SOX (“Section 404”); (ii) reduced
disclosure obligations regarding executive compensation in its
periodic reports and proxy statements; and (iii) exemptions from
the requirements of holding nonbinding advisory votes on executive
compensation and stockholder approval of any golden parachute
payments not previously approved. We will remain an emerging growth
company until December 31, 2025 (the last day of the fiscal year
ending after the fifth anniversary of ADAC’s initial public
offering), though we may cease to be an emerging growth company
earlier if (1) we have more than $1.07 billion in annual gross
revenue, (2) we qualify as a “large accelerated filer” as defined
in Rule 12b-2 under the Exchange Act, or (3) we issue, in any
three-year period,
more than $1.0 billion in non-convertible debt securities held by
non-affiliates. We currently intend to take advantage of each of
the reduced reporting requirements and exemptions described above.
As a result, our securityholders may not have access to certain
information they may deem important.
Further, the JOBS Act exempts emerging growth companies from being
required to comply with new or revised financial accounting
standards until private companies are required to comply with the
new or revised financial accounting standards. The JOBS Act
provides that a company can elect to opt out of the extended
transition period and comply with the requirements that apply to
non-emerging growth companies but any such election to opt out is
irrevocable. We have elected not to opt out of such extended
transition period, which means that when a standard is issued or
revised and it has different application dates for public or
private companies, we, as an emerging growth company, can adopt the
new or revised standard at the time private companies adopt the new
or revised standard. This may make comparison of our financial
statements with another public company, which is neither an
emerging growth company nor a company that has opted out of using
the extended transition period, difficult because of the potential
differences in accounting standards used.
Additionally, we qualify as a “smaller reporting company” as
defined in Item 10(f)(1) of Regulation S-K under the Securities
Act. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things,
providing only two years of audited financial statements in its
periodic reports. We will remain a smaller reporting company until
the last day of the fiscal year in which we fail to meet the
following criteria: (i) the market value of our common stock held
by non-affiliates does not exceed $250 million as of the end of
that fiscal year’s second fiscal quarter; or (ii) our annual
revenues do not exceed $100 million during such completed
fiscal year and the market value of our common stock held by
non-affiliates does not exceed $700 million as of the end of that
fiscal year’s second fiscal quarter. To the extent we take
advantage of such reduced disclosure obligations, it may also make
comparison of our financial statements with other public companies
difficult or impossible.
It is difficult to predict whether investors will find our
securities less attractive as a result of its taking advantage of
these exemptions and relief granted to emerging growth companies
and smaller reporting companies. If some investors find our
securities less attractive as a result, the trading prices of our
securities may be lower than they otherwise would be, there may be
a less active trading market for our securities and the market
price of our securities may be more volatile.
Once we lose our “emerging growth company” and/or “smaller
reporting company” status, we will no longer be able to take
advantage of certain exemptions from reporting, and we will also be
required to comply with the auditor attestation requirements of
Section 404. We will incur additional expenses in connection with
such compliance and our management will need to devote additional
time and effort to implement and comply with such
requirements.
The dual class structure of our common stock may adversely affect
the trading price or liquidity of our Class A common
stock.
Although our Class A common stock and Class B common stock have
identical voting rights, it is difficult to predict whether our
dual-class structure will result in a lower or more volatile market
price of our Class A common stock or in adverse publicity or other
adverse consequences. For example, certain index providers have
announced restrictions on including companies with multiple-class
share structures in certain of their indices. In July 2017, FTSE
Russell and S&P Dow Jones announced that they would cease to
allow most newly public companies utilizing dual or multi-class
capital structures to be included in their indices. Affected
indices include the Russell 2000 and the S&P 500, S&P
MidCap 400, and S&P SmallCap 600, which together make up the
S&P Composite 1500. Beginning in 2017, MSCI, a leading stock
index provider, opened public consultations on their treatment of
no-vote and multi-class structures and temporarily barred new
multi-class listings from certain of its indices; however, in
October 2018, MSCI announced its decision to include equity
securities “with unequal voting structures” in its indices and to
launch a new index that specifically includes voting rights in its
eligibility criteria. Under the announced policies, our dual-class
capital structure would make us ineligible for inclusion in certain
indices, and as a result, mutual funds, exchange-traded funds, and
other investment vehicles that attempt to passively track those
indices will not be investing in our stock. These policies are
still fairly new and it is as of yet unclear what effect, if any,
they will have on the valuations of publicly traded companies
excluded from the indices, but it is possible that
they may depress these valuations compared to those of other
similar companies that are included. Because of our dual-class
structure, we will likely be excluded from certain of these indices
and there can be no assurance that other stock indices will not
take similar actions. Given the sustained flow of investment funds
into passive strategies that seek to track certain indices,
exclusion from stock indices would likely preclude investment by
many of these funds and could make shares of our
Class A common stock less attractive to other investors.
As a result, the market price of shares of our
Class A common stock could be adversely
affected.
In addition, several shareholder advisory firms have announced
their opposition to the use of multiple class structures, and our
dual-class structure may cause shareholder advisory firms to
publish negative commentary about its corporate governance
practices or otherwise seek to cause us to change our capital
structure. Any actions or publications by shareholder advisory
firms critical of our corporate governance practices or capital
structure could also adversely affect the value of our Class A
common stock.
The MarketWise Members will continue to have significant influence
over us after this offering, including control over decisions that
require the approval of MarketWise, Inc. stockholders.
Prior to the issuance and sale of the securities offered by this
prospectus, the MarketWise Members control, in the aggregate,
approximately 91.1% of the voting power represented by all of our
outstanding classes of stock. Of that percentage, Monument &
Cathedral, LLC controls approximately 43.3% of the voting power
represented by all of our outstanding classes of stock. As a
result, the MarketWise Members (and Monument & Cathedral, LLC
in particular) may exercise significant influence over all matters
requiring stockholder approval, including the election and removal
of directors and the size of our board, appointment and removal of
officers, any amendment of our Charter or MarketWise, Inc.’s bylaws
(our “Bylaws”), and any approval of significant corporate
transactions (including a sale of substantially all of MarketWise,
LLC’s assets), and will continue to have significant control over
our management and policies, including policies around financing,
compensation, and declaration of dividends.
Certain MarketWise Members or affiliates of MarketWise Members are
members of our board of directors. These board members can take
actions that have the effect of delaying or preventing a change of
control of MarketWise, LLC or discouraging others from making
tender offers for our shares, which could prevent stockholders from
receiving a premium for their shares. These actions may be taken
even if other stockholders oppose them. The concentration of voting
power with the MarketWise Members may have an adverse effect on the
price of our securities. The interests of the MarketWise Members
may not be consistent with your interests as a
securityholder.
The MarketWise Members have the right to have their MarketWise
Units redeemed or exchanged into shares of Class A common stock,
which, if exercised, will dilute your economic interest in
MarketWise, Inc.
Prior to the issuance and sale of the securities offered by this
prospectus, we have an aggregate of approximately 920,230,598
shares of our Class A common stock authorized but unissued,
including 291,092,303 shares of our Class A common stock issuable
upon redemption or exchange of MarketWise Units that are held by
the MarketWise Members. Under the terms of the MarketWise Operating
Agreement, and subject to certain restrictions set forth therein
and as described elsewhere in this prospectus, the MarketWise
Members are entitled to have their MarketWise Units redeemed or
exchanged for shares of our Class A common stock or, at our option,
cash. Shares of our Class B common stock held by any such redeeming
or exchanging MarketWise Member will be canceled for no additional
consideration on a one-for-one basis with the redeemed or exchanged
MarketWise Units whenever the MarketWise Members’ MarketWise Units
are so redeemed or exchanged. While any redemption or exchange of
MarketWise Units and corresponding cancellation of our Class B
common stock will reduce the MarketWise Members’ economic interest
in MarketWise and its voting interest in MarketWise, Inc., the
related issuance of our Class A common stock will dilute your
economic interest in us. The timing or size of any future issuances
of our Class A common stock resulting from the redemption or
exchange of MarketWise Units cannot be predicted.
A significant portion of the total outstanding shares of our Class
A common stock (or shares of our Class A common stock that may be
issued in the future pursuant to the exchange or redemption of
MarketWise Units) are restricted from immediate resale but may be
sold into the market in the near future. This could cause the
market price of our securities to drop significantly, even if our
business is doing well.
Pursuant to the Registration Rights Agreement, subject to certain
exceptions, the Sponsor and the MarketWise Members are
contractually restricted from selling or transferring, (a) with
respect to the Sponsor, the shares of our common stock held by the
Sponsor on the closing date of the Transactions or received by the
Sponsor in connection with the Transactions and (b) with respect to
the MarketWise Members, (i) the shares of our Class A common stock
received by the MarketWise Members on the closing date of the
Transactions and (ii) any shares of Class A common stock received
by any MarketWise Member thereafter pursuant to a direct exchange
or redemption of MarketWise Units held as of the closing date of
the Transactions under the MarketWise Operating Agreement. Such
restrictions end (i) with respect to the Sponsor and any MarketWise
Member that is a member of our management, on the earlier of (x)
July 21, 2022 and (y) the date on which the last reported sale
price of our Class A common stock equals or exceeds $12.00 per
share for any 20 trading days within any 30-trading day period
commencing December 18, 2021 and (ii) with respect to any
MarketWise Member that is not a member of our management, January
17, 2022.
Following the expiration of the applicable lock-up period, neither
the MarketWise Members nor the Sponsor will be restricted from
selling shares of Class A common stock held by them or that may be
received by them in exchange for MarketWise Units or warrants, as
the case may be, other than by applicable securities laws.
Additionally, the PIPE Investors are not restricted from selling
any of their shares of Class A common stock, other than by
applicable securities laws. As such, sales of a substantial number
of shares of Class A common stock in the public market could occur
at any time. These sales, or the perception in the market that the
holders of a large number of shares intend to sell shares, could
reduce the market price of our securities.
As restrictions on resale end and registration statements for the
sale of shares of Class A common stock and warrants by the parties
to the Registration Rights Agreement are available for use, the
sale or possibility of sale of these shares of Class A common stock
and warrants could have the effect of increasing the volatility in
the market price of Class A common stock or warrants, or decreasing
the market price itself.
Our warrants are exercisable for Class A common stock, which will
increase the number of shares eligible for future resale in the
public market and result in dilution to our
stockholders.
There are 30,979,993 outstanding warrants to purchase an equal
number of shares of Class A common stock at an exercise price of
$11.50 per share, which warrants are currently exercisable. To the
extent such warrants are exercised, additional shares of Class A
common stock will be issued, which will result in dilution to the
holders of Class A common stock and increase the number of shares
eligible for resale in the public market. Sales of substantial
numbers of such shares in the public market or the fact that such
warrants may be exercised could adversely affect the market price
of our securities.
Our warrants are accounted for as derivative liabilities and are
recorded at fair value with changes in fair value for each period
reported in earnings, which may have an adverse effect on the
market price of our securities.
We are accounting for both the public warrants and the private
placement warrants as a warrant liability. At each reporting period
(1) the accounting treatment of the warrants will be re-evaluated
for proper accounting treatment as a liability or equity and (2)
the fair value of the liability of the public warrants and private
placement warrants will be remeasured and the change in the fair
value of the liability will be recorded as other income (expense)
in our income statement. Changes in the inputs and assumptions for
the valuation model we use to determine the fair value of such
liability may have a material impact on the estimated fair value of
the embedded derivative liability. The share price of our Class A
common stock represents the primary underlying variable that
impacts the value of the liability related to the warrants, which
are accounted for as derivative instruments. Additional factors
that impact the value of the warrants as derivative instruments
include the volatility of our stock price, discount rates, and
stated interest rates. As a result, our financial statements and
results of operations will fluctuate quarterly, based on various
factors, such as the share price of our Class A common stock, many
of which
are outside of our control. In addition, we may change the
underlying assumptions used in our valuation model, which could in
result in significant fluctuations in our results of
operations.
Under certain circumstances, the Sponsor and certain members of our
management team will be entitled to the Sponsor Earnout Shares and
the Management Member Earnout Shares, as applicable, which will
increase the number of shares eligible for future resale in the
public market and result in dilution to our
stockholders.
If at any time prior to July 21, 2025 (i) the last reported sale
price of Class A common stock equals or exceeds $12.00
per share for any 20 trading days within any 30-trading day period
or (ii) we consummate a transaction that results in our
stockholders having the right to exchange their shares of Class A
common stock for cash, securities, or other property having a value
equal to or exceeding $12.00 per share, the Sponsor will be
entitled to the release from escrow of 1,525,500 shares of our
Class A common stock (representing 50% of the 3,051,000 shares
subject to the earn-out escrow) and certain members of our
management team will be entitled to an aggregate of 1,000,000 newly
issued shares of Class A common stock. Furthermore,
if at any time prior to July 21, 2025 (i) the last reported sale
price of Class A common stock equals or exceeds $14.00 per share
for any 20 trading days within any 30-trading day period or (ii) we
consummate a transaction that results in our stockholders having
the right to exchange their shares of Class A common stock for
cash, securities, or other property having a value equal to or
exceeding $14.00 per share, the Sponsor will be entitled to the
release from escrow of an additional 1,525,500 shares of our Class
A common stock (representing the remaining 50% of the 3,051,000
shares subject to the earn-out escrow) and certain members of our
management team will be entitled to an additional 1,000,000 newly
issued shares of Class A common stock in the aggregate. To the
extent the Management Member Earnout Shares are issued, there will
be dilution to the holders of Class A common stock and an increase
the number of shares eligible for resale in the public market.
Sales of substantial numbers of such shares in the public market or
the fact that the Management Member Earnout Shares may be issued
could adversely affect the market price of our
securities.
We may issue shares of preferred stock in the future, which could
make it difficult for another company to acquire us or could
otherwise adversely affect our securityholders, which could depress
the price of our securities.
Our Charter authorizes us to issue one or more series of preferred
stock. Our board of directors will have the authority to determine
the relative rights, limitations, preferences, privileges,
restrictions, and other terms of the shares of preferred stock and
to fix the number of shares constituting any series and the
designation of such series, without any further vote or action by
stockholders. Our preferred stock could be issued with voting,
liquidation, dividend, and other rights superior to the rights of
Class A common stock. The potential issuance of preferred stock may
delay or prevent a change in control of us, discourage bids for our
securities at a premium to the market price, and materially and
adversely affect the market price and the voting and other rights
of the holders of our securities.
As a result of our business combination with a special purpose
acquisition company, regulatory obligations may impact us
differently than other publicly traded companies.
On July 21, 2021, we consummated the Transactions with ADAC, a
special purpose acquisition company, pursuant to which we became a
publicly traded company. As a result of this transaction,
regulatory obligations have, and may continue, to impact us
differently than other publicly traded companies. For instance, the
SEC and other regulatory agencies may issue additional guidance or
apply further regulatory scrutiny to companies like us that have
completed a business combination with a special purpose acquisition
company. Managing this regulatory environment, which has and may
continue to evolve, could divert management’s attention from the
operation of our business, negatively impact our ability to raise
additional capital when needed, or have an adverse effect on the
price of our securities.
The requirements of being a public company require significant
resources and management attention and affect our ability to
attract and retain executive management and qualified board
members.
As a newly public company, we will incur legal, regulatory,
finance, accounting, investor relations, and other expenses that we
did not previously incur as a private company, including costs
associated with public company reporting requirements and costs of
recruiting and retaining non-executive directors. We are now
subject to the Exchange Act, including the reporting requirements
thereunder, SOX, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the Nasdaq rules and other applicable
securities rules and regulations. Compliance with these rules and
regulations will increase our legal and financial compliance costs,
make some activities more difficult, time-consuming, or costly
(although these costs currently unable to be estimated with any
degree of certainty), and increase demand on our systems and
resources, particularly after we are no longer an “emerging growth
company” or a “smaller reporting company.” The expenses incurred by
public companies generally for reporting and corporate governance
purposes have been increasing. Our management will need to devote a
substantial amount of time to ensure that we comply with all of
these requirements, diverting the attention of management away from
revenue-producing activities. Further, these rules and regulations
may make it more difficult and more expensive for us to obtain
certain types of insurance, including directors’ and officers’
liability insurance, which could make it more difficult for us to
attract and retain qualified members of our board of directors. We
may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage.
In addition, enhanced legal and regulatory regimes and heightened
standards relating to corporate governance and disclosure for
public companies result in increased legal and financial compliance
costs and make some activities more time consuming.
Pursuant to Section 404, once we are no longer an emerging growth
company or a smaller reporting company, we may be required to
furnish an attestation report on internal control over financial
reporting issued by our independent registered public accounting
firm. When our independent registered public accounting firm is
required to undertake an assessment of our internal control over
financial reporting, the cost of complying with Section 404 will
significantly increase, and management’s attention may be further
diverted from other business concerns, which could adversely affect
our business and results of operations. We may need to hire more
employees in the future or engage outside consultants to comply
with the requirements of Section 404, which will further increase
cost and expense.
If we are unable to satisfy its obligations as a public company, we
could be subject to delisting of our Class A common stock or public
warrants, fines, sanctions, and other regulatory actions and
potentially civil litigation.
We have identified material weaknesses in our internal control over
financial reporting and may identify additional material weaknesses
in the future that may cause us to fail to meet our reporting
obligations or result in material misstatements of its financial
statements. If we fail to remediate any material weaknesses or if
we fail to establish and maintain effective control over financial
reporting, our ability to accurately and timely report financial
results could be adversely affected.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance
with U.S. generally accepted accounting principles. A material
weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of annual or
interim financial statements will not be prevented or detected on a
timely basis.
Prior to the completion of the Transactions, we had been a private
company with limited accounting personnel and other resources to
address its internal control over financial reporting. During the
course of preparing for the Transactions, our management and
independent registered public accounting firm determined that we
had material weaknesses in internal controls related to (i) the
lack of contemporaneous documentation and account reconciliation
and (ii) the lack of a formal or documented risk assessment
process.
We are currently implementing a number of steps to enhance our
internal control over financial reporting and address the material
weaknesses, including enhancing our internal review procedures
related to the financial reporting process and the implementation
of new software tools.
Our failure to remediate the material weaknesses identified above
or the identification of additional material weaknesses in the
future, could adversely affect our ability to report financial
information, including filing of quarterly or annual reports with
the SEC on a timely and accurate basis. Moreover, our failure to
remediate the material weaknesses identified above or the
identification of additional material weaknesses could prohibit us
from
producing timely and accurate financial statements, which may
adversely affect the market price of shares of our Class A common
stock and we may be unable to maintain compliance with listing
requirements.
If we fail to put in place appropriate and effective internal
control over financial reporting and disclosure controls and
procedures, we may suffer harm to our reputation and investor
confidence levels.
As a privately held company, we were not required to evaluate our
internal control over financial reporting in a manner that meets
the standards of publicly traded companies required by Section 404.
As a public company, we have significant requirements for enhanced
financial reporting and internal controls.
The process of designing and implementing effective internal
controls is a continuous effort that requires us to anticipate and
react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a
system of internal controls that is adequate to satisfy its
reporting obligations as a public company. If we are unable to
establish or maintain appropriate internal financial reporting
controls and procedures, it could cause us to fail to meet our
reporting obligations on a timely basis, result in material
misstatements in our consolidated financial statements, and harm
our operating results. In addition, we will be required, pursuant
to Section 404, to furnish a report by management on, among other
things, the effectiveness of our internal control over financial
reporting in our Annual Report on Form 10-K for the fiscal year
ending December 31, 2022. Internal control over financial reporting
is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements in accordance with GAAP. This assessment will need to
include disclosure of any material weaknesses identified by our
management in its internal control over financial reporting. The
rules governing the standards that must be met for our management
to assess our internal control over financial reporting are complex
and require significant documentation, testing, and possible
remediation. Testing and maintaining internal controls may divert
our management’s attention from other matters that are important to
our business. Beginning with our Annual Report on Form 10-K for the
fiscal year ending December 31, 2022, our auditors will be required
to issue an attestation report on the effectiveness of our internal
controls on an annual basis.
In connection with the implementation of the necessary procedures
and practices related to internal control over financial reporting,
we may identify deficiencies that we may not be able to remediate
in time to meet the deadline imposed by SOX for compliance with the
requirements of Section 404. In addition, we may encounter problems
or delays in completing the remediation of any deficiencies
identified by our independent registered public accounting firm in
connection with the issuance of their attestation report. Our
testing, or the subsequent testing (if required) by our independent
registered public accounting firm, may reveal deficiencies in our
internal control over financial reporting that are deemed to be
material weaknesses. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a
material misstatement of the entity’s financial statements will not
be prevented or detected on a timely basis. Any material weaknesses
could result in a material misstatement of our annual or quarterly
consolidated financial statements or disclosures that may not be
prevented or detected. The existence of any material weakness would
require management to devote significant time and incur significant
expense to remediate any such material weakness, and management may
not be able to remediate any such material weakness in a timely
manner.
If we fail to implement the requirements of Section 404 in the
required timeframe once we are no longer an emerging growth company
or a smaller reporting company, we may be subject to sanctions or
investigations by regulatory authorities, including the SEC and the
Nasdaq. Furthermore, if we are unable to conclude that our internal
controls over financial reporting is effective, we could lose
investor confidence in the accuracy and completeness of our
financial reports, the market price of our securities could
decline, and we could be subject to sanctions or investigations by
regulatory authorities. Failure to implement or maintain effective
internal control over financial reporting and disclosure controls
and procedures required of public companies could also restrict our
future access to the capital markets.
An active, liquid trading market for our securities may not develop
or be sustained.
There can be no assurance that an active trading market for our
Class A common stock and warrants will develop or, if such a market
develops, that we will be able to maintain an active trading market
for those securities
on the Nasdaq or any other exchange in the future. If an active
market for our securities does not develop or is not maintained, or
if MarketWise, Inc. fails to satisfy the continued listing
standards of the Nasdaq for any reason and its securities are
delisted, it may be difficult for our securityholders to sell their
securities without depressing the market price for the securities
or at all. An inactive trading market may also impair our ability
to both raise capital by selling shares of capital stock, attract
and motivate employees through equity incentive awards and acquire
other companies, products, or technologies by using shares of
capital stock as consideration.
The market price and trading volume of our securities may be
volatile and could decline significantly.
Securities markets worldwide experience significant price and
volume fluctuations. This market volatility, as well as general
economic, market, or political conditions, could reduce the market
price of our Class A common stock and warrants in spite
of our operating performance, which may limit or prevent investors
from readily selling their Class A common stock or warrants and may
otherwise negatively affect the liquidity of our Class A common
stock or warrants. There can be no assurance that the market price
of Class A common stock and warrants will not fluctuate
widely or decline significantly in the future in response to a
number of factors, including, among others, the
following:
•actual
or anticipated fluctuations in our annual or quarterly financial
condition and operating results;
•actual
or anticipated changes in our growth rate relative to our
competitors;
•failure
to meet or exceed financial estimates and projections of the
investment community or that we provide to the public;
•speculation
in the press or investment community about our business or
industry;
•issuance
of new or updated research or reports by securities analysts, or
the failure of securities analysts to provide adequate coverage of
our Class A common stock in the future;
•fluctuations
in the valuation of companies perceived by investors to be
comparable to us;
•Class
A common stock or warrant price and volume fluctuations
attributable to inconsistent trading volume levels of our Class A
common stock or warrants;
•additions
or departures of key personnel;
•disputes
or other developments related to proprietary rights;
•additional
or unexpected changes or proposed changes in laws or regulations or
differing interpretations thereof affecting our business or
enforcement of these laws and regulations, or announcements
relating to these matters;
•announcement
or expectation of additional equity or debt financing
efforts;
•equity
sales by us, the MarketWise Members, our insiders, or our other
stockholders;
•general
economic and market conditions, including any impacts associated
with the COVID-19 pandemic; and
•other
factors described in this “Risk Factors” section and elsewhere in
this prospectus.
If securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business, the
price and trading volume of our securities could
decline.
The trading market for our securities depends in part on the
research and reports that securities or industry analysts publish
about us or our business. We will not control these analysts, and
the analysts who publish information about us may have relatively
little experience with us or our industry, which could affect their
ability to accurately forecast our results and could make it more
likely that we fail to meet their estimates. If few or
no
securities or industry analysts cover us, the trading price for our
securities would be negatively impacted. If one or more of the
analysts who covers us downgrades our securities, publishes
incorrect or unfavorable research about us, ceases coverage of us,
or fails to publish reports on us regularly, demand for and
visibility of our securities could decrease, which could cause the
price or trading volumes of our securities to decline.
We may be subject to securities class action, which may harm our
business and operating results.
Companies that have experienced volatility in the market price of
their stock have been subject to securities class action
litigation. We may be the target of this type of litigation in the
future. Securities litigation against us could result in
substantial costs and damages, and divert management’s attention
from other business concerns, which could seriously harm our
business, results of operations, financial condition, or cash
flows.
We may also be called on to defend ourselves against lawsuits
relating to our business operations. Some of these claims may seek
significant damages amounts. Due to the inherent uncertainties of
litigation, the ultimate outcome of any such proceedings cannot be
accurately predicted. A future unfavorable outcome in a legal
proceeding could have an adverse impact on our business, financial
condition, and results of operations. In addition, current and
future litigation, regardless of its merits, could result in
substantial legal fees, settlements, or judgment costs and a
diversion of management’s attention and resources that are needed
to successfully run our business.
We do not currently pay cash dividends.
We currently intend to retain our future earnings, if any, to
finance the further development and expansion of our business and
our stock repurchase program, and we may not pay cash dividends for
the foreseeable future. Any future determination to pay dividends
will be at the discretion of our board of directors and will depend
on our financial condition, results of operations, capital
requirements, restrictions contained in future agreements and
financing instruments, business prospects, and such other factors
as our board of directors deems relevant. Therefore, you may not
receive any dividends on your Class A common stock for the
foreseeable future, and the success of an investment in our Class A
common stock will depend upon any future appreciation in its
value.
Delaware law and our Charter and Bylaws contain certain provisions,
including anti-takeover provisions, that limit the ability of
stockholders to take certain actions and could delay or discourage
takeover attempts that stockholders may consider
favorable.
Our Charter and Bylaws and the DGC, contain provisions that could
have the effect of rendering more difficult, delaying, or
preventing an acquisition that stockholders may consider favorable,
including transactions in which stockholders might otherwise
receive a premium for their shares. These provisions could also
limit the price that investors might be willing to pay in the
future for shares of our common stock, and therefore depress the
trading price of our Class A common stock. These provisions could
also make it difficult for stockholders to take certain actions,
including electing directors who are not nominated by the current
members of our board of directors or taking other corporate
actions, including effecting changes in our management. Among other
things, Charter and Bylaws include the following
provisions:
•a
classified board of directors with staggered, three-year
terms;
•the
ability of our board of directors to issue shares of preferred
stock, including “blank check” preferred stock, and to determine
the price and other terms of those shares, including preferences
and voting rights, without stockholder approval, which could be
used to significantly dilute the ownership of a hostile
acquirer;
•prohibition
on cumulative voting in the election of directors, which limits the
ability of minority stockholders to elect director
candidates;
•the
limitation of the liability of, and the indemnification of, our
directors and officers;
•the
ability of our board of directors to amend the Bylaws, which may
allow our board of directors to take additional actions to prevent
an unsolicited takeover and inhibit the ability of an acquirer to
amend the Bylaws to facilitate an unsolicited takeover attempt;
and
•advance
notice procedures with which stockholders must comply to nominate
candidates to our board of directors or to propose matters to be
acted upon at a stockholders’ meeting, which could preclude
stockholders from bringing matters before annual or special
meetings of stockholders and delay changes in our board of
directors and also may discourage or deter a potential acquirer
from conducting a solicitation of proxies to elect the acquirer’s
own slate of directors or otherwise attempting to obtain control of
us.
These provisions, alone or together, could delay or prevent hostile
takeovers and changes in control or changes in our board of
directors or management.
The provisions of our Charter requiring exclusive forum in the
Court of Chancery of the State of Delaware and the federal district
courts of the United States for certain types of lawsuits may have
the effect of discouraging lawsuits against our directors and
officers.
Our Charter provides that, to the fullest extent permitted by law,
and unless we consent in writing to the selection of an alternative
forum, the Court of Chancery of the State of Delaware (or, in the
event that the Chancery Court does not have jurisdiction, the
federal district court for the District of Delaware) will be the
sole and exclusive forum for (i) any derivative action, suit or
proceeding brought on our behalf, (ii) any action asserting a claim
of breach of a fiduciary duty owed by any of our current or former
directors, officers, other employees, or stockholders to us or our
stockholders, (iii) any action asserting a claim arising pursuant
to any provision of the General Corporation Law of the State of
Delaware (the “DGCL”) or our Bylaws or Charter (as each may be
amended from time to time) or as to which the DGCL confers
exclusive jurisdiction on the Court of Chancery of the State of
Delaware, or (iv) any action asserting a claim governed by the
internal affairs doctrine. Our Charter also provides that, unless
we consent in writing to the selection of an alternative forum, to
the fullest extent permitted by law, the federal district courts of
the United States of America shall be the exclusive forum for the
resolution of any complaint asserting a cause of action arising
under the Securities Act. However, there is uncertainty as to
whether a court would enforce such provision, and investors cannot
waive compliance with federal securities laws and the rules and
regulations thereunder. Section 27 of the Exchange Act creates
exclusive federal jurisdiction over all suits brought to enforce
any duty or liability created by the Exchange Act or the rules and
regulations thereunder and our Charter provides that the exclusive
forum provision will not apply to claims seeking to enforce any
liability or duty created by the Exchange Act.
These provisions may have the effect of discouraging lawsuits
against our directors and officers. The enforceability of similar
choice of forum provisions in other companies’ certificates of
incorporation has been challenged in legal proceedings, and it is
possible that, in connection with any applicable action brought
against us, a court could find the choice of forum provisions
contained in our Charter to be inapplicable or unenforceable in
such action.
USE OF PROCEEDS
All of the shares of Class A common stock and private placement
warrants offered by the selling securityholders will be sold by
them for their respective accounts. We will not receive any of the
proceeds from these sales.
The selling securityholders will pay any underwriting fees,
discounts, selling commissions, stock transfer taxes, and certain
legal expenses incurred by such selling securityholders in
disposing of their shares of Class A common stock and private
placement warrants, and we will bear all other costs, fees, and
expenses incurred in effecting the registration of such securities
covered by this prospectus, including, without limitation, all
registration and filing fees, Nasdaq listing fees, and fees and
expenses of our counsel and our independent registered public
accountants.
We will receive any proceeds from the exercise of the warrants for
cash, but not from the issuance of any shares of Class A Common
Stock upon exchange of MarketWise Units or the resale of the shares
of Class A common stock issuable upon such exercise or exchange.
Assuming the exercise of all outstanding warrants for cash, we will
receive an aggregate of $356.3 million. There is no assurance that
the holders of the warrants will elect to exercise for cash any or
all of such warrants. To the extent that any warrants are exercised
on a “cashless basis,” the amount of cash we would receive from the
exercise of the warrants will decrease.
We intend to use the proceeds received from the exercise of the
warrants, if any, for general corporate purposes, which may include
capital expenditures, potential acquisitions, growth opportunities,
strategic transactions, and purchases of MarketWise Units from
MarketWise Members. However, we have not designated any specific
uses and have no current agreement with respect to any acquisition
or strategic transaction.
DIVIDEND POLICY
We have never declared or paid any dividends on our Class A common
stock. Holders of our Class B common stock do not have any right to
receive dividends, or to receive a distribution upon a liquidation,
dissolution, or winding up of MarketWise, Inc., with respect to
their Class B common stock. We currently intend to retain all
available funds and any future earnings for the operation and
expansion of our business, as well as for our previously disclosed
stock repurchase program. Accordingly, we do not currently pay
dividends and may not pay dividends for the foreseeable future. The
declaration, amount, and payment of any future dividends on shares
of Class A common stock will be at the sole discretion of our board
of directors, and we may reduce or discontinue entirely the payment
of such dividends at any time. Our board of directors may take into
account general and economic conditions, our financial condition
and operating results, our available cash and current and
anticipated cash needs, capital requirements, contractual, legal,
tax, and regulatory restrictions, implications on the payment of
dividends by us to our stockholders or by our subsidiaries to us,
and such other factors as our board of directors may deem
relevant.
MarketWise, Inc. is a holding company and has no material assets
other than its ownership of MarketWise Units. The MarketWise
Operating Agreement provides that certain distributions to cover
the taxes of the holders of MarketWise Units will be made based
upon assumed tax rates and other assumptions provided in the
MarketWise Operating Agreement. See “Certain Relationships and
Related Person Transactions—MarketWise Operating Agreement.” The
manager of MarketWise, LLC has broad discretion to make
distributions out of MarketWise, LLC. In the event MarketWise, Inc.
declares any cash dividend, we expect that MarketWise, Inc., as
manager of MarketWise, LLC, would cause MarketWise, LLC to make
distributions to MarketWise, Inc. in an amount sufficient to cover
such cash dividends declared by us. If MarketWise, LLC makes such
distributions to MarketWise, Inc., the other holders of MarketWise
Units will also be entitled to receive the respective equivalent
pro rata distributions in accordance with the percentages of their
respective MarketWise Units.
We anticipate that cash received by MarketWise, LLC may, in certain
periods, exceed its liabilities, including tax liabilities, and
obligations to make payments under the Tax Receivable Agreement. We
expect that MarketWise, Inc. will use any such excess cash from
time to time to pay dividends, which may include special dividends,
on its Class A common stock, to fund repurchases of its Class A
common stock, or any combination of the foregoing. Our board of
directors, in its sole discretion, will make any determination with
respect to the use of any such excess cash.
We also expect, if necessary, to undertake ameliorative actions,
which may include pro rata or non-pro rata reclassifications,
combinations, subdivisions, or adjustments of outstanding
MarketWise Units, or declare a stock dividend on our Class A common
stock of an aggregate number of additional newly issued shares that
corresponds to the number of additional MarketWise Units that
MarketWise, Inc. is acquiring, to maintain one-to-one parity
between MarketWise Units and shares of Class A common stock and
Class B common stock. See “Risk Factors—Risks Related to Our
Organizational Structure—MarketWise, Inc.’s sole material asset is
its interest in MarketWise, LLC, and, accordingly, it will depend
on distributions from MarketWise, LLC to pay its taxes and
expenses, including payments under the Tax Receivable Agreement.
MarketWise, LLC’s ability to make such distributions may be subject
to various limitations and restrictions.”
Furthermore, the Loan and Security Agreement includes, and any
financing arrangements that we enter into in the future may
include, restrictive covenants that limit our ability to pay
dividends. In addition, MarketWise, LLC is generally prohibited
under Delaware law from making a distribution to a member to the
extent that, at the time of the distribution, after giving effect
to the distribution, liabilities of MarketWise, LLC (with certain
exceptions) exceed the fair value of its assets.
Since its formation in February 11, 2020, MarketWise, Inc. has not
paid any dividends to holders of its outstanding common stock. In
2019, 2020, and 2021, MarketWise, LLC made cash distributions to
the MarketWise Members in an aggregate amount of $35.3 million,
$180.2 million, and $258.9 million, respectively.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with “Summary Historical Financial and Other Data” and
our audited consolidated financial statements and related notes
thereto included elsewhere in this prospectus. The following
discussion contains forward-looking statements that involve certain
risks and uncertainties. Our actual results may differ
significantly from those contained in the forward-looking
statements. Factors that might cause future results to differ
materially from those contained in the forward-looking statements
include, but are not limited to, those discussed in the sections
entitled “Risk Factors” and “Cautionary Statement Regarding
Forward-Looking Statements” in this prospectus.
Overview
We are a leading multi-brand platform of subscription businesses
that provides premium financial research, software, education, and
tools for self-directed investors. We offer a comprehensive
portfolio of high-quality, independent investment research, as well
as several software and analytical tools, on a subscription
basis.
MarketWise started in 1999 with the simple idea that, if we could
publish intelligent, independent, insightful, and in-depth
investment research and treat the subscriber the way we would want
to be treated, then subscribers would renew their subscriptions and
stay with us. Over the years, we have expanded our business into a
comprehensive suite of investment research products and solutions.
We now produce a diversified product portfolio from a variety of
financial research companies such as Stansberry Research, Palm
Beach Research, Casey Research, InvestorPlace, and Empire Financial
Research.
Our entire investment research product portfolio is 100% digital
and channel agnostic, and we offer all of our research across a
variety of platforms, including desktop, laptop, and mobile
devices, including tablets and mobile phones.
Today, we benefit from the confluence of a leading editorial team,
diverse portfolio of content and brands, and comprehensive suite of
investor-centric tools that appeal to a broad subscriber
base.
2021 Highlights
We finished 2021 with all-time-high net cash flow from operations
(“CFFO”) and Adjusted CFFO (as defined below), driven by record net
revenue and Billings (as defined below), as we continued to perform
well and grew our subscriber base.
The following table presents net cash provided by operating
activities, and the related margin as a percentage of net revenue,
and Adjusted CFFO, a non-GAAP measure, and the related margin as a
percentage of Billings, for each of the periods presented. For more
information on Adjusted CFFO and Adjusted CFFO Margin (as defined
below), see “—Non-GAAP Financial Measures.”
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
$ |
63,632 |
|
$ |
55,875 |
|
$ |
54,201 |
|
Total net revenue |
549,183 |
|
364,179 |
|
272,223 |
|
Net cash provided by operating activities margin |
11.6 |
% |
|
15.3 |
% |
|
19.9 |
% |
|
|
|
|
|
|
|
|
Adjusted CFFO |
$ |
197,081 |
|
$ |
134,273 |
|
$ |
69,032 |
|
Billings |
729,893 |
|
548,835 |
|
310,060 |
|
Adjusted CFFO Margin
|
27.0 |
% |
|
24.5 |
% |
|
22.3 |
% |
Cash flow from operations increased by $7.8 million, or 13.9%, from
$55.9 million
for the year ended December 31, 2020 to
$63.6 million
for the year ended December 31, 2021,
primarily due to net loss of $953.9 million adjusted for non-cash
charges of $927.8 million and net changes in our operating assets
and liabilities of $89.8 million.
Adjusted CFFO increased by
$62.8 million,
or 46.8%, from $134.3 million for the year ended December 31,
2020 to $197.1 million for the year ended December 31, 2021,
primarily driven by an increase of $181.1 million in Billings at an
Adjusted CFFO Margin of 27.0%.
The difference between Adjusted CFFO and CFFO was primarily
stock-based compensation associated with distributions to the
original holders of incentive compensation units of MarketWise, LLC
granted to certain key employees (the “Class B Units”). For further
information on stock-based compensation, see Note 11, Stock-Based
Compensation,
to our audited consolidated financial statements.
Net revenue
increased
by $185.0 million, or 50.8%, from $364.2 million for the year ended
December 31, 2020 to $549.2 million for the year ended
December 31, 2021.
The increase in net revenue was primarily driven by a
$129.9 million
increase in term subscription revenue and a
$57.7 million
increase in lifetime subscription revenue, partially offset by
a
$2.6 million
decrease in non-subscription revenue.
Billings increased by $181.1 million, or 33.0%, to $729.9 million
in 2021 as compared to $548.8 million in 2020. We believe this
increase was due in large part to strong lifetime and high-value
subscription sales, combined with strong new Paid Subscriber
performance, as we continued to focus on adding new Paid
Subscribers and those subscribers purchased high-value
subscriptions over time.
Cash flow from operations increased by $1.7 million, or 3.1%, from
$54.2 million for the year ended December 31, 2019 to $55.9
million for the year ended December 31, 2020, primarily due to
net loss of $541.1 million and non-cash charges of $483.4 million,
partially offset by net changes in our operating assets and
liabilities of $113.6 million.
Adjusted CFFO increased by $65.2 million, or 94.5%, from $69.0
million for the year ended December 31, 2019 to $134.3 million
for the December 31, 2020, primarily driven by an increase of
$238.8 million in Billings at an Adjusted CFFO Margin of
24.5%.
Net revenue increased by $92.0 million, or 33.8%, from $272.2
million for the
year ended December 31, 2019
to $364.2 million for the
year ended December 31, 2020.
The increase in net revenue was primarily driven by a $59.7 million
increase in term subscription revenue and a $35.9 million increase
in lifetime subscription revenue, partially offset by a $3.7
million decrease in non-subscription revenue.
Billings increased by $238.8 million, or 77.0%, to $548.8 million
in 2020 as compared to $310.1 million in 2019. Again, this was
driven by strong lifetime and high-value subscription sales, as
well as the success of significant marketing efforts, particularly
in the second half of 2020.
The Transactions
The Transactions were consummated on July 21, 2021. The
Transactions were accounted for akin to a reverse recapitalization,
with no goodwill or other intangible assets recorded, in accordance
with GAAP. The Transactions had several significant impacts on our
reported financial position and results, as a consequence of
reverse capitalization treatment. These impacts include the net
cash proceeds from the Transactions of $113.6 million. This
cash amount includes: (a) the reclassification of ADAC’s trust
account of $414.6 million to cash and cash equivalents that
became available at the time of the Transactions; (b) proceeds of
$150.0 million from the issuance and sale of Class A common
stock in the PIPE Investment; (c) payment of $48.8 million in
non-recurring transaction costs; (d) settlement of
$14.5 million in deferred underwriters’ discount; and (e) the
payment of $387.7 million to redeeming shareholders of ADAC.
See also Note 1, Organization—Reverse Recapitalization with
Ascendant Digital Acquisition Corp., to our audited consolidated
financial statements.
Key Factors Affecting Our Performance
We believe that our growth and future success are dependent upon
several factors, including those below and those noted in the “Risk
Factors” section of this prospectus. The key factors below
represent significant business opportunities as well as challenges
that we must successfully address in order to continue our growth
and improve our financial results.
Growing our subscriber base with compelling unit economics.
We are highly focused on continuing to acquire new subscribers to
support our long-term growth. Our marketing spend is a large driver
of new subscriber growth. At the heart of our marketing strategy is
our compelling unit economics that combine long-term subscriber
relationships, highly scalable content delivery, cost-effective
customer acquisition, and high-margin conversions.
Our Paid Subscribers as of December 31, 2021 generated average
customer lifetime Billings of approximately $2,600, resulting in a
LTV/CAC ratio (as defined below) of approximately 4x. On average,
it takes us approximately seven to ten months for a Paid
Subscriber’s cumulative net revenue to exceed the total cost of
acquiring that subscriber (which includes fixed costs, such as
marketing salaries). For more information on our LTV/CAC ratio and
the components of this ratio, see “—Definitions
of Metrics.”
We adjust our marketing spend to drive efficient and profitable
customer acquisition. We can adjust our marketing spend in near
real-time, and we monitor costs per acquisition relative to the
cart value of the initial subscription. We seek and typically
achieve 90-day payback periods to cover this variable component of
the direct marketing spend.
As of December 31, 2021, our paid subscriber base was 972
thousand, up 115 thousand, or 13.4%, as compared to 857 thousand at
December 31, 2020. Growth in our base is provided by both
direct-to-paid acquisition and free-to-paid conversions.
Direct-to-paid acquisition has traditionally accounted for
approximately two-thirds of our annual Paid Subscriber acquisition,
and is largely driven by display ads and targeted email
campaigns.
Our free subscription products also serve as a significant source
of new Paid Subscribers, accounting for approximately one-third of
our annual Paid Subscriber acquisition. Our free-to-paid conversion
rate reflects the rate at which Free Subscribers purchase paid
subscription products. Our annual free-to-paid conversion rate was
approximately 1% to 2% between 2019 and 2021. Over that same
three-year period, our cumulative free-to-paid conversion rate was
5%.
We have invested, and expect to continue to invest, heavily in
sales and marketing efforts to drive customer
acquisition.
Retaining and expanding relationships with existing
subscribers.
We believe that we have a significant opportunity to expand our
relationships with our large base of Free and Paid Subscribers.
Thanks to the quality of our products, we believe our customers
will continue their relationship with us and extend and increase
their subscriptions over time. As we deepen our engagement with our
subscribers, our customers tend to purchase more and higher-value
products. Our ARPU (as defined below) as of December 31, 2021
was $742, which decreased 2.2% from $759 as of December 31,
2020. Our ARPU grew at a compound annual growth rate of 16% over
the three-year period ended December 31, 2021, growing from
$478 as of December 31, 2018 to $742 as of December 31,
2021.
Conversion rates are important to our business because they are an
indicator of how engaged and how well we are connecting with our
subscribers. The time it takes our customers to move from our free
products to our lower-priced paid subscriptions and eventually to
high-end products and lifetime “bundled” offerings impacts our
growth in net revenue, Billings, and ARPU.
Our cumulative high-value conversion rate reflects the rate at
which Paid Subscribers that have purchased less than $600 of our
products over their lifetime convert into subscribers that have
purchased more than $600. We believe our cumulative high-value
conversion rate reflects our ability to retain existing subscribers
through renewals and our ability to expand our relationship with
them when those subscribers purchase higher-value subscriptions.
Our cumulative ultra high-value conversion rate reflects the rate
at which high-value Paid Subscribers that have purchased more than
$600 of our products over their lifetime convert into subscribers
that have purchased more than $5,000. We believe our ultra
high-value conversion rate reflects our ability to successfully
build lifetime relationships with our subscribers, often across
multiple products and brands. As of December 31, 2021, our
cumulative high-value conversion rate and cumulative ultra
high-value conversion rate were 39% and 35%,
respectively.
Definitions of Metrics
Throughout this prospectus, a number of our financial and operating
metrics are referenced which we do not consider to be key business
metrics, but which we review to monitor performance, and which we
believe may be useful to investors. These are:
Annual free-to-paid conversion rate:
We calculate our free-to-paid conversion rate as the number of Free
Subscribers who purchased a subscription during the period divided
by the average number of Free Subscribers during the period. We
believe our free-to-paid conversion rate is an indicator of the
type of Free Subscribers that we are signing up and the quality of
our content and marketing efforts. Investors should consider
free-to-paid conversion rate as one of the factors in evaluating
our ability to maintain a robust pipeline for new customer
acquisition.
Cumulative free-to-paid conversion rate:
We calculate our cumulative free-to-paid conversion rate as the
number of Free Subscribers who purchased a subscription during the
trailing three-year period divided by the average number of Free
Subscribers during the trailing three-year period.
Cumulative high-value conversion rate:
Our cumulative high-value conversion rate reflects the number of
Paid Subscribers who have purchased more than $600 in aggregate
over their lifetime as of a particular point in time divided by the
total number of Paid Subscribers as of that same point in
time.
Cumulative ultra high-value conversion rate:
Our cumulative ultra high-value conversion rate reflects the number
of Paid Subscribers who have purchased more than $5,000 in
aggregate over their lifetime as of a particular point in time
divided by the number of high-value subscribers as of that same
point in time. We believe our cumulative ultra high-value
conversion rate reflects our ability to successfully build lifetime
relationships with our subscribers, often across multiple products
and brands. Investors should consider cumulative ultra high-value
conversion rate as a factor in evaluating our ability to retain and
expand our relationship with our subscribers.
LTV/CAC ratio:
We calculate LTV/CAC ratio as LTV (as defined below) divided by CAC
(as defined below). We use LTV/CAC ratio because it is a standard
metric for subscription-based businesses, and we believe that an
LTV/CAC ratio above 3x is considered to be indicative of strong
profitability and marketing efficiency. We believe that an
increasing LTV per subscriber reflects our existing subscribers
recognizing our value proposition, which will expand their
relationship with us across our platform over time, either through
a combination of additional product purchases or by joining our
lifetime offerings. Investors should consider this metric when
evaluating our ability to achieve a return on our marketing
investment. Lifetime value (“LTV”) represents the average margin on
average customer lifetime billings (that is, the estimated
cumulative spend across a customer’s lifetime). Customer
acquisition cost (“CAC”) is defined as direct marketing spend, plus
external revenue share expense, plus retention and renewal
expenses, plus copywriting and marketing salaries, plus telesales
salaries and commissions,
plus
customer service commissions.
Net revenue retention:
Net revenue retention is defined as Billings from all prior period
cohorts in the current period, divided by all Billings from the
prior period. We believe that a high net revenue retention rate is
a measure of customer retention and an indicator of the engagement
of our subscribers with our products. Investors should consider net
revenue retention as an ongoing measure when evaluating our
subscribers’ interest in continuing to subscribe to our products
and spending more with us over time.
Key Business Metrics
We review the following key business metrics to measure our
performance, identify trends, formulate financial projections, and
make strategic decisions. We are not aware of any uniform standards
for calculating these key
metrics, which may hinder comparability with other companies who
may calculate similarly titled metrics in a different
way.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Free Subscribers |
13,699,910 |
|
|
9,529,622 |
|
|
5,027,461 |
|
|
Paid Subscribers |
971,534 |
|
|
856,826 |
|
|
526,018 |
|
|
ARPU |
$ |
742 |
|
|
$ |
759 |
|
|
$ |
599 |
|
|
Billings (in thousands) |
$ |
729,893 |
|
|
$ |
548,835 |
|
|
310,060 |
|
Free Subscribers.
Free Subscribers are defined as unique subscribers who have
subscribed to one of our free investment publications via a valid
email address and continue to remain directly opted in, excluding
any Paid Subscribers who also have free subscriptions. Free
subscriptions are often daily publications that include some
commentary about the stock market, investing ideas, or other
specialized topics. Included within our free publications are
advertisements and editorial support for our current marketing
campaigns. While subscribed to our publications, Free Subscribers
learn about our editors and analysts, get to know our products and
services, and learn more about ways we can help them be a better
investor.
Free Subscribers increased by 4.2 million, or 43.8%, to 13.7
million at December 31, 2021 as compared to 9.5 million at
December 31, 2020, as our significant lead-generation efforts
that began in earnest during late 2018 and intensified during 2019
and 2020 with the expansion across multiple brands, continued
during 2021.
Free Subscribers increased by 4.5 million, or 89.6%, to 9.5 million
as of December 31, 2020 as compared to 5.0 million as of
December 31, 2019. This growth was driven by our continued
lead generation efforts and the expansion of our product
set.
Paid Subscribers.
We define Paid Subscribers as the total number of unique
subscribers with at least one paid subscription at the end of the
period. We view the number of Paid Subscribers at the end of a
given period as a key indicator of the attractiveness of our
products and services, as well as the efficacy of our marketing in
converting Free Subscribers to Paid Subscribers and generating
direct-to-paid Paid Subscribers. We grow our Paid Subscriber base
through performance marketing directly to prospective and existing
subscribers across a variety of media, channels, and
platforms.
Total Paid Subscribers increased by 115 thousand, or 13.4%, to 972
thousand as of December 31, 2021 as compared to 857 thousand
at December 31, 2020, driven by successful marketing efforts
and rich content, which drove free-to-paid conversions as well as
direct-to-paid acquisition. Per-unit subscriber acquisition costs
were favorable at the beginning of the year which, when combined
with our compelling content, led to unprecedented new subscriber
acquisition in first quarter 2021. The travel and leisure boom,
where Americans made up for the inability to travel during the
pandemic, began in mid-second quarter 2021 and continued through
the end of the third quarter. During this time, the travel and
hospitality industries significantly increased their usage of
digital media to market their products. With per-unit subscriber
acquisition costs rising during this time, we reduced our marketing
spend on new customer acquisition, and continued to emphasize
marketing higher-value content to our existing subscriber base.
Costs finally began to improve toward the end of the year and we
accelerated our spend to acquire new subscribers. We will continue
to focus on our break-even metrics and adjust our direct marketing
spend accordingly, as we have done for the past 20+
years.
Total Paid Subscribers increased by 331 thousand, or 62.9%, to 857
thousand as of December 31, 2020 as compared to 526 thousand
as of December 31, 2019. As was the case in 2021, successful
marketing efforts and rich content drove the increase in
subscribers, aided in part by a more favorable cost environment as
it related to media costs.
Subscriber count churn has ranged from approximately 1.8% to 2.3%
per month over the past three years. Given the rapid growth in
subscribers in 2020 and earlier in 2021, subscriber count churn
increased to the higher end of this range for the second half of
the year. Typically, churn may run at the higher end of this range
after periods of rapid subscriber additions and then may fall back
to the lower end of the range through time.
After periods of rapid subscriber growth such as what we
experienced in late 2020 and in the first part of 2021, it is not
unusual to see an increase in churn as some of the less engaged,
new Paid Subscribers churn off. Consistent with this, almost all of
the subscribers who churned in the year did so having owned only
one entry-level publication. This is evidenced by the fact that
their ARPU approximately matched the subscription price of our
entry level publications. We believe our net revenue retention
rate, which averaged over 90% from 2019 to 2021, is a more
meaningful gauge of subscriber satisfaction.
Average Revenue Per User.
We calculate average revenue per user (“ARPU”) as the trailing four
quarters of net Billings divided by the average number of quarterly
total Paid Subscribers over that period. We believe ARPU is a key
indicator of how successful we are in attracting subscribers to
higher-value content. We believe that increasing ARPU is indicative
of the trust we build with our subscribers and of the value they
see in our products and services.
ARPU decreased by $17, or 2.2%, to $742 as of December 31,
2021 as compared to $759 as of December 31, 2020. The modest
year-over-year decrease was driven by a 36% increase in trailing
four quarter Paid Subscribers in 2021, which slightly outpaced the
increase in trailing four quarter Billings of 33% in 2021. The
increase in trailing four quarter average Paid Subscribers in 2021
was largely attributable to the rapid increase in our subscriber
base in the first half of 2021. Most of our new subscribers join us
on entry level publications, which are generally at lower price
points, and thus are initially dilutive to ARPU. We have shown
that, over time, subscribers have continued to invest in our
platform, which has tended to drive increases in ARPU. As of
December 31, 2021, we had 19% and 32% more high-value and
ultra-high value subscribers than we did a year ago.
ARPU increased by $160, or 26.7%, to $759 as of December 31,
2020 as compared to $599 as of December 31, 2019. The
year-over-year increase was driven by a 77% increase in trailing
four quarters Billings which accompanied a 40% increase in trailing
four quarters Paid Subscribers.
We attribute our high ARPU in each of these periods to the quality
of our content and more effective sales and marketing efforts
regarding higher-value content, bundled subscriptions, and lifetime
subscriptions. These subscriptions have compelling economics that
allow us to recoup our initial marketing spend made to acquire
these subscribers. Specifically, our payback period was estimated
at 0.9 years for 2021, and was 0.6 and 0.8 years for 2020 and 2019,
respectively. We have experienced a stable payback period in the
range of 0.6 to 0.9 years reliably over the past three years,
despite the increases in customer acquisition costs that the
digital subscription industry has experienced in recent years. The
payback period reached the low side of the historical range in 2020
as a result of expanded conversion rates and, to a far lesser
degree, decreasing costs for media spend as demand dropped as a
result of the pandemic. We have seen the costs for media spend
revert back to higher rates as we progressed through 2021 and
expect our payback for 2021 to be at the higher end of the
historical range.
Billings.
Billings represents amounts invoiced to customers. We measure and
monitor our Billings because it provides insight into trends in
cash generation from our marketing campaigns. We generally bill our
subscribers at the time of sale and receive full cash payment up
front, and defer and recognize a portion of the related revenue
ratably over time for term and lifetime subscriptions. For certain
subscriptions, we may invoice our Paid Subscribers at the beginning
of the term, in annual or monthly installments, and, from time to
time, in multi-year installments. Only amounts invoiced to a Paid
Subscriber in a given period are included in Billings. While we
believe that Billings provides valuable insight into the cash that
will be generated from sales of our subscriptions, this metric may
vary from period to period for a number of reasons and, therefore,
Billings has a number of limitations as a quarter-over-quarter or
year-over-year comparative measure. These reasons include, but are
not limited to, the following: (i) a variety of contractual terms
could result in some periods having a higher proportion of annual
or lifetime subscriptions than other periods; (ii) fluctuations in
payment terms may affect the Billings recognized in a particular
period; and (iii) the timing of large campaigns may vary
significantly from period to period.
Billings increased by $181.1 million, or 33.0%, to $729.9 million
in 2021 as compared to $548.8 million in 2020. We believe this
increase was due in large part to strong lifetime, high-value, and
ultra high-value subscription sales, combined with strong new Paid
Subscriber performance, as we continued to focus on adding new Paid
Subscribers, and those Paid Subscribers having purchased
higher-value subscriptions over time. Approximately 42% of our
Billings this year came from lifetime subscriptions, 57% from term
subscriptions, and 1% from other Billings, as compared to 36% from
lifetime subscriptions, 63% from term subscriptions, and 2% from
other Billings in 2020.
Chaikin Analytics, acquired in January 2021, generated $26.6
million in organic new Billings in 2021 by selling their products
to our existing subscriber base.
Billings increased by $238.8 million, or 77.0%, to $548.8 million
in 2020 as compared to $310.1 million in 2019. Again, this was
driven by strong lifetime, high-value, and ultra high-value
subscription sales as well as the success of significant marketing
efforts, particularly in the second half of 2020.
The Effect of the COVID-19 Pandemic
COVID-19 was declared a pandemic by the World Health Organization
and spread across the globe, impacting worldwide activity and
financial markets. COVID-19 has had a significant impact on the
global supply chain, financial markets, trading activities, and
consumer behavior, and the duration of these impacts remain
uncertain.
We have continued to operate our business without much disruption
during the pandemic, and we required our employees to work remotely
in response to stay-at-home orders imposed by the U.S. and local
governments in March 2020. COVID-19 has impacted the sales and
profitability of many companies’ business over this period, and
while it may have caused some volatility to our customer
acquisition costs, and Paid Subscriber and Billings growth, our
business has continued to perform well.
While it is not possible at this time to estimate the impact, if
any, that COVID-19 will have on our business longer term, the
continued spread of COVID-19 and the measures taken by governments,
businesses, and other organizations in response to COVID-19 could
adversely impact our business, financial condition, and results of
operations. For more information, see the “Risk Factors” and
“Cautionary Note Regarding Forward-Looking Statements” sections in
this prospectus.
Components of Our Results of Operations
Net Revenue
We generate net revenue primarily from services provided in
delivering term and lifetime subscription-based financial research,
publications, and software-as-a-service (“SaaS”) offerings to
individual subscribers through our online platforms, advertising
arrangements, print products, events, and revenue share
agreements.
Net revenue is recognized ratably over the duration of the
subscriptions, in an amount that reflects the consideration we
expect to be entitled to in exchange for those services. In
addition to term subscriptions, we offer lifetime subscriptions
where we receive a large upfront payment when the subscriber enters
into the contract, and for which we will receive a lower annual
maintenance fee thereafter. Subscribers are typically billed in
advance of the subscriptions. Much of our net revenue is generated
from subscriptions entered into during previous periods.
Consequently, any decreases in new subscriptions or renewals in any
one period may not be immediately reflected as a decrease in net
revenue for that period, but could negatively affect our net
revenue in future quarters. This also makes it difficult for us to
rapidly increase our net revenue through the sale of additional
subscriptions in any period, as net revenue is recognized over the
term of the subscription agreement. We expect subscription net
revenue to continue to increase as we have experienced sales growth
in lifetime and multi-year contracts in recent
periods.
We earn net revenue from the sale of advertising placements on our
websites and from the sale of print products and events. We also
recognize net revenue through revenue share agreements where we
earn a commission for successful sales by other parties generated
through the use of our customer list. We expect advertising and
other net revenue to increase in absolute dollars as our business
grows.
Net revenue earned in 2018 through 2021 was almost 100% organic.
Net revenue from acquisitions was approximately 1% of net revenue
earned in 2018 through 2021, and the remainder was attributable to
brands developed internally since 2018 and businesses acquired or
developed prior to 2018. In the future, we expect to continue to
grow revenue organically, as well as through acquisitions, joint
ventures, and other strategic transactions.
Employee Compensation Costs
Employee compensation costs, or payroll and payroll-related costs,
include salaries, bonuses, benefits, and stock-based compensation
for employees classified within cost of revenue, sales and
marketing, and general and administrative, and also includes sales
commissions for sales and marketing employees.
Stock-based compensation expense is primarily related to the Class
B Units. Prior to the Transactions, the Class B Units were
classified as liabilities as opposed to equity and remeasured to
fair value at the end of each reporting period, with the change in
value being charged to stock-based compensation expense. Because
the Class B Units were classified as liabilities on our
consolidated balance sheet prior to the Transactions, all profits
distributions made to the holders of the Class B Units were
considered to be stock-based compensation expenses. We recognized
stock-based compensation expenses related to the Class B Units of
$1,058.4 million, $553.6 million, and $20.4 million for the years
ended December 31, 2021, 2020, and 2019,
respectively.
Upon completion of the Transactions, all Class B Units fully vested
as of the transaction date, and the Prior Operating Agreement (as
defined below) was terminated and replaced by a new operating
agreement consistent with our Up-C structure. The MarketWise
Operating Agreement does not contain the put and call options that
existed under the Prior Operating Agreement, and the MarketWise
Units are treated as common equity under the MarketWise Operating
Agreement and do not generate stock-based compensation expense.
Therefore, the Class B Units liability was reclassified to equity
as of the transaction date and stock-based compensation expense
associated with the Class B Units ceased after the transaction
date.
Total stock-based compensation expenses include profits
distributions to holders of Class B Units of $123.4 million, $78.4
million, and $14.8 million for the years ended December 31,
2021, 2020, and 2019, respectively.
As a result of the Transactions, in which all Class B Units were
converted into MarketWise Units, we do not expect to continue
recognizing stock-based compensation expenses related to the Class
B Units for periods after the consummation of the Transactions.
While going forward we do not expect to incur the levels of
stock-based compensation expense we have historically as a result
the liability-award classification of the Class B Units, we do
expect to incur some stock-based compensation expense in the
ordinary course.
On July 21, 2021, the 2021 Incentive Award Plan became effective.
We reserved a total of 32,045,000 shares of Class A common stock
for issuance pursuant to the 2021 Incentive Award Plan and the
maximum number of shares that may be issued pursuant to the
exercise of incentive stock options granted under the 2021
Incentive Award Plan is 32,045,000, in each case, subject to
certain adjustments set forth therein. On September 27, 2021, we
granted certain employees restricted stock units (“RSUs”) and stock
appreciation rights (“SARs”) under our 2021 Incentive Award Plan.
During the year ended December 31, 2021, stock-based
compensation expense related to the 2021 Incentive Award Plan was
$4.9 million. See also Note 11, Stock-Based Compensation, to our
consolidated financial statements included elsewhere in this
prospectus.
The total amount of stock-based compensation expense included
within each of the respective line items in the consolidated
statement of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, 2021 |
|
2021 |
|
2020 |
|
2019 |
|
Cost of revenue |
$ |
171,804 |
|
|
$ |
102,736 |
|
|
$ |
5,025 |
|
|
Sales and marketing |
48,098 |
|
|
10,567 |
|
|
— |
|
|
General and administrative |
843,449 |
|
|
440,297 |
|
|
15,414 |
|
|
Total stock based-compensation expense |
$ |
1,063,351 |
|
|
$ |
553,600 |
|
|
$ |
20,439 |
|
Cost of Revenue
Cost of revenue consists primarily of payroll and payroll-related
costs associated with producing and publishing MarketWise’s
content, hosting fees, customer service, credit card processing
fees, product costs, and allocated overhead. Cost of revenue is
exclusive of depreciation and amortization, which is shown as a
separate line item.
Within cost of revenue are stock-based compensation expenses
related to the Class B Units of $170.5 million, $102.7 million, and
$5.0 million for the years ended December 31, 2021, 2020, and
2019, respectively. These amounts include profits distributions to
holders of Class B Units of $22.8 million, $14.7 million, and $2.9
million, respectively. Cost of revenue also includes stock-based
compensation expenses related to the 2021 Incentive Award Plan of
$1.3 million for the year ended December 31,
2021.
We expect cost of revenue to increase as our business grows,
including as a result of new acquisitions, joint ventures, and
other strategic transactions. However, the level and timing of our
variable compensation may not match the pattern of how net revenue
is recognized over the subscription term. Therefore, we expect that
our cost of revenue will fluctuate as a percentage of net revenue
in the future.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and
related costs, amortization of deferred contract acquisition costs,
agency costs, advertising campaigns, and branding initiatives.
Sales and marketing expenses are exclusive of depreciation and
amortization shown as a separate line item.
Within sales and marketing expenses are stock-based compensation
expenses related to the Class B Units of $46.4 million and $10.6
million for the years ended December 31, 2021 and 2020,
respectively. Included in stock-based compensation expense are
profits distributions to holders of Class B Units of $3.8 million
and $2.8 million for the years ended December 31, 2021 and
2020, respectively. Sales and marketing expenses also includes
stock-based compensation expenses related to the 2021 Incentive
Award Plan of $1.7 million for the year ended December 31,
2021.
We expect that our sales and marketing expense will increase in
absolute dollars and continue to be our largest operating expense
for the foreseeable future as we expand our sales and marketing
efforts. However, because we incur sales and marketing expenses up
front when we launch campaigns to drive sales, while we recognize
net revenue ratably over the underlying subscription term, we
expect that our sales and marketing expense will fluctuate as a
percentage of our net revenue over the long term. Sales and
marketing expenses may fluctuate further as a result of
acquisitions, joint ventures, or other strategic transactions we
undertake in the future.
Research and Development
Research and development expenses consist primarily of payroll and
related costs, technical services, software expenses, and hosting
expenses. Research and development expenses are exclusive of
depreciation and amortization shown as a separate line
item.
We expect that our research and development expense will increase
in absolute dollars as our business grows, including as a result of
new acquisitions, joint ventures, and other strategic transactions,
particularly as we incur additional costs related to continued
investments in our platform.
General and Administrative
General and administrative expenses consist primarily of payroll
and related costs associated with our finance, legal, information
technology, human resources, executive, and administrative
personnel, legal fees, corporate insurance, office expenses,
professional fees, and travel and entertainment costs.
Within general and administrative expenses are stock-based
compensation expenses related to the Class B Units of $841.5
million, $440.3 million, and $15.4 million for the years ended
December 31, 2021, 2020, and 2019, respectively. These amounts
include profit distributions to holders of Class B Units of $96.8
million, $60.8 million, and $11.9 million, respectively. General
and administrative expenses also include stock-based compensation
expenses related to the 2021 Incentive Award Plan of $2.0 million
for the year ended December 31, 2021.
We expect to continue to incur additional general and
administrative expenses as a result of operating as a public
company, including costs to comply with the rules and regulations
applicable to companies listed on a national securities exchange,
costs related to compliance and reporting obligations pursuant to
the rules and regulations of the SEC, and increased expenses for
insurance, investor relations, and professional services.
General
and administrative expenses may fluctuate further as a result of
acquisitions, joint ventures, or other strategic transactions we
undertake in the future.
Depreciation and Amortization
Depreciation and amortization expenses consist of amortization of
trade names, customer relationship intangibles, and software
development costs, as well as depreciation on other property and
equipment such as leasehold improvements, furniture and fixtures,
and computer equipment. We expect depreciation and amortization
expenses to increase on an absolute dollar basis as our business
grows, including as a result of new acquisitions, joint ventures,
and other strategic transactions, but to remain generally
consistent as a percentage of total net revenue.
Related Party Expense
Related party expenses primarily consist of expenses for certain
corporate functions performed by a related party for certain
historic periods, as well as revenue share expenses. We have built
our own corporate infrastructure and do not expect non-revenue
share expenses from this related party in the future.
Other Income (Expense), Net
Other income, net primarily consists of the net gains on our
embedded derivative instruments and on sales of
cryptocurrencies.
Interest (Expense) Income, Net
Interest (expense) income, net primarily consists of interest
income from our money market accounts, as well as interest expense
on outstanding borrowings under the 2013 Credit Facility (as
defined below) with a related-party. We expect interest expense to
increase in the future as a result of the execution of the Credit
Facility. See “—Liquidity
and Capital Resources—Credit Facilities.”
Net Income (Loss) Attributable to Noncontrolling
Interests
The Transactions were consummated on July 21, 2021. As a result,
net income (loss) for the year ended December 31, 2021 was
attributed to the pre-Transaction period from January 1, 2021
through July 21, 2021 and to the post-Transaction period from July
22, 2021 through December 31, 2021.
During the pre-Transaction period, net income (loss) was
attributable to consolidated MarketWise, LLC and its respective
noncontrolling interests.
During the post-Transaction period, net income (loss) was
attributable to consolidated MarketWise, Inc. and its respective
noncontrolling interests. Immediately following the Transactions,
MarketWise, Inc.’s controlling interest in MarketWise, LLC was 7.9%
and its noncontrolling interest was 92.1%. For the post-Transaction
period, net income attributable to controlling interests included a
$15.7 million gain on warrant liabilities and a $2.4 million tax
provision, both of which are 100% attributable to the controlling
interest.
Results of Operations
The following table sets forth our results of operations for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, 2021 |
|
2021 |
|
2020 |
|
2019 |
|
Net revenue |
$ |
547,899 |
|
|
$ |
360,793 |
|
|
$ |
265,398 |
|
|
Related party revenue |
1,284 |
|
|
3,386 |
|
|
6,825 |
|
|
Total net revenue |
549,183 |
|
|
364,179 |
|
|
272,223 |
|
|
Operating expenses: |
|
|
|
|
|
|
Cost of revenue(1)(2)
|
239,251 |
|
|
154,605 |
|
|
42,553 |
|
|
Sales and marketing(1)(2)
|
296,934 |
|
|
214,257 |
|
|
106,094 |
|
|
General and administrative(1)(2)
|
960,183 |
|
|
526,561 |
|
|
91,669 |
|
|
Research and development(1)(2)
|
7,487 |
|
|
4,770 |
|
|
3,672 |
|
|
Depreciation and amortization |
2,676 |
|
|
2,553 |
|
|
2,334 |
|
|
Related party expense |
10,245 |
|
|
122 |
|
|
331 |
|
|
Total operating expenses |
1,516,776 |
|
|
902,868 |
|
|
246,653 |
|
|
(Loss) income from operations |
(967,593) |
|
|
(538,689) |
|
|
25,570 |
|
|
Other income (expense), net |
16,178 |
|
|
(2,879) |
|
|
865 |
|
|
Interest (expense) income, net |
(110) |
|
|
477 |
|
|
1,558 |
|
|
(Loss) income before income taxes |
(951,525) |
|
|
(541,091) |
|
|
27,993 |
|
|
Income tax expense |
2,358 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
Net (loss) income |
(953,883) |
|
|
(541,091) |
|
|
27,993 |
|
|
Net income (loss) attributable to noncontrolling
interests |
59,426 |
|
|
(2,718) |
|
|
36 |
|
|
Net (loss) income attributable to MarketWise, Inc. |
$ |
(1,013,309) |
|
|
$ |
(538,373) |
|
|
$ |
27,957 |
|
__________________
(1)Included
within cost of revenue, sales and marketing, and general and
administrative expenses are stock-based compensation expenses as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, 2021 |
|
2021 |
|
2020 |
|
2019 |
|
Cost of revenue |
$ |
171,804 |
|
|
$ |
102,736 |
|
|
$ |
5,025 |
|
|
Sales and marketing |
48,098 |
|
|
10,567 |
|
|
— |
|
|
General and administrative |
843,449 |
|
|
440,297 |
|
|
15,414 |
|
|
Total stock based-compensation expense |
$ |
1,063,351 |
|
|
$ |
553,600 |
|
|
$ |
20,439 |
|
(2)Cost
of revenue, sales and marketing, general and administrative, and
research and development expenses are exclusive of depreciation and
amortization shown as a separate line item.
The following table sets forth our consolidated statements of
operations data expressed as a percentage of net revenue for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2021 |
|
2021 |
|
2020 |
|
2019 |
|
Net revenue |
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
Operating expenses: |
|
|
|
|
|
|
Cost of revenue(1)
|
43.6 |
% |
|
42.5 |
% |
|
15.6 |
% |
|
Sales and marketing(1)
|
54.1 |
% |
|
58.8 |
% |
|
39.0 |
% |
|
General and administrative(1)
|
174.8 |
% |
|
144.6 |
% |
|
33.7 |
% |
|
Research and development(1)
|
1.4 |
% |
|
1.3 |
% |
|
1.3 |
% |
|
Depreciation and amortization |
0.5 |
% |
|
0.7 |
% |
|
0.9 |
% |
|
Related party expense |
1.9 |
% |
|
— |
% |
|
0.1 |
% |
|
Total operating expenses |
276.2 |
% |
|
247.9 |
% |
|
90.6 |
% |
|
(Loss) income from operations |
(176.2) |
% |
|
(147.9) |
% |
|
9.4 |
% |
|
Other income (expense), net |
2.9 |
% |
|
(0.8) |
% |
|
0.3 |
% |
|
Interest (expense) income, net |
0.0 |
% |
|
0.1 |
% |
|
0.6 |
% |
|
(Loss) income before income taxes |
(173.3) |
% |
|
(148.6) |
% |
|
10.3 |
% |
|
Income tax expense |
0.4 |
% |
|
— |
% |
|
— |
% |
|
Deferred income tax expense |
— |
% |
|
— |
% |
|
— |
% |
|
Net (loss) income |
(173.7) |
% |
|
(148.6) |
% |
|
10.3 |
% |
|
Net income (loss) attributable to noncontrolling
interests |
10.8 |
% |
|
(0.7) |
% |
|
— |
% |
|
Net (loss) income attributable to MarketWise, Inc. |
(184.5) |
% |
|
(147.8) |
% |
|
10.3 |
% |
__________________
(1)Cost
of revenue, sales and marketing, general and administrative, and
research and development expenses are exclusive of depreciation and
amortization shown as a separate line item.
Comparison of Years Ended December 31, 2021 and
2020
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
$ Change |
|
% Change |
|
|
2021 |
|
2020 |
|
|
|
Net revenue |
$ |
549,183 |
|
|
$ |
364,179 |
|
|
$ |
185,004 |
|
|
50.8 |
% |
Net revenue
increased
by $185.0 million, or 50.8%, from $364.2 million for the year ended
December 31, 2020 to $549.2 million for the year ended
December 31, 2021.
The increase in net revenue was primarily driven by a
$129.9 million
increase in term subscription revenue and a
$57.7 million
increase in lifetime subscription revenue, partially offset by
a
$2.6 million
decrease in non-subscription revenue. Revenue from Chaikin
Analytics, the business we acquired in January 2021, was $7.5
million for the year ended December 31, 2021.
Both term and lifetime subscription revenue benefited from a
significant increase in Paid Subscribers. Term subscription revenue
increased as a result of a significant increase in marketing
efforts. Lifetime subscription revenue, which is initially deferred
and recognized over a five-year period, increased as a result of
higher volume of lifetime subscriptions in current and prior years,
which continued to benefit us in 2021.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
$ Change |
|
% Change |
|
2021 |
|
2020 |
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
239,251 |
|
|
$ |
154,605 |
|
|
$ |
84,646 |
|
|
54.7 |
% |
|
Sales and marketing |
296,934 |
|
|
214,257 |
|
|
82,677 |
|
|
38.6 |
% |
|
General and administrative |
960,183 |
|
|
526,561 |
|
|
433,622 |
|
|
82.3 |
% |
|
Research and development |
7,487 |
|
|
4,770 |
|
|
2,717 |
|
|
57.0 |
% |
|
Depreciation and amortization |
2,676 |
|
|
2,553 |
|
|
123 |
|
|
4.8 |
% |
|
Related party expenses |
10,245 |
|
|
122 |
|
|
10,123 |
|
|
8297.5 |
% |
|
Total operating expenses |
$ |
1,516,776 |
|
|
$ |
902,868 |
|
|
$ |
613,908 |
|
|
68.0 |
% |
Cost of Revenue
Cost of revenue increased by $84.6 million, or 54.7%, from $154.6
million for the year ended
December 31, 2020
to $239.3 million for the year ended
December 31, 2021,
primarily driven by a $67.8 million increase in stock-based
compensation expense related to holders of Class B Units, a $6.2
million increase in payroll and payroll-related costs due to higher
headcount, a $4.9 million increase in credit card fees due to
higher sales volume, and a $1.3 million increase in stock-based
compensation expense related to newly issued awards under the 2021
Incentive Award Plan.
Approximately $8.0 million of the increase in Class B Unit
stock-based compensation expense was due to higher distributions,
and $59.8 million of the increase was related to the change in fair
value of the Class B Units and the accelerated vesting of the Class
B Units, both of which were related to the
Transactions.
Sales and Marketing
Sales and marketing expense increased by $82.7 million, or 38.6%,
from $214.3 million for the year ended
December 31, 2020
to $296.9 million for the year ended
December 31, 2021,
primarily driven by a $41.3 million increase in amortization of
deferred contract acquisition costs, a $35.9 million increase in
Class B Unit stock-based compensation expense, a $7.2 million
increase in payroll and payroll-related costs driven by increased
headcount, and a $1.7 million increase in stock based compensation
expense related to newly issued awards under the 2021 Inventive
Award Plans. This was partially offset by a $4.5 million decrease
in marketing and lead-generation expenses as we have reduced our
marketing costs due to higher per unit advertising cost resulting
from higher post-COVID demand for display advertising that emerged
in the second quarter of the year.
Approximately $1.0 million of the increase in Class B Unit
stock-based compensation expense was due to higher distributions,
and $34.8 million of the increase was related to the change in fair
value and the accelerated vesting of the Class B Units, all of
which were related to the Transactions.
General and Administrative
General and administrative expense increased by $433.6 million, or
82.3%, from $526.6 million for the year ended
December 31, 2020
to $960.2 million for the year ended
December 31, 2021,
primarily driven by a $401.2 million increase in Class B Unit
stock-based compensation expense, a $7.1 million increase in
incentive compensation and profits interests expenses, a $7.6
million increase in payroll and payroll-related costs due to
increased headcount to support operations, a $4.7 million increase
in software expenses, a $3.2 million increase in accounting, legal,
and consulting fees related to public company readiness efforts, a
$2.0 million increase in stock-based compensation expense related
to newly issued awards under the 2021 Incentive Award Plan, and a
$1.2 million increase in donations.
Approximately $36.0 million of the increase in Class B Unit
stock-based compensation expense was due to higher distributions,
and $365.2 million of the increase was related to the change in
fair value and the accelerated vesting of the Class B Units, all of
which were related to the Transactions.
Related Party Expense
Related party expense increased by $10.1 million, from $0.1 million
for the year ended
December 31, 2020
to $10.2 million for the year ended
December 31, 2021,
driven by a discretionary, one-time, non-employee bonus payment of
$10.0 million to the Company’s founder, who is a MarketWise Member,
in July 2021.
Comparison of the Years Ended December 31, 2020 and
2019
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
$ Change |
|
% Change |
|
|
2020 |
|
2019 |
|
|
|
Net revenue |
$ |
364,179 |
|
|
$ |
272,223 |
|
|
$ |
91,956 |
|
|
33.8 |
% |
Net revenue increased by $92.0 million, or 33.8%, from $272.2
million for the
year ended December 31, 2019
to $364.2 million for the
year ended December 31, 2020.
The increase in net revenue was primarily driven by a $59.7 million
increase in term subscription revenue and a $35.9 million increase
in lifetime subscription revenue, partially offset by a $3.7
million decrease in non-subscription revenue.
Term subscription revenue increased as a result of a significant
increase in marketing efforts, along with free-to-paid conversion
rate improvement during 2020. Lifetime subscription revenue, which
is initially deferred and recognized over a five-year period,
increased as a result of higher volume of lifetime subscriptions in
prior years, which continued to benefit us in 2020, along with
high-value conversion rate improvement during 2020 as compared to
2019.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
$ Change |
|
% Change |
|
2020 |
|
2019 |
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Cost of revenue |
$ |
154,605 |
|
|
$ |
42,553 |
|
|
$ |
112,052 |
|
|
263.3 |
% |
|
Sales and marketing |
214,257 |
|
|
106,094 |
|
|
108,163 |
|
|
102.0 |
% |
|
General and administrative |
526,561 |
|
|
91,669 |
|
|
434,892 |
|
|
474.4 |
% |
|
Research and development |
4,770 |
|
|
3,672 |
|
|
1,098 |
|
|
29.9 |
% |
|
Depreciation and amortization |
2,553 |
|
|
2,334 |
|
|
219 |
|
|
9.4 |
% |
|
Related party expenses |
122 |
|
|
331 |
|
|
(209) |
|
|
(63.1) |
% |
|
Total operating expenses |
$ |
902,868 |
|
|
$ |
246,653 |
|
|
$ |
656,215 |
|
|
266.0 |
% |
Cost of Revenue
Cost of revenue increased by $112.1 million, or 263.3%, from $42.6
million for the year ended December 31, 2019 to $154.6 million
for the year ended
December 31, 2020,
primarily driven by an increase of $97.7 million in stock-based
compensation expense related to holders of Class B Units, $5.9
million in credit card fees due to higher sales volume, an increase
of $3.9 million in payroll and payroll-related costs due to higher
headcount, and an increase of $2.5 million in freelance editorial
expense primarily related to certain new brands launched during
2019 and 2020.
Approximately $97.0 million of the increase in stock-based
compensation expense was due to the increase in fair value as a
result of a higher probability assigned to the market approach due
to the signing of a letter of intent with ADAC during December
2020. The remaining increase in stock-based compensation expense
was due to higher
Class B Unit distributions of $11.8 million, partially offset by a
$1.5 million decrease attributable to less vesting of Class B
Units.
Sales and Marketing
Sales and marketing expense increased by $108.2 million, or 102.0%,
from $106.1 million for the year ended December 31, 2019 to
$214.3 million for the year ended
December 31, 2020,
primarily driven by an $82.0 million increase in direct marketing
and lead-generation expenses, a $12.0 million increase in
amortization of deferred contract acquisition costs, an increase of
$10.6 million in stock-based compensation expense related to
holders of Class B Units, and an increase of $3.8 million in
payroll and payroll-related costs due to higher
headcount.
Approximately $6.5 million of the increase in stock-based
compensation expense was due to the increase in fair value as a
result of a higher probability assigned to the market approach due
to the signing of a letter of intent with ADAC during December
2020. The remaining increase in stock-based compensation expense
was due to higher Class B Unit distributions of $2.8 million, and
the vesting of additional Class B Units of $1.2
million.
General and Administrative
General and administrative expense increased by $434.9 million, or
474.4%, from $91.7 million for the year ended December 31,
2019 to $526.6 million for the year ended
December 31, 2020,
primarily driven by an increase of $424.9 million in stock-based
compensation expense related to holders of Class B Units, a $4.0
million increase in accounting, legal, and consulting fees related
to public company readiness efforts, an increase of $3.8 million in
payroll and payroll-related costs due to increased headcount to
support operations, a $3.6 million increase in cloud computing and
software fees due to increases in transaction volumes, and a $1.6
million increase in incentive compensation and profit interest
expenses, partially offset by a $2.4 million decrease in travel and
entertainment expenses primarily attributable to COVID-19
restrictions, and a $1.0 million decrease in sales and value-added
taxes.
Approximately $365.5 million of the increase in stock-based
compensation expense was due to the increase in fair value as a
result of a higher probability assigned to the market approach due
to the signing of a letter of intent with ADAC during December
2020. The remaining increase in stock-based compensation expense
was due to higher Class B Unit distributions of $48.9 million and
the vesting of additional Class B Units of $10.5
million.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we
believe that the below non-GAAP financial measures are useful in
evaluating our operating performance. We use the below non-GAAP
financial measures, collectively, to evaluate our ongoing
operations and for internal planning and forecasting purposes. We
believe that non-GAAP financial information, when taken
collectively, may be helpful to investors because it provides
consistency and comparability with past financial performance, and
assists in comparisons with other companies, some of which use
similar non-GAAP financial information to supplement their GAAP
results. This non-GAAP financial information is presented for
supplemental informational purposes only and should not be
considered a substitute for financial information presented in
accordance with GAAP, and may be different from similarly titled
non-GAAP measures used by other companies. A reconciliation is
provided below for each non-GAAP financial measure to the most
directly comparable financial measure stated in accordance with
GAAP. Investors are encouraged to review the related GAAP financial
measures and the reconciliations of these non-GAAP financial
measures to their most directly comparable GAAP financial
measures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except percentages) |
Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Adjusted CFFO |
$ |
197,081 |
|
|
$ |
134,273 |
|
|
$ |
69,032 |
|
|
Adjusted CFFO Margin |
27.0 |
% |
|
24.5 |
% |
|
22.3 |
% |
In addition to our results determined in accordance with GAAP, we
disclose the non-GAAP financial measure Adjusted CFFO. We define
Adjusted CFFO as cash flow from operations plus profits
distributions that were
recorded as stock-based compensation expense from the Class B
Units, plus or minus any non-recurring items. Profits distributions
to Class B unitholders included amounts attributable to the Class B
unitholders’ potential tax liability with respect to the Class B
Units (i.e., there was no tax withholding, and the full amount of
allocable profit was distributed, subject to the terms of the Prior
LLC Agreement). We define Adjusted CFFO Margin as Adjusted CFFO as
a percentage of Billings.
We believe that Adjusted CFFO and Adjusted CFFO Margin are useful
indicators that provide information to management and investors
about ongoing operating performance, to facilitate comparison of
our results to those of peer companies over multiple periods, and
for internal planning and forecasting purposes.
We have presented Adjusted CFFO because we believe it provides
investors with greater comparability of our operating performance
without the effects of stock-based compensation expense related to
profits distributions to Class B unitholders that will not continue
following the consummation of the Transactions, in which all Class
B Units were converted into MarketWise Units. Following the
consummation of the Transactions, however, we will continue to make
certain tax distributions to the MarketWise Members in amounts
sufficient to pay individual income taxes on their respective
allocation of the profits of MarketWise, LLC at the then prevailing
individual income tax rates. These distributions will not be
recorded on MarketWise, Inc.’s income statement, and will be
reflected on MarketWise, Inc.’s cash flow statement as cash used in
financing activities. The cash used to make these distributions
will not be available to us for use in the business.
Adjusted CFFO and Adjusted CFFO Margin have limitations as
analytical tools, and should not be considered in isolation or as
substitutes for analysis of other GAAP financial measures, such as
cash flow from operations or operating cash flow margin. Some of
the limitations of using Adjusted CFFO and Adjusted CFFO Margin are
that these metrics may be calculated differently by other companies
in our industry.
We expect Adjusted CFFO and Adjusted CFFO Margin to fluctuate in
future periods as we invest in our business to execute our growth
strategy. These activities, along with any non-recurring items as
described above, may result in fluctuations in Adjusted CFFO and
Adjusted CFFO Margin in future periods.
The following table provides a reconciliation of net cash provided
by operating activities, the most directly comparable financial
measure calculated in accordance with GAAP, to Adjusted CFFO for
each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
$ |
63,632 |
|
|
$ |
55,875 |
|
|
$ |
54,201 |
|
|
Profits distributions to Class B unitholders included in
stock-based compensation expense |
123,449 |
|
|
78,398 |
|
|
14,831 |
|
|
Non-recurring expenses |
10,000 |
|
|
— |
|
|
— |
|
|
Adjusted CFFO
|
$ |
197,081 |
|
|
$ |
134,273 |
|
|
$ |
69,032 |
|
The non-recurring expense add-back in the year ended December 31,
2021 was due to a discretionary, one-time, lifetime-award,
non-employee bonus payment of $10.0 million to the Company’s
founder, who is a MarketWise Member.
The following table provides the calculation of net cash provided
by operating activities margin as a percentage of total net
revenue, the most directly comparable financial measure in
accordance with GAAP, and Adjusted CFFO Margin for each of the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except percentages) |
Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
$ |
63,632 |
|
$ |
55,875 |
|
$ |
54,201 |
|
Net revenue |
549,183 |
|
364,179 |
|
272,223 |
|
Net cash provided by operating activities
|
11.6 |
% |
|
15.3 |
% |
|
19.9 |
% |
|
|
|
|
|
|
|
|
Adjusted CFFO |
$ |
197,081 |
|
$ |
134,273 |
|
$ |
69,032 |
|
Billings |
729,893 |
|
548,835 |
|
310,060 |
|
Adjusted CFFO Margin
|
27.0 |
% |
|
24.5 |
% |
|
22.3 |
% |
Adjusted CFFO increased by $62.8 million, or 46.8%, from $134,273
for the year ended December 31, 2020 to $197.1 million for the
year ended December 31, 2021, primarily driven by an increase
of $181.1 million in Billings at an Adjusted CFFO Margin of 27.0%
.
Adjusted CFFO increased by $65.2 million, or 94.5%, from $69.0
million for the year ended December 31, 2019 to $134.3 million
for the December 31, 2020, primarily driven by an increase of
$238.8 million in Billings at an Adjusted CFFO Margin of
24.5%.
Selected Quarterly Financial and Other Information
The following table presents our unaudited selected quarterly
financial and other information for the periods and as of the dates
indicated. The unaudited selected quarterly financial data have
been prepared on the same basis as our audited consolidated
financial statements included elsewhere in this prospectus. In our
management’s opinion, the unaudited selected quarterly financial
information have included all adjustments, which include normal
recurring adjustments, necessary to present fairly in all material
respects our financial position and results of operations for these
periods. This information should be read in conjunction with our
consolidated financial statements and the related notes included
elsewhere in this prospectus. The results of historical periods are
not necessarily indicative of the results in any future period and
the results of a particular quarter or other interim period are not
necessarily indicative of the results for a full year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions,
except subscriber data)
|
As of and for the Three Months Ended |
|
Year Ended
December 31, 2021 |
|
As of and for the Three Months Ended |
|
Year Ended
December 31, 2020 |
|
March 31,
2021 |
|
June 30,
2021 |
|
September 30,
2021 |
|
December 31,
2021 |
|
|
March 31,
2020 |
|
June 30,
2020 |
|
September 30,
2020 |
|
December 31,
2020 |
|
|
|
Net revenue |
119.7 |
|
|
142.1 |
|
|
140.7 |
|
|
146.7 |
|
|
549.2 |
|
|
76.4 |
|
|
82.8 |
|
|
98.2 |
|
|
106.8 |
|
|
364.2 |
|
|
|
Net income (loss)(1)
|
(615.1) |
|
|
(8.4) |
|
|
(68.3) |
|
|
(262.1) |
|
|
(953.9) |
|
|
(16.5) |
|
|
(81) |
|
|
(68.3) |
|
|
(375.4) |
|
|
(541.1) |
|
|
|
Billings |
255.3 |
|
|
185.1 |
|
|
138.1 |
|
|
151.4 |
|
|
729.9 |
|
|
117.5 |
|
|
123.1 |
|
|
149.9 |
|
|
158.4 |
|
|
548.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
92.3 |
|
|
58.9 |
|
|
(92.6) |
|
|
5.4 |
|
|
63.6 |
|
|
(6.4) |
|
|
31.8 |
|
|
47.8 |
|
|
(17.3) |
|
|
55.9 |
|
|
|
Plus: Profits distributions to Class B unit holders included in
stock-based compensation expense |
5.7 |
|
|
0.5 |
|
|
117.3 |
|
|
(0.1) |
|
|
123.4 |
|
|
32.3 |
|
|
5.8 |
|
|
7.2 |
|
|
33.1 |
|
|
78.4 |
|
|
|
Plus: Non-recurring expenses
(2)
|
— |
|
|
— |
|
|
10 |
|
|
— |
|
|
10 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Adjusted CFFO |
98.0 |
|
|
59.4 |
|
|
34.7 |
|
|
5.0 |
|
|
197.1 |
|
|
25.9 |
|
|
37.6 |
|
|
55.1 |
|
|
15.7 |
|
|
134.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Subscribers |
10,870,171 |
|
|
11,970,356 |
|
|
12,800,655 |
|
|
13,699,910 |
|
|
13,699,910 |
|
|
5,900,065 |
|
|
6,817,076 |
|
|
8,147,974 |
|
|
9,529,622 |
|
|
9,529,622 |
|
|
|
Paid Subscribers |
1,001,432 |
|
|
994,491 |
|
|
964,907 |
|
|
971,534 |
|
|
971,534 |
|
|
566,917 |
|
|
683,593 |
|
|
785,539 |
|
|
856,826 |
|
|
856,826 |
|
|
|
Total Subscribers |
11,871,603 |
|
|
12,964,847 |
|
|
13,765,562 |
|
|
14,671,444 |
|
|
14,671,444 |
|
|
6,466,982 |
|
|
7,500,669 |
|
|
8,933,513 |
|
|
10,386,448 |
|
|
10,386,448 |
|
|
_____________________
(1)Included
within net income (loss) are stock-based compensation expenses as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except subscriber data)
|
As of and for the Three Months Ended |
|
Year Ended
December 31, 2021 |
|
As of and for the Three Months Ended |
|
Year Ended
December 31, 2020 |
|
March 31,
2021 |
|
June 30,
2021 |
|
September 30,
2021 |
|
December 31,
2021 |
|
|
March 31,
2020 |
|
June 30,
2020 |
|
September 30,
2020 |
|
December 31,
2020 |
|
|
|
Stock-based compensation expense |
$ |
601.1 |
|
|
$ |
47.4 |
|
|
$ |
412.6 |
|
|
$ |
2.3 |
|
|
$ |
1,063.4 |
|
|
$ |
20.5 |
|
|
$ |
78.6 |
|
|
$ |
73.5 |
|
|
$ |
381.0 |
|
|
$ |
553.6 |
|
|
(2)The
non-recurring expense addback in the three months ended September
30, 2021 was due to a discretionary, one-time, lifetime-award,
non-employee bonus payment of $10.0 million to the Company’s
founder, who is a Class B common stockholder.
Liquidity and Capital Resources
General
As of December 31, 2021, our principal sources of liquidity
were cash, cash equivalents, and restricted cash of $139.6 million.
Cash and cash equivalents comprise bank deposits, money market
funds, and certificates of deposit. Restricted cash comprises
reserves held with credit card processors for chargebacks and
refunds. We have financed our operations primarily through cash
received from operations, and our sources of liquidity have enabled
us to make continued investments in supporting the growth of our
business. In October 2021, we entered into a new $150 million
credit facility described below that can be used to finance
permitted acquisitions, for working capital, and general corporate
purposes. We expect that our operating cash flows, in addition to
cash on hand, will enable us to continue to make investments in the
future. We expect our operating cash flows to further improve as we
increase our operational efficiency and experience economies of
scale.
We believe that our existing cash and cash equivalents and cash
flow from operations will be sufficient to support working capital
and capital expenditure requirements for at least the next 12
months. Our future capital requirements will depend on many
factors, including our subscription growth rate, subscription
renewal activity, including the timing and the amount of cash
received from subscribers, the pace of expansion of sales and
marketing activities, the timing and extent of spending to support
development efforts, the introduction of new and enhanced products,
and the level of costs to operate as a public company. We may, in
the future, enter into arrangements to acquire or invest in
complementary businesses, products, and technologies.
We may be required to seek additional equity or debt financing. In
the event that we require additional financing, we may not be able
to raise such financing on terms acceptable to us or at all. If we
are unable to raise additional capital or generate cash flows
necessary to expand our operations and invest in continued
innovation, we may not be able to compete successfully, which would
harm our business, operations, and financial
condition.
A substantial source of our cash is from our deferred revenue,
which is included in the liabilities section of our consolidated
balance sheets. Deferred revenue consists of the unearned portion
of customer billings, which is recognized as net revenue in
accordance with our revenue recognition policy. As of
December 31, 2021, we had deferred revenue of $710.2 million,
of which $317.1 million was recorded as a current liability and is
expected to be recognized as net revenue over the next 12 months,
provided all other revenue recognition criteria have been
met.
As a result of the Transactions,
we
have incurred and expect that we will continue to incur public
company expenses related to our operations,
plus
payment obligations under the Tax Receivable Agreement,
which
we
expect to be significant. MarketWise, Inc. intends to cause
MarketWise, LLC to make distributions to MarketWise, Inc. in an
amount sufficient to allow MarketWise, Inc. to pay its tax
obligations and operating expenses, including distributions to fund
any payments due under the Tax Receivable Agreement.
Furthermore, to the extent we have taxable income, we will make
distributions to the MarketWise Members in amounts sufficient for
the MarketWise Members to pay taxes due on their share of
MarketWise, LLC income at prevailing individual income tax rates.
Such amounts will be reflected in MarketWise, Inc.’s statement of
cash flows as cash used in financing activities, and so will not
decrease the amount of cash from operations or net income reflected
in MarketWise, Inc.’s financial statements. However, such
distributions will decrease the amount of cash available to us for
use in our business.
Tax Receivable Agreement
MarketWise, Inc. intends, as MarketWise, LLC’s sole manager, to
cause MarketWise, LLC to make cash distributions to MarketWise,
Inc. in an amount sufficient to cover MarketWise, Inc.’s
obligations under the Tax Receivable Agreement. However,
MarketWise, LLC’s ability to make such distributions to MarketWise,
Inc. may be subject to various limitations and restrictions, such
as restrictions on distributions under contracts or agreements to
which MarketWise, LLC is then a party, including debt agreements,
or any applicable law, or that would have the effect of rendering
MarketWise, LLC insolvent. If MarketWise, LLC does not have
sufficient cash to fund distributions to MarketWise, Inc. in
amounts sufficient to cover MarketWise, Inc.’s obligations under
the Tax Receivable Agreement, it may have to borrow funds, which
could materially adversely affect its liquidity and
financial condition and subject it to various restrictions imposed
by any such lenders. To the extent that MarketWise, Inc. is unable
to make timely payments under the Tax Receivable Agreement for any
reason, the unpaid amounts will be deferred and will accrue
interest until paid. MarketWise, Inc.’s failure to make any payment
required under the Tax Receivable Agreement (including any accrued
and unpaid interest) within 90 calendar days of the date on which
the payment is required to be made will constitute a material
breach of a material obligation under the Tax Receivable Agreement,
which will terminate the Tax Receivable Agreement and accelerate
future payments thereunder, unless the applicable payment is not
made because (i) MarketWise, LLC is prohibited from making such
payment under the terms of the Tax Receivable Agreement or the
terms governing certain of its indebtedness or (ii) MarketWise, LLC
does not have, and despite using commercially reasonable efforts
cannot obtain, sufficient funds to make such payment. See “Certain
Relationships and Related Party Transactions—Tax Receivable
Agreement” and “Certain Relationships and Related Party
Transactions—MarketWise Operating Agreement” for additional
information. Any payments made by MarketWise, Inc. to the
MarketWise Members under the Tax Receivable Agreement will not be
available for reinvestment in the business and will generally
reduce the amount of cash that might have otherwise been available
to MarketWise, Inc. and its subsidiaries.
The Tax Receivable Agreement provides that if (i) MarketWise, Inc.
materially breaches any of its material obligations under the Tax
Receivable Agreement, (ii) certain mergers, asset sales, other
forms of business combinations, or other changes of control were to
occur, or (iii) MarketWise, Inc. elects an early termination of the
Tax Receivable Agreement, then MarketWise, Inc.’s future
obligations, or its successor’s future obligations, under the Tax
Receivable Agreement to make payments thereunder would accelerate
and become due and payable, based on certain assumptions, including
an assumption that MarketWise, Inc. would have sufficient taxable
income to fully utilize all potential future tax benefits that are
subject to the Tax Receivable Agreement, and an assumption that, as
of the effective date of the acceleration, any MarketWise Member
that has MarketWise Units not yet exchanged shall be deemed to have
exchanged such MarketWise Units on such date, even if MarketWise,
Inc. does not receive the corresponding tax benefits until a later
date when the MarketWise Units are actually exchanged. As a result
of the foregoing, MarketWise, Inc. would be required to make an
immediate cash payment equal to the estimated present value of the
anticipated future tax benefits that are the subject of the Tax
Receivable Agreement, based on certain assumptions, which payment
may be made significantly in advance of the actual realization, if
any, of those future tax benefits and, therefore, MarketWise, Inc.
could be required to make payments under the Tax Receivable
Agreement that are greater than the specified percentage of the
actual tax benefits it ultimately realizes.
Stock Repurchase Program
On November 4, 2021, our board of directors authorized the
repurchase of up to $35.0 million in the aggregate of shares of our
Class A common stock, with the authorization to expire on November
3, 2023. During the year ended December 31, 2021, we repurchased
500,270 shares totaling $3.3 million in the aggregate.
Stock repurchases under this program will be made from time to
time, on the open market, in privately negotiated transactions, or
by other methods, at the discretion of our management and in
accordance with the limitations set forth in Rule 10b-18
promulgated under the Exchange Act and other applicable legal
requirements. The timing of the repurchases will depend on market
conditions and other requirements. We currently anticipate the
stock repurchase program will extend over a two-year period, or
such shorter period if $35.0 million in aggregate of shares have
been repurchased. The stock repurchase program does not obligate us
to repurchase any dollar amount or number of shares, and the
program may be extended, modified, suspended, or discontinued at
any time. For each share of Class A common stock we repurchase
under the stock repurchase program, MarketWise, LLC, our direct
subsidiary, will redeem one MarketWise Unit held by MarketWise,
Inc., decreasing the percentage ownership of MarketWise, LLC by
MarketWise, Inc. and relatively increasing the ownership by the
other MarketWise Members.
Credit Facilities
On October 29, 2021, MarketWise, LLC, entered into a loan and
security agreement with the Guarantors (as defined below), the
lenders from time to time party thereto, HSBC Bank USA, N.A., as
administrative agent, collateral agent, joint lead arranger, and
joint bookrunner, and BMO Capital Markets Corp, as joint lead
arranger and joint bookrunner (the “Loan and Security Agreement”),
providing for up to $150 million of commitments under a revolving
credit facility (the “Credit Facility”), including a $5 million
letter of credit sublimit. HSBC Bank USA,
N.A. and BMO Capital Markets Corp. acted as joint lead arrangers
and joint bookrunners, and HSBC Bank USA, N.A., BMO Harris Bank
N.A., Silicon Valley Bank, Wells Fargo Bank, N.A., and PNC Bank
National Association are lenders.
The Credit Facility is guaranteed by MarketWise, LLC’s direct and
indirect material U.S. subsidiaries, subject to customary
exceptions (the “Guarantors”), pursuant to a guaranty by the
Guarantors in favor of HSBC Bank USA, National Association, as
agent (the “Guaranty”). Borrowings under the Credit Facility are
secured by a first-priority lien on substantially all of the assets
of MarketWise, LLC and the Guarantors, subject to customary
exceptions. The Credit Facility has a term of three years, maturing
on October 29, 2024.
Subject to certain conditions and the receipt of commitments, the
Loan and Security Agreement allows for revolving commitments under
the Credit Facility to be increased or new term commitments to be
established by up to $65 million. The existing lenders under the
Credit Facility are entitled, but not obligated, to provide such
incremental commitments.
Borrowings will bear interest at a floating rate which can be, at
our option, either (a) an alternate base rate plus an applicable
rate ranging from 0.50% to 1.25% or (b) a LIBOR or EURIBOR rate
(with a floor of 0.00%) for the specified interest period plus an
applicable rate ranging from 1.50% to 2.25%, in each case,
depending on MarketWise, LLC’s Net Leverage Ratio (as defined in
the Loan and Security Agreement). We will pay an unused commitment
fee ranging from 0.25% to 0.35% based on unused capacity under the
Credit Facility and MarketWise, LLC’s Net Leverage Ratio. We may
use the proceeds of borrowings under the Credit Facility to finance
permitted acquisitions and for working capital and other general
corporate purposes.
The Loan and Security Agreement contains customary affirmative
covenants for transactions of this type, including, among others,
the provision of financial and other information to the
administrative agent, notice to the administrative agent upon the
occurrence of certain material events, preservation of existence,
maintenance of properties and insurance, compliance with laws,
including environmental laws, the provision of additional
guarantees, and an affiliate transactions covenant, subject to
certain exceptions. The Loan and Security Agreement contains
customary negative covenants, including, among others, restrictions
on the ability to merge and consolidate with other companies, incur
indebtedness, grant liens or security interests on assets, make
investments, acquisitions, loans, or advances, pay dividends, and
sell or otherwise transfer assets.
The Loan and Security Agreement contains financial maintenance
covenants that require MarketWise, LLC to maintain an Interest
Coverage Ratio (as defined in the Loan and Security Agreement) of
not less than 3.00 to 1.00 and a Net Leverage Ratio of not more
than 2.00 to 1.00 (which ratio may be increased to 2.50 to 1.00 for
a period of time following a permitted acquisition for which the
aggregate cash consideration exceeds $50 million), in each case,
tested at the end of each fiscal quarter. The Loan and Security
Agreement also provides for a number of customary events of
default, including, among others: payment defaults to the lenders;
voluntary and involuntary bankruptcy proceedings; covenant
defaults; material inaccuracies of representations and warranties;
cross-acceleration to other material indebtedness; certain change
of control events; material money judgments; and other customary
events of default. The occurrence of an event of default could
result in the acceleration of obligations and the termination of
lending commitments under the Loan and Security
Agreement.
On December 31, 2013, we entered into a secured uncommitted credit
agreement (the “2013 Credit Facility”) with a related party,
secured by a first-priority lien on all our assets. During the year
ended December 31, 2020, we repaid all amounts outstanding under
the 2013 Credit Facility. In February 2021, the 2013 Credit
Facility was terminated.
Cash Flows
The following table presents a summary of our consolidated cash
flows provided by (used in) operating, investing, and financing
activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
Year Ended December 31, |
|
2021 |
|
2020 |
|
2019 |
|
Net cash provided by operating activities |
$ |
63,632 |
|
|
$ |
55,875 |
|
|
$ |
54,201 |
|
|
Net cash (used in) provided by investing activities |
(8,311) |
|
|
(9,649) |
|
|
12,395 |
|
|
Net cash used in financing activities |
(30,678) |
|
|
(103,369) |
|
|
(27,341) |
|
Operating Activities
For the year ended December 31, 2021, net cash provided by
operating activities was $63.6 million, primarily due to net loss
of $953.9 million adjusted for non-cash charges of $927.8 million
and a contribution to cash resulting from net changes in our
operating assets and liabilities of $89.8 million. The non-cash
adjustments primarily related to stock-based compensation expenses
of $939.0 million, which was driven by the increase in fair value
as a result of a higher probability assigned to the market approach
due to the signing of a letter of intent with ADAC during December
2020, and the granting and vesting of certain Class B Units. The
changes in operating assets and liabilities were primarily driven
by an increase in deferred revenue of $175.6 million due to our
overall increase in sales, and an increase in accrued expenses of
$14.2 million, partially offset by a net increase in deferred
contract acquisition costs of $95.8 million.
For the year ended December 31, 2020, net cash provided by
operating activities was $55.9 million, primarily due to net loss
of $541.1 million and non-cash charges of $483.4 million, and
partially offset by net changes in our operating assets and
liabilities of $113.6 million. The non-cash adjustments primarily
related to stock-based compensation income of $475.2 million, which
was driven by the decrease in fair value of the Class B Units. The
changes in operating assets and liabilities were primarily driven
by an increase in deferred revenue of $178.8 million due to our
overall increase in sales, partially offset by a net increase in
deferred contract acquisition costs of $64.9 million.
For the year ended December 31, 2019, net cash provided by
operating activities was $54.2 million, primarily due to net income
of $28.0 million adjusted for non-cash charges of $10.8 million and
net changes in our operating assets and liabilities of $15.4
million. The non-cash adjustments primarily related to stock-based
compensation expenses of $5.6 million resulting from the granting
and vesting of certain Class B Units. The changes in operating
assets and liabilities were primarily driven by an increase in
deferred revenue of $36.7 million due to our overall increase in
sales, partially offset by an overall net decrease in related-party
payables of $13.8 million with lower allocations from our
related-party owner, and an increase in accrued expenses of $10.1
million due to higher commission and bonus accruals for the overall
growth in sales and headcount.
Investing Activities
For the year ended December 31, 2021, net cash used in
investing activities was $8.3 million, primarily driven by the
payment of $7.1 million related to the acquisition of Chaikin, and
$0.9 million to acquire intangible assets.
For the year ended December 31, 2020, net cash used in
investing activities was $9.6 million, primarily driven by the
payment of $9.2 million to acquire the noncontrolling interest of
TradeSmith and $0.3 million for property and
equipment.
For the year ended December 31, 2019, net cash provided by
investing activities was $12.4 million, primarily driven by the
return of the $15.0 million in funds held in deposit for a
potential acquisition. This was partially offset by the payment of
$1.5 million related to the acquisition of Gold Stock Analyst and
$0.8 million in capitalized software development
costs.
Financing Activities
For the year ended December 31, 2021, net cash used in
financing activities was $30.7 million, primarily due to $135.5
million in distributions to members and $5.5 million in
distributions to noncontrolling interests, which was partially
offset by a $113.6 million inflow from proceeds from the
Transactions.
For the year ended December 31, 2020, net cash used in
financing activities was $103.4 million, primarily due to $101.8
million in distributions to members, $5.4 million repayment of
borrowings under the 2013 Credit Facility, and $0.5 million in
distributions to non-controlling interests.
For the year ended December 31, 2019, net cash used in financing
activities was $27.3 million, primarily due to $20.5 million in
distributions to members, issuance of notes receivable to related
parties of $3.1 million, $1.9 million repayment of borrowings under
the 2013 Credit Facility, and $1.8 million in distributions to
non-controlling interests.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in
accordance with GAAP. The preparation of these consolidated
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenue, costs, and expenses, and related disclosures.
On an ongoing basis, management evaluates its estimates and
assumptions. Our actual results may differ from these estimates
under different assumptions or conditions.
Management believes that, of our significant accounting policies,
which are described in Note 2 to our consolidated financial
statements, the following accounting policies involve a greater
degree of judgment and complexity. Accordingly, these are the
policies management believes are the most critical to aid in fully
understanding and evaluating our consolidated financial condition
and results of operations.
Revenue Recognition
We primarily earn revenue from services provided in delivering
subscription-based financial research, publications, and SaaS
offerings to individual subscribers through our online platforms
using the five-step method described in Note 2 to our consolidated
financial statements.
Subscription revenues are recognized evenly over the duration of
the subscriptions, in an amount that reflects the consideration we
expect to be entitled to in exchange for those services.
Subscribers are typically billed in advance of the subscriptions.
The key estimates related to our revenue recognition are related to
our estimated customer lives for our lifetime subscriptions,
determination of standalone selling prices, and the amortization
period for our capitalized contract costs.
We also offer lifetime subscriptions where we receive an upfront
payment upon entering into the contract and receive a lower amount
annually thereafter. Certain upfront fees on lifetime subscriptions
are paid in installments over a 12-month period and, from time to
time, over multiple years. We recognize revenue related to lifetime
subscriptions over the estimated customer lives, which is five
years. Management has determined the estimated life of lifetime
customers based on historic customer attrition rates. The estimated
life of lifetime customers was five years for each of the years
ended December 31, 2021, 2020, and 2019.
Our contracts with subscribers may include multiple performance
obligations if subscription services are sold with other
subscriptions, products, or events within one contract. For such
contracts, we allocate net revenues to each performance obligation
based on its relative standalone selling price. We generally
determine standalone selling prices based on the prices charged to
subscribers on a standalone basis.
We capitalize incremental costs that are directly related to the
acquisition or renewal of customer contracts, to the extent that
the costs are expected to be recovered and if we expect the benefit
of these costs to be longer than one year. We have elected to
utilize the practical expedient and expense costs to obtain a
contract with a subscriber when the expected benefit period is one
year or less. Our capitalizable incremental costs include sales
commissions to employees and fees paid to marketing vendors that
are generally calculated as a percentage of the customer sale.
We
also capitalize revenue share fees that are payable to other
companies, including related parties, who share their customer
lists with us for each successful sale we make to a customer from
their list. Capitalized costs are amortized on a straight-line
basis over the shorter of the expected customer life and the
expected benefit related directly to those costs, which is
approximately four years. The amortization period for contract
costs was approximately four years for each of the years ended
December 31, 2021, 2020, and 2019.
Transactions and Valuation of Goodwill and Other Acquired
Intangible Assets
When we acquire a business, we allocate the fair value of purchase
consideration to the tangible assets acquired, liabilities assumed,
and intangible assets acquired based on their estimated fair values
as of the acquisition date. The excess of the fair value of
purchase consideration over the fair values of these identifiable
assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates
and assumptions, especially with respect to intangible assets.
Significant estimates in valuing assets acquired and liabilities
assumed include, but are not limited to, future expected cash flows
from acquired customers, trade names, acquired technology from a
market participant perspective, and determining useful lives and
discount rates. Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently
uncertain and unpredictable and, as a result, actual results may
differ from estimates. While management believes the assumptions
and estimates it has made in the past have been appropriate, they
are inherently uncertain and subject to refinement. During the
measurement period, which is up to one year from the acquisition
date, we may record adjustments to the assets acquired and
liabilities assumed, with the corresponding offset to goodwill.
Upon the conclusion of the measurement period, any subsequent
adjustments are recorded to earnings. We did not have significant
measurement period adjustments during the years ended
December 31, 2021, 2020, and 2019.
Stock-Based Compensation
Historically, we granted Class B Units to certain key employees.
Prior to the Transactions, the Class B Units were classified as
liabilities as opposed to equity and remeasured to fair value at
the end of each reporting period, with the change in value being
charged to stock-based compensation expense. Because the Class B
Units were classified as liabilities on our consolidated balance
sheet, all profits distributions made to the holders of the Class B
Units were considered to be stock-based compensation expenses.
Expense was recognized using the greater of the expenses as
calculated based on (i) the legal vesting of the underlying units
and (ii) a straight-line basis.
Because our Class B Units were not publicly traded, we estimated
the fair value of our Class B Units. Historically, the fair values
of Class B Units were estimated by our board of managers based on
our equity value. Our board of managers considered, among other
things, contemporaneous valuations of our equity value prepared by
an unrelated third-party valuation firm in accordance with the
guidance provided by the American Institute of Certified Public
Accountants Practice Guide, Valuation of Privately-Held-Company
Equity Securities Issued as Compensation. To estimate the fair
value of the Class B Units, a two-step valuation approach was used.
First our equity value was estimated using a market approach and a
discounted cash flow approach by projecting our net cash flows into
the future and discounting these cash flows to present value by
applying a market discount rate. This calculated equity value was
then allocated to the common units outstanding using an option
pricing model by determining the distributions available to unit
holders in a hypothetical liquidation. Our board of managers
exercised reasonable judgment and considered several objective and
subjective factors to determine the best estimate of the fair value
of our Class B Units, including:
•our
historical and expected operating and financial
performance;
•current
business conditions;
•our
stage of development and business strategy;
•macroeconomic
conditions;
•our
weighted average cost of capital;
•risk-free
rates of return;
•the
volatility of comparable publicly traded peer companies;
and
•the
lack of an active public market for our equity units.
As more fully described in Note 1 to our consolidated financial
statements, we completed the Transactions in July 2021. Upon
consummation of the Transactions, the vesting of all outstanding
Class B Units was accelerated and each Class B Unit was exchanged
for a MarketWise Unit. The Prior Operating Agreement was terminated
and replaced by the MarketWise Operating Agreement consistent with
the Company’s Up-C structure. The MarketWise Operating Agreement
does not contain the put and call options that existed under the
Prior Operating Agreement, and the MarketWise Units under the
MarketWise Operating Agreement are treated as common equity and do
not generate stock-based compensation expense. The Class B Units
liability was reclassified to equity as of the transaction date.
See Note 1 to our consolidated financial statements included
elsewhere in this prospectus.
Recently Issued Accounting Pronouncements
See the section titled “Summary of Significant Accounting Policies”
in Note 2 of the notes to our consolidated financial statements
included elsewhere in this prospectus for more
information.
Quantitative and Qualitative Disclosures About Market
Risk
We are exposed to certain market risks in the ordinary course of
our business. These risks primarily include:
Credit Risk
Our financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents. We had
cash and cash equivalents of $139.1 million and $114.4 million as
of December 31, 2021 and 2020, respectively, which consisted of
bank deposits, money market funds, and certificates of deposit. We
hold cash with federally insured financial institutions that often
exceed federally insured limits. We manage our credit risk by
concentrating our cash deposits with high-quality financial
institutions and periodically evaluating the credit quality of
those institutions.
Interest Rate Risk
Cash and cash equivalents are held primarily for working capital
purposes. These interest-earning instruments are subject to
interest rate risk. To date, fluctuations in interest income have
not been significant. The primary objective of our investment
activities is to preserve principal while maximizing income without
significantly increasing risk. We do not enter into investments for
trading or speculative purposes and have not used any derivative
financial instruments to manage our interest rate risk exposure.
Due to the short-term nature of our investments, we have not been
exposed to, nor do we anticipate being exposed to, material risks
due to changes in interest rates. A hypothetical 1% change in
interest rates during any of the periods presented would not have
had a material impact on our consolidated financial
statements.
We also historically have had exposure in changing interest rates
in connection with the 2013 Credit Facility. Interest rate risk is
highly sensitive due to many factors, including U.S. monetary and
tax policies, U.S. and international economic factors, and other
factors beyond our control. In June 2020, we repaid all amounts
outstanding under the 2013 Credit Facility. As such, a hypothetical
1% increase or decrease in market interest rates during the
twelve-month period ending December 31, 2020 would not result in a
material change to our consolidated financial
statements.
Currency Exchange Risk
We do not believe that foreign currency exchange has had a material
effect on our business, results of operations, or financial
condition. As the impact of foreign currency exchange rates has not
been material to our historical results of operations, we have not
entered into foreign currency derivative or hedging transactions,
but may do so in the future if our exposure to foreign currency
becomes more significant.
Inflation Risk
We do not believe that inflation has had a material effect on our
business, results of operations, or financial condition. However,
if our costs were to become subject to significant inflationary
pressures, we may not be able to fully offset higher costs through
price increases, and our inability or failure to do so could
potentially harm our business, financial condition, and results of
operations.
BUSINESS
We started in 1999 with the simple idea that, if we could publish
intelligent, independent, insightful, and in-depth investment
research and treat the subscriber the way we would want to be
treated, then subscribers would renew their subscriptions and stay
with us. That simple idea worked and has guided our decisions ever
since.
Today, we are a leading multi-brand platform of subscription
businesses that provides premium financial research, software,
education, and tools for self-directed investors. We provide our
subscribers with the research, education, and tools that they need
to navigate the financial markets.
We have evolved significantly since our inception in
1999.
Over the years, we have expanded our business into a comprehensive
suite of investment research products and solutions. We now produce
a diversified product portfolio from a variety of financial
research companies such as Stansberry Research, Palm Beach Research
Group, TradeSmith, Casey Research, InvestorPlace, and Empire
Financial Research. Our entire investment research product
portfolio is 100% digital and channel agnostic. We offer our
research across a variety of platforms, including desktop, laptop,
and mobile devices, including tablets and mobile
phones.
As a result of the expansion of the business, we now have 98
editors and analysts covering a broad spectrum of investments,
ranging from commodities to equities, to distressed debt and
cryptocurrencies. We offer 42 free and 135 paid products on
multiple platforms through our 12 customer-facing brands. This
diversity of content has allowed our business to succeed and our
subscription base to grow through the many economic cycles in our
over 20-year history.
We have an engaged subscriber base of approximately 972 thousand
Paid Subscribers and a large and growing audience of over 13.7
million Free Subscribers.
Millions of Investors are Taking Control of Their Finances, and We
Have the Content and Tools to be Their Guide
The nature of retail investing is rapidly changing, and we are
taking advantage of these trends.
Rise of the self-directed investor.
Years ago, and even today, retail investors sought advice from
traditional investment managers. But over the past two decades,
retail investors have increasingly taken control of their own
portfolios. There are several reasons for this trend. In the
aftermath of the 2008 financial crisis, investor skepticism
increased toward large financial institutions and advisors.
Meanwhile, the development of online trading and the proliferation
of financial information on the Internet has made it easier for
investors to take control of their finances and self-direct their
investments. Online brokerage platforms have slashed the cost to
manage a personal trading account, so investors can now make trades
for free or at a fraction of the historical cost.
As a result, the U.S. self-directed investor population is
approximately 75 million people in 2021. And this self-directed
population is growing by nearly 15% each year, and is expected to
increase to approximately 115 million investors by
2024.
These factors have combined to motivate individual investors to
take control of their investment decision-making. These
self-directed investors tend to lag the market indices so they seek
the expert information to educate and empower themselves to manage
their own portfolios. As more investors take the self-directed
approach to managing their financial future, there is significant
demand for investment ideas, education, and market
intelligence.
Demographic shifts are increasing demand for our products.
Approximately 17% of the U.S. population are individuals over the
age of 65. And that cohort is growing rapidly, with roughly 10,000
Americans retiring every day. Many of these people have significant
retirement accounts on which they rely.
In addition, 72% of Millennials—people born between 1980 and
1994—identify themselves as “self-directed” investors. As
Millennials continue to age and grow their investment portfolios,
we have a significant opportunity to serve that demographic and
grow our business.
Financial markets are becoming more complex.
The historical approach toward managing a personal portfolio with a
mix of blue-chip stocks, corporate bonds, and cash has become
antiquated. The rapid growth of investment opportunities—including
products such as exchange-traded funds (“ETFs”), cryptocurrencies,
options strategies, and distressed corporate debt—has given
self-directed investors today many different and sophisticated ways
to invest their money.
And those choices continue to specialize and multiply.
As investment options in the global financial markets increase, it
becomes harder and harder for investors to stay informed and keep
up with the strategies available to them. We and our teams of
editors and analysts are constantly surveying the markets for new
strategies to help subscribers stay current with the changing
markets.
Financial research content is fragmented and price points
vary.
The landscape of financial research providers is fragmented, with
hundreds of publications, platforms, and tools for investment
research directed at distinct segments of the investing
community.
Financial research providers range from free, advertising-supported
platforms or crowdsourced investment websites to low-cost, “mom and
pop” newsletter subscription services, many of which do not produce
content at scale. There are also extremely expensive,
subscription-based software platforms with data and tools designed
for highly sophisticated institutional investors.
Why Most Other Solutions Fall Short
The market for investment research and financial information
software is evolving and is highly fragmented. As the markets in
which we operate continue to mature and new technologies and
competitors enter those markets, we expect competition to
intensify. Many content providers fail to scale their business to a
large number of subscribers or, if they have a large number of
subscribers, they fail to generate profits on scale. They either
charge too much, lack the experience to skillfully guide
subscribers over longer time periods, fail to provide actionable
research, or are constrained by conflicts of interest. Some content
providers in the space offer separate products or technologies that
overlap with parts of our product offerings. These providers
include:
•free
online financial news aggregators or customer content platforms,
like Yahoo! Finance and Seeking Alpha;
•traditional
financial news publishers, like the Wall Street Journal, Investor’s
Business Daily, and Barron’s;
•consumer-focused
online subscription businesses, such as The Motley
Fool;
•institutional
financial software providers, such as Bloomberg, FactSet, and
S&P Global; and
•online
investing tools, such as Atom Finance and Stocktwits.
Our financial research products are different; we provide
independent, actionable research from industry experts at lower,
more-accessible price points than our competition.
Ad-supported research is broad and usually not actionable.
Traditional ad-based content platforms and online investment forums
are cheap or even free. But they are less informative and often
simply disseminate news content without providing actionable or
proprietary investment ideas. By nature, these publications and
platforms seek to build larger audiences that can then be monetized
through advertising. They do so by being as broad and generic as
possible. This often leaves the reader with the burden of having to
do additional research to make an informed investment
decision.
Niche content is less comprehensive.
Niche research and newsletters publications—which focus on narrow
market segments or strategies—lack the comprehensive offering that
retail investors deserve to manage their increasingly diversified
portfolios. These niche publishers often don’t provide access to
data and analytics services that a scaled platform can deliver. In
addition, a number of these publications are written by individuals
who may have a personal, vested interest in the recommendation.
(i.e.,
they own the stock they are promoting.) Users can also find a wide
disparity in the quality of the content because of the limited
resources available to the publisher or the credibility of the
editorial staff.
Institutional research is actionable, but
expensive.While
institutional research disseminated by large broker-dealers is
often actionable, it is expensive and thus out of reach to most
self-directed investors. Bloomberg has reported that institutions
paid out between $1,600 and $1 million to institutional
research providers—with the median payment in the United States
coming in at $42,500. The reports shows that banks charge a median
subscription of $14,500 and independent firms charge as much as
$30,500. The cost of accessing databases like Bloomberg, Factset,
or Pitchbook range between $10,000 and $30,000 per license. By
comparison, paid subscriptions across our affiliates start as low
as $100 per year for a 12-month annual subscription, and go up to
$5,000 per year for publications focused on specialized strategies.
In addition, these institutional products are often oriented
towards other finance professionals, with highly technical
references and analyses that are not easily understood by all
investors.
For additional information regarding the competitive environment in
which we operate, see “Risk Factors—Risks Related to Our Business
and Industry—We
face significant competition. Many of our competitors and potential
competitors have larger customer bases, more established brand
recognition, and greater financial, marketing, technological, and
personnel resources than we do, which could put us at a competitive
disadvantage. Additionally, some of our competitors and potential
competitors are better capitalized than we are and able to obtain
capital more easily, which could put us at a competitive
disadvantage.”
Our Value Proposition
We empower retail investors with institutional-quality research at
a price point that is accessible.
Experienced analysts, with their own unique investment strategies
and philosophies, lead our franchise brands. As a result, we do not
promote a single, unified view of the markets, but instead we
publish a mosaic of opinions, recommendations, and
strategies.
This multi-franchise approach gives our work far greater breadth,
creating more diverse opportunities for our subscribers. Our
franchises are linked, however, by a continuous commitment to risk
management and a contrarian approach to identifying investment
opportunities.
Across all our franchises, we focus on investments that are
unloved, ignored, or unknown. Having an informed perspective in
these situations gives our subscribers the best risk-to-reward
opportunities.
We recognize that self-directed investors do not have the same
research budget and resources at their disposal as institutional
investors do. So we strive to provide them with institutional
quality research at affordable price points. Unlike traditional
institutional research, our offerings are significantly less
expensive and more accessible. They are
designed to be less technical and therefore more easily understood
by the subscribers who aren’t finance professionals. At the same
time, our offerings have premium content that is highly
actionable.
We believe that if we publish research to help our subscribers
succeed in the financial markets, they will progressively become
better investors, renew their subscriptions, and become long-term
customers. We have proven out this thesis throughout our over
20-year history. We have formed lifelong relationships with our
subscribers by providing superior value through our
offerings.
We provide a comprehensive suite of research and software
solutions.
Through 12 primary customer facing brands, we have 42 free products
and 135 paid products. To date, we have chosen not to combine our
franchises and primary customer facing brands into one company,
primarily out of consideration for the readers. We find that our
subscribers develop personal affinities for specific writers and
certain investment styles. We want to avoid disrupting those
relationships by interjecting a new company name or persona. That
dynamic is especially true when it comes to our joint ventures and
acquisitions, which we engage in periodically, where subscribers
may not have any prior relationship with us.
We cover various investment strategies, such as value investing,
income, growth, commodities, cryptocurrencies, venture,
biotechnology, mutual funds, options, and trading.
We typically publish our research reports on a monthly basis,
although some of our products publish more frequently. We offer our
entire investment research product portfolio across a variety of
media, including desktops, laptops, tablets, and
mobile.
We also offer financial software and analytical tools.
We continue to expand our research portfolio with software and
analytical tool solutions.
Among these are TradeSmith and the Altimeter, which represented 9%
of our Billings on average from 2019 to 2021. TradeSmith provides a
full suite of portfolio management software tools that enable
individual investors to manage their portfolios using algorithms
that have been back tested for results and designed to help
investors manage their emotions. The Altimeter is a user-friendly
database showing uniform, accounting-based financial summaries for
more than 5,400 companies.
We acquired Chaikin Analytics in January 2021 to further expand our
portfolio of software and analytical tools and increase the number
of our customers in the registered investment advisor
market.
We have also developed a digital research platform for the
self-directed investor that we refer to as the “terminal.” For the
individual investor, the terminal integrates our content with
public financial data in a well-designed user interface. It
provides our users with a valuable tool to easily consume our
research, keep track of investments, import their portfolios, and
more. Through the terminal, subscribers have instant access to
real-time data across more than 6,000 U.S. equities, plus daily
prices on 50,000 international equities and 25,000 U.S. corporate
bonds. Also included is a 24-hour financial news feed that is
updated in real time, giving users a glimpse into updated market
news, trends, and data across multiple devices.
We have developed screeners, monitors, portfolio management tools,
and a set of proprietary indicators that produce a composite score
to rank several thousand publicly traded companies in the United
States. The terminal is also designed to appeal to professional
registered investment advisors. It combines vast amounts of
financial data and third-party content with our proprietary
research.
These product offerings reinforce each other and produce a strong
flywheel effect across our organization. As we launch or buy more
products, we increase the tools available to our readers and the
value we provide to our existing subscribers. This allows us to
gather insights and feedback and helps us create new products and
solutions.
We are dedicated to honoring our long-term commitment to
subscribers.
We believe investing is a lifelong endeavor—one that requires
constant learning, course corrections, openness to change, and
emotional discipline. In keeping with this core belief, we strive
to build long-term relationships with our subscribers.
We believe in publishing content that is educational, informative,
and easy to understand, and therefore helps our subscribers become
better investors over time. This reinforces our lifelong
relationships with our subscribers as they can grow with our
platform. This forms a “virtuous cycle” of learning and improving
through our offerings. As subscribers learn more about how to
manage their investments, that makes them more comfortable with
investigating the more specialized content covered in our high-end
services, which further encourages them to continue broadening
their investing skill set.
Our market leadership, scale, and access to a wide set of
subscribers creates strong network effects. As we grow, we have
larger budgets, which allows us to reinvest back into our research
platform by hiring more analysts, developing more software and
tools, and launching new products, which, in turn, helps us attract
more subscribers to our platform.
We are committed and continue to invest in our subscriber
experience.
Our relationship with our subscribers is our most precious asset,
and we strive to put the customer first in everything that we do.
This customer-centric focus drives us to constantly upgrade the
quality, breadth, and depth of our research in our existing
products without materially increasing the cost of the
subscription.
This approach also greatly affects how our customer service groups
treat our subscribers when issues arise. We instill in our teams
that if we cannot reasonably meet the subscriber’s expectations,
then we should ask the customer how we failed them, seek a mutually
agreeable solution, and, if one cannot be found, offer them a
refund or other form of compensation and find a way to part as
friends. This has resulted in over 90% net revenue retention for
the three-year period ended December 31, 2021 across our
products.
Our Market Opportunity
We have pioneered and driven growth in the self-directed investing
market by empowering our subscribers. We estimate that the
addressable market for our products is $129 billion, which includes
75 million U.S.-based self-directed investors and many more
globally.
We believe our global market opportunity includes:
•Asset
management customers becoming self-directed
investors:
According to BCG Global Asset Management, fees paid to asset
managers in 2019 for global active core and active specialties
amounts to $111 billion. We believe that secular trends are driving
investors to take control of their finances. Investors who have
historically invested through asset managers represent a
significant opportunity for us.
•Investment
research:
We calculate our addressable market in the investment research
space at $18 billion, determined by multiplying our 3 year average
ARPU of $718 by 25.1 million self-directed investors, representing
approximately one-third of the 75 million U.S.-based
self-directed investors in 2021 according to Celent. We
conservatively use one-third of the number of U.S.-based
self-directed investors in our calculation so as not to double
count investors who currently utilize an asset manager or a
third-party’s financial tools. We are addressing this market
through our broad portfolio of brands and products but believe we
are uniquely positioned to increase our market share in this
space.
We expect that opportunities abroad will be significantly larger as
non-U.S. investable assets continue to grow. Our subscribers come
from over 200 countries and territories, however, our international
revenues are currently small compared to our total revenues, so we
believe we have a significant opportunity to expand
internationally.
Our Growth Strategy
We are committed to growing our business by deepening our
relationship with existing customers and attracting new subscribers
to our platform. We did both last year. We will also pursue
strategic growth as opportunities arise. Here’s how we grow our
business:
Attract more subscribers.
We typically acquire new subscribers through an omni-channel
marketing strategy that includes display ads, email, external
subscriber lists, and direct mail, as well as television and radio
at times. We primarily market in these channels through
free-to-paid and direct-to-paid content.
We measure our customer-acquisition performance by a matrix of new
customer counts and the cost to acquire customers. The mix of our
marketing spend across these channels varies among our primary
customer-facing brands and depends on how well individual marketing
campaigns succeed, the nature of the product, and the type of
offer.
We have invested significant resources into our efforts around
consumer marketing, including enterprise-wide customer relationship
management (“CRM”) systems, the leveraging of artificial
intelligence (“AI”) to analyze this data, and a robust database of
customer information.
In all of our marketing efforts, we collect and analyze customer
response data by channel and effort, down to the individual
advertisement in a marketing campaign. Using this data-driven and
time-tested approach, we have developed proprietary practices for
customer acquisition that we believe set us apart from other
companies.
As we develop our relationship with the customer, we collect
information from our subscribers about what products they are
purchasing, their customer experience, and any feedback they have
on our free and paid products. We use this information to deepen
the customer experience and present offers to our subscribers for
other products that they are likely to find interesting and
useful.
Deepen our relationship with our existing subscribers.
In addition to our paid customers, an additional 13.7 million Free
Subscribers have access to our extensive library of free and
educational content. As our subscribers learn and gain confidence
as investors, they understand the need to deploy diverse investment
strategies for different market conditions and they explore our
broad and diverse product offerings. They gain an understanding of
the high quality of research that we strive to provide, and they
tend to purchase additional research and software
products.
Our free subscription products serve as a significant source of new
Paid Subscribers, with an average annual free-to-paid conversion
rate of approximately 1% to 2% between 2019 and 2021.
Launch new products and target new markets.
Over our greater than 20-year history, we have developed a breadth
of products and services that are designed to educate, empower, and
entertain our subscribers and provide them with actionable
investment ideas.
We offer a wide array of paid subscription products, ranging from
lower priced products (e.g.,
subscriptions that cost $100 annually) to more expensive products
(e.g.,
subscriptions that can cost up to $5,000 annually). The length of
our subscriptions can vary from one year to “lifetime,” where
subscribers pay upfront for access to our specific products for the
rest of their investing lives, then only pay an annual maintenance
fee ranging from $49 to $500 per year.
We have also developed various software applications that provide
customers with algorithmic tools to search for trading ideas and
manage portfolio risk. We plan to extend the scale and reach of our
offerings to include both retail and institutional investors in the
future. We will continue to enhance our value proposition and
create additional selling opportunities through an expanded product
portfolio.
We also offer members-only investing conferences where subscribers
interact with our editors and analysts and can network with each
other. We have a strong track record of cultivating these
relationships with our subscribers, and we intend to continue that
going forward.
Selectively pursue strategic growth.
Over the past ten years, we have developed several joint ventures
and executed strategic acquisitions to accelerate our growth, as
well as increase the value of our offerings to our
subscribers.
We have a strong track record of driving growth and delivering
value through the successful integration of acquisitions and joint
ventures. We believe our large subscriber base, easy scalability,
marketing expertise, technology-based platform, and integration
capabilities provide opportunities for us to drive value-added
growth through acquisitions in key areas such as product, market,
and geographic expansion.
We have also made key investments across our platform to create a
repeatable, low-cost, and scalable business model. We have invested
in business functions from marketing to technology and developed
several new products, including our terminal product.
We plan to continue investing in cutting-edge AI and advanced
analytics-driven marketing tools to further optimize our marketing
channels. Additionally, we have invested in our finance,
technology, human resources, and other general and administrative
functions to support our growth.
Our Technology
We use technology to run our business efficiently and to better
serve our customers. Our technology combines three cloud-based
systems: SaaS; platform-as-a-service (“PaaS”); and
infrastructure-as-a-service. While we have changed providers in the
past and may do so in the future, we currently use top-tier,
industry-leading service providers for our CRM and marketing, email
delivery, subscription billing, data warehouse, and data
center.
Our infrastructure is highly scalable and allows us to serve all of
our subscribers simultaneously and consistently. Our technology
architecture is scalable based on overall traffic and capacity. As
a result, we do not believe that growth in the number of
subscribers hinders or slows down our platform.
We also employ data redundancy solutions on the cloud to reduce the
possibility that our customer data will be lost and to ensure that
our platform will not experience material downtime. We apply
industry-standard data security measures to protect against
potential vulnerabilities in our technology.
We have invested heavily in providing a reliable and secure global
platform and infrastructure. Our investments in technology,
including engineers, online security, customer privacy, reliable
infrastructure, and data science capabilities, enable us to
efficiently innovate and deliver solutions to our customers. Our
cloud platform allows our developers to build and deploy in a lean
and agile fashion with a focus on quality and solution
adoption.
We continue to build out our AI tools and predictive analytics
capacity through identification of additional business cases and
additional data features. While partnering with a nationally
recognized provider, we have applied highly targetable demographic
and behavioral attributes to new models and in existing models to
further enhance our business value.
Our data center is cloud-based and, through this platform, we have
been able to integrate the various SaaS and PaaS applications
within our technology ecosystem and ensure that we have high
availability and redundancy with business continuity in mind in an
auto-scaling architecture.
Human Capital Resources
As of December 31, 2021, we had approximately 800 full-time
employees. Under normal circumstances, our employees and
independent contractors work from our U.S. office locations. None
of our employees are represented by a labor organization or are
party to any collective bargaining arrangement.
Our success depends on our relationships with our subscribers, as
well as our employees. We believe that talented employees play a
key role in delivering valuable content to our subscribers, which,
in turn, creates long-term value for our stockholders.
We seek to attract and retain top talent through competitive
compensation and benefit programs, and by fostering a culture of
high performance, creativity, healthy work-life balance, and
diverse perspectives that will enable our employees to thrive and
be successful.
Our compensation programs include both fixed and variable
components, an incentive award plan providing for equity grants,
and an employee stock purchase plan, all of which we believe
incentivizes our employees to achieve high performance, helps them
establish long-term financial security, and encourages them to
remain with us.
Our benefits package includes health and welfare plans that provide
medical, dental, and vision coverage, health savings accounts,
medical and dependent care flexible spending accounts, life
insurance, disability insurance, 401(k) savings plan with a company
match, and other assistance and wellness programs.
We have experienced tremendous growth—almost doubling our workforce
since 2017. And, even in the midst of a very active and competitive
employment market, our turnover rate for the last six months was
only 9%. We are
also proud that all three of our eligible subsidiaries were
recognized as top workplaces by the Baltimore Sun in 2021, 2020,
and 2019. One of our subsidiaries ranked in first place in mid-size
employers in that same contest.
Our Facilities
Our corporate headquarters are located in Baltimore, Maryland,
where we occupy approximately 40,000 square feet under a lease that
expires in 2026. The office is situated in the historic Mount
Vernon neighborhood, just one mile north of Baltimore’s Inner
Harbor area. In addition to content-producing teams, our
headquarters house our executive management team, as well as the
functional groups of information technology, accounting and
finance, human resources, and legal. We also have approximately
9,000 square feet of office space in downtown Delray Beach,
Florida. We occupy an entire four-story building just a few blocks
from the beach. We also have 2,100 square feet in Spring Hill,
Florida, 35 miles north of Tampa, approximately 3,200 square feet
of space in Arlington, Virginia, and approximately 3,470 square
feet of space in downtown Philadelphia, Pennsylvania.
Most of our office space is an open floor plan designed for
flexibility, accessibility, and collaboration. Our office
environment supports idea exchange and encourages strong collegial
relationships. With our cloud-based systems, we can work from just
about anywhere, and we were able to quickly pivot to remote
operations during the COVID-19 pandemic. As we prepare for an
eventual transition back to the full office opening, our team is
actively considering layouts and configurations to accommodate
social distancing as well as growth.
We lease all of our facilities and do not own any real property.
For leases that are scheduled to expire during the next 12 months,
we may negotiate new lease agreements, renew existing lease
agreements, or use alternate facilities. We believe that our
facilities are adequate for our needs and believe that we should be
able to renew any of these leases or secure similar property
without an adverse impact on our operations. We intend to procure
additional space in the future as needed and in support of our
planned growth.
Intellectual Property
We rely on a combination of trademark and copyright to protect our
intellectual property. We have registered certain of our trademarks
and service marks in the United States with the U.S. Patent and
Trademark Office and in Canada and China, and have registered
copyrights on certain publications. In addition, we have registered
our domain names, including marketwise.com, with MarkMonitor. We
believe the names and marks associated with our brands are of
significant value and are important to our business. Accordingly,
as a general policy, we monitor the use of our marks and vigorously
oppose any unauthorized use of the marks. We do not hold any
patents.
We seek to control access to and distribution of our proprietary
information. We enter into confidentiality, nondisclosure, and
non-interference agreements with our employees, consultants,
customers, and vendors that generally provide that any confidential
or proprietary information developed by us or on our behalf be kept
confidential, and we limit access to our confidential and
proprietary information to a “need to know” basis. In the normal
course of business, we provide our intellectual property to third
parties through licensing or restricted use agreements. In
addition, our internal policies seek to protect our intellectual
property against misappropriation, infringement, and unfair
competition. We intend to pursue additional intellectual property
protection to the extent we believe it would be beneficial and cost
effective.
Legal Proceedings
We are subject to various legal proceedings, claims, and
governmental inspections, audits, or investigations that arise in
the ordinary course of our business. Although the outcomes of these
claims cannot be predicted with certainty, in the opinion of
management, the ultimate resolution of these matters would not be
expected to have a material adverse effect on our financial
position, results of operations, or cash flows.
MANAGEMENT
Executive Officers and Directors
The following table lists the names, ages as of March 4, 2022, and
positions of the individuals who currently serve as our executive
officers and directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Position(s)
|
|
Mark Arnold |
|
50 |
|
Chief Executive Officer, Chairman of the Board, and
Director |
|
Dale Lynch |
|
55 |
|
Chief Financial Officer |
|
Marco Ferri |
|
48 |
|
Director of Business Development |
|
Gary Anderson |
|
53 |
|
General Counsel |
|
Marco Galsim |
|
48 |
|
Chief Information Officer |
|
Cynthia Cherry |
|
49 |
|
Senior Director of Human Resources |
|
Manuel Borges(1)
|
|
53 |
|
Director |
|
Elizabeth Burton(1)
|
|
39 |
|
Director |
|
Mark Gerhard(2)(3)
|
|
45 |
|
Director |
|
Riaan Hodgson(1)
|
|
52 |
|
Director |
|
Paul Idzik(2)(3)
|
|
60 |
|
Director |
|
Michael Palmer |
|
51 |
|
Director |
|
Van Simmons(2)(3)
|
|
70 |
|
Director |
|
Stephen Sjuggerud |
|
50 |
|
Director |
_________________
(1)Member
of the audit committee.
(2)Member
of the compensation committee.
(3)Member
of the nominating and corporate governance committee.
Mark Arnold
has served as our Chief Executive Officer since 2017 and has served
as a member of our board of directors since consummation of the
Transactions in July 2021. Prior to joining our company, Mark spent
fifteen years handling mergers and acquisitions and venture capital
transactions in prestigious private law firms, Edwards Wildman
Palmer LLP and Holland & Knight LLP. Mark earned his
undergraduate degree in public policy from Duke University followed
by his law degree and MBA from the University of Florida. We
believe Mr. Arnold is qualified to serve as a member of our board
of directors due to the perspective and experience he brings as our
Chief Executive Officer.
Dale Lynch
has served as our Chief Financial Officer since 2019. He is leading
the development of our financial and operational efficiency as we
seek to become the dominant platform of choice for self-directed
investors. Before joining us, Dale spent more than six years with
Farmer Mac, serving as Executive Vice President, Chief Financial
Officer, and Treasurer. Prior to that, Dale helped lead U.S. Silica
Holdings through their initial public offering in his role as Vice
President of Finance. Earlier in his career, Dale served in a
variety of roles at Allied Capital Corporation, Lehman Brothers,
Deutsche Bank, and Merrill Lynch. Dale graduated
magna cum laude
from The Pennsylvania State University with his Bachelor of Science
in Accounting, and he also holds an MBA
magna cum laude
from the University of Chicago, Booth School of
Business.
Marco Ferri
has served as our Director of Business Development since 2018. He
leads all external growth initiatives, including acquisitions and
joint ventures, and is responsible for identifying and fostering
relationships with potential targets and partners. Prior to joining
our family, Marco was a founding partner at Avila Rodriguez
Hernandez Mena & Ferri LLP (“ARHMF”), where he specialized in
mergers, acquisitions and joint ventures, among other
concentrations. Prior to founding ARHMF, Marco was a partner at
Holland & Knight LLP, an AmLaw 100 international law firm.
Marco holds a Bachelor of Business Administration in Marketing from
the University of Notre Dame, and received his Juris Doctor,
cum laude,
from the University of Florida, Levin College of Law.
Gary Anderson
is our General Counsel. He is responsible for managing all legal
and compliance matters, including corporate governance, litigation,
regulatory, intellectual property, customer and SaaS agreements,
data, global security, and privacy issues. Gary is a Certified
Information Privacy Professional (CIPP/US) through the
International Association of Privacy Professionals. Prior to taking
this role in 2017, Gary worked in private practice for nearly 20
years, primarily as a partner in the Washington, D.C. office of
Kirkland & Ellis LLP. During this time, Gary represented
clients in wide range of matters spanning complex commercial
litigation, securities and accounting fraud, intellectual property,
class actions, breach of contract, as well as sensitive government
investigations. Earlier in his career, Gary worked at
PricewaterhouseCoopers as an auditor and also served as a law clerk
in the U.S. Court of Appeals for the Second Circuit and the Frauds
Bureau of the Manhattan District Attorney’s office. Gary earned a
B.B.A. in Accounting from the University of Notre Dame and a J.D.
from Notre Dame Law School, where he was the Note Editor of the Law
Review. He previously served as an officer in the U.S. Army
Reserve.
Marco Galsim
has served as our Chief Information Officer since 2020, after
serving as the Head of Technology for seven years. He provides
leadership for the development of innovative, robust, scalable, and
secure technology infrastructure. During his time with us, he
spearheaded the full technology infrastructure transition into the
cloud. Marco has more than 20 years of experience in the technology
space, having held a variety of technology positions at the
Videology Group, AOL, Stanley Black and Decker, and Manugistics.
Marco holds a Bachelor of Science in Industrial Management
Engineering with a minor in Mechanical Engineering from De La Salle
University.
Cynthia Cherry
has served as our Senior Director of Human Resources since 2018.
She was tasked with building out the human resources infrastructure
and developing a team to support our businesses. Cynthia is
responsible for leading HR strategy and influencing culture through
effective talent acquisition and employee relations. With more than
20 years of experience, she has handled a full range of human
resources and business management responsibilities. She spent the
bulk of her earlier career in professional services, working for
Mendelson & Mendelson, CPAs, the law firm of Ober, Kaler,
Grimes & Shriver, and the law firm of Baker, Donelson, Bearman,
Caldwell & Berkowitz, PC. Cynthia is a Senior Certified
Professional—SHRM, specializing in executive coaching, employee
relations, compliance, and benefits. Cynthia earned her bachelor's
degree in psychology at the University of Maryland, College
Park.
Manuel “Manny” Borges
and has served as a member of our board of directors since
consummation of the Transactions in July 2021. Mr. Borges currently
serves as Senior Vice President and Chief Financial Officer of
Digital and Streaming for Univision, the leading Spanish-language
content and media company in the United States. From 2009 until its
sale to Univision in early 2021, Mr. Borges was with VIX, Inc. as
their Chief Financial Officer and Chief Operating Officer. Prior to
VIX, Mr. Borges served as Senior Vice President of Finance for The
Related Group and the Chief Financial Officer of Related
International. Prior to that, Mr. Borges was with Radio Unica
Communications Corp serving as Vice President of Finance and Chief
Accounting Officer and played a key role in Radio Unica’s IPO. Mr.
Borges began his career as an Audit Manager for
PricewaterhouseCoopers. He earned a Bachelor’s of Accounting and a
Master’s of Accounting, both from Florida International University
in 1991 and 1992, respectively. We believe Mr. Borges is qualified
to serve on our board of directors due to his extensive experience
in finance and accounting in the attention economy
sector.
Elizabeth Burton
has served as a member of our board of directors since consummation
of the Transactions in July 2021. Ms. Burton has served as the
Chief Investment Officer of the Employees’ Retirement System of the
State of Hawaii (“HIERS”) since 2018, where she oversees $20
billion in pension fund assets. Prior to HIERS, beginning in 2016,
Ms. Burton held multiple positions at the Maryland State Retirement
and Pension System, where she began as a Senior Investment Analyst
and, less than a year after joining, was named Managing Director of
the Quant Strategies Group, serving as the Head of Risk for the $55
billion plan and head of the $5 billion Absolute Return Portfolio
(Hedge Fund). Prior to joining the Maryland Pension System, Ms.
Burton held multiple consulting positions at First Annapolis
Consulting and William Street, where she advised clients on M&A
transactions, partnership finance, and corporate strategy. She also
worked for Criterion Economics on expert witness testimony/analysis
before the International Trade Commission on monopolization. Ms.
Burton earned double degrees (French and Politics) from Washington
and Lee University in 2004 and an MBA from The University of
Chicago’s Booth School of Business in 2011. Ms. Burton sits on the
Board of Directors of Chartered Alternative Investment Association.
She also serves on the board of a private REIT and is a Trustee of
The Hill School, a private boarding school. Ms. Burton was named
one of Chief Investment Officer Magazine’s Top-40-Under-40 in 2017
and to its
Power 100 List for each of the last three years. She was also named
Chief Advocate of the Year in 2021 by CIO Magazine and to the 2020
All-Star Chief Investment Officers list by Trusted Insight. We
believe Ms. Burton is qualified to serve on our board of directors
due to her extensive experience in risk analysis and corporate
strategy.
Mark Gerhard
was ADAC’s Chief Executive Officer and a Director from March 2020
until consummation of the Transactions, and remains a member of our
board of directors. Mr. Gerhard has been the Co-Founder, Chief
Executive Officer, and Chief Technology Officer of Disruptional Ltd
(f/k/a Playfusion Ltd), an artificial intelligence technology and
gaming studio that is involved in creating a next generation
mixed-reality platform, since January 2015. Mr. Gerhard was
previously the Chief Executive Officer and Chief Technology Officer
of Jagex Game Studios, a British independent game developer and
publisher, and the creator of Runescape, a popular video game. Mr.
Gerhard is also the Vice Chairman of TIGA, a British trade body for
video game developers and publishers. Mr. Gerhard is also the
Founder of Ministry of Data, a developer of cybersecurity
solutions. Mr. Gerhard was also previously the Principal Security
Officer at GTech Corporation, a gaming and technology company, from
2007 to 2008. Mr. Gerhard has over 15 years of experience in the
digital entertainment industry. We believe Mr. Gerhard is qualified
to serve on our board of directors because of his extensive
experience in the attention economy sector.
Riaan Hodgson
was ADAC’s Chief Operating Officer and a Director from March 2020
until consummation of the Transactions, and remains a member of our
board of directors. Mr. Hodgson has been the Chief Operating
Officer and Chief Financial Officer of Beauty Labs International
Ltd, a technology company that provides AI applications for beauty
brands, since January 2020. Mr. Hodgson has also been a director of
Cambridge Venture Partners since January 2015, where he acts as an
investor and advisor, focusing on technology and games. Previously,
Mr. Hodgson was the Chief Operating Officer and Chief Financial
Officer of Disruptional Ltd (f/k/a PlayFusion Ltd). From April 2008
to January 2015, Mr. Hodgson was the Chief Operating Officer and
Chief Financial Officer of Jagex Game Studios. Mr. Hodgson is a
chartered accountant and has a finance degree from North-West
University. We believe Mr. Hodgson is qualified to serve on our
board of directors because of his finance experience in the
technology industry.
Paul Idzik
has served as a member of our board of directors since consummation
of the Transactions in July 2021. Mr. Idzik served as Chief
Executive Officer and a member of the Board of Directors of E*Trade
Financial Corporation from 2013 to 2016. He was also President of
E*TRADE Bank, as well as a member of its Board of Directors. Prior
to E*Trade, from 2008 to 2011, Mr. Idzik served as group Chief
Executive Officer of DTZ Holdings PLC, a UK-headquartered
international commercial real estate services firm with operations
across 22 countries with over 7,000 employees, focusing primarily
on the U.K. and China. From 1999 to 2008, Mr. Idzik held executive
roles at Barclays; first as Chief Operating Officer of Barclays
Capital, then ultimately becoming Group Chief Operating Officer at
Barclays PLC where he was tasked with driving a significant
cross-business and cross-function change agenda. Prior to Barclays,
Mr. Idzik spent over a decade as a partner in the Financial
Services practice of Booz Allen Hamilton, advising retail,
commercial, and investment banks on strategy and performance
enhancement. Mr. Idzik earned double Bachelor’s degrees in
Economics and Computer Applications from the University of Notre
Dame in 1983 and a Master’s of Business Administration in Finance
from the University of Chicago’s Booth School of Business in 1985.
We believe Mr. Idzik is qualified to serve on our board of
directors due to his extensive experience in helping companies to
grow internationally and for his expertise in guiding self-directed
investors.
Michael Palmer
has been our Managing Director and Copywriter since 2008 and has
served as a member of our board of directors since consummation of
the Transactions in July 2021. Mr. Palmer is responsible for
helping to develop, train, and mentor copywriting teams at our
various businesses, and to also write marketing copy from time to
time for these businesses. Mr. Palmer started working in the
consumer publishing industry more than 25 years ago at
International Living. He has worked as an assistant editor,
managing editor, copywriter, and head copywriter since then, hiring
and training many of the top copywriters at MarketWise today. Mr.
Palmer earned a B.A. in English from James Madison University and a
M.A. in Publication Design from the University of Baltimore. We
believe Mr. Palmer is qualified to serve on our board of directors
due to his extensive experience in the consumer and financial
publishing industry.
Van Simmons
and has served as a member of our board of directors since
consummation of the Transactions in July 2021. Mr. Simmons has
served as President of David Hall Rare Coins, Inc. since 1991. He
also co-founded Collector’s Universe (NASDAQ: CLCT), the leading
grading and authentication service to the collectibles
market.
Mr. Simmons also served on its board of directors from 1999 through
2018. As a rare coin dealer since 1979, Mr. Simmons is widely
regarded as the foregone authority on coin grading, having
pioneered the coin grading standard in use today. Mr. Simmons holds
a Masters Professional Director Certification from the American
College of Corporate Directors, a public company director education
and credentialing organization. We believe Mr. Simmons is qualified
to serve on our board of directors due to his extensive experience
in the attention economy sector.
Dr. Stephen Sjuggerud
joined us in 2001 and remains one of our most prolific editors, and
has served as a member of our board of directors since consummation
of the Transactions in July 2021. Dr. Sjuggerud’s franchise (True
Wealth) covers five publications and accounts for over 100,000 paid
subscriptions and nearly 800,000 free subscribers. Prior to joining
our family, Dr. Sjuggerud published investment research
continuously since 1996, and prior to that, was a stockbroker, a
vice president of a global mutual fund, and worked for a New York
hedge-fund with $900 million in assets under management. From 2007
through 2008, Dr. Sjuggerud served on the board of directors of
Stanley Gibbons Group, plc (SGI.L), a U.K.-based publicly traded
collectibles company. Dr. Sjuggerud entered the University of
Florida in 1988, at age 16, earning a degree in Finance. After
leaving UF, he went on to earn a Master’s in Business
Administration from the University of Central Florida in 1995 and a
Ph.D in Finance from the University of Orlando in 1998. We believe
Dr. Sjuggerud is qualified to serve on our board of directors due
to his extensive experience of being a leading voice for
self-directed investors.
Board Composition and Election of Directors
Our board of directors consists of nine members. The Charter
provides for a classified board of directors, with
three directors in Class I (Riaan Hodgson, Manny Borges and
Van Simmons) with their terms expiring at the 2022 annual meeting
of stockholders, three directors in Class II (Mark Gerhard,
Elizabeth Burton and Paul Idzik) with their terms expiring at
the 2023 annual meeting of stockholders, and three directors in
Class III (Mark Arnold, Michael Palmer, and Stephen Sjuggerud) with
their terms expiring at the 2024 annual meeting of stockholders.
See “Description of Capital Stock.” Pursuant to our Charter and
Bylaws, upon expiration of the term of a class of directors,
directors for that class will be elected for three-year terms at
the annual meeting of stockholders in the year in which that term
expires. Each director will hold office until his or her successor
is elected and qualified or until his or her earlier death,
resignation, retirement, disqualification, or removal from office.
Directors may be removed by our stockholders only for cause, and
only by the affirmative vote of the holders of at least a majority
of the voting power of our then-outstanding voting stock entitled
to vote in the election of directors. Vacancies on our board of
directors can be filled by resolution of our board of directors.
Any increase or decrease in the number of directors will be
distributed among the three classes so that, as nearly as possible,
each class will consist of one-third of the directors. This
classification of our board of directors may have the effect of
delaying or preventing changes in control of our company. See
“Description of Capital Stock—Classified Board of Directors” and
“Risk Factors—Risks Related to this Offering and Ownership of Our
Class A Common Stock—Delaware law and our Charter and Bylaws
contain certain provisions, including anti-takeover provisions,
that limit the ability of stockholders to take certain actions and
could delay or discourage takeover attempts that stockholders may
consider favorable.”
We undertook a review of the independence of the directors named
above and have determined that Mark Gerhard, Riaan
Hodgson, Manuel Borges, Elizabeth Burton, Paul Idzik, and Van
Simmons do not have a relationship that would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director, and that each of these directors is
“independent” as that term is defined under the applicable Nasdaq
rules. There are no family relationships among any of our directors
or executive officers. The number of directors will be fixed by the
board of directors, subject to the terms of our Charter and
Bylaws.
Board Committees
Our board of directors has three standing committees—an audit
committee, a compensation committee, and a nominating and corporate
governance committee. The composition, duties, and responsibilities
of these committees are set forth below. Our board of directors may
also establish from time to time any other committees that it deems
necessary or desirable. Members serve on these committees until
their resignation or until otherwise determined by our board of
directors.
Audit Committee
The audit committee’s responsibilities include:
•appointing,
approving the compensation of, and assessing the independence of
our registered public accounting firm;
•overseeing
the work of our registered public accounting firm, including
through the receipt and consideration of reports from such
firm;
•reviewing
and discussing with management and our registered public accounting
firm our annual and quarterly financial statements and related
disclosures;
•assisting
our board of directors in overseeing our internal control over
financial reporting and disclosure controls and
procedures;
•reviewing
the effectiveness of our risk management policies;
•reviewing
legal, regulatory, and compliance matters that could have a
significant impact on our financial statements;
•meeting
independently with our internal auditing staff, if any, registered
public accounting firm, and management;
•reviewing
and approving or ratifying related-person transactions;
and
•preparing
the audit committee report required by SEC rules.
The members of our audit committee are Riaan Hodgson, Manuel
Borges, and Elizabeth Burton, each of whom meets the requirements
for financial literacy under the Nasdaq rules. Riaan Hodgson serves
as the chairperson of the committee. We undertook a review of the
independence of the directors named above and have determined that
each of the members of the audit committee meets the independence
requirements of Rule 10A-3 under the Exchange Act and the
applicable Nasdaq rules, and that Riaan Hodgson is an “audit
committee financial expert” as defined in Item 407(d)(5) of
Regulation S-K and has the requisite financial sophistication as
defined under the applicable Nasdaq rules.
Our board of directors adopted a written charter for the audit
committee, which is available on our website.
Compensation Committee
The compensation committee’s responsibilities include:
•reviewing
and approving the compensation of our chief executive officer and
other executive officers and, in the case of our chief executive
officer, recommending for approval by the board of directors the
compensation of our chief executive officer;
•developing
and administering our equity incentive plans;
•reviewing
and making recommendations to our board of directors with respect
to director compensation;
•reviewing
and discussing annually with management, and recommending to our
board of directors, our “Compensation Discussion and Analysis,” to
the extent required; and
•preparing
the annual compensation committee report required by SEC rules, to
the extent required.
The members of our compensation committee are Van Simmons, Mark
Gerhard, and Paul Idzik. Van Simmons serves as the chairperson of
the committee. We undertook a review of the independence of the
directors named above and have determined that each of the members
of the compensation committee is “independent” as defined under the
applicable Nasdaq rules. We undertook a review and determined that
Van Simmons will be a “non-
employee director” as defined in Rule 16b-3 promulgated under the
Exchange Act. To the extent necessary or advisable for purposes of
Section 162(m) of the U.S. Internal Revenue Code of 1986, as
amended (the “Code”), a minimum of two compensation committee
members shall qualify as “outside directors” within the meaning of
such section.
Our board of directors adopted a written charter for the
compensation committee, which is available on our
website.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee’s
responsibilities include:
•identifying
individuals qualified to become board members;
•recommending
to our board of directors the persons to be nominated for election
as directors and to each board committee;
•reviewing
and recommending to our board of directors’ corporate governance
principles, procedures, and practices, and reviewing and
recommending to our board of directors proposed changes to our
corporate governance principles, procedures, and practices from
time to time; and
•reviewing
and making recommendations to our board of directors with respect
to the composition, size, and needs of our board of
directors.
The members of our nominating and corporate governance committee
are Paul Idzik, Mark Gerhard, and Van Simmons. Paul Idzik
serves as the chairperson of the committee. We undertook a review
of the independence of the directors named above and have
determined that each of the members of the nominating and corporate
governance committee is “independent” as defined under the
applicable Nasdaq rules.
Our board of directors adopted a written charter for the nominating
and corporate governance committee, which is available on our
website.
Compensation Committee Interlocks and Insider
Participation
None of the members of our compensation committee has at any time
been one of our executive officers or employees. None of our
executive officers currently serves, or has served during the last
completed fiscal year, on the compensation committee or board of
directors of any other entity that has one or more executive
officers that is a director on our board of directors or
compensation committee. ADAC and us are parties to certain
transactions with certain of our directors and officers described
in the section of this prospectus entitled “Certain Relationships
and Related Party Transactions.”
Role of the Board in Risk Oversight
One of the key functions of our board of directors is informed
oversight of our risk management process. It is not anticipated
that our board of directors will have a standing risk management
committee, but rather will administer this oversight function
directly through the board of directors as a whole, as well as
through various standing committees of our board of directors that
address risks inherent in their respective areas of oversight. In
particular, our board of directors is responsible for monitoring
and assessing strategic risk exposure, including risks associated
with cybersecurity and data protection, and our audit committee has
the responsibility to consider major financial risk exposures and
the steps our management has taken to monitor and control these
exposures, including guidelines and policies to govern the process
by which risk assessment and management is undertaken. Our audit
committee also reviews legal, regulatory, and compliance matters
that could have a significant impact on our financial statements.
The compensation committee assesses and monitors whether any of our
compensation policies and programs has the potential to encourage
excessive risk taking. Our nominating and corporate governance
committee monitor the effectiveness of our corporate governance
practices, including whether they are successful in preventing
illegal or improper liability-creating conduct. While each
committee is responsible for evaluating certain
risks and overseeing the management of such risks, our entire board
of directors is regularly informed through committee reports about
such risks.
Code of Ethics and Business Conduct
Our board of directors has adopted a written code of ethics and
business conduct that applies to our directors, officers, and
employees, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or
persons performing similar functions. The code of ethics and
business conduct is available on our website. Our code of ethics
and business conduct is a “code of ethics,” as defined in Item
406(b) of Regulation S-K under the Securities Act. We will make any
legally required disclosures regarding amendments to, or waivers
of, provisions of our code of ethics and business conduct on our
website.
EXECUTIVE COMPENSATION
This section discusses the material components of the executive
compensation program for our executive officers who are named in
the “Summary Compensation Table” below. In 2021, our “named
executive officers” and their positions were as
follows:
•Mark
Arnold, Chief Executive Officer;
•Dale
Lynch, Chief Financial Officer; and
•Marco
Ferri, Director, Business Development.
Summary Compensation Table
The following table sets forth information concerning the
compensation of our named executive officers during the fiscal year
ended December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position |
|
Year |
|
Salary ($) |
|
Bonus ($) |
|
Equity Based Awards($)(1)
|
|
Non-Equity Incentive Plan Compensation ($) |
|
All Other Compensation ($) |
|
Total |
|
Mark Arnold, Chief Executive Officer |
|
2021 |
|
500,000 |
|
— |
|
|
— |
|
2,747,611 |
(3)
|
|
1,193,353 |
|
4,440,964 |
|
Dale Lynch, Chief Financial Officer |
|
2021 |
|
500,000 |
|
650,000 |
(2)
|
|
12,232,495 |
|
— |
|
|
729,853 |
|
14,112,348 |
|
Marco Ferri, Director, Business Development |
|
2021 |
|
500,000 |
|
— |
|
|
14,367,069 |
|
552,000 |
(4)
|
|
266,353 |
|
15,685,422 |
________________
(1)Amounts
reflect the full grant-date fair value of the profits interests
granted during 2021 computed in accordance with ASC Topic 718,
rather than the amounts paid to or realized by the named
individual. Assumptions used in calculating these amounts are
described in Note 11 to our audited consolidated financial
statements included elsewhere in this prospectus.
(2)Amount
reflects Mr. Lynch’s discretionary bonus, as further described in
“—2021 Bonuses.”
(3)Amount
reflects Mr. Arnold’s management bonus, as further described in
“—2021 Bonuses.”
(4)Amount
reflects Mr. Ferri’s (a) acquisition bonus in the amount of
$192,000 and (b) joint venture bonus in the amount of $360,000,
each as further described in “—2021 Bonuses.”
2021 Salaries
The named executive officers receive a base salary to compensate
them for services rendered to us. The base salary payable to each
named executive officer is intended to provide a fixed component of
compensation reflecting each executive’s skill set, experience,
role, and responsibilities.
In 2021, there were no changes or increases in the annual base
salaries of our named executive officers.
2021 Bonuses
In 2021, the named executive officers were all eligible to receive
an annual executive bonus payment from us. These bonus payments
were determined by us on a discretionary basis based on our overall
performance for the year, as well as each individual’s performance,
subject to each named executive officer’s continued employment
through the payment date.
Mr. Arnold was entitled to receive an annual management bonus based
on a formula equal to 1.5% of our net income for 2021 as defined in
the Arnold Employment Agreement (as defined below).
Mr. Lynch received a discretionary executive bonus of $650,000 for
2021 as defined in the Lynch Employment Agreement (as defined
below).
Mr. Ferri was entitled to receive a cash bonus upon our (a)
acquisition of a target company and/or (b) formation of a
successful joint venture. With respect to acquisitions, Mr. Ferri
was entitled to receive a cash bonus of up to 5% of the enterprise
value of the target entity, subject to his continued employment
through the payment date. With respect to joint ventures, Mr. Ferri
was entitled to receive a cash bonus based on the aggregate net
sales of the joint venture during the first 12 months, subject to
his continued employment through the payment date.
The annual cash bonuses awarded to each named executive officer for
2021 are set forth above in the “Summary Compensation Table” in the
columns entitled “Bonus” and “Non-Equity Incentive Plan
Compensation.”
Equity Compensation
In connection with the consummation of the Transactions, our board
of directors adopted, and our stockholders approved, the 2021
Incentive Award Plan pursuant to which we can make grants of
incentive compensation to our employees, consultants, and
non-employee directors. Under the 2021 Incentive Award Plan, we can
make grants in the form of stock options, which may be either
incentive stock options or non-qualified stock options, stock
appreciation rights, restricted stock, restricted stock units, and
other stock or cash-based awards. None of our named executive
officers received any grants under the 2021 Incentive Award Plan in
the fiscal year ended December 31, 2021.
Equity-based awards for our named executive officers were granted
in the form of profits interests, which entitle the holder to a
portion of the profits and appreciation in the equity value of
MarketWise, LLC arising after the date of grant. All of our named
executive officers hold profits interests. On January 2, 2021,
Messrs. Lynch and Ferri were granted profits interests as set forth
below.
The following table sets forth the profits interests granted to our
named executive officers in the fiscal year ended December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer |
|
2021 Profits Interests Granted |
|
Dale Lynch |
|
5,528 |
|
(1)
|
|
Marco Ferri |
|
6,634 |
|
(2)
|
__________________
(1)20%
of the profits interests vested upon grant. The remaining profits
interests vest in four equal annual installments, beginning on
January 1, 2022, with the profits interests fully vested on January
1, 2025, subject to Mr. Lynch’s continued employment through each
vesting date. The consummation of the Transactions resulted in the
acceleration and vesting of Mr. Lynch’s profits
interests.
(2)20%
of the profits interests vested upon grant. The remaining profits
interests vest in four equal annual installments beginning on
January 1, 2022, with the profits interests fully vested on January
1, 2025, subject to Mr. Ferri’s continued employment through each
vesting date. The consummation of the Transactions resulted in the
acceleration and vesting of Mr. Ferri’s profits
interests.
On September 30, 2021, we allocated 2,000,000 Management Member
Earnout Shares in accordance with the Transaction Agreement and the
Escrow Agreement and, in connection with that allocation, we issued
to Continental Stock Transfer & Trust Company (the “Escrow
Agent”) the aggregate number of allocated Management Member Earnout
Shares to be held on behalf of the applicable Management Member in
an escrow account (the “Escrow Account”) established pursuant to
the Escrow Agreement. The Management Member Earnout Shares will be
released and delivered subject to the terms and conditions of the
Transaction Agreement and the Escrow Agreement. For further
details, see “Certain Relationships and Related Party
Transactions—Earnout—Management Member Earnout
Shares.”
Other Elements of Compensation
We maintain a 401(k) retirement savings plan for our employees,
including our named executive officers, who satisfy certain
eligibility requirements. Our named executive officers are eligible
to participate in the 401(k) plan on the same terms as other
employees. The Code allows eligible employees to defer a portion of
their compensation, within prescribed limits, on a pre-tax basis
through contributions to the 401(k) plan. Currently, we match up to
50% of the first 6% of the employee contributions made by
participants in the 401(k) plan, which matching contributions fully
vest over a period of five years. We believe that providing a
vehicle for tax-deferred retirement savings through our 401(k) plan
and making matching contributions adds to the overall desirability
of our executive compensation package and further incentivizes
employees, including the named executive officers, in accordance
with our compensation policies.
We adopted the 2021 ESPP to assist our eligible employees and other
service providers in acquiring a stock ownership interest in us at
a discounted price in accordance with the terms of the 2021 ESPP
and the offering
documents with respect to each offering period thereunder. Our
named executive officers are eligible to participate in the 2021
ESPP on the same terms as our other eligible employees and other
service providers.
On September 30, 2021, we allocated 2,000,000 Management Members
Earnout Shares in accordance with the Transaction Agreement and the
Escrow Agreement and, in connection with that allocation, we issued
to the Escrow Agent the aggregate number of allocated Management
Members Earnout Shares, to be held on behalf of the applicable
Management Members in the Escrow Account. As part of the
allocation, Mark Arnold, Dale Lynch, and Marco Ferri were awarded
230,000, 140,000, and 50,000 Management Members Earnout Shares,
respectively.
The Management Members Earnout Shares will be released and
delivered subject to the terms and conditions of the Transaction
Agreement and the Escrow Agreement. For further details, see
“Certain Relationships and Related Transactions, and Director
Independence—Earnout—Management Members Earnout
Shares.”
Employee Benefits and Perquisites
Health/Welfare Plans.
All of our full-time employees, including our named executive
officers, are eligible to participate in our health and welfare
plans, including:
•medical,
dental, and vision benefits;
•health
savings accounts;
•medical
and dependent care flexible spending accounts;
•short-term
and long-term disability insurance; and
•life
insurance.
We believe the perquisites described above are necessary and
appropriate to provide a competitive compensation package to its
named executive officers.
No Tax Gross-Ups.
We do not make gross-up payments to cover our named executive
officers’ personal income taxes that may pertain to any of the
compensation or perquisites paid or provided by us.
Outstanding Equity Awards at Fiscal Year-End
There were no unvested equity-based awards for any named executive
officer as of December 31, 2021.
Executive Compensation Arrangements
Employment Agreements
Mark Arnold
MarketWise, LLC entered into an employment agreement with Mr.
Arnold, effective December 1, 2019, for his position as Chief
Executive Officer with an initial base salary of $500,000 (the
“Arnold Employment Agreement”). The Arnold Employment Agreement
provides that Mr. Arnold’s employment term with MarketWise, LLC
expires on January 2, 2025, unless Mr. Arnold and MarketWise, LLC
agree to renew the employment term for one subsequent two-year
renewal term. The Arnold Employment Agreement may be terminated by
Mr. Arnold or MarketWise, LLC at any time and for any reason upon
180 days’ notice.
The Arnold Employment Agreement provides that Mr. Arnold shall be
eligible to receive an annual executive bonus payment, which is
determined by MarketWise, LLC on a discretionary basis based on our
overall performance as well as Mr. Arnold’s performance for the
year, subject to Mr. Arnold’s employment through the payment date.
Mr. Arnold is also eligible to receive an additional annual cash
bonus, based on a formula equal to 1.5% percent of our net income
for the applicable year (the “Arnold Net Income Bonus”). Mr. Arnold
is also entitled to participate in our health and welfare
plans.
If Mr. Arnold’s employment with MarketWise, LLC is terminated due
to his death or disability, Mr. Arnold shall be entitled to receive
(i) a pro-rated Arnold Net Income Bonus, based on our net income
through the termination date and (ii) full acceleration and vesting
of all unvested equity-based awards. If Mr. Arnold’s employment
with MarketWise, LLC is terminated by MarketWise, LLC without Cause
(as defined in the Arnold Employment Agreement) or Mr. Arnold
resigns from his employment with MarketWise, LLC for Good Reason
(as defined in the Arnold Employment Agreement), Mr. Arnold shall
be entitled to receive (i) a pro-rated Arnold Net Income Bonus,
based on our net income through the termination date, (ii) a cash
payment equal to the product of two times the sum of his annual
base salary and the Arnold Net Income Bonus paid to him in the year
prior to termination, payable in a lump sum payment, and (iii) full
acceleration and vesting of all unvested equity-based awards. If
Mr. Arnold’s employment with MarketWise, LLC is terminated without
Cause or Mr. Arnold resigns for Good Reason within 24 months
following a change of control, Mr. Arnold shall be entitled to (i)
any unpaid base salary and a pro-rated Arnold Net Income Bonus
based on our net income through the termination date, (ii) a cash
payment equal to three times the sum of his annual base salary and
the Arnold Net Income Bonus paid to him in the year prior to the
termination date, and (iii) full acceleration and vesting of all
unvested equity-based awards. Mr. Arnold will be required to
execute a release of claims in favor of MarketWise, LLC in order to
receive his severance benefits.
Pursuant to the Arnold Employment Agreement, Mr. Arnold is subject
to confidentiality and assignment of intellectual property
provisions and certain restrictive covenants, including
non-disparagement and two-year post-employment non-competition and
non-solicitation of employees and customer provisions.
Dale Lynch
MarketWise, LLC and its wholly owned subsidiary, MarketWise
Solutions, LLC (formerly known as Beacon Street Services, LLC),
entered into an employment agreement with Mr. Lynch, effective
December 2, 2019, for his position as Chief Financial Officer with
an initial base salary of $500,000 (the “Lynch Employment
Agreement”). The Lynch Employment Agreement provides that Mr.
Lynch’s employment term expires on December 1, 2029. The Lynch
Employment Agreement may be terminated by Mr. Lynch upon 90 days’
notice or MarketWise Solutions, LLC upon 60 days’ notice at any
time and for any reason.
The Lynch Employment Agreement provides that Mr. Lynch shall be
eligible to receive an annual executive bonus payment, which is
determined by MarketWise Solutions, LLC on a discretionary basis,
subject to Mr. Lynch’s employment through the payment date. Mr.
Lynch is entitled to participate in MarketWise Solutions, LLC’s
health and welfare plans.
If Mr. Lynch’s employment is terminated without Cause (as defined
in the Lynch Employment Agreement), or due to his death or
disability, Mr. Lynch shall be entitled to receive a pro-rated
portion of his annual bonus based on the date of termination or
death, as applicable. Further, if, prior to December 2, 2022, (i)
MarketWise Solutions, LLC terminates Mr. Lynch’s employment for any
reason other than Cause, (ii) there is a change of control of
MarketWise Solutions, LLC that results in Mr. Lynch’s termination
without Cause or a reduction in Mr. Lynch’s title,
responsibilities, or authority (unless agreed to in advance by Mr.
Lynch in writing), or (iii) Mr. Lynch resigns for Good Reason (as
defined in the Lynch Employment Agreement), Mr. Lynch shall be
entitled to receive his base salary for the period beginning on
such termination date and ending on the 12-month anniversary of the
termination date, in regular periodic installments in accordance
with MarketWise Solutions, LLC’s general payroll practices and
continued health and welfare benefits for the same period of time.
Mr. Lynch will be required to execute a general release of claims
in favor MarketWise, LLC in order to receive his severance
benefits.
Pursuant to the Lynch Employment Agreement, Mr. Lynch is subject to
confidentiality and assignment of intellectual property provisions
and certain restrictive covenants, including two-year
post-employment non-competition and non-solicitation of employees
and customer provisions.
Marco Ferri
MarketWise, LLC entered into an employment agreement with Mr.
Ferri, effective July 30, 2018, for his position as Director of
Business Development with an initial base salary of $500,000 (the
“Ferri Employment Agreement”). The Ferri Employment Agreement
provides that Mr. Ferri’s employment term with MarketWise,
LLC
expires on July 30, 2021 and shall automatically renew for
subsequent one-year renewal terms unless otherwise terminated by
Mr. Ferri or MarketWise, LLC. The Ferri Employment Agreement may be
terminated by Mr. Ferri or MarketWise, LLC at any time and for any
reason upon 60 days’ notice.
The Ferri Employment Agreement provides that Mr. Ferri shall be
eligible to receive an annual executive bonus payment, which is
determined by MarketWise, LLC on a discretionary basis based on our
overall performance for the year, as well as individual performance
milestones achieved, subject to Mr. Ferri’s employment through the
payment date. Upon our (a) acquisition of a target company and/or
(b) creation of a joint venture entity, Mr. Ferri is entitled to
receive a cash bonus. With respect to acquisitions, Mr. Ferri is
entitled to receive a bonus of up to 5% of the enterprise value of
the target entity, subject to his continued employment through the
payment date. With respect to the creation of a successful joint
venture, Mr. Ferri is entitled to receive a cash bonus based on the
aggregate net sales of the joint venture during the first 12
months, subject to his continued employment through the payment
date. Mr. Ferri is entitled to participate in MarketWise, LLC’s
health and welfare plans.
Pursuant to the Ferri Employment Agreement, Mr. Ferri is subject to
confidentiality and assignment of intellectual property provisions
and certain restrictive covenants, including non-disparagement and
two-year post-employment non-competition and non-solicitation of
employees and customer provisions.
Equity Plans
2021 Incentive Award Plan
We adopted the 2021 Incentive Award Plan to facilitate the grant of
cash and equity incentives to our directors, employees (including
our named executive officers), and consultants and certain of our
affiliates to enable us and certain affiliates to obtain and retain
services of these individuals, which are essential to our long-term
success. This section summarizes certain principal features of the
2021 Incentive Award Plan. The summary is qualified in its entirety
by reference to the complete text of the 2021 Incentive Award
Plan.
Eligibility and Administration
Our employees, consultants, and directors, and employees and
consultants of any of our subsidiaries, will be eligible to receive
awards under the 2021 Incentive Award Plan. The basis for
participation in the 2021 Incentive Award Plan by eligible persons
is the selection of such persons for participation by the plan
administrator in its discretion. The 2021 Incentive Award Plan will
be generally administered by our board of directors, which may
delegate its duties and responsibilities to committees of our board
of directors and/or officers (referred to collectively as the “plan
administrator” below), subject to certain limitations that may be
imposed under the 2021 Incentive Award Plan, Section 16 of the
Exchange Act, and/or stock exchange rules, as applicable. The plan
administrator will have the authority to make all determinations
and interpretations under, and adopt rules for the administration
of, the 2021 Incentive Award Plan, subject to its express terms and
conditions. The plan administrator will also set the terms and
conditions of all awards under the 2021 Incentive Award Plan,
including any vesting and vesting acceleration conditions. The plan
administrator may also institute and determine the terms and
conditions of an “exchange program,” which could provide for the
surrender or cancellation, transfer, or reduction or increase of
exercise price, of outstanding awards, subject to the limitations
provided for in the 2021 Incentive Award Plan. The plan
administrator’s determinations under the 2021 Incentive Award Plan
are in its sole discretion and will be final and binding on all
persons having or claiming any interest in the 2021 Incentive Award
Plan or any award thereunder.
Limitation on Awards and Shares Available
The number of shares initially available for issuance under awards
granted pursuant to the 2021 Incentive Award Plan will be
32,045,000 shares of Class A common stock. The number of shares
initially available for issuance will be increased on January 1 of
each calendar year, beginning in 2022 and ending in 2031, by an
amount equal to the lesser of (a) 3% of the shares of Class A
common stock outstanding on the final day of the immediately
preceding calendar year and (b) such smaller number of shares as
determined by our board of directors. No more than 32,045,000
shares of Class A common stock may be issued upon the exercise of
incentive stock options under
the 2021 Incentive Award Plan. Shares issued under the 2021
Incentive Award Plan may be authorized but unissued shares, shares
purchased in the open market, or treasury shares.
If an award under the 2021 Incentive Award Plan expires, lapses, or
is terminated, exchanged for cash, surrendered to an exchange
program, repurchased, cancelled without having been fully
exercised, or forfeited, then any shares subject to such award
will, as applicable, become or again be available for new grants
under the 2021 Incentive Award Plan. Shares delivered to us by a
participant to satisfy the applicable exercise price or purchase
price of an award and/or satisfy any applicable tax withholding
obligation (including shares retained by us from the award being
exercised or purchased and/or creating the tax obligation) will
become or again be available for award grants under the 2021
Incentive Award Plan. The payment of dividend equivalents in cash
in conjunction with any outstanding awards will not count against
the number of shares available for issuance under the 2021
Incentive Award Plan. Awards granted under the 2021 Incentive Award
Plan upon the assumption of, or in substitution or exchange for,
awards authorized or outstanding under a qualifying equity plan
maintained by an entity with which we enter into a merger,
consolidation, acquisition, or similar corporate transaction will
not reduce the shares available for grant under the 2021 Incentive
Award Plan. The plan administrator may, in its discretion, make
adjustments to the maximum number and kind of shares that may be
issued under the 2021 Incentive Award Plan upon the occurrence of a
merger, reorganization, consolidation, combination, amalgamation,
recapitalization, liquidation, dissolution, or sale, transfer,
exchange, or other disposition of all or substantially all of our
assets, or sale or exchange of our common stock or other
securities, change in control, issuance of warrants or other rights
to purchase our common stock or other securities, or similar
corporate transaction or event.
Awards
The 2021 Incentive Award Plan provides for the grant of stock
options, including incentive stock options (“ISOs”) and
nonqualified stock options (“NSOs”); restricted stock; dividend
equivalents; RSUs; SARs; and other stock or cash-based awards.
Certain awards under the 2021 Incentive Award Plan may constitute
or provide for a deferral of compensation, subject to Section 409A
of the Code, which may impose additional requirements on the terms
and conditions of such awards. All awards under the 2021 Incentive
Award Plan will be set forth in award agreements, which will detail
the terms and conditions of the awards, including any applicable
vesting and payment terms and post-termination exercise
limitations. A brief description of each award type
follows.
Stock options.
Stock options provide for the purchase of shares of Class A common
stock in the future at an exercise price set on the grant date.
ISOs, by contrast to NSOs, may provide tax deferral beyond exercise
and favorable capital gains tax treatment to their holders if
certain holding period and other requirements of the Code are
satisfied. Unless otherwise determined by the plan administrator
and only with respect to certain substitute options granted in
connection with a corporate transaction, the exercise price of a
stock option will not be less than 100% of the fair market value of
the underlying share on the date of grant (or 110% in the case of
ISOs granted to certain significant stockholders). Unless otherwise
determined by the plan administrator in accordance with applicable
laws, the term of a stock option may not be longer than ten years
(or five years in the case of ISOs granted to certain significant
stockholders). Vesting conditions determined by the plan
administrator may apply to stock options and may include continued
service, performance, and/or other conditions as the plan
administrator may determine. ISOs may be granted only to our U.S.
employees and employees of our present or future parent or
subsidiaries, if any.
SARs.
SARs entitle their holder, upon exercise, to receive from us an
amount equal to the appreciation of the shares subject to the award
between the grant date and the exercise date. The exercise price of
a SAR will not be less than 100% of the fair market value of the
underlying share on the date of grant (except with respect to
certain substitute SARs granted in connection with a corporate
transaction), and unless otherwise determined by the plan
administrator in accordance with applicable laws, the term of a SAR
may not be longer than ten years. Vesting conditions determined by
the plan administrator may apply to SARs and may include continued
service, performance, and/or other conditions as the plan
administrator may determine.
Restricted Stock and RSUs.
Restricted stock is an award of nontransferable shares of Class A
common stock that remain forfeitable unless and until specified
conditions are met, and which may be subject to a purchase price.
RSUs are unfunded, unsecured rights to receive, on the applicable
settlement date, Class A common stock or an amount in cash or other
consideration determined by the plan administrator to be of equal
value as of such
settlement date, subject to certain vesting conditions and other
restrictions during the applicable restriction period or periods
set forth in the award agreement. RSUs may be accompanied by the
right to receive the equivalent value of dividends paid on shares
of Class A common stock prior to the delivery of the underlying
shares, subject to the same restrictions on transferability and
forfeitability as the RSUs with respect to which the dividend
equivalents are granted. Delivery of the shares underlying RSUs may
be deferred under the terms of the award or at the election of the
participant, if the plan administrator permits such a deferral and
in accordance with applicable law. Conditions applicable to
restricted stock and RSUs may be based on continuing service,
performance, and/or such other conditions as the plan administrator
may determine.
Other Stock or Cash-Based Awards.
Other stock or cash-based awards may be granted to participants,
including awards entitling participants to receive Class A common
stock to be delivered in the future and including annual or other
periodic or long-term cash bonus awards (whether based on specified
performance criteria or otherwise). Such awards may be paid in
Class A common stock, cash, or other property, as the administrator
determines. Other stock or cash-based awards may be granted to
participants and may also be available as a payment form in the
settlement of other awards, as standalone payments, and as payment
in lieu of compensation payable to any individual who is eligible
to receive awards. The plan administrator will determine the terms
and conditions of other stock or cash-based awards, which may
include vesting conditions based on continued service, performance,
and/or other conditions.
Performance Awards
Performance awards include any of the foregoing awards that are
granted subject to vesting and/or payment based on the attainment
of specified performance g