Q2 2020 Gaia Inc Earnings Call
Yeah.
Thanks.
For the second quarter.
Yes.
Sure.
We appreciate your patience and please.
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Yeah.
No.
Thanks.
For the second quarter.
Someplace.
We appreciate your patience.
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Oh.
Good afternoon, everyone and thank you for participating in today's conference call to discuss.
Financial results for the second quarter.
32012.
Joining us today.
Oh.
Yes.
Following some prepared remarks, well open the call. So your question.
Before we get started however, I would like to take a minute.
Hi.
Constitutes the safe Harbor statement under the private Securities Litigation Reform Act of 1995.
There's discussed today includes forward looking statements.
Assumptions risks and uncertainties.
These include but are not limited to general business conditions.
Competition.
In consumer preferences.
Corporate costs and retention.
<unk> and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our reports on form 10-K and form 10-Q I.
Hi assumes no obligation to publicly update or revise any forward looking statements.
I would now like to turn the call.
Oh, Yes every city.
Thank you Kathy and good afternoon, everyone.
So our revenue for second quarter increased 23% to 16.2 million.
We ended the quarter, which triggers are 63000 members, which is 59000 above the first quarter.
Our gross margin increased to 87.1 person from 86.4% and a year ago quarter.
We also achieved a cheap 39% improvement in our gross profit per employee.
Q4, and 36000 from.
314000, a year ago.
During the quarter, we generated the gay not only the 1.9 million positive adjusted EBITDA.
Improvement of three and half million.
So one porno no 1.9 billion cash flow from operation.
Which is which was 4.4 million improvement.
Cash used for the quarter was one point sixmillion, which wasn't operational improvement of about 6.9 million.
We ended the quarter, which he didn't hops milling cash.
He did achieve positive earnings for months of June which is much earlier than planned.
And we fully expect to reach her key milestone was positive earnings and free cash flow in July.
Blend and communicated 18 months ago.
Is that a little good and Paul talk to more about a quarter result, so cool [laughter] remedies in a second quarter increased 23% to 16.2 million compared to the year no quarter.
Gross profit in the second quarter decreased 24% to 14.1 million kind of 11.4 million in the year ago quarter with an improvement in gross margins to 87.1 per cent compared to 86.4% and a year ago quarter and also up from 86.9 in the first quarter 20 Twond.
We ended the quarter with 663400 numbers and we have continued to see increased interest in our unique and exclusive content library, which is evidenced by our Alexa global fight rankings and pretty 37% from 8375 and April 20 25317.
In July 20 Twond.
Selling and operating expenses, excluding marketing and member acquisition costs in the second quarter were $6 million worth 37% of revenues.
Which is down from 6.7 million or 51% of revenues in the year ago corridor.
Our focus on continue to operating efficiency and expense rationalization over the last 18 months has been successful.
[laughter] corporate and Gionee expenses in the second quarter were 1.8 million were 12% revenues, which includes a nonrecurring noncash charge of $715000 related to the earn out consideration. We issued in June of 2020 tied to the success of the acquisition we completed in June of 29.
Team.
The acquired company maintained profitability since the acquisition.
While exceeding the upper ends and member growth target.
I'm very pleased with the integration of the acquired content Library and member base into Guy.
The sellers also elected to convert 1.8 million in convertible notes that were gear on January 2021, and the Guy shares in June of 2020.
Total member acquisition costs were 8.4 million were 52% of revenues down from 57% revenues in the year ago quarter and in line with the 52% we spend in Q1 of 20 Twond.
We've continued to focus on increasing the volume of members, we're adding via organic and non paid sources, while also driving efficiency on our paid media channels.
That's a result, we were able to improve our average see period for the quarter to $55 down from $68 in the first quarter and $77 in a year ago quarter.
The annual plan take rate for new members has maintained in the 20% to 30% range, which has allowed us to recover almost 70% of our customer acquisition spend for each monthly cohort immediately upon conversion to them becoming paying members.
Excluding the non cash charge previously mentioned total operating expenses were 15.6 million or 96.4% of revenues down from 100, a 19% of revenues and a year ago quarter.
We have continued our trend of positive adjusted EBITDA margins and count for from operations for the third consecutive quarter was significant improvements on both measures from year ago corridor.
We also kept our cash utilization for the quarter in line with the first quarter at 1.6 million.
Representing a significant improvement from year ago quarter, where we consumed 8.9 million, excluding the incremental borrowings from refinancing our building last year.
This brings total cash used in the past nine months down to 3.2 million from 17.4 million in the same period a year ago.
With our current revenue level and disciplined blind spend management, we have crossed the threshold for sustainable internally funded growth.
We transitioned to positive runs in June among ahead of plan and were free cash flow positive in July as planned.
We expect to be able to add 30000 members in the third quarter, while maintaining positive earnings and free cash flows.
With that I would like to open the call up for questions operator.
Thank you if he would like to asking question. Please signal pressing star on your telephone keypad.
Using a speakerphone. Please make sure your mute function is turned off.
Okay.
Well I just want them to indicate when your line is open.
Once again.
I want to ask a question.
We'll take your first question from.
B. Riley.
Please go ahead.
That's probably going to be a couple of course, you can't refuse.
Your first question.
Oh I want to follow up on the last question comment you made about you said the activities out new subscribers in the third quarter wall Balmy came in your positive cash flow I guess, you pick up threshold and expected to be sustainable yeah.
And managing marketing spend in general from this point for <unk>.
One goal that you.
On a growing once you can kind of maintaining.
Breakeven to slightly positive free cash flow or is there certainly will treat you'd like to see and then anything beyond that you're kinda again.
<unk>.
Okay.
Yes in the near term and the reason why don't I provided one quarter visibility is it's a very dynamic a situation as co bid and the related states are responding.
In different ways. So.
The planets are really driving revenue growth at the 25% level, while maintaining the positive earnings and free cash flows in Q3, and then obviously wherever we ended the quarter sets the new threshold for the next quarter. So that's the gold goes to dry and try and drive revenues, 25% Wyoming.
Attaining profitability on the two measures that we talked about and then really being adopted from there as the market continues to evolve.
Okay any any game it's more.
And a change the dynamics of the you know subscribers you saw coming in during.
Great. Thank you Kinda give you see there. So you stated that back I know you mentioned at the end of described which kind of coming into the 20% to 30% range, but any any metrics you're seeing in terms of that may have been great be different in terms of.
Your media consumption sustainability persons, who may have been in today's Florida.
Yes, I think first and foremost we've said we've seen improvements across the board not just with new members dealt with existing members because they've had time to.
To be able to dig into the library and so we're seeing positive trends in terms of content consumption.
Multiple groups, which tends to lead to improve your attention over time.
As we looked at the gross cohorts that came through starting in the second top of March we've been paying very close attention to see how they're behaving as they continue to mature and to be honest, we haven't seen really any degradation in terms of initial engagement drain not seven day trial period, and we've seen our title conversion rates maintain.
Turning over the period.
So we'll see how the summer plays out, but we haven't seen.
Really any.
Any degradation in terms of the quality of customer even with the volume that we've been driving.
Yeah, we have little more you know.
Focus I think well supposed to not only new on but Oh, <unk> Oh, there like existing members to our series you know I see no content actually the Starwood. We produce last two years you definitely drive engagement and people are kind of doing the original series are big driver.
And you know the original content, it's kinda for a lot so about a 80% of viewing.
Okay and as far as question for me.
I'm now that the contracts renewed during the quarter with the two third party distributors that weren't standing yeah, Hey.
Higher monthly subscription price guidance in fact, I gave you kept it all.
Usually try walls and tried to both making parties won't you're on it that would.
Good effect.
So first of all we don't control the pricing that our partners charge to their customers that don't really have visibility into that we only see what they paid us and so we've started to be paid at the higher rates for.
All of them, but we don't have visibility into what they're charging their customers and what their plans around grandfathering are not grandfathering or but would you know that the new price for our largest online.
Partner has gone to match, our current monthly print pricing.
You know people like online like Amazon you can see people like Comcast unless you subscribe through some costs you don't know kind of see to change was we didn't know if it's Paul and just region, that's what Paul said.
So, but generally what do we know they all paying us on higher rate and as we know they change inside the cable subscribers might know due to all the customers. Another dog, we don't know.
[laughter].
Well then he is also one more quickly in there and.
And they can small number but just kind of looking at the mid June maybe I can you add and we expect to any color around 65, and then that you had 660 threesix before.
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Maybe to read is that we've got more subscribers coming in on what you expect it wasn't a war churn rate than you expected to your drove that you did a good.
Yes, I mean, she can't <unk>.
Yeah. So it was definitely the lower loss than we expected, particularly going into the renewal period for a lot of the acquired FMTV subscribers on annual plans in June the second piece was that the we just continued to see improvement.
And our cost to bring people in for trials and maintaining that conversion on them. So we expected that to start to pull back as things started opening up in the summer started getting into full swing in the U.S., but really we were able to see pretty meaningful CJ efficiency.
It all again, which we hadnt banked on.
Perfect. Thank you bye.
<unk>.
Your next question comes from.
With Roth capital partners.
Hey, guys. Thanks for.
Okay. So.
My follow up on some of the questions were asked so I'm just kind of curious your that little bit deeper into the linearity ups.
Like when you gave kind of putting up spending.
Early June one example, the cadence holes that how linear were the ads in the quarter and any kind of insight into trends in July.
And then parties you'd said CPH, we're pretty steady.
Throughout the quarter, just any kind of color you give.
On trends in July.
And how competitive it kind of the markets for.
Audience are going after its kind of change from say fall to others.
Yeah, So I'll refer back to what we talked about in late April when we originally talked about the growth that we were seen in March and April we spent pretty aggressively in April. So it was obviously heavily skewed to the number of subs that we added in April.
To allow us to get to the number that we provided on April 27th calling in on obviously, what we put out there on June 5th, but what we saw was that even with the.
Some are coming on and the economy opening back up we were able to see cost per thousand or CPM on our paid media continued to maintain so our dollars were able to go farther than you expected, but on the other side of that I mentioned that Alexa site ranking that's helped pretty significantly with our paid.
Search and other non paid channels into the second half a June so we got to a decent lift from that going into the second half a june that allowed us to get slightly ahead of where we expected to be.
I'll say that all of those things have been continuing into July.
To date from a CPM and a few P.A. trend perspective.
Hmm and then just following up on the profitability question. So two things given that you said you know unprofitable a month or they could be free cash flow going forward. This so you can have its carbon cloth quarter that being.
The third quarter for your cash balance.
And then as you talk about targeting growing at 25% topline.
Level.
As you extrapolate out a little bit farther I'm, just kind of curious how aggressively.
And reinvesting the profits for the business and I appreciate that you've got turning the corner here, but how aggressive we kind of balance yeah growth versus.
Showing operating leverage and model fuel.
Yeah. So I think to address the cash question first the intent is to have this be that the low point in terms of cash as Weve said going forward, but again, there's a lot of uncertainty as it relates to what the future looks like from a economy perspective, So I don't think anyone in our position would be.
Prudent and saying that they have a crystal ball to say, what it's going to look like but our plans and where the businesses that today allows us to operate.
As this being the low point, the cash and it's really being funded but that 30% of annual taken being able to get 70% of our cash back.
Immediately that creates a pretty consistent source of funds for us to be able to keep growing and then it's really just about moderating in the amount that we're willing to invest in marketing initiatives in any period, because that ultimately hits the expense side of the piano.
And so based on the trends have listened today, we're pretty confident with our 25% growth target and we'll see how that goes going into the second part of a Q4 is really when we're going to start going on the annual renewals for our big push that started in October of 2019. So that's.
A little bit of area that we're paying attention to because there's not a lot much higher volume of annual people. We're nearing once we get over that so early indications don't show any potential increase in drop off from those groups, but it will be something that we're paying attention to in Q4 as it relates to the cash balance.
Have you started this 18 months ago pretty much in so far for all 18 months space you know some quarters being really lay ahead or behind but generally in 18 months to be kind of get here as expected to be have so little lift in the second Q4.
Carl good subscribers, but beyond that to read out that you would probably be at the profitability in June as we'd planned and so we want to just stick to Oh guns, and you know continuing a trend I'm kind of regardless, so obviously, it's how intel.
Mentioned, regardless, how the economy and what's what's really happening because it's going very positive. So we don't want or would be deviate from the.
Try and what's working for us.
Great. Thanks last one for me and a passive investing a lot in the translation engine I'm just curious done a lot on on a run rate of we'll let you know since launch how much of your mix is coming from international and then are you go get more aggressive in terms of investing in international more.
International and get them kind of he's got a score we've got a couple of the best here. Thanks.
Yeah, Yeah. So I think we talk about international into components. One is non English and then the other is U.S. speaking non U.S. countries, we've seen a pretty healthy amount of growth obviously with the acquisition. We did last June and Australia, New Zealand, where there are member base is right, but also in terms of the.
English speaking.
European countries, but one of the things that we have done this was actually made it pretty decent investment in our Spanish language programming one of our shows initiation, which is an original program. We also did a Spanish version of it and that's been driving a decent amount of growth in our Spanish speaking audience without us really.
Focusing our paid media activities. There so now that weve crossed the threshold and can start to look at where is the next marginal dollar gonna go to drive growth. We're evaluating what are called an English plans are for 2021, and what we want to allocate to that from a growth perspective, So I'd say stay tuned but organically with the key.
Content, we're seeing increased demand and awareness of guy a in Spanish speaking countries and we think we've figured out a playbook, there and where you then going to look at in German and see what we can do there because that's a language that we already support and already have subscribers.
Just to put some numbers on that so from like three years ago. We were about 29, 30% international I'll be talking direct right now because pretty much all the third parties are U.S. and Ah. So they do that say, 30% would be somewhere today about 37%. So.
Let's say there to be added like 20% on a mix space and.
As Paul said, it's like it's well continue to grow but for right. Now we have so much reports you know U.S. So we just kind of more played it'd be Oregon and could slug. It out when you specific bush.
Thank you.
Next question.
Uh huh.
Capital Mike.
Hey, Paul you're going to go after them just a couple of quick ones content.
You know obviously you know we couldn't you gave a nice job managing there.
Imagine content expense, maybe talk a little bit about when you anticipated and maybe a being able to start far enough we're doing more.
A lot of concept or augmenting the the catalog or not at all so.
No I'm thinking about additional channels.
Well one job you were looking out.
Additional until those channels to the platform any thoughts on kind of a much like.
Maybe subscriber growth coming from new there's some acquisition Gurgaon shale development bugs.
So there were several questions there so.
The the content as I said, we kind of focus in our series more Oh, So we've got enough.
He.
Focusing to content when we didnt have been tarnish all right. So that's kind of little hopefully you know, finishing go next year. So we have in turn show rights to virtually all of that content or at least to plan.
We spending pretty even pace, you don't really slowed we down little bit on beginning GSC.
Second quarter benches lasted about a month, so we got surely film.
Little more in the case.
In their travel to get shut down or something so we haven't some buffer.
But generally as a average for you and I keep it kind of say where it is.
And.
The life events the live events, we still that still pretty much on you cannot have really have by now at least local laws to have.
The gathering costs right any size. So we didn't do any life content since they started so that still kind of their we'll see how it will continue we did spend less brian's, but he also we need to see how this is going so we don't really on display.
You know really doing anything come this month.
And then.
But I will say on the alive access premium level subscription even if we don't have events. We are still seen organic interest coming in every day, taking that 299 dollar annual plan to get access to that content. So once we can't get the events going again.
We have a slate of really high end presenters that are ready to come in.
So that's just deferred I would think at this point, but with the growth in our direct subscription business and the organic growth and that live access premium or on trend for where we expected to be from a revenue perspective, even with having event.
Well in terms of Ah, whilst part of that was the I mean, any additional channels or thoughts of expanded the platform or or legend on additional potential on the data to augment the portfolio.
HM we don't really want to do something right now because things are kind of doing while I'm things for us to edmar series to some old in your channels like a target.
Healing, obviously, we get a big they'll have a lift from the acquisition of FMTV, but obviously, we didnt plan bad when we kind of launch that channel, but we definitely <unk> like to see it leads to another year before we think about doing another one plus right now its.
Oh Gee I know.
No numbers kind of going right direction, especially as you know as a call mentioned as a more attention. So I think me would kind of plan to kind of continues we are till the trend there will be here.
Great. Thanks, guys.
Once again, if he would like to ask a question. Please press star one.
Well take our next question.
Peter.
Okay.
Hey, guys congratulations.
Yeah milestone increments be like [noise].
Uh huh.
No no other stuff.
So what happens I.
Well, if we try to come out is a little different way.
You guys announced a big strategic stuff, they do a month ago or a little little more.
Our you hit your goal pretty down on finding out just well fluctuations with quarterly results, but the trend was there.
So I guess now that Weve reached the point, which is all part there by problematic, but you know what you've been through like your next big milestone for our goals to work toward.
You know that no I don't want to kind of become numbers, but.
Certainly something to Oh.
The market wondering.
I think we wouldn't have ER for right now we want to kind of see by end of the year how to market going because she was this uncertainty going because unfortunately team can be film can people travel you know so vito when I really put really big seeks out there for us, it's really kind of cool.
Continue obviously I would desires to continuous positive earnings and free cash flow and keep growing a bit 25% and see how late this year go I wouldn't was Oh this economy.
You know Jude or what's going on to really go into say something but beyond that because I didnt, you recruit and just kind of market.
But I will say the reason that felt a little bit anti fraud amount. It gives because our approach has been slow and steady improvement on all of the things that we pay attention to and I think that will be our philosophy going forward, we obviously aren't comfortable providing any forward looking guidance at this point, but that's the methodology and mindset that has really been ingrained in our employee base.
Over the last 18 months and they claim on continuing not going forward.
No the great maybe.
Good question I Wonder how far the people about the.
How do you guys think about your cost and I know excluded the uncertainty of this year I guess when I look like bugs, but given that you will be free cash flow positive you guys have.
The board level capital allocation.
Methodology or how do you think about it.
Good question Doug.
We don't really at this point as well as mentioned that you know obviously started to cash flow positive you should know really.
Did below where we had or at least not meaningfully but do we plan to actually start to build a cash.
And I think in the first you know as the question would be used to the cash we probably you know pay out. Some you know we have a mortgage and headquarters so that wouldn't be the first probably use if he has.
Okay, and and I guess.
Maybe a final bigger question, but you know what what's your view I guess video streaming service industry in general and where do you think got it fits into it you know that make sense for to be Standalone channel or part of the bigger media group or.
You guys could come up there.
Yeah, Yeah, your thoughts on I mean industry, but Greg.
We don't really want to speculate on this one there's no time to even even comment on it.
Right, Okay [laughter].
No.
I appreciate your time thank you.
Thanks, Peter comp.
At this time. This concludes our question answer session.
<unk>.
Jeremy City for closing remarks.
Oh, Thank you everyone for joining maybe I look forward to speaking with you went to me.
Hey, <unk> report, our third quarter, which will be in November nine.
And Oh, we expect for the first time, obviously to be this positive earnings and free cash flow. So hopefully.
Q then thank you.
Ladies and gentlemen, this does conclude today's teleconference.
Connect your lines at this time, thank you for your participation.
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