Q4 2023 Gaia Inc Earnings Call

Participants

Ned Preston; Chief Financial Officer; Gaia Inc

Jirka Rysavy; Executive Chairman; Gaia Inc

James Colquhoun; Chief Executive Officer and Director; Gaia Inc

Mark Argento; Analyst; Lake Street Capital Markets, LLC

Thierry Wuilloud; Analyst; Water Tower Research LLC

Presentation

Operator

Greetings, and welcome to Gaia fourth quarter and full-year 2023 earnings conference call. (Operator Instructions) 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

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

Jirka Rysavy

Thanks, Ned, and good afternoon, everyone. So we continue to build and gain increasing momentum. And our member count of Jonathan is three 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 the fourth quarter grew to over 660,000, up from 535,000 last year. It that growth was the key driver to our $8.4 million or 10% of revenue. Cash flow improvement. Revenue for the quarter increased to $20.7 million from $19.6 million in the year ago quarter, primarily because our growth of our member base.
Member growth was increasing plus increasing during the year, growing sequentially by additional 16,000 in the fourth quarter ending to 806,000 from 759,000 on December first, 2022 be expected member growth to accelerate during at 2024.
Gross profit for the quarter increased to $17.7 million from $17.0 million in the fourth quarter of 2020 to business gross margin at 85.4%. It was kind of in line with the year and the net loss was $2.1 million or $0.09 compared to net loss of $1.4 million or $0.07 last year in last quarter because of higher marketing spend and increase amortization. But our operating cash flow increased by $2.1 million and our free cash flow increased by $1.7 million to a positive $1 million.
The cash balance as of December 31st, 23 was $7.8 million with an unused $10 million line of credit, which is compared to net cash of $2.6 million from which was like $11 million, $11.6 million in cash, but with $9 million borrowing on our $10 million credit line. And of those last year, revenue for the whole year was $80.4 million compared to $82 million in 2022 as company was still recovering from the post COVID subscriber contraction, which was experienced by all industry during the second part of 2022.
so why the loss for increase for the year increased $2 million to $5.6 million on this because of increased marketing spend amortization, our free cash flow improved as I mentioned by $8.4 million to a positive $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% of revenue.
Free cash flow was help hum by elimination of about $5 million of annualized expense expenses, which was finalized in beginning of the year and included about 36 headcounts cut. So which previously we had to bring in as a kind of balancing the efficiency board because the work from home mandates could 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 will speak to more about the results call and Hello, yes.

Ned Preston

Thank you, Jirka. Our revenue for the fourth quarter of 2023 increased 6% to $20.7 million from $19.6 million in the fourth quarter of 2022, and 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 food 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 negative $0.08 per share as compared to net loss of $1 million or negative $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 to $1 million from up from 0.7 negative 0.7 during the same quarter last year.
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 a company who is recovering from the post-COVID subscriber contraction experienced industry-wide during the latter part of 2022.
Loss for the year was negative $5.6 million or negative $0.27 per share as compared to a loss of $3.6 million or negative $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 to $1.1 million from negative $7.3 million, even as we increased marketing to 41.1% of revenue from 37.2 in the prior year.
Free cash flow was helped by elimination of $5 million in annualized spending finalized at the beginning of the year, which included 36 headcount 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 2020. For finishing the first quarter with about 300 I'm sorry, 838,000 members while continuing to generate positive free cash flow.
With that, I will hand it over to James Colquhoun, CEO.

James Colquhoun

Thank you, Ned, and thank you, Erica, and hello, everyone. As Jirka mentioned, we have continued our trend on executing on cash flow, positive growth for the final three consecutive quarters of 2023, with our continued improvements in marketing efficiency with some of our lowest customer acquisition costs since the beginning of 2021 and continued our execution on improving our per unit on an annualized basis.
Since moving into the role as CEO as of December are 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 pay 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 Gaiam marketplace initiative where members can shop a curated selection of experiences, retreats courses and physical goods with access to exclusive member and discount. This project is aimed at supporting the conscious lifecycle of our members whilst also improving cash flow and increasing the company's gross revenue as we book the key 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 in a high-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 the transformational interest 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 bio hacking with Dave Asbury, ancient civilization Season five 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 our food oil, maintaining cash flow, positive growth. And then 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.
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 guys here event center and a new record of over 52,000 newly unique livestream attendees from across the Group.
And with that, I'll pass back to you for the close out.

Jirka Rysavy

Yes. Before I close out, actually, I'd like to lead net through that arena of forward looking statements, which we neglected to reach one of the statements that I closer.

Ned Preston

Okay. I'll go through this quickly. It's as I said in the eight K as well as the earnings release. But Forward Looking Statements in 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 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 U.S. litigation, consumer trends, the effect of government regulation and programs, the impact of public health threats increase, including the coronavirus, COVID-19 pandemic and our response to it and other risks and uncertainties, including in our filings with the US Securities and Exchange Commission.
These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ material from those implied by forward-looking statements, including the outcome of the Company's completion of the qualification and evaluation of the specific impact of the areas identified in the Company's financial results and previously issued financial statements, including the possibility of material adjustments.
There, too, the discovery of additional 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 application of accounting tax principles in an anticipated 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 and Form 10-K filed with the SEC.
We caution you that no forward-looking statement as 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 you.

Jirka Rysavy

Thank you. So is that an interesting thing so that you don't have a final thought. So for the summary, we started this year with $7.8 million in cash and $10 million of unused credit line. In 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, and that is with continuing growth of our pool. We are also planning to increase our gross profit of our employee going forward. And continue to deliver a positive free cash flow.
And this concludes our remarks. And now I'd like to open to offer to the questions. So operator, please?

Question and Answer Session

Operator

Thank you. At this time we'll be conducting a question and answer session. (Operator Instructions)
Mark Argento, Lake Street Capital Markets.

Mark Argento

You guys mentioned you got I drew the short straw there out of about 400 and your eyes, they get a little bit on the growth, 15% growth. I know you kind of referenced RPU growth, but maybe you've seen some nice sub growth. What's the balance there between sub growth and overall kind of RPU growth? And just walk us through kind of current prices.

Jirka Rysavy

So to start, we probably looking, you know, in the right now, we gave you the number for the first quarter, which is about 10%. And we probably going to be similar on a revenue growth in the first Q from our corresponding kind of didn't really calculated about a kind of I think that way hum and Noam for the pricing to Asola yet.

James Colquhoun

Thank you, Mark. Hello. Good afternoon. So it's James here with pricing. We plan on increasing 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 our through. Additionally, we'll be continuing to maintain a blend of our third party, second party and direct members to maintain steady RPU and growth for the year and with the addition of marketplace as well as we continue to scale out of that initiative that will help us to increase cash flow throughout the year and also contribute like we mentioned to this, our RPU growth as we keep the foot on the gas with subscriber growth. So that's our plan.

Ned Preston

And Mark, this is, Ned. The last thing to add would be 2024. It's going to get us on a more natural path. So as you model than others, a model for us this past year, our member growth and revenue was not aligned right going forward. That will be more of the case. Then I think your model for 2024 has us growing revenue come higher than our actual member growth. And we are excited to get back on this more predictive path where we will talk about member growth along with other items like RPU and as well as churn and other items, but done.
But we're real excited here for 2024 the numbers we provided already out of the gate here for Q1, and we look forward to talking about that in a lot more detail in about five weeks with our Q1 results.

Jirka Rysavy

Beginning to have it's prevalent 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 and fall somewhere there so that I expect will come the couple that you see revenue a little faster because we probably expect Brownlow conversion.
But the revenue we already did it once before. So we have some statistics. We also kind of back to our regular seasonality, which was kind of messed up by the COVID then. So you see the hum, the kind of course in Q1, probably we don't know, obviously how the second quarter will look, but we definitely see you ceded increased to the first quarter from fourth hum and we'll see how the price increases in oh two. 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 were able to increase prices only for new people, not not for existing members.

Mark Argento

On law and other market players who have spent a little over two three I believe elaborated on our underground ore as a revenue. Any continued tests, their thoughts on that? Or can that be a material? Yes, small revenue contributor in 2024. How should we be thinking about that?

James Colquhoun

Thanks, Marc. Yes, we've continued to roll out is still in a beta phase at this stage. We had a sold-out Asia tour in November with one of our top talent from our tentpole series, ancient civilization as we move into Q2 three and beyond as well and anticipate rolling this out in a more serious fashion and I'll have more to report to you on that later in the year.

Mark Argento

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

James Colquhoun

Yes, that we'll be discussing in more detail in our Q1 call, just happened in 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 and 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 keep our subscriber growth and our Alpha growth moving upwards in conjunction with each other.

Mark Argento

Last one for me, but I certainly think the cost to acquire a new subscriber, it looks like it's flat to down on that, though. Is that a function of basically you're caught with what the spend is when you're buying keywords or Facebook or other kind of platforms are what's really kind of driving your ability to acquire efficiently?

James Colquhoun

As I see things Denmark 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 of 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 well implemented some of these campaigns, it's helped with retention as well because we've invited members into paying for a membership upfront, either monthly or incentivized annual plan. And this has been really positive for us as a company, and we're seeing these improvements continue to roll through into Q1, which will repeat they reported on in more detail shortly.

Mark Argento

Great. Appreciate the color. Thanks, guys.

Jirka Rysavy

Thank you.

Ned Preston

Thanks, Mark.

Operator

Thierry Wuilloud, Water Tower Research.

Thierry Wuilloud

Yes, good afternoon. I think you've covered most of the most of the questions. But Tom, still the 38,000 on not the improvement in membership store the first quarter, is it seasonal or is there something new? Is it I'm wondering I know you talked about acquisition cost being lower. I'm wondering if you can give us a bit more color maybe on what's driving that?

James Colquhoun

I'll start, and 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 COO to CEO December. One of my key focuses has been on how do we improve on the efficiency of 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 some of a fine tuning some of the work that Eureka did previous to my on my coming on board where he was focusing on how we are focusing our marketing acquisition on our highest retention segments as well, which has further stabilized the business and I just think over time, Terry, we're seeing these come together. We're getting more and more data as we grow. So it's a really strong signal, and I'm happy to see that we're back to growth in a meaningful way.

Jirka Rysavy

I would I would you lead and okay, this thing is definitely the lowering the costs, but this was actually my personal. My big expectation because that's I kind of wanted James to come to this position because marketing, that's his background as we merge this company and we kind of saw in our heated motivated without outside capital, and I kind of like that. So you see some of the first impact of, you know, I think, James, this impact on the marketing combined arm.
It's a lot of the work actually marketing work was done our part 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 already saw it in Q4, Q4, Q3, we started to grow again. But we like the idea, keep accelerating that growth because I think it's a we have such a So so much potential. So I'm glad that in our James doing this job.

Thierry Wuilloud

Did you say that you're using live event to to attract new members how does that work? Do you invite them to attend? And then and then that gives you good leads and you and you you sign them up or how has that working?

James Colquhoun

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 people 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 then 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 to 90 days is your typically your largest churn events.
So to leapfrog that as a huge incentive, you're referring to the recent event we had in March that sold out, we did open that up for a limited time livestream attendees. And as I mentioned, we had over 52,000 unique and attendees, and it's great to see an initiative that was launched by year end 2019 with the Gaia Sphere events center that we're able to start really leveraging that technology to reach more people and open up our top of funnel. And ultimately, we'll be able to retarget these people and the hope is we'll further drive acquisition costs down and scale our membership as we continue to move forward.

Thierry Wuilloud

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

Ned Preston

Yes, we're very happy with the result from.

Thierry Wuilloud

So you said you will give us some more insights on Gaia plus when you report the first quarter on is that did I understand it well, because I had a bunch of questions about Gaia plus?

James Colquhoun

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 will be this the earnings of our of us of our leaning into that premium tier and we intend to continue scaling that throughout the year alongside our marketplace initiatives. I'm grateful that a lot of the groundwork is done. We can focus on execution as we move throughout the year.

Thierry Wuilloud

Are there any metrics about Gaia marketplace that you can share with us? Maybe the number on 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 some color there?

James Colquhoun

Clearly, we're still in a beta on the marketplace. I'll be providing some more data that on our Q1 call and so far, the testing we've been doing continues to prove great results, 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 in that on the Q1 call.

Thierry Wuilloud

Okay. And then maybe a quick last question for Ned presentation changes. Is there can you can you can you give us some insight as to as to what those changes have been between and.

Ned Preston

I mean it, as you know, I've been on board now for 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. As they've said, look, it's hard to track guy 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 orders in Q4 due to our previous auditors, leaving the public space.
And 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 will be speaking the same language around common factors of the business.

Thierry Wuilloud

Great. Thank you for answering my questions.

Ned Preston

Thank you.

Operator

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

But thank you, everyone, for joining, and we look forward to speaking with you when we report our first quarter results in early May. Thank you.

Operator

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