Q1 2021 Gaia Inc Earnings Call
Please standby.
Okay.
Good afternoon, everyone and thank you for participating in today's conference call to discuss Gaia, Inc. Financial results for the first quarter ended March 31, 2021 Joy.
Joining us today are Gaia CEO, you worked at <unk> and CFO Paul Tarell. Following some prepared remarks, we'll open the call 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.
And Reform Act of 1995, the matters discussed today include forward looking statements that involve numerous assumptions risks and uncertainties. These include but are not limited to general business conditions historical losses competition, changing consumer preferences subscriber costs and retention rates.
Acquisitions, and other risks and uncertainties detailed from time to time.
Filings with the Securities and Exchange Commission, Inc.
Putting all the reports on form 10-K, and form 10-Q, Gaia assumes no obligation to publicly update or revise any forward looking statements with that I would now like to turn the call of the Guy Who's The CEO Yorker recently. Please go ahead Sir.
Thank you and good afternoon, everyone.
So 2021 is a two day to a great start.
We continue to execute against our plan of consistently growing revenue, while generating positive net income and the cash flow.
So revenue for quarter increased 30% to $19 9 million as.
As we crossed the 750000 member milestone.
Gross margin increased to 87 point of 1%.
And even the visit of 30% growth so revenue our operating expenses.
Stay flat flat in dollars.
Rich.
Obviously improved significantly as the percentage of revenue to 85% from Hunter no 9% of year ago.
This a big improvement was driven by a 39% increase in the gross profit per employee.
Two 531000 from 382000 a year ago.
EBITDA grew 35 million, a 35 million of 19% of revenue for a loss during the year on year ago quarter.
We generated net income of 358000 of two cents per share and cash flow from operation of $5 2 million.
And Paul will talk more about these numbers.
Thanks for your revenues for the first quarter increased 30% to $18 9 million with gross margins also improved to 87, 1%.
This marks our fourth consecutive quarter of revenue growth over 20%, while generating positive EBITDA we.
We ended the quarter was 750100 members, which keeps us on pace for our target revenue growth of 20 per cent for the year, while maintaining profitability and positive cash flows.
Beginning in October 2019, we experienced the shift in the initial plan selection for new members from 10% to 30% selecting the annual plan.
Members on the annual billing represent of core upsell opportunity for our $299 premium live access annual plan, which we.
We'll now begin promoting more aggressively.
Total member acquisition costs during the quarter for $7 6 million of 40% of revenues, which was improved from 52% of revenues in the year ago quarter.
We did see some relief during the quarter on the pricing and the digital advertising market, which allowed us to bring our of per customer acquisition costs in line with the prior year quarter at $68.
We recently hired our new SVP of sales to build up on the recent early traction and our member driven growth initiatives. She will be focused on growing our member ambassador sales team to go after a sizable global market opportunity.
Selling and operating expenses, excluding marketing and member acquisition costs in the first quarter were <unk> 7 million or 37% of revenues, which improved from 47 per cent of revenues in the year ago quarter.
Corporate and G&A expenses in the first quarter of one 5 million in line with the year ago quarter.
EBIT improved to $3 5 million or 19% of revenues in the quarter from point negative point of 2 million or negative 2% of revenues in the year ago quarter.
This marks our fourth consecutive quarter of generating positive EBITDA and puts us on an annualized EBITDA run rate of 14 plus million, which is almost double of the full year 2020 EBITDA.
We generated net income of point of 4 million or <unk> <unk> per share during the first quarter of 2021, which is an improvement of $4 million from a net loss of $3 6 million or 19, 619 cents a share in the prior year quarter.
This increase reflects the fact that most of the incremental gross profit generated in the first quarter of 2021 compared to the prior year quarter flow through to net income.
Cash flow from operations increase of $5 2 million during the quarter, an improvement of $3 2 million from Q1, 2020, and our sixth consecutive quarter of generating cash flow from operations.
We increase our content investment during the quarter as planned while also increasing our overall cash balance to $13 million.
With 80 per cent of our monthly viewership going to our original programming and our end to end content production fully in house.
We have been able to control the costs on a per hour basis to ensure that our new content is providing a high return on investment given our current member levels.
With the significant improvements we have made in our operational performance over the past two years and the financial stability. We have created with the sale of a portion of our corporate campus.
The September 2019, excuse me 20, and the predictability of our cash flow is going forward. Our board has authorized a 5 million share repurchase program as announced on our earnings release, we filed this afternoon.
This will provide flexibility as we look to optimize return on shareholder capital as we continue to focus on growing revenues operating margins and cash flows.
With that I would like to open up the call for questions operator.
Yeah.
Thank you Sir if you would like the signal with questions. Please press star one on your Touchtone telephone if you're joining us today use a speaker phone. Please make sure the new function is turned off to allow your signal to reach our equipment.
Once again that is star one if you would like the signal with questions and our first question will come from the line of Darren <unk> with Roth capital partners.
Hi, guys. Thanks for taking my question and the nice job on the quarter of three if I may just one.
Paul you talked about annual adds our annual of mix I'm. Just curious of that stayed consistent are the on the annual plan of 30% in the quarter.
The second one it looked like our two ticked up I'm. Just wondering is there any movement from the premium live events business, yet or is that more of a second half of the year and then you talked about or reiterated your 20% of kind of growth objective for this year was kind of curious your.
Thoughts on operating leverage versus gross and if it's more skewed towards operating leverage.
It looks like your costs were fairly flat. So should we think about the business is growing 20% and.
The modest if any operating costs.
Cost growth and is that the right way of thinking about your business in 2021. Thanks.
Sure. So just taking the top to bottom of the annual mix has been relatively consistent absent a few promotional things that we do the push the annual plan given a certain times of year like around Thanksgiving and the holidays, but yeah, it's been pretty close of that 30% level. Since we made that shift back in October.
From the <unk> perspective, actually my number show a slight tick down in Q1 from where we were in Q4, but to answer your specific question. The live events are not going to be a meaningful contributor to revenues this year likely because we're limited out of it.
Her event capacity of about 50 people. So the ticket revenue is not going to be that interesting, but what we are focused on is building on the $299 annual premium digital subscription, which I mentioned in my prepared remarks, but that'll take a little bit of time to build so it didn't meaningfully contribute in Q1, and we expect it to.
To help out in the second half of the year.
And then in terms of the operating leverage a lot of what we focused on through 'twenty 'twenty was getting over the hump to generating net income and overall cash flows and we did that in July as planned and then we kept our head count and expenses relatively flat through basically February we had some.
Six people start in March.
And so that's not reflected in the full quarter operating expenses, but what I will say is we're focused on staying net income positive and generating cash flows, but not being happy with future years revenue growth of only 20%. So we're gonna start investing as we mentioned on the last call and it's in those growth areas, which will require some incremental head count.
I'd like to add to it so when you look at the gross obviously, we went from a marketing as a percentage of revenue of being you know historically in the higher 20 per cent of revenue to down to 60 than 50 56 of them now.
Now are we at 40, so it's really the goal is to obviously bring the cost of.
The.
The acquisition of marketing costs down while the growing 20% plus obviously first quarter 30 per cent.
But.
We want to kind of continue to bring the cost of a down but we were not kind of invest in December center of the member driven growth.
Model as we talk about it starting next year. So we want to get these numbers of higher but keep the marketing cost dropping as a percentage of revenue.
Great. Thank you.
Thank you. Our next question will come from Eric Wold with B Riley Securities.
Thank you and good afternoon, everyone is the couple of questions as well as of May I guess I guess one.
How should we think about the strong quarter and subscriber numbers were those more a function of.
The more efficient spend and subscriber additions or a reduction in churn.
It was the combination of both I think when we look at the quarter and we look at what happened a year ago, we didn't really start seeing the benefit of the quote unquote lockdown sign up volume until the back half of March. So Q2 is going to really be the quarter that we see that big way.
Of that we saw from the year ago and so this the the subscriber add was in line with our expectations I know, there's probably a little bit ahead of where your numbers had us but as we think about the quarter that we're going to have a challenge it's going to be.
Q2, just given the volume of renewals that we have historically 2020 as an anomaly Q2 has been the softest quarter from a net add perspective, if you look back over the historical years, but all of that being said, we're still confident in our ability to be able to drive 20 per cent revenue growth for the year, while maintaining positive net income in.
Cash flow so even if there is a little bit of headwind in Q2, we're not.
Too worried about it based on where we are now.
Yes.
Two of us.
We go into the start to get a little more from our recall that <unk> is the premium subscription of $300 per year.
So there is of you know more focused on that than getting.
You know, let's say pushed some other of them.
Way of.
The membership so the really kind of a lag of that to make the the $300 push so.
Revenue of members of my separate little bit Ah, but.
Generally the very pleased where what actually happened we kind of.
We're not sure of is you kind of saw at each different of reports on market, but actually came for us even though I know the quarter was pretty pretty good.
Yes, so just to give that in the soundbite Eureka what what he said is we're focused on migrating more members up to that higher ARPA of 299 plan and focusing on specifically.
The growth if the market's not there for us to take advantage of it during the summer.
Okay, and then you talked about seeing some can really you can advertising rates I guess, what are you expecting going forward in <unk>.
You're kicking the can change of shifting and how you allocate your spending across the various channels because of it.
Yeah. We are we manage all of our spend in house, we don't put any of it out to an agency. So it allows us to be very nimble and take advantage of any day to day trends that we're seeing and so we've reduced our dependency on them are predominantly largest source.
Source of traffic from down to sub 15% and that gives us a lot of flexibility as we try to optimize our spend generally I would say, where we are right. Now is the per subscriber number that I feel comfortable with the plus or minus 10% on either side of it being able to do what we're trying to do and.
We made it through the toughest period, which was Q1 with the you know of.
Quote unquote reopening trade happening and you've probably seen all of the headlines about the digital AD market after Facebook and Google on the Big platforms released in their expectations of that more and more money is going to be moving online the benefit for US is we're very targeted in who we're going after so we're not trying to just spend X amount of money, we're looking at the <unk>.
<unk> and we can do that very effectively.
And also you know by basically focusing on the the $300 of live Axis. You. It's obviously our goal is to generate more cash and as well I mean as of.
The percentage of for the incremental growth of annual growth, what's dropping to do our pre tax line. It's free high you know, we kind of expect this year somewhere 50% to 60% of incremental gross to drop to bottom.
<unk>, even had a little more last year and the but a lot of that is kind of increase in the.
Because the cost of acquisition of for the customer at $300 has no debt difference S is for.
The regular subscribers.
Got it and then the final question I guess, how does the kind of more aggressive move in.
On the international markets impact your planned.
Media spend versus current levels and how do you how are you.
Plan going forward to focus your budget on media spend in terms of your your since driver of revenue growth plans.
When you say meet media you mean our content.
Yes, yes, sorry, yeah. Okay. So when we gave the guidelines on last call that we're looking at ramping up to about 20% of revenue is being spent on content investment, which as we continue to scale means that as we exit this year the additions to the content of investment library should start to occur.
Proximate what were bleeding off each month through amortization and that's the targeted focus of the model and so on the question gets down to how do you allocate that spend to the different languages, what we learned from our growth.
<unk> growth into the Spanish market over the last three years as we have an opportunity to go in and license or acquire.
Really good content for a lower per hour cost then we would likely be able to do it ourselves given that we'd have to identify someone over there to do it for us. So one of the areas that we're looking at is is there a library of investments that we can make which again is exactly how we played it with the Spanish language and so it'll be opportunistic from that perspective and the.
Work on might have a few things to add well yeah. It's like the cost is roughly the same if you go do it ourself on.
So it's we can probably do it little cheaper actually if you do it ourselves but takes longer. So so it's kind of of the opportunity of your prepared to do both none of them on a really significant numbers.
For 2021 of its again created basis, we don't expect expect a lot of growth from dose country. This year.
Got it. Thank you guys by General General cost per acquisition on those market is lower than the United States.
And once again, if you would like the signal with questions. Please press star.
One on your Touchtone telephone.
Again star one.
If you would like to ask questions.
Our next question will come from Mark Argento with Lake Street.
Hey, good afternoon guys.
Thank you.
It kind of on the philosophical.
Of the thinking around it.
Buyback versus growth of the road capital.
And you're thinking about the spending on customer acquisition on <unk>.
The buyback you've put in place.
What's the criteria or the.
The process there.
On that I, just wanted to make sure. The you said $5 million of 5 million shares price.
You bet Mark So, yes, it's 5 million shares the purpose of putting that in place was really to re authorized management to have a buyback in place. We've had one historically in place for many years and it just lapsed as we made the transition over to Gaia. So we wanted to get that back out there for optionality.
All of these sake as we look at the world into the future we see a.
Much rose year horizon on investing for growth then pulling back even more flow from the public market, but that being said there is periods of time, where it skewed so heavily into the favor of doing a share repurchase because of the market dynamics that we wanted to be able to have the flexibility to be able to do that.
But our primary focus is going to be on growth capital and driving incremental growth above 20% not necessarily by spending more on marketing the by spending more on these other initiatives member driven growth in for.
Professional ambassador groups the.
International expansion into the French and German and potentially other languages as we look out into the future years.
Then really about reducing our overall dependency on paid media to drive our growth. So that we can decouple the growth rate from our spend.
But again it was put in place from an Optionality perspective, not because we want us necessarily start reinvesting heavily in shrinking the flow of anymore, but it needs to be there because it is a.
Necessary tool on my tool kit as I think about balance and shareholder return on on the Tioga.
The.
That's helpful. Thank you.
What about additional channels or.
On time.
Hello.
Any other roadmap for additional channels that you guys are thinking about launching.
And the that the opportunity for M&A and maybe some tuck in acquisitions on the content side.
Hey, guys. Thanks, Thank you Beth.
Yeah. So we're focused this year on what I would call connecting the dots between our existing topics. So that we can understand based on the work that we're doing with on our member journey analysis that our data in.
Engineering and product teams have been looking at to understand where can we create.
We will call it filler pieces of content to connect our vast and deep library of content before we need to look at expanding into other verticals that being said we are also looking aggressively internationally to see if there is opportunity to bring in.
500 or of 1000 native language titles in French or German or Spanish because we see the benefit of doing that based on how we grew our Spanish audience with the relatively efficient content spend and then it allows you to go to market and as <unk> already alluded to the per subscriber acquisition costs in those new markets is.
Significantly lower than it is in the U S. Because theres not so much competition.
That's correct.
On the solid quarter, so from a watch you guys. Thanks for.
Thanks.
Thanks Mark.
And our next question will come from Peter <unk> with Arco capital.
Hey, guys I think the true.
Most of my questions on the on the previous I.
On the previous one but I'm just curious.
What's your what's your media budget for the rest of the year.
The content again because of what we're referring to.
Yes generally yes.
That's okay generally I would say Q1 is a little higher than other quarters, just as we renew of lot of our ongoing shows. So generally you can look at Q1 has been on a reasonable proxy for the rest of the year as revenues continue to grow. So I think we were you know.
$4 million and change for Q1.
So you can just annualize that.
And then do you have.
You know on the buyback.
Is there a price where you would buy more or do you guys have some sort of strategy for that.
No comment on the price, but I think I alluded to the strategy on the on Mark's question, It's really as we look at our internal analysis and understanding of what drives shareholder value. We want to make sure that we had something in place that we could take advantage of dislocations in pricing whatever that may be in there.
It's not a static equation because it's also looking at what is our other investment opportunities on the horizon, because with our cash flow from operations, where they are you know Q1 over 5 million of quarter, we have quite of bit of flexibility, particularly understanding that content investment is.
Almost of 100% discretionary from period to period.
For us to look at where we would want to put that incremental cash.
Great well, thanks, so much for answering the questions congrats on a good quarter.
Thanks Peter.
Thank you at this time. This concludes our question and answer session I will now turn the call back over to Mr. <unk> for closing remarks.
Thank you.
Everyone for joining us and we look for speaking with you when we reported our second quarter.
Somewhere in early August.
Thank you very much.
Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.
You for your participation.