Q2 2021 Gaia Inc Earnings Call
You're currently holding for today's conference call to discuss Gaia incorporated financial results for the second quarter ended June 30th 'twenty 'twenty..1 at this time, we are assembling our audience and will be underway and about 2 minutes. We thank you for your patience and.
And I say you please remain on the line.
[music].
Good afternoon, everyone.
And thank you for participating in today's conference call to discuss Guy incorporate its financial results for the second quarter ended June.
30th 'twenty 'twenty 1.
Joining us today are of Guy of CEO, Yaacov recipe and CFO Paul Tarell.
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 the fall.
And it constitutes the safe Harbor statement under the private Securities Litigation 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 subscribers.
Of course, and retention rates acquisitions, and other risks and uncertainties detailed from time to time and 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.
Please note that today's call is being recorded and.
And with that I would now like to turn the call over to Guy as CEO Yoga recipe. Please go ahead.
Thank you Jamie and good afternoon, everyone.
Yeah.
Revenues for our second quarter increased 20% to $19.4 million the 770000 members.
Gross margin was steady at 87, 1%.
Even with 20% of the revenue growth, our operating expenses and dollars actually slightly decreased improving significantly as a percentage of revenue to 84% from 1 on 1% a year ago.
Net income improved by 3.1 million.
<unk> <unk> per share from net loss of 2 and half of million and 13 cents loss.
As a percentage of revenue this represented an 18% improvement.
EBITDA improved to $3.9 million, which is now 20% of revenue from 800005% of revenue and you.
A year ago quarter.
This improvement.
We're driven by an increase in gross profit per employee.
And almost 100000 of 23% to 535000 from 436000.
And Paul will now speak to more about the results. Thanks Erika.
Revenues for the second quarter increased 20% to $19.4 million with gross margins steady at 87, 1%. This marks our fifth consecutive quarter of revenue growth over 20%, while generating positive income and EBITDA. We ended the quarter with 770002 hundred paying members.
The total member acquisition costs during the quarter were $7.7 million or 40% of revenues, which improved from 52% of revenues and the year ago quarter.
And the digital advertising market continued to be crowded and competitive during the quarter, which caused an uptick and our per customer acquisition cost to $74.
Even with this uptick our lifetime value to customer acquisition cost ratio is still over 4 and a half to 1.
Despite the challenging paid media market, we were able to drive 20000 net adds during the quarter, while staying within our overall target spend level.
Our net growth for the period benefited from an annual renewal rate north of 60% for the large cohort of annual members. We added during the lockdowns that occurred in the year ago quarter.
The strong renewal rate of the Covid cohort as the World has started to reopen and a variety of new streaming services have been launching as a testament to the quality and size of our original content library, and our focus on and underserved niche audience.
We also saw the benefit of early traction and our ambassador program that our new internal sales team has been focusing on scaling globally.
Selling and operating expenses, excluding marketing and member acquisition costs, and the second quarter for $7 million or <unk>, 36% of revenues, which improved from 37% of revenues and the year ago quarter.
And G&A expenses and the second quarter improved of 1.5 million down from $1.8 million and the year ago quarter.
EBITDA improved to $3.9 million or 20% of revenues and the quarter from <unk> 8 million or 5% of revenues and the year ago quarter.
And again this marks our fifth consecutive quarter of generating positive EBITDA and the first quarter, we have reached the 20% threshold.
We generated net income of 600000 or <unk> <unk> per share during the second quarter of 2021 and improvement of $3.1 million from a net loss of $2.5 million or <unk> 13 per share and the year ago quarter.
We've been able to flow through to net income almost 100% of the incremental revenue is generated in 2021 compared to the same period and the prior year.
Cash flow from operations increased to $4.3 million during the quarter and improvement of $2.4 million from the second quarter of 2020, and our seventh consecutive quarter of generating positive cash flow from operations.
We increased our content investment during the quarter as planned while also increasing our overall cash balance to $13.7 million.
And with 80% of our monthly viewership on original programming and our end to end content production fully in house. We have continued to control the costs on a per hour basis to ensure that our new content is providing the high return on investment at our current member levels.
Live events of restarted and full swing with the successful event completed in July and upcoming events each month from August and November.
As we look to the second half of the year, we were putting our energy and to growing the premium memberships here.
We will be utilizing the upcoming events combined with a growing ambassador and network to promote the $299 premium annual offering the new potential members as well as the concentrated focus on educating current members on the additional value of this premium offering.
This will allow us to continue to drive revenue growth and profitability, while reducing the business model is dependent on paid media spend to drive member growth.
Monthly are 2 of our average revenue per user for the premium offering is $25 compared to our current blended monthly <unk> of $8.50.
With the operating margins on the incremental revenues north of 50%.
As a result of this focus start to compound we expect to generate higher our operating margins as similar revenue levels, resulting and increased profitability.
With that I'd like to open up the call for questions operator.
Thank you if you'd like to ask the question. Please signal by pressing star 1 on your telephone keypad and if you're on speakerphone make sure of that your mute function is turned off for a lot of your signal to reach our equipment given the the star 1 to ask a question.
And we will go to our first question from Mark Argento of Lake Street.
And then Paul and good afternoon, and New York.
Quarter, just wanted to drill down a little bit on the plane. The maybe just talk a little bit about what incremental content you get their lives.
The lives components of that and then just wanted to also talk a little bit about the ambassador program and if there's any updates on that as well. Thanks.
Sure so from the premium offering perspective, the events and our Gaia sphere event center here, the incremental content that those members get and because of Covid and the restrictions, we werent able to produce any new content and 2020 or the early part of 'twenty 'twenty..1. So now we've had as I mentioned.
For the July event, and we have events each month from August through November so not only do we have the catalog of the events that have already been completed but we have these upcoming ones that are come in as well and we expect to be able to roll out the 2022 preliminary calendar sometime in the fall as well so from a value perspective, it's really about getting.
And that access to the conference style or workshop style content as opposed to the kind of lean back watch on your couch type of content. So that's really the key there.
And it's fundamentally intertwined with the ambassador program, because if you think about the price point of the premium.
Subscriptions here, it's a lot more lucrative for our ambassadors to be promoting and marketing those events and that premium tier because of the way that the Rev share economics work. So we as I mentioned on the last call. We had our SVP of sales start March beginning of March she is.
We're amped up and starting to hire and the ambassador network is starting to grow.
Great and then just the 1 other quick 1 in terms of the EBITDA margin.
And it was looked to be pretty strong.
In terms of any philosophy around.
Good day.
You hit a certain threshold.
And there are accelerating growth I know you've been playing around 1 point.
Yes, it's kind of pull out everything back.
And when the market didn't look as good and you're kind of throttled that back and we're able the.
Togo and kind of on and off here or any thoughts on now that you are generating cash and I'll look.
Great.
Yes incremental margins are.
Yes.
And I would think about re accelerating the growth rate or what do you do with that extra free.
Free cash and the church pile up.
So as the kind of vision.
Definitely it's kind of set of the beginning of the year, we like to kind of refocus a little bit of more on the gross on the next year and we took on 2022.
While we still have 1 EBITDA margin to grow.
There's a lot of leverage.
Do you see the how much of your contributing for on incremental revenue so but.
We'd like to absolutely refocus on the growth from starting next year or so it's really it's wide and bus out of network is kind of what's going to be of Maine, and the growth factor, but as Paul said, you know for us because since we really focus on profitability and cash flow as well.
And to getting more of our members to subscribe for our premium because here's the big difference obviously, a few pay monthly 8 bucks for 25 Bucks because of the cost of are similar so we wouldn't like to also put some focus on getting more people on the premium because of profitability.
So you're going to see probably from now on our revenue and.
The subscribers kind of little diverge and because the revenue will grow more and more people subscribe to the 300 all of the membership.
Alright, Thanks, guys I appreciate it.
We'll move to our next question from Eric Wold of B Riley Securities.
Thanks.
Afternoon.
So a couple of questions I guess, Paul you mentioned, obviously the focus on the ambassador program and the and the premium subscription will lessen your dependence.
On paid media as that becomes.
More competitive during the economic restart.
Maybe just give us a sense of how you for what you are spending on paid media How'd you pivoted.
And spend and have you kind of shifted where your focus is going to get more bang for the buck or kind of have you adapted.
Yes, it's a good question I think that there's a couple of things at play here..1 is the reopening as you guys mentioned as you mentioned so there is a lot more advertisers coming into the digital space than there would have been historically at this time of year the.
Second piece that we have is the iOS for 14, and the privacy restrictions that have rolled through there are a lot of the tools. The digital advertisers historically used for performance based marketing has started to become a bit challenging.
As the various app providers respond to Apple's changes and their terms of service there, but for US we really focus on using the first party information to go after our audience, where they are and for us that means that we've been able to move pretty heavily away from paid social media over the last year plus.
And now Youtube is starting to become a more worthwhile for us both in terms of the costs, but also in terms of the volume that we're able to drive from it and then just the bread and butter paid search and SCM and those are really starting to build for us as we continue to grow our reach and size and scale globally.
And also there and kind of in perspective.
2 of the day marketing as a percentage of revenue from 52% of last year to 40% of this year and this also give us a little bit of.
The restriction, we we obviously try to.
Control of that span so debt.
Also put.
Yes to this kind of the drive for do we want out of this premium members.
Okay.
How should we think about overtime as you.
Maybe it less dependent on.
<unk>.
The paid media and more towards and bachelors and kind of.
And how they will be compensated how should we think about how that shifts share your spend kind of.
Philosophy and total is the total dollar amount of the unchanged kind of move in the buckets are you did you actually get more efficient on from the lower spend.
So I think it's the the the way we think about it is as a percentage of revenue. So today, we're in that 40% target range as we look at the economics of the ambassador model, we're trying to move that closer to 30% of revenues all and so as you get more shift to that channel then you can bring.
The marketing as a percentage of revenue down and while still driving the growth rates that we're targeting a and then and the future of that would allow us to potentially allocate more of the revenue to the content. If you remember we said, 20% is our target for the near and mid term, but ideally I'd like to see that longer term more.
On balance with the marketing spend as a percentage of revenue.
Alright, and then just final question.
The 60% renewal rate for the.
The kind of the lockdown cohort of subscribers was that for those the joined on the annual plan and if so do you have any kind of sense of.
How successful you were on retaining ones the kind of came on.
And the months and maybe maybe left or come back and kind of aspect.
Aspect there.
Yes that was just for the annual plan the monthly people behaved very similarly to how our monthly members behaves independent of Covid, albeit in a bigger way, but what we do see is that with our content that we're continuing to push out and promote we do get a decent number.
Of returning monthly members that might cancel or go away for a few months and then come back and re sign up.
And we've actually implemented a product feature where a monthly member can put their account on hold for up to 3 months. So that we don't lose them from a head.
Of churn perspective, and then they have to re sign up and where we're seeing some positive trends there for people that might just want to take a couple of months break and then come back without losing visibility into them. So that's a positive for us as well as we've seen pretty consistent monthly member behavior that they want the flexibility to pay as they use it but they also have.
Hi intent of coming back.
It's helpful. Thanks, a lot.
And we'll go to our next question from Darren <unk> of <unk>.
Ross capital partners.
Hey, guys good afternoon, and thanks for taking my questions.
The first how aggressive do you in terms of marketing spend in terms of Upselling.
Hubs on the premium product or just going after new gross adds and general.
Most of our marketing initiatives and the quarter were focused on going after subs and general because if you recall, we didn't really get out of the the shroud of capacity restrictions until mid Q2. So we really didn't want to put any major emphasis behind.
The events and case, we had to pivot and it all however, thankfully and and Colorado, where we've been moving more and more to clear and open which has given us more confidence and our ability to have the events and therefore start to push on it but I'd say the primary focus is around educating and converting existing <unk>.
<unk> to that higher price point, and then using the talent that are coming in and around their events and whatever marketing.
They might have on their own to really drive the new audience acquisition for the premium offering and we have a relatively.
Visible and the social media World talent coming and for the September event, and we expect that to be of pretty good catalyst for us what their show launching in August and in the event in September we'll be able to feed into not only members, but also the upsell opportunity for the premium members.
But also over the last 3 or 4 quarters are a lot of focus on what's still to really make sure. We stay profitable of his positive cash flow.
And on the level of and the VR right now we can spend more time thinking about the growth because this is the.
Gross who would we have really put as much more solid way on the the profitability of profitability.
Equation, so as Paul said now it's kind of more focus and whats. The next step and tried to accelerated growth as we go to the next year.
And then on international like out of the 20000 ads and the quarter like like what was mix and any any markets you would kind of call out and then as you go to your point about accelerating growth like like how pivotal is.
Critical excuse me as the <unk>.
International some of the acceleration of growth.
Yes, I Wouldnt say its critical but it is definitely 1 of the levers that I like having that my disposal, particularly as we see the U S paid media market getting saturated and the prices going up that's not the same case around the world, we've actually seen our with our Spanish offering and our focus on building and bass.
Or is that we've actually seen quite a bit of traction on the ambassador front, and Mexico, Central and South America, which while that didn't contribute meaningfully to the quarter's net adds it is building the capability for us to continue growing more and the future down there.
And so that was a big big area of opportunity for us that we saw and we couldnt do it with our traditional marketing initiatives. So this is a way for us to get more word of mouth marketing and those regional areas down and central and South America.
And then just last 1 for me.
Given the inflation is prevalent everywhere and I know you guys run your on content House is there anything and in the logistics of creating content that is actually increase the cost to produce that for you guys and how say versus 2019 levels of the baseline.
No not at all and it's actually we invested lot of money early to try to avoid the AD because pretty much all of our contents of the and with our full time employees.
If you don't see that pressure at all so I mean, we might be having low more like music and all of the shows and more animation. So we consciously kind of increases increased the.
Our production.
Quality of as number of subscribers, but it's totally internal doesn't really have we have virtually zero pressure from outside on on it.
Content cost.
Okay.
That's good here thanks, guys.
And as a reminder, you May press star 1 on your telephone keypad. If you have a question at this time that is star 1 for our questions.
And we will go to Peter Robyn for Arco capital.
Hey, guys.
Hey, so.
I was kind of curious you guys have been doing this for about 5 years and.
Congratulations on getting to.
And to almost 800000 subscribers I'm curious, whether you have a little bit better idea on your total addressable market like what changed and the last few years.
And what you've learned whether you discovered new potential clients or.
And maybe some sort of that's taken off so any color on that would be great.
Yeah, I will say anecdotally I I see our addressable market expanding every day with the world events that are going on around us and now mental health and some of the challenges of separation and becoming more and more prevalent I see a lot of opportunity from that perspective to be a resource.
And helping people move through to the other side of this whatever that looks like for them.
And we stay away from things that drive separation and really try to not use fear and any of our content and I think that it'll start resonating with more and more people as we move through the current situation that is gone on around the globe and then we also obviously have the benefit of.
Investing and Spanish French and German, which wasn't really part of our original addressable market. When we started with the English only so we have expansion there and then and the third piece that we have is obviously within our ability to mine our data and start to call out sub segments of our existing audience that we can start to pro.
<unk> content for we're able to take if you will niche is of niches and actually start to give them some love and get them to grow and then use that to.
Go out and grow the audience as well so I didn't answer your question with any specific numbers, but I would say that our early targets for our total addressable market are just continue to grow as more and more households move digital first and get comfortable streaming and then also as the people become more aware of.
On the content and the topics that guy of covers and the fact that we're a pretty exclusive resource for the depth and breadth of content that we bring and the technology that we use to deliver it. So I'd say everything is going on the right direction from the addressable market perspective.
Great. Thanks, so much for that color and then maybe you know I think like the media industry is kind.
And what I don't really use the word turmoil of more of a influx and the last few years and I am sure that changed that.
Affect certain ways you guys looked at from business development too.
Cause that and focus to customer spend 2 potential combination. So im just curious whether you guys have any thoughts or color that you would be willing to share with the.
With us.
I guess your thoughts on the current state of the media industry and what are you guys think you fit into that.
No.
Yeah, He's a loaded question.
Yeah, it's definitely like question, but I think it's like even 5 years ago. A lot of question was about validating of streaming right and for different markets different segments. I think that's totally disappear right. Now you have lot of players who've kind of launch day business some of them struggle.
And they started of combined to create like better offering and.
And you started you see of difference in quality of execution. You know if you compare like say Netflix compare like Peacock, It's night and day.
Obviously, netflix of the benefit of doing it longer and kind of debugging. It so some of the players.
Day subscription quality is still kind of lagging behind the standard and I would say, if let's say Netflix being a stand out right now.
And but definitely the our new market entries, so and making more difficult on the advertising market on the other side, it's really more oh all of them, we would see competition and our size. The we didn't really see and entries in our space and if you want to kind of keep staying and being.
And the niche, but you know there's definitely.
Defining of the market will happen and its still going to happen. Its kind of what is this offering looks you know how would you expect to have and not have its changing but overall it does not affect us much we didnt see assured of the and you see it kind of like year.
Our ago.
Virtually everybody nobody knew how to deal for save is the new.
Restriction to cover the restriction so to advertising market and give much looser.
And now it's more tightening probably's I'm not sure I have the how much is the impact of Madhu should probably some impact on the Olympics, but I wouldn't see that you really of fixed us that much.
But there's definitely some so you have these events as you kind of you know typically media events, but I think and the whole advertising markets developing do you have of changes.
Apple driven.
The way out of <unk>.
The I phone. So you have to all of these adjust to it but.
I would say from our point is not directly impacting us I think it's much more would redo the and what other people do.
Okay great.
I really appreciate you gave and the.
The color.
And I'll, let somebody else take the question.
Thanks Peter.
Well.
And so at this time this concludes our question and answer session.
I would now like to turn the call back over to Mr. Rysavy for closing remarks.
Thank you Jane and thanks to everyone for joining.
And we look forward to speaking with you when we report our third quarter, which will be in the early November. Thank you very much.
Okay.
And for ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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Yeah.