Q3 2024 Gaia Inc Earnings Call
The The
Speaker Change: Good afternoon, welcome to Gaya's third quarter 2020 for Unis Conflicts Call.
Speaker Change: At this time all participants are in listen-only mode. Joining us today from Gaya, Ayrka Rysavy, Executive Chairman James Colhoun, CEO and Ned Preston, CFO. After the speech of presentation, there will be a question and answer session.
Speaker Change: Before we begin Gaiar's management team would like to remind everyone that management's prepared remarks contain forward-looking statements.
Speaker Change: Management may make additional forward-looking statements in response to your questions, including, but not limited to statements of expectations, future events or future financial performance.
Speaker Change: These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
Speaker Change: Although we believe expectations are reasonable, Gya's management undertakes no obligation to revise any statements to reflect changes that occur after this call. Actually events or results could differ more.
Speaker Change: These statements are based on current expectation of companies management and involved inherent risk and uncertainties.
Speaker Change: including those identified in the risk factor section of Gaia's latest annual report on Form 10-K filed with the SEC.
Speaker Change: This call also contains time-sensitive information that is accurate only as of the time and date of this broadcast, November 4, 2024.
Speaker Change: Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on Gaia's Investor Relations website at ir.gaia.com.
Speaker Change: Thank you for watching!
Speaker Change: I will now turn the call over to Gaya Executive Chairman, Jirka Rysavy. Thank you and ODU.
Jirka Rysavy: Good afternoon everyone. During the third quarter, which is seasonally slow, we grew our revenue at a similar rate as the first time, first part of the year, at 10%.
Speaker Change: Gross profit increased 11% with gross margin improving to 86% from 85.2.
Speaker Change: at the year about quarter.
Speaker Change: Member count grew at the same period by 7%.
Speaker Change: The third quarter was our sixth consecutive quarter of positive operating and free cash flow, which improved about 1.5 million during the quarter this year.
Speaker Change: and Jirka Rysavy. Thank you.
Jirka Rysavy: Over the last few months, we raised for the first time in our history our subscription prices for all members by at least two dollars.
Speaker Change: Why the initial losses from the price increase kept our member count for the quarter flat?
Jirka Rysavy: We expect the price increase will push our revenue up from the current $22.2 million in this quarter to almost $24 million during the fourth quarter.
Speaker Change: and James will now speak more about other advances in the business.
James Colhoun: Hello everyone and thank you Jirka. As mentioned for the first time in Guy's history we began the implementation of a price adjustment for our legacy members as we have typically grandfathered members on legacy or old pricing.
James Colhoun: Following a successful pilot in the UK in Q3, we expanded this initiative to include our third-party platforms at the end of this quarter.
James Colhoun: While the decision temporarily impacted our member count, it is set to create a strong uplift in revenue.
James Colhoun: And we are optimistic that members will return to growth in Q4 and it will close out the year with over 850,000 subscribers
James Colhoun: At the start of Q4, we began price increases for our direct members on legacy pricing, and early data suggests that this is already surpassing our expectations.
James Colhoun: This is a very encouraging indicator for revenue growth momentum as we move into 2025.
James Colhoun: Looking ahead to Q4, we expect our first full quarter of revenue contributions from Gaia Marketplace.
James Colhoun: And as marketplace scales alongside our new pricing strategy, we anticipate gross margins to rise above 86%, a powerful improvement in our financial profile.
James Colhoun: Additionally, our marketing team's continued focus on attracting more annual members at signup, together with increases in our tenured member base, has resulted in a substantial improvement in retention over the past 12 months.
James Colhoun: This stabilized long-term member base sets us up for even stronger strategic positioning as we roll out the new pricing for legacy members.
James Colhoun: Q3 also highlighted the impact of our live events and premium membership tier.
James Colhoun: We hosted two Gaia Sphere events, including our largest ever Ancient Civilization Conference.
James Colhoun: and our sold-out Gene Keys event. We're thrilled to see even more enthusiasm in Q4 with the recent sold-out channeling event, and coming up this weekend, we will have our first-ever HEAL conference.
James Colhoun: Finally, we're excited to announce our partnership with Eleven Labs as Guy's official provider for AI-powered dubbing and translation services.
James Colhoun: This collaboration will allow us to streamline and accelerate the process of adapting our content for a global audience. By leveraging Eleven Lab's advanced technology, we'll be able to reach new viewers more efficiently in their native languages, enhancing the accessibility of Gaia's offerings.
James Colhoun: Looking forward to the end of the year and beyond our focus remains on executing on the price increases for existing members, broadening the reach of our marketplace initiative, growing our premium membership tier and driving improvements in annualized ARPU. Our CFO Ned Preston will now provide deeper insights into our financial performance. Ned.
Ned Preston: Thank you, James. Turning now to our financial results for the third quarter ending September 30th, 2024.
Ned Preston: Revenues for the third quarter grew $2 million, or 10%, to $22.2 million, up from $20.2 million in the year-ago quarter. This also marked our fifth sequential period of year-over-year top-line growth.
Ned Preston: Member count increased on a year-over-year standpoint to 846,000 as of September 30th, 2024, up from 790,500 or 7% from September 30th of 2023.
Ned Preston: Gross profit in the third quarter increased 11% to $19.1 million, up from $17.2 million in the year-ago quarter.
Ned Preston: Net loss was negative 1.2 million, or negative 5 cents per share, compared to the year-ago quarter at negative 8 million, or negative 4 cents per share, driven primarily by the absence of the Employee Retention Tax Credit recognized in the third quarter of 2023.
Ned Preston: Adjusting for the 1.8 million dollar ERTC recognized in Q3 of last year, the quarterly net loss improved by 1.4 million.
Ned Preston: Free cash flow for the third quarter was $100,000, representing the sixth consecutive quarter of positive cash flow.
Ned Preston: In the last nine months, both revenue and member growth were stable near 10%, with an improvement in free cash flow of $1.6 million, on top of the $8.4 million improvement delivered during 2023.
Ned Preston: As of September 30, 2024, our cash balance was $4.4 million with an unused $10 million line of credit.
Speaker Change: That completes my summary. I'd like to now turn the call back over to Jirka for his closing comments. Jirka?
Jirka Rysavy: Yeah, so for the summary, we expect increasing annual revenue growth rate.
Ned Preston: with continuing growth of ARPU, which will be supplemented by the price increases as well.
Jirka Rysavy: We obviously want to continue increasing gross profit for our employees and continue generating a positive free cash flow.
Jirka Rysavy: This concludes our remarks. I would like to open the call for the question. Operator, please.
Speaker Change: Thank you sir. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star and 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: Thank you for watching!
Speaker Change: The first question comes from Mark Argento with Lake Street. Please go ahead.
Mark Argento: Yeah, hi guys, good afternoon. I was wondering if we could dig down a little bit on when you took the price increase, kind of what did you see, you know, subscriber base, did you get some initial churn that it moderated, or maybe you could just talk to kind of what the experience was there.
Speaker Change: First and foremost when we increase it for new members we do see acquisition costs increase for a period of time and then they settle down and so that we're making the Delta from the pricing could increase which we have seen happen.
Mark Argento: especially as we head into Q4. With regards to churn event on the existing cohort, so within Q3 we did a test cohort in the United Kingdom. In that region we increased north of 30% because we had to make some adjustments for currency fluctuations.
Mark Argento: and we were very surprised with the results there. We made, by far, a significant margin on the delta of that price increase.
Speaker Change: This encouraged us to roll it out to third party, which we did to our third party platforms at the end of Q3. And this had a slightly higher churn, I would say, than direct.
Speaker Change: I would say partially we don't have a close connection with the third party in comparison to Direct and what we call our apps, which makes up a vast majority of our members.
Speaker Change: We've started in Q4 price increases for our legacy member base. We're a month into those notifications and we're seeing a similar result to United Kingdom. We're very impressed and we're in a good spot to see our growth rate accelerate in Q4 and beyond.
Speaker Change: It's helpful. And just from a timing perspective, when do you expect to have at least the vast majority of the subscriber base rolled over?
Speaker Change: to the new price increase. Is that Q2 next year? Because obviously you've got a bunch of annual guys still in there that you still need to roll forward, but how does that, kind of the percentage of the base, how does that, kind of where are you now and where will you be over the next couple quarters?
Speaker Change: like you said, because of the annual membership percentage.
Speaker Change: in our legacy cohort. So this will be fully flushed through a year from now, but a majority of the price increase is gonna be happening in this Q4. And so that we'll see a majority of that impact for the full year of 2025.
Speaker Change: Yeah, Mark, so basically, you know, as James says, most of it is now because all the monthly members, and we have about half of the members are annuals, so then firstly the 40% pretty much equally spread over next three quarters.
Speaker Change: and Jirka Rysavy. Thank you.
Mark Argento: Yeah, that's helpful.
Speaker Change: And James, you had mentioned Marketplace kind of launching or relaunching in Q4. It looks like you have a pretty busy
Speaker Change: you know, Marketplace and, I guess, Gaia Plus. You know, as you roll, not only Q4, but, you know, next year, you know, how, you know, the breadth of offering there, you know, how aggressive are you going to be in terms of marketing in your, you know, fairly large, you know, 800-plus thousand subscriber base?
Speaker Change: Sure. With regards to Marketplace, we officially launched it in August, so Q3 we had a partial contribution there. For Q4, it'll be our first full quarter of contribution and we don't typically share independent data based on these business units.
Speaker Change: and what I will say though is that marketplace will cross sort of P&L positive in terms of revenue per quarter and cost of headcount per quarter.
Speaker Change: around middle of next year and from that point onwards we'll be scaling it out. With regards to Gaia Plus, the premium membership tier, what we're seeing is that that's outpacing our total membership growth at about 3 to 4x.
Speaker Change: So we're growing that at a faster rate in comparison to the total member count. And what that's doing, along with the price increase, is we're really pivoting the organization, I would say strategically, to focus more.
Speaker Change: on ARPU as well as total subscriber growth, but that ARPU and revenue growth is sort of the key, is a key focus for Ned, myself, and Jirka.
Speaker Change: That's all for guys, I'll hop back in the queue next quarter.
Speaker Change: Thank you. Thanks, Mark.
Speaker Change: Thank you. The next question is from James Sidoti with Sidoti and Company. Please go ahead.
James Sidoti: Hi, good afternoon. Thank you for taking the questions.
James Sidoti: I heard you mentioned two events this quarter, will there be more?
James Sidoti: marketplace or more Skyr plus events in the fourth quarter
Speaker Change: Hi Jim, it's James here. So these two events will be our last events of the year and then we'll kick off again next year with new events. So this year we'll have one of the for the total 24 year
James Sidoti: We'll have the most events that we've ever run in one year and we're seeing great attendance and like I mentioned to Mark We're seeing you know the premium tier growing at a great clip
James Sidoti: especially from member upgrades which is, you know, a good side for us. So yeah, just one more event to go and we had a sold-out event just recently.
Speaker Change: and the price increases do they impact the Gaia Plus membership or were they for the standard Gaia memberships alone?
Speaker Change: So currently it's just for the standard Gaia memberships alone.
Speaker Change: We have been leaning into the Gaia Plus premium tier in terms of production of content, like I mentioned, with the most events this year. As we look to 25 and beyond, we will be revisiting the price point for the premium tier once we build out the on-demand library accessible to those members.
Speaker Change: Later, two in the year to this year.
Speaker Change: Yeah, So just to clarify the AGM, it's not just <unk>.
Speaker Change: To make sure that that's clear around the timing of ignite on that will be middle of 2025. So we're you know probably June 2025 is what we're shooting.
Speaker Change: Okay, and your free cash flow positive again.
Speaker Change: Do you think these trends continues do you think that you'll need to go out and raise any capital in the near term or do you think you'll be able to sustain your growth with our existing capital you're raising.
Speaker Change: We have some cash you're generating.
Speaker Change: Some of the businesses, though.
Speaker Change: Yeah, So hey, Jim This is Nat and James in New York can weigh in so I'm going to separate that into a guy I believe you're you're talking specifically about <unk>. So no immediate guy a guy or are you gonna time, Youre, asking that Joe Guy I know guy or Gal.
Speaker Change: Yeah, so with the yeah, yeah, so with the AR as we said six quarters in a row of generating free cash flow. We don't have a need to go out and raise cash at this time with that being said similar to what we did almost exactly 12 months ago 13 months ago doing a race, we we always look for opportunities, but no immediate.
Speaker Change: Our plans to do so.
Speaker Change: Yeah.
Speaker Change: We are planning to re file our S three which it is.
Speaker Change: So far this year as we always do and we don't have any immediate plan to do anything.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Jim.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Terry rollout with Watertown Research. Please go ahead.
Terry rollout: Yes. Good afternoon, just a question on the mechanics of that.
Terry rollout: The price.
Terry rollout: If you can kind of give us a sense how does that.
Terry rollout: You you reached out to your members and then do they have to do something or they just don't have or don't get they don't do anything nothing happens out I'm just curious the thought that Oh, you implemented that.
Speaker Change: Criteria, it's James here so.
Speaker Change: Around the world different countries have different legislation legislation when it comes to increasing prices a vast majority of the world is a what's called a non consent whereby you send an E mail notification to the member are 30 days before the price increase and increases.
Speaker Change: Unless they go and actively unsubscribe now theres, a very small amount of territories that are consent mode, where the members need to actively approved a price increase.
Speaker Change: This stage for the increase were focusing on non consent countries and will be adding the consent countries as we move into 2025.
Speaker Change: A larger Dev lift on our engineering team, but so far as we've been sending out the notifications.
Speaker Change: And comparing it to our test project in the United Kingdom. The results are very encouraging and it gives us a sense of.
Speaker Change: That we have pricing flexibility in the market given the aggregate of niches that we serve and yeah. We're excited for its impact on revenue said, if we can continue to expand the brand and reach more members as we as we grow.
Speaker Change: Okay.
Speaker Change: And then maybe just a question on the event plus how how do you.
Speaker Change: How do you translate that into the light event, how do you translate that into a may be increase in membership or or just increase in overall new members as well. So how do you integrate day event with your with your marketing program.
Speaker Change: So in theory, we typically use the live events as a promotional opportunity for Gaia not only does it accentuate the community element of our of our mission.
Speaker Change: By bringing people together at a Gaia sphere event center here in Colorado.
Speaker Change: It also adds a tangibilitate to the experience of Guy up and this often encourage as many members to upgrade and also people that are new to the brand to have an experience with Gaiam and then considering enjoining them, we've seen with the accelerated events that we've.
Speaker Change: Ron This year that we're we're growing guy at plus premium membership at a at an increasing rate and it's healthy for the long term economics of the business.
Speaker Change: Right.
Speaker Change: Any number you can share in terms of how many attendees online all of them.
Speaker Change: Oh, just any color around that.
Speaker Change: So with regards to the membership base like I'd mentioned, a two tomorrow, we are growing that at three to four X the rate of our overall member growth. So that's a really encouraging sign.
Speaker Change: In terms of their livestream attendees, we open specific events wider for promotional activities like we did in March of this year with the immersion conference. We had over 52000 unique livestream attendees, we likely won't be offering the same level of open experience until immersion again next year and so I can report more one.
Speaker Change: We have once we've completed that event, which we're already selling tickets for them.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thanks Terry.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen reminder, to all the participants you May press star one to ask a question.
Speaker Change: Okay.
Speaker Change: Okay, sorry hearing no questions I would like to thank you for joining and we look forward to speaking with you and we will report our fourth quarter results in March.
Speaker Change: Yes.
Speaker Change: Thank you for joining us today for <unk> third quarter 2020 Volt earnings Conference call you may now disconnect.
Speaker Change: [music].
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.