Gaia Inc. (NASDAQ:GAIA)
Q2 2017 Earnings Conference Call
August 07, 2017 04:30 PM ET
Executives
Jirka Rysavy – CEO
Paul Tarell – CFO
Analysts
Mark Argento – Lake Street Capital Markets
Operator
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 June 30th, 2017. Joining us today are Gaia’s CEO, Jirka Rysavy; and CFO, Paul Tarell. 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 of the Private Securities Litigation Reform Act of 1995. Except for historic information, the matters discussed today are forward-looking statements and involve numerous assumptions as well as risks and uncertainties, including, but not limited to, general business conditions, integration of acquisitions, timely development of new business, impact of competition and other risks and uncertainties detailed from time-to-time in our filings with the Securities and Exchange Commission, including the company’s 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 conference over to Gaia’s CEO, Jirka Rysavy. Please go ahead.
Jirka Rysavy
Thank you, Cody and good afternoon everyone. Our second quarter, including the subscriber count ended ahead of our expectation and guidance similar as last quarter. Paid subscribers grew 64% to 277,800 from 160,500 at the end of the first quarter of ’16. The growth rate increased again sequentially 6% to 64% from 58% at end of the first quarter, 52% during fourth quarter and 46% in the third quarter.
Revenue in the quarter increased 56% to $6.6 million from $4.2 million in the same quarter a year ago and the streaming revenue increased 68%. The gross margin increased a hair again 390 basis point to 86.1 from 82.2. We maintain our investment discipline and kept our loss again below our plan even with the faster subscriber growth.
Our personalized experience for each subscriber and also increased leverage of the search engine optimization drove again our performance. The loss in the quarter was $6.3 million in line with the first quarter.
And now, I’ll let Paul sort of speak about the results for the quarter in more detail.
Paul Tarell
Thanks, Jirca. Jumping right into our Q2 results. Streaming revenues in the second quarter increased 68% to $6.1 million compared to the year ago quarter due to the continued strong subscriber growth Jirca just mentioned.
Gross profit in the second quarter increased 64% to $5.6 million compared to $3.5 million in the year ago quarter. Gross margin increased 390 basis points as Jirca mentioned, 86.1% from 82.2% in the year ago quarter. The increase in gross margin was primarily due to leverage gain on our streaming cost due to the higher volumes and our investment in owned and produced content.
Total operating expenses in the second quarter were $12 million, which was slightly better than our expectations due to increased efficiency in our customer acquisition efforts and are comparable to $6.4 million in the year ago quarter. The overall increase in operating expenses was due to the planned increase in selling and operating expenses associated with the continued acceleration of our subscriber growth throughout 2017.
It’s important to reiterate that we elect to expand subscriber acquisition cost in the period incurred and despite the significant lifetime value do not record any value of our subscribers on the balance sheet. However, it is worth noting that we have reoriented our customer acquisition efforts during 2017 to focus on bringing in subscribers earlier in the quarter which allows them to contribute more meaningfully to current period revenues.
Net loss in the second quarter was $6.3 million or $0.42 per share compared to a loss of $2.4 million or $0.10 per share in the year ago quarter. This year’s per share amounts compared to the prior year reflects the repurchase of approximately 40% of our outstanding shares in July of 2016.
On June 30th, 2017, we have $36.9 million in cash, no debt and unencumbered ownership of our 12-acre, 150,000 square foot campus near Boulder, Colorado.
With that, I would now like to turn the call back over to Jirka for some additional remarks, after which we’ll open the call for questions. Jirka?
Jirka Rysavy
So, the momentum in our business has continued strength and as we exceeded our accelerated subscriber gross target, while customer acquisition cost continued to trek below plan. We also continue to grow our content library ending the quarter at 8,000 titles.
Last month, we also launch Gaia in Spanish, which is our first step to our multilingual operation. And also we launched our special report which we call Unearthing Nazca which is part of our new series exploring the rare archeological discovery in Peru. And that had over 60 million views on our site YouTube and social channels during the first 30 days.
While initial discoveries we provide for free-of-charge, this level of viewers demonstrate clear the size of the market interested in our content. As we discussed, we expect our subscriber growth to keep accelerating. After hire and expected jumps, we expect subscriber growths to be increasing to 70% in the third quarter and 80% for the year.
The growth rate of 70% would bring depending subscribers at the end of third quarter to about 300,006 — 306,000 up from higher 80,000 at the end of the third quarter ’16.
And with that, I’m about to go open the call for the questions. So, operator please?
Question-and-Answer Session
Operator
[Operator Instructions] And we’ll take our first question from Mark Argento with Lake Street Capital Markets.
Mark Argento
Hi guys, good afternoon, nice quarter. I just have a couple questions, just wanted to drill down a little bit on subscriber mix, what you saw in the quarter, where you’re having success and maybe you try to touch on some of the matrix a little bit better around acquisition cost and underlying churn or kind of lifetime value of the subscriber.
Jirka Rysavy
Well, so the subscribers’ pretty much same as the first quarter. We kind of try to move the subscribers a little bit more from the Yoga side towards transformation and seekers. Last year we grew or growing yoga faster, right now it’s about balance between the yoga and seekers transformation matrix start to grow positively and the numbers start to exceed one on the yoga on the kind of the lifetime value.
So, we would look at the future mix for when we’re going to provide in third quarter guidance for the next year, we start to, it’s really a question obviously, yogis are easy to get, they’re cheaper but they don’t stay as long. So, we’re going to look at the advent, we kind of looked the optimum growth for next year.
But for right now, it’s about kind of even the yogis and the secrets what we grow. So, there is no really fundamental change in anything except all the lifetime value. We have slightly positive layers. But there is no very fundamental difference. Pretty much all we provided last quarter is probably through to this quarter.
So, there is any meaningful differences, everything it’s slightly better, I think the main things that we probably paying for, the subscribers little bit less than we’re paying before.
Paul Tarell
Yes. I think what we’re seeing in markets is the benefit of all the branding work that we’ve been doing over the past year plus and that the special port that Jirka mentioned to intenerate a tremendous amount of brand awareness for us, which helps translate more efficient CPA’s for the weight we measure from paid customer acquisition.
Mark Argento
Got it. Alright. And did you and you might have mentioned, I might not have heard you but did you break out what the growth acquisition spend was in the quarter?
Paul Tarell
No, I didn’t. And as I mentioned that last quarter we’re not planning on breaking that out specifically but I will say that it’s down slightly from Q1 in terms of what we spend for Q2.
Mark Argento
Alright. And so when you talk about, Jirka, you’d mentioned you thought the lifetime value had nudged up a little bit in the quarter. I mean, that can be a function of two things, right? Your spend in last quarter, the subscriber and or churn is down or some combination of both. Any kind of thoughts on what’s driving lifetime value up?
Jirka Rysavy
Actually, how much we spent on the acquisition has nothing to do with the lifetime value per se directly. Indirectly, however it does because if we bring yogis, we spend less and they would not have as much lifetime value. So, in average would shift and so I think we generally start to tweak more towards secrets and our transformation away from yoga.
So, that definitely has a positive impact on lifetime value. However, there is also positive impact in lifetime value because we were at a new company, so as we have little more people in what we call mature bays, they would have higher lifetime value because kind of longer you stay on a side longer really you stay from this point.
So, you have the lifetime value kind of growing on its own by its company’s kind of have some trick of brining those subscribers.
Mark Argento
Got it. And then last question, in terms of the any new channel plans, any new launches yet this year or thinking about 2018 in terms of adding additional verticals?
Jirka Rysavy
Well, we have our next channel which is already kind of listed under the transformation but we probably based on the traction will make separate reproducing our first show for at the end of the year for it. And we have some titles, we call it extended consciousness. And so, depends the traction and depends the traction of the transformation overall between now and end of the year we might go wish another channel.
Because transformation is trending well and it’s definitely as we kind of put it together, it’s increasing the retention and also we can actually acquire from the new fishing ponds, which is also nice. However, with this what I mentioned that we have 60 million views on this new discovery so we put up for free, I think the new fishing point is not going to be that important because the market is much bigger than we expected.
But we still probably wouldn’t have launched it because that’s kind of a part of our plan to increase this initiatives. But I think we still have a time to track what transformation would do. And pretty much the new channel, it’s already built into the transformation a separate category, so you can actually go to a now per se but we don’t have all the titles there yet what we’re acquiring for and we then really produce for that.
So, that probably still the kind of need to see it’s all I know the year how it’s so happening. But we probably continue on this trend to open new more channels. But seeing that we can buy the customers cheaper and the size I would never believe that, I kind of believe that we can have 15 million views and people kind of still kind of question.
My judgement, now we have 60 million, so nobody really questioned that side right now. But it’s I think overall to do new channel, we definitely going to do but over next couple of years probably know that important but we will continue same way as we will plan to probably launch in other language before the next call.
Mark Argento
Okay, got it. Last question, in terms of obviously it looks like you’re hitting the gas a little bit because of economics right now in terms of sub acquisition. How do you think about the cash levels and where does this kind of put you guys at your end when you think about the balance sheet?
Paul Tarell
I mean, we kind of, as we kind of said before, when we did a tender, when we bought 40% of company a year ago, we kind of provided enough cash to go based under our plan to profitability. So, and so it’s more a question like we could or doing better than the plan and do you want to like for example we kind of two years from now we planned it go to community but funded from you know if operating cash flow because that time be profitable.
And so, it’s a question do we want to do it early if, you know market’s right and stuff. So, those decision we have to make in future but for right now we find as we doing it as this is all tension. We’re actually exceeding our budget because we don’t have to spend that much on the acquisitions for the customers. And also being ahead of that revenue and the margin, obviously there’s a little more income coming from the topline.
So, I think from that part we find so would be in a more decision if we decide to do something accelerate from the future, different growth rate, but for right now there is no discussion about doing anything like that. But we would look at it, probably have annual board meeting end of the year. That’s the way we would look at it.
Mark Argento
Right, thank you.
Operator
Thank you. [Operator Instructions] At this time, this concludes our question and answer session. I will now like to turn the call back over to Mr. Rysavy for closing remarks.
Jirka Rysavy
Thank you, Cody. And thanks for everyone for joining. And we look forward to speak with you when we report our third quarter which will be in early November. Thank you, very much.
Operator
Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!
