Gaia, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss GAIA's Inc. financial results for the first quarter ended March 31st, 2023. Joining us today are GAIA's CEO, Jerka Rissavi, 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 four linking statements that involve numerous assumptions, risks, and uncertainties. These include but are not limited to our ability to attract new members and retain existing members, our ability to compete effectively, including for customer engagement with different modes of entertainment, maintenance and expansion of device platforms for streaming, fluctuation in customer usage of our service, fluctuations in quarterly operating results, service disruptions, product risks, general economic conditions, future losses, loss of key personnel, price changes, brand reputation, acquisitions, new initiatives we undertake, security and information systems, legal liability for website content, failure of third parties to provide adequate service, future Internet-related taxes, our founders' control of us, litigation, consumer trends, the effect of government regulation and programs, the impact of public health threats, including the coronavirus COVID-19 pandemic and our response to it, 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 now like to turn the call over to GAIA's CEO, Dirk Karisavi. Please go ahead.

Good afternoon, everyone. And I am glad that I can again report positive results. After the challenging last year when both revenue and adjusted EBITDA increased only in single-digit due to COVID lockdown member cleanup, During the first quarter, we have returned to the member growth. Growth came from our direct membership, while the third-party providers like Amazon were still negative in January and February. We added 7,500 members during the first quarter, ending with 7,666 500 members on March 31st, with the growth accelerating during April. Even membership at our third-party provider started to grow again, and we expect member growth rates to increase during the year. The growth is also being held by improved retention. In April, the member losses hit all-time low, benefiting from our marketing focusing on campaign generating higher retention rather than mostly on cost of the trial and conversion rates. Another significant improvement became the cost per member acquisition that decreased by 13% during the first quarter as compared to fourth quarter. Marketing investment in non-English, especially French and German, which have lower CP and less churns, also helping. The viewing time per member started to grow again after declining since COVID lockdown ended. A lot of small improvements we did since September, also start to make a positive difference. As we mentioned previously, we have eliminated over $5 million of annualized spending, which includes approximately 36 headcounts, mostly contractors. They were added over the last two years to offset reduced efficiency we experienced as a result from work from home. While some tailpay arrangement will still impact second Q costs, we expect to see the partial benefits of some savings already in the second quarter. The 20% reduction in headcount returns us to pre-COVID level of operating efficiency with annualized gross profit per employee reaching $600,000 in March. Now Paul will talk more about specifics results.

Revenues for the first quarter were $19.6 million, a slight sequential increase for the first time in the past 12 months, reflecting the return to growth in our member base during the quarter. Compared to the year-ago quarter, revenues declined 10% due primarily to Q1 2022 benefiting from the COVID-related growth of 2020 and 2021. As we continue to invest in and release new content, particularly to support our language expansion efforts, We have increased our viewership on the exclusive portion of our library to over 85%, and as a result, and as expected, gross margins were 85.9% during the first quarter of 2023, and we expect them to remain at this level for the near term. Total member acquisition costs during the quarter were 7.9 million, or 40.7% of revenues, compared to 8.6 million in the year-ago quarter. We have started to realize the benefits of our focus over the past several quarters, with per customer acquisition costs down 13% sequentially and a similar improvement compared to the year-ago period. While we continued to experience net member contraction in our larger third-party distribution partners in the first half of the quarter, we have returned to growth with our largest partner beginning in March. The return to growth on both our direct member base and third-party member bases during the quarter is building our confidence that we are through the worst of the post-COVID unwinding. Selling and operating expenses, excluding marketing and member acquisition costs, in the first quarter were $8.1 million, which is down slightly from the prior year. Corporate and G&A expenses in the first quarter were $1.8 million, which is in line with the year-ago quarter. We have implemented significant cost reduction measures over the past few months, and as Jerka mentioned, we will begin to see the benefits starting in the second quarter of 2023. We had a net loss of 1.1 million or 5 cents per share during the first quarter of 2023 compared to net income of 0.1 million in the year-ago period. The decline was primarily driven by the reductions in revenues between periods offset by a 0.8 million reduction in expenses. Adjusted EBITDA as a result was 3.2 million in the quarter compared to 4.8 million in the year-ago quarter. With our return to member-based growth during the period, Our working capital benefited from a sequential increase of deferred revenue of $1.4 million, with our deferred revenues ending at $15.6 million as of March 31, 2023. We took advantage of this strong growth in deferred revenues to reduce our payables balance during the period by $0.9 million from December 31. We expect to continue to benefit from the inherent negative working capital cycle in our recurring subscription business model as we continue to grow our member base and revenues. In addition, we will begin to benefit from the $5 million in reductions that Yurka mentioned during the second quarter and expect to be in a position to generate cash flows from operations in excess of the cash flows we reinvest back into our content library and product enhancements going forward. Due to our in-house production capabilities and lack of contractual commitments tied to our content production, we have significant discretion in the amount and timing of this investment. Flexibility allows us the ability to adjust our investment levels to withstand a further downturn in the macroeconomic environment if necessary. While we are focused every day on accelerating our growth rates and getting back to positive operating margins, we have made tremendous progress over the past several quarters on key areas of the business. With continued disciplined execution and the anticipated launch of the GAIA marketplace in July, we are well positioned to continue growing revenues and cash flows going forward. With that, I will hand it back to Jurka for some closing remarks.