Gaia, Inc Q1 FY2025 Earnings Call

Good afternoon. Welcome to Gaia's First Quarter 2025 Earnings Conference Call. Joining us today from Gaia are Jirka Rysavy, Executive Chairman; James Colquhoun, CEO; and Ned Preston, CFO. After the speakers' presentation, there will be a question-and-answer session. Before we begin, Gaia's management team would like to remind everyone that management's prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions, including, but not limited to statements of expectations, future events, or future financial performance. These statements do not guarantee future performance and therefore, undue reliance should not be placed upon them. Although we believe these expectations are reasonable, Gaia's management undertakes no obligation to revise any statements to reflect changes that occur after this call. Actual events or results can differ materially. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Gaia's latest annual report on Form 10-K filed with the SEC. All non-GAAP financial measures referenced in today's call are reconciled on the company's earnings press release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the time and date of this broadcast, May 12, 2025. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on Gaia's Investor Relations website at ir.gaia.com. I will now turn the call over to Gaia's Executive Chairman, Jirka Rysavy. Thank you. Go ahead.

Good afternoon, everyone. During the first quarter, we continued to deliver positive free cash flow and achieved double-digit growth. Revenue rose by 12%, and gross profit increased by 15%. Our gross margin improved to 87.8%, compared to 85.4% in the same quarter last year. For the rest of the year, we anticipate that gross margin will range between 86% and 87%. Earnings met expectations. Our member count grew to 867,000, and we are now concentrating on high lifetime value members. Our annualized gross profit per employee surpassed $800,000, up from $680,000 a year ago. Now, I will turn the call over to James.

Thank you, Jirka, and good afternoon, everyone. Q1 was a solid start to the year. We saw continued momentum from 2024 carry forward with double-digit revenue growth and significant margin expansion. We're also seeing very strong progress in the strategic pillars we outlined during our capital raise in February. Following the $8 million offering, we've accelerated development of our generative AI product and the Gaia Community platform. On the AI side, we are on track to launch Gaia's conscious AI companion on or before our next scheduled price increase in early 2026. Early internal testing has been exceptional, and recent research from Harvard shows that discovering one's purpose is now the third most common use case for generative AI, and it's exactly the niche that Gaia is built to serve, and we believe the product market fit here could be profound. As we look to the future, Gaia is fully embracing an AI-first strategy, joining a growing number of companies like Duolingo, Google, Meta, and Canva that are rearchitecting their businesses around generative AI. These companies are demonstrating how AI can streamline operations, reduce costs, and significantly boost productivity across functions. And for Gaia, this shift is not just about enhancing the user experience that remains a key priority; it's also about building a leaner, more agile organization that can scale intelligently. By integrating AI into our content management, localization, and member engagement workflows, we expect to increase speed to market, reduce manual overhead, and optimize how our teams operate. These efficiencies will allow us to reallocate resources to our areas of highest impact such as community building, experiential offerings, and our conscious content development, whilst also delivering greater value to shareholders and members alike. In the coming quarters, you'll see us focus on optimizing marketing using AI, personalized content discovery with recommendations, and enhanced member support using intelligent systems. These investments are designed not only to support long-term ARPU growth but also to expand gross profit per employee, making Gaia a more resilient, scalable business as we continue our mission to serve the global conscious community. On the community front, we've made meaningful progress in building our infrastructure and preparing for international meet-ups and chapter-based engagement. Community is the final differentiator for Gaia and will set us apart from every other streaming service in the market and build the network effect around our content ecosystem. During Q1, Gaia marketplace revenue was lower compared to our expectations, which led to us missing revenue by approximately 1%. However, this did not affect our earnings or free cash flow. This was primarily due to a U.S. Level 3 travel advisory for Egypt issued in October 2024, and Intrepid Travel has reported a 30% decline in bookings, and tourist travel overall is hovering around just 45% of pre-conflict levels. Because we were heavily weighted on Egypt trips in the first half of the year, this impacted our performance in that business line. We've since pivoted. In Q2, we launched a Peru-based tour that has already sold out. We have additional inventory coming online later this year. And while Q2 may remain softer than we had originally anticipated on the marketplace side, we expect to perform in line with expectation for marketplace revenue in the back half of the year. Despite this, the core business continues to grow meaningfully as we scale towards our next milestones with strong member retention and an expanding Gaia+ base and continued top-line growth. We are well positioned for the year ahead. During our recent Board discussions, we explored a number of high-impact growth accelerators across both Gaia and Igniton. These include deeper content and technology licensing opportunities and expanded strategic partnerships. After careful reflection, I've decided to take on this mandate full-time in the role of Chief Business Development Officer. In order to fully pursue these growth opportunities, I'll be transitioning the CEO role to our President, Kiersten Medvedich, effective at the end of Q2, and she will be on the next earnings call. Kiersten has been with Gaia for 9 years, has an esteemed background in content with Sony Television and has been instrumental in scaling operations and delivering consistent performance across the business. I have complete confidence in her ability to lead Gaia through its next phase. Additionally, given our audience is over 70% female, this leadership evolution is in alignment with our growing global community and mission. This change will allow me to dedicate my focus to unlocking the next level of expansion across both businesses and add the most meaningful value to the mission and organization. I look forward to continuing to support the leadership team in my new capacity and to helping realize the full potential of Gaia and Igniton. Now I'll pass over to Ned for the financials.

Thank you, James. For Q1 2025, Gaia delivered revenue of $23.8 million, up $2.5 million or 12% year-over-year. Gross profit increased 15% to $20.9 million, up from $18.2 million in Q1 of 2024. And our gross margin expanded to 87.8%, up from 85.4%. EPS improved $0.01 from Q1 last year to a net loss of negative $0.04 per share. Operating cash flow for the quarter was $1.3 million and free cash flow was $0.7 million. Our cash balance at quarter end was $13.1 million, and our $10 million credit line remains fully available. In February, we also closed an underwritten offering of $8 million of common stock, raising approximately $7.0 million in net proceeds, which are now being allocated to AI development and Gaia Community initiatives. We continue to manage costs carefully and maintain healthy margins while investing in the strategic areas that will create long-term value for our shareholders. With that, we'll open the call for questions.

First question, Mark Argento with Lake Street. Let's go to James Sidoti with Sidoti & Company.

This is Alex on for James. First question, maybe we could just get a quick update on Igniton. So is the launch of that still tracking as expected?

We're going to introduce the brand at the Biohacking Conference at the end of this month, and it will start to be available, but we plan to launch it to the market after the July 4.

Okay. Great. And then maybe just on the CEO transition. Did I hear right a transition at the end of Q2?

Yes, that's correct. So at the end of Q2, Kiersten Medvedich will step into the CEO role. And as I mentioned, I'll be focusing on some of these high-level licensing opportunities, which I think have enormous potential to expand Gaia's not only revenue but also perception in the market.

Okay. And so Jirka is kind of still staying in a Chairman role, and any other changes anticipated to the management and the Board there?

No. The Board will stay pretty much the same. The same is the management team. So it was just a change we talked about for a while. It's something that will expand the kind of coverage of what we do.

Next question, Mark Argento with Lake Street.

I just wanted to build on a little bit on AI. James, you mentioned AI being a game changer potentially for you guys. Can you talk a little bit more? Is it going to be an app that you guys are going to be launching? Or maybe talk a little bit more on how you see AI specifically rolling out on the platform?

Sure. Thanks, Mark. With regard to AI and our product, we're seeing it as an expansion of our current product line. So our members will be able to interact with a generative AI within our current product, whether that's on the web or within the app. And so if you're a user and you're watching content in the future, imagine that you'll not only be able to interact with the community online with the technology features we're building out, but additionally, with the AI, you'll be able to query some of the content deeper from the platform and have a conversational connection with this generative model that we'll be training on our dataset and using that to give our members another interaction point with the brand and to help them stay on the platform longer and have a deeper interaction with our product.

Great. And have you guys been striking any deals with any of the large hyperscalers to use any of your content at this point?

Not at this stage, Mark. I mean it's something that we're talking about content licensing. We're discussing technology licensing for the Gaia and Igniton businesses. And as these discussions have evolved, it's something that I have a personal interest in exploring, and I think it could have a meaningful impact on the business. I think when we talk about content and technology licensing, there's a broad array of opportunities for us there. So I wouldn't target on one in particular. But this is something I'll be getting into and looking to create a meaningful impact on the business, not only in terms of revenue, but also in terms of market cap and our presence in the marketplace.

Got it. And just one more from me. It seems that the community is still a key area of focus. Where do you currently stand with the platform regarding new content or programs? Additionally, how are you allocating your budget, and what initiatives are you pursuing to develop the community to meet your goals?

Yes. So we've obviously been starting on the development side in terms of securing technology partners and building out the team here internally in order to be able to execute on this. We anticipate having an alpha to test in the latter part of this year or even sooner and aiming to launch it once we do a beta as soon as possible. As I've mentioned previously in my earnings transcript here at the top of the call, this is the key differentiator we have as a brand, and it's something that we're all hands on deck in terms of not only the technology build-out but also how we introduce this to the market and to our community.

Yes, I expect the current plan is to launch it at the end of the first quarter next year, but it's plus/minus a few months.

Great. And then last one, James, are you going to spend any time with investors still? Or how are you going to split your time now in your new role?

So as a shareholder myself, as you've probably seen from the filings, Mark, I'm in the same boat as many of our investors, and I want to see that the company continues to evolve, not only in terms of execution on mission but also in terms of scaling our market cap and our visibility as a public company. So I'll be supporting Kiersten and Ned as much as possible and looking forward to staying in touch with all of our investors and hopefully seeing you at your conference as well later this year.

Next question comes from George Kelly with ROTH Capital Partners.

First, I was wondering if you could expand on something I think I heard in your prepared remarks, just commentary around Q2 maybe being a little bit softer than you had hoped. Did I hear that right? And is it marketplace? Or is there some other dynamic that has impacted your Q2 results?

Yes, that's correct. As I mentioned in my prepared remarks, the marketplace was a bit softer in Q1, which affected us by about 1%. We expect something similar in Q2 for the marketplace due to extra inventory for Egypt in the first half of this year. However, we've shifted our focus to increasing our Peru inventory for the latter half of this year, and we're maintaining our internal projections for the marketplace for Q3 and Q4. This is a new business unit that we only launched in August last year, so predicting seasonality variations can be challenging, especially with regional conflict issues causing some fluctuations. It's a minor impact on our top line, and there will be no effect on Q1 regarding EPS and free cash flow.

Okay. So there's no broadening. Your commentary around Q2 is really just about marketplace.

That's correct. The core business continues to perform in line with expectations, and it's just marketplace variance for Q1 and Q2 of this year.

Okay. Understood. And then, James, another question on the transition. I guess I'm curious that this licensing opportunity and then it sounds like maybe you're considering a different approach to the hyperscaler license opportunity. I guess where do you see the most opportunity around licensing? And will a lot of your time now be focused on Igniton as well?

Yes, George, how we look at it is that, in particular, after this previous Board meeting, there was a lot of discussions around licensing opportunities on the media side for Gaia and then on the technology side for Igniton. I think one thing we've been clear on with regards to Igniton is that although we have supplements as our first product line, this is first and foremost, a quantum technology company. And by having some focus on licensing that technology, it will help to expand the aperture of that business's potential. And so that's something that I'm very interested in being involved with. On the media side, in terms of Gaia, there are some opportunities, like you mentioned, that have been discussed, and there's also alternate media licensing opportunities that we're exploring. These require a reasonably dedicated approach, and it's something that I have a deep interest in, and I think could have enormous value to the organization. And given Kiersten's proximity to my role and capacity to be able to support the organization by taking that in a short-term basis at the end of Q2, it gives me the freedom to focus fully on these opportunities and bring them to fruition.

Okay. That's helpful. And then maybe just one more quick one. The business that you discontinued in the quarter, can you remind me just on the accounting treatment? Is that revenue excluded for the whole quarter? And then the second part of the question is, how much revenue did that business contribute to 4Q?

Yes. George, it's Ned. So that represented $1.2 million of revenue last year, and that has been removed. You'll see on our 10-Q a line of discontinued business from here. And so I can help you get to the apples-to-apples, but it was $1.2 million from last year, and you'll see a line in our 10-Q that outlines that removal here in Q1.

At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Jirka Rysavy for his closing remarks.

Well, thank you, everyone, for joining, and we look forward to speaking with you when we report our second quarter in early August. Thank you.

Thank you for joining us today for Gaia's First Quarter 2025 Earnings Conference Call. You may now disconnect your lines.