Q4 2020 Gaia Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss Sky, Inc. 's financial results for the fourth quarter and full year ended December 30th 2020, joining us for joining us today excuse me, our Gaia CEO and CFO.
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.
Following constitutes the safe Harbor statement under the private Securities Litigation Reform Act of 1995. The matters discussed today include forward looking statements and involve numerous on some assumptions risks and uncertainties. These include but are not limited to general business conditions historical losses competition changing consumer preferences.
Subscriber costs and retention rates acquisitions, and other risks and uncertainties detailed from the time in our filings.
With the Securities and Exchange Commission, including our reports on form 10-K, and form 10-Q, Gaia assumes no obligation to publicly update or revise any forward looking statements and with that I'd now like to turn the floor over to Gaia CEO Jukka recently. Please go ahead.
Thank you and good afternoon, everyone.
So we ended 2020 on a very positive note.
Achieving all our gross generating positive net income and cash flow for the year, while growing our revenue said were 20%.
Revenue for the quarter increased 27% to $18 6 million or gross margin increased to 80, 721%.
We ended the quarter with 728000 members representing net adds of 31000 for the quarter and hiring 29 thousands for the year.
Okay.
Even if it's just gross we were actually able to reduce our overall expenses even in absolute dollars to 62 8 million interest from $64 8 million a year.
Year ago, and as a percentage of revenue.
For revenue.
294% from 119%.
Partially due to improvement.
Our gross margin gross profit per employee by 37% to 525000 for I'm sorry on the 84000.
During the fourth quarter, we generated net income of 300000 or two cents per share EBITDA of three and a half million or 18, 8% of revenue and cash flow from operation for in house on 24% of revenue.
For the year, we have transitioned to a positive income of half a million on <unk> for sure.
Its just an $18 7 million an improvement from last year loss for 18 22 million or a dollar a share.
EBITDA improved by 15 million on 22% of revenue to a positive seven points from everything from a loss of $7 6 million.
Oh lifetime value of it.
The average member also improved to over $320 from $300.
Okay.
Oh cash position at the end of the year grew to $12 6 million for reversing year on year. So the cash use.
On increased to $1 1 billion 40 year on St 9 million for the quarter.
While these matrix. This represents all time best for Gaia since we sold the legacy Gaiam branded yoga for IDEXX in July 2016, and focus exclusively on building our direct to consumer digital offering.
We have completed the thought of I would call. The final phase of our transition to sustain that both pure play streaming video platform.
Then it's able to continue to grow revenue over 20% while growing profitably.
Growing positive cash flow.
Does the sales do yoga for IDEXX as 2016, we have grown revenue at a 46% compounded annual growth rate and members.
38% of our CAGR.
Same time as improving EBITDA margin from negative 99 zero percent in 2016 to positive 11% in 2020 and 19% in the fourth quarter.
And Paul will speak more to the results.
Revenue for 2020 decreased 24% to $66 9 million with an improvement in gross margins to 87, 1%.
For the fourth quarter increased 27% to $18 6 million with gross margin is also improving to 87, 1%.
We expect to be able to maintain or gradually improve these margins going forward.
We ended the year with 727600 members, which represents a net growth in line with our expert expectations for the quarter.
For the year, we added 129000 members and also crossed the threshold needed to continue to grow revenue is 20 plus percent, while maintaining profitability and positive cash flows.
Selling and operating expenses, excluding marketing and member acquisition costs in the fourth quarter were $6 3 million or 34% of revenues down from $6 7 million or 45% of revenues in the year ago quarter.
Corporate and G&A expenses in the fourth quarter for $1 4 million.
For 2020, selling and operating expenses, excluding marketing and member acquisition costs for $25 5 million or 38% of revenues a meaningful improvement in both absolute dollars and as a percentage of revenues from 2019, or we spent $28 2 million or 52% of revenues.
Total member acquisition costs during the quarter were $8 million or 43% of revenues.
As we anticipated the digital advertising market became very competitive starting in October and continuing through mid December.
This impacted our CPA, but we were able to maintain our discipline and still achieve our financial goals for the quarter.
In October we began renewing our first cohorts of new annual members from 2019, when our annual take rate for new members shifted from sub 10% to between 25, and 30% of new sign ups and I'm happy to report that with almost five months of data on the first one who have these groups we've been entertaining.
Or is it a 60 plus percent rate.
EBITDA improved to $3 5 million or 19% of revenues in the quarter from $2 million or 1% of revenues in the year ago quarter.
For 2020, EBIT on improved $15 million for seven 4 million.
11% of revenues from a negative $7 6 million or negative 14% of revenues an improvement of almost 200%.
We also improved our cash flow from operations for $5 million during the quarter.
Sequentially from the third quarter by $1 $2 million or 36%.
For the full year, we generated $11 7 million in cash flow from operations of $14 $3 million improvement from cash used in operations of $2 6 million a year ago.
For the full year, we were able to generate $1 $1 million in cash compared to cash used of $18 5 million in 2019.
We generated net income of <unk> 3 million or <unk> <unk> per share in the fourth quarter of 2020 compared to a net loss of $2 8 million or <unk> 15 per share on a year ago quarter and for the year, we generated net income of.
Half a million or <unk> <unk> per share compared to a net loss of $18 $2 million or a dollar per share in 2019.
As Eric mentioned, we have completed our transition to a pure play streaming video on demand platform capable of generating sustainable revenue growth of 20%, while maintaining profitability and generating cash going forward.
We also own our content production facilities and have a world class team of content creators devoted to our mission ambition that allows us to produce content internally for a fraction of the cost per hour that other streaming platforms are incurring.
Our original productions represent 80% of our viewership on a monthly basis, and clearly differentiate us from other offerings.
As we looked at 2021 and beyond we're focused on continuing to build on our solid operational and financial Foundation, we have laid over the past five years, we have several initiatives that we believe will allow us to accelerate our revenue growth in 2022 and beyond including our premium live access offering for which we now have a solid 21.
2021 scheduled events booked.
German French and Spanish language expansion, including native language original content.
And finally, our Gaia community, which we recently launched an an invite only beta program to our most engaged members.
While these initiatives will take some time to pay off we are very excited about what the future holds for Gaia.
With that I'd like to open up the call for questions Greg.
Thank you very much Sir ladies and gentlemen that is star one on your telephone keypad for any questions. At this time. If you just make sure that you have your mute function turned off to allow us to receive that signal once again star one for any questions.
Yeah.
And first from Roth capital Partners, we have Darren.
Hi.
Yeah, Hey, guys. Thanks for all my questions and congratulations on the transition on nice quarter.
Can you maybe go a little deeper into some of these initiatives on that.
Sure Paul.
For remarks in terms of how that drives growth and then to do with his question.
One is we start 2021 what are you seeing in terms of mix from yourselves coming on and all day.
And then on the marketing side I'm, just kind of curious what are you guys seeing good.
Good traction on.
Other than Youtube channel. Thanks.
Sure.
So the three initiatives that I outlined were one was the premium live access offering which is for you probably remember is for $299 annual offering that we launched in 2019, but then due to COVID-19 and our inability to have events. During the majority of 2020, we didnt really push on.
But now that we're able to start having events, albeit with a smaller audience.
We're starting to really focus on pushing that live access $299 premium subscription so it'll.
But really the revenue catalyst as we continue to build on both the archive of content that we've already filmed and then also having the events coming up and being able to convert members around those events.
Second piece was the language expansion, so we launched German French and Spanish from our site functionality perspective in roughly late 2018 early 2019, but then in our focus to get to profitability and generating cash flow as we really paused further investment in German and French and really only built out <unk>.
Manish. So now we're looking at building out German and French the same way that we did Spanish so that should open up new market opportunities for us as we continue to build on the content library there.
And then the final piece is the Guy community. This is really a twofold value from our perspective, it increases engagement and stickiness with the platform with existing members, but it will also start to create a further catalyst for the word of mouth marketing that we've talked about via our member driven growth channel historically and so this is really the culmination of.
<unk> of what we set out to do five years ago, which was really built to our global community.
Not just a content platform and so all three of those will start to contribute in the back half of 'twenty 'twenty, one and meaningfully hopefully contribute to 2022 and beyond.
There was a party also ask you about on you'll take rate.
Sure, it's about a 25% to 30% of day new members Yeah, it's been hanging in there pretty well it just depends on what were promoting in terms of our content and messaging on whether people take the monthly or annual at that 25% to 30% range and then the final piece. You asked was why are we seeing traction from our market.
Any perspective or.
We're pretty much seeing it across the board on everything is working pretty well for us I would say that organic and member driven and Amdocs are driven referrals are continuing to build nicely and with the community coming online, we expect that to be able to continue to build.
It wasn't one of them is for more than.
If you think about growth.
On a routine profitability goals.
U haul.
Would you ever kind of dip into your EBITDA margins now for them help accelerate growth or they're just for all the setting.
It's between our marketing spend on keeping the Gulf, where we want to be.
Yeah, I think the initiatives I outlined that are really meant to be investing some of that free cash flow in ways that we don't have to necessarily keep flexing marketing dollars to drive growth. So from the perspective of how 2021 shapes up it'll look pretty similar to how Q4 played out in terms of just managing.
The bottom line and cash flows while for it really trying to focus on top line revenue growth at some point that was a model really does start to generate more earnings and cash flows. Then you can reasonably continue to reinvest and so that will start to drive EBITDA margins higher so to answer your question what do we dip into it we have a plan.
On that says we don't need to today to drive the initiatives that we're looking at.
But that being said if there were some other market opportunity like what happened last spring, where we can add subscribers that are really efficient rate. The prudent business decision would be to say go why you cant, but that's not how we're planning.
Great. Thank you.
Alright, moving on from Lake Street capital markets, we have mark.
Argento excuse me Sir.
Hey, Paul.
Congrats on a good quarter I, just wanted to get your thoughts or updated thoughts around.
Although with the channels that you have currently how big of a addressable market you can say job with that compound or your credit card.
And maybe you could juxtapose that maybe some of your competitors out there I know curiosity stream as well.
Don Pablo again was out but no bad debt offering up a nice pop as well for it.
Maybe you can talk a little bit about how you're thinking about.
The Tam there on sub tab for for the portfolio as you see it today.
Hi.
On the addressable market, it's kind of it's what do we see it's kind of go on for them because we were saying you know for years ago.
You know, we should not have a problem to a five to 10 million members. You know easy is it market potential I mean, getting very different story, how fast and all the stuff but.
It's Scott I would say, it's probably somewhere.
You know at 7% of for the old wall addressable.
Streaming.
We can potentially go higher because it's increasing as the basic health and transformation and growth.
Our goal is to scale is a pretty unique content.
Rather than going into the market.
Let's say you have.
Now to Hulu, and Netflix and stuff.
I don't want to really comment on something like curious if the stream. They definitely have a different model as it is I would look and it's it's more of a you know what.
Are you really belief in us.
The way, how we do it in the net.
Negative.
Working capital in a relatively good margin. So as you kind of go there we have a room.
We kind of glad how would you when this year, we were kind of actually really positively surprised or we kind of said two years ago visited transition to profitability. If we kind of hit everything plus and so this year. We went I really look at our spending in two places which is.
Uh huh.
You know later for a year, we launch community.
And also you know using the other income of embossed Center base professional sales organization.
And so that's going to really affect the 'twenty to 'twenty two growth.
Because we believe we can get to some high growth rates.
Starting from 'twenty to 'twenty two.
Yeah, and then in terms of how you see how do we think about the current channels. It's we're really looking at continuing to refine things at a lower granularity than just those top level channels, because we understand from a consumer and an audience demand perspective, we have to be much more granular on how we market. It so it's really more about getting.
And two topics.
Areas of interest rather than launching new channels and just continuing to refine how we make people aware of Gaia and then how we serve them as they become new members and ultimately become engaged sticky members over time.
Yeah, we actually enforce Congress.
Net working capital, we see that our cash.
Cash flow is a higher.
Percentage, then the earnings which was all day salvo.
Uh huh.
And then just one.
Follow up quick.
From the relationship between revenue growth on the subscriber growth.
So do you feel like you can maintain 20 plus percent revenue growth.
It kind of sub growth do you need.
So to maintain that revenue growth for sure and it's.
Something below 20%, but maybe you can just talk about the relationship between the two if your webpage.
Yeah. So there's two drivers of our the average revenue per user one is the number of people that we can convert so the 299 premium offering and.
Ideally that is all upsells are existing members. So that's all incremental revenue with no marketing per se attributed to it and then the second piece is for the roughly about 20% of our numbers that come through our third party partnerships. Those are at net revenue. So that there. So there are less than our stated 11 99.
On a month so those two things.
Offset pretty nicely for 2020, which got us revenue growth generally in line with the subscriber growth. So I'd say going forward. That's how I would think about it from a mix perspective, knowing that members will be slightly behind revenue as we build out the live access premium offering.
But I think for 'twenty 'twenty, one day members.
Got it pretty much from Paul said, you know, it's a debt it.
As soon as we increase the price is two years ago, we have more bumped. The revenue has been going forward. So oh power on indoor so apologize sir.
Yeah.
Great. Thanks, guys.
Once again, ladies and gentlemen star one if you do have any questions. So I wanted to join the queue, we'll move on to Steven Frankel with Colliers.
Hi, good afternoon, thanks for the opportunity to kind of net.
The reported CPA for the quarters for maybe you could just start there.
It was not included in my prepared remarks at this time, Steve but it was as I as I mentioned that we had some headwinds in the advertising market. So it was roughly in the low <unk> for Q4.
Yeah.
Okay and on.
Hopes for option has that advertising market changed materially or you're still seeing.
Those are those kind of rates today.
So I think it was not a factor of the election, that's what made it start sooner in Q4, it was really a function of the amount of.
Spans trying to capture buyer demand going into the holiday season. So we saw that elevated rates go pretty much all the way up until the shipping deadline right before Christmas before it dissipated and it has been.
Turning to go back to the historical rates, but not nearly as good as it was in Q2 and Q3 of 2020. So my expectation is that we'll settle somewhere in the 65 to $75 range on a normalized basis going forward and were in line with that right now.
Yeah, I think we have and especially April and May then there was kind of there.
Cause at some price for the market a little bit so a lot of advertisers pulled back because they know quite how to respond the opposite it wasn't before Christmas then everybody kind of maybe because they have the budget left from second and third quarter to try to spend it for Christmas, but I was kind of overall say if you look.
A year ago and during the year as a balance of next year, it's kind of stable. So it's more like what how much we want to spend.
And also you know we have as our as I mentioned lifetime value keep growing free Terry can have more room, but you know be so far they didn't have to use it you kind of see that our overall marketing as percentage of revenue dropped dramatically from.
From 100, plus 256, and now kind of ROE for each so I think there is definitely.
You know the market I would say its relatively stable, it's up to us how we strategically want to play the game.
Hey on the.
International funds, what percentage of your of your installed base today.
International and.
Their consumption in line with domestic.
Subscribers or do you need to flesh it out more content to kind of get equivalent.
Consumption rates.
So the international members right now are kind of let's call it low for 30%.
How are.
You know if you're kind of talking.
Oh wall users around the world. So we kind of look at it on that.
That basis, but also how many people use like other languages, primarily because there's definitely some.
People, who are let's say, Germany day their subscribers before we get chairman I'll offer and in German right. So you're separating those two.
Usage like for example.
Usage and the kind of what we call our attention.
It's about the same in Germany, there would be in the U S. If you kind of look Spanish its very different if you look our Spanish speaking.
European Carton like Spain, compared to like Argentina. So it's very very different. So I think you have to then look by country or rather than the language. So the answer would be much more complex. If you tried to average stuff, but generally people countries. They have more day envelope the debt kind of.
Great car markets on getting used to it.
The numbers. However, similar once you go to South America.
It's getting more complex.
Yeah.
The debt.
The payment mechanism.
For sure.
Yeah. So that's one of the reasons that we swapped out in 2019, our homegrown billing and transaction processing engine into our enterprise grade solution. So that we can start to onboard these new partners from a payment perspective as we expand.
Geographically so that's one of the areas that we'll be looking to expand on in 2021 are getting more geographically relevant payment options.
Now that the infrastructure's in place to be able to support that.
Okay, great. Thank you.
Okay.
All right, ladies and gentlemen that does conclude our.
Question and answer session.
Portion on the call I'd like now I'd like to turn the call back to Mr. <unk> for any additional or closing remarks.
Well, thank you and thanks, everyone for joining can really look forward to speak with you when viewed on a reported to first quarter of this year, which should be in early may. Thank you very much.
Alright, and once again, ladies and gentlemen that does conclude our call.
Today's for todays teleconference. You may disconnect your lines at this time, we do appreciate your participation.
[music].
Hum.