Q2 2023 Gaia Inc Earnings Call
Speaker 1: Mat.
Speaker 2: Good afternoon, everyone, and thank you for participating in today's conference call to discuss GAIA financials results for the second quarter ended June 30, 2023.
Speaker 2: Joining us today are GAIA's CEO , Erika Risavi, and CFO , Ned Preston. 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. The following constitutes the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.
Speaker 2: The matters discussed today include forward-looking statements that involve numerous assumptions, risks, and uncertainties. These include, but are not limited to, our ability to attract new members and retain existing members, our ability to compete effectively, including for customer engagement with different modes of entertainment, maintenance, and expansion of device platforms for streaming, streaming, and streaming.
Speaker 2: fluctuation, customer usage of our service, fluctuations in quarterly operating results, service disruptions, production risks, general economic conditions, future losses, loss of key personnel, price changes, brand reputation, acquisitions, new initiatives we undertake.
Speaker 2: security and information systems, legal liability for website content, failure of third parties to provide adequate service, future internet related taxes, our founders control of us, litigation, consumer trends, the effect of government regulation and programs to impact the public health threats, including the coronavirus COVID-19 pandemic.
Speaker 2: Securities and Exchange Commission, including 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 GAIA CEO Irka Versabie. Please go ahead.
Speaker 3: Good afternoon everyone and I'm glad that we can report positive results.
Speaker 3: Revenue for the second quarter increased the gains sequentially to 19.8 million from 19.6 million.
Speaker 3: But it's still down from the last quarter of 20.7 million due to post-COVID subscriber construction is experienced industry-wide during 2022.
Speaker 3: Member count increased during the quarter by 8,000 to 774,500. That's virtually all the growth coming from our direct subscribers.
Speaker 3: Our ARPU, which is showing steady growth, has increased from 795 in 2019 to 846 in 2020 to 860 in 2021 and 875 in 2022.
Speaker 3: It now shall be further supplemented by the launches of GAIA Marketplace, which is now rolling to a select group of our members.
Speaker 3: The total operating expenses in the quarter were about $950,000 higher than in year above quarter, still including a tail of the contracts and related expenses incurred as a result of our 20% stop reduction that was completed during the first quarter.
Speaker 3: While we still reported gap loss, the company has returned to net guess generation.
Speaker 3: The cash balance in June 30 was 10.9 million and I would let Nat now speak more about the results.
Speaker 4: Thank you, Yurka. Revenues for the second quarter were $19.8 million, a slight sequential increase for the second consecutive quarter, continuing the return to growth in our member base during the first half of 2023.
Speaker 4: Compared to a year ago quarter, revenues declined 4% due primarily to the hard compare against Q2 2022, which benefited from the COVID-related subscriber growth experienced in 2020 and 2021.
Speaker 4: In the quarter, we continue to invest in and release new content, particularly to support our language expansion efforts.
Speaker 4: As a result of these strategic growth investments, gross margins were 85.7% during the second quarter of 2023, and we expect them to remain at this level the near term as we expand our language offerings and tactically support the growth of the business.
Speaker 4: Total member acquisition costs during the quarter were $8.2 million, or 41% of revenues, compared to $7.2 million in the year-ago quarter. In the quarter, we benefited from our efforts to optimize customer acquisition costs over the past several quarters, with per-customer acquisition costs down 9% sequentially.
Speaker 4: In the second quarter, we experienced growth in our direct member base, which is a continuation from the first quarter. Additionally, we witnessed a return to growth among our largest third-party partners, which is a reversal of the contraction we experienced in the first quarter. The growth in both our direct member base and third-party member bases.
Speaker 4: during the quarter is building our confidence that we are through the worst of the post-COVID member unwinding. Selling and operating expenses, including marketing and member acquisition costs in the second quarter, were $8.9 million or 45% of revenues, which is up slightly from the prior year period.
Speaker 4: This increase reflects the end of contracts and related expenses incurred as a result of the company's cost improvements that were completed during the first quarter.
Speaker 4: Corporate GNA and corporate expense in the second quarter were 1.5 million or 8% of revenues, down 15% from the prior year period. We expect to realize most of the benefits of the cost reductions undertaken in the first quarter in the second half of 2023.
Speaker 4: and anticipate the cost improvements will support the financial state of the business going forward. During the second quarter of 2023, we recorded a net loss of $1.7 million or negative eight cents per share compared to the net income of $0.1 million in the year ago period. The decline was primarily driven by the reductions in revenues between periods.
Speaker 4: Adjusted EBITDA was $3.1 million or 16% of revenues in the quarter and we generated free cash.
Speaker 4: Our deferred revenues for the second quarter were $15.5 million, an increase of $1.4 million from the year-ago period. We expect to continue to benefit from the inherent negative working capital cycle in our business model as we continue to grow our member base and revenues.
Speaker 4: In addition, we expect to be in a position to continue generating cash flows from operations in excess of the cash flows we reinvest back into our content library and production enhancements going forward.
Speaker 4: Due to our in-house production capabilities and lack of contractual commitments tied to our content production, we have significant discretion in the amount and timing of our investments.
Speaker 4: This flexibility allows us to adjust our investment levels as needed to withstand a downturn in the macroeconomic environment if necessary.
Speaker 4: Through the company's focus on accelerating growth and a return to positive operating margins, we have made tremendous progress over the past several quarters on numerous key areas of improvement for the business.
Speaker 4: With continued disciplined execution and the launch of Gaia Marketplace, we are well positioned to continue growing revenues and to remain cash flows positive going forward. With that, I will hand it back to Yurka for some closing remarks.
Speaker 3: Well, with the cost tail of our staff reduction now being gone.
Speaker 3: Our annualized gross profit for employees recently reached an all-time high of over $610,000.
Speaker 3: with the number
Speaker 3: Number growth, sorry, member growth in July running above the pace for the second quarter.
Speaker 3: Plus, GAI Marketplace is beginning to be rolled out to improve our ARPU and revenue. We can look for a stronger second half of the year.
Speaker 3: With that, that concludes our remarks and I would like to open it for the question. Please, Maria. Operator, please. This is Chuck Caucus with Weatheruel.
Speaker 2: Thank you, sir. We will now be conducting a question and answer session.
Speaker 2: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 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 the star keys.
Speaker 2: One moment please while we poll for questions.
Speaker 2: Our first question comes from Mark Arcenjo with Lake Street. Please proceed with your question.
Speaker 5: Hey, Yurka. Hey, Matt. Just wanted to drill down a little bit on the customer acquisition or subscriber acquisition cost. Are you seeing the cost to acquire in terms of going out buying keywords or other types of online ads? What trends are you seeing there? I think it's sustainable to be able to kind of cost effectively acquire at this point.
Speaker 3: Hi, Mark. Thanks. We generally will see right now the cost of acquisition is definitely improved from the last year when this whole environment was much more.
Speaker 3: negative still with the post COVID. So this year, we target generally about 39-41 percent of revenue depends on efficiencies. We were on the higher end of it because the efficiencies start to be good. I hope that that will continue as where it is. SecondOhok at stick at
Speaker 3: With COVID gone, also seasonality came back and second quarter was historically our slowest quarter. So we were pleased with the actual results. I think as we are focusing on some of the new initiatives, we talk about it now for a little bit.
Speaker 3: for focusing on the members with higher retention rather than just low cost. It's definitely an overall growth start to be helped by the improved retention.
Speaker 5: Does it answer your question? Yeah, no, that's helpful. It sounds like a little better environment. Hopefully it continues there. Just shifting gears quickly, obviously nice to see you guys cash flow positive in the quarter. I think in your prepared remarks, did you say you anticipate that being cash flow positive going forward? Is that what I'm hearing?
Speaker 4: Yes, yeah, hey Mark, it's Ned. Thanks for the question. That is correct. So Q2 was a big transition quarter for us in moving to that positive cash and we do anticipate forecasts that continuing for the second half.
Speaker 3: The improvement in the quarter from the first quarter was about 1.3 million in a positive Y direction.
Speaker 3: We hope that with all the tail of the staff reduction being gone, that obviously that will improve.
Speaker 5: It's good to hear. This last one for me, in terms of the marketplace, could you just refresh us on what should we look for there in terms of a rollout or how does that stage out over the next quarter or two?
Speaker 3: Yeah, so we just kind of right now rolling it to small amount of people. We are putting it from about 10 to 20,000, our members, active members, and seeking the response. So we kind of know how
Speaker 3: to market because there's several ways to display mostly on a screen of those people as we can target and as we kind of looking a lot for like experience rather than products our first product we attached to our ancient civilization series we also have a conference with corporate
Speaker 3: Egypt, which is probably about $8,000 to $10,000 range. We kind of obviously jobbing it out, we keep about 30% of that. That's what we'll be booked as a margin. We would one book the whole price, only the 30% we keep.
Speaker 3: However, if they are members, they get 10% discount, they come from our side. So that's roughly how it goes. We're going to slowly increase the number of people. We see it's running smooth. We had other experiences of potential same products.
Speaker 3: So, it's something what I think as we go to end of the year, it should start really meaningfully improved our ARPU and hopefully also the revenue of course.
Speaker 5: I'm super helpful. I appreciate it. I'll hop back in the queue. Thanks.
Speaker 5: I appreciate it. I'll hop back in the queue. Thanks. Thank you.
Speaker 2: Our next question comes from Terry Woolwood with Water Tower Research. Please proceed with your question.
Speaker 6: Yes, greetings Jokha and Ned.
Speaker 6: Mark covered quite a few questions there, but I was curious, you had some good momentum, you told us.
Speaker 6: from the foreign language subscribers earlier this year. Is that continuing? Can you?
Speaker 6: Give her some color there.
Speaker 3: Yeah, that's kind of started already like a couple quarters and it's increasing. We did invest in the languages over the last two years as we were dealing with COVID. We didn't have this, it was more challenging marketing environment and we didn't want to fight it. We would not rather reserve the cash last year so.
Speaker 3: We did spend it on getting ready for language offering, especially in French and German. Spanish was existing before. So obviously those are the languages we kind of go in there. And any time you go to a new language, especially in some European countries.
Speaker 3: We're kind of ahead of the curve. There's not a really strong offering on those languages. So we so far see both acquisition costs.
Speaker 3: and retention being better than in the US. So we're probably spending more as a percentage of revenue in those country than we spend in the US right now. So overall, our international increasing. Our international membership, it's right now about 35 percent overall because our
Speaker 3: percentage of our direct, it's probably more on high 40s as a percentage. But either one, if you look at Netflix, they're about two-thirds. So I expect over the next few years, our international percentage will grow, providing the trend would we feel right now will sustain.
Speaker 6: Great, thank you.
Speaker 6: In terms of your, I guess not just your US, but all your subscribers, your members.
Speaker 6: Do you have any color on consumption? Are you seeing more consumption of your content?
Speaker 6: no real differences there post the whole COVID situation.
Speaker 3: Well, I mean, during the COVID, especially when we're talking
Speaker 3: from mid 2021 to mid 2022, which we still compare it to, we had more viewing and more subscribers there, but after the post COVID wave when those subscribers...
Speaker 3: you know, like everywhere left. So we kind of saw, obviously we kind of saw decrease the post COVID, but I have to say that starting this year in the first quarter, which is kind of going to, you know, that people start to have a free time last year. I mean, they could travel like they can do now.
Speaker 3: we actually see increases this year. Again, we used to see it before COVID, and COVID went quite high, it was like it came down, but now we see increases on the viewing again.
Speaker 6: Okay. Any updates on, do you have some Event Plus scheduled for the balance of the year? Can you give us some updates there?
Speaker 3: Sure, we have about two weeks. We have one of the main conferences, what we call Ancient Civilization, which is about 10-11 speakers, which is kind of one of our key conferences. So it's coming, I think 12-13 of August .
Speaker 3: with another one a few weeks later. So we're going to, you probably see our cadence and promotion of all events plus will probably increase with the kind of...
Speaker 3: We obviously have a little bit of disruption through COVID, so we're picking up where we kind of stopped before so
Speaker 3: I think we didn't focus on it until the beginning of this year, but I think the second part of the year, we focus on it. I think with the GAIA marketplace getting launched, we also have a better way how to promote it.
Speaker 6: OK, great. Well, thanks. I appreciate the update. Thank you.
Speaker 2: Our next question comes from Mark Argento, Blake Streak. Please proceed with your question.
Speaker 5: Hey guys, just a quick follow up. So, you know, just going everything down, maybe just an update on at 5,000, 10,000 feet, kind of the strategy for the company here. Now that it looks like you're able to cost effectively acquire subs again, you're going to lean into growth a little more aggressively, maybe just, you know, maybe a little higher level.
Speaker 5: COVID and then a post-COVID overhang, it seems like maybe we're kind of normalizing a little. Like, you know, given the kind of the environment we're in and what you're seeing, what, you know, what's the higher level strategy at this point? Thanks.
Speaker 3: Well, it's just like from the B and as a CO level, I actually could see from my point that because now we have the new team as we have a couple of new additions, it's started to click and it's really good team as a chemistry-wide. I'm very pleased with that.
Speaker 3: Obviously with the growth and increasing ARPU, I feel pretty good about where we're heading. So I think you can expect the company acceleration and producing positive cash flow. I think the question cash flow versus growth, I think we want to really...
Speaker 3: stay in positive cash flow and we generate more dollars we put it back in the growth but we don't go negative on free cash flow so I think that's pretty much where where it is it's pretty simple right now you know grow as fast as we can without going negative in a cash flow.
Speaker 3: And the cost per employee, which is the gross profit for employee, which is 610,000, which is you start to be up there. And as long as we can keep it on these levels, I think that, you know, the cash flow and profitability would kind of, you know, come from there as well. But I think it's... you know, the cash flow and the profitability would kind of, you know, come from there as well.
Speaker 3: Grow as fast as we can without and while staying positive cash flow is the strategy.
Speaker 4: Yeah, and Mark, if I could, this is Ned, I'll just elaborate just a little bit as the person that's just been here for a month. It's a big reason why I came to Gaia, just because of that leverage. I'm just very impressed with a company that runs with around 110, 120 full-time employees driving over $8 million of revenue.
Speaker 4: But the efficiencies that I've seen in the ability to pull the levers when needed around increased marketing spend for the right reasons, it really is impressive. So as I said in my commentary earlier, the continued execution against the existing plan.
Speaker 4: is very much what I look forward to here, but we just really look forward to the upside leverage of that model.
Speaker 3: Also, to mention, as Sted mentioned, our gross margin came 90 basis point or something down. It's actually purely because we keep growing, putting new content and with the revenue slowdown last year. Thank you.
Speaker 3: it changed the ratio compared revenue, but if you look at what we call net, we have basically a line, what we call a cash contribution, it's basically cash margin, that how much what will cost to have a new customer. That's kind of the same number, but less amorous.
Speaker 3: the cash point how margins actually is expanding as we're talking free cash flow.
Speaker 5: Very helpful. Good luck the rest of the way. This year, guys. Thanks.
Speaker 7: Thanks, Mark.
Speaker 2: There are no further questions at this time. I would now like to turn the floor back over to Erika Roussavi for closing comments.
Speaker 3: Well, thank you everyone for joining and we look forward to speaking with you when we go to our third quarter, which should be in early November . Thank you very much.
Speaker 2: Ladies and gentlemen, this does conclude today's conference. She may disconnect your lines at this time. Thank you for your participation.
Speaker 1: My.