Gaia Inc (GAIA) 2017 Q2 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia, Inc.'s financial results for the second quarter ended June 30, 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.

Thank you, Cody, and good afternoon, everyone. Our second quarter, including subscriber count, ended ahead of our expectation and guidance, similar as last quarter. Paid subscribers grew 64% to 277,800 from 169,500 at the end of second quarter of '16. The growth rate increased, again, sequentially 6% to 64% from 58% at the end of the first quarter, 52% during fourth quarter and 46% in the third quarter.

Our 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, again, 390 basis point to 86.1% from 82.2%. We have maintained 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, who will speak about results for the quarter in more detail.

Thanks, Jirka. 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 Jirka 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 Jirka mentioned, to 86.1% from 82.2% in the year-ago quarter. The increase in gross margin was primarily due to leverage gained on our streaming costs due to the higher volumes and our investment in owned and produced content.

Total operating expenses in the second quarter were $12 million, which were 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 expense 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 30, 2017, we had $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 will open the call for questions. Jirka?

So the momentum in our business has continued to strengthen, as we exceeded our accelerated subscriber growth target, while customer acquisition cost continued to trend below plan. We also continue to grow our content library, ending the quarter at 8,000 titles. Last month, we also launched 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 archaeological 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 clearly the size of the market interested in our content.

As we discussed, we expect our subscriber growth to keep accelerating. After higher-than-expected jumps, we expect subscriber growth to be increasing to 70% in the third quarter and 80% for the year. A growth rate of 70% would bring the paying subscribers at the end of third quarter to about 306,000, up from 180,000 at the end of the third quarter '16.

And with that, I'd like to open the call for the questions. Operator, please?

(Operator Instructions) And we'll take our first question from Mark Argento with Lake Street Capital Markets.

Just a couple of questions. Just wanted to drill down a little bit on subscriber mix and what you saw in the quarter, where you are having success? And maybe you can try to touch on some of the metrics a little bit better around acquisition costs and underlying churn or account lifetime value of the subscriber.

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 site towards Transformation and Seekers. Last year, we were growing Yoga faster. Right now, it's about balanced between the Yoga and Seekers. Transformation metrics start to grow positively, and the numbers start to exceed the one on Yoga on the kind of the lifetime values. So we would look at the future mix for when we go 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 that when we kind of look to optimum growth for next year. But for right now, it's about kind of even to yogis and Seekers, what we grow. So there's no really fundamental change in anything, except all the lifetime value, we have slightly positive lift. But there is no really fundamental difference. Pretty much all we provided last quarter is probably true to this quarter. So there isn't any meaningful differences. Everything is slightly better. I think the main things that we're probably paying for the subscribers a little bit less than we paid before.

Yes, I think that what we're seeing, Mark, is the benefit of all the branding work that we've been doing over the past year-plus, and that special report that Jirka mentioned generated tremendous amount of brand awareness for us, which helped translate to more efficient CPAs for the way we measure it from paid customer acquisition.

Got it. All right. And then did you -- and then you might have mentioned it, I might not have heard you, but did you break out what the gross acquisition spend was in the quarter?

No, I didn't. And as I mentioned 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 spent for Q2.

Got it. So when you talk about -- Jirka, you mentioned you thought the lifetime value had nudged up a little bit in the quarter. I mean, that can be a function of 2 things, right? You're spending less to acquire the subscriber; and/or churn is down; or some combination of both. Any kind of thoughts on what's driving lifetime value up?

Actually, how much we spend on 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, it would shift. And so I think we generally start to tweak more towards Seekers and now Transformation, away from Yoga. So that definitely has a positive impact on lifetime value. However, there is also positive impact on lifetime value because we are a relatively new company. So as we have a little more people in what we call mature base, they would have higher lifetime value, because kind of longer you stay on a site, longer will you stay from this point, so you have the lifetime value kind of growing on its own by -- as companies kind of have some track record of bringing those subscribers.

Got it. And then last question, in terms of any new channel plans? Any new launches yet this year or thinking about 2018, in terms of adding additional verticals?

Well, we have our next channel, which is already kind of listed under the Transformation, but we probably, based on the traction, we might separate. We're producing our first show for the end of the year for it. And we have some titles, we call it, Expanded Consciousness. And so it depends on the traction, and depends on the traction of the Transformation overall between now and end of the year, we might go with another channel. Because Transformation is trending well, 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 discoveries we put up for free, I think the new fishing pond is not going to be that important because the market is much bigger than we expected. But we still probably are going to launch it because it's kind of a part of our overall plan, to increase these niches. 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 as a separate category. So you can actually go to it now, per se, but we don't have all the titles there yet, what we're acquiring for, and we didn't really produce for that. So that probably is still, we would kind of need to see till the end of the year how it's happening. But we're probably continuing 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 judgment. Now we have 60 million, so nobody really question that side right now. But it's -- I think, overall, to do a new channel, we're definitely going to do, but over the next couple of years, probably not that important, but we will continue, same way as we'll plan to probably launch another language before the next call.

Okay. Got it. Last one from me. In terms of, obviously, looks like you're hitting the gas a little bit because of the favorable economics right now in terms of sub acquisition. How do you think about the cash level? And where does this kind of put you guys at year-end, when you think about the balance sheet?

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 grow, based on our plan to profitability. So -- and so it's more a question like we're clearly doing better than the plan, and do we want to -- like for example, we kind of -- 2 years from now, we plan to go to community, but funded from the operating cash flow, because at that time we're profitable. And so it's a question do we want to do it early if market's right and stuff. So those decisions we have to make in future. But for right now, we're fine as we're doing it. As was mentioned, 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 margin, obviously, there's a little more income coming from the top line. So I think from that part, we find -- so it 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 -- we have an Annual Board Meeting end of the year, that's where we would look at it.

(Operator Instructions) At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Rysavy for closing remarks.

Thank you, Cody, and thanks for everyone for joining. And we look forward to speaking with you when we report our third quarter, which will be in early November. Thank you very much.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.