Q3 2021 Gaia Inc Earnings Call

Ladies and gentlemen, you could be on hold for today's Guy Inc. Financial results for the third quarter ended September 30th Conference call. At this time, we are submitting additional participants if you plan to be underway momentarily. We appreciate your patience. Please remain on the line.

[music].

Please standby were about.

Good afternoon, everyone and thank you for participating in today's conference call to discuss <unk>, Inc. Financial results for the third quarter ended September 32021.

Joining us today is guy as CFO and office of President Mr. 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 for read the safe Harbor language.

The following 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 subscriber costs and retention rates.

Acquisitions, and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission.

Our reports on Form 10-K and Form 10-Q.

<unk> assumes no obligation to publicly update or revise any forward looking statements.

With that I would like to now turn the call over to Guy <unk> CFO and opposite President Paul Teo. Please go ahead.

Thank you Cody and good afternoon, everyone I'm stepping in for <unk> today as he is currently at home battling the stomach bug.

Revenues are up 22% year to date with third quarter revenues up to $20 4 million and gross margin steady at 87, 1%.

We ended the quarter with 790500 paying members, which we believe to be a solid result, when considering Q3 last year reflected the heart of the pandemic.

Member acquisition costs during the quarter were $7 8 million or 39% of revenues.

As we've noted on prior earnings calls the digital advertising market continues to be crowded and competitive.

While the recent trend in CPA is elevated from the levels. We saw during the initial COVID-19 period in 2020, it is still favorable compared to our historical trends.

We are continuing to execute on our strategic plan to reduce dependency on paid media to drive member growth with a concerted focus on scaling our ambassador program globally.

Despite the challenging paid media market, we were able to drive over 20000 net adds during the quarter, while staying within our overall target spend level. This was primarily the result of improvements in our overall retention as our member base continues to season.

Selling and operating expenses, excluding marketing and member acquisition costs in the third quarter were $7 7 million or 38% of revenues.

Corporate and G&A expenses in the quarter or $1 5 million or 7% of revenues.

For the nine months ended September 32021, we improved total operating expenses to 84% of revenues compared to 98% of revenues in the year ago period.

The current year reflects the stabilization of our cost structure since turning profitable in the third quarter of 2020.

EBITDA improved to $4 million or 20% of revenues in the quarter from $3 4 million or 19% of revenues in the year ago quarter.

This marks our sixth consecutive quarter of generating positive EBITDA.

Year to date, we've generated $11 5 million of EBITDA compared to $3 9 million in the prior year.

The current year results reflect the flow through of 72% of the incremental revenues generated during 2021 to the EBITDA line compared to 2020.

We generated net income of <unk> 6 million or <unk> <unk> per share during the third quarter of 2021 compared to <unk> 2 million or <unk> <unk> per share in the year ago period, which excludes the $6 1 million gain we recorded in the prior year quarter related to the sale of a portion of our corporate campus.

Year to date, we have generated $1 6 million of net income or <unk> <unk> per share.

Cash flow from operations increased to $5 $1 million during the quarter, an improvement of $1 8 million from Q3, 2020, and our eighth consecutive quarter of generating positive cash flows from operations.

We increased our content investment during the year as planned while also increasing our overall cash balance to $14 4 million.

We continue to see 80 plus percent of our monthly viewership on our original programming.

With our end to end content production fully in house, we continue to focus on investing in our content library at a cost per hour that allows us to recoup our initial cash investment quickly.

In addition to this quick recovery of our initial investment we also benefit from the long tail viewership of our content to improve the overall return on our content investment.

We held successful live events at the Gaia sphere, our state of the Art event Center in September and October was sold out crowds, which allowed us to promote our premium events plus 299 $9 annual subscription.

They couldn't attend in person.

Events pluses the rebranded name for what we previously called our live access annual plan.

The early results of our focus on promoting events plus to our existing members has been positive.

With that I would like to open up the call for questions operator.

Okay.

Thank you.

If you'd like to ask a question. Please see a pressing star one on your telephone keypad.

You're using a speaker phone. Please make sure that your mute function is turned off to allow you signaled to reach our equipment.

Once again that is star one if you'd like to ask a question.

We will take our first question from Eric Wold with B Riley Securities. Please go ahead.

Thanks, Good afternoon Paul.

Eric.

A couple of questions I guess, one that obviously you talked about the digital AD market continued to be tough and competitive maybe just.

Additional thoughts on how you've adapted you're spending around that is.

Is it a function of being.

More efficient looking for better ways to.

Due to the same spending or you actually.

Cut back on the staying a little bit to watch how the market plays out.

Well I think we're not purposely cutting back on the spend to see how the market plays out we're definitely being opportunistic as we see pockets of volatility that we can take advantage of paid media market works very similarly to the stock market and so.

With the supply and demand as it ebbs and flows through the weeks in the months and the quarters, we're poised to act, but when it starts to get above our thresholds.

We pulled back by design. So I think it's a combination of both and as we've seen this upward pressure in the CPM, which is the cost of the media we have been focusing on improving our conversion rates.

From guests to remember, which helps us bring down our calculated CPA, but we've also been focusing on building out as I mentioned in my prepared remarks, the ambassador program and really focusing on that as a long term investment because we don't really see this dissipating as it relates to paid media, but we have the method that we need to offset it from from <unk>.

Our perspective, so we're right on track.

And what are the best methodology, you've gone to improve conversion.

To a paid subscriber.

Well I think the biggest thing that we're doing is really targeting are the AD that we're presenting with the pay off when they get to the site and we've been making some investments in our infrastructure to be able to do more one to one what we call merchandising. So when someone comes to the site from an AD that they clicked on the site is going to look very much relevant.

To that add and this is critically important for us because with 8000 pieces of content that span a wide variety of topics that our library does we have to be very crisp in terms of connecting that marketing message to the pay off when they come to the site.

Got it.

And then lastly on the Ambassador program.

Any metrics you can provide around.

The early success of that really kind of progress of that in terms of how successful they've been in signing up members.

Maybe the mix of members are signing up I'm, assuming they are weighted more towards annual premium subscriptions, maybe just a little help there.

Sure, there's not a lot of quantitative data that I'm ready to share yet as we've just been kind of scaling it up since our SVP of sales joined in March and has been building a team in getting ramped up but I will answer the last part of your question. There we are seeing a bias towards annual and events plus as part of our focus.

Makes sense because they get the ambassador ends up getting paid based on what we get paid and so to ramp them up quickly from a cold start we're trying to focus them on building our revenue base, rather than a subscriber base so biasing towards the higher dollar.

Plants.

Perfect. Thanks, Paul.

You bet Eric.

Once again as a reminder, that is star one if you'd like to ask a question. We will hear next from Mark Argentina, Argentina with Lake Street.

Great Paul.

Congrats on the new title as well from some president.

So exciting.

Wanted to dig in a little bit on kind of unit economics or subscriber economics.

Just translate a little bit here for me so it sounded like retention.

Either stabilize or improve so in other words churn again stable or maybe even modestly improve does that.

Sure statement.

Yeah. When you look at it as a function of the percentage of our member base were actually improving as a percentage, which means the absolute numbers of.

<unk> lost members each month is staying flat so as we continue to grow that means.

We have have to replace less members each month to get forward progress.

The summer is obviously at a time period, where.

Especially this year consumers are not typically looking to sign up for new devices. So we talked about this on the August call that July and the first part of August.

We were seeing some of those challenges, but as you get into labor day, we saw our historical.

Pattern kind of reemerge that was gone in 2020, which was that once it starts to be fall in kids are getting back to school you start to see more interest and demand.

As it relates to the new customer acquisition.

Okay.

And on the new customer side is it is there seasonality and when you can acquire.

More of an annual contract or have a better shot at doing that versus monthly.

Yes, I think that echoes what I, just said around the summer being a typically a more challenging time than a normal year in quotes but as we look to coming back into the fall we've actually been doing some work to focus on can we skew the annual versus monthly take rate by doing.

<unk> will be called bonus bonus materials, so download the PDF with incremental content in there. Some bonus footage that you may not be able to get so we're actually able to influence what plan people sign up for based on how we presented which gives us the flexibility as we're looking at different times of year, which.

Which way we want to go 199, a month for the revenue benefit or $99 a year to get the cash and the retention tied up so it's something that we've been exploring the ability to toggle back and forth, but yes, we can absolutely influence it.

Great and then just pivoting to content and content costs.

I know you guys are producing more and more of your own content and studio versus buying.

And already pre produce content scripted content, what's the mix.

But the mix of content.

Going forward.

It was going to be isn't going to be you're going to see.

Mark.

Alive or quasi live or self produced content versus the.

Scripted content.

Can you just talk a little bit about trends in costs or both.

Your own in house, but also.

Uh huh.

Or.

Content.

Sure. So we really look to bias towards doing original productions for the majority of our spend.

Because it's just so much more economically favorable to us and it's a much more targeted ability for us to produce content into the demand. We typically use licensing for two primary things one content expansion into topics that were interested in exploring it from a production perspective, but.

It's a little bit further out from a time horizon. So it makes sense for us to be able to license it to get.

A better signal of what the interest is there before we ramp up the original production and then the second area, where we're focusing on.

Licensing of content in our non English languages, as we focus on building out French and German.

Going into 'twenty two to supplement what we have done with Spanish to date, so either of those.

Areas is really to get us into the market as quick as possible to start to be able to mine. The data for us to then direct our internal production resources to where we think the biggest opportunity is.

Great. Thanks, Paul.

Thanks Mark.

Thank you we'll take our next question from Ryan <unk> with heavy investments.

Hey, Paul can you hear me.

Hey, Ray I can.

Okay.

Add my congratulations to her well deserved promotion.

A lot of my questions have been answered I just have one additional one.

Given the supply chain issues in trouble getting physical goods on shelves is there an opportunity.

So.

Hi.

Membership.

Unique gift idea to the membership base.

Yes, I think there is definitely an opportunity there as a virtual good I don't know that it's really set into the consumer's mind, yet I don't want to speculate on people deciding whether they can get what they want for Christmas or not but what we've typically seen historically is that there is a big push from Thanksgiving.

Even through kind of the week before Christmas that puts a lot of pressure on the AD market for retailers that have physical goods that they want to ship.

So if this dynamic plays out the way that you are indicating that we might be able to see some favorable opportunities on the AD market not only for being able to promote last minute gift opportunities, but also just a dissipation in some of the headwinds that we would normally see during the holiday period.

Don't know if thats actually going to be how it plays out but with what you're hearing from everyone in the shipping challenges it's a possibility.

Well, what about reaching out to them to the current membership base has an idea.

Their loved one Brian.

The area.

Absolutely that's one of our core tenants of our ambassador program is kind of this refer a friend invite a friend.

Or share content, so that we can get the word out.

We haven't formalized concerted effort our plan to try to promote that but it's definitely something that is a <unk>.

Secondary or tertiary message in all of our E Mail communications to our members.

Alright.

And again, great you're about right.

Thank you.

Thank you and at this time. This does conclude our question and answer session I would now like to turn the call back over to Mr. Terry for closing remarks.

Alright, Thank you Cody and thank you to everyone for your participation today and I look forward to speaking with you again, when we release Q4 results sometime in late February.

And hope everyone has a great day.

Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you all for your participation.