Q1 2023 Gaia Inc. Earnings Call
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Good afternoon, everyone and thank you for participating in today's conference call to discuss Guy is Inc. 's financial results for the first quarter ended March 31 2023.
Joining us today are guy as CEO , Jirga, Shani 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 just take a minute to read 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 today involve numerous assumptions risks and uncertainties.
These include but are not limited to our ability to attract new members existing members our ability to compete effectively including for customer engagement with different modes of entertainment.
Maintenance and expansion of a device platforms with streaming fluctuation in customer usage of our service.
Actuation in quarterly operating results.
Disruptions product risks general economic conditions.
Your losses loss of key personnel Vice.
Price changes.
<unk> reputation acquisitions.
The initiatives, we undertake security and information systems.
Legal liability for website cartoon failure.
Failure of third parties to provide adequate service.
Future Internet related taxes.
Our founders controller of us.
Litigation consumer trends.
Fact of government regulation and programs.
The impact of public health threats, including the coronavirus, COVID-19, pandemic and our response to it and other risks and uncertainties detailed detailed from time to time in our filings with the Securities and Exchange Commission.
Our reports on Form 10-K and Form 10-Q.
Gaia 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 you caught me Savi. Please go ahead.
Good afternoon, everyone.
And I'm glad that I can again to report positive results after.
Did a challenging last here when both revenue and adjusted EBITDA increased only in single digit due to Covid Lockdown member cleanup.
During the first quarter, we have returned to the member growth.
Growth came from our direct membership while the third party providers like Amazon, We're still negative in January and February .
We added 7500 members during the first quarter, ending with 7666 fiber and remember on March 31st.
With the growth accelerating during April .
Even membership at our third party providers started to grow again.
And we expect we expect member growth rates to increase during the year.
The gross is also being helped by improved retention in April the member losses hit all time low benefiting from our marketing focusing on campaign generating higher retention rate than most slate on costco to trial and conversion rates.
Another significant improvement.
Because the cost per member acquisition that decreased by 13% during the first quarter as compared to fourth quarter.
Marketing investment in non English, especially French and German which have low C. P analysts chance also helping.
The viewing time per member studying started to grow again after declining since Covid Lockdown ended.
Well it is small improvements we did since September also start to make a positive difference.
Okay.
As we mentioned previously we have eliminated over 5 million of annualized spending, which including approximately 36 head counts mostly contractors.
There were edited over last two years to outfit a radio sufficiency, we experience as a result from a work from home.
While some tail pay arrangement will still impact Q cost, we expect to see the partial benefits of some savings card in the second quarter.
The 20% of reduction in head count of richness to pre COVID-19 level of operating efficiency.
Annualized gross profit per employee reaching 600000 in March.
Now Paul will talk more about specifics results.
Revenues for the first quarter were $19 6 million a slight sequential increase for the first time in the past 12 months.
Reflecting the return to growth in our member base during the quarter comps.
Compared to the year ago quarter revenues declined 10% due primarily to Q1 2022 benefiting from the Covid related growth of 'twenty, 'twenty and 2021.
As we continue to invest in and release, new content, particularly to support our language expansion efforts.
We have increased our viewership on the exclusive portion of our library to over 85%.
And as a result, and as expected gross margins were 85, 9% during the first quarter of 2023, and we expect them to remain at this level for the near term.
Total member acquisition costs during the quarter were $7 9 million or 47% of revenues compared to $8 6 million in the year ago quarter.
We have started to realize the benefits of our focus over the past several quarters with per customer acquisition costs down, 13% sequentially and a similar improvement compared to the year ago period.
While we continue to experience net member contraction in our larger third party distribution partners in the first half of the quarter. We have returned to growth with our largest partner in beginning in March.
The return to growth on both our direct member base and third party member basis. During the quarter is building our confidence that we were through the worst of the post Covid unwinding.
Selling and operating expenses, excluding marketing and member acquisition costs in the first quarter were $8 1 million, which is down slightly from the prior year corporate and G&A expenses in the first quarter were $1 8 million, which is in line with the year ago quarter.
We have implemented significant cost reduction measures over the past few months and as Juergen mentioned, we will begin to see the benefits starting in the second quarter of 2023.
We had a net loss of $1 1 million or five cents per share during the first quarter of 2023 compared to net income of point 1 million in the year ago period.
The decline was primarily driven by the reductions in revenues between periods offset by 8.8 million reduction in expenses.
Adjusted EBITDA as a result was $3 2 million in the quarter compared to $4 8 million in the year ago quarter.
With our return to member base growth during the period, our working capital benefited from a sequential increase of deferred revenue of 1.4 million with our deferred revenue was $15 6 million as of March 31, 2023, we.
We took advantage of the strong growth in deferred revenues to reduce our payables balance during the period by point 9 million from December 31.
We expect to continue to benefit from the inherent negative working capital cycle and a recurring subscription business model as we continue to grow our member base and revenues.
In addition, we will begin to benefit from the 5 million in reductions that youre conventions during the second quarter and expect to be in a position to generate cash flows from operations in excess of the cash flows we reinvest back into our content library and product enhancements going forward.
Due to our in house production capabilities and lack of contractual commitments tied to our content production, we have significant discretion and the amount and timing of this investment.
Flexibility allows us the ability to adjust our investment levels to withstand a further downturn in the macroeconomic environment if necessary.
While we were focused everyday on accelerating our growth rates and getting back to positive operating margins.
We've made tremendous progress over the past several quarters on key areas of the business with continued disciplined execution and the anticipated launch of the Guy marketplace. In July we are well positioned to continue growing revenues and cash flows going forward.
With that I will hand, it back to yoga for some closing remarks.
Yeah, we are on track to launch the Guy marketplace.
Which focus on existing members to increase how are you.
Minimum additional marketing expenses tick.
Technology for he was finalized in April successfully N O for English starting next week and the launch would be in July as planned.
For a summary.
More cash than we borrow on our credit line, which is the cash balance on March 31st being $10 8 million and we expect the business to generate good cash flow for the remainder remainder of the year.
And this conclude our remarks, so I would like to open it for questions operator. Please.
Thank you Sir at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
So participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Mark Argento with Lake Street.
Do you foresee with your question.
And they're a great follow up.
A nice quarter out of you guys Portuguese.
Deferred revenue was up can you just walk us through kind of how that.
Okay.
Mechanics, there in terms of doing more direct versus third party subscribers, but what what's the mix of multiple months versus prepaid.
Sure. So that's a good astute observation arrows, we shift the member base growth from indirect members to direct members, we get the benefit of the negative working capital versus our partners collecting the money and then remaining net to us monthly and so that that's a good pick up there and then in terms of the monthly versus annual mix.
On our direct member base or.
We're about 50 50 of the existing member base between monthly and annual and when we look at our new sign ups, we vary between 25 and 30% of new sign ups that convert on the annual plan versus the monthly plan.
Got it.
In terms of pricing have you taken any price increases or anything on the pricing side rethought.
We have not and I think as the world has unwound from Covid, we've been watching what other players in the industry are doing we know from prior studies that we have some room, but I think consumer preferences and comfort levels are being tested right now as people are launching Avon models, and Netflix is doing what they're doing with the past.
Sharing crack down so.
So we're keeping an eye on it and we definitely have the opportunity to move it up based on prior studies are.
But I think we're just waiting to see how the macroeconomic environment plays out the rest of this year before we make a final decision.
Yes.
And then one last one just on customer acquisition did you guys see you know.
Conversion as things kind of normalize a little bit out there what what are you seeing in terms of.
And our conversion or Costco.
Cost to acquire.
Yeah. So I think it's as your can mentioned, we're less focused on the cost of conversion, we're more focused on retention and the way that we look at that as one and three month retention of our campaigns. So we're actually finding that it might make sense to pay slightly more for a given campaign.
Just on how it retains and then Conversely, it actually makes sense to cut efficient.
Measured by conversion rate in CPA campaigns, because they're not retaining as well as the other campaigns and that's really we started that about five months ago in this quarter reflects that.
The early benefits of that type of tweaking of what we're doing as it relates to our spending.
And as I said, you know our cost there actually acquisition not the conversion, but actually member decreased 13% from sellers forced to first quarter, which is very significant for us.
And but it's definitely helping N V. Our retention is better.
I said the losses were the lowest in the history of the company so on.
The basis of 5% and so I'll be very happy with the result, and it's actually getting even better in April than in the first quarter. So it's very encouraging what's happening kind of course the board for us.
So is the minus 13%.
Pearl per acquired customer or is that 13% in total dollars but.
Per acquired customer if the spend is flat roughly.
Yeah.
What do we call CPA cost per acquisition. It's the it's a you know when you look at the cost of the member when they you know to get somebody in a trial, but we talking up actually cost of customer after they convert from the trial.
Quite a final for me.
Uh huh.
And what's the expectation in terms of.
You know you're going to spend similar to last year.
Moderated if any.
Well I think we look at it as a combination of content plus product spending net flows through the investing side of the cash flows.
Statement and part of the reduction that you can mention in terms of the contractor levels was on our development side, which was in that line. So that number is going to come down as it as it relates to the prior year as it relates to overall content spend is a mix of that line, where we're really evaluating.
[noise] waiting if we can continue to see this growth in our foreign language markets, we might accelerate our spending there, but as I said in my prepared remarks, it's really up to our discretion of how we invest and at what levels. We invest so if we keep seeing growth we might ramp up content and if the macro economic environment deteriorates, we have the ability.
To pull back.
Yeah, we generally try to kind of.
We expect our content to the revenues would be running but as I said, you know all viewing the customer viewing start to grow because we used to grow but sort of COVID-19, but after the COVID-19 ended obviously as people start to not be home to the view in decline, but it start to grow again first quarter. So it's it's a.
Much better Mar benchmark to kind of look at new content, but generally we try to peg it to the revenue.
Great. That's helpful. Appreciate it.
Hi, guys. Thanks.
Thanks Mark.
Yeah.
Our next question comes from the line of theory.
Good with water towers research. Please proceed with your question.
Thank you Hi, Joe Hi, Paul on a nice quarter.
Mark covered a few issues, but maybe just a couple of more maybe a bit more color the acquisition costs being down is it.
Are you just having more success with.
With the existing marketing strategy or did you change something and and and are able to be more you know more effective with the marketing dollars.
I think it's a combination of being more effective with the marketing dollars and the channels that we're already spending in as we said looking at it from that campaign dynamic perspective, and not just whats the cost and volume of acquisition, but what's the retention and so that's obviously, helping as we tune that and then secondarily we're always.
Testing and evaluating new platforms and channels to market as we continue to try and drive growth, particularly given that the.
The privacy changes and how that's impacted marketing kind of writ large on line and that's not going to change, it's only going to continue to become more and more challenging to use targeted or hyper targeted marketing to go after customers as people pull back on their availability to share data.
And we also had several new people in marketing, especially the lead so they start to imply they creativity I think that places also in euro. So I think it's also a credit to the people.
Okay.
Great.
Somewhat similar question about retention is it.
Is it the new program that you Budd that you've.
Introduce out whats the breakdown between that versus maybe.
You lost a few members last year now you have a hot club members, who are not going on a go anywhere what's the.
Take down between action you made versus an improvement in that.
In the in the quality of the existing members.
Well there is two things. So first obviously, we had very challenging microenvironment. It wasn't just us pretty much anybody on streaming people who.
We get during Covid, they were leaving us like industry wide. So that kind of ended by end of the year actually kind of start to read.
Now come down and fall fall late fall, but by end of the year or most of them there was over.
There are some other still ASP at the beginning first couple of months like the third part of like Amazon because they make a price change on down so they've probably kind of added to it. So that trend has kind of gone for us at least we don't see that anymore. So it's kind of normalized but I think the biggest impact is that we started to focus.
In.
By the campaign on the campaigns they have a high retention was a newly created new algorithm is not only cost on our conversion and acquisition costs of trials, but mainly eliminating campaign day, he might be efficient, but they didn't lead to longer attention. So devilish.
The main change we did as Paul said, Paul I mean like kind of late summer actually when we started and it's really paying.
Good dividend. So I think that's the main driver behind it.
Yeah, and then we're always.
Tinkering, if you will for lack of a better term on our payment processing infrastructure and working to optimize the the passive losses that we get from credit cards on file been unsuccessfully charge particular annual members. So that's kind of the bread and butter of what we focus on with our existing member base because.
Losing those people isn't an active cancellation, that's really just a credit card going stale and so we're starting to make improvement on that line as well and when you think back to what I said about what our composition of monthly versus annual members is every percentage point improvement we can make on those passive losses is going to come.
Pound as we increase the volume of annual memberships.
No.
Yeah.
Okay, Great and Paul a question for you the severance costs would be expense in the quarter or is that spread over time.
It's spread over time are the way that they're accounted for there basically they have to continue to abide by the rules of the agreement and so we hold the payments back and then pay them. So we didn't do an accrual but in the given the fact that the majority of these were contractors and they just needed time to wind down on their notice period.
Ads with their underlying contracts is not so much sovereign says it is just a timing artifact of when we let people know and then how those contracts wound down some of the contractors to be works for companies, especially the outside of the U S. When we have a commitment we have to give them notice before we can terminate I mean you'd be giving them.
Yeah, I made it to end of the contract.
Every contract, but it is a notice period, so we have to pay them through day notice period.
Okay, and maybe the last question on the.
Any incremental color on the Gaiam market place in terms of are you getting a sense for it.
The service providers, how they're responding how they're giving up for that.
I'm wondering if you have any.
And any color around that.
I think it would be more question for first quarter. We just finished like a week ago. Our technology. So I think you'll as if it was done on time, because if you kind of.
But it will be done by in April . So it's basically it's working we have it effectively life, but we didn't start selling the product.
If you go on that side you haven't basically just right now just gaiam branded merchandise and stuff. So we have something working and tested but I cannot really say on providers, yet, but kind of mentally challenge I kind of see that as very positive and it's just another part as I kind of see the load is.
Things would actually happened from the cost of our attention and all of that stuff start to get positive. So I feel very good about our company.
Great well nice to see the inflection point in the in the member counts.
That's it for me guys. Thank you very much.
Thank you.
Okay.
Yeah.
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.
Well. Thank you everyone for joining and we look forward to speaking with you in vivo to report, our second quarter and to which would be like early August . Thank you very much.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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