Q4 2022 Gaia Inc Earnings Call
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Speaker 2: I'll be in post COVID environment to get ourselves back to a place of financial independence.
Speaker 2: rolled out our business continuity initiative to gain technological independence.
Speaker 2: and are now focused on creating growth drivers to allow for marketing independence and sustained growth of revenues and cash flows.
Speaker 2: With that, I'll hand it back to Erika for some closing remarks.
Speaker 3: Just for the summary, I want to say we have no net debt.
Speaker 3: And the replacement value of the over 10,000 titles we fully own with the future cash value of our customer base is well over 300 million.
Speaker 3: Our cash balance as of December 31 was $11.6 million and during 2023 we expect the business to generate about $7 to $9 million of new cash. With that I want to thank you everyone for joining and we will look forward to speaking with you.
Speaker 3: On June 23, I want to open it for questions.
Speaker 4: operator
Speaker 5: Thank you. And at this time, we will conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star followed by the number two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star two.
Speaker 6: I just wanted to drill down a little bit on the 7 to 9 million in free cash or cash generated for that you are anticipating for 2023. What kind of subscriber growth does that contemplate? I just wanted to better dial that number in a little bit. We are going to really focus on
Speaker 3: which basically allows
Speaker 3: The members to purchase different mostly non-tengable services when Gaia keeps percentage. And so we did a survey to our customer base and over half of our customers, you know, interested to participate.
Speaker 3: So the OSAP between those two is this free cash flow generated.
Speaker 2: We expect to launch the GAAP marketplace like end of the second quarter. Yeah, I'll jump in a little bit. So we're really focused given how challenging the new customer acquisition has been with the changes that are constantly evolving in privacy and online advertising. We're really focusing on trying to increase average revenue per user.
Speaker 2: that fit into our ethos.
Speaker 2: We did evaluate looking at a avod model, which is what a lot of the other streaming players have moved into. And for us, it's really not interesting given our brand ethos and the majority of advertising revenue coming from brand and industries that we wouldn't want to take money from. So we've really focused on how do we add value back to our members.
Speaker 2: and allow it to then generate cash flow and incremental revenues without focusing so much on the new customer acquisition cycle that we've depended on over the past few years.
Speaker 3: And also our direct members still represent over 80% of the business. We always want to keep the third party below 20. And I think that's actually going to be bigger on this point because our direct members started to grow and the third party still kind of lagged. Even in the beginning of March, we actually saw first-time growth from the third party. So maybe because of the pandemic, we're going to see a lot of growth and growth in the third party. And we're going to see a lot of growth in the third party. So we're going to see a lot of growth in the third party.
Speaker 7: Yeah.
Speaker 2: I think it's important when you think about it from a member based perspective that we understand that our direct members are at our full retail price where our third party members are at net revenue.
Speaker 2: depending on the partner, let's just call it anywhere between 40 and 60 percent net revenue once you account for transaction processing fees, etc. So it's not necessarily about the member count and the member growth solely, it's about the revenue, the net income, and the cash flow generation that comes off of the direct business is what we're focusing on.
Speaker 2: We have less control over our third party distribution partners. And as I mentioned in our prepared remarks, our largest partner we've seen contraction.
Speaker 2: and it's because they have a paywall to get to the gate to be able to sign up for incremental subscription services behind it. And as we get into a questionable external macroeconomic environment, we can't control how those work. So we're really focusing on the things we can't control, which is our direct business, which is actually more...
Speaker 6: That's helpful and just just clarify so you said roughly 80% currently of your sub basis
Speaker 6: Is direct, is that a good number to use?
Speaker 3: We measure it in revenues. We always try to keep the direct members between 15 and 20% of revenue and it is right now 18 or something under the range.
Speaker 3: and we'll probably decline a little bit as a percent the third party I think direct business will grow faster than
Speaker 3: that's their party members.
Speaker 6: That's helpful. Thanks, guys.
Speaker 6: All right, that's helpful. Thanks, guys. Mm-hmm.
Speaker 5: Thank you and a reminder to the audience to ask a question press star 1 on your telephone keypad. To remove yourself from the queue press star followed by the number 2.
Speaker 5: Our next question comes from Thierry Wheelard with Water Tower Research. Please state your question. Thank you. Good afternoon. Maybe a question on the savings that you mentioned.
Speaker 8: Is that basically an unwinding of maybe inefficiencies that were caused by COVID and the inability to work at the office? Or am I reading that correctly?
Speaker 3: No, it's correct. You know, as the COVID came, we have this work from home Monday, we have to keep at least half of employees not being in office. And you know, that kind of get a little bit in the habit. So we finally kind of terminated that. And it's, you know, the inefficiency of the work from home was, you know, close to 30% like everyone.
Speaker 3: And most of it is the purely salary and overhead related with it.
Speaker 8: Then you mentioned maybe the COVID bump and losing some people who signed up during COVID. I'm wondering if you look at the foreign language, is the dynamic there been the same or is there a different dynamic between your English language subscribers and...
Speaker 2: summer, so we didn't have the rapid growth and deflation like we saw on the English side. So it's really been accretive in terms of.
Speaker 2: net new subs and when you look at it off of a small base, obviously the percentage is much higher than the overall business.
Speaker 2: So we've seen positive developments there in French and German. And as Jörker mentioned in his prepared remarks now, we've actually been able to get Amazon new languages and new markets interested in rolling Gaia out. And what we have seen historically over the last.
Speaker 2: Seven or eight years is that third party growth typically comes when you launch with a new region or a new distribution partner.
Speaker 2: And the launch timeline is entirely out of our control. So we don't try to bank on when those members are going to come online, but we have signed with Amazon Mexico and we're getting ready to launch with them. We're in discussions with Amazon for a couple of other regions in.
Speaker 2: South America, and then we also have some preliminary discussions with them for New Zealand and Australia region. So that could be accretive, but it's not a primary focus.
Speaker 3: But also we kind of really kind of stepped on the pedal a little bit, you know, this year in especially French and German markets because so far most French and German markets have lower acquisition costs and lower churn. So actually we're moving some more money to those regions.
Speaker 3: But there's definitely a limit how much we can grow there from the overall spend, but it's there are definitely positive development in it for last quarter. So these markets, are you do you also have a mix of direct subscribers and indirect or.
Speaker 8: Are the channels somewhat comparable to the English speaking subscribers or are they more geared towards the Amazon indirect in general?
Speaker 2: So for France French and German it's direct. There's no third-party distribution partners. It's all direct for French and German.
Speaker 2: And Spanish is the same as it sits now. And as I said, the only distribution agreement that we have for Spanish at present with no activity yet because it hasn't launched is Amazon Prime Video in Mexico.
Speaker 9: Okay.
Speaker 8: You briefly mentioned YouTube. Any, what should we focus on in terms of the, the effort party distributors? Is it the YouTube efforts? Is it the Amazon efforts? Any colored?
across all their premium channels and absent the last month or so, that's the trend that we've seen there. The latest rumored time for Hy joint ishard coming up
November , however, they still have some kinks to work out on their side. So we're not quite where we expected to be in terms of our ability to promote and market on YouTube that offering yet, but I'm being updated weekly from the teams and they're making rapid progress there. So...
We'll see when it's really ready to roll in terms of our ability to deploy full marketing and promotion efforts there, but it should continue to drive.
into the future, particularly once they get the US region figured out. They have pretty ambitious plans to roll out to other countries and languages and our agreement with them allows us to go along with them if we choose.
Okay, great. Well some top line growth and reduced expense base. That should be great. Yeah, yeah.
Hopefully that will make for a good year. Thanks for answering my questions, guys. Thank you.
Thank you. And at this time, this concludes our question and answer session.
I would now like to turn the call back over to Mr. Risavi for closing remarks.
Well, thank you everyone and we look forward to speaking with you in early May when we report our first Q. Thank you very much.
Thank you, and that concludes today's conference. I'll pardon me and disconnect. Have a great afternoon.