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spk03: 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.
spk00: 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.
spk02: 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?
spk03: Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star 1 on your touchtone telephone. Star 1 for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star 1 for questions.
spk06: We'll pause a moment to assemble the queue.
spk03: We'll take our first question from Eric Wold with B. Riley Securities. Please go ahead.
spk05: Thank you. Good afternoon. So, Paul, I know you mentioned, obviously, the return to normal seasonality and the kind of tough comps to the two-year large subscriber rate at the start of the pandemic. If you dive in deeper into the reduction of subscribers, anything in there that would be you know, something that was surprising to you than just normal seasonal trends? Was there, you know, certain cohorts of kind of age of, you know, kind of the length of subscribers that weren't renewing or were not coming on? Anything that would give you a sense of, you know, socioeconomic movements from what you can tell that would make it seem more cost-related than anything that could, you know, in more detail possible?
spk02: Yeah, sure, and something I've been paying, obviously, very close attention to to discern what we think the future trends might look like. And, you know, honestly, as I look through all of the retention data by kind of the monthly cohorts that we've been looking at it for the last nine plus years we've been running this business, there's nothing really alarming that is indicative of a future problem that I see today as it relates to retention. The biggest factor of going Backwards for the quarter was the pullback on the marketing spend because we weren't adding new subscribers. And then that's compounded with the new subscribers that we did sign up during the quarter. We're typically seeing in that three-month to six-month retention band our historical drop-off that we've seen. So there's no net change in the retention dynamics. It's really a matter of the efficacy of adding new subscribers.
spk00: Yeah, I would add that to the retention dynamic. their retention actually somewhat improved. And it's kind of pretty much steady or actually better than historical. So it's really the addition, the new members, it's not the losses.
spk05: Got it. Thank you. And then, Paul, you mentioned the pullback in spend in May and June, given a return to the normal seasonal difficulty in adding subscribers. How is the paid marketing environment right now? Is that still as difficult as it has been? Has it been getting easier? Is it more of a tailwind or a headwind right now to normal seasonal patterns?
spk02: I would say we're neutral as it relates to the cost of the media. Really what we're seeing is the guest-to-member conversion rate has steadily declined as we've gone from winter into spring into summer, and that's really what precipitated us pulling back on the marketing spend, because if you have a reduction in the guest-to-member conversion, that's a corresponding inverse correlation to the cost per adding each member. So while the overall media is behaving relatively consistently with what we've seen in this time of year, the conversion rates is what we were responding to from guest-to-member.
spk05: Got it. Final question for me, maybe a larger one. I know the value of the exclusive content library that you've built over the years is just that. It's exclusive and can't be shown on other platforms, but clearly it's not getting any recognition by investors at this valuation, in my opinion. Does it make sense to look at other options to monetize that content in other ways, either through licensing other people, selling some off, any considerations there?
spk06: I'll let your answer that one.
spk00: Well, obviously, we kind of, since Netflix started to talk about it, as far as this year, we're not going to do anything. We'll see how that happens. We actually will be pretty happy with our retention, and we also finalized several projects. So, you know, as far as the Labor Day, we'll see how the market is and do we need to do something. But, you know, we talked several times about, I don't think we would right now look right now like having like ads or something. It's always possible. We'll see how it plays out for other players. But there's definitely a way we could potentially do something with a like potentially some kind of classic television and stuff as we talked before, but it's nothing what we plan to do before end of the year.
spk06: Got it. Thank you both.
spk03: We'll take our next question from Jacob Steffen with Lake Street Capital Markets. Please go ahead. Yeah. Hey, guys.
spk04: Thanks for taking my questions. I just wanted to focus on the customer acquisition spend just a little bit more. Maybe if you talk about the Yoga International acquisition and the customer acquisition differences between the legacy and the new business.
spk02: Yeah, I'd say generally what we're seeing in the yoga space is that there's been a significant return to in-studio practice, which is caused obviously some headwinds for getting signups to a digital online platform. But that's really in line with the seasonal patterns that we had historically seen pre-2020. So again, I don't believe it's a trend that is anything different than a reversion to what our historical patterns have been. And we have two years that we've all experienced and gotten used to. But there's been a rapid unwinding of that behavior as we've gone into this spring and summer. And I think that's what we're seeing there. And again, we're not really in a position where we're trying to press it. So if the return on the spends not there, we'd rather save the dollars for a time period when they are there. And we're focusing our efforts on accelerating and completing that back office integration work so that we can be ready as we go into the post Labor Day period where historical trends would tell us things start to be more favorable for adding new subscribers. Okay.
spk04: And maybe just talk about content costs. At this point, is it still maybe, you know, a little cheaper or, you know, could you potentially see some synergies from acquiring more content through acquisition or is generating, you know, your own content still more cost effective?
spk02: I would say just generally creating our own content is more cost effective unless there's a need to fill in parts of the library with a licensing style arrangement with the content creator. Or as we're looking at geographic expansion, I think that's really where the build versus buy with the time component built in really tips in the favor of acquiring. But I'll let Jurek add a little bit of commentary on that.
spk00: No, I think what Paul said is accurate. I mean, but for us, if you're kind of looking for increasing pressure or content cost as other people see it, we don't see it at all. I think pretty much we pay same thing what we pay two, three years ago, unless, you know, we kind of add more animation and stuff so they would push it up, but it's our decision. and we kind of peg it to the number of subscribers, but we don't see any pressure on either licensing or creation.
spk04: Okay. Maybe just last one. Looking at live events, have you seen any progress with the the upsell to premium subscription and, you know, how have your live events been perceived by the public and your customers?
spk02: I'll answer the second part first. The reception of the events by the people that attend them are phenomenal. We're, you know, high 90s net promoter score as we poll the audience, both in person and the online audience that participates live. we're in the kind of a soft spot in the schedule right now. So as we go into the fall, we'll have more events coming up and we really try to tie our marketing efforts around those events. So we're again in a little bit of a soft spot as it relates to summertime with just people getting out and traveling. It's not really effective to try to be messaging them too significantly right now, but we're ramping up for the fall and going into the winter around that, particularly with the holiday, and gift-giving potential opportunity as we think about doing something that we haven't historically done differently and really focusing our efforts on that.
spk06: Okay, great. That's all I have. Thank you.
spk03: We'll take our next question from Siri Wooloud with Water Tower Research. Please go ahead.
spk01: Yes, good afternoon. Thanks for taking my questions, although you've answered quite a few of them already. I was curious, any update on the international or foreign language efforts? Are you seeing traction in some of those areas at that stage?
spk02: Yeah, as I mentioned in my prepared remarks, we're able to actually still pretty effectively spend money on the languages because it's off of a pretty new market opportunity, so that's allowed us to spend. a bit more percentage-wise than we would have ordinarily because we pulled back on the domestic English spending. So it's a good avenue for us to continue to invest and get a good CPA on it. But I'd say we're still early innings and focused primarily on getting learnings and figuring out our in-language marketing campaigns and what conversion rates and retention rates look like. But I'd say we're ramping up. with the expectation of being firing on all cylinders going into the fall.
spk01: Okay, great. And I was a little bit curious. I would have thought events plus would be, this could be kind of a good time of the year because, again, people are traveling. Colorado is a nice destination. But you think it's more of a third quarter, maybe end of the year, when you will be pushing that more?
spk02: Well, we're speaking specifically of the $299 digital subscription when we talk about Events Plus. I'd agree with you as it relates to the events, but we're really focused on the subscription component of it, and that's really what we're talking about. And now we have a pretty robust catalog now with the 13 or 14 events that we've had. So as we get back into the fall time period, we'll be able to start marketing and promoting the the catalog of events that are already available while selectively sprinkling in the upcoming events.
spk01: Okay, I see. Great, thank you very much.
spk03: Ladies and gentlemen, as a reminder, star one for questions, please. Star one for questions or comments. We'll pause a moment to assemble the queue.
spk06: We'll take a follow-up from Eric Wolt with B. Reilly Securities.
spk03: Please go ahead.
spk05: Thanks. Appreciate it. I guess, circling back to the subscriber trends, Paul, I guess how much of a surprise was it for kind of the normal seasonality to come back in the quarter, kind of from where you stood at the end, you know, on the conference call for the Q1 call, you know, three months ago? I guess any – updated thoughts on kind of the run rate exiting this year versus what you thought at the end of the Q1?
spk02: Yeah, I think when we spoke in early May, the trend hadn't solidified quite as strongly as it did as we rolled through the end of May and got into June post-Memorial Day. At this stage, I think we're really looking at the historical pattern and not trying to predict what's going to happen, but understanding that seasonally Labor Day and after is when we start to see the dynamic shift back. So we're playing for that to occur this period until we have information that tells us otherwise. So no real prediction at this point because we're still in the middle of the summer and it's hard to have a gauge on what to predict. But I think the focus for us is to stay positive on the EBITDA and net income side and ride this out. That's really what we'll be looking at and not trying to chase it from a spend perspective to drive subscriber growth if the dynamics aren't there.
spk06: That's helpful. Thank you. At this time, we have no further questions in the queue.
spk03: We'd like to turn the conference back to management for any additional or closing remarks.
spk00: Okay, thank you, and thanks to everyone for joining, and we look forward to speak with you when we'll report a third quarter in early November. Thank you very much.
spk03: Ladies and gentlemen, this concludes today's discussion. We appreciate your participation. You may now disconnect.
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