Gaia, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia Incorporated's financial results for the third quarter ending September 30, 2020. Joining us today are Gaia's CEO, Erika Ricevee, and CFO, Paul Terrell. Following some prepared remarks, we will open 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 Mitigation 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 uncertainties 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 like to turn the call over to GAIA's CEO, Yuriko Ricci. Please go ahead.

Thank you, Anne, and good afternoon, everyone. So revenue for third quarter increased 28% to $17.5 million. We ended the quarter with 697,000 members, which is 34,000 above the last quarter and 4,000 above the plan. Gross margin increased to 87.1% from 86.8. We achieved 46% improvement in gross profit for employee. It's a measurement we look for a couple of years now. Gross profit per employee increased first time over half a million, ending for the quarter at $513,000, up from $351,000 a year ago. We did not experience any meaningful slowdown in our content creation, which is becoming our main asset and differentiator. Content we created represents about 80% of our member viewing, This remaining 20% come from licensed titles. Net income for the quarter was $200,000 or a penny a share, which improves significantly from a loss of $4.1 million or $0.23 loss per share a year ago. The actual GAAP income for the quarter was $6.3 million or $0.33 per share, which included $6.1 million gain on a sale of half of corporate campus, excluding our studios. EBITDA improved $4.8 million to $3.4 million compared to a loss of $1.4 in a year-ago quarter and increased $2.6 million sequentially. Forty-nine months, we generated $7.2 million in cash from operation. compared to a cash use of 5.9 million in the year ago, which is a sizable improvement of 13.1 million. Our cash balance for the first time actually increased by 0.3 million, which compares to decrease of 5.8 million year quarter, year ago quarter. We ended with cash up to 8.7 million, same time as we reduced our outstanding debt to $4 million, down from $17 million. We achieved all targets as planned and communicated 18 months ago, and we expect the fourth quarter to be another one with positive earnings and free cash flow and another 30,000-member jump in our base. Paul, when I speak to you more about results, I'll go ahead, Paul.

Thank you. Revenues in the third quarter increased 28% to $17.5 million, with an increase in gross profit of 29% to $15.3 million. Gross margins also improved to 87.1% compared to 86.8% in the year-ago quarter. As Jerica mentioned, we ended the quarter with 697,300 members, which represents net growth of 33,900 members for the quarter, and net growth of over 117,000 numbers for the 12 months ended 9-30-2020. The net growth for the quarter was ahead of our expectations due primarily to improvements in retention. Selling and operating expenses, excluding marketing and member acquisition costs in the third quarter, were $6.3 million, or 36% of revenues, which is down from $7.6 million, or 55% of revenues, in the year-ago quarter. Corporate and G&A expenses in the third quarter were flat at $1.4 million, which is in line with the prior year quarter. Total member acquisition costs were $7.2 million, or 41% of revenues for the quarter. This is down from 49% of revenues in the year-ago quarter and down from the 52% that we had in the first half of 2020. Beginning in mid-August and continuing through October, the cost of online advertising was extremely volatile. Despite this volatility, our efforts to improve the efficacy of our advertising efforts over the past 24 months paid off, and we were able to keep CPA flat with the prior year quarter at $60. The annual plan take rate for new members has continued to be in the 28% to 30% range, which allows us to benefit from the negative working capital of our model. EBITDA improved to $3.4 million in the quarter from $0.8 million in the second quarter, and at negative $1.4 million in the year-ago quarter. The sequential improvement in EBITDA is approximately 2x the growth in gross profit, which demonstrates the operating leverage of our direct-to-consumer subscription video-on-demand model now that we have reached scale. We also improved our cash flow from operations to $3.3 million from a cash use of $0.7 million in the year-ago quarter. As Jerica mentioned, we sold a portion of our corporate campus to a real estate investor for $13.1 million utilizing the net proceeds to reduce our debt from $17 million to $4 million. The corresponding reduction in interest expense will offset the decrease in building income, so the net impact on operating expenses and cash flows will be neutral going forward. Including the gain on the sale of the real estate, we generated net income of $0.2 million, or $0.01 per share, and on a gap basis, net income for the quarter was $6.3 million, or $0.33 per share, which includes the gain on the sale of real estate. We also generated $0.3 million in cash during the quarter compared to cash used of $5.8 million in the year-ago quarter. The quarter marks the final milestone in our transition to generating positive earnings and cash flow while maintaining a revenue growth rate above 20%. As I mentioned earlier, the online advertising market has remained very volatile to start the fourth quarter. In spite of this potential headwind, we are still targeting net member additions of $30,000 for the fourth quarter while maintaining positive earnings and cash flows. With that, I'd like to open up the call for questions. Ann?