Q4 2021 Gaia Inc Earnings Call
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Good afternoon, everyone and thank you for participating in today's conference call to discuss Gaia incorporated financial results for the fourth quarter and full year ended December 31st 2021, joining us today are guy as CEO , <unk> Rysavy and CF.
Oh, 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.
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 cover the safe Harbor language. The following constitutes the safe Harbor statement under the private Securities Litigation Reform Act of 1995.
Matters discussed today include forward looking statements that involve numerous assumptions risks and uncertainties. These include but are not limited to general business conditions future losses competition lots of key personnel price changes membership growth brand reputation changing.
Sumer preferences customer acquisition costs.
Member retention rates acquisitions, and other risks and uncertainties detailed from time to time in our filings with the Securities Exchange Commission, including our reports on Form 10-K and Form 10-Q .
Assumes no obligation to publicly update or revise any forward looking statements.
With that I would now like to turn the call over to Guy as CEO <unk> Rysavy. Please go ahead.
Thank you and good afternoon, everyone.
So 2021, our results represent a key milestone for <unk> as we have achieved our first year as a positive operating income and free cash flows.
Since the sale of our <unk>.
Yogurt product business in 2016, we have grown revenues at 40%.
Compounded annual growth rate and we improved EBITDA margins from negative 90% to positive 19%.
During 2021, and we grew our member count to 821000 increase increasing revenue, 19% to $79 6 million.
We expect to exit 2022 as revenue run rate over $100 million.
EBITDA for 2021 improved to 15 below 9 million, which represented 60% of flow through through the incremental.
Revenues.
Income from operations improved to $2 million from a loss of $4 6 million in 2020.
Net income 40 year increased to $3 $7 million or <unk> 19 per share from <unk> <unk> per share last year, which included 6 million gain on a sale of a portion of our campus.
Net income for the quarter was <unk> $1 million or <unk> 10 per share compared to <unk>.
$3 million or <unk> <unk> per share.
In a year ago quarter.
Cash flow from operations for the year improved 7% to 9% to $20 9 million.
Our cash and balance our kitchen bond sheet on December 31 was $10 3 million. This is after the use of six 5 million for acquisition of Yoga International and Fringe content Library.
To compare our cash balance in the beginning of the year was $12 6 million.
They improve our gross profit per employee for another 40000 to 565000.
Gross profit gross profit per employee at Yoga Internacional was below 200000, but annual price.
Sure.
Price offering to members is <unk>.
<unk> and our annual at 199% compared to 99 in Guyana.
This will.
For next few quarter decrease our overall gross profit of employee.
But it will help to drive our pool without actually increasing guy at pricing.
Our lifetime value of average member <unk> improved.
Improved last year to over $350.
320 year before.
Because of achieving our goal of annual operating income and free cash flow. We are now in good position to expand more aggressively internationally.
And we can utilize our worldwide rights, which we have assembled to virtually all of our content.
So we can further leverage our existing operating infrastructure.
And Paul will talk to you the results now.
Revenues were up 19% for the year with fourth quarter revenues up to $20 8 million.
Gross margins declined slightly to 85, 8% for the fourth quarter and 86, 8% for the year due primarily to the impact of incremental content amortization added during the quarter.
With the acquisition of Yoga International completed on December 22021, adding approximately $1 million per year to our content amortization going forward. We anticipate gross margins for next year to be in line with the full year 2021 levels.
Total member acquisition costs during the quarter were $8 2 million or 39% of revenues compared to $8 million or <unk>, 43% of revenues in the year ago quarter.
The ongoing impact of the iOS privacy changes in a crowded holiday season paid media market combined to create a headwind on our customer acquisition efforts during the quarter.
We have continued to evolve our digital marketing strategies to adapt to the current environment and have seen some relief in early 'twenty two from the per customer acquisition cost we experienced in the fourth quarter.
With the addition of Yoga International we now have an opportunity to expand our marketing efforts to reach consumers interested in the yoga lifestyle with a higher expected <unk>.
The basic offering is priced at $19 99, a month or $1 99, a year, which compares to our $99 a year.
They also have a premium tier at $499 a year that includes access to a wide variety of courses that were historically marketed and sold on an Ala carte basis.
The combination of the premium plan and the two X differential on the annual planned pricing should allow us to continue to expand overall <unk> going forward.
Selling and operating expenses, excluding marketing and member acquisition costs in the fourth quarter were $7 6 million or 36% of revenues.
Corporate and G&A expenses in the fourth quarter were $1 6 million or 8% of revenues.
For the full year, we improved total operating expenses to 80, 84% of revenues compared to 94% of revenues in the prior year.
We also incurred 360000 and nonrecurring acquisition costs related to the Yi transaction.
Well why I did not have a material impact on our revenues our results of operations for 2021 due to the acquisition being completed on December 22nd.
The impact on 22 operating expenses will include approximately <unk> 8 million of incremental amortization related to acquired intangible assets, which is in addition to the $1 million of additional content amortization previously noted.
In addition to the incremental amortization, we also expect a slightly higher operating expense level. During the first half of 'twenty two from our historical trends due to the acquisition.
We are in the process of completing our integration activities and identify and operating expense synergies across the combined company, but do not expect the benefits to show up on our operating results until the third quarter of 'twenty two.
EBITDA was $3 6 million or 17% of revenues in the quarter, which included the impact of the acquisition costs.
We expect EBIT margins for the first half of the year to be in line with the fourth quarter until we realize the operating expense synergies noted previously.
Adjusted EBITDA, which excludes the acquisition costs and share based compensation.
<unk> to $4 5 million or 22% of revenues from $4 million in the year ago quarter.
We generated net income of $2 1 million or <unk> 10 per share during the fourth quarter of 'twenty, one compared to <unk> 3 million or <unk> <unk> per share in the year ago period.
Year to date, we have generated $3 7 million of net income or <unk> 19 per share.
2021 results reflect an income tax benefit of $2 million as a result of a partial valuation allowance release during the fourth quarter triggered by the <unk> acquisition.
Our ability to generate cash flows from operations has continued to grow as we have scaled.
This has allowed us to expand our strategic thinking as it relates to growth opportunities as evidenced by our acquisition of Yoga International.
As we look into 2022, we are focused on driving an annual growth rate annual revenue growth rate similar to 'twenty one.
We're excited about the opportunities for Gaia to benefit from our global scale and the financial discipline. We have continued to demonstrate while growing revenue revenues and maintaining profitability.
With that I would like to open up the call for questions operator.
Sir ladies and gentlemen, if you would like to ask a question you may do so by pressing star one on your telecom phone keypad. Please make sure that my question on your phone is turned off so the signal can be read by our equipment.
Star one for questions, we'll pause a moment to assemble the queue.
Okay.
And our first question will come from Mark Argento with Lake Street. Please proceed.
Hey, Paul.
A couple of quick questions first on yogurt international.
Just wanted to better understand are you guys going to maintain the brand, but what how do you think about the subscription base.
The legacy guys subscription base and yoga relative to the yoga International if you can get up put them together just leave them that's got a separate products.
Hi, Mark Erica strategically we want to look at it is it per se separates company as a separate offering and Brian do you have you want to continue with the brand and a separate offering which is like a premium yoga frame can pulse two similar yes. So I think one of the first.
Components to acknowledges that price differential between their monthly and annual prices than ours. So.
Strategically makes sense to leave them as separate offerings and really focus the delineation on the yoga consumer into aggregating more value to the yoga international offering by supplementing it with some of Guy is longer form content. So that we can try to drive yogurt consumers to the yoga international offering as you Rick.
Paul we haven't historically for the past two years or three years has really been focused on yoga at the Gaia level, because our price point was.
$12, a month compared to the majority of yoga only offerings that are 15% to $20 a month so.
We didn't really go after it historically and this gives us an opportunity to be able to do that but as I mentioned in my prepared remarks, we're really trying to integrate the back office and technology as much as possible to allow for cost savings, even if the customer experience is differentiated.
Great.
You guys could you size, how many legacy subscribers and maybe how big of a customer follows yoga international and is there any opportunity to cross sell some of the other.
Content to that to that.
Customer Paul.
Yes, there is definitely an opportunity as we add some of our original content. One of the shows that yoga international is very interested in us yogurt paths and the other lifestyle based.
Yoga content, that's not just on the map content. So there's definitely an opportunity to add that to their offering and use that to go to their former members and try and win them back.
One of the things that yoga international has experienced over the past year and a half is the unwinding of the COVID-19 growth bump and so their member base based on when we acquired them is roughly in the mid 30000 range. We're still finalizing the review of overlap between their customers and our customers and making sure that we.
By the same logic to accounting their member base as ours, but thats the estimate that we've you.
Used for our year end number.
And what we feel pretty comfortable with now after two months of that.
Looking at the transaction level data with them.
And they for the basic price stay basically offer some life classes. They used to do it for the premium price to 490, but.
So it will basically start to the average.
Regular price to $200 a year.
They include.
The life lessons, which will not be a guy here.
Great very helpful. Thanks, guys.
Yes, you bet Mark.
We will take our next question from Eric Wold with B Riley Securities. Please go ahead.
Thanks.
Hi, Good afternoon, guys just a couple of questions I guess I guess one.
Paul as you talked about the challenging advertising market out there how did you adapt.
You're you're advertising your customer acquisition efforts around those higher cost in the quarter were able to spend.
Everything you wanted to spend in the quarter or did you hold back somewhat into this year.
Yes, I'd say the timing of the spend particularly with kind.
Kind of the end of November into early December .
We backed off of our spend and then redeployed it once the shipping deadline, which we've historically seen being the trigger for dissipation in the demand for paid media. The result of that though is that we incurred the expenses during the December month, but because of the seven day free trial not all of the members had the opportunity to convert.
So a little bit of that spending was pushed into member conversions that happened in January and normally that wouldn't be that big of an issue from a timing perspective, but the way that we effectively held back in the first two weeks of December and then redeployed it in the last 10 days.
Messed with the timing a little bit from the customer adds compared to the spend but it allowed us to get.
Opportunistic if you will in terms of how we deploy the capital for marketing.
Any.
Estimate of how many subscribers that good policy related if you think about the 80 21 minus mid 30 contribution of yoga plus kind of what might have been delayed in January .
No. We don't have that quantified and we don't speak to that level of specifics on at this level really the key point, though is that as evidenced in the macro external environment everyone's been talking about the cost of media, increasing and the cost of customer acquisition, increasing so I'd say Q4 was the high watermark that we've seen.
In the past few years in January and February have already dissipated significantly from what we saw in Q4.
Yes, you have got a couple of things first.
We still don't know exact.
The things we have to adjust for the overlap of the members because historically theres always some right and while people pay double the key you cannot do it for a long time, if we own. It. So we would have to deal with them. So we tried to estimate that but overall is right now in the fourth quarter.
Obviously I did over 300 acquisitions in my life, and it's kind of getting into a situation that <unk>.
Buying it.
Buying the customer base might be cheaper than buying individual customer under market.
Because of what just happened in overall marketing.
We saw it in several companies we have a lot of inbound calls from other companies would be interesting to acquiring them.
<unk>.
As for the smaller companies in environment is difficult and you saw you go international having a negative growth.
Six months and received another company so.
The price is also its very difficult virtually impossible to raise money for a small company like that.
The acquisitions might be actually something would we look at this year.
It's not what we want to make it as a part of our model but.
This time it might be better to do than chase the market is higher.
Higher dollars you saw the percentage of our marketing keep declining every year and so it's kind of I would assume this situation will solve during the year, but might allow us this year to make some other acquisitions like that.
Got it and then just final question.
What are you talking about the.
Good morning.
Ending <unk>.
<unk> on our more than $100 million revenue run rate.
Yes.
What would you point to is the biggest driver is to get into that from where you are now.
Well I'd say the number one driver is going to be successful integration of yi into our broader marketing mix. So that we can use the higher price point to try to grow revenues more meaningfully and decouple the subscriber growth rate from the revenue growth rate that would be number one.
And then number two as Juergen mentioned was the international play now that we have the French library that he.
<unk> mentioned in his prepared remarks, we're ready to start marketing, France, more meaningfully and have already started that which.
Adds to what we started doing in the second half of last year on Spanish and we expect Germany to come online sometime this year as well.
So that gives us three new meaningful languages to market around which will be incremental to this year and then I think the third component is now is we feel in the U S. As if we're on the other side of some of the more.
Strict restrictions on travel and in person attendance getting the Gaia sphere events going again and using that to build on the 299 Gaia events plus premium offering will allow us to expand <unk> again, potentially decouple that from subscriber growth rates. So I'd say those are probably the three biggest drivers that I look at.
Right now as we look at the back half of the year and exiting it.
We're going to have a little bit of headwind in the first half of the year, just because of tougher comps from last year with the <unk>.
The growth rate played out over 'twenty, one so I'd expect it to be accelerating as we go into Q4 from the trends that we see in Q1 and Q2.
Sounds good thank you Bob.
Ladies and gentlemen, as a reminder, if you'd like to ask a question or oppose the comment you may do so by pressing star one on your telephone keypad star one for questions.
We will take our next question from Steven Frankel with Colliers. Please go ahead.
Good afternoon with all this focus on international could you remind us where international subscribers.
Gaiam business stood as you enter Q4.
The year whichever number you are more comfortable with.
Yeah.
So.
Got.
If you could say take total subscribers, who are outside of the United States for Guy.
What do we call dad neurectomy not counting.
People like Amazon, because and Comcast because those who will be by definition U S.
Those what we call third party revenues, we always want to keep it below 20%. So they operate in the high single digit as a percentage, but excluding those.
We probably about like mid forties.
I would tell you to customers outside of the U S. The.
Internationally was at 60%.
At least.
First look we I wouldn't say that numbers that absolutely we know yet but.
That's kind of the number of people who.
Pay from the outside.
However, historically all of those people.
Wood.
Still launch our English offering.
So when we talk right now international retail actually offering in languages.
And.
So that's something we would we just start to do and it's those numbers are still low Exceptive Spanish were.
We are doing for a while but still overall.
It's going to be probably all of it in hiring.
Members.
As an international language offering.
Okay, and if you look at it on a revenue basis for outside the U S compared to inside the U S. Based on building location is about 56% U S 44% outside the U S and as Juergen mentioned thats been historically dominated by English speaking countries, where we've done here.
Oracle acquisition, So, Canada, Australia, and New Zealand are in the top there as well as the <unk>.
Western European in aggregate. So that's been a focus for where we've spent our money historically on English non U S. But now as you alluded.
I alluded to has started on the Spanish side of things and as I mentioned, French and German will be coming online this year.
And we basically in all countries.
You can name so it is not the geographical it's going to be more as we kind of deal with languages and.
Obviously in the future, we want to expand our language offerings as well.
Okay.
Could you give us some insight in renewal rate.
Annual subscribers in Q4 and as you.
The new subscriber activity.
Quarter.
How much of that was was toward.
The annual subscriptions.
Yes, so our.
I'll answer the second question first just because it's easier.
New customer sign up rate has been generally between 20 and 25% annual as we've gone through this year and that was a mindful shift from the 30% that we experienced historically because we wanted to start to bring some of the revenue higher because of the $99.
When you do the monthly <unk> on that is significantly below the 12 Bucks a month that we get from monthly members. So we've been able to through the plan selection and the way that we do.
Positioning of the plans, we're able to influence that number between 20% and 30% depending on what we want to do as it relates to renewals we started to see the higher volume. If you recall in October 2019 is when we really shifted the mix significantly to the annual plants an hour in year two renewals for.
The higher levels and we're seeing continued positive renewal trends on the annuals I don't have a specific number that I am willing to comment too, but the trends have continued to be beneficial.
Indicative that the right percentage of annual plans is healthy for overall cash flow dynamics and retention dynamics as well.
Okay, great. Thank you.
Ladies and gentlemen at this time. This concludes our question and answer session I would like to turn the call back over to Mr. Rysavy for closing remarks.
Thank you.
Thanks, everyone for joining and we look forward to speaking with you and report our first quarter results, which will be early may. Thank you very much.
Operator.
Thank you everyone for joining today's call. We look forward to speaking with our investors and analysts when we report our first quarter 'twenty.
2022 results.
You may now disconnect.
Thank you for your participation.
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