Gaia - Q4 2023

Transcript

Operator (participant)

Greetings and welcome to Gaia fourth quarter and full year 2023 earnings conference call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jirka Rysavy. Thank you. You may begin.

Ned Preston (CFO)

Hey, just real quick, I just want to make sure, do we need any forward-looking—this is Ned Preston, the CFO—any forward-looking statements that we need to read as we head in here? If not, it's covered in our 8-K and our earnings release, and I will make sure at the end if I need to read that, we will go ahead and do so. With that, I'll hand it over to Jirka.

Jirka Rysavy (Executive Chairman)

Okay. Thanks, Ned. Then good afternoon, everyone. So we continue to build Gaia increasing momentum, and our member count at the end of 2023 grew over 800,000 benchmark, and we expect to finish our first quarter at about 838,000, which is a good milestone towards our 15% revenue growth target for 2024. The annualized gross profit per employee in fourth quarter grew to over $660,000, up from $535,000 in last year's quarter. That growth was the key driver to our $8.4 million or 10% of revenue cash flow improvements. Revenue for the quarter increased to $20.7 million from $19.6 million in the year-ago quarter, primarily because of our growth of the member base. Member growth was increasing during the year, growing sequentially by additional 16,000 in the fourth quarter ending to 806,000 from 759,000 on December 1st, 2022. We expect member growth to accelerate during 2024.

Gross profit for the quarter increased to $17.7 million from $17.0 million in the fourth quarter of 2022, with this gross margin at 85.4% was kind of in line with the year. The net loss was $2.1 million or $0.09 compared to net loss of $1.4 million or $0.07 last year in the last quarter because of higher marketing spend and increased amortization. But our operating cash flow increased by $2.1 million, and our free cash flow increased from $1.7 million to a +$1 million. The cash balance as of December 31, 2023, was $7.8 million with an unused $10 million line of credit, which is compared to net cash of $2.6 million, which was $11.6 million in cash but with $9 million borrowing on our $10 million credit line end of the last year.

Revenue for the whole year was $80.4 million compared to $82 million in 2022 as the company was still recovering from the post-COVID subscriber contraction, which was experienced by the whole industry during the second part of 2022. So while the loss for the year increased $2 million-$5.6 million because of increased marketing spend amortization, our free cash flow improved, as I mentioned, by $8.4 million to a +$1.1 million for the year from the loss of $7.3 million in last year, even when we increased marketing spend to 41% of revenue from 37.2% revenue.

The Free Cash Flow was helped by elimination of about $5 million of annualized expenses, which was finalized in the beginning of the year and included about 36 headcounts cut, which previously we had to bring in as a kind of balancing the efficiency work because the work-from-home mandates would exist previously. We expect our member growth to accelerate in 2024, as I said, and we now expect to about double our net member addition from 16,000 we just reported in the fourth quarter to about 32,000 during the first quarter. And now, Ned, we'll speak to you more about the results. Go ahead, Ned.

Ned Preston (CFO)

Hello. Yeah, thank you, Jirka. Revenue for the fourth quarter of 2023 increased 6% to $20.7 million from $19.6 million in the fourth quarter of 2022. Primarily, this was driven by our growth of the member base. Member growth increased during the year, growing sequentially by an additional 16,000 members during the fourth quarter, with the member count ending the year at 806,000 members, up from 759,000 on December 31st of 2022. We expect member growth to further accelerate with continuing increases of our ARPU during 2024. Gross profit in the fourth quarter increased to $17.7 million from $17.0 million in the fourth quarter of 2022. Gross margin was 85.4% in line with the year.

Net loss was $1.8 million or -$0.08 per share as compared to net loss of $1 million or -$0.05 per share in the year-ago quarter, with higher amortization, but operating cash flow improved by $2.1 million and free cash flow improved $1.7 million-$1 million, up from -$0.7 million during same quarter last year. The cash balance as of December 31st, 2023, was $7.8 million, with an unused $10 million line of credit compared to net cash of $2.6 million or $11.6 million of cash with $9 million of borrowing against the line of credit a year ago. Shifting to the 2023 full year financial results, revenue for the year was $80.4 million as compared to $82 million in 2022 as the company was recovering from the post-COVID subscriber contraction experienced industry-wide during the latter part of 2022.

Loss for the year was -$5.6 million or -$0.27 per share as compared to loss of $3.6 million or -$0.19 per share for 2022, with increased marketing spend and amortization. However, operating cash flow improved by $4.2 million. For the year, free cash flow improved by $8.4 million-$1.1 million from -$7.3 million, even as we increased marketing to 41.1% of revenue from 37.2% in the prior year. The free cash flow was helped by elimination of $5 million in annualized spending finalized at the beginning of the year, which included 36 headcounts added previously to offset reduced efficiency because of work-from-home mandates. The company decided to restate the consolidated financial statements for 2022 and the first three quarters of 2023, making some presentation changes to be in line with the industry.

None of these changes or the restatement impacts our revenue or free cash flow, and we are already reflecting this in the release. We expect our member growth to accelerate during 2024 as we are now forecasting to double our net member additions from 16,000 in the fourth quarter of 2023 to 32,000 in the first quarter of 2024, finishing the first quarter with about 838,000 members, while continuing to generate positive free cash flow. With that, I will hand it over to James Colquhoun, Gaia's CEO.

James Colquhoun (CEO)

Thank you, Ned. And thank you, Jirka. And hello, everyone. As Jirka mentioned, we have continued our trend on executing cash flow positive growth for the final three consecutive quarters of 2023. We found continued improvements in marketing efficiency with some of our lowest customer acquisition costs since the beginning of 2021 and continued our execution on improving ARPU on an annualized basis. Since moving into the role as CEO as of December, I've centered my initial focus on improving marketing efficiency and the return on cash from our marketing spend. Key to this success has been the rollout of our direct paid campaigns in Q4, which has had the result in improving retention by incentivizing members to skip a trial period and move directly to a paid-in-full membership with a focus on our annual plan.

Additionally, to facilitate this transition has been the continued rollout of our Gaia Marketplace initiative, where members can shop a curated selection of experiences, retreats, courses, and physical goods with access to exclusive member-only discounts. This project is aimed at supporting the conscious lifecycle of our members while also improving cash flow and increasing the company's gross revenue as we booked the revenue from sales at 100% gross margin. In Q4, we also implemented further projects leveraging AI within the organization from improvements at a product level to building efficiencies and cost savings on a team level. Key to this was launching an AI-powered search engine trained on our exclusive categorical metadata and transcripts, unlocking the power of our transformational conscious media library of over 10,000 titles in English, Spanish, French, and German.

Members can now enter search queries related to their transformational interests and quickly uncover the most relevant films, series episodes, yoga classes, or documentaries to stream. We continue to look into further ways we can capitalize on our exclusive content library and data as we move forward. These projects are aimed at continuing our focus on establishing Gaia as the world's leading player in the conscious and transformative media space and leveraging our capacity to use AI to find more efficient ways to reach our target audience and grow our community. 2023 was also a landmark year for us. On the content side, we released over 1,500 titles across our four languages and produced five live events. Our top programs in 2023 included our original series releases of Channeling: A Bridge to the Beyond, Biohacking with Dave Asprey, Ancient Civilizations Season 5, and an original documentary called Healing Vibrations.

Moving forward for 2024, our focus will be to continue to execute on improving our marketing efficiency, the rollout of our Marketplace initiative, a renewed focus on our premium membership tier, growing improvements in ARPU, always maintaining cash flow positive growth. I know it's been some time since our last announcement, and we're looking forward to updating you all on our Q1 numbers shortly. As a quick sneak peek, we relaunched our premium membership tier with a new rebrand from Events Plus to Gaia Plus and celebrated with a sold-out immersion event at our GaiaSphere Event Center and a new record of over 52,000 unique livestream attendees from across the globe. With that, I'll pass back to Jirka to close out.

Jirka Rysavy (Executive Chairman)

Yeah. Yeah. So before I close out, actually, I'd like to let Ned read a forward-looking statement, which we neglected to read up front, the statement, and then I close out.

Ned Preston (CFO)

Okay. I'll go through this quickly. It's, as I said, in the 8-K as well as the earnings release. But forward-looking statement, the press release contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are forward-looking statements that involve risks and uncertainties. When used in this discussion, we intend to use the words anticipate, believe, contemplate, continue, could, estimate, expect, future, hope, intend, may, might, objective, ongoing, plan, potential, predict, project, should, strive, target, will, and would, and similar expressions as they relate to us to identify such forward-looking statements.

Forward-looking statements include, without limitation, the company's plans related to restatement of the financial statements, our ability to attract new members and retain existing members, our ability to compete effectively, including for customers with different modes of entertainment, maintenance, and expansion of device platforms for streaming, fluctuation, and 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, including in our filings with the U.S. Securities and Exchange Commission.

These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those implied by forward-looking statements, including the outcome of the company's completion of the quantification and evaluation of the specific impact of the errors identified in the company's financial results and previously issued financial statements, including the possibility of material adjustments thereto. The discovery of additional and unanticipated information during the procedures required by completing before the company is able to file its annual report on Form 10-K for the year ended December 31st, 2023, and the application of accounting or tax principles in an unanticipated manner.

Also, additional risk factors set forth in the company's periodic filings with the SEC, including but not limited to those risks and uncertainties listed in the section entitled Risk Factors in the company's annual report on Form 10-K filed with the SEC. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements, which reflect our views only as of the date of the press release. We undertake no obligation to update any forward-looking information. With that, I'm going to pass it back to Jirka.

Jirka Rysavy (Executive Chairman)

Thank you. It's an interesting thing. I would now have a final thought. For the summary, we started this year with $7.8 million in cash and $10 million of unused credit line. Our current view on our four business indicators for 2024, we expect our revenue to grow about 15%, as we said in the last call. That is with continuing growth of ARPU. We are also planning to increase our gross profit per employee going forward and continue to deliver a positive free cash flow. This concludes our remarks. Now I'd like to open to the questions. Operator, please.

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd 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 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Mark Argento with Lake Street Capital Markets. Please proceed with your question.

Mark Argento (Co-Founder and President)

Hey, guys. Ned, you drew the short straw there. It was a mouthful. Just wanted to dig in a little bit on the growth, 15% growth. I know you kind of referenced ARPU growth, but maybe seeing some nice subgrowth, what's the balance there between subgrowth and overall kind of ARPU growth? And just walk us through kind of current pricing.

Jirka Rysavy (Executive Chairman)

So to start, we're probably looking at right now. We give you the number for the first quarter, which is about 10%. And we're probably going to be similar in revenue growth in the first Q or corresponding. I didn't really calculate it, but it's kind of, I think, that way. And for the pricing, you guys want to?

James Colquhoun (CEO)

Yeah. Thank you, Mark. Hello. Good afternoon. So it's James here. With pricing, we plan on increasing our USD pricing later in the year. We're also increasing our EUR and GBP pricing by the end of this quarter, Q1. So this will increase ARPU. Additionally, we'll be continuing to maintain a blend of our third-party, second-party, and direct members to maintain steady ARPU and growth for the year. And with the addition of Marketplace as well as we continue the scale-out of that initiative, that will help us to increase cash flow throughout the year and also contribute, like we mentioned, to this ARPU growth as we keep the foot on the gas with subscriber growth. So that's our plan.

Ned Preston (CFO)

Yeah. Mark, this is Ned. The last thing to add: 2024 is going to get us on a more natural path. As you've modeled and others have modeled for us this past year, our member growth and revenue was not aligned, right? Going forward, that will be more the case. I think your model for 2024 has us growing revenue higher than our actual member growth. We are excited to get back on this more predictive path where we will talk about member growth along with other items like ARPU as well as churn and other items. We're real excited here for 2024, the numbers we provided already out of the gate here for Q1. We look forward to talking about that in a lot more detail in about five weeks with our Q1 results.

Jirka Rysavy (Executive Chairman)

Yeah. We're going to have. It's probably in the second part of the year, you're going to have revenue growing faster than members because, as we mentioned, we plan to increase prices somewhere in the second part in fall or somewhere there. So that I expect will kind of decouple that so you see revenue a little faster because we expect probably lower conversion. But the revenue, we already did it once before, so we have some statistics. But we also kind of back to our regular seasonality, which was kind of messed up by the COVID. So you see the kind of fourth in first quarter.

Probably we don't know, obviously, how the second quarter will look, but we definitely you see the increase to the first quarter from fourth. And we'll see how the price increases do. So far, on industry, a lot of people raised the prices, so it's kind of expected. So we don't expect much pushback. We also go to increase prices only for new people, not for existing members.

Mark Argento (Co-Founder and President)

And then I know Marketplace, you tested a little in Q3, I believe, generated $100,000 worth of revenue. Any continued tests there or thoughts on can that be a material yet small revenue contributor in 2024, or how should we be thinking about that?

James Colquhoun (CEO)

Yeah. Thanks, Mark. Yeah. We've continued to roll out. It's still in a beta phase at this stage. We had a sold-out Egypt tour in November with one of our top talent from our tentpole series, Ancient Civilizations. As we move into Q2, Q3, and beyond is where we'll anticipate rolling this out in a more serious fashion. I'll have more to report to you on that later in the year.

Mark Argento (Co-Founder and President)

And then, just juxtaposing that with the Gaia Plus, is there, I mean, are they intertwined at all, or maybe just refresh us on the relaunch of Gaia Plus?

James Colquhoun (CEO)

Yeah. That we'll be discussing in more detail on our Q1 call. It's just happened a week and a half ago. Essentially, it's a rebrand of our Events Plus tier, which is our premium membership tier. And it's these two initiatives, our premium membership tier along with Marketplace, and in addition to that, our price increase, which will, as Jirka said, start to see the subscriber growth and ARPU grow consistently as we go throughout the year. So really happy to have these initiatives in place now so that we can keep our subscriber growth and ARPU growth moving upwards in conjunction with each other.

Mark Argento (Co-Founder and President)

Last one from me. But in terms of the cost to acquire a new subscriber, it looks like it's flat to down. Is that a function of basically what the spend is with buying keywords or Facebook or other kind of platforms, or what's really kind of driving your ability to acquire efficiently?

James Colquhoun (CEO)

There's a few things there, Mark. In the fourth quarter, we saw our customer acquisition costs on the average for that quarter at one of the lowest levels since the beginning or Q1 of 2021. A lot of these improvements are driven through a number of factors, but most of all, just finding new conversion improvements on landing pages and checkout conversion. In addition, some of these online events where we bring select content in front of the paywall and provide our leads or prospects with an experience of Gaia before inviting them into a membership, which reduces the acquisition cost.

Additionally, as we've implemented some of these campaigns, it's helped with retention as well because we've invited members into paying for a membership upfront, either a monthly or incentivized annual plan. And this has been really positive for us as a company. We're seeing these improvements continue to roll through into Q1, which we'll be reporting on in more detail shortly.

Mark Argento (Co-Founder and President)

Great. Appreciate the caller. Thanks, guys.

James Colquhoun (CEO)

Thank you.

Jirka Rysavy (Executive Chairman)

Thanks, Mark.

Operator (participant)

Our next question comes from Thierry Wuilloud with Water Tower Research. Please proceed with your question.

Thierry Wuilloud (Managing Director)

Yes. Good afternoon. I think you've covered most of the questions. But still, the 38,000 or no, the improvement in memberships for the first quarter, is it seasonal? Is there something new? I'm wondering if I know you talked about acquisition costs being lower. I'm wondering if you can give us a bit more color, maybe, on what's driving that.

James Colquhoun (CEO)

I'll start. I can see if there's further answers on this side. I would say, first and foremost, just the continuing improvements in marketing efficiency. Since I moved from the board to COO and then COO to CEO in December, one of my key focuses has been on how can we improve on the efficiency of our acquisition pathways of our customers just by really dialing in on understanding our market segment in a deeper way and targeting our message to our sort of core avatars.

Plus fine-tuning some of the work that Jirka did previous to my coming on board where he was focusing on how we were focusing our marketing acquisition on our highest retention segments as well, which has further stabilized the business. And I just think over time, Thierry, we're seeing this come together, and we're getting more and more data as we grow. It's a really strong signal. I'm happy to see that we're back to growth in a meaningful way.

Jirka Rysavy (Executive Chairman)

All I would say on the market is there's definitely the lowering the cost. But it was actually my personal big expectation because that's how I kind of wanted James to come to this position because marketing, that's his background. As we merged his company in, and we kind of saw he did a lot of it without outside capital. And I kind of like that. So you see some of the first impact of I think James's impact on the marketing.

But it's a lot of the work, actually, marketing work, was done by our president over the last second part of the year to prep the thing. So it can be more like a fine-tune. So you already saw it in the fourth quarter. Third quarter, we started to grow again. But we like the idea of keep accelerating that growth because I think we have so much potential. So I'm glad that James is doing his job.

Thierry Wuilloud (Managing Director)

Yeah. Did you say that you were using live events to attract new members? How does that work? Do you invite them to attend, and then that gives you good leads, and you sign them up, or how's that working?

James Colquhoun (CEO)

So one of the strategies, Thierry, that we implemented last year was, like I mentioned, putting some content in front of the paywall so that our leads and prospects can experience some of the content inside of Gaia before inviting them into a membership. And this has been very effective for us in terms of reducing acquisition costs and also encouraging people directly into an annual membership, which boosts our retention because, clearly, for most businesses in this space and the subscription industry, the 0-90 days is typically your largest churn event. So to leapfrog that is a huge incentive. You're referring to a recent event we had in March that sold out.

We did open that up for a limited time live stream attendees. And as I mentioned, we had over 52,000 unique attendees. It's great to see an initiative that was launched by Jirka in 2019 with the GaiaSphere Event Center that we're able to start really leveraging that technology to reach more people and open up our top-of-funnel. Ultimately, we'll be able to retarget these people. The hope is we'll further drive acquisition costs down and scale our membership as we continue to move forward.

Thierry Wuilloud (Managing Director)

I mean, 52,000 unique attendees for one live event, yeah, that's pretty amazing.

James Colquhoun (CEO)

Yeah. We're very happy with the result.

Thierry Wuilloud (Managing Director)

Yeah. So you said you will give us some more insights on Gaia Plus when you report the first quarter, or did I understand that well? Because I had a bunch of questions about Gaia Plus.

James Colquhoun (CEO)

That will be when we do Q1. And just to let you know, this only happened within the last few weeks of the first quarter. So it'll be just the beginnings of our leaning into that premium tier. And we intend to continue scaling that throughout the year alongside our Marketplace initiative. So I'm grateful that a lot of the groundwork is done, and we can focus on execution as we move throughout the year.

Thierry Wuilloud (Managing Director)

Are there any metrics about Gaia Marketplace that you can share with us, maybe the number of offerings on the platform? Is it open to every single one of your members or not quite yet? Can you give us some color there?

James Colquhoun (CEO)

Thierry, we're still in a beta on the Marketplace. I'll be providing some more data to that on our Q1 call. And we're just staging our rollout to our full membership as we continue to solidify the offering. So I'll let you know more on the Q1 call.

Thierry Wuilloud (Managing Director)

Okay. And then maybe a quick last question for Ned. Presentation changes, can you quickly give us some insights as to what those changes have been completely?

James Colquhoun (CEO)

Yeah. No. I mean, as you know, I've been on board now since the end of June. And I've talked to well over 100 investors. And a lot of people have asked me the same thing. They've said, "Look, it's hard to track Gaia against similar people in your industry." And so really, in closing out my first fiscal year as well as the fact that we brought on new auditors, we transitioned to new auditors in Q4 due to our previous auditors leaving the public space, we went through and looked at all of our financial statements.

And it was really an opportunity to align with industry standards. And so really, what we shared in the 8-K, as I said earlier, none of the changes or restatements impact our revenue or free cash flow. And we are already reflecting that in this release. But what I'm really happy with is now, as I talk to existing and potential investors, we'll be speaking the same language around common factors of the business.

Thierry Wuilloud (Managing Director)

Great. Thank you for answering my questions.

Jirka Rysavy (Executive Chairman)

Thank you.

Operator (participant)

We have reached the end of the question and answer session. I'd now like to turn the call back over to management for closing comments.

Jirka Rysavy (Executive Chairman)

Well, thank you, everyone, for joining. We look forward to speaking with you when we report our first quarter results in early May. Thank you very much.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.