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Edited Transcript of GAIA earnings conference call or presentation 4-Mar-19 9:30pm GMT

Full Year 2018 Gaia Inc Earnings Call

LOUISVILLE Mar 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Gaia Inc earnings conference call or presentation Monday, March 4, 2019 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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* Darren Paul Aftahi

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* 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

Artko Capital - Analyst

* 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 Fourth Quarter and Full Year ended December 31, 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 to 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, and good afternoon, everyone. We finished 2018 with 550,000 subscribers, 55% growth from 364,500 a year ago. Our revenue increased slightly faster at 55% and our gross margin was up 90 basis points to 87.1%. We expanded our subscriber geographical diversification to about 185 countries.

During the third quarter of 2018, we have surpassed the 500,000 subscriber milestone, and we began to shift our acquisition focus to primary non-Yoga subscribers, and we announced that over 50% of our subscribers we acquired during the third quarter were in Seeking Truth and Transformation channels. We have continued this focus through the fourth quarter and into 2019.

In January, we increased our monthly subscription price to $11.99 for new subscribers, while grandfathering our existing subscribers until the first renewal in 2020. Our annual subscriber price remained at $99.

With the general increase in implied cost of growth capital, we decided to increase our target of a minimum ratio between our subscribed lifetime value and cost to acquire a subscriber from 2:1, which we targeted for the last 2 years, to 3:1. As of February, this goal was accomplished. Our average subscriber lifetime value increased to $260 and our CPA, our cost per acquisition, decreased to $82 right now.

We set our 500,000 and 1 million member targets in fall of 2015, as we were contemplating the sale of GAIAM business products business. The intent of these targets were to set a goal for a subscriber number that felt -- that would allow us to reach a scale that would minimize our risk of any new entrances into our space which really didn't happen to date. As we have successfully executed on the business plan and reached the 500,000 milestone in exact months of September of 2018, as the original plan called for, and we remain confident that we could achieve the next target before slowing the growth rate down and focusing on systemic growth and profitability going forward.

By the general shift in the market segments in the fourth quarter, the clearest signal to us is significant increase in implied cost of growth capital, led us to reevaluate the best timing to move towards profitability. Based on this, we decided to increase our LTV ratio from 2:1 to 3:1, as I mentioned, and decided to raise the price of our monthly subscription. We now focus to further increase this LTV CPA ratio to 3.5:1. We want to keep growing our gross profit per employee ratio, which in fourth quarter was $322,000, up 33% from $242,000 a year ago. And additionally, we want to transition to positive EBITDA by end of this September and maintain revenue around 30% growth for going forward with keeping gross margin steady in our 87% level.

We also will commence our marketing of our new all-access membership at $299 in the second quarter, with the announcement of the initial lineup of the lifetime -- life events, from our new campus center. The first event, which will feature Gregg Braden, will take place in June. This membership will also include our existing online offering.

And now I will let Paul speak more to the results. Paul?

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

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Thanks, Jirka. Streaming revenues in the fourth quarter increased 50% to $11.9 million compared to the year-ago quarter due to continued subscriber growth. For 2018, streaming revenues increased 60% to $42 million versus 2017. Gross profit in the fourth quarter increased to $10.8 million from $7.3 million in the year-ago quarter, while gross margin increased 100 basis points to 87.2% from 86.2% in Q4 '17. The increase in gross margin has continued to be driven by increased revenues, continued efficiency in our per-subscriber cost of streaming, and growing leverage on our historical content investments. For these same reasons, full year 2018 gross profit increased 56% to $38.1 million, and gross margin was up 90 basis points to 87%.

Operating expenses, excluding marketing and subscriber acquisition costs in the fourth quarter, were $7.8 million compared to $6 million in the year-ago quarter. And as a percentage of revenue, improved to 63% in the fourth quarter of 2018 from 71% in the year-ago quarter. On a full year basis, operating expenses, excluding marketing and subscriber acquisition costs, increased to $27.9 million compared to $23.8 million in 2017. And as a percentage of revenue improved to 63% for 2018 from 85% in 2017.

Subscriber acquisition costs for direct customers, which includes all expenses incurred in the period to support subscriber and revenue growth, were 94% of streaming revenues for the quarter or $11.2 million. Similar to the third quarter, these costs include cost of continuing to translate more of our existing library into French, German and Spanish. As Jirka mentioned, we have continued our focus on adding higher lifetime value subscribers, which represented over 80% of subscriber additions for the fourth quarter, which is the second quarter in a row it's been at this level. As Jirka mentioned, we increased our target lifetime value to CPA ratio in early December to 3:1 from the historical 2:1. This helped lower the blended average CPA for the fourth quarter to $91.

Both trends have continued into 2019 with CPA trending down to $82 and Yoga subscribers representing roughly 20% of new subscribers in 2019 compared to 32% in 2018. While the first quarter has historically been a period of strong Yoga growth, we maintained our spend discipline and did not increase our per subscriber targets for acquisition costs for Yoga campaigns.

In the fourth quarter, we took advantage of matching funds provided by certain of our distribution partners and invested an incremental $3 million in marketing activities to support growth through these channels. While the result of this spend will take some time to really reflect in the revenue and subscriber numbers, it has elevated the awareness of Gaia within the SVOD ecosystem. We intend to allocate a portion of our marketing spend in 2019 to continue to grow and nurture these partner relationships to maintain revenue from distribution partners in the range of 18% to 20% of total revenues.

As of December 31, 2018, we had $30 million in cash compared to $32.8 million at December 31, 2017, with $12.5 million drawn down on our current line of credit on both dates. We will be pursuing options to unlock more of the equity value of our corporate campus by replacing the existing line of credit with a mortgage to increase our visible cash reserves, but do not anticipate the need for this additional capital.

During 2019, we transitioned our legacy, internally developed billing and subscription management platform to an enterprise level solution. This allows us to expand our pricing options and support additional international and other payment methods with minimal incremental development effort. Through this transition, we've gained additional recording capabilities around our recurring billing processes, allowing us to reevaluate the criteria we use to determine who we consider a paying subscriber, primarily around payment-related issues. Historically, we provided for a 15-day grace period and included all subscribers with card-related payment issues in our member count at period end.

With the new system, we are better able to determine the rate at which we will resolve these issues at an individual subscriber level, and will, therefore, only include a subset of this group on each balance sheet date going forward. This will have a one-time impact in the first quarter of 2019.

While we expect to add about the same number of net subscribers in the first quarter as we did in the fourth quarter, with the impact of our refined subscriber definitions and the discontinuation of our Spiritual Cinema DVD Club, we expect to report around 560,000 subscribers for Q1. We will provide adjusted historical member count numbers reflecting the disposal of the Spiritual Cinema Club with our Q1 release.

As Jirka mentioned in his remarks, our focus for 2019 will be to continue to increase our target LTV to CPA ratio to 3.5:1, continue to grow average gross profit per employee, transition to positive EBITDA by the end of September 2019, and maintain revenue growth around 30% going forward.

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 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 wanted to drill down a little bit in terms of kind of lifetime value of a, like, a Truth Seeking subscriber versus a Yoga subscriber. Maybe you could review that a little bit. Assuming kind of a 3.5 -- the 3.5:1 ratio. I'm assuming you're still pushing about $300 on a lifetime value of a subscriber. I just want to make sure that's accurate math.

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

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The overall subscriber average is right now about $260, which is most like $230, $235 before we start this process. So kind of increased pretty meaningfully, keep increasing, obviously, further as -- because we raised the price. So as -- but we grandfathered existing people. As we go forward, it's, obviously, the lifetime value will keep growing. And if you kind of stay everything else steady, this Yoga, to life, to seekers was -- used to be historically about 2:1, seekers being 2x as Yoga. Now we slowed Yoga subscription quite a lot. So the average is up. It impacted a lot how many new subscribers we have. So because of Yoga, new subscribers decreased dramatically, obviously, lifetime value increased. Where the seekers, as we kind of get more of new ones in the balance, probably decreased. So they're much more closer to each other. But the overall average increased, let's call it, $25.

So it's -- the averages are really important to have in mind because obviously, new subscribers we just get has a much lower expected retention than people there with us let's say, more than 6 months or 1 year. So there's a lot of factors. But overall, it's about $260 right now. And as I've said, the acquisition right now, it's about $80, $82. So he's somewhere within like 3.1 to 3.2 as we're speaking as a ratio.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [4]

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So as you guys focus on a higher ROI subscriber, pull back a little bit on the subscriber growth, looks like you're going to -- like you said, you're going to hit EBITDA profitability in Q3. Are you going to end -- but yet, you think you can grow at 30-plus percent. Does the 30%, you guys kind of run it at breakeven on an adjusted EBITDA basis, and you're just plowing everything back in kind of at breakeven? Or how should we think about kind of growth rate relative to EBITDA generation?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [5]

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Yes. I think the first thing -- it's Paul. The first thing I would clarify is that 30% is on the revenue line, not the subscriber line, because the revenue lags the subscriber. So just to make sure that that's the number that you're keying off of. And then, in terms of where we go, we are looking and being able to expect to make that transition very similar to what we did in 2015. If you remember, when we tried to get to profitability by Q3 2015 and we ultimately did. We're looking at it at the same plan this year. So that then as we go into Q4, we can evaluate what do we want to do for '19 into '20, based on where we're running at that time.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [6]

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But our revenues, regardless, we kind of plan to be at least 30%. So that -- the EBITDA, when we get to profitability, we might see how much we want to put to bottom line, how much to revenue, but we still want to keep growing revenue 30% into the next year and so.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [7]

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So safe to say you think you can grow the business 30-plus percent kind of organic with organically generated cash off the subscriber base? That's the way to think about it?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [8]

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And the cash, what we currently have, of course.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Head of Capital Markets & Senior Research Analyst [9]

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All right. And then, last, in terms of stock buyback, I think you guys -- I think you have a stock buyback in place. Any thoughts on if you're not going to be using -- aggressively spending capital to grow the subscriber base. Any thoughts in terms of tapping the stock buyback?

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

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We have actually not announced or put one in place at this time.

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Operator [11]

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Next, we'll hear from Darren Aftahi with Roth Capital Partners.

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Darren Paul Aftahi, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [12]

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So one matter of clarification, and then, a couple of questions. So I think I heard you correctly, Paul, you said 560,000 net subs at the end of Q1, and then, sort of a similar addition rate as Q4. I'm just kind of curious what are the other puts to that, that number? Second question, so you turn EBITDA breakeven or positive by the end of September. What does that sort of imply in terms of cash burn at that point? And then, as we get to that implied sort of breakeven run rate of EBITDA or positive number, what does the mix look like in terms of domestic versus international or non-English-speaking subs? And how does that kind of trend beyond 2019?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [13]

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Sure. I'll run through those in the order that you said it. So yes, adjusting for this one-time change in the way that we treat those people that are in this payment decline process, we are expecting to report around 560,000 paying subscribers. So that's a -- if you think about, on average, with over 0.5 million subscribers, the majority of which are on monthly plans, the industry decline rate is about 3%. So you can kind of do the math on how big of a member base we have to see what the impact of the total population is there. But it's somewhere in the low 10,000 member, one-time adjustment there.

And then, in terms of the other puts, it's really a function of the number of subscribers that we're adding in the higher value segments while we're still burning off some of the subscribers that we added that haven't gotten to that maturity point of 12 months plus in terms of their membership. Because if you remember, we didn't really make that transition to the higher lifetime value customer segments until Q3. So we still have a bit to work through from the first half of last year, where we hadn't made that shift.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [14]

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And we have, obviously, there is also part, and we will kind of publish every stated, provided we make the decision in discontinued LTV -- the Spiritual Club DVD legacy business, which we, right now, intend to do it. We actually intend to discontinue, and then, sell it. So we will republish those numbers. And during this one-time clean-up we talk about it a lot, but there's an opportunity right now, since we're kind of resetting the thing to -- with the new system, to really kind of be very conservative when we consider subscribers. There might be some upside to those. But for right now, we want to just really do this cleanup, as Paul was saying. It's kind of for the gross numbers, they would mean now they're different than the first quarter. But we kind of want to restart with a clean slate.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [15]

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And then, in terms of your question from a cash perspective, we're really looking at being able to use the cash on the balance sheet and maintain a sufficient reserve going into it from that perspective. But we're not going to provide any specific guidance. But just to reiterate that we are intending to fund from here with the cash that we have available. And any refinancing that we might do on the building is just incremental reserves.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [16]

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Yes. We won't need it, but we kind of felt, based on the response on the last call, hey, we're going to have more in the balance sheet. In the case, like what Mark mentioned, we will consider buyback stock or something. It's additional thing. We don't want to really go to it right now. And the third question was the international. And we have international. We historically said it's about 30%. That was always counted on what we call direct subscriber, because all our third parties are domestic today, even we start to look at Latin America right now for third parties. So the domestic -- so the international numbers, we would expect to grow, obviously. So we kind of said that in 5 years, we expect about half of those people. So we expect to make some dent on that difference this year as well.

The problem, most -- the best countries for right now are German and Spanish-speaking country, where we expect the significant growth over the next couple years.

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Operator [17]

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Next, we will hear from Eric Wold with B. Riley FBR.

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

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A few questions. I guess, one, back kind of, I think, in Q3, you talked about organic subscriber contributions around 40% of your additions. I guess how does that change with this move toward a greater ratio? And kind of how does that benefit the growth rate versus kind of where it was before?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [19]

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So it's a function of itself, obviously. But in terms of absolute numbers, we don't expect that number to go down. So as we slow down the rate of investment on the paid media side of things, that number should increase. We've also historically talked about the member referral and the ambassador programs and indicated that we were just getting those launched in Q3, Q4. We've had some decent early results on that in terms of our beta testing. And so we expect that to continue to grow as we focus on member-driven growth going forward, which is what those 2 initiatives are part of.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [20]

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Also this organic -- obviously, since the organic growth is growing as a percentage, that by slowing the growth, let's say from 60% to 30% or 35%, the difference is the non-organic because the organic, we still push kind of same way, and we started some new ones. So obviously, the percentage of organic, it will increase pretty meaningfully. That's kind of a big part of lowering our cost of acquisition because there's more, will be kind of organic or what we call non-paid channel. So -- which drives the acquisition cost averages down.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [21]

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Okay. And then, on Q4, Q1, I guess, historically been some of your more heavier spend periods in terms of customer acquisitions. You said you get to positive EBITDA in Q3. Can positive EBITDA be sustained even during those heavy spend periods? Or you need to make adjustments on your plan around that?

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

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Our intent would be to continue once we hit it, to stay there. We'll have the benefit of all the subscribers that we added in the first half of the year at the $11.99, continuing to build as a percentage of the overall number, which will help average revenue per user into Q4, which should mitigate that. But then also, by the way that we're building out these organic channels and this member-driven growth strategy. It's not going to be as spend lumpy as our historical growth has been, where we've effectively fueled it by paid media, predominantly.

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

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We have now several trends with this change. Like, we have probably more gone in by just the increased price, even if we grandfather the people right now forward to 2020, you're going to see the increase on our ARPU pretty much quarter by quarter. So that will definitely help. So it's definitely -- once we get EBITDA profitable, we intend to stay there.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [24]

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Perfect. And then, how should we think about the need to spend on growing the media library? Obviously, you're up about 50% last year after almost doubling the year before, kind of including all CapEx and media library spend and all that. What do you think about the needs there in 2019 and beyond at a 30% plus revenue growth rate?

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

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Well, I think one of the things that is onetime for this year that's somewhat massed into that CapEx spending is the improvements that we've made for the campus for our All Access Theater that's going to be starting go to market here in Q2. So that won't recur from a cash-use perspective, but the intent would be...

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

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It will be in the first quarter, finishing.

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

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Yes. But the intent would be to look at tying our media library investments to our revenue growth and continue to focus on building that. Now that we've gotten through the peak growth phase from a marketing dollar perspective, we would intend to invest some of that incremental margin back into the media library to help with retention efforts.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [28]

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Yes, I would agree with that. As early in the fast growth period, the marketing was important to us more because we felt like we need to get to some scale, so the new entrants in the market, new entrances wouldn't-- they fall funded, they couldn't really take our space well first. We kind of accomplished our growth at the same time, there were no really new meaningful entrances to our space. So the marketing is not -- the growth is not strategically important, it's basically saying on overall shareholder value. So kind of shift that dollars to content, you're probably going to see. But we are going to kind of moderate it with the revenue growth. But our goal, as we always said, in the future, is to have, roughly, the amortizations similar to our spend, what we spend on the content. But this may be still a couple of years.

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Eric Christian Wold, B. Riley FBR, Inc., Research Division - Senior Equity Analyst [29]

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And I apologize, the last question. So what was -- I'm sure it might be in the 10-K that was just filed. But what was the incremental spend last year on the campus? And what will be the kind of the final piece of that in Q1?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [30]

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If we look at all of what we spent last year on the campus, it's about $6 million, with another, maybe, $1 million to go in Q1 from the actual building perspective. And then, we'll have some TI work on the actual stage and studio equipment, and probably another $1 million range. And then, we'll be -- we should be good from there.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [31]

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And it will launch -- the first event would be in June. So obviously, we have to be done before that.

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Operator [32]

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Next, we'll hear from Steven Frankel with Dougherty.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [33]

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I wanted to go back to this 30% revenue growth goal. Does that include taking the entire of the DVD subscription revenue line to 0 beginning in Q1?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [34]

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If we move forward with our plans to discontinue and sell it, which it is looking like that's the way that we're going to go, that would be the intent. So we'd provide a restated number for revenue and gross margin representing that as discontinued operations in Q1.

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

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It's not going to make significant differences here.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [36]

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So again, so we should assume that you're going to grow the streaming business by 30% or better in '19? The streaming revenues?

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [37]

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'19 and '20, yes.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [38]

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Yes. And how should we think about ARPU rising through '19?

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

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Well, we're going to have more and more impact of $11.99 members as they come online, but that started in mid-January. So it will take some time to work through. But we're also going to have healthier lifetime values creating more tailwind there. So it will improve. Sadly, I don't have any specific guidance to provide for you. But if you think about the 20-ish percent increase in revenue that we picked up by changing from $9.95 to $11.99, that will work its way through over the year and probably be fully in in Q1 next year.

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

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And you're also going to have 2 other things. So if we discontinue the DVD subscription, there was $25 a month lag we're putting on this new All Access, which is $300, which is also about $25 a month, right? So there might be a little time lag. It's catching up. But overall, you should still have pretty much continuous improvement on the ARPU for this and next year.

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Steven Bruce Frankel, Dougherty & Company LLC, Research Division - Senior VP & Director of Research [41]

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Okay. And how much more room is there for gross margin improvement? You've obviously done a good job over the last 12 months.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [42]

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Yes. I think we're at the point now as we're transitioning to the sustainability phase that I wouldn't expect a decline from here because we'll start to have the impact of our media library investments rolling through that line as amortization. But for '19, we're targeting it to stay in that level. And then, it shouldn't move meaningfully one way or another, unless we change our content investment strategy from what we've been doing historically.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [43]

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You're going to have -- we have something, internally, what we call a gross profit contribution -- I mean, cash contribution on that level, which is about 91%, which is like our gross profit minus noncash from the library, plus the cost of credit card and stuff like that, what we can directly contribute there, and that's about 91%. I expect that 91% number can increase, because our cost of streaming, because we have more leverage, will decline. So our cash contribution will do. However, as Paul said, our amortization, as we kind of start to invest more, probably increase to offset that. So you kind of assume that we will stay as a reported gross profit on that 87% level, while our cash contribution will increase to 91%, where we are right now.

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Operator [44]

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(Operator Instructions).

We will now hear from Peter Rabover with Artko Capital.

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Peter Rabover, Artko Capital - Analyst [45]

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Could you just -- it hasn't been that long since the last call. And you guys were pretty confident in your strategy just 3 or 4 months ago. So I'm just kind of curious if you could take us through what happened to have this big shift from then to now? So -- and I have a couple more questions after that.

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [46]

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As we kind of said in the remarks, we -- actually, when we finished the third quarter, we were still -- when we reported, we were still intent to grow as we had. And we're still confident we could go that way and keep growing another year at 60%. But there was a response from the overall market when you kind of see that all the high-growth company took a big hit, and there was more focus on capital and cash flows. And we kind of saw it in our market. We heard it from, I believe, our shareholders when we talk, all the people who get meaningful what they think in overall conclusion and we're discussing with our board a long time, and we decided it's probably since the original $1 million was set up mostly for to be immune to kind of new entrants market, and we're pretty much there, and we have enough in the purse of cash flow to be profitable now, on our existing things, so that we grow more.

We were planning to do this in 2020. So the question how much cash we want to burn until we get to sustainability. So once it was all decided, we're going to our -- keep some of the cash on the balance sheet and get to profitability faster than what we had before because that plan was set in 2015. And we felt that with the condition of the market of different companies, and the condition of competition, that we could keep the cash. And if anything, keep invested more in the retention side, which means feed with the content than the acquisition early. It's just efficiency of the capital. So we were evaluating what it will bring to shareholder value, overall. Do we go faster? Or do we keep the cash and be safer, and this was what was decided.

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Peter Rabover, Artko Capital - Analyst [47]

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Okay. So you had a 40% pretax margin number for 2021. Are the economics still the same for -- should we lower our expectations on those numbers? And how do we think about that?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [48]

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That's really -- it's not -- you have to look what the revenue is. So it will be -- we're roughly in the same revenues. We actually probably get the margin sooner because the increase of the acquisition ratio from -- to 3 -- 3:1 to 3.5:1, but you have to look at revenue rather than years.

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Peter Rabover, Artko Capital - Analyst [49]

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Well, no. No. I understand. But is that still a long-term feasible goal? Or is that something that burst out for a few more years because you're planning to have even less subscribers? Just to lever us with a higher price, but less subscribers. Then, I'm trying to figure out whether that's still feasible?

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

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We're not planning to really kind of make some future-looking statements here. But roughly, on the same revenue, we will make the same margin. That doesn't fundamentally change.

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Peter Rabover, Artko Capital - Analyst [51]

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Okay. And what's the -- I guess, as of 12/31, what's your fixed cost run rate, I guess, outside of acquisitions -- acquisition of customers? What's your kind of cash run rate? Or be it, I guess, the G&A aspect of it?

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

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You mean where we are today?

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Peter Rabover, Artko Capital - Analyst [53]

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Yes.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [54]

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Is that the question? Yes. We've actually slipped to a place where we can -- with the cash flows generated each period, if we didn't spend a dollar on marketing and growth, we would be able to be self-sustaining, which is obviously not feasible to continue to grow and not spend any marketing dollars. But we've already crossed that threshold today.

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Peter Rabover, Artko Capital - Analyst [55]

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Right. But what's the annual run rate number? Do you have that?

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

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Just give me a minute, I just have to pull it together here real quick. So if we look at Q4 as the run -- yes? Go ahead.

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Peter Rabover, Artko Capital - Analyst [57]

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No. No. No. I'm just trying to ascertain what the margin -- I guess, the marginal contribution of the 30% growth will be? And I don't know if that's the correct way to think about it, but just trying to -- if there's a different way to think about it, I'm more than happy to hear it. But I think that's the best way to think about it.

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Paul C. Tarell, Gaia, Inc. - CFO & Secretary [58]

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So Jirka, remind me, we're not making any future-looking statements? But if I looked at what I provided in my script, you could see that we spent about $8 million on a GAAP basis in Q4 on the expense side of the P&L. And if you look at the D&A, that's in that line, it's probably $1 million. So we're probably in the $7 million -- $6.8 million to $7 million rate for Q4. And with the slowdown in the growth rate, we don't expect to significantly change our headcount incrementally the way that we might have if we continued to grow at that 60-plus percent rate.

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

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Yes. We have -- last year, we have pretty significant increase. I mean, we still grew like half of our revenue, but on the people side. But this year, we pretty much have the stuff. And by June, we will need many more people. Obviously, let's say we would like to be profitable in 90 days, which we can, that will take adjusting our expense line. But with the 30% growth and get, as we said, EBITDA-positive in September, we don't have to do -- we still have, actually, pretty, like maybe 20 open hats. So we have -- I mean, to hire. So we don't have to do that if you want to conserve more cash. But we really want to keep growing this 30% plus clip going forward. So we want to -- we didn't -- we don't want to grow to more -- I think what we're doing right now, it's pretty safe and secure. We have a lot of upside here. So we want to kind of stick with this 30% plus growth rate, and we would really manage what we call gross profit per employee. As I said, that number increased 33% year to year from $243,000 last year to $322,000 gross profit per capita. That number will now significantly start to increase. If you look at compared to other companies, already very healthy numbers. And we will want to keep growing consistently like quarter-to-quarter.

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Peter Rabover, Artko Capital - Analyst [60]

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Okay. And I guess I'll ask a tougher question. I mean now that you're no longer planning on spending on the hyper growth mode, and you have cash on the balance sheet, does it -- since you no longer need to access capital markets, does it make sense to stay as a standalone public company?

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Jirka Rysavy, Gaia, Inc. - Founder, Chairman & CEO [61]

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Look, we look -- that question was more when we were spinning -- when we're selling GAIAM. And we've made -- we bought back -- we offered to buy back 50% of the company. That was the time to really look at this, and we did, permanently. And the decision was, in today's market, if you make an offer to take some -- take a company private, it's -- you're tied in kind of typically, so from legal firm who's specializing in this situation, you have a lot of headaches for the next 2 years. It -- to say that you never can say never, but it's nothing what we have in mind right now.

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Operator [62]

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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 [63]

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Well, thank you, everyone, and thanks for joining. And we look forward to speaking with you when we report the first quarter in early May.

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Operator [64]

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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.