Gaia Q4 2023 Earnings Call Transcript

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March 27, 2024

There are 5 speakers on the call.

Operator

Greetings, and welcome to Gaia Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jirka Rysavy.

Operator

Thank you. You may begin.

Speaker 1

Hey, just real quick, I just want to make sure, do we need any forward looking this is Ned Preston, the CFO. Any forward looking statements that we need to read as we head in here? If not, it's covered in our 8 ks and our earnings release. But and I will make sure at the end if I need to read that, we will go ahead and do so. With that, I'll hand it over to Jirka.

Speaker 2

Thanks, Ned, and good afternoon, everyone. So we continue to build on Gaia increasing momentum. And our member count grew over 800,000 benchmark and we expect to finish our Q1 at about 838,000, dollars which is a good milestone towards our 15% revenue growth target for 2024. The annualized gross profit per employee in the 4th quarter grew to over 660,000 up from 535,000 in last year quarter. That growth was the key driver to our 8 $400,000 or 10 percent of revenue cash flow improvements.

Speaker 2

Revenue for the quarter increased to 20.7 dollars from $19,600,000 in the year ago quarter, primarily because our growth over the member base. Member growth was increasing during the year, growing sequentially by additional 16,000 in the Q4 ending to 8,000 806,000 from 7 59,000 on December 1, 2022. We expect member growth to accelerate during 2024. Gross profit for the quarter increased to $17,700,000 from $17,000,000 in the Q4 of 2022. This gross margin at 85.4% was kind of in line with the year.

Speaker 2

And net loss was $2,100,000 or $0.09 compared to net loss of $1,400,000 or $0.07 last year in the last quarter because of higher marketing spend and increased amortization. But our operating cash flow increased by $2,100,000 and our free cash flow increased by $1,700,000 to a positive 1,000,000 dollars The cash balance as of December 30 1, 20 3 was $7,800,000 dollars with an unused $10,000,000 line of credit, which is compared to net cash of $2,600,000 which was like $11,000,000 $11,600,000 in cash, but with $9,000,000 borrowing on our $10,000,000 credit line end of the last year. Revenue for the whole year was $80,400,000 compared to $82,000,000 in 2022 as company was still recovering from the post COVID subscriber contraction, which was experienced by whole industry during the 2nd part of 2022. So why the loss for the year increased $2,000,000 to $5,600,000 with because of increased marketing spend amortization. Our free cash flow improved, as I mentioned, by $8,400,000 to a positive $1,100,000 for the year from the loss of 7 point $3,000,000 in last year, even when we increased marketing spend to 41% of revenue from 37.2 percent of revenue.

Speaker 2

The free cash flow was helped by elimination of about $5,000,000 of annualized expenses, which was finalized in beginning of the year and included about 36 headcounts cut, which previously we had to bring in as a kind of balancing the efficiency work because the work from home mandates would exist previously. We expect our member growth to accelerate to 2024, as I said, and we now expect to about double our net member addition from 16,000 we just reported in the Q4 to about 32,000 during the Q1. And now Ned will speak to you more about the results. Go ahead Ned.

Speaker 1

Hello. Yes, thank you, Jerica. Revenue for the Q4 of 2023 increased 6% to $20,700,000 from $19,600,000 in the Q4 of 2022. Primarily this was driven by our growth of the member base. Member growth increased during the year, growing sequentially by an additional 16,000 members during the Q4 with the member count ending the year at 806,000 members, up from 759,000 on December 31, 2022.

Speaker 1

We expect member growth to further accelerate with continuing increases of our ARPU during 2024. Gross profit in the 4th quarter increased to $17,700,000 from $17,000,000 in the Q4 of 2022. Gross margin was 85.4 percent in line with the year. Net loss was $1,800,000 or negative $0.08 per share as compared to net loss of $1,000,000 or negative $0.05 per share in the year ago quarter with higher amortization, but operating cash flow improved by $2,100,000 and free cash flow improved $1,700,000 to $1,000,000 up from negative 0.7% during same quarter last year. The cash balance as of December 31, 2023 was $7,800,000 with an unused $10,000,000 line of credit compared to net cash of $2,600,000 or $11,600,000 of cash with $9,000,000 of borrowing against the line of credit a year ago.

Speaker 1

Shifting to the 2023 full year financial results, revenue for the year was $80,400,000 as compared to $82,000,000 in 2022 as the company was recovering from the post COVID subscriber contraction experienced industry wide during the latter part of 2022. Loss for the year was negative $5,600,000 or negative $0.27 per share as compared to loss of 3.6 $1,000,000 or negative $0.19 per share for 2022. With increased marketing spend and amortization, however, operating cash flow improved by $4,200,000 For the year, free cash flow improved by $8,400,000 to $1,100,000 from negative $7,300,000 even as we increased marketing to 41.1 percent of revenue from 37.2 percent in the prior year. The free cash flow was helped by elimination of $5,000,000 in annualized spending finalized at the beginning of the year, which included 36 headcounts added previously to offset reduced efficiency because of work from home mandates. The company decided to restate the consolidated financial statements for 2022 and the 1st 3 quarters of 2023, making some presentation changes to be in line with the industry.

Speaker 1

None of these changes or the restatement impacts our revenue or free cash flow and we are already reflecting this in the release. We expect our member growth to accelerate during 2024 as we are now forecasting to double our net member additions from 16,000 in the Q4 of 2023 to 32,000 in the first quarter of 2024, finishing the Q1 with about 838,000 members, while continuing to generate positive free cash flow. With that, I will hand it over to James Calhoun, Gaia's CEO. Thank you, Ned, and thank you, Jirka, and hello, everyone. As Jirka mentioned, we have continued our trend on executing on cash flow positive growth for the final 3 consecutive quarters of 2023.

Speaker 1

We found continued improvements in marketing efficiency with some of our lowest customer acquisition costs since the beginning of 2021 and continued our execution on improving ARPU on an annualized basis. Since moving into the role as CEO as of December, I've centered my initial focus on improving marketing efficiency and the return on cash from our marketing spend. Key to this success has been the rollout of our direct to pay campaigns in Q4, which has had the result in improving retention by incentivizing members to skip a trial period and move directly to a paid in full membership with a focus on our annual plan. Additionally, to facilitate this transition has been the continued rollout of our Gaia Marketplace initiative where members can shop a curated selection of experiences, retreats, courses and physical goods with access to exclusive member only discounts. This project is aimed at supporting the conscious life cycle of our members, whilst also improving cash flow and increasing the company's gross revenue as we booked the keep from sales at 100% gross margin.

Speaker 1

In Q4, we also implemented further projects leveraging AI within the organization from improvements at a product level to building efficiencies and cost savings on a team level. Key to this was launching an AI powered search engine trained on our exclusive categorical metadata and transcripts, unlocking the power of our transformational conscious media library of over 10,000 titles in English, Spanish, French and German. Members can now enter search queries related to their transformational interests and quickly uncover the most relevant films, series episodes, yoga classes or documentaries to stream. We We continue to look into further ways we can capitalize on our exclusive content library and data as we move forward. These projects are aimed at continuing our focus on establishing Gaia as the world's leading player in the conscious and transformative media space and leveraging our capacity to use AI to find more efficient ways to reach our target audience and grow our community.

Speaker 1

2023 was also a landmark year for us. On the content side, we released over 1500 titles across our 4 languages and produced 5 live events. Our top programs in 2023 included our original series releases of Channeling: A Bridge to the Beyond, Biohacking with Dave Asprey, Ancient Civilization Season 5 and an original documentary called Healing Vibrations. Moving forward for 2024, our focus will be to continue to execute on improving our marketing efficiency, the rollout of our marketplace initiative, a renewed focus on our premium membership tier, growing improvements in ARPU, always maintaining cash flow positive growth. And I know it's been some time since our last announcement, and we're looking forward to updating you all on our Q1 numbers shortly.

Speaker 1

As a quick sneak peek, we relaunched our premium membership tier with a new rebrand from Events Plus to Gaia Plus and celebrated with a sold out immersion event at our GaiaSphere event center and a new record of over 52,000 unique live stream attendees from across the globe. And with that, I'll pass back to Jirka to close out.

Speaker 2

Yes. So before I close out, actually, I'd like to let Ned read forward looking statements, which we neglected to read in front of the statements and then I close out.

Speaker 1

Okay. I'll go through this quickly. It's as I said in the 8 ks as well as the earnings release. But forward looking statement, the press release contains forward looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are forward looking statements that involve risks and uncertainties.

Speaker 1

When used in this discussion, we intend to use the words anticipate, believe, contemplate, continue, could, estimate, expect, future, hope, intend, may, might, objective, ongoing, plan, potential, predict, project, should, strive, target, will and would and similar expressions as they relate to us to identify such forward looking statements. Forward looking statements include without limitation the company's plans related to restatement of the financial statements, our ability to attract new members and retain existing members, our ability to compete effectively, including for customers with different modes of entertainment, maintenance and expansion of device platforms for streaming fluctuation in customer usage of our service. Fluctuations in quarterly operating results, service disruptions, product risks, general economic conditions, future losses, loss of key personnel, price changes, brand reputation, 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, including in our filings with the U. S. Securities and Exchange Commission.

Speaker 1

These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those implied by forward looking statements, including the outcome of the company's completion of qualification and evaluation of the specific impact of the errors identified in the company's financial results and previously issued financial statements, including the possibility of material adjustments thereinto, the discovery of additional and unanticipated information during the procedures required by completing before the company is able to file its annual report on Form 10 ks for the year ended December 31, 2023 and the application of accounting or tax principles in an unanticipated manner. Also additional risk factors set forth in the company's periodic filings with the SEC, including, but not limited to, those risks and uncertainties listed in the section entitled Risk Factors and the company's Annual Report and Form 10 ks filed with the SEC. We caution you that no forward looking statement is a guarantee of future performance and you should not place undue reliance on these forward looking statements, which reflect our views only as of the date of the press We undertake no obligation to update any forward looking information. With that, I'm going to pass it back to Jirka.

Speaker 2

Thank you. So it's an interesting thing, so I would now have a final thought. So for the summary, we started this year with $7,800,000 in cash and $10,000,000 of unused credit line. And our current view on our 4 business indicators for 2024, We expect our revenue to grow about 15% as we said in the last call. And that is with continuing growth of ARPU.

Speaker 2

We also planning to increase our gross profit of employee going forward and continue to deliver a positive free cash flow. And this concludes our remarks. And now I'd like to open to the questions. So operator, please.

Speaker 3

Thank you.

Operator

At this time, we'll be conducting a question and answer Our first question comes from Mark Argentino with Lake Street Capital Markets. Please proceed with your question.

Speaker 4

Hey, guys. Ned, you got you drew the short straw there. It was a mouthful. Just wanted to dig in a little bit on the growth, 15% growth. I know you kind of referenced ARPU growth, but maybe seeing some nice sub growth, what's the balance there between sub growth and overall kind of ARPU growth and just walk us through kind of current pricing?

Speaker 2

So to start, we're probably looking in the right now we gave you the number for the Q1, which is about 10% and we're probably going to be similar in the revenue growth in the 1st Q. Or corresponding. I didn't really calculate it, but it's kind of I think that way. And for the pricing, you guys want to?

Speaker 1

Yes. Thank you, Mark. Hello. Good afternoon. So it's James here.

Speaker 1

With pricing, we plan on increasing our USD pricing later in the year. We're also increasing our EUR and GBP pricing by the end of this quarter, Q1. So this will increase ARPU. Additionally, we'll be continuing to maintain a blend of our 3rd party, 2nd party and direct members to maintain steady ARPU and growth for the year. And with the addition of Marketplace as well as we continue to scale out of that initiative, that will help us to increase cash flow throughout the year and also contribute, like we mentioned, to this ARPU growth as we keep the foot on the gas with subscriber growth.

Speaker 1

So that's our plan. Yes. And Mark, this is Ned. The last thing to add would, 2024 is going to get us on a more natural path. So as you've modeled and others have modeled for us this past year, our member growth and revenue was not aligned, right?

Speaker 1

Going forward, that will be more the case. And I think your model for 2024 has us growing revenue higher than our actual member growth. And we are excited to get back on this more predictive path where we will talk about member growth along with other items like ARPU as well as churn and other items. But we're real excited here for 2024. The numbers we provided already out of the gate here for Q1 and we look forward to talking about that in a lot more detail in about 5 weeks with our Q1 results.

Speaker 2

Yes. We're going to have it's probably in the second part of the year you're going to have revenue growing faster than members because as we mentioned, we plan to increase prices somewhere in the second part and fall or somewhere there. So that I expect will kind of decouple that. So you see revenue a little faster because we probably we expect probably a low conversion, but the revenue we already did it once before, so we have some statistics. But we also kind of back to our regular seasonality, which was kind of messed up by the COVID.

Speaker 2

Then so you see the kind of force in the first quarter probably we don't know how the Q2 will look, but we definitely you see the increase to the Q1 from 4th and we'll see how the price increases do so far on We also We also want to increase prices only for new people, not for existing members.

Speaker 4

And then I know marketplace you tested a little in Q3, I believe, generated $100 worth of revenue. Any continued tests there or thoughts on is that a can that be a material yet small revenue contributor in 2024? Or how should we be thinking about that?

Speaker 1

Yes. Thanks, Mark. Yes, we've continued to roll out still in a beta phase at this stage. We had a sold out Egypt tour in November with one of our top talent from our tentpole series Ancient Civilization. As we move into Q2, Q3 and beyond is where we'll anticipate rolling this out in a more serious fashion and I'll have more to report to you on that later in the

Speaker 4

year. And then just juxtaposing that with the Gaia Plus, is there are they intertwined at all or maybe just refresh us on the relaunch of Gaia Plus?

Speaker 1

Yes. That we'll be discussing in more detail on our Q1 call. It's just happened in the week, week and a half ago. Essentially, it's a rebrand of our Advanced Plus tier, which is our premium membership tier. And it's these two initiatives, our premium membership tier along with marketplace and in addition to that, our price increase and which will, as Jirka said, start to see the subscriber growth and ARPU grow consistently as we go throughout the year.

Speaker 1

So really happy to have these initiatives in place now so that we can keep our subscriber growth and ARPU growth moving upwards in conjunction with each other.

Speaker 4

Last one for me. But in terms of the cost to acquire a new subscriber, it looks like it's flat to down. Is that a function of basically where you're caught, what the spend is with buying keywords or Facebook or other kind of platforms or what's really kind of driving your ability to acquire efficiently?

Speaker 1

There's a few things there, Mark. In the Q4, we saw our customer acquisition costs on the average for that quarter at one of the lowest levels since the beginning of Q1 of 2021. A lot of these improvements are driven through a number of factors. But most of all, just finding new conversion improvements on landing pages and checkout conversion. In addition, some of these online events where we bring select content in front of the paywall and provide our leads or prospects with an experience of Gaia before inviting them into a membership, which reduces the acquisition cost.

Speaker 1

Additionally, as we've implemented some of these campaigns, it's helped with retention as well because we've invited members into paying for a membership upfront either a monthly or incentivized annual plan. And this has been really positive for us as a company and we're seeing these improvements continue to roll through into Q1 which we'll be reporting on in more detail shortly.

Speaker 4

Great. Appreciate the color. Thanks guys.

Speaker 1

Thank you. Thanks Mark.

Operator

Our next question comes from Ferry Woodloff with Water Tower Research. Please proceed with your question.

Speaker 3

Yes, good afternoon. I think you've covered most of the questions, but still the 38,000 the improvement in memberships for the Q1, is it seasonal? Is there something new? Is it I'm wondering if I know that you talked about acquisition cost being lower. I'm wondering if you can give us a bit more color maybe on what's driving that?

Speaker 1

I'll start and I can see if there's further answers on this side. I would say, 1st and foremost, just the continuing improvements in marketing efficiency. Since I moved from the Board to COO and then COO to CEO in December, one of my key focuses has been on how can we improve on the efficiency of acquisition pathways of our customers, just by really dialing in on understanding our market segment in a deeper way and targeting our message to our sort of core avatars, plus some fine tuning some of the work that Jirka did previous to my coming on board where he was focusing on how we focusing our marketing acquisition on our highest retention segments as well, which is further stabilized the business. And I just think over time, Thierry, we're seeing this come together. We're getting more and more data as we grow.

Speaker 1

So it's a really strong signal. And I'm happy to see that we're back to growth in a meaningful way.

Speaker 2

All I would say in the market is this like it's definitely the lowering the cost, but it was actually my personal big expectation because that's how I kind of wanted James to come to this position because marketing that's his background. As we merged his company in and we kind of saw, he did a lot of it without outside capital and I kind of like that. So you see some of the first impact of I think James' impact on the marketing, but it's a lot of the work actually marketing work was done by our President over the last 2nd part of the year to prep the thing. So it's going to be more like a fine tune. So you already saw it in the 4th quarter, 3rd quarter we started to grow again.

Speaker 2

But we like the idea keep accelerating that growth because I think it's we have such a so much potential. So I'm glad that James is doing his job.

Speaker 3

Did you say that you were using live events to attract new members? How does that work? Do you invite them to attend and then that gives you good leads and you sign them up? Or how is that working?

Speaker 1

So one of the strategies, Jerry, that we implemented last year was, like I mentioned, putting some content in front of the paywall, so that people, our leads and prospects can experience some of the content inside of Gaia before inviting them into a membership. And this has been very effective for us in terms of reducing acquisition costs. And also encouraging people directly into an annual membership, which boosts our retention because clearly for most businesses in this space and the subscription industry, the 0 to 90 days is typically your largest churn event. So to leapfrog that is a huge incentive. You're referring to the recent event we had in March that sold out.

Speaker 1

We did open that up for a limited time live stream attendees. And as I mentioned, we had over 52,000 unique attendees. And it's great to see an initiative that was launched by Yerka in 2019 with the GaiaSphere event center that we're able to start really leveraging that technology to reach more people and open up our top of funnel. And ultimately, we'll be able to retarget these people and that the hope is we'll further drive acquisition down and scale our membership as we continue to move forward.

Speaker 3

I mean 52,000 unique attendees for one event, live event, that's pretty amazing.

Speaker 1

Yes, we're very happy with the result.

Speaker 3

Yes. So you said you will give us some more insights on Gaia Plus when you report the Q1 or is that did I understand that well? Because I had a bunch of questions about DIA plus

Speaker 1

That will be when we do Q1. And just to let you know, this only happened within the last few weeks of Q1. So it will be just the beginnings of our leaning into that premium tier. And we intend to continue scaling that throughout the year alongside our marketplace initiatives. So I'm grateful that a lot of the groundwork is done.

Speaker 1

We can focus on execution as we move throughout the year.

Speaker 3

Are there any metrics about Gaia Marketplace that you can share with us, maybe the number of offerings on the platform? Is it open to every single one of your members or not quite yet? Can you give us some color there?

Speaker 1

Thierry, we're still in a beta on the market place. I'll be providing some more data on our Q1 call. And so far, the testing we've been doing continues to prove great results, And we're just staging our rollout to our full membership as we continue to solidify the offering. So I'll let you know more on the Q1 call.

Speaker 3

Okay. And then maybe a quick last question for Ned. Presentation changes is there can you quickly give us some insights as to what those changes have been completing?

Speaker 1

Yes. No, I mean, as you know, I've been on board now for since the end of June, and I've talked to well over 100 investors and a lot of people have asked me the same thing is they've said, look, it's hard to track Gaia against similar people in your industry. And so really in closing out my 1st fiscal year as well as the fact that we brought on new auditors. We transitioned to new auditors in Q4 due to our previous auditors leaving the public space. We went through and looked at all of our financial statements and it was really an opportunity to align with industry standards.

Speaker 1

And so really what we shared in the 8 ks, as I said earlier, none of the changes or restatements impact our revenue or free cash flow and we're already reflecting that in this release. But what I'm really happy with is now as I talk to existing and potential investors, we'll be speaking the same language around common factors of the business.

Speaker 3

Great. Thank you for answering my questions.

Speaker 2

Thank you.

Operator

We have reached the end of the question and answer session. I'd now like to turn the call back over to management for closing comments.

Speaker 2

Well, thank you everyone for joining and we look forward to speaking with you when we report our Q1 results in early May. Thank you very much.

Operator

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

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