Q3 2020 Gaia Inc Earnings Call
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[music].
Good afternoon, everyone and thank you for participating in today's conference call to discuss <unk> incorporated.
<unk>.
Third quarter ending September Thirtyth 2020.
Joining us today our guidance CEO.
Yeah, So Paul.
Following some prepared remarks, we will open for your questions.
Before we get started however, I would like to take a minute to read the safe Harbor language.
The following constitutes the safe Harbor statement under the private Securities Litigation Reform Act.
Hi.
The matters discussed today includes forward looking statements that involve numerous assumptions risks and uncertainties. These include but are not limited to general business conditions. This local losses competition.
In consumer preferences subscriber class retention rates acquisitions, and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including all reports on form 10-K and form 10-Q.
Got it assumes no obligation to publicly update or revise any forward looking statements.
With that I would like to try to go the crossover to guidance CEO.
We Citi. Please go ahead.
Thank you and good afternoon, everyone.
So revenue for the third quarter increased 23% since you're not familiar.
We ended the quarter was 697000 members.
She was 34000 above don't last quarter and 4000 above the plan.
Gross margin increased to 87 point.
One person from 86.8.
We achieved 46% increase in gross profit square employee.
It's a measurement would be a little or no. A couple years now gross profit per employee increased first on over half a million.
Ending.
For the quarter at 513000 up from <unk> from 351000, a year ago.
We did not experience any meaningful slowdown no content creation.
Which is becoming or may now that's been differentiator.
Content, we create it represents about 80 person I remember viewing this remaining 20% come from licensed titles.
Net income for the quarter was 200000 or a penny a share.
Did you improve significantly from a loss of 4.1 million or 23 cents loss.
[laughter] pershare in a year ago.
The other two GAAP income for the quarter was 6.3 million or 33 cents per share.
Which included 6.1 million gain on the sales hospitals corporate campus, excluding our studios.
You'd be down to 4.8 million.
Two street was 4 million compared to a loss of 1.4 days, a year ago quarter and increased 2.6 million sequentially.
29 months, we generated 7.2 million in cash from operations.
Purchase your kids shoes, just 5.9 million in two years ago, which is a sizable improvement of 13.51 million.
Oh peers balance for the first on coach would increase.
Point 3 million, which compares to a decrease of 5.8 million year quarter.
Year ago quarter.
Oh, yeah, and it will catch up to 8.7 million.
Same time, as we are reducing our outstanding debt to 4 million down from 17 million.
We achieved all targets as planned and communicating 18 months ago.
We expect the fourth quarter to be another another one of his positive earnings and free cash flow and another 30000 member John you know base.
But when I speak to you more about results glad to take your revenues in the third quarter increased 28% to 17.5 million with an increase in gross profit of 29% to 15.3 million.
Margins also improved to 87.1% compared to 86.8% in the year ago quarter.
Is your commencing we ended the quarter with 697300 members, which represents net growth of 33900 numbers for the quarter and net growth of over 117000 members for the 12 months ended March 32020.
The net growth for the quarter was ahead of our expectations due primarily to improvements in retention.
Selling and operating expenses, excluding marketing their number acquisition costs in the third quarter were 6.3 million or 36% of revenues, which is down from 7.6 million or 55% of revenues in the year ago quarter.
Corporate <unk> expenses in the third quarter were flat at 1.4 million, which is in line with the prior year quarter.
So remember acquisition costs were 7.2 million or 41% of revenues for the quarter. This is down from 49% of revenues in the year ago quarter and down from the 52% that we had in the first half of 2020.
Beginning in mid August and continuing through October the cost of online advertising was extremely volatile. Despite this volatility our efforts to improve the efficacy of our advertising efforts over the past 24 months paid off and we were able to keep <unk> flat with the prior year quarter at $60.
The annual plan take rate for new members has continued to be in the 20% to 30% range.
Which allows us to benefit from the negative working capital of our model.
EBITDA improved to 3.4 million in the quarter from 28 million in the second quarter and a negative 1.4 million a year ago quarter. The sequential improvement in EBITDA is approximately two X the growth in gross profit, which demonstrates the operating leverage of our direct to consumer subscription video on demand model now that we have reached scale.
We also improved our cash flow from operations to 3.3 million from a cash use of point sevenmillion in the year ago quarter.
Is your conventions, we sold a portion of our corporate campus to a real estate investor for 13.1 million utilizing the net proceeds to reduce our debt from 17 million to 4 million.
A corresponding reduction in interest expense was offset the decrease in building income. So the net impact on operating expenses and cash flows will be neutral going forward.
Excluding the gain on the sales of real estate, we generated net income of <unk>.
Point 2 million or one cents per share and on a GAAP basis net income for the quarter was 6.3 million or 33 per cent per share which includes the gain on the sales real estate.
We also generated 8.3 million in cash during the quarter compared to cash used at 5.8 million in the year ago quarter.
Quarter marks the final milestone in our transition to generating positive earnings and cash flow, while maintaining the revenue growth rate above 20%.
As I mentioned earlier the online advertising market has remained very volatile to start the fourth quarter.
In spite of this potential headwinds, we're still targeting that member additions of 30000 for the fourth quarter, while maintaining positive earnings and cash flows.
With that I'd like to open up the call for questions and.
Thank you Sir if you would like to ask a question. Please press star one on your telephone keypad, if you will.
Using a speakerphone please pick up your handset.
Selection once.
Once again its star one if youd like.
Ask the question.
We'll take our first question from John Godyn with.
<unk> capital markets. Please proceed.
Hi, guys. Thank you for taking my question, if you got some nice quarter.
First would be on the annual subscription plan B, just what do you think or see the key drivers. That's allowed me to uphold budge have 28% to 30% a mix. He has just started to translate into increased retention and higher lifetime value. So far.
Oh.
So the biggest shift is then what we did back in Q4 of last year, when we actually put the a trial period on both the monthly and the annual plan. That's what drove the biggest moves in that direction.
And as we continue to tweak and optimize our cart and checkout flow. We've added some things to help highlight the value of the annual plan and I believe that's really the primary factor of the is the people that build.
I believe that they are committed to guy I can look at it and from a financial perspective, and see the value that they get versus the monthly membership and of course, it is improving retention because we only need to look at once a year renewals versus 12 monthly goals for the same group of people.
What is hurting our yeah, but it is a drag on ARPU obviously.
Got it and then next.
You know can you provide any additional color on how to gauge your if it's been trending he will remain elevated but half past quarters. What are you just kind of your outlook and strategy to keep its like moving forward.
Yeah. So the question was around engagement that was what you're looking at correct Yep.
Well you know the <unk>, what's kind of interesting miscarried, obviously, so we have.
Good engagement you know in in March and April start to really keep come up.
And but you know as soon as the year goes through it just kind of get to a level of spend it was before so it was you as you know they called it impact it was pretty clear in a chart.
You know we have.
We had some.
Good practices since I too you know increasing engagement of newly members and it's still for next probably not.
Nine months, it's our main focus to improve dispersed, especially in 90 days.
Engagements so.
You kind of look at stuff would you know we kind of look at it if there are certain time of dormancy and stuff and so there is a list of several of them you look so I think Q factors improving early engagement.
Got it and then last one for me can you talk about maybe some of the trends you're seeing in your <unk> your customer acquisition expenses and other advertising markets in Baltimore, where do you go student success.
Right because you can't [noise].
Yeah to be honest with you John it's been a across the board we've seen all of our channels continued to pay off the one thing that we've talked about historically has been the organic traffic and the improvements that we're seeing from not particularly as it relates to you tube and the momentum we can drive from a user is looking for.
Information on you tube and then it tracking back to Guyana.
I'd say that paid search has continued to over perform for us historically that wasn't really a major driver of volume, but starting in April with the uptick that we saw in demand for.
Streaming services, that's paid off for us as Weve continued through the summer so even if the paid media on social has been extremely volatile. There's the other pieces that we've been able to lean on that have helped us keep that CPGA in line with the prior year, even with higher volume.
Got it thanks guys.
Well take our next question from Steven Frankel with Colliers.
Oh, good afternoon, Ive, how large of a bolus of annual so do you have coming up for renewal in Q4.
Oh, the if you remember from last year, we switched over in mid October. So October is lighter than November and December, but it's not a meaningful jumped in terms of the volume of activity from our normal monthly plans, we're not going to provide a specific number but I will say that it will start.
To roll in in November and then they'll normalize on itself somewhere around February from the rate change compared to last year.
Yeah. It was dead and also you know the October was pretty challenging marketing.
Because the election till now so October was expensive, but you're going to be as bad things still say be planning to do same amount. The subscribers like we did previously I mean, the 30000 as we plan for it services, they're planning so forth. So obviously, that's kinda lots of good question.
Okay.
And do you think.
I think there's a.
Good Chad.
It's in the next 12 months that you can drive up that take rate.
Of annual subscriptions materially from where it is today or do you think.
That's kind of what the market will bear at the current pricing structure.
I think that last part that you just introduced so that's where I was going to go with that with the current pricing structure I think maintaining that rate is what we have been.
Looking at obviously, we could do some things with pricing if we wanted to drive more people to annual but we don't have any plans to do that at this time.
And [noise].
What do you what are your prospects for maybe raising prices over the next 12 to 24 months, where do you think you're probably small relative to the competition.
Well I think Netflix did what they always do for US opens the door from the consumers' minds that there is price opportunity for us. So it's something that we've been looking at strategically to get back to that first question around how do we potentially drive more people to animals.
Knowing that it helps with cash and with retention overall, well, we don't have any plans as I said to do it at this point in time, but within 24 months. So it's something that we could definitely be looking out, especially as others in the space start to adjust or whatnot what system.
And you know I wouldn't.
It can happen sooner defense or other <unk> other other moves there's still entries into the market and so from like Disney and now you know the other insurance you kind of went on no way they calm because they typically going higher but [laughter] Disney wasn't albeit off of it so it's kind of more kinda.
So so well.
For right now.
Then gets marketed deal goes but there's obviously a rule so we can still.
If you take segments, you know power yoga competitors are like 16 to $20 a month. So there's a lot of room there.
No I really don't have a scooter offering.
But you know for no I would say.
Maybe you're really focused and you know if you notice you know we did decrease our expenses in absolute dollars about 6% so arguably dollar it.
<unk> expenses in dollars not as a percentage decreased 6% why revenue grew 28%. So there was lot of focus on that direction. That's why you see the cheap input correctly also increasing 46% and there's still you know.
Place you know room, how we play these games and there's other things for example, like.
Do you want to have decreased a percentage from the Facebook and stuff like that so how we <unk> I would say we will start to be let's put it. This way there is no plan to change prices of 2021.
I think I would add to that.
Fair point.
And then one last one what's going on with your international member can kindred and what's the plan in 21 to maybe try to improve that mix.
That's the part of what we focused on it to get to where we are with this quarter was reducing eat as much as possible. The things that were inefficient and driving near term revenue and one of the things that got de prioritize and that was the expansion of French French and German Spanish has been growing nicely.
On its own and so we're looking at 2021 actually taking some of the space that we've created and the expenses and looking to reinvest that back into growing Spanish French and German Ah. So I would say, it's going to be more of a focus for us going into the 2021 and beyond because we do believe long term. We think we can be two thirds international.
Versus where we are today.
And where are you today.
[noise] about one third and about one third.
Great. Thank you [noise].
Well take our next question from Darren Aftahi from Roth Capital Partners.
Hi, Dillon on for Derik, Thanks for taking my question.
First of all on could you talk about some of your content production plans.
Okay, So 20, Taiwan.
So you said you mentioned no no meaningful slowdown in concentrates and so I guess how comfortable are you.
Your current library.
Just sort of what's your outlook there.
Well, we actually only like October you were young shooting vis all the things for this year just into case, it would be and I love down. So we already have pretty much everything for this year Phil.
Huh.
We keep.
Keeping reaching our budgets and there's a lot of new shows whats going to show up next year.
If you didn't find any issues this.
You know filming Florida series, where we had a problem and we still do is the Guy Aspheric five event, maybe Paul can talk.
Yes. So just finished I wonder if it's thought on that the overall content mix. We are continuing our successful shows with another slates of seasons plus we have some shows that are in development that were internally really excited about and that should be coming out in 2021 and beyond.
Sure could mention though the live access with our current rules in Boulder County, where where our headquarters or not we're pretty limited in the amount of people that we can have in our studio audience, which is making us evaluate what does that look like going forward for the first part of 2021 in terms of the event.
That we have scheduled a and what does that do for our content mix as it relates to those $299 a year premium members. So we are looking at it strategically to think about how do we get them content, but we are acknowledging the state that we're in right now which is people might be apprehensive to travel and were limited by how many.
People, who can have in the space.
So the upside from its going to be limited in the beginning the 2021.
And it's more the ticket sales and stuff because there's no way to produce new content on different level, Florida subscribers, but it ticket revenues.
Didn't really have anything in 2020, you didn't report any meaningful 2021, as well to choose not to hurt, but we clearly made up by that by increased subscription comparable do you have in place.
As a follow up.
Anything in particular sort of what are the attributes and kids you enter into a sort.
Sort of doing that.
Cobot environment that have been a little different.
Your past cohorts in terms of.
I guess like eating habits.
Yeah, I think the biggest thing that we saw was the fact that people were not pardon the word captive or after they signed up so they were engaging with the service more meaningfully in their early tenure, which helps drive overall engagement and retention.
And so that's really what the key part of this period of time Wise is we are we've historically always have people interested in signing up but then like happens after they sign up in their onboarding might not go.
Well as I initially plans because they get busy we didn't have that issue in March April and May and we took some learnings from that.
Period of time to reorient, how we do our seven day trial Onboarding to increase engagement overall, so definitely got some benefit from the pandemic that we've acquired some learnings to try and drive forward. So but I think that's the biggest piece just amount of engagement earn in early tenure.
So the content you know we didn't compared to most other people in that especially in Hollywood side kind of stinks. When do you have a problem because filming and constant tomlinson election, we don't think it's been at all since it's very different topics, we didnt feel any cost increase.
None of that so from the content creation was kind of showed.
Short of that it's sometimes challenging to rebook, because the flight to get canceled if people don't want to do this time, but.
But figure around so it didn't really have any meaningful on 10 challenges like everybody else and I think it will be really important for us as we go forward to kind of see that's very unique content.
[noise] [noise] guidance last one for me I know you mentioned.
You keep doing it strong.
For organic traffic can you talk a little about your yet Bachelor program sorted through referral and ended up from four up here yes.
More legacy customers.
Yeah. So we've also we've talked about that on prior calls it's definitely something that we've been continuing to build on I think one of the challenges coming into the election was what how aggressive you too was.
In D. monetizing and be focusing on some of the talent.
Ambassadors that might be in our space. So we definitely have a little bit of a headwind from that and the second part of Q3. The overall the program continues to build on itself, where we're obviously having to react to some of the changes that you tube is doing as it relates to our partners on there, but overall the demand for our type of Conti.
It is only increasing and we're trying to make sure that we can stay on clock on with you to then our partners and so we're being mindful about what type of content, we put out there, but overall, it's driving a lot of traffic back the guy from highly engaged users that are finding our content and then going deeper once they get the guy.
Okay. Thank you.
And as a reminder, if he would like to ask a question. Please press star one on your telephone keypad well take our next question from Eric <unk> with B. Riley security.
Thanks, Good afternoon couple of questions. One follow up two weeks of your comments you made follow around.
The average I'd be more to be volatile recently, how much of that was the election itself.
There was there anything else kind of yeah.
Below the circuits a ball that's what would cause this volatility in Judaism, Jamie I'd break it into new Pat Watson.
So the election was definitely felt both in terms of the amount of impressions that we're being sucked up but also in terms of the grooming that the platforms, we're doing around the potential opportunities for us to advertise so we had to definitely headwind there, but I think the bigger part of it was that as.
More and more of the domestic economy started to come online.
There was a lot more advertisers in the mix than we would normally see at that time of year and I think that is a testament to some of these bigger advertisers not having a lot of means to be able to spend their marketing budgets and starting to get into digital in a way that they haven't historically been a I will say that we are seeing it dissipate a little.
But with is what this week now that the elections behind us so hard it's hard to say, which is election versus what's it's just brand advertisers, but in summary, I would say it was more demand for less impressions, which caused the price to go up.
Got it and then.
You got it looking forward to next year.
Not necessarily good specific guidance on next year, but I think about kind of the ones that you're currently on now.
$3.4 million of EBITDA on its last quarter, you had some bad ones yeah, it would be easy.
Easily visible you got from the end of subscriber base.
As you need for the next 12 to 18 months how much of this.
Cash flow positive EBITDA.
You want or need to reinvest in the business to sustain this level of growth will grow faster versus.
You know harvest, you've got the right word, but kind of see you.
EBITDA growth from these levels.
Yeah, it's a dynamic environment in terms of our ability to spend the money and drive growth I, just say that our primary focus is continuing to drive revenue growth over 20% and we want to make sure that we're not haircut in current period investment that we have to catch up for in future periods.
So it'll be a balancing act were going to continue to evaluate how Q4 shapes up and be able to provide a bit better guidance in terms of what we think that looks like for 2021, but the primary focus is to keep revenue above 20% growth.
Not just for 2021, but pass out as well and that's what we're continuing to optimize for so.
I think it's really keep R&D you know how much you're spending the marketing again.
You know our plan is you know pretty much all the line all the operating lines.
To keep dropping EPS of content me when I keep stable as a percentage of revenue.
But generally like in every business you you know to grow fast and keep increasing your bottom line or would it be kind of a general for other business.
Whether that yet.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. <unk> for closing remarks.
Thank you Ryan and thanks to everyone for joining.
And we look forward to speaking with you when you will report our fourth quarter in February.
And as I said, we expect to be another quarter. It was positive earnings and free cash flow. Thank you very much.
Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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