Gaia, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia, Inc.'s financial results for the second quarter ended June 30, 2020. Joining us today are Gaia's CEO, Jirka Rysavy, and CFO, Paul Terrell. 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 State Harbor language. The following constitutes the 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, historical losses, competition, changing consumer preferences, subscriber costs and retention rates, acquisitions, and other risks and Unsearched Case, detailed from time to time in our filings with the 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, Inc., EO, Jirka Rysavy.

Thank you, Kathy, and good afternoon, everyone. So our revenue for second quarter increased 23% to $16.2 million. We ended the quarter with 663,000 members, which is 59,000 above the first quarter. Our gross margin increased to 87.1% from 86.4% in the year-ago quarter. We also achieved 39% improvement in our gross profit per employee to $436,000 from $314,000 a year ago. During the quarter, we generated, again, not only the $1.9 million positive adjusted EBITDA, an improvement of $3.5 million, but also $1.9 million in cash flow from operation, which is... which was $4.4 million improvement. Cash use in the quarter was $1.6 million, which was an operational improvement of $6.9 million, and we ended the quarter with $8.5 million in cash. We did achieve positive earnings for months of June, which is months earlier than planned, and we fully expect to reach our key milestone of positive earnings and free cash flow in July. as planned and communicated 18 months ago. Instead, I will get Paul to talk to you more about the quarter results. Paul?

Revenues in the second quarter increased 23% to $16.2 million compared to the year-ago quarter. Gross profit in the second quarter increased 24% to $14.1 million from $11.4 million in the year-ago quarter, with an improvement in gross margins to 87.1% compared to 86.4% in the year-ago quarter, and also up from 86.9 in the first quarter of 2020. We ended the quarter with 663,400 members, and we have continued to see increased interest in our unique and exclusive content library, which is evidenced by our Alexa Global site rankings improving 37% from 8,375 in April of 2020 to 5,317 in July of 2020. Selling and operating expenses, excluding marketing and member acquisition costs in the second quarter, were $6 million or 37% of revenues, which is down from $6.7 million or 51% of revenues in the year-ago quarter. Our focus on continued operating efficiency and expense rationalization over the last 18 months has been successful. Corporate and G&A expenses in the second quarter were $1.8 million or 12% of revenues, which includes a non-recurring non-cash charge of $715,000 related to the earn-out consideration we issued in June of 2020 tied to the success of the acquisition we completed in June of 2019. The acquired company maintains profitability since the acquisition while exceeding the upper end of their member growth target. We've been very pleased with the integration of the acquired content library and member base into GAIA. The seller is also elected to convert $1.8 million in convertible notes that were due in January 2021 into GAIA shares in June of 2020. Total member acquisition costs were $8.4 million, or 52% of revenues, down from 57% of revenues in the year-ago quarter and in line with the 52% we spent in Q1 of 2020. We've continued to focus on increasing the volume of members we are adding via organic and non-paid sources while also driving efficiency on our paid media channels. As a result, we were able to improve our average CPA for the quarter to $55, down from $68 in the first quarter and $77 in the year-ago quarter. The annual plan take rate for new members has maintained in the 28% to 30% range, which has allowed us to recover almost 70% of our customers' and Kiersten Medvedich. with significant improvements on both measures from the year-ago quarter. We also kept our cash utilization for the quarter in line with the first quarter at $1.6 million representing a significant improvement from the year-ago quarter where we consumed $8.9 million excluding the incremental borrowings from refinancing our building last year. This brings total cash used in the past nine months down to $3.2 million from $17.4 million in the same period a year ago. With our current revenue level and disciplined spend management, we have crossed the threshold for sustainable, internally funded growth. We transitioned to positive earnings in June, a month ahead of planned, and were free cash flow positives in July, as planned. We expect to be able to add 30,000 members in the third quarter while maintaining positive earnings and free cash flows. With that, I would like to open the call up for questions.