Aug 8, 2022
Operator
Thank you for standing by and welcome to MarketWise Second Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to Jonathan Shanfield, Head of Investor Relations at MarketWise.
Jonathan Shanfield
Thank you. Good morning and thank you for joining us on today's conference call to discuss MarketWise second quarter 2022 financial results.
On the call today, we have Mark Arnold, our Chief Executive Officer; and Dale Lynch, our Chief Financial Officer. During the course of today's call, we may make forward-looking statements, including but not limited to, statements regarding our guidance and future financial performance, market demand, growth prospects, business strategies and plans and our ability to attract and retain customers.
These forward-looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date and we disclaim any obligation to update any forward-looking statements. Actual results may vary materially from today's statements.
Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in the company's SEC filings, earnings press release and supplemental information posted on the Investors section of the company's website. Our discussion today will include certain non-GAAP financial measures.
These non-GAAP financial measures should be considered in addition to but not as a substitute for or in isolation from GAAP measures. Reconciliation to non-GAAP investors can be found in our earnings press release and SEC filings.
Now, I’ll turn the call over to Mark.
Mark Arnold
Thanks, John and good morning, everybody. Welcome to our second quarter 2022 earnings call.
The second quarter of 2022 continued the same market and investor dynamics we experienced through the first quarter of the year, reflecting increased volatility and uncertainty in the U.S. and the global markets.
Record inflation prompted the Federal Reserve to embark upon an aggressive monetary tightening cycle and this prompted concerns across the investment community and investors that a recession or hard landing is possible or even likely, which contributed to the market sell-off that continued through the second quarter and ultimately resulted in what has been highly reported as the worst first half of the year for stocks in 50 years. Given this environment and the uncertainty in the economy and the markets, it's not surprising that investors have remained cautious as the market sell-off has continued through the middle of the summer.
Subscribers continue to evaluate and assess the market to determine how to adjust their investment strategies. This situation has resulted in a hesitance regarding their investments, similar to what we saw earlier in the year.
We believe this combination of factors continues to impact our current financial performance as can be seen in our second quarter results, where our revenues declined 9.9% year-over-year to $128 million. Our billings declined 36.5% year-over-year to $117.5 million and our adjusted cash flow from operations was $26.8 million, down from $59.4 million in the second quarter of 2021.
Our quarter's results continue to reflect lower consumer engagement and fewer new subscribers as compared to the prior year as a result of the economy and post-COVID market influences. Dale will give you more details on our subscriber engagement in a few minutes.
As students of the markets and investors ourselves, we believe the individual investor is reactive in this environment in an understandable way by stepping to the sidelines are taking time to evaluate market segment based on their own risk appetite. This is not a new phenomenon as we have been through challenging markets before.
We have seen periods like this during the dot-com crash in the early 2000s and again, during the 2008-2009 financial crisis. In each of those cases, it took time for individual investors to fully reengage in market activities.
And during those periods, we managed our business through the cycle by developing new content that address the current financial environment, managed our marketing spend and costs appropriately and ultimately, we experienced significant organic growth when individual investors re-entered the market. We understand that to position the company for long-term growth, we need to maintain and improve profitability and continue to generate strong cash flows and we are focused on doing just that.
Fortunately, we are in an enviable position in a positive cash flow, a strong balance sheet and no debt which allows us to take advantage of opportunities where many of our competitors cannot. As a result, we are adjusting to the current market cycle, both from a content perspective and operationally as we focus internally to improve efficiencies and execute on our strategic objectives.
Along those lines, there are several initiatives that I had mentioned previously that I want to provide an update on. As we have discussed before, our editors and analysts are adjusting to the current market environment and working hard to produce new content and investing ideas for our subscribers.
Our analysts continue to cover most major investment asset classes which helps ensure that we have content that resonates in changing market conditions. As we have seen major changes in investing sentiment occur in the United States and globally, our editorial teams are analyzing and writing about where markets are headed and developing additional content that they believe will fit these market conditions.
During the second quarter, we launched several new publications which reflect our analysts' best ideas for addressing the current investment environment. Additionally, as we reflected on current market conditions, we retired or consolidated a half dozen other publications from our portfolio which either don't fit the current investing environment or overlap content-wise with other products we offer.
This will result in cost savings and greater operational efficiency going forward. We also expanded our effort to further incorporate data science from artificial intelligence in our operations.
We partnered with SubScale in the second quarter to accelerate our progress and we believe this effort will lead to substantial long-term benefits to market wise. Integrating data science and artificial intelligence further into our business will be a multiyear process that starts with a deep dive on the data collection analysis and modeling, ultimately generating insights and results which turn information into action.
The initial phase of this project with SubScale is focused on customer and transaction data, improving our conversion rates, increasing our direct mail conversions and working to decrease the rate of customer chargebacks. These are short-term goals which we expect to realize in the next 12 months and our initial efforts are currently underway.
Ultimately, we believe greater integration of data science into our business will significantly improve our overall free-to-pay conversion rates, helped to improve and lower our subscriber churn and increase engagement in terms of active users of paid content and improve our ARPU over time. We are also actively working to integrate our technology products with our research brands as a way to further enhance our product offerings to subscribers.
Last quarter, we detailed the success we realized bringing Chaikin Analytics on to our platform, generating over $27 million in billings in 2021. More recently, we have had similar success with our Altimetry brand.
Altimetry is one of our research brands that combines its proprietary method of deconstructing GAAP financial statements and reassembling those financials in a way to assess the company's true value. Their process of deconstructing GAAP financials in their uniform accounting standard provides insight in the company's valuation potential and profitability so that retail investors can better identify public companies that are undervalued and poised for growth.
During the quarter, Altimetry marketed their product to stage researchers' audience, resulting in $3.4 million in build, its highest billings for an individual optometry campaign in almost two years. When we promote technology products with our content brands, we have found significant ARPU improvement as well as better subscriber retention.
We have another significant internal technology and content brand combination that we are actively working on and hope to complete in the third quarter. In the future, we plan on offering additional quantitative tools and products with our investment research, both in our existing brands as well as in our M&A efforts.
I also want to provide an update on the development and rollout of our TAM MarketWise technology platform. Our technology team has made significant progress over the past quarter and continues to develop this platform to accommodate our multiple brands and allow consumers to explore investment content from all of our brands in one location.
Our vision is that this umbrella platform will host a community of millions of readers, enabling us to enhance engagement, improve our marketing efficiency and ultimately provide us with the source of traffic for new customers. We completed the full rollout of this new platform for Stansberry Research earlier in the year and we have seen positive results from users already, including increased time on page for investors researching new content and products, enhanced engagement within site tools, including charts and dashboards and greater access to our video media.
This platform will also encourage more cross-selling between brands which should drive better retention and ARPU while providing a digital advertising revenue stream. We began beta testing of the full platform in July and look to launch the platform more broadly in early 2023.
As you can see, we have a number of initiatives underway that we believe will drive growth and profitability over time. Because of our strong balance sheet and positive cash flow, we are in a unique position to be able to make the necessary investments to drive long-term value for our shareholders.
We are also cognizant that our company has experienced a period of significant growth over the last three years, having increased the number of product offerings, publications, analysts and associates while transitioning to be a publicly listed company more than a year ago. Along with that growth in scale came increases in overhead and overall corporate expense.
After this period of significant growth and considering current market conditions, we launched the cost reduction effort and have found opportunities to increase efficiency and optimize our expense structure. Because our direct marketing spend is highly variable and we can react quickly with changes in advertising costs.
And given the persistent high unit subscriber acquisition costs and lower conversion rates, we tightened our marketing metrics through the second quarter to preserve margins and enhance profitability. We are also targeting total overhead expense reductions of approximately $37 million on an annualized basis which we hope to have completed in the next month and much of which has already been completed.
I'll let Dale provide more detail in a moment but this effort reflects an approximate 15% annualized reduction in budgeted overhead expense. This cost initiative began in the second quarter and we expect to see incremental run rate benefits in the third and fourth quarters of this year.
Additionally, in light of the sustained high cost of marketing and hesitancy on the part of investors, we have tightened our marketing metrics and are expecting an approximate $37 million reduction to direct marketing expenditures in the second half of the year. However, this reduction will be dependent on market factors.
If marketing efficiency improves, we may decide not to cut marketing spend to this degree and instead focus on more efficient subscriber acquisition. To conclude, the markets have certainly been challenging this quarter and that is reflected in our first half results.
That said, we've been in business for more than two decades and have seen many market cycles like this. That uniquely positions us to not only whether the current market volatility but thrive going forward as we execute our strategic initiatives which we -- which should ultimately translate to improved revenue growth, profitability and cash flow generation.
Now, let me turn the call back over to Dale.
Dale Lynch
Good morning. Thanks, Mark.
As Mark touched on, the second quarter continued the challenging trend in the first quarter, marked by high inflation in the Fed's aggressive tightening policy, resulting in recession fears in an equity market that fell in the bar territory. The combination of these market influences has impacted our business as we continue to see hesitancy on the part self-directed investors, complete purchases of financial research.
In terms of overall interest, investors continue to seek our products as our engagement metrics remain consistent with prior quarters. However, our purchase conversion rates from landing page visits, the final act of purchasing content, continued the same low rate seen in the first quarter of this year and remains approximately 20% below fourth quarter 2021 levels.
However, it is also important to note that our higher-value customers conversion rates remain solid. These high-value and ultra-high-value subscribers are at the heart of our business model and are particularly important in periods of time when we're bringing in fewer new subscribers as is currently the case.
These subscribers continue to see the value in our products and are still purchasing products at rates similar to historic trends which is currently driving the majority of our billings. As of June 30th, 2022, our cumulative high-value conversion rate and our cumulative ultra-high-value conversion rate were 42% and 32%, respectively, each representing all-time highs.
It is understandable and not surprising that the retail investors continue to be unsure of the next move in the market. For all the factors mentioned previously, we believe that many retail investors remain on the sidelines, actively monitoring market activities but possibly delaying purchases, especially for our lower ARPU customers and prospective customers.
Let me provide an update on consumer engagement and conversion rates before I turn to financial review. In second quarter of 2022, our landing page visits were approximately 31 million.
Remained stable on a sequential basis and at roughly the same average level seen since last summer. However, this level remains approximately 18% lower than the average quarterly rate over the past two years.
While we've seen stabilization in this metric over the past four quarters, as we reduce our marketing spend, you should expect to see declines in this metric. These declines won't be market-driven necessarily but rather will be driven by the reduced level of our marketing if unit costs remain high.
Our landing page subscriber conversion rates were exactly the same as first quarter 2022 levels, which was about 16 basis points or approximately 20% less than fourth quarter 2021 levels. Similar to the prior quarter, the decline had an impact on both billings and new subscriber acquisitions this quarter.
We continue to see these low conversion rates be driven by our low ARPU customers, our high-value and ultra-high-value conversion rates this quarter remained in line with our historical averages over the past year, indicating that our most valuable subscribers continue to purchase additional content. It is also important to note that subscriber memberships, which we previously termed "lifetime subscriptions", continue to grow in both the number of memberships and the active cumulative spend by those members.
This is another indication of customer satisfaction and we take great confidence in the fact that these subscribers fund valuing our products and remain with us for the long term. Turning to the financials.
Revenue was $128 million this quarter compared to $142.1 million in the year-ago quarter, a decrease of $14.1 million or 9.9%. The decrease in revenue is driven by a $13.6 million decrease in term subscription revenue.
We recognized $84 million in deferred revenue this quarter. Billings were $117.5 million, compared to $185.1 million for the year-ago quarter, a decline of $67.6 million.
We believe this decrease is due in large part to the post-COVID reduced engagement of consumers and lower overall direct-to-pay conversion rates. The challenges that emerged in first quarter 2022 continued into this quarter which we believe further contributed to subscribers and potential subscribers delaying their purchases.
Sequentially, our $117.5 million second quarter billings declined $18.5 million or 14% from the first quarter's level, driven by a decline in the average cart value or average expenditure purchased in the second quarter. Approximately 38% of our billings came from membership subscriptions, 61% from term subscriptions and 1% from other billings in second quarter 2022.
This compares to 45% of our billings from membership subscriptions, 54% from term subscriptions and 1% from other billings in the second quarter 2021. Cost of revenue was $16.2 million this quarter compared to $26.8 million for the year-ago quarter, a decline of $10.6 million.
This decline was primarily driven by a decrease of $10.6 million in stock-based compensation related to the holders of Class B units and a $1.3 million decrease in credit card fees which was partially offset by a $1 million increase in salaries and benefits due to higher headcount. The current quarter stock-based compensation included $0.5 million of expense related to our current incentive stock award plan and our employee stock purchase plan.
This compares to $10.6 million in Class B stock-based compensation expense in the year-ago quarter. As a reminder, from the time of the combination with ascended in July 2021 and through the end of second quarter 2022, there was no longer any stock-based compensation attributable to our original Class B units recognized.
Prior to the transaction, the units were treated as derivative liabilities rather than equity and therefore, had to be remeasured each quarter with the change in fair value included in stock-based comp. Also, any distribution to profits paid to class fee holders were treated as stock-based compensation expense.
Since the transaction and going forward, as those original class converted to common units or straight common equity, we have and continue to expect to recognize significantly lower stock-based compensation, a comp at a level that is consistent with the traditional stock-based compensation plan. For second quarter of 2022, our total stock-based compensation expense was $2.4 million.
Sales and marketing costs were $65.1 million this quarter compared to $56.9 million in the year-ago for, an increase of $8.1 million. This increase was primarily driven by a $6.5 million increase in deferred CAC and a $1.7 million increase in salaries and benefits due to higher headcount.
General and administrative costs this quarter were $20.4 million as compared to $64.7 million in the year-ago quarter, a decline of $44.3 million. This decline was primarily driven by a $36 million decrease in Class B stock-based compensation expense, a $4.2 million decrease in incentive compensation and profit interest expenses and a $1.9 million decrease in other G&A, primarily related to sales tax exposure.
This was partially offset by a $1.3 million increase in payroll and benefit costs due to higher headcount. Included in these amounts reflect base compensation of $1.3 million this quarter as compared to $36 million in the year-ago quarter.
Excluding stock-based compensation costs, our G&A costs declined to $9.6 million from second quarter 2021. And finally, net income in the second quarter 2022 was $34.0 million compared to $8.4 million loss in the year-ago quarter.
We recognized stock-based compensation of $2.4 million this quarter and stock-based comp related to Class B units of $47.5 million in the year ago quarter. Turning to cash flow.
Adjusted cash flow from operations was $26.8 million in second quarter 2022 compared to $59.4 million in the year-ago quarter, with the decline primarily due to the decrease in billings. Adjusted cash flow from operations margin was 22.8% in the second quarter 2022 compared to 32.1% last year.
Additionally, while per unit cost remained high in the second quarter of 2022, we did initially decrease our marketing expenditures as much as might have otherwise. However, as marketers continue to test their investment themes throughout the quarter and unit costs remain high, we began to reduce our spend as the quarter progressed.
Adjusted cash flow from operations this quarter was impacted by net changes in working capital, excluding changes in deferred revenue and changes in deferred CAC which increased cash by $13.5 million. Paid subscriber base declined from 994,000 at the end of second quarter 2021 to 898,000 this quarter, a 9.7% decline.
The decline was driven by a decrease in overall consumer engagement and lower direct-to-pay conversion rates. We saw our free subscriber base continued to grow from 12 million a year ago to 15 million subscribers this quarter, a 25% increase.
ARPU declined to $580 this quarter from $823 last year, driven by a 3% increase in average trailing four quarter paid subscribers, combined with a 27% decrease in average trailing four quarter billings. The increase in trailing fourth quarter paid subscribers is still being significantly impacted by the rapid increase in our subscriber base in the first half of last year.
The decrease in trailing four quarter billings is due in part to second quarter 2021, our second largest quarter ever, falling out of the trailing 12-month calculation. Additionally, we believe that the billings decline is also due to the volatile economy that has persisted since first quarter 2022, leading subscribers and potential subscribers hesitant to engage for the time being.
As Mark mentioned earlier, we're actively working to reduce our expenditures, both through a reduction in overhead and through reduction in direct marketing expense. Initially, in our Phase 1 effort which has been largely completed, we identified $27 million in annualized reductions to budgeted overhead which represents an approximate 11% reduction.
Approximately $20 million of that $27 million were in the March year-to-date run rate of overhead expenditures and approximately $7 million represents eliminated future budget spend. Going forward, this should represent approximately a $1.7 million reduction to monthly overhead costs beginning in July.
This is before any severance expense that will be charged and disclosed with our third quarter report. In addition, we're planning a second phase of overhead reductions that we're currently identifying and we approximate that amount as an additional $10 million on an annualized basis.
We estimate that all of this $10 million would have been in the June year-to-date run rate. This would take our total overhead reductions to approximately $37 million on an annualized basis or approximately 15% of our 2022 budgeted overhead.
Once the second phase is completed over the next couple of months, this will take our total month reduction to overhead and expenses to approximately $2.5 million per month in aggregate and this should begin roughly in the fourth quarter. Additionally and led to sustain high cost of marketing, we're targeting an approximate $37 million reduction to direct marketing expenditures in the second half of the year as compared to the first half of 2022.
This equates to an approximate $6 million reduction to monthly cash direct marketing expenditures in the second half of '22 as compared to the average monthly amount in the first half of the year. However, as Mark mentioned, this reduction will be dependent on market factors.
If marketing efficiency improves, we may decide not to cut marketing to this degree and instead focus on efficient subscriber acquisition. We believe these are both necessary and prudent steps as we look to navigate the current macro environment.
As the market stabilized, future opportunities for growth and expansion will present themselves and we'll be in a much better position to execute after having taken these actions. However, until that time, we're focused on increasing the efficiency of our cost structure and our overall business.
Finally, during the quarter, we repurchased about 300,000 shares upon the stock for approximately $1.5 million in total value. However, such purchases were ceased in early April.
Program to date, we repurchased 3.0 million shares for $16.4 million. And with that, I'll turn the call back over to Mark.
Mark Arnold
Thanks, Dale. Just a final thought for me before we move to your taking your questions.
As you all know, financial markets are cyclical and our business react and adapt to changes in the market environment. That is what we have done throughout our company's history and that is what we've done so far this year.
As the market has come down and customer acquisition costs remain high, we are adjusting our marketing spend and our overhead accordingly. And I expect that will continue through the second half of the year.
As I've said before, we make decisions with a long-term view in mind and try to balance growth with profitability but always with an eye on profitability. Despite the recent market disruption, we are fortunate to be financially strong with positive cash flow, a strong cash position and no debt.
And the actions we are taking now will put us in an even stronger position going forward. As a significant shareholder, that is what I would want to see for management and that is what we are doing.
Thanks. And I'll turn the call back over to the operator for your questions.
Operator?
Operator
Our first question is from Devin Ryan with JMP Securities.
Devin Ryan
I want to start with a question just on the interplay between free and paid subs. Obviously, you’re not seeing great growth still on the free side.
And so what I want to dig in a little bit is when you think about that new product development and what you guys are working on, is there an evolution of demand at all, meaning the types of products that customers may want or when you think about that huge tail of free customers, there may be other types of products that aren’t in, call it, the arsenal today that you should be delivering and maybe even low-cost products just to get them into the platform, paying something and then you can grow with them from there. So I’m just curious, as you think about that new product development, the ability to convert more of those three and maybe the strategy evolves a little bit.
Mark Arnold
Yes. Thanks, Devin.
A couple of issues you touched on there. One is price.
And so as you know, I think, we feel like we cover the price spectrum pretty well. We've got certainly expensive high-priced products that cost upwards in thousands of dollars per year in subscription and we've seen nice conversion rates from our historic customer base in that category.
But I think your question goes more to how do you get more fee-free customers to convert over to the paid status? And could you change your pricing strategy to increase the number of conversions coming across.
And I appreciate the logic of what you're describing. Of course, as I've described in the past, what our marketers are doing is constantly testing price sensitivities around our offerings.
But I think as you also know, in our introductory price points, we go under $200 and often under $100 sometimes at price points that look like $29, $39, $49 for a yearly subscription. And when that's fulfilled monthly, we think that's very, very approachable from a price standpoint.
And so we continue to test around those things but those are pretty well-established price points for us and we feel like that's an incredible value to the subscriber base even in the free status at those price points. In terms of the content offering, that's exactly what I was trying to describe in my comments earlier.
What our editors are doing is as the markets have changed and come off of the bull market run which I think I don't know if you saw Andy Kessler in the Wall Street Journal had a nice article about that this morning. But as folks have re-evaluated what their investment strategies are, what we've done in turn, is put greater emphasis on investment strategies that are more appropriate for this economic environment.
So we've toned down our marketing messages around the go-go alpha-seeking products and turned our marketing emphasis more towards more value creation and often more trading-type products. So a lot of what we're seeing now, we just respond to relate to macroeconomic products and messages as well as more short-term trading strategies and messages as well.
And so we continue to experiment around that. And that's the color we were trying to describe in our marketing spend is our editors try to put forth ideas in content and marketing around what the subscriber base would respond to.
And that's a little color on what we do there.
Devin Ryan
Okay, terrific. And then, just a follow-up.
You guys have weathered many environments and come out on the other side stronger. Right now, you have a very strong capital base and solid footing.
I covered the space for 20 years and there is cyclicality. And so this doesn’t feel normal in any way and the pendulum will come back.
But you guys are on the larger end of the spectrum. When you look at the individual publisher side and what else is out there in the market, like are we seeing capitulation or close to it yet where folks may understand that like now is the time to partner with MarketWise.
And so there’s maybe an acceleration in appreciation that being a part of your platform could really be helpful, especially when engagement is not at, call it, a normal level or close to peak levels?
Mark Arnold
Yes, that's a good question. I appreciate that and it's timely.
I can tell you, I can't speak to where maximum market capitulation is for smaller publishers because we've never been public until now. And so we haven't been through one of these cycles with a public company platform and with the main recognition that people normally respond to us.
But what I can say is I can tell you that we're receiving more inbound inquiries than ever in our M&A pipeline and in particular, around smaller publishers. To your point, I think we have some qualities to our business in both scale and financial strength that others don't.
And I think people are recognizing that and our M&A process is reflecting that. We have had a number of inbound inquiries from folks and we're in discussions.
I can't comment on specifics but we are busier than ever on the M&A side. And a lot of that volume includes small- to medium-sized publishers who don't necessarily have the financial strength that we do.
Operator
Our next question is from Kyle Peterson with Needham & Company.
Kyle Peterson
I just wanted to dive a little bit on the capital allocation. I know you guys bought back a pretty small amount of stock this quarter and as a cash build, it seems like cash flow is improving.
You mentioned the strong M&A pipeline. How should we think about your priorities for free cash flow and to weaponize some of that cash that you guys have on the balance sheet over the next couple of quarters?
Dale Lynch
Yes. So…
Mark Arnold
Go ahead, Dale.
Dale Lynch
You want me to start and comment on the -- referring back to your other answer but yes. So generically, we're hovering in around $150 million in cash which is a nice cushion and we have $150 million line of credit which we've never drawn on.
So we do have plenty of access to capital. As Mark mentioned, we do have a number of smaller and mid-sized M&A opportunities that are out there.
We'll see how many of those we can get done. Applying dollars for that makes perfect sense.
It will be accretive at these levels, particularly using cash. In terms of the share buybacks, there's some technical affecting that you might -- as you might expect.
With all the redemptions we had upon the transaction completing a year ago, our float is small. Now, we've seen a decent number of PIPE shares come into the flow but you could do your own costs and get to the fact that our float is probably around 9 million shares.
We didn't want to take our float below $9 million. As we got close to that $9 million share number, basically, it's the breakeven number between what came out of the PIPE relative to the initial count.
And so we stopped purchases there. Technically, the trading volume, we think, would might be impacted.
And then there's some basic regulatory requirements by the NASDAQ around shares held by the public. So we just didn't feel comfortable while it would obviously be highly accretive at these levels, those technical considerations are offsetting the fundamental corporate finance argument right now.
We still have the program. It's still effective.
We could use it. And we might well use it for pipe shares that are not deluged meaning not in the flow, potentially.
One of those PIPE holders wants to sell, we could look at that, that would be accretive and it wouldn't be reducing our public float but in terms of buying more shares from the public cloud right now, I think we're on pause for that. And I think we'd rather use our cash to Mark's earlier commentary around some of these M&A opportunities.
And I’d turn it back to Mark.
Mark Arnold
No, I think that's right. Does that cover your question, Kyle?
Kyle Peterson
Yes. No, that’s really helpful.
And I guess just a follow-up. I know you guys don’t provide any guidance but just wanted to see what you guys have seen, particularly in the month of July.
Has there been any change in, whether it’s landing page visits or conversion rates, in the month of July versus what you guys saw over the first six months of the year?
Mark Arnold
Yes. It looks a great question.
And remember, back in my prepared comments a little bit ago, one of the things I mentioned is we are reducing our marketing spend. And you will see a decline in our marketing landing page visits as a direct result of that, right?
We're doing less activity, there go less opportunities for land in pages. So you will see that decline.
If you look at things that we look at like daily average trading volumes from certain brokers, for example, Schwab's, they published the data very reliably. It's like their daily volumes are off about 12% July and August to date compared to the second quarter '22 average, about 12% decline.
And that's an important metric for us. The conversion rates that we talked about in the second quarter have largely persisted throughout the summer.
Those haven't really changed. It feels like that level, the first quarter, second quarter and sort of July, August to date are all exactly in line.
I mean plus or minus one basis point. So it feels like what's happening right now is that we're sort of -- we've hit this floor in conversion rates.
The individual investor is delayed. They're collecting themselves, I think and then they will reengage at some point here.
Back in the financial crisis of 08, 09, the time from disengagement to re-engagement was about a year, right? So if we look at things generically and we get some stabilization and known pass-on rates by the Fed and we get some stabilization in inflation.
And therefore, the markets, markets are already recovering a bit. Those things all play to our favor.
And so hopefully, by the end of the year, as we turn into the fourth quarter, we'll start to see some things that might be more of a tailwind and less of a headwind. But right now, we are in this little zone where the conversion rates are low.
We're reducing our spend because that makes perfect sense. That's going to drive huge cost savings for us.
But the second we think -- see things turn, we're constantly testing. We see things turn, you're going to see us go back after marketing.
But we are seeing the summer persist here. Some of the dynamics we talked about persist.
And in the case of the Schwab volumes, they're off a little bit further still. So, I'm not sure if that provides you enough color but hopefully, it does.
Operator
Our next question is from Jeff Meuler with Baird.
Jeff Meuler
So I’m just trying to understand the Q2 G&A expense figure, obviously, a big step down. And I guess what I’m wondering is what drove it?
Is it a good baseline to work off of as we think about layering on some of the incremental cost saves that you more recently actioned or to what extent is there some benefit already seen in that number?
Mark Arnold
Yes. A good question, Jeff.
So a couple of things going on in second quarter, that are important to note. That roughly $10 million decline, $9 or $10 million decline in G&A ex-stock-based comp.
About $4 million of that was driven by reduced bonus accruals, right? Our operating income is down and so directly results in a decline in incentive comp.
A lot of our incentive comp is formula based off of operating income. So $4 million of that $10 million was driven by that.
Another roughly $4 million was a decline in state sales tax, rather that liability for states for European sales tax, right? That's an anomalous thing that would not be reoccurring to your point.
The $4 million reduction in incentive comp, if run rates continue similarly in terms of operating margins, that should be an adequate reflection of the ongoing level of accruals. So that one is more fundamental.
The other $4 million from state sales tax is a one-time benefit. And then the other couple of million to round up the $10 million is just due to the fact that last year in the second quarter of '21, we were headed into our transaction.
And so we had some elevated expenses, legal and otherwise with consultants and so forth and that's not in this year's quarter, right? So that goes away.
So fundamentally, the way I would think about it is I would say, okay, if you add together like the G&A over the first six months of the year, just take an average of that and take that divide it by six, you get a monthly average. And then we've given you some proxies in our press release and in our conference call script today of how you might expect to see that run rate decline as you go through the third quarter and then through the fourth quarter, the $1.7 million and the $2.5 million you referenced, those are decent proxies but I wouldn't just use the second quarter's run rate.
I would use the full first six months of the year as an average and then get your average amount for that, that would be a better smooth proxy, I think. Does that help?
Jeff Meuler
That does. And then, I guess, the second question is on the old adage of -- with marketing spend half his was, you just don’t know which half.
What you’ve dynamically adjusted spend levels for challenging environments in the past? How efficiently are you able to do so?
I’m just trying to think through how much self-inflicted foregone billings we should be bracing for as you make this adjustment in a challenging environment.
Dale Lynch
Yes, so when we talk about marketing spend and ratcheting it down, what we do during a growing environment is we will ramp up that spend and test more campaigns across more products across more channels in each of our brands and daily, okay? So what I'm describing is a scope of breadth and depth across multiple campaigns through multiple channels, multiple brands on a daily basis.
We're experiencing a different environment right now, one that's more challenging. And so that happens in reverse.
So the breadth of what gets tested and the depth of the spend in each campaign goes down and as well as the channel. There's just a contraction across the board in our marketing department on a daily basis on that spend.
However, that doesn't mean it's a rote slash of the budget. We're constantly measuring these things on a daily basis based on ROI.
So when we see -- when I talk about tightening our marketing metrics, what I'm talking about is a time to break even and an ROI on the spend that's made on a daily basis. And so while those metrics are tightening up where campaign hit the mark in a range of what that breakeven and ROI looks like, our marketers still will accelerate into that channel when they see those marketing metrics on a tightened basis being hit.
And so what you're seeing across our marketing department is, like I described, fewer campaigns and a reservation of our marketing spend for the best campaigns with the best ROI breakeven metrics and that's how they're managing that spend. And so I hope that gives you a little bit of color.
Mark Arnold
Just to add to that, too. On that topic, there is a generic brute force reduction in direct marketing and then there is a more tailored approach to reducing your spend.
We're starting with a more tailored approach first which means we can look at various categories of spend, different flavors and see what the return is. And we're cutting the least high-return marketing efforts first.
For example, we've reduced certain lead gen spend that was just not bearing fruit and too costly in this market. We've reduced certain direct mail campaigns that were costly and in this market, not worth the low returns.
So we cut those first, right? And then generically, we get into just a more broad-based direct marketing reduction as unit costs just persisted where they are.
But we did cut the lowest return, highest cost efforts first. And then towards the end of the quarter, then we got into a little bit more broad-based reduction.
But as we see things turn and they will, our marketers are testing this every day, they’re going to get leading indicators real-time and we can move that back up as we see things improve pretty quickly.
Operator
And our final question is from Jason Helfstein with Oppenheimer & Company.
Jason Helfstein
I'm going to ask three. So first, Mark, I guess what's around the content and product changes?
Just I guess what's different? I mean, have you -- is some of it a change in strategy?
Is some of it just been enough time that you're like, okay, we need to make changes. Has there been changes around -- in the senior management, who make content in -- just help us understand like what's different, why now as opposed to just the regular analysis you do around content?
The second question, if the equity markets have bottomed and who knows, combined with your product initiatives, I mean do you think that would roughly assume that you can get back to billings growth by early, call it, six months from now and then revenue growth like another six months later, just given obviously the delayed impact on billings versus revenue growth? And then last question, I think it was for Dale, are you committing to like a minimum level of cash flow from operations for next year, just to help investors think about their models?
Mark Arnold
Thanks, Jason. I’ll kick off the first one.
Yes. So you’re asking about our content and marketing changes and what’s different than why now.
Generally, the way I would describe that is a shift from risk on to risk-off. And what I mean by that is, as I referenced that in the Andy Kessler article, he declared the bull market over one that ranges for decades which I thought was interesting.
But as that -- if you take that as a fact, as investors are pulling back and looking more towards wealth preservation as opposed to wealth accumulation, their appetite for more alpha-seeking strategies just waiting and that makes sense to us. And so what you’re seeing in our content, both our marketing content and our editorial content is a shift from alpha-seeking high-growth products and strategies to one that’s more about wealth preservation and avoiding some loss.
And so you’re seeing that shift in our content across our marketing messages where -- what’s happening is people are more worried about losing what’s in their portfolio as opposed to adding to it. And so that’s the general shift in content.
And that’s taking place both in a -- I described this earlier, the launching of new products, in some cases, with additional editors that work here otherwise, where different research brands were looking at folks and saying, “Gosh, I think we should bulk up in some of these strategies where we hadn’t had a need to because we’ve been on a long tier in the markets.” And so you’re seeing an addition of editorial teams as well as products there and a folding of products where the strategies just don’t seem ripe anymore, where the investing strategy is we don’t see an outlook on the longer term for the use of it.
And so we’re shipping customers in that instance, we’ll fold them into other products which we think will be better for the environment. So that’s generally what we’re seeing in the content and product changes.
In terms of your second question, if you assume the equity market has bottomed and that’s a big assumption because I think a lot of our editorial and market folks are looking at things and have a difference of opinion on that. Some of them think that it’s true that what you’re seeing right now is showing nice signs of hope.
And that going forward, there is an opportunity to essentially buy at the bottom and ride up from here and very ample economic evidence for that. But other editors of ours have a different opinion and think that we’re in for a tougher slog.
But to your question, if you assume that’s true, yes, it does take some time for the readers to shake off the pain that they have experienced so far in the first half of the year and get back into their portfolio and reengage with not only paid products but higher priced products. And we’ve seen that in our past market cycles historically.
We would expect that to continue. Now, will that happen in six months?
Well, a lot of that depends on whether you think the equity markets bottomed or not. Some folks will, based on their own risk appetite, reach that conclusion and start combining what they think is a value-based price.
Other folks who are more risk off may wait longer. And we’re just going to have to monitor that through our subscriber acquisition techniques and also our conversion rates which of course, we’ll report to you quarterly.
Dale, do you want to take the third one?
Dale Lynch
Sure. So look, I think as we've talked about before Jason, we're not providing guidance.
So having said that, if you think about the dynamics that you see in our business right now. Right now, probably the closest parallel for us today was the financial crisis, right?
I know you do not. And you saw us cut our expenditures back in that time period as well.
We cut a direct marketing, our margins actually expanded. But the revenue decline there wasn't as pronounced as it is here for whatever reason.
So the reality is, what are we bumping -- if you looked at our margins the last several years, it was roughly 22%, I guess, 19%, 24% in '21 and 27% -- excuse me, 22% in ‘19, 24% in ‘20 and 27% in '21. So you're in the low 20% area in normalized markets, you've got a bit of a boost throughout the COVID period 24%, 27%.
Right now, we are chugging along in the high teens, right? 20% just mentally is something that we strive for.
So let me look for us to argue and try and get to that level right now even in a tough market that you can see that's what we're triangulating at when you look at our cost cuts and you take some run rates out. So I can't give you a cash flow number but what I can do is say, historically, in a tough period of time like this, so the high teens, 20%, is something we're really trying hard to maintain and even given these low conversion rates.
And when things eventually do turn, you do get that uptick in billings that you're questioning about, then you'll see some natural margin expansion. Those incremental revenues, the incremental margins on that are incredibly high.
I mean maybe 80% or more on a lot of those incremental revenues back in campaign. So the margin expansion should be material when things do recover as to when that timing comes, in '08, '09, it took 12 months from stock to recovery for the individual investor to really reengage.
And so that would argue all else being equal if we get some stability here, whether it's completely over or not but we get some stability argues for as you get into the fourth quarter and the beginning of the first quarter, we're sort of in that zone, right? The Fed pass should be known, the election should be over.
Lots of things should be playing to a little bit more stability. And hopefully, that will indicate a turn in the market and in turn, a little bit improvement in sentiment.
So that would be impactful for us.
Operator
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Mark for closing remarks.
Mark Arnold
Yes, thank you. I just want to thank everyone for your participation in today’s call and thank you very much for your interest in MarketWise.
Have a good day.
Operator
Thank you. This does conclude today's conference.
You may disconnect your lines at this time and thank you for your participation.