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Edited Transcript of GAIA earnings conference call or presentation 5-Nov-18 9:30pm GMT

Q3 2018 Gaia Inc Earnings Call

LOUISVILLE Nov 15, 2018 (Thomson StreetEvents) -- Edited Transcript of Gaia Inc earnings conference call or presentation Monday, November 5, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jirka Rysavy

Gaia, Inc. - Founder, Chairman & CEO

* Paul C. Tarell

Gaia, Inc. - CFO & Secretary

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Conference Call Participants

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* Andrew Boone

* Dillon Griffin Heslin

Roth Capital Partners, LLC, Research Division - Research Associate

* Douglas Coburn

* Eric Christian Wold

B. Riley FBR, Inc., Research Division - Senior Equity Analyst

* Mark Nicholas Argento

Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst

* Peter Rabover

* Steven Bruce Frankel

Dougherty & Company LLC, Research Division - Senior VP & Director of Research

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Presentation

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Operator [1]

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Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia Inc.'s financial results for the third quarter ended September 30, 2018. 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 under the Private Securities Litigation Reform Act of 1995. The matters discussed today include forward-looking statements that involve numerous assumptions, risks and uncertainties. These include, but are not limited to, general business conditions, historical losses, competition, changing consumer preferences, subscriber costs and retention rates, acquisitions and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our 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 call over to Gaia's CEO, Jirka Rysavy. Please go ahead.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [2]

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Thank you, James, and good afternoon, everyone. Our third quarter results ended ahead of our expectation, and subscribers grew 66% to 515,000 from 311,000 a year ago. We surpassed 0.5 million subscriber milestone on September 13, which was 3 days earlier than we planned. This obviously keeps us ahead of the growth rate needed to reach our next 1 million subscriber target. Our gross margin grew again for 90 basis points to 87.1%, and we expect to keep this about the same level for the fourth quarter.

We have launched our fourth channel, Alternative Healing. Our third channel, Transformation, which was launched in fall 2016, represents primary viewing for approximately 1/3 of our subscribers. We expect that the Alternative Healing channel will follow a similar trajectory, meaningfully contributing to our growth in the upcoming years.

We also created our new premium offering available as an annual subscription for $299. It will include the unlimited streaming of Gaia Events from our new event center, which will be opening our campus in the second quarter of 2019, as well as the streaming from some other selected events. The premium subscription channel will also include our existing online offering.

We also further expanded our geographical reach to now 185 countries. As on September 30, we have about $31 million in cash and unused $13 million line of credit which is [mix of our] campus. We expect to have about $2 million to $5 million of cash unused when we switch to a positive earnings and free cash flow in first quarter 2020.

And now Paul will talk to you more about the quarter numbers.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [3]

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Thanks, Jirka. Streaming revenues in the third quarter increased 56% to $10.9 million compared to the year-ago quarter due to continued strong subscriber growth. Gross profit in the third quarter increased to $9.9 million from $6.5 million in the year-ago quarter. Gross margin increased 90 basis points to 87.1%, up from 86.2% in the third quarter last year. The increase in gross margin has continued to be driven by increased revenues and continued efficiency in our per-subscriber cost of streaming and content. As Jirka mentioned, we expect to maintain our gross margins at this level for the fourth quarter.

Operating expenses, excluding customer acquisition costs in the third quarter, were $6.7 million compared to $6.3 million in the year-ago quarter. This moderate increase of 6% highlights the leverage of the model as we continue to scale with almost 10:1 leverage in growth of revenues compared to operating expenses for the third quarter year-over-year.

We are introducing the metric that we use to attract this leverage, average gross profit per employee. For the third quarter of 2018, gross profit per employee was $292,000, up from $218,000 in the year-ago quarter. We expect this number to continue to grow, with projected fourth quarter 2019 gross profit per employee above $360,000. We will continue to provide updates on this metric going forward.

Customer acquisition costs, which include all marketing expenses incurred in the period, were 125% of streaming revenues for the quarter. This includes costs associated with the launch of our new Alternative Healing channel and our premium subscription offering as well as the ongoing cost of continuing to translate more of our existing library into French, German and Spanish as we continue to build out these language offerings.

Subscriber additions during the quarter were weighted towards Seeking Truth and Transformation customer segments, which together represented about 80% of subscriber acquisitions in the quarter. Combining our very efficient 85% of streaming revenues in the second quarter with our third quarter spend, we are at 105% of streaming revenues for the six-month period despite the increased costs associated with launching Alternative Healing and our premium subscription offering. This is in line with our previously provided expectations. We plan to maintain this level of spend on a quarterly basis through Q1 2019, after which we expect customer acquisition costs as a percentage of streaming revenues to meaningfully decrease through 2019 and beyond.

As of September 30, 2018, we had $30.8 million in cash and an undrawn line of credit of $13 million. We plan on utilizing our current cash and line of credit to continue investing in our growth through 2019. And as Jirka mentioned, we expect to have between $2 million to $5 million of cash left on the balance sheet upon transitioning to positive earnings and free cash flow in Q1 2020.

With that, I would like to open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [2]

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Just a couple of quick ones. I would like to find out a little bit more about the launch of your latest channel, Alternative Healing, if you've got any early stats there. And then I just wanted to see, check in on some of the other channels, see if there had been any updates or any changes at all to those content, hosts or any other major changes to the -- those offerings as well?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [3]

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So the Alternative Healing, we just kind of launched it. It's just a couple of days, so we cannot really give you any update on that. It's about close to 1,000 titles right now, and we expect that it will kind of start very similar as Transformation. We obviously don't have any acquisition or retention data now. It's one of the channels that I would expect actually being, as a size, the largest from our, what we call niches. So we know Yoga, it's like 38 million people just in the U.S. But I would say probably Alternative Healing will be a little bigger than that. And -- but till next call, we probably cannot say much and even at our next call, I'm not sure we will know much. We probably need a good 9 months to really kind of see the retention trends. We will probably know acquisition costs, but we did test it, so that's positive. But as far as the retention, it's hard to kind of speak about it till probably 9 months after the launch. For the hosts, we edit right now several new sessions -- new posts and episodic content. And what we also had in, like, July, it was kind of interesting. We had to replace one of -- it's kind of first time, one of our club hosts, which had no impact on our viewing and subscription. And it proves that our members generally subscribe to the Gaia brand, not the individual program. But for this specific show, it was actually interesting, because we replaced host and guest. And our viewing is 30% up since we made the change. So it's surely said that -- some suggesting that changing host for the series once in a while might be actually good practice. Then for Transformation, it's right now about even with the other channels, even at levels before, like in June, like Paul said, that this quarter, we were focused on seekers, which obviously they're more expensive than yogis. So that's why always when we focus on yogi especially in the first part of the year, our acquisition cost as a percentage of streamings are much lower in the second part when we go for seekers. But, obviously, the lifetime value is much bigger for seekers. So that shift will be pretty much every year. So we get kind of the -- the yogis kind of represented more than 1/3. Like in the second quarter, we'll now kind of shift to the seekers when seekers actually right now, Paul, is about largest segment because we really focus on them right now.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [4]

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Yes. So last time, we said that they were -- it was pretty balanced and I think with the Q3 Transformation and Seeking Truth over-indexing, it's more about like 37%, 38% Seeking Truth, up from the 33% than it was at June 30.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [5]

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And we'll probably continue to the next year. You always see kind of our acquisition costs. Those are CPA as a percentage of revenue. It's kind of lower first part of the year when the yogi are a more dominant sector of our positions. Did I answer your question, Mark?

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [6]

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Yes. No, that's helpful. And just one quick follow-up in terms of pricing. I know you have the new premium offering you're rolling out. Any thoughts on as you add more channels, more content in terms of any opportunity on the pricing model, maybe pay-per channel or any thoughts around kind of average revenue per ARPU?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [7]

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Well, the premier model on its own, even if it's small take and that we really did expect not much in the first year on revenues, but -- so -- but the ARPU obviously, actually will have an impact on ARPU. We also are going to play for next few months, testing actually at different price points because there's -- we used to price the -- our offering when you launch from Netflix, which was -- average was $9.95 and now the kind of similar offering is like $13. So it's a really open place for us to raise prices, but -- so we will test it and we will tell you more next quarter. But we definitely will be testing it right now.

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Operator [8]

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Next, we'll hear from Eric Wold with B. Riley.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [9]

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So, Paul, I just want to make sure I understand you -- I heard you correctly that subscriber acquisition costs as a percent of stream revenue is 125%?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [10]

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Yes, for the quarter.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [11]

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And I know that you include other launch costs. I know you talked about breaking Alternative Healing in the new premier subscription. Any way to kind of pull out maybe you're going to highlight what the dollar amount in there was that may not have been directly geared towards subscriber acquisitions in the quarter and then maybe what the organic percentage contribution was this quarter?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [12]

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Yes. I mean, I can kind of start the organic, review it. So organic was actually slightly up from the last time again. But we have more on this especially launching the new channel. That's actually not a simple process also because we start to do some more translation, especially to Spanish, which also hit that number. I don't really track it by number. I'm not sure and we never really disclose that way. So -- but if you kind of want to kind of dig into it more, but I'm not sure that it's -- but we can probably look at it. But it's -- I would kind of say, if you kind of look at kind of the 100 or 105 being the average, that's what we're probably going to see those in averages where we are in the next 2 quarters. So everything over, a lot of it over will come from the other activities.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [13]

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Okay, that's helpful. And then on -- you talked about kind of staying at this level through Q1. And then dramatically, you're reducing the acquisition cost and cost spend starting in Q2 through the end of '19 and then getting to profitability and positive free cash flow in Q1 of '20. I guess, what gives you the confidence that if you drop subscriber average and cost spend starting in Q2 that you can still reach that 1 million subscriber goal by the year-end and kind of do it in a profitable manner?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [14]

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Yes. So I think 2 things. One is the next 5 months is really the peak acquisition season for us from the holidays as well as rolling into the yoga in January. And then we've also been discussing a few of the initiatives that we've been building out, member referral and ambassador program being 2 primary ones that we expect to start meaningfully kicking in to the total number of subscribers that we're able to add in a given period that will be at a much lower cost than our current channels. Those are, today, a small percentage of total adds. But they're starting to gain traction and we're investing behind those programs with headcount dollars. So that's going to be a big driver, but going into the back half of next year.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [15]

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Also this organic, we're kind of in the low 40s. We expect that can keep growing, so this will definitely contribute to that one as well. And I think it's fundamentally, it's how many people we had to reach before they can work, how many touch points we have to have. And that's for us, like 5 quarters, because it's kind of less than half dollars, am I right?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [16]

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Yes.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [17]

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So obviously, we need to spend less to basically convert the customer. So that's what we expect to keep playing as this trend continue. We built into our team an all new department with some member retention, which probably has right now 25 people. So we didn't have the department a year ago at all.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [18]

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Okay. And then on the premier subscription offering, obviously, the delta from the current base price, assuming you don't raise prices, and the premium is $180, I guess what's -- what would be offered on average to premium subscribers? Is there a number of live events per month per quarter? Is there sort of a breakeven? Or how do we think about that? Because, obviously, there's a cost involved with putting on these live events. I assume that you have to have some certain level of premium subscribers to make it worthwhile.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [19]

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Yes. I mean, it's -- to me, I kind of expect this year and probably, I mean, through 2019 when we start the second half and then probably at the part of 2020 to kind of operate on a breakeven basis and a P&L basis. And so we would limit the number of the events, but we'll probably start -- the prime offering would have -- let's say, because we're not starting first quarter so we might have like 8 main offerings for the year for that price. And each of them, it's priced at $300 if you by it a la carte, which is kind of the industry starts at between $200 and $600, what people typically charge for. And so -- but we kind of go cautiously and kind of operate -- we try to operate in breakeven basis. It doesn't mean that would not happen, that we might have some costs first in second quarter because we would never know revenues. But on an annual basis, it should be breakeven.

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Operator [20]

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Steven Frankel with Dougherty has our next question.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [21]

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For starters, has there been any material change in the lifetime value of the subscriber, especially between the different pods of interest?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [22]

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No. There's been no meaningful change when you look at it. The only change is obviously the number of new people that we've been bringing in as we've continued to go at this higher growth rate. So that brings the overall averages down. But when you drill in and look by kind of seasoned tenure bands, there's been no meaningful changes in the composition of lifetime value by tenure band.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [23]

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Yes. Once we go, obviously, to the midterm member, then we kind of want that number start to increasing. But with the mix, you're going to see as we kind of kick the first quarter of 2020 and we slow down to more like 35%, 40%, then we would see -- the number will increase quite a bit because the percentage of new people who give, obviously, the lowest value, would decrease. So that's probably the first time you're going to see any meaningful difference. I expect to be pretty steady between now and then.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [24]

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Okay. And the stepped-up marketing, kind of where are you spending that money? I did notice a TV ad the other day and wondering whether that was just kind of a one-off experiment? Or is TV an effective channel for you now?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [25]

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So we're always touching things, and one of the -- one of our board members actually is involved with a company that is able to do it highly targeted, which is why I'm glad to hear that you saw it because you fit our customer target pretty tightly as a small adviser to see if there's anything there. But no, we don't meaningfully advertise on TV today.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [26]

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And I don't think we'll -- it's a plan. I think it's pretty much all online. We don't do -- very limited anything than online, including the TV. We did some print exchanges like Yoga Journal and stuff like that. But I would kind of say probably say 90% or more? 95%?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [27]

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95% in terms of paid, yes, with the one caveat being that our channel on Xfinity is free advertising and on a cable channel because we don't pay for those impressions when it shows up.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [28]

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Right. And in terms of online, kind of how are you spending today on Instagram versus Facebook versus YouTube versus the wild Internet? Kind of where's that focus today?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [29]

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We continue to explore all of those platforms as we're looking for increasing yield on the dollars that we're spending. So any given campaign can perform better on one of those channels than the others. But we have been shifting more meaningfully back to YouTube as their tools have gotten better from a targeting and filtering perspective. And we're also starting to explore a little bit in terms of English-speaking international locations to see what opportunity's out there as well.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [30]

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Yes. It's actually on this international, some of the conversion from certain countries like Australia, New Zealand and that part is actually doing better than the United States. Per capita a number of subscribers in those countries is higher than United States.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [31]

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And have you seen in the last 3 months a material uptick in your international component?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [32]

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It's correlated to the effort that we've been expanding -- expending to it. So we now have an international marketing manager that's tasked with building that out. So I'd say Q3 was the period where we really started to test and learn in terms of paid media. Up until then it had been predominantly via organic means. But a part of what's driving the increased investment in content side of things to get more of the library available for Spanish because we are starting to see some decent traction there. It's obviously a big language. You can't just break it down by geography. But from a Spanish-language perspective, we're starting to see some decent traction.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [33]

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Yes. I think that actually both Spanish and German start to have a traction. So based on that, we're translating more titles and we are also obviously producing some on our original language. And -- but that's definitely a promising area. It's -- the last few months, it's running quite ahead of our expectations. So as we talk next time, we might have something to say. But the numbers are very promising. But it's relatively too small right now to really talk about it. But it's the first time I would say that there's definitely some success story. We didn't really focus on it before. We just kind of put a content up there. But both what we call non-English and some international and English version, they both have some very good traction.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [34]

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Okay, and how large is international as a percent of your base today?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [35]

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It's about 30%. And so obviously on what we call third party like Comcast and stuff, that's all English, right? So -- but if you take our direct, so it's probably north of 30% and growing. It actually picked up very nicely this quarter. If you think it's important, we can start to provide those numbers too, because those are really easy for us to do because we track them regularly. It's just the number is relatively small. But overall number of non-U. S. subscribers, north of 30%.

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Operator [36]

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Our next question will come from Darren Aftahi with Roth Capital Partners.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division - Research Associate [37]

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This is Dillon on for Darren. I wanted to follow up on an earlier question about subscriber adds. Given that we're a month into 4Q and if I look at current consensus before this report for 4Q, it sort of implied a larger step-up in net adds in the quarter. I am just curious sort of how comfortable you guys were in reaching those numbers. Maybe given that you see some seasonal strength in 4Q and then -- or is it more of a 1Q, once you can sort of piggyback off of the new offering and some of the marketing initiatives. And then I'll have a follow-up later.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [38]

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Well, we don't really talk in the consensus and stuff, but in the first quarter, it's always -- it's a very good quarter for us, pretty much between like mid-October till early February. It's like our best time for us. So you're going to see this year, you saw it last year, and you're going to see it the year after. I think this year, we kind of took a little break of -- I mean, when you have the election last week. But it's not really that impactful. I think, Paul can talk about it. But generally, the 4Q, it's always the best time to do it. We kind of try to do it, especially in months of November because you don't want to really compete before or right before Christmas. But it will be safe for Netflix and anybody in the business. You're going to have a best quarter, the strongest quarter, if it's the first month only.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [39]

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Yes. And I would add that one of the things that we've started to do a lot better this year than last year is we actually capture e-mail leads. So if we don't get a conversion right out of the gate from someone coming to one of our landing pages, we actually work to grab their e-mails. So our e-mail list is pretty strong and we actually use November time frame to go to that e-mail list. So I'd say we're probably 30% to 40% up on the number of e-mail leads that we have from last year. So that's going to be a meaningful driver of it. And then also with the Alternative Healing channel, that's all net new from a marketing opportunity perspective for this Q4 compared to last Q4.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [40]

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And you're going to -- there is this aspect that when first Q, especially January, February, it's mostly yoga. So if you kind of see it, you see our fourth quarter typically being our most additions, with January. But by the cost, you spend a little more in the fourth quarter than first quarter because it's mostly seekers; fourth quarter is mostly yogis. In the first quarter, we will see how the new Alternative Healing channel will play. Obviously, we don't know that yet. But -- and the same thing when you kind of see the first part of the year, the cost of acquisition as a percentage of revenue is going to be lower and actual CPA is going to be lower. But the interesting part that -- what we call organics, actually kept growing through for the first 3 quarters consistently. And we'll see how the fourth quarter will actually look on that. It's too early for us to comment on it. But it's a trend what I believe will help us next year together with the new channel because, obviously, new channel always gives us a lot of new fishing ponds. And so assuming it did the -- will do same like the Transformation did, that will also be helpful to -- especially towards the second part next year.

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Dillon Griffin Heslin, Roth Capital Partners, LLC, Research Division - Research Associate [41]

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That was helpful. And then on the premium offering, have you started marketing that at all yet? Or if you haven't, when do you plan on starting? And then with the marketing efforts, is there any thoughts of doing sort of like a free trial for those who aren't -- like a free-for-one event to shorter entice those who maybe are in your regular offering and to sort of see if you can boost them onto that premium channel?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [42]

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Well, we kind of, as far as official marketing, when we kind of hit most of the people will start like after the New Year. We don't -- with some people, we test certain things, but our real marketing will start in January in what I would call general public -- general subscribers, because most of those will be up-sold to our existing subscribers. And as we kind of free, I don't think we would consider doing something like free, because if you do premium, you don't want to discount it. So I don't think we will do any free. However, we might have some combined deals. But for right now, there's no plan to do any free deals. I think just basically it's an offering what you can -- if you -- an average person, if you have -- you can buy annual for $100. So this was an additional $200. There will be some new subscribers as we kind of market into the databases of some of the speakers. But generally, we're kind of looking as more play on ARPU and pretax margin than number of subscribers.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [43]

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And I think just to clarify, Jirka mentioned it earlier, but we are really looking at '19 as being the learning year for the premium offering. We're not expecting meaningful contribution from a revenue perspective as we get this thing off the ground, and we'll be mostly marketing to our existing member base to try and get them to convert versus net new.

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Operator [44]

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Next, we'll hear from Andrew Boone with Quantum Capital.

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Andrew Boone, [45]

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Is there anything called out just on ARPU in the quarter? And then secondly, as you guys -- cash was down $10 million kind of quarter-to-quarter. As you guys start to think about the $1 million goal or the 1 million user goal, is there any thought process of maybe pushing towards profitability sooner rather than later just as you guys have multiple initiatives that seem to be gaining traction and don't want to dilute shareholders?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [46]

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Sure. So we touched on ARPU briefly in the past. But with our $0.99 first month, the reality is that most subscribers who get added into the quarter don't really meaningfully contribute to revenue in the quarter unless they're added in the first month. So that's going to create some downward pressure on ARPU as we keep growing at a 60-plus percent rate. But again, just like Jirka mentioned with the lifetime value to Steven's question, as soon as we slow the growth rate down, the average revenue per user on a quarterly basis should come back up pretty meaningfully. But from our perspective, it's really just a function of when subscribers come in and then what they contribute from a revenue perspective for the quarter. I'll let Jirka take the second question.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [47]

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Yes. I mean, for us, as we kind of provided pretty clear guidance that when we get to end of the next year, we should have about -- so we have today, there's the line of about $44 million. We should have about $2 million to $5 million left. So that wouldn't say that we would switch earlier. But if the market changed and the condition changed, obviously, we switch to profitability. For us, the switch to profitability is very short notice. We can probably do it in a month. So we can see what the conditions are. If between the cost of acquisition, the market condition, how much cash we have. So clearly, we could do it early, but it's not a plan right now. Right now it's to kind of run it through that $2 million to $5 million cash left whenever we switch to profitability. And but things can -- like any business, can change. But that's kind of the plan, and it's a pretty consistent plan for us for now. It's for about 2 years. We're hitting the numbers a few days to a week ahead of our budget. So I don't expect any meaningful changes. But as we have the new year, if there is a change in economy or something, we'll provide an update in the coming quarters. When I said we want to look and test the pricing, so that all can affect. But right now, the changes kind of -- we plan to remain unchanged for us 3 years pretty much.

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Operator [48]

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(Operator Instructions) We'll now hear from Peter Rabover with Artko Capital.

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Peter Rabover, [49]

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But I had a couple of questions and I think you've touched on one pretty thoroughly. But you had a $50 million EBIT number in 2021 and you've had that number out there for a long time. We'll have some moving parts out there in the last few years. So I'm just kind of curious whether -- what's changed since you -- if anything's changed from your original plan a few years ago?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [50]

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Yes. I mean, our plan is actually -- we hit the numbers pretty accurately. So I wouldn't say there is any change to our thinking about 2021. Based on the understanding, 2021 is kind of -- more is a model. Then we kind of decide how fast we want to grow. But from the model target, it did not change. I would say, if anything, there's upside to those numbers.

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Peter Rabover, [51]

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Okay. Great. And then maybe I was just curious. You mentioned the 25 number retention team. I would love to get more color on that. Is that more of data scientists, customer services? What kind of -- what's the mix of that? I would love to get more color on that.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [52]

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Yes. Sure, good question, Peter. I think the reality is, is we took a couple of different groups within the organization and put them all under one umbrella and you've hit the 2 big ones. So the customer relations team now rolls into that member retention leadership and then also our data scientists, so not necessarily the data engineering folks but the people that are actually using our data to better inform our recommendation engines and a lot of the on-site merchandising that we're doing. So if I was to look from a people perspective, I'd say our data scientists and analyst team is probably the same size as our customer relations team. And then the balance of those people are what we call merchandisers. So people that are using the tools that we've built for them to actually promote content to our members on the site, because we've realized that doing just machine recommendations isn't always the most effective for all of our members with such a diverse and broad library of content that we have.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [53]

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And there's probably this merchandising team as they now are crossing this marketing to tweak kind of the part what newcomers to the site see. I think that's one of the reasons why our organic is coming up. Because this -- it will be more sophisticated, what people see when they come in, then also be more flexible, more fluid with that. So I think that's kind of a big part of our, I think, impact of increasing the organic conversion to our member base.

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Operator [54]

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Our next question comes from Douglas Coburn with Ventuari Capital.

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Douglas Coburn, [55]

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Just a quick question here. Have you seen any evidence of competitors trying to do what you are doing?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [56]

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Competitors.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [57]

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I mean, not really. No different than we kind of launched it. There's kind of set of relatively small competitors in the yoga set. There's maybe 10, 15 of them. Interestingly, they price between $13 and $20 a month. It's much less offering. There are -- people do something in a similar space very differently. So we actually had the discussion on our board and there is not really any competitors, we would consider competitors, where we will try to track what they do. We kind of look at that and try to kind of see if something like would be there. But there's nobody meaningful who would right now, we'd say, hey, there is a competitor, we need to watch it. But there's a lot of small guys, especially in the yoga side, but they are a fraction of our size.

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Operator [58]

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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.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [59]

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Well, thank you very much, and thanks everyone for joining. And we look forward to speaking with you when we report our annual results, which will be early March. Thank you very much.

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Operator [60]

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