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spk01: Good afternoon, everyone, and thank you for participating in today's conference call. We discuss Gaia, Inc.' 's financial results for the fourth quarter and full year ended December 30th, 2020. Joining us today are Gaia's CEO, Yurko Rizavi, and CFO, Altarell. Following some prepared remarks, we'll open the call for your questions. Before we get started, however, I'd like to take a minute to read the State Harbor language. The following constitutes a 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 uncertainties detailed from the 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. And with that, I'd now like to turn the floor over to GAIA's CEO, Jirka Reesavi. Please go ahead.
spk02: Thank you, and good afternoon, everyone. So we ended 2020 on a very positive note, achieving all our goals, generating positive net income and cash flow for the year, while growing revenues over 20%. Revenue for the quarter increased 27% to 18.6 million. Our gross margin increased to 87.1%. We ended the quarter with 728,000 members, representing net ed of 31,000 for the quarter and 129,000 for the year. Even with this growth, we were actually able to reduce our overall expenses even in absolute dollars, to $62.8 million from $64.8 million a year ago and as a percentage of revenue to 94% from 119%, partially due to improvement of our gross profit per employee by 37% to $525,000 from $384,000. During the fourth quarter, we generated net income of $300,000 or $0.02 per share, EBITDA of $3.5 million or 18.8% of revenue, and cash flow from operation of $4.5 million on 24% of revenue. For the year, we have transitioned to a positive income of $0.5 million on $0.03 per share, which is an $18.7 million improvement from last year's loss of $18.2 million, or $1 a share. EBITDA improved by $15 million, or 22% of revenue, to a positive $7.4 million from a loss of $7.6 million. Our lifetime value of the average member also improved to over $320 from $300. Our cash position at the end of the year grew to $12.6 million, a reverse in years of the cash use, to an increase to $1.1 million for the year and $3.9 million for the quarter. All these metrics represent all-time bests for Gaia since we sold the legacy Gaia-branded yoga products in July 2016 and focused exclusively on building our direct-to-consumer digital offering. We have completed the, I would call it, final phase of our transition to sustainable pure play streaming video platform that is able to continue to grow revenue over 20% while growing profitably and growing positive cash flow. Since the sale of the yoga products is 2016, we have grown revenue at 46% of compounded annual growth rate. and members at 38% of CAGR. Same time as improving EBITDA margin from negative 90% in 2016 to positive 11% in 2020 and 19% in the fourth quarter. And Paul will not speak more to the results. Paul? Revenues for 2020 increased 24% to $66.9 million, with an improvement in gross margins to 87.1%.
spk01: Revenues for the fourth quarter increased 27% to $18.6 million, with gross margins also improving to 87.1%. We expect to be able to maintain or gradually improve these margins going forward. We ended the year with 727,600 members, which represents net growth in line with our expectations for the quarter. For the year, we added 129,000 members, and also crossed the threshold needed to continue to grow revenues 20-plus percent while maintaining profitability and positive cash flows. Selling and operating expenses, excluding marketing and member acquisition costs in the fourth quarter, were $6.3 million, or 34% of revenues, down from $6.7 million, or 45% of revenues, in the year-ago quarter. Corporate and GMA expenses in the fourth quarter were $1.4 million, For 2020, selling and operating expenses excluding marketing and member acquisition costs were $25.5 million or 38% of revenues, a meaningful improvement in both absolute dollars and as a percentage of revenues from 2019 where we spent $28.2 million or 52% of revenues. Total member acquisition costs during the quarter were $8 million or 43% of revenues. As we anticipated, the digital advertising market became very competitive starting in October and continuing through mid-December. This impacted our CPA, but we were able to maintain our discipline and still achieve our financial goals for the quarter. In October, we began renewing our first cohorts of new annual members from 2019 when our annual take rate for new members shifted from sub-10% to between 25% and 30% of new sign-ups. And I'm happy to report So with almost five months of data on the first removal of these groups, we've been retaining these numbers at a 60-plus percent rate. EBITDA improved to $3.5 million, or 19% of revenues in the quarter, from $0.2 million, or 1% of revenues in the year-ago quarter. For 2020, EBITDA improved $15 million to $7.4 million, or 11% of revenues, from a negative $7.6 million, or negative 14% of revenues. an improvement of almost 200%. We also improved our cash flow from operations to $4.5 million during the quarter, subsequently from the third quarter by $1.2 million, or 36%. For the full year, we generated $11.7 million in cash flows from operations, a $14.3 million improvement from cash used in operations of $2.6 million a year ago. For the full year, we were able to generate $1.1 million in cash compared to cash used of $18.5 million in 2019. We generated net income of $0.3 million or $0.02 per share in the fourth quarter of 2020 compared to a net loss of $2.8 million or $0.15 per share in the year-to-a-quarter. And for the year, we generated net income of half a million or $0.03 per share compared to a net loss of $18.2 million or $1 per share in 2019. As Jerica mentioned, we have completed our transition to a pure play streaming video on demand platform capable of generating sustainable revenue growth of 20 plus percent while maintaining profitability and generating cash going forward. We also own our content production facilities and have a world class team of content creators devoted to our mission and vision that allows us to produce content internally for a fraction of the cost per hour that other streaming platforms are incurring. Our original productions represent 80% of our viewership on a monthly basis and clearly differentiate us from other offerings. As we look to 2021 and beyond, we're focused on continuing to build on the solid operational and financial foundation we have laid over the past five years. We have several initiatives that we believe will allow us to accelerate our revenue growth in 2022 and beyond, including our premium live access offering, for which we now have a solid 2021 schedule of events booked, German, French, and Spanish language expansion, including native language original content, and finally, our Gaia community, which we recently launched in an invite-only beta program to our most engaged members. While these initiatives will take some time to pay off, we are very excited about what the future holds for Gaia. And with that, I'd like to open up the call for questions. Greg? Thank you very much, sir. And ladies and gentlemen, that is star one on your telephone keypad for any questions at this time. If you just make sure that you have your mute function turned off to allow us to receive that signal. Once again, star one for any questions. And first, from Roth Capital Partners, we have Darren Aftahi.
spk02: Hey, guys. Thanks for my questions, and congratulations on the transition and nice quarter. Can you maybe go a little deeper into some of the initiatives you mentioned, Paul, in your remarks in terms of how that drives growth? And then two kind of derivative questions. One, as we start 2021, what are you seeing in terms of mix of new subs coming out on annual rate? And then on the marketing side, I'm just kind of curious, where are you guys seeing good traction other than YouTube and channel? Thanks.
spk01: Sure. So the three initiatives that I outlined were, one was the premium lab access offering, which is, for you probably remember, is the $299 annual offering that we launched in 2019, but then due to COVID and our inability to have events during the majority of 2020, we didn't really push on that. But now that we're able to start having events, albeit with a smaller audience, we're starting to really focus on pushing that live access $299 premium subscription. So it will really be a revenue catalyst as we continue to build on both the archive of content that we've already filmed and then also having the events coming up and being able to convert members around those events. Second piece was the language expansion. So we launched German, French, and Spanish from a site functionality perspective in roughly late 2018, early 2019. But then in our focus to get to profitability and generating cash flows, we really paused further investment in German and French and really only built out Spanish. So now we're looking at building out German and French the same way that we did Spanish, so that should open up new market opportunities for us as we continue to build on the content library there. And then the final piece is the guided community. This is really a two-fold value from our perspective. It increases engagement and stickiness with the platform with existing members, but it will also start to create further catalysts for the word-of-mouth marketing that we've talked about via our member-driven growth. channels historically, and so this is really the culmination of what we set out to do five years ago, which is really build a global community, not just a content platform. And so all three of those will start to contribute in the back half of 2021 and meaningfully hopefully contribute to 2022 and beyond.
spk02: There was a part here also asking about annual take rate. It's about 25% to 30% of the new members.
spk01: Yeah, it's been hanging in there pretty well. It just depends on what we're promoting in terms of content and messaging on whether people take the monthly or annual at that 25% to 30% range. And then the final piece you asked was where were we seeing traction from a marketing perspective. We're pretty much seeing it across the board. Everything is working pretty well for us. I would say that organic and member-driven content and ambassador-driven referrals are continuing to build nicely. And with the community coming online, we expect that to be able to continue to build.
spk02: I just wanted to include one more in. You know, if you think about growth and kind of reaching the profitability goals that you have, would you ever kind of dip into your dog margins now to try and help accelerate growth? or is it just kind of a steady balance between marketing spend and keeping the growth rate the way you want it to be?
spk01: Yeah, I think the initiatives that I outlined there are really meant to be investing some of that free cash flow in ways that we don't have to necessarily keep flexing marketing dollars to drive growth. So from the perspective of how 2021 shapes up, it'll look pretty similar to how Q4 played out in terms of just managing bottom line and cash flows while really trying to focus on top line revenue growth. At some point, though, the model really does start to generate more earnings and cash flows than you can reasonably continue to reinvest. And so that will start to drive EBITDA margins higher. So to answer your question, would we dip into it? We have a plan that says we don't need to today to drive the initiatives that we're looking at. But that being said, if there's another market opportunity like what happened last spring where we can add subscribers at a really efficient rate, the prudent business decision would be to say go while you can. But that's not how we're planning it.
spk02: Great.
spk01: Thank you. All right, moving on from Lake Street Capital Markets, we have Mark Argento. Excuse me, sir.
spk00: Hey, York. Hey, Paul. Congrats on a good quarter. I just wanted to get your thoughts or updated thoughts around with the channels that you have currently, how big of an addressable market do you think you have with that content or your current content? And maybe you could juxtapose that to maybe some of your competitors out there. I know CuriosityStream is has gone public and is out in the domain and is offering up a nice comp as well for you. But maybe you can talk a little bit about how you're thinking about the TAM, sub-TAM for the portfolio as you see it today.
spk02: The addressable market, it's kind of, what we see, it's kind of confirmed what we were saying four years ago. We should not have a problem to a $500 10 million members, you know, as a market potential. I mean, getting there, different story, how fast and all this stuff. But I would say it's probably somewhere, you know, at 7% of the overall addressable streaming. It can potentially go higher because it's increasing as the basic health and transformation grows. Our goal is to stay this pretty unique content rather than going in a market, let's say, of the Hulu's and Netflix and stuff. I don't want to comment on something like CuriosityStream. They definitely have a different model as it is as I would look. It's more of a we really believe in the way how we do it and the negative working capital and a relatively good margin. So as we kind of go there, we have a room. We're kind of glad how it went this year. We were kind of actually really positively surprised what we kind of said two years ago with the transition to profitability. We kind of hit everything plus. And so this year we want to really look at expanding kind of two places, which is – you know, later in the year we launch community and also, you know, using the income of ambassador-based professional sales organization. And so that will really affect the 2022 growth because we believe we can get to some higher growth rates starting from 2022.
spk01: Yeah, and then in terms of how we think about the current channels, it's we're really looking at continuing to refine things at a lower granularity than just those top-level channels because we understand from a consumer and an audience demand perspective, we have to be much more granular in how we market it. So it's really more about getting into topics and areas of interest rather than launching new channels and just continuing to refine how we make people aware of Gaia and then how we serve them as they become new members and ultimately become engaged, sticky members over time.
spk02: Yeah, we actually, first time is this negative working capital. We see that our cash flow is higher as a percentage than the earnings, which was always our goal.
spk00: Right, and then just one follow-up quick. In terms of the relationship between revenue growth and subscriber growth, I know you said that you feel like you can maintain 20-plus percent revenue growth. What kind of sub-growth do you need to maintain that revenue growth? I'm assuming it's something below 20%, but maybe you just talk about the relationship between the two if you would. Thanks.
spk01: Yeah, so there's two drivers of the average revenue per user. One is the number of people that we can convert to the $2.99 premium offering, and, you know, ideally that is all upsells of existing members, so that's all incremental revenue with no marketing per se attributed to it. And then the second piece is for the roughly about 20% of our members that come through our third-party partnerships, Those are at net revenue, so they're less than our stated $11.99 a month. So those two things have offset pretty nicely for 2020, which got us revenue growth generally in line with subscriber growth. So I'd say going forward, that's how I would think about it from a mixed perspective, knowing that members will be slightly behind revenue as we build out the live access premium offerings.
spk02: But I think for 2021, the members, kind of pretty much what Paul said, you know, since we increased the prices two years ago, we have more bumps in revenue than going forward. So I'm proud to endorse what Paul just said.
spk00: Great. Thanks, guys.
spk01: Once again, ladies and gentlemen, star one, if you do have any questions. Star 1 to join the queue. We'll move on to Stephen Frankel with Colliers.
spk02: Good afternoon. Thanks for the opportunity. I think I missed the reported CPA for the quarter, so maybe we could just start there.
spk01: It was not included in my prepared remarks this time, Steve, but it was, as I mentioned, we had some headwinds in the advertising market, so it was roughly in the low 80s for Q4.
spk02: Okay, and post-election, has that advertising market changed materially, or are you still seeing those kind of rates today?
spk01: So I think it was not a factor of the election. That's what made it start sooner in Q4. It was really a function of the amount of spend trying to capture buyer demand going into the holiday season. So we saw that. elevated rates go pretty much all the way up until the shipping deadline right before Christmas, before it dissipated. And it has been tending to go back to the historical rates, but not nearly as good as it was in Q2 and Q3 of 2020. So my expectation is that we'll settle somewhere in the $65 to $75 range on a normalized basis going forward, and we're in line with that right now.
spk02: Yeah, I think we have in especially April, May, then it was kind of the COVID surprise for the market a little bit. So a lot of advertisers pulled back because they didn't know quite how to respond. The opposite was before Christmas. Then everybody kind of maybe because they have a budget left from second, third quarter to try to spend it for Christmas. But I would kind of overall say if you look a year ago and during the year as a balance and next year, it's kind of stable. So it's more like how much we want to spend. And also, you know, we have, as I mentioned, lifetime value keep growing. We theoretically have more room, but, you know, we so far didn't have to use it. You kind of see that our overall marketing as potential revenue dropped dramatically from 100 plus to 56 and now kind of low 40s. So I think there's definitely, you know, The market, I would say, is relatively stable. It's up to us how we strategically want to play the game. Okay. And on the international front, what percent of your installed base today are international, and is their consumption in line with domestic subscribers, or do you need to flesh out more content to kind of get equivalent consumption rates? So the international members right now are kind of, let's call it low 30%. It depends how, you know, if you're kind of talking overall users around the world. We kind of look at it on that basis, but also how many people use, like, other languages primarily because there's definitely some, people who, let's see, Germany, they're subscribers before we get German, offering in German, right? So we're separating those two. The usage, like, for example, usage and the kind of what we call retention, it's about the same in Germany that would be in the U.S. If you kind of look Spanish, it's very different. If you look at Spanish-speaking people, European countries like Spain compared to like Argentina it's very very different so I think you have to then look by country rather than the language so the answer will be much more complex if you try to average stuff but generally people countries they have more developed kind of great car markets and get used to it the numbers are very similar once you go to South America things get more complex
spk01: Yeah, so that's one of the reasons that we swapped out in 2019 our homegrown billing and transaction process engine into an enterprise-grade solution so that we can start to onboard these new partners from a payment perspective as we expand geographically. So that's one of the areas that we'll be looking to expand on. in 2021 uh getting more geographically relevant payment options uh now that the infrastructure is in place to be able to support that okay good thank you all right ladies and gentlemen that does include um our question and answer session um portion of the call i'd like now i'd like to turn the call back to teresa for any additional closing remarks
spk02: Well, thank you, and thanks, everyone, for joining. And we look forward to speak with you when we will record the first quarter of this year, which should be in early May. Thank you very much.
spk01: All right. Once again, ladies and gentlemen, that does include our call for today's teleconference. You may disconnect your lines at this time. We do appreciate your participation.
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