Gaia - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered double‑digit top-line growth and margin expansion: revenue $23.84M (+12% YoY) and gross margin 87.8% (+240 bps YoY). Diluted EPS improved to $(0.04) from $(0.05) YoY, with positive operating cash flow ($1.30M) and free cash flow ($0.70M).
• Versus consensus, revenue was a slight miss (actual $23.84M vs $24.18M*) while EPS modestly beat (actual $(0.04) vs $(0.0425)*). Marketplace softness tied to Egypt travel advisories drove ~1% revenue shortfall but did not impact EPS/FCF; management expects similar marketplace softness in Q2 before normalizing in H2.
• Guidance tone constructive: gross margin targeted at 86–87% for the remainder of 2025; member base grew to 867K with ARPU tailwinds from 2024 price increases. Cash ended at $13.09M (post $7.2M net offering in Feb) and a fully available $10M revolver supports AI and community investments.
• Strategic catalysts: AI-first product roadmap (Gaia’s “conscious AI companion”), community platform progress, and Igniton brand launch after July 4, 2025; CEO transition to Kiersten Medvedich at end of Q2 to free James Colquhoun to pursue content/technology licensing opportunities.

What Went Well and What Went Wrong

What Went Well

• Revenue and margin outperformance vs prior year: $23.84M (+12% YoY) and gross margin 87.8% (+240 bps YoY). “We continued to deliver on positive free cash flow and double‑digit growth for the quarter” — Chairman Jirka Rysavy.
• Member growth and profitability focus: members rose to 867K; “We are now focusing on high lifetime value members.” Gross profit per employee >$800K vs $680K last year — Jirka.
• Strategic investment momentum: $7.2M net equity raise to accelerate AI and the Gaia Community; management reiterates positive operating and free cash flow generation in Q1.

What Went Wrong

• Marketplace revenue below expectations from Egypt-related travel headwinds, causing ~1% revenue miss in Q1 and expected similar softness in Q2; management pivoted to Peru inventory; no EPS/FCF impact.
• Sequential revenue down modestly vs Q4 ($23.84M vs $24.43M) and gross margin slightly lower (87.8% vs 88.3%) amid marketplace mix and seasonality.
• Operating cash flow down YoY ($1.30M vs $5.94M) given working capital dynamics; FCF positive ($0.70M) but below Q1 2024 ($0.98M).

Transcript

Operator (participant)

Good afternoon. Welcome to Gaia's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Joining us today from Gaia are Jirka Rysavy, Executive Chairman, James Colquhoun, CEO, and Ned Preston, CFO. After the speakers' presentation, there will be a question-and-answer session. Before we begin, Gaia's management team would like to remind everyone that management's prepared remarks contain forward-looking statements. Management may make additional forward-looking statements in response to your questions, including not limited to statements of expectations, future events, or future financial performance. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. Although we believe these expectations are reasonable, Gaia management undertakes no obligation to revise any statements to reflect changes that occur after this call. Actual events or results can differ materially.

These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of Gaia's latest annual report on Form 10-K filed with the SEC. All non-GAAP financial measures referenced in today's call are reconciled on the company's earnings press release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the time and date of this broadcast, May 12th, 2025. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on Gaia's investor relations website at ir.gaia.com. I will now turn the call over to Gaia's Executive Chairman, Jirka Rysavy. Thank you. Go ahead.

Jirka Rysavy (Executive Chairman)

Good afternoon, everyone. During the first quarter, we continued to deliver on positive free cash flow and double-digit growth. The revenue increased 12% and gross profit 15%. Gross margin improved to 87.8%, up from 85.4% in the year-ago quarter. For the remainder of the year, we expect the gross margin to be in a range of 86%-87%. Earnings were in line with expectations. Our member growth, member count grew to 867,000, and we are now focusing on high lifetime value members. Our annualized gross profit per employee increased to over $800,000, up from $680,000 a year ago. With that, I'll turn the call over to James.

James Colquhoun (CEO)

Thank you, Jirka. Good afternoon, everyone. Q1 was a solid start to the year. We saw continued momentum from 2024 carry forward with double-digit revenue growth and significant margin expansion. We are also seeing very strong progress in the strategic pillars we outlined during our capital raise in February. Following the $8 million offering, we have accelerated development of our generative AI product and the Gaia Community platform. On the AI side, we are on track to launch Gaia's conscious AI companion on or before our next scheduled price increase in early 2026. Early internal testing has been exceptional, and recent research from Harvard shows that discovering one's purpose is now the third most common use case for generative AI, and it is exactly the niche that Gaia is built to serve. We believe the product-market fit here could be profound.

As we look to the future, Gaia is fully embracing an AI-first strategy, joining a growing number of companies like Duolingo, Google, Meta, and Canva that are re-architecting their businesses around generative AI. These companies are demonstrating how AI can streamline operations, reduce costs, and significantly boost productivity across functions. For Gaia, this shift is not just about enhancing the user experience, that this remains a key priority. It is also about building a leaner, more agile organization that can scale intelligently. By integrating AI into our content management, localization, and member engagement workflows, we expect to increase speed to market, reduce manual overhead, and optimize how our teams operate. These efficiencies will allow us to reallocate resources to our areas of highest impact, such as community building, experiential offerings, and our conscious content development, whilst also delivering greater value to shareholders and members alike.

In the coming quarters, you'll see us focus on optimizing marketing using AI, personalized content discovery with recommendations, and enhanced member support using intelligent systems. These investments are designed not only to support long-term ARPU growth, but also to expand gross profit per employee, making Gaia a more resilient, scalable business as we continue our mission to serve the global conscious community. On the community front, we've made meaningful progress in building our infrastructure and preparing for international meetups and chapter-based engagement. Community is the final differentiator for Gaia and will set us apart from every other streaming service in the market and build the network effect around our content ecosystem. During Q1, Gaia Marketplace revenue was lower compared to expectations, which led to us missing revenue by approximately 1%. However, this did not affect our earnings or free cash flow.

This was primarily due to a U.S. level three travel advisory for Egypt issued in October 2024. Intrepid Travel have reported a 30% decline in bookings, and tourist travel overall is hovering around just 45% of pre-conflict levels. Because we were heavily weighted on Egypt trips in the first half of the year, this impacted our performance in that business line. We have since pivoted. In Q2, we launched a Peru-based tour that has already sold out. We have additional inventory coming online later this year. While Q2 may remain softer than we had originally anticipated, on the Marketplace side, we expect to perform in line with expectation for Marketplace revenue in the back half of the year. Despite this, the core business continues to grow meaningfully as we scale towards our next milestones.

With strong member retention and expanding Gaia Plus base and continued top-line growth, we are well positioned for the year ahead. During our recent board discussions, we explored a number of high-impact growth accelerators across both Gaia and Igniton. These include deeper content and technology licensing opportunities and expanded strategic partnerships. After careful reflection, I've decided to take on this mandate full-time in the role of Chief Business Development Officer. In order to fully pursue these growth opportunities, I'll be transitioning the CEO role to our President, Kirsten Medvedich, effective at the end of Q2, and she will be on the next earnings call. Kirsten has been with Gaia for nine years, has an esteemed background in content with Sony Television, and has been instrumental in scaling operations and delivering consistent performance across the business. I have complete confidence in her ability to lead Gaia through its next phase.

Additionally, given our audience is over 70% female, this leadership evolution is in alignment with our global growing community and mission. This change will allow me to dedicate my focus towards unlocking the next level of expansion across both businesses and add the most meaningful value to the mission and organization. I look forward to continuing to support the leadership team in my new capacity and to helping realize the full potential of Gaia and Igniton. Now, I'll pass over to Ned for the financials.

Ned Preston (CFO)

Thank you, James. For Q1 2025, Gaia delivered revenue of $23.8 million, up $2.5 million or 12% year-over-year. Gross profit increased 15% to $20.9 million, up from $18.2 million in Q1 of 2024. Our gross margin expanded to 87.8%, up from 85.4%. EPS improved $0.01 from Q1 last year to a net loss of -$0.04 per share. Operating cash flow for the quarter was $1.3 million, and free cash flow was $0.7 million. Our cash balance at quarter-end was $13.1 million, and our $10 million credit line remains fully available. In February, we also closed an underwritten offering of $8 million of common stock, raising approximately $7.0 million in net proceeds, which are now being allocated to AI development and Gaia Community initiatives.

We continue to manage costs carefully and maintain healthy margins while investing in the strategic areas that will create long-term value for our shareholders. With that, we will open the call for questions.

Operator (participant)

At this time, we'll open the line for questions from the company's publishing analysts. The company requests that each participant limit their comments to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. First question, Mark Argento with Lake Street. Please go ahead.

Ned Preston (CFO)

Hey, Mark. Are you out there?

Operator (participant)

Mark [crosstalk] queue. Let's go to James Sidoti with Sidoti & Company.

Yes. Hello. This is Alex on for James. Thanks for taking questions.

Ned Preston (CFO)

Great. Thanks, Alex.

Yeah, of course. First question, maybe we could just get a quick update on Igniton. So is the launch that kind of still tracking as expected?

Jirka Rysavy (Executive Chairman)

We're going to introduce the brand in Biohacking Conference at the end of this month. It would start to be available, but we would launch it to the market after July 4th.

Okay. Great. Thank you. Maybe just on the CEO transition, did I hear right, a transition at the end of Q2?

James Colquhoun (CEO)

Yes, that's correct. End of Q2, Kirsten Medvedich will step into the CEO role. As I mentioned, I'll be focusing on some of these high-level licensing opportunities, which I think have enormous potential to expand Gaia's not only revenue but also perception in the market.

Okay. And so Jirka, kind of still staying in a Chairman role, and any other changes kind of anticipated to management and the Board there?

Jirka Rysavy (Executive Chairman)

No. No. No, Board staying same as pretty much as is. Same as the management team. It was just the change we talked about for a while, something like have expand the kind of coverage what we do.

Great. Yeah. I appreciate the context. I'll jump back in queue. Thank you.

Ned Preston (CFO)

Thanks, Alex.

Operator (participant)

Next question, Mark Argento with Lake Street. Please go ahead.

Mark Argento (Co-Founder and President)

Yeah. Hey, sorry about that, guys. My apologies. I just wanted to drill down a little bit on AI. James, you kind of had mentioned AI being a game changer potentially for you guys. Can you talk a little bit more? Is it going to be an app that you guys are going to be launching? Or maybe talk a little bit more on how you see AI specifically kind of rolling out on the platform.

James Colquhoun (CEO)

Sure. Thanks, Mark. With regards to AI and our product, we're seeing it as an expansion of our current product line. Our members will be able to interact with a generative AI within our current product, whether that's on the web or within the app. If you're a user and you're watching content in the future, imagine that you'll not only be able to then interact with the community online with the technology features we're building out, but additionally with the AI, you'll be able to query some of the content deeper from the platform and have a conversational connection with this generative model that will be training on our dataset and using that to give our members another interaction point with the brand and to help them stick on the platform longer and have a deeper interaction with our product.

Mark Argento (Co-Founder and President)

Great. Have you guys been using any or striking any deals with any of the large hyperscalers to use any of your content at this point?

James Colquhoun (CEO)

Not at this stage, Mark. I mean, it's something that we're talking about, content licensing. We're talking about technology licensing for the Gaia and Igniton businesses. As these discussions have evolved, it's something that I have a personal interest in exploring, and I think it could have a meaningful impact on the business. I think when we talk about content and technology licensing, there's a broad array of opportunities for us there. I wouldn't target one in particular, but this is something I'll be getting, sinking my teeth into and looking to create a meaningful impact on the business, not only in terms of revenue but also in terms of market cap and our attention in the marketplace.

Mark Argento (Co-Founder and President)

Got it. Just last one for me. The Community, it sounds like, again, that's an area of continued focus. Where are you in terms of the platform today, in terms of new either content or programs? Where are you spending money? What are you doing from a development perspective in terms of getting Community to where you want it to be?

James Colquhoun (CEO)

Yeah. We have obviously been starting on the development side in terms of securing technology partners, building out a team here internally in order to be able to execute on this. We anticipate having an alpha to test in the latter part of this year or even sooner and aiming to launch it once we do a beta as soon as possible. As I have mentioned previously in my earnings transcript here at the top of the call, this is the key differentiator we have as a brand, and it is something that we are all hands on deck in terms of not only the technology build-out, but also how do we introduce this to the market and to our community.

Jirka Rysavy (Executive Chairman)

Yeah. I expect the current plan is to launch at the end of the first quarter next year, but it's plus minus a few months.

Mark Argento (Co-Founder and President)

Great. And then last one, James, are you going to spend any time with investors still, or how are you going to split your time now in your new role?

James Colquhoun (CEO)

As a shareholder myself, as you've probably seen from the filings, Mark, I'm in the same boat as many of our investors, and I want to see that the company continues to evolve not only in terms of execution on mission, but also in terms of scaling our market cap and our sort of visibility as a public company. I'll be supporting Kirsten and Ned as much as possible and looking forward to staying in touch with all of our investors and hopefully seeing you at your conference as well later this year.

Mark Argento (Co-Founder and President)

Great. Appreciate it. I'll hop back in the queue.

Operator (participant)

Once again, if you would like to ask a question, please press star one on your telephone keypad. Next question comes from George Kelly with ROTH Capital Partners. Please proceed.

George Kelly (Senior Research Analyst)

Hey, everybody. Thanks for taking my questions.

Ned Preston (CFO)

Hey, George.

George Kelly (Senior Research Analyst)

First, hey, Ned. First, I was wondering if you could expand on something I think I heard in your prepared remarks. Just commentary around 2Q maybe being a little bit softer than you had hoped. Did I hear that right? Is it Marketplace, or is there some other dynamic that has impacted your Q2 results?

James Colquhoun (CEO)

Hi, George. Yeah, that's correct. When I was talking, as I mentioned in my prepared remarks, Marketplace was a little softer in Q1, and that caused us, it was about a 1% approximate. We anticipate something similar in Q2 from Marketplace because of the way that we had extra inventory for Egypt at the first half of this year. Like I mentioned, we pivoted to adding more Peru inventory at the latter half of this year, and we're holding on our sort of internal numbers for Marketplace for Q3 and Q4. This is a new business unit that we really only launched in August last year, as I know that you're aware. Predicting seasonality differences, and obviously, this was more of a regional conflict issue, caused some variance there.

Like I mentioned, it's a very small top-line variance, and there will be no impact for Q1 in terms of EPS and free cash flow.

George Kelly (Senior Research Analyst)

Okay. So there's no kind of broadening? Your commentary around Q2 is really just about Marketplace?

James Colquhoun (CEO)

That's correct. The core business continues to perform in line with expectations, and it's just Marketplace variance for Q1 and Q2 of this year.

George Kelly (Senior Research Analyst)

Okay. Understood. James, another question on the transition. I guess I'm curious that this licensing opportunity, and it sounds like maybe you're considering a different approach to the hyperscaler license opportunity. I guess where do you see the most opportunity around licensing? Will a lot of your time now be focused on Igniton as well?

James Colquhoun (CEO)

Yeah, George, how we look at it is that, in particular, after this previous Board meeting, there was a lot of discussions around licensing opportunities on the media side for Gaia and then on the technology side for Igniton. I think one thing we've been clear on with regards to Igniton is that although we have supplements as our first product line, this is first and foremost a quantum technology company. By having some focus on licensing that technology will help to expand the aperture of that business's potential. That is something that I'm very interested in being involved with. On the media side, in terms of Gaia, there are some opportunities, like you mentioned, that have been discussed, and there are also alternate media licensing opportunities that we're exploring.

These require a reasonably dedicated approach, and it's something that I have a deep interest in and I think could have an enormous value to the organization. Given Kirsten's proximity to my role and capacity to be able to support the organization by taking that in a short-term basis at the end of Q2, it gives me the freedom to be able to focus fully on these opportunities and bring them to fruition.

George Kelly (Senior Research Analyst)

Okay. Okay. That's helpful. Maybe just one more quick one. The business that you discontinued in the quarter, can you remind me just on the accounting treatment? Is that revenue excluded for the whole quarter? The second part of the question is, how much revenue did that business contribute to 4Q?

Ned Preston (CFO)

Yeah. Hey, George, it's Ned. That represented $1.2 million of revenue last year, and that has been removed. You'll see on our 10-Q a line for discontinued business from here. I can help you get to the apples to apples, but it was $1.2 million from last year, and you'll see a line in our 10-Q that outlines that removal here in Q1.

George Kelly (Senior Research Analyst)

Understood. Okay. Thank you.

Ned Preston (CFO)

You bet.

James Colquhoun (CEO)

Thanks, George.

Operator (participant)

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Jirka Rysavy for his closing remarks.

Jirka Rysavy (Executive Chairman)

Thank you, everyone, for joining, and we look forward to speaking with you, and we'll report our second Q in early August. Thank you.

Operator (participant)

Thank you for joining us today for Gaia's First Quarter 2025 Earnings Conference Call. You may now disconnect your line.