Gaia Q3 2023 Earnings Call Transcript

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Provided by Quartr
October 30, 2023

Key Takeaways

  • Q3 revenue of $20.2 million reflects 2 percent year-over-year growth and marks the third consecutive quarterly increase.
  • Member additions doubled sequentially to 16,000, bringing total subscribers to 790,500 and fully recovering from the 2022 downturn.
  • The newly launched Gaia Marketplace generated over $100,000 in sales within its first 20 days and is expected to boost ARPU and free cash flow.
  • Net loss narrowed to $0.6 million ($0.03/share) from $2.4 million last year while EBITDA rose to $3.9 million, and the company maintained positive free cash flow with $11.2 million in cash.
  • For 2024, the company targets 15 percent revenue growth, 10 percent member growth, a mid-year price increase for new members, and aims to reach 900,000 subscribers while staying cash-flow positive.
AI Generated. May Contain Errors.
Earnings Conference Call
Gaia Q3 2023
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia, Inc. Financial Results for the Q3 Ended September 30, 2023. Joining us today are Gaia's CEO, Jirka Recibi COO, James Calhoun and CFO, Ned Preston. Following some prepared remarks, we will open the call for your questions. Before we get started, however, I would like to take a minute to read the Safe Harbor language.

Operator

The following constitutes the Safe Harbor statement under Private Securities Litigation Reform Act of 1995. The matters discussed today include forward looking statements that involve numerous assumptions, risks and uncertainties. These include, but are not limited to, our ability to attract new members and retain existing members. Our ability to compete effectively, including for customer engagement with different modes of entertainment, maintenance and expansion of device Platforms were streaming, fluctuation in customer usage of our service, fluctuations in quarterly operating results, service disruptions, production risks, general economic conditions, future losses, loss of key personnel, price changes, brand reputations, acquisitions, New initiatives we undertake: security and information systems, legal liability for website content, failure of third parties to provide adequate service, future internet related taxes, our founders' control of us, litigation, consumer trends, the effect of government regulation and programs, The impact of public health threats, including the coronavirus COVID-nineteen pandemic and our response to it and other risks and uncertainties detailed from time to time in our filings the Securities and Exchange Commission, including our reports on Form 10 ks and Form 10 Q. Gaia assumes no obligation to publicly update or revise any forward looking statements.

Operator

With that, I would now like to turn the call over to Gaia CEO, Jirka Recibi. Please go ahead, sir.

Speaker 1

Thank you, and good afternoon, everyone. Now I'm glad again we can continue reporting positive results. Revenue for Q3 increased to $20,200,000 sequentially, up from 19,800,000 and from last year of $19,900,000 During the quarter, our member growth doubled sequentially to about 16,000 ending with 790,500 members, which is above $776,000 we reported last year. So we more than recovered the 20 22 losses which were caused by the industry wide post office subscriber contraction. Virtually all the growth in this quarter is coming from our direct members.

Speaker 1

Our ARPU continuing to grow steady as Ed did over the last 5 years and it shall be further supplemented by our recent launch of Gaia Marketplace. We have rolled our marketplace in September to less than 5% our members and generated over 100,000 sales In the 1st 20 days, we had virtually any marketing cost. Annualized gross profit per employee improved again during the Q3 to our new all time high of over $650,000 reflecting our increased efficiencies. Our loss improved to $600,000 or $0.03 per share, down from $2,400,000 or $0.11 per share And EBITDA increased to $3,900,000 from $1,800,000 during last quarter last year. We continue to generate positive free cash flow with the cash on September 30 growing to $11,200,000 from $10,900,000 at end of the last quarter.

Speaker 1

Now James will cover the marketplace and some other new marketing initiative and then Nat will speak more about financial results. James?

Speaker 2

Thank you, Jirka. So we rolled out a beta version of Marketplace in September, initially Targeting less than 5% of our members and the results have been truly exciting. Within the 1st 20 days, we were able to generate over 100 and the appeal of the marketplace's offerings. It also demonstrates the significant potential for growth that lies ahead of us as we expand our offering into 20 24. The launch of Gaia Marketplace is a significant step forward for us.

Speaker 2

It's not just the new feature, it represents strategic expansion of platform and it allows us to diversify our offerings and support the conscious life cycle of our members in a more meaningful way, whilst also improving ARPU, which is a key metric for us to focus on as we move forward. Marketplace will include a carefully curated selection of Experiences, retreats, courses and products that resonate with our audience, which will be offered to members at a discount to the market to help us create a thriving ecosystem that benefits both our members and Gaia. A key passion and focus for me is improving our marketing efficiency. And I believe there to be a lot of untapped opportunities for us, especially with our direct to consumer marketing campaigns and digital events. Marketplace will play a critical role in this as it will contribute to free cash flow, which we will use to accelerate our growth initiatives as we focus on scaling to 900,000 subscribers as quickly as possible, whilst maintaining positive cash flow.

Speaker 2

Now Ned will talk more on our financial results. Great. Thank you,

Speaker 3

James. Revenues for the Q3 were $20,200,000 a sequential increase for the 3rd consecutive quarter, continuing the return to growth in our member base during the first three quarters of 2023. Compared to the year ago quarter, revenues grew by 2% as the company recovered from the post COVID subscriber contraption experienced industry wide during 2022. In the quarter, we continue to invest in and release new content, particularly to support our language As a result of these strategic growth investments, gross margins were 85.2% during the Q3 of 2023, and we expect them to remain at this level for the near term as we expand our language offerings and tactically support the growth of the business. Total member acquisition costs during the quarter were $8,400,000 or 41 percent of revenues aligned to our 2nd quarter costs.

Speaker 3

In the Q3, we experienced growth in our direct member base, which is continuation from the 1st and second quarters. Selling and operating expenses excluding marketing and member acquisitions costs in the Q3 were $7,900,000 or 39 percent of revenues, which was a $700,000 or 8% improvement from the prior year period. This decrease is due to cost reductions completed earlier in the year and employee retention tax credits filed during the quarter. Corporate and G and A Expenses in the Q3 were $1,400,000 down 29% from the prior year period due to the cost improvements in the first half and the aforementioned payroll tax credit. During the Q3 of 2023, we recorded a loss of $600,000 or negative $0.03 per share compared to loss of 2,400,000 in the year ago period.

Speaker 3

The improvement was primarily driven by expense reductions and the increase in revenues between periods. EBITDA was $3,900,000 or 19 percent of revenues in the quarter and we generated free cash. Our deferred revenues for the Q3 were $15,300,000 an increase of $800,000 from the year ago period. We expect to continue to benefit from the inherent negative working capital cycle in our business model as we continue to grow our member base and revenues. In addition, we expect to be in a position to continue generating cash flows from operations in excess of the cash flows we will invest back into our content library and product enhancements going forward.

Speaker 3

Due to our in house production capabilities and absence of contractual commitments Tied to our content production, we have significant discretion in the amount and timing of our investments. This flexibility allows us to adjust our investment levels as needed to withstand a downturn in the macroeconomic environment if necessary. Through the company's focus on accelerating growth and a return to positive operating margins, we have made tremendous progress over the past few quarters on numerous key areas of improvement for the business. With continued disciplined execution and the launch of the Gaia marketplace, we are well positioned to continue growing revenues and to remain cash flow positive going With that, I will hand it back to Jirka for some closing remarks.

Speaker 1

Yes. We expect our member growth to further increase In 2024, with continuing growth of ARPU. For 2024, we are targeting about 15 Growth in revenues, it's about 10% growth in our members. With the strong growth of ARPU, which should be helped by our planned price increase for the new members in the 2nd part of next year. We also expect to continue to increase our gross profit per employee benchmark.

Speaker 1

And I personally believe that Gaia is in the best place since we started our streaming business. Our goal is now simple, to grow fast to 900,000 members, while continuing to generate a positive free cash flow. I encourage you to visit ir.gai.com and download investor presentation to see our pro form a how company can look at 900,000 members of annual average. That means 900,000 in the middle of the year. We would update this probably within an hour.

Speaker 1

Over the next few months, I also plan to promote subject to our Board approval, our CEO and CMO, James here to see our position. And I know James for 7 years. We merged his SVOD business, FMTV, into Gaia in 2019. And FMTV had the same mission as Gaia and it grew to over 600,000 subscribers without any outside funding, solely dependent on James' marketing skills. Jace would continue to report to me in my role as Executive Chairman.

Speaker 1

I would focus on creation Gaia community, which we talked before and it's the main part of our mission statement and should be the final differentiation from all other video streaming businesses. I hope to launch GAI Community after we reach our 900,000 annual member average milestone. So this concludes our remarks. So I would like to open the questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Mark Argento with Lake Street Advisors. Please proceed with your question.

Speaker 4

Hey, good afternoon guys. Just a quick question. It looks like your actual sub ads were a lot stronger than what we had been modeling. Can you just touch on kind of the environment out there from a subscriber acquisition perspective, the cost to acquire a sub, what channels you're seeing that success in?

Speaker 1

Well, it's the environment, I think it's obviously better than it was last year quite a bit. It's not fundamentally different than Q2. I think the doubling our growth Just pure internal. I think James helped a lot. We didn't have really CMO, so he's kind of functioning much more as a CMO than COO right now.

Speaker 1

And the cost of acquisition, it's kind of the similar to the second quarter, maybe a little cheaper on domestically. And we saw little Bumps in places like Latin America when the churn kind of bumped a little bit because So for the internal mostly internal things with credit cards and stuff, but pretty much for 90% our business was more positive. And I expect, as I said, that the member the additions to increase again in next year from where we are right now. We still have At least some room and I think there will be the main part of the existing you want to?

Speaker 2

Sure. Mark, I would also add that we're focusing a lot. My focus and especially with the growth and marketing team is on conversion rate optimization. So card conversion, guest to member conversion, 1st 30 days, 60 days, 90 days, this is a really key focus of ours now. So with The improvements in efficiency that we're seeing in CPA costs, which have come down marginally throughout the year, especially if we compare to The start of the year until now there is improvements in CPA costs, whether that's because of the macro environment, less Competition or otherwise, but it's still coming down for us.

Speaker 2

And we're also working on our side improving that with the conversion rate optimization. So I really seek to see more improvement in that in 2024 and marketing efficiency is a very core focus of mine for the 2024 year as well.

Speaker 4

That's helpful. Thank you for that. And just pivoting to I think you said you're going to take pricing in Q2 of next year. What are you thinking on in terms of the pricing? How big of an impact Could that have in terms of the ARPU from the latter part of that year?

Speaker 1

Well, we're not going to do the Q2. It's going to be probably middle of Q3, 3, somewhere closer to September. We're thinking about $2 for the new members. And we probably will focus on a monthly lease to move more people to annual, so we probably wouldn't raise annual. The annual takes right now about 25%.

Speaker 1

And but that's kind of the strategy, not It's also we kind of hope that will help lower retention because people cannot come and leave and come on the same price. But and also that's one of kind of when I kind of said we'll grow revenue 15% on member stand is because we expect that increased Price for new members will probably we take a hit in conversion, so we wouldn't grow revenue as fast I mean, the members as fast as revenue. So But our goal is obviously the revenues, the growing the revenues.

Speaker 2

I think second to what Jirka was saying, We would be grandfathering or grandmothering, either or how we say it, our existing members. So there is a retention play there in that we can promise our existing members that will stay on their existing monthly price point. And then by not touching our annual price point, it will create a bigger Price difference between the monthly and annual membership, which we hope to skew more conversions upfront or ongoing up to annual Because we see the churn rates on customer cohorts that stay longer than 1 year, in particular longer than 2 3 years, much more Beneficial for us as a brand and so we want to skew to commit more membership term as much as possible.

Speaker 3

And Mark, this is Ned. I think the last part of your question was around the ARPU. And so of course, all of this along with some of the other That James will be spearheading around our other offers plus the marketplace. The combination of all of that plus the increase, we do anticipate It would take our ARPUs up obviously, which we can outline in future meetings with you. But I think that was the last part of your question.

Speaker 4

Yes. No, that's super helpful. And then in terms of the marketplace business, obviously pretty good uptake With no marketing dollars behind it, that make you more encouraged in terms of the opportunity and does that change No timing or aggressiveness at all from your guys' perspective.

Speaker 2

From our side, we plan to be as aggressive possible on executing on marketplace, the main focus for us internally at the minute is curating and building out our KU offering around the 3 core verticals of retreats or experiences, then courses, Than physical product. And once we have more of that in place, we'll continue to roll out wider to our membership base. And as we get testing data of what offers perform best, that will inform our marketing and we'll continue to keep expanding that. And Jirka has a strong background in e commerce and retail products with the previous version of GAIAM and can see a huge potential for this, given the community that we have at the moment.

Speaker 1

Yes. We want to be really selective with the products because we kind of It's basically the mostly only target to our members. So which what I would say 90% range From our existing members, it's you can buy it if you're not a member, obviously, but we won't promote it outside, at least not for now. And members also get a 10% discount. So if you come and buy $7,000 trip, it's better to become a member I didn't get a 10% discount.

Speaker 1

So it's kind of around that, but we kind of going to I'm going to look at it as kind of beginning of the Gaia community. So we want to attract people, especially like our kind of items right now, what we really pushed To launch was we have 2 seasons of show, what's our most of your show Ancient civilization, which we really talk about pretty little time. And so we basically launched it, The tour is a presumably Egypt and sold really quick on pretty high prices. Those prices typically $8,000 $10,000 per trip. So it's very lucrative business overall and but we want to be very Selective.

Speaker 1

So we don't disappoint our customers with the offering.

Speaker 2

And I think one final thought there, Mark, from investment community perspective, to summarize the marketplace offering, it's like a conscious version of Costco and that it's a discount membership model. But also there is, in a way, a QVC component because we have content that speaks to the offerings as well. So it's a that's A quick way to summarize the focus.

Speaker 1

And also if you model it the way how we kind of look at it in these strips, so we take 30%, we provide 10% discount. So effectively, only the 20% hits the revenue and the operating income. The rest we treat as outside vendors. So it's going to be relatively high margin.

Speaker 4

Great. Very helpful. Good luck the rest of the day guys. Thanks.

Speaker 1

Thank you. Thank you.

Operator

Our next question comes from Terry Floyd with Water Tower Research. Please proceed with your question.

Speaker 5

Yes. Thank you. Good afternoon. And James, congratulation on the new position. Jocca, you explained a little bit about revenue for the marketplace.

Speaker 5

And I was going to ask you, but I think I kind of got it. So the $100,000 of revenue that you say, that's your Share of commission on the gross sale number that Gaia Marketplace did? No. Is that how that works?

Speaker 1

No. It's the original, the one where we both basically want to Whereas the sale was $100,000 From that we would report revenue above $20,000

Speaker 5

Okay. I got it. Okay. Great. I was you haven't talked about 3rd party channels in Hawaii.

Speaker 5

Can you give us a bit of color? Is there Are you putting some emphasis on a specific one? Or what's your thought around that? Obviously, the direct member Acquisition seems to be doing really well, but any color on 3rd party channels?

Speaker 2

Thierry, hi. Thank you for your Pending Board approval, of course.

Speaker 1

I

Speaker 2

will speak to 3rd party. That reports directly into me. It has been Flatter compared to our direct membership growth. However, I'm seeking to be more aggressive in our Expansion with 3rd party, keeping it in alignment with our current balance of direct to third party revenue contribution, making sure that it doesn't get To, high, but we plan to be growing 3rd party in particular by rolling out new territories in 2024, In particular, with our largest third party distributor, which is or partner, which is Amazon Prime. So we have a Prime Video channel within the Amazon infrastructure and we are in the process of renewing Our agreement with them to expand the term for a longer period of time.

Speaker 2

I just met with one of the Amazon executives over the weekend To confirm this and we're, we have already plans for Q2Q3 sorry, Q2, correct, For Australia and New Zealand, and I'll be meeting with the Australia and New Zealand rep as well. So this is very much in my court and I'm seeking to expand our international Expansion with 3rd party.

Speaker 1

Yes, with Amazon, we actually triggered initiation or renegotiation because our price increases we And to do so, we had to kind of give them notice and signing new agreement with the higher price. So that was caused This negotiation was actually initiated by us. And also when you asked the question about 100,000 sales, so It was the 1st 20 days we get 100,000

Speaker 2

I know.

Speaker 1

The tour is actually sold, so It creates about 100,000 revenues from the 1st trip from the single tour, but it took like months and a half to sell it.

Speaker 5

Okay. Great. We've talked about And we've also talked in previous conversation about the focus on international growth. Is there a big difference in ARPU from your international members versus the U. S.

Speaker 5

Members?

Speaker 1

No, there's not. I mean, short of some Latin America, which we're scaling actually down, which we kind of play with lower the prices, but didn't really work for us. So it's basically the prices We would charge pretty much in Europe very similar as we would charge here. So It's the ARPU we're seeing pretty much for right now.

Speaker 2

And Thierry, I would add that there are 3 drivers for Increase in ARPU next year, 1 Jirka already mentioned, which is about the planned price increase, circa middle of the year. In addition to that, what we've spoken about is marketplace with the revenue attribution. And then 3rd, would be an increased focus on our premium Gaia events plus tier at $2.99 a year. That's also something that I have my sights set on for expanding In 2024. So each of those three levers will be improving ARPU throughout the next year?

Speaker 1

Yes. The increased ARPU, it was Always as a part of our mission and now we actually want to accelerate that because now we kind of get to the place where we can generate positive cash flow Continuously. So the ARPU become much bigger focus right now. So the revenue will be definitely our That's more than the numbers of members. So as going forward, it's going to be our focus.

Speaker 1

That's why the ARPU and this initiative like Increasing the price, GaiaSphere, sorry, GaiaSphere premium pricing is 7 plus or the marketplace. So they all effectively when we say that we're going to grow members 10% of revenue, 15%, you'll see that we're increasing the ARPU dramatically and we would want to keep doing it.

Speaker 5

Great. Maybe a last Question, Yochai, you mentioned that you will be focused on Gaia community. Can you tell me what does it mean? Is it focused on the marketplace? Is it On the marketplace, is it focused on live events or what did you mean when you said you're focused on Gaia community?

Speaker 1

If you go to the bottom of our guide.com, you'll see what the mission is. So that's pretty much that community what I'm talking about. We kind of look at launching it. We already built something About a year ago, but that time we decided the way I was designed it. The communities right now too much Split between by the different events in the world, so it's not a time to launch it.

Speaker 1

So we restructured a little bit. So it's basically we have now 2 thirds of our people are with us more than a year and 1 third over 3 years, and that's increasing. The 3 year number obviously increasing every month as a percentage. And so we know a lot of what People are watching what they're interested. And one of the things what you hear is they would like to find People like them, watching Gaia in the community.

Speaker 1

So that's what it's going to be focused. We're going to use all our venues, what you mentioned, as a part of that.

Speaker 5

Okay. That sounds Very interesting. Great. Okay.

Speaker 1

I think that will be the final differentiation for us if you look in other SVODs So we'll be coming in 3 years. We have something with nobody else and that's what has. This loyalty It's a niche business and we want to keep it that way and that's community will be based on that.

Speaker 2

And Thierry, if I had To say one part of that that Jirka is alluding to amongst many things would be some form of a decentralized town hall in a way where members get together on forums and like Jirka mentioned, organized watch parties and meetups.

Speaker 5

That sounds very interesting. Great. Thank you, guys.

Speaker 1

Thank you. Thank you.

Operator

We have reached the end of our question and answer session. I would now like to turn the floor back over To Mr. Risiby for closing comments.

Speaker 1

Well, thank you everyone for joining and we look forward to speaking with you when we report the 4th

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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