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spk01: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia Inc's financial results for the first quarter ended March 31st, 2022. Joining us today are Gaia's CEO, Yurka Risavi, 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 Safe 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 consequences conditions, future losses, competitions, loss of key personnel, price changes, membership growth, brand reputation, changing consumer preferences, customer acquisition costs, member retention rates, acquisitions, and other risks and uncertainties detailed from time to time. In our filing 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's CEO, Yurka Huisavi. Please go ahead, sir.
spk09: Thank you, and good afternoon, everyone.
spk00: The revenue for the first quarter increased 15% to $21.8 million from $18.9 million. Member count increased to $823,000, with average revenue per member increasing from the year-ago quarter. As our $299 annual premium subscription, as well as Yoga International $20 per month pricing, will continue to drive up our ARPU during the year. EBITDA improved to $4.1 million from $3.5 million. We improved our gross profit per employee to over $590,000 from $530,000 a year ago. Net income from continued operation was $0.2 million, or $0.01 per share, compared to $0.4 million and $0.02 per share in the year-ago quarter. The decline reflected incremental intangible asset amortization and higher operating expenses from Yoga International during the first quarter, as the acquisition was complete only in late December. The gross profit per employee at Yoga International was only $188,000 during the first quarter, but it's already almost double as of now. And Paul will talk to you more about that right now. Paul, go ahead.
spk03: Revenues were up 15% to 21.8 million for the first quarter of 2022. Gross margins declined slightly to 86.7% for the first quarter compared to 87.1% for the same period in the prior year. The slight decrease is primarily due to additional content amortization as a result of the Yoga International acquisition completed on December 22nd, 2021. Our net ads for the quarter were impacted by two factors that at this time we believe are transitory. First, our direct member base, which represents over 80% of our revenues, has continued to benefit from improving retention dynamics. However, we experienced an increase in the cost of digital advertising, which impacted gross ads. While we do not have any direct exposure to the events transpiring overseas, we have seen disruption in the paid media markets that began in early March. Second, we experienced net contraction during March on our channels available via Amazon Prime Video. We believe it was the result of the increase in Amazon Prime pricing and not specific to Gaia based on third-party data we receive, which showed all premium channels on Amazon Prime Video experienced elevated churn during the period. As a reminder, we strategically limit our exposure to third parties individually and in the aggregate to mitigate the overall impact of this type of scenario. We saw an increase in average revenue per user to $8.85 per month during the quarter because of our Events Plus premium offering and the addition of the Yoga International members at a higher price point. As a reminder, Events Plus is $299 a year, and Yoga International's pricing is $19.99 a month or $199 a year. Based on the media reports following the entertainment-based platform's recent earnings releases, we believe our strategy to focus on increasing average revenue per member via these offerings and scaling up our marketing efforts to the Spanish, French, and German audiences in the second half of the year will allow us to continue to grow revenues and cash flows despite headwinds in the overall domestic streaming market. Total member acquisition costs during the quarter were $8.6 million or 39% of revenues compared to $7.6 million or 40% of revenues in the year-ago quarter. We have targeted customer acquisition spending as a percentage of revenues at 40% since July of 2020. As a result, the first quarter of 2022 marks our seventh consecutive quarter of double-digit revenue growth while maintaining overall profitability. During the first quarter of 2022, selling and operating expenses excluding marketing and member acquisition costs were $8.2 million, or 38% of revenues, and corporate and G&A expenses were $1.8 million, or 8% of revenues. As a percentage of revenues, they are both in line with the year-ago quarter. The first quarter did include elevated expenses related to Yoga International. However, in mid-April, we implemented cost rationalization plans to better align expenses with revenues going forward. We have identified other areas to reduce expenses and increase operating efficiency and will be implementing these over the coming months. EBITDA was $4.1 million, or 19% of revenues, in the quarter. We have continued to grow EBITDA on an absolute dollar basis since the second quarter of 2020 when we turned positive on this metric. Net income from continuing operations was 0.2 million, or one cent per share, compared to 0.4 million, or two cents per share, in the year-ago quarter. As Yurka mentioned, the reduction was primarily due to increased intangibles amortization and elevated operating expenses from the Yoga International acquisition. Overall net income was 0.1 million, which reflects the impact of the loss from discontinued operations associated with the Legacy Yoga International transactional course sales business that we exited as part of the acquisition. Our cash balance as of March 31st, 2022 was 8.4 million, which reflects an overall reduction in our payables balance of 2.3 million from year end. As we look into 2022, we continue to be focused on executing the year on 100 million revenue run rate while maintaining profitability. We continue to be excited about the opportunities for GAIA to benefit from our global scale and the financial discipline we have continued to demonstrate while growing revenues and maintaining profitability. With that, I would like to open up the call for questions. Operator?
spk01: Thank you. If you would like to ask a question today, you may do so by signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow our signal to reach our equipment. Again, that is star one to ask a question. And we'll pause for just a brief moment to allow those to signal for questions.
spk07: And we'll take our first question from Eric Woldt, B. Reilly Securities.
spk05: Hey, Paul and Yurka. Paul, first off, do you mind repeating the dollar amount and the percentage spent on advertising in the quarter? I apologize. I missed that.
spk03: Sure. It was $8.6 million, or 39% of revenues for this quarter. Thank you.
spk05: Do you have an update on how ad rates are trending now versus what you saw maybe on average of a trend during the first quarter as well as the year-ago period? Any kind of advanced read on how those might shift? near term or to the end of the year?
spk03: Yeah, last year we were benefiting still from the COVID period and the lockups in the winter before we transitioned to spring. So it was really at a low level last year. This year we saw some relief as we were going into February. And if you recall from the earnings call at the end of February, we said we'd seen some relief, but then In mid-March, that kind of went out the window and things have gone haywire. And to be honest, it's extremely volatile. Some days are good and some days aren't. So I don't have a way to really give you a read on what the cost of the media is doing. But what we're doing internally is really focusing on leveraging more awareness and more email conversion marketing because those are ways that we can control the costs of customer acquisition and disintermediate the need to just pay for impressions to get conversions.
spk08: Thank you.
spk05: And then, obviously, there's been a lot of focus on kind of some of the S-Pod platforms, you know, kind of hitting a wall recently with subscriber growth and some of them contracting. Maybe give us a sense of kind of what you're seeing within your subscriber base in terms of those that I know you said retention has been strong. Maybe those that are not renewing. Is that pending to be more of the kind of the monthly subscribers that joined, you know, during recent years during the pandemic? Are the longer-term subscribers kind of still sticking around? And then kind of what are you seeing with, you know, kind of viewership trends, you know, between those various cohorts?
spk03: Yeah, there's a couple questions in there, so I'll unpack it. So the first one is on retention trends, and we've consistently seen the six-plus-month members, whether they're monthly or annual, continue to be very sticky and renew at a very high rate. I'd say the majority of the challenge that we're seeing combined with that high cost of paid media is just the initial six months of monthly membership being the period where people are coming and trying or potentially never intending to stay for a long period of time. I think one of the things that we're seeing industry-wide with all of the new services that have come online, people are dabbling. So they'll sign up for a month, watch, then move on to the next one. And I think that's why it's really important for us to continue to talk about our mission and the fact that we are member supported and that we want to be able to reinvest our subscriber dollars back into content creation so that we don't need to expand into other opportunities for monetization that might put the mission and vision at risk and ultimately put those really sticky retained members at risk as well. So for us, it's really about the right customer acquisition costs, and then doing everything we can to ensure that they can find the content that they're looking for on Gaia that they can't find anywhere else and let them know that they found a home. That's really what we're focused on internally, given how the paid media markets continue to be very volatile. I think the last question that was in there was on viewership trends. Viewership, yeah. Yeah, so we've been looking at that. We've had to go back two plus years to really normalize out the impact of COVID and see how things are behaving. And I'd say generally we're back reverting to the mean in terms of where we were pre-COVID as it relates to daily and monthly viewership. And it's obviously off the peaks of what we saw during COVID, but I think that's to be expected with people spending less time in front of screens and potentially having the ability to get out and do things that they weren't able to do really for the past year and a half, two years.
spk09: Got it. Appreciate it, Paul. Thanks. You bet.
spk07: Thank you. And next we'll move on to Mark Argento with Lake Street.
spk08: Hey, Yurka. Hey, Paul. Just a couple quick ones.
spk10: Talk a little bit about how you guys are thinking about cash flow and kind of the conversion from adjusted EBITDA to free cash flow over the next few quarters.
spk00: Um, well, you know, you saw that even in the first quarter when we have like extra expensive expenses with, um, assimilating the acquisition, what we did pretty much in December 20th. So, so a lot of that kind of hit in the first quarter, but we still could stay profitable with that stuff. So it's our goal to stay on that, um, you know, positive line and, um, You know, there is a really question how aggressive you want to be per se in international markets, which we all try to look at. But our general thing is we want to stay on a positive trend.
spk03: Yeah, I'd say if you unpack it a little bit further and actually look at the dynamics between the P&L and the cash flow statement, EBITDA or adjusted EBITDA, whichever measure you want to use, tracks pretty closely to our cash flow from operations. line item absent things like what happened last quarter and into this quarter with the acquisition and the timing at the end of the year. So, but generally that's how we look at the model going forward is that EBITDA should approximate cash flow from operations. And then as we have pegged our content investment as a percentage of revenue in roughly the 18 to 20% range that covers the investing side. And so from a tax perspective, given our NOL positions, barring some unforeseen change in the tax regime, we won't be a cash taxpayer meaningfully for several years. So you can see how the P&L metrics flow through into the cash flow dynamics and allow us to operate slightly better than break-even or better than break-even as we continue to grow revenues.
spk10: It just refreshes me when you think about content.
spk03: specifically you know what are you guys typically budgeting for that as a percentage of sales all in including the royalty piece which flows through the P&L is 18 to 20 percent is roughly what we've pegged it at so you know what that means on the on the cash flow side you can see how that's been pretty consistent if you back out the acquisition related payments, you're somewhere in the $4 million to $5 million a quarter range, just depending on the time of year. Q4 is obviously light because of the holidays, and then Q1 is a bit heavier as we ramp up our production of our ongoing episodic weekly shows and try and get as many of those in the can for the year as we are able to in the first half of the year.
spk00: Yeah, when I reiterate here that you don't really have any of these pressure on content costs, as you see at the Netflix and the other entertainment players. So that doesn't affect us at all. So it's more there. It's actually very positive how we structure the business because we don't have very much control of what's happening. We didn't see any basically increases over the last, you know, several years unless we decide to do that. And that's more goes to increase production, like having more animation and a better music and stuff like that, then would be related to talent.
spk08: Last one for me on the premium offering.
spk10: Looks like you guys did a few events in the quarter. What's the, you know, does that schedule pick up more aggressively and how do you see those types of customers long-term? Do they tend to stick with you, come back year after year or, um, And then are you able to leverage that content and drive subscribers off of the traditional platform? That's it. Thanks.
spk03: Yeah, you bet, Mark. So, yes, we had an event in March that was sold out for in-person, and it was a slightly different format. We did more of a conference-style format, so multiple speakers over the weekend versus just one speaker. And we saw that that had quite a bit of draw. We sold out our in-person tickets really quickly. One of the things that we have acknowledged, though, is that we don't want to be in the live events business for the sake of being in the live events business. And so we're focusing on quality of those events, not frequency of those events. So we'll probably do one a quarter from here on this higher end sellout with content that fits into the overall offering. And today, I think we've had 14 or 15 completed events. So the library of content that's available to those events plus members is starting to have a standalone value independent of the new events that are coming. That all being said, it's still relatively early in the in the life cycle there. And again, COVID has impacted it for the past two years. So I won't speak to long term trends, but I will say in the short term, we are seeing a decent amount of renewals and a lot of interest in the content that we're putting on to that offering. And we also have some ideas in terms of how do we think about positioning that so that we can get net growth from straight to events plus signups, whereas historically we've been focusing primarily on upsells of existing members.
spk00: And, you know, overall, this premium subscription, looking back, I think was great that we introduced it. It's a sell, even if you separate it like separate business, it's already solidly profitable and And the margin would increase, and you kind of see that it's also helping, obviously, our overall ARPU. And as Paul said, you know, we kind of rely more on upsell, but we kind of see a lot of people kind of go directly there. So because, you know, it obviously includes the regular subscription if you buy the premium subscription. Okay. Thank you.
spk07: Thank you. And once again, that is star one, if you would like to ask a question today.
spk01: And next, we will take Tiare Woloud with Water Tower Research.
spk04: Okay, good afternoon. A couple of questions. Any further color on how the yoga acquisition is going, obviously? You have now a couple more months of experience with the business. Anything additional you can share?
spk03: Yeah, sure. For those that weren't following along, when we bought it, we were able to get a pretty good price on it as a result of them being in a pretty significant unwinding from the growth that they'd seen during COVID-19. so when we looked at it from january to december they were down about 25 on a revenue basis since we've acquired it we've stabilized the losses and have now started to see slight growth on the revenue side for the three plus months that we've been uh responsible for it but what we're 100 focused on internally is integrating the back office system starting with the subscription management platform so that we can have line of sight visibility into that part of the business the same way that we do in our legacy business. And that should be completed somewhere in the late Q2, early Q3 timeframe. And once we have that complete, then we'll be able to really start focusing on growth initiatives there. It's obviously the same products and engineering resources to do that work that might do other work to help drive significant growth, but we see it as a strategic risk to leave it standing alone too long. And so that's why we focused on getting that done first.
spk04: Great. Questions on your international opportunities. When you take a new market there, do you need original content or can you do translation of existing content? How do you go about that?
spk03: Yeah, so I'll start and then I'll let Jurka add a little bit of color here because he's really been driving the international content side of things. We've opportunistically acquired libraries over the past two years in Spanish and French to supplement the content that we've been doing dubbing and subtitling on. For German, we've been looking for content to acquire, but we haven't been able to find anything in size that meets our requirements or is priced appropriately. And so we've started producing original content in German, both in terms of the long-form content as well as yoga content, which is why German is going to be a little bit behind Spanish and French as it relates to growth. I'll let Jörg add any color if he wants there.
spk00: Yeah, I mean, overall international, you see that Netflix is well over two-thirds, and actually it's a segment that's growing for them. We still can grow from, obviously, domestically because we have still very little of a market share. So we don't necessarily need to do that, but we kind of want to go there strategically. The Yoga International gave about 46% of the members internationally. And what Paul said about Yoga International, when it means self-standing, we want Yoga International to be a separate organization. business but not necessarily to have per se separate systems or if you bring them closer together but there's a definitely we probably would like to enter you know over next couple years at the market like say Portuguese especially Brazil but main focus right now it's Spanish French and will be soon German
spk09: Great, thanks. That does it for me now.
spk07: Thank you. And we'll move on next to Bob Evans, Pennington Capital.
spk06: Good afternoon, and thank you for taking my question. The cash flow question was answered earlier. It sounds like the cash flow and EBITDA are somewhat similar. Given that You generate, call it, you know, in the ballpark of a dollar or more per share of free cash flow, and you're treading at less than one times current year sales. Anything, any more thoughts strategically in terms of a more aggressive buyback or use of capital to take advantage of the company's current valuation? It's as cheap a stock as I know that has subscription revenue at this growth rate and cash flow generation.
spk03: Yeah, I definitely understand the question, Bob. We won't comment on the specific share repurchase, but I will say that we see an opportunity on the cash flow to reinvest back into revenue growth. And one of our internal goals is to get over that $100 million mark because we do feel that part of our valuation is tied to the smallness of our business. And our focus is to get bigger so that we can be recognized for what we're doing from a financial discipline perspective, which is in stark contrast to the majority of the other streaming players that are of a similar size as ours that are still heavily losing money and cash and funding it from equity or debt from outside investors. So that's really our internal focus. And even if the valuation is attractive, we feel like that there's better opportunity to put the money to work to drive revenue growth rather than pull back float at this time. Okay.
spk09: So you're going to prioritize revenue growth over float for now? Yes. Okay, okay. Okay, thanks for the clarification, bye-bye.
spk07: Thank you, and we'll move on to Eames Stephens.
spk11: Yes, good afternoon. Congrats on the results. Can you comment on the recent departure of Brad Workins?
spk03: Yeah, it wasn't recent.
spk00: It was more than a year ago. And, you know, Brad worked with me for 20-plus years. And, you know, after 20 years, we talked about it for two years. And so he kind of felt there would be, you know, his kind of close retirement age and felt like, okay, well, we should maybe talk about how. So it's for us a long time ago and then pretty good.
spk03: Yeah, and I think what you're commenting on is the news that he took a new position. I'm still a close friend with him, and what he realized is he wasn't ready to retire. So that's why he put his hat back in the ring and started his new role. But from a Gaia perspective, it's been over a year that he's left the Gaia employee base. He's still a friend of the company, but it's not anything related to the news of him taking his new role.
spk02: Okay, understood. Thank you for that. And it was the recent news that I had seen. There was, going back a few 10Ks, there was sort of a hidden asset that I think was around a $10 million valuation, and I don't think that there have been recent updates to what that was or when you were going to reveal more about that. Is there any timing on when we can know more about that?
spk09: We don't really update on that, but I think you would kind of see some kind of update by end of the year. Okay. Thank you.
spk07: Thank you.
spk01: And that does conclude our question and answer session. I'd now like to turn the call back over to your host, Gurkha Vasavi, for any additional closing remarks.
spk00: Well, thank you, everyone, for joining. And we look forward to speaking with you when we report our second quarter, which will be in early August. Thank you.
spk01: Thank you. And that does conclude today's teleconference. We do appreciate your participation. You may now disconnect.
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