Q1 2022 Gaia Inc Earnings Call
He is doing fine.
Good afternoon, everyone and thank you for participating in today's conference call to discuss Gaia, Inc.
Natural result for the first quarter ended March 31st 2022.
Joining us today arc is C E O yogurt, rysavy 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.
Probably we know constitutes a 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.
Conditions future losses competitions lots of key personnel.
Rice changes membership growth brand reputation changing consumer preferences.
There were acquisition cost member retention rates acquisitions, and other risks and uncertainties detailed from time to time in our freely with the Securities and Exchange Commission, including our report on Form 10-K, and Form 10-Q guidance.
Obligation to publicly update or revise any forward looking statements with that I would now like to turn the call over to grieve CEO you're gone with Avi. Please go ahead Sir.
Thank you.
Good afternoon, everyone.
Revenue for the first quarter increase increased 15% to $21 8 million from $18 9 million.
Count increased to 823000.
Average revenue per member increasing from the year ago quarter.
It is oh are 299 annual premium subscription as well as yoga international $20 per months pricing will continue to drive up our <unk> during the year.
EBITDA improved to 4.1 million from $3 5 million.
We improved our gross profit per employee to over 590000 from 530000 a year ago.
Net income from continuing operation was <unk> 2 million or one cents per share compare to <unk> 4 million in two cents per share in a year ago quarter.
The decline reflect the incremental intangible asset amortization and higher operating expenses from yoga international during the first quarter.
Physician was completed only in a late December .
Gross profit per employee of Yoga International was only 188000 during the first quarter.
But it's already almost double as of now and Paul will talk to you more about it right now Paul.
Revenues were up 15% to $21 8 million for the first quarter of 2022 gross margins declined slightly to 86, 7% for the first quarter compared to 87, 1% for the same period in the prior year.
Slight decrease is primarily due to additional content amortization as a result of the yoga International acquisition completed on December 22nd 2021.
Our net adds for the quarter were impacted by two factors that at this time. We believe are transitory first our direct member base, which represents over 80% of our revenues has continued to benefit from improving retention dynamics.
However, we experienced an increase in the cost of digital advertising, which impacted gross adds.
While we do not have any direct exposure to the events transpiring overseas, we have seen disruption in the paid media markets that began in early March.
Second we experienced net contraction during March on our channels available via Amazon Prime video.
We believe it was the result of the increase in Amazon Prime pricing and not specific to Gaia based on third party data, we receive which showed all premium channels on Amazon Prime video experienced elevated churn during the period.
As a reminder, we strategically limit our exposure to third parties individually and in the aggregate to mitigate the overall impact of this type of scenario.
We saw an increase in average revenue per user to $8 85 per month during the quarter.
Because of our events plus premium offering and the addition of the yoga International members at a higher price point as a reminder, events pluses $299, a year and yoga International's pricing, there's 1999, a month or $199 a year.
Based on the media reports following the entertainment based platforms recent earnings releases, we believe our strategy to focus on increasing the average revenue per member via these offerings and scaling up our marketing efforts to the Spanish French and German audiences in the second half of the year will allow us to continue to grow revenues and cash flows despite headwinds in the overall domestic.
Extreme end market.
Total member acquisition costs during the quarter were $8 6 million or 39% of revenues compared to $7 6 million or 40% of revenues in the year ago quarter.
We have targeted customer acquisition spending as a percentage of revenues at 40% since July of 2020.
As a result, the first quarter of 2022 marks our seventh consecutive quarter of double digit revenue growth, while maintaining overall profitability.
During the first quarter of 2022, selling and operating expenses, excluding marketing and member acquisition costs were $8 2 million or 38% of revenues in corporate and G&A expenses were $1 8 million or 8% of revenues.
As a percentage of revenues they are both in line with the year ago quarter.
But the first quarter did include elevated expenses related to yoga international.
However in mid April we implemented cost rationalization plans to better align expenses with revenues going forward. We have identified other areas to reduce expenses and increase operating efficiency and will be implementing these over the coming months.
EBITDA was $4 1 million or 19% of revenues in the quarter.
We have continued to grow EBITDA on an absolute dollar basis since the second quarter of 2020, when we turned positive on this metric.
Net income from continuing operations was <unk> 2 million or one cents per share compared to point $4 million or <unk> <unk> per share in the year ago quarter.
As Eric mentioned, the reduction was primarily due to increased intangibles amortization and elevated operating expenses from the yoga International acquisition.
Overall net income was <unk> 1 million, which reflects the impact of the loss from discontinued operations associated with the legacy Yoga International transactional core sales business that we exited as part of the acquisition.
Our cash balance as of March 31, 2022 was $8 4 million, which reflects an overall reduction in our payables balance of $2 3 million from year end.
As we look into 2022 we continue to be focusing focused on executing the year on 100 million revenue run rate, while maintaining profitability.
We continue to be excited about the opportunities for Guy had a benefit from our global scale and the financial discipline. We have continued to demonstrate while growing revenues and maintaining profitability.
With that I would like to open up the call for questions operator.
Thank you.
If you would like to ask a question today you may do so by signaling by pressing star one on your.
Your telephone keypad, if you're using a speaker phone. Please make sure your mute function is turned off to allow it.
Take note three to our equipment.
Again that is star one to ask a question.
Pause for just a brief moment to allow those to signal for questions.
And we'll take our first question from Eric Wold B Riley security.
Hey, Paul.
It's Paul first off do you mind repeating.
Dollar amounts and the percentage spent on advertising in the quarter I apologize I missed that.
Sure It was $8 6 million or 39% of revenues for this quarter.
Thank you.
He was an update on kind of how AD rates are trending now versus what you saw maybe on average or the trend during the first quarter as well, but the year ago period, and any kind of.
Advance read on how those might might shift.
Near term or to the end of the year.
Yeah last year, we were benefiting still from the Covid period, the Lockups understood and.
Winter before we transition to spring. So it was really at a low level last year. This year. We saw some relief as we were going into February and if you recall from the earnings call at the end of February We said, we've seen some relief, but then and mid March that kind of went out the window and things have gone haywire and.
To be honest, it's extremely volatile some days are good and some days are arent. So I don't have a way to really give you a read on what the.
The cost of the media is doing but what we're doing internally is really focusing on leveraging more awareness and more email conversion marketing because those are ways that we can control the cost of customer acquisition and disintermediation need to just pay for impressions to get conversions.
Thank you.
And then.
Obviously, there's been a lot of focus on some.
Some of the echelon platforms, you know kind of hitting a wall recently with subscriber growth and somebody think attracting made.
Maybe give us a sense of kind of what youre seeing within your subscriber base in terms of those that I know you said retention has been strong maybe those that are not renewing because they're tending to be more of the kind of the monthly subscribers that joined during recent years during the pandemic. The other longer term subscribers still sticking around and then kind of what are you seeing with.
Viewership trends.
Between those does various cohorts.
Yeah, there's a couple of questions in there so on the first one.
The first one is on retention trends and we've consistently seen the six plus month members, whether their monthly or annual continue to be very sticky and renew at a very high rate I'd say the majority of the challenge that we're seeing combined with that high cost of paid media is just the initial six months.
The monthly membership being the period, where people are coming and trying or potentially never intending to stay for a long period of time I think one of the things that we're seeing industry wide with all of the new services that have come online people are dabbling. So they'll sign up for a month watch then move onto the next one and I think that's why it's really important.
For us to continue to talk about our mission and the fact that we are remember supported and that we want to be able to reinvest our subscriber dollars back into content creation. So that we don't need to expand into other opportunities for monetization that might put the mission and vision at risk and ultimately put them.
It is really a sticky retained members are at risk as well so for us it's really about the right customer acquisition cost and then doing everything we can to ensure that they can find the content that they're looking for on Gaia that they cant find anywhere else and let them know that they found a home that's really what we're focused on internally given.
How the paid media markets continued to be very volatile.
I think the last question that was in Arizona.
And viewership trends were shipped yet.
Yeah. So we've been looking at that we've had to go back two plus years to really normalize out the impact of.
Covid and see how things are behaving and I'd say generally were back reverting to the mean in terms of where we were pre COVID-19 as it relates to daily and monthly viewership and Thats, obviously off the peaks of what we saw during COVID-19, but I think that's to be expected with people spending less time in front of screens and potentially having the ability.
Get out and do things that they weren't able to do really for the past year and a half two years.
Got it.
Thanks.
You bet.
Thank you and next we'll move on to Mark Argento with Lake Street.
Hey, Paul a couple of quick ones.
Talk a little bit about.
How you guys are thinking about cash flow conversion from adjusted EBITDA.
So free cash flow over the next few quarters.
Yeah.
Well you know you saw that even in this first quarter when we have like extra expensive expenses with.
Assimilating the acquisition when we did pretty much in December 20th so so a lot of that kind of hit in the first quarter, but we still could stay profitable vis that stuff. So it's our goal to stay on that.
Positive line.
And.
There is really a collection of how aggressive you would not be a per se in international markets, which we all try to look at but our general thing. It's we want to stay on a positive trend.
Yes, I'd say, if you unpack it a little bit further and actually look at the dynamics of between the P&L and the cash flow statement EBITDA or adjusted EBITDA whichever measure you want to use tracks pretty closely to our cash flow from operations.
That line item absent things like what happened last quarter and the end of this quarter with the acquisition and the timing at the end of the year. So but generally that's how we look at the model going forward is that EBITDA should approximate cash flow from operations and then as we have pegged our content investment as a percentage of revenue and roughly the eight.
1% to 20% range that covers the investing side and so from a tax perspective, given our NOL positions.
Barring some unforeseen change in the tax regime we.
It won't be a cash taxpayer meaningfully for several years. So you can see how the P&L.
<unk> flow through into the cash flow dynamics and allow us to operate slightly better than breakeven or better than breakeven as we continue to grow revenues.
Great.
Refresh me on what you think about content.
Capex for card specifically what are you guys typically budgeting for that as a percentage of sales.
Yeah.
All in including the royalty piece, which flows through the P&L is 18% to 20% is roughly what we've pegged it at.
So you know what that means on the on the cash flow side, you can see how that's been pretty consistent if you back out the.
Acquisition related payments here somewhere in the $4 million to $5 million a quarter range just depending on the time of year Q4 is obviously light because of the holidays and then Q1 is a bit heavier as we ramp up our production of our ongoing episodic weekly shows and try and get as many of those in the can for the year as we are able to in the first half of the.
A year, yes.
To reiterate here that you don't really have any of these pressure on content cost.
You see it.
Naturally extend to other entertainment players so that doesn't affect us at all.
So it's more there it's actually very positive how are we structured a business because we don't have.
Pretty much control, what's happening if you didn't see any basically increases over the last you know.
Several years, unless we decide to do that and it's more goes to increase production like having more animation and better music and stuff like that that would be related to talent.
Okay last one for me.
Offering, let's say you guys.
Your guidance for the quarter, what's the.
Is that scheduled to pick up more aggressively.
Or do you see those types of customers long term do they tend to stick with you.
Back year after year or.
Yes.
And then are you able to leverage our content and drive subscribers off of the traditional platform.
Yes.
Yeah, you bet Mark So yes, we had an event in March that was sold out for in person than it was a slightly different format. We did more of a conference style format. So multiple speakers over the weekend versus just one speaker and we saw that that had quite a bit of draw we sold out our in person tickets really quickly.
One of the things that we have acknowledged though is that we don't want to be in the live events business for the sake of being in the live events business and so we're focusing on quality of those events not frequency of those events. So we will probably do one a quarter from here on in this higher end sell out with content that fits into the overall off.
<unk>.
And today I think we've had 14 or 15 completed events at the library of content. That's available to those events plus members is starting to have a standalone value independent of the new events that are coming that all being said, it's still relatively early in the lifecycle, there and again COVID-19 has impacted it for the past two years.
I won't speak to long term trends, but I will say in the short term, we are seeing a decent amount of renewals and a lot of interest in the content that we're putting on to that offering and we also have some ideas in terms of how do we think about positioning that so that we can get net growth from straight to events plus sign ups.
Whereas historically, we've been focusing primarily on upsells of existing members.
And overall this premium subscription and looking back I think it was great.
We introduced is it's so even though you separated like separate business its already solidly profitable.
And the margin would increase and you kind of see that.
It's also helping obviously, our overall <unk> and as Paul said, we kind of rely more on up sell but we kind of see a lot of people kind of go directly there.
So because.
Obviously includes the regular subscription.
In.
If you buy them.
The premium subscription.
Okay.
Thank you.
Thank you and once again that if one.
One if you would like to ask a question today.
And next we will take CRE.
Well rod with water Tower research.
Hey, good afternoon, a couple of questions any color any further color on the on how the yoga acquisition is growing obviously.
Now a few more a couple more months of experience with the business.
Anything additional you can share.
Yes sure for for those that weren't following along when we bought it we were able to get a pretty good price on it as a result of them being in a pretty significant unwinding from the growth that they've seen during COVID-19.
So when we looked at it from January to December they were down about 25% on a revenue basis. Since we've acquired it we've stabilized the losses and have now started to see slight growth on the revenue side for the three plus months that we've been responsible for it but what we're 100%.
Focused on internally is integrating the back office systems, starting with the subscription management platform. So that we can have.
Your line of sight visibility into that part of the business. The same way that we do in our legacy business and that should be completed somewhere in the late Q2 early Q3 timeframe and once we have that complete then we'll be able to really start focusing on growth initiatives. There. It's obvious that it's really the same product and engineering resources.
To do that work that might do other work to help drive significant growth, but we see it as a strategic risk to leave it standing alone too long and so thats why we focused on getting that done first.
Great.
Questions on the international opportunities when you when you are.
It's a new market there do you need.
Do you need the original content can you do translation existing content, how do you go about that.
Yes, so I'll start and then I'll, let Eric add a little bit of color here because he has really been driving the international content side of things, we've opportunistically acquired libraries over the past two years in Spanish and French to supplement the content that we've been doing dubbing and subtitling on.
German we've been looking for.
Content to acquire but we haven't been able to find anything that size that meets our requirements or is priced appropriately and so we've started producing original content in German both in terms of the long form content as well as yoga content, which is why Germany is going to be a little bit behind Spanish and French is it.
It relates to growth so I'll, let <unk> add any color if he wants there.
Yes, I mean overall international do you.
See the Netflix is well over two thirds in that show that it is a segment of its growing for them.
Grow from obviously domestically because we have still their little of market share. So we not necessarily need to do that but.
When I go there strategically.
International will get about 46%.
Of the members internationally.
And with Paul said by Yoga International aluminium units outstanding we want yoga interaction will be a separate.
Business, but not necessarily to have per se separate systems.
If you bring them closer together, but there's definitely we probably would like to enter.
Over the next couple of years out of the market like say, Portuguese, especially in Brazil, but main focus right now its Spanish French and will be soon German.
Great that does it so let me now.
Thank you.
We'll move on next to Bob Evans Pennington capital.
Good afternoon, and thank you for taking my question, but the cash flow question cash flow questions answered earlier, it sounds like free cash flow and EBITDA.
Somewhat similar.
Given that.
You generate call it you know.
In the ballpark.
Or more per share of free cash flow and they're trading at less than one times current yourselves.
Anything any more thoughts strategically in terms of a more aggressive buyback or use of capital to take advantage of the company's current valuation.
It's cheap the stock is I know that has subscription revenue at this growth rate in cash flow generation.
Yeah definitely understand the question, Bob we won't comment on the specific share repurchase, but I will say that we see an opportunity on the cash flow to reinvest back into revenue growth in one of our internal goals is to get over that 100 million Mark because we do feel that part of our valuation is tied to the smallness of our business.
And our focus is to get bigger so that we can be recognized for what we're doing from a financial discipline perspective, which is in Stark contrast to the majority of the other streaming players that are of a similar size as ours that are still heavily losing money and cash and funding it from equity or debt.
From outside investors. So that's really our internal focus and even if the valuation is attractive we feel like that there's better opportunity to put the money to work to drive revenue growth rather than pullback float at this time.
Okay, So youre going to prioritize revenue growth of our book for now.
Yes.
Okay. Okay.
Okay. Thanks.
Thanks for the clarification.
Thank you and we'll move on to Steven.
Steven.
Yes. Good afternoon. Congrats on the results can you comment on the recent departure of a Brad workings.
Yes, it was.
Recently.
More than a year ago and.
Brad.
<unk> worked with me for 20 plus years.
After.
After 20 years, so we talked about for two years and so he kind of fell there would be kind of closer retirement age and fell like okay. We should maybe talk about how so.
For us a long time ago and been pretty good.
Yeah, and I think what Youre, commenting on is the news that he took a new position I'm still a close friend with him and what he realizes he wasn't ready to retire. So that is why he is back and put it back in the ring and then start to Disney role, but from a guy a perspective, it's been over a year that he has left the Gaia.
<unk> basically still a friend of the company, but it's not anything related to the news of him taking his new role.
Okay understood. Thank you for that and it was the recent news that I've seen.
There was going back a few 10-K's, there was sort of a hidden asset.
Was it around a $10 million valuation and I don't think that there have been recent updates to.
What that was or whether when you were going to reveal more about that is there any any timing on when we can know more about that.
We don't really update on that but I think you would kind of see some kind of update by end of the year.
Okay.
Thank you.
Mhm.
Thank you.
And that does conclude our question and Anthony person I'd now like turn the call back over to your host Kurt.
Tommy for any additional or closing remarks.
Well. Thank you everyone for joining and we look forward to speaking with you when we report our second quarter, which will be in early August . Thank you.
Okay.
Thank you and that does conclude today's teleconference. We do appreciate your participation you may now disconnect.
Yes.
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