Gaia, Inc.

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Gaia's Incorporated's financial results for the second quarter ended June 30th, 2022. Joining us today are Gaia's CEO, Yurka Rusevi, 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 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, future losses, competition, loss of key personnel, price changes, membership growth, brand reputation, changing consumer preferences, customer acquisition costs, member retention rates, acquisitions, and other risk 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 now like to turn the caller to Gaia's CEO, Yurka. Please go ahead.

Thank you, and good afternoon, everyone. So just before end of the quarter, which ended June 30th, We achieved our major milestone, finalizing our 18-month effort to achieve technology independence, which means that we are now able to operate our business on Gaia, our own hardware and infrastructure. Revenue for the quarter increased 7% to $20.7 million, and number count is up to $792,000 from the year-ago quarter. However, because the second quarter is our seasonally slowest one, we pulled back on our marketing spend in the second half and had a negative member growth in this quarter. EBITDA improved 8% to 4.2 million compared to 3.9 million a year ago, and our EBITDA margin was over 20%. Gross profit per employee improved another $10,000 to $567,000. Net income from continuing operation was $0.1 million or $0.01 per share compared to $0.6 million and $0.03 per share a year ago. This decline really reflects the incremental intangible asset amortization and also some expenses from integrating Yoga International. and definitely also to finalizing our effort of our technological infrastructure independence. And Paul will now speak more about the result.

Revenues were up 7% to $20.7 million for the second quarter of 2022. Gross margins declined slightly to 86.7% for the quarter compared to 87.1% for the same period in the prior year. The slight decrease is primarily due to additional content amortization compared to the prior year. We experienced our first sequential net subscriber contraction, ending the quarter with 792,000 members, down approximately 31,000 members from March 31, 2022, but up from the year-ago quarter of 770,200 members. The decline in the member base was primarily driven by reduced marketing spend during May and June as we experienced a shift back to the seasonal patterns, which we historically experienced each year prior to the start of the pandemic in 2020. Prior to 2020, where we added 58,000 net new members in the second quarter, we typically saw reduced efficacy of our marketing efforts, which resulted in lower new member additions during May through August as people shifted into their summer patterns in the Northern Hemisphere. In addition, we had further headwinds during the quarter as we had the second annual renewal occur for the large number of members we added in Q2 2020 during the pandemic. As a result of the seasonal factors, we elected to limit our member acquisition spending in aggregate for the second half of the quarter to a total of $7.2 million or 35% of revenues to conserve the marketing spend for a more favorable seasonal period. While this led to a reduction in the number of members we added during the second quarter as a result, We remain focused on our long-term strategy of maintaining financial independence and ensuring an adequate return on our customer acquisition efforts. We also continue to focus our efforts on building out the Spanish, French, and German offerings and expanding these audiences to allow us to leverage lower relative customer acquisition costs compared to the domestic English market. During the second quarter of 2022, Selling and operating expenses excluding marketing and member acquisition costs were $8.7 million or 42% of revenues, and corporate and G&A expenses were $1.8 million or 9% of revenues. We incurred approximately $0.4 million of incremental technology-related expenses during the quarter as we completed our 18-month project to enable technological independence and insulate us from potential future price increases related to our legacy hosting provider. We expect to reduce these expenses going forward as we now focus on optimizing our technology spend with the initial phase of the project having been completed. We also expect to begin recognizing the benefits of the improvements in efficiency for Yogurt International we implemented during the second quarter and complete the related back office integration work by September. EBITDA was 4.2 million or 20% of revenues in the quarter and marks another consecutive quarter of positive EBITDA. Net income from continuing operations was $0.2 million, or $0.01 per share, compared to $0.6 million, or $0.03 per share, in the year-ago quarter. As Jerka mentioned, the reduction was primarily due to increased intangibles, amortization, and elevated operating expenses related to the implementation phase of the Technology Independence Project. Overall net income was $0.1 million. which reflects the impact of the loss from discontinued operations associated with the legacy Yoga International transactional core sales business that we exited as part of the acquisition. Our cash balance as of June 30th, 2022 was $6.2 million, which reflects an overall reduction in our payables balance of approximately $3.4 million compared to year end. While we expect the seasonal headwinds to continue through the summer, We remain focused on maintaining financial discipline and continuing to evolve our content and marketing initiatives to support long-term revenue and cash flow growth. With that, I'd like to open up the call for questions. Operator?