Earnings Call Transcript - GAIA Q1 2026

Operator, Operator

Good afternoon. Welcome to Gaia's First Quarter 2026 Earnings Conference Call. Joining us today from Gaia are Jirka Rysavy, Chairman; Kiersten Medvedich, CEO; and Ned Preston, CFO. 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 management undertakes no obligation to revise any statements to reflect changes that occur after this call. Actual events or results could 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 represented in today's call are reconcilable in the company's earnings release to the most directly comparable GAAP measure. This call also contains time-sensitive information that is accurate only as of the timing date of this broadcast, May 4, 2026. Finally, I'd like to remind everyone that the conference call is being webcast, and a recording of this will be made available for replay on Gaia's Investor Relations website at ir.gaia.com. At this time, I'd like to turn the call over to Gaia's Chairman, Jirka Rysavy. Please go ahead.

Jirka Rysavy, Chairman

Good afternoon, everyone. This first quarter marked the beginning of our deliberate refocus back to a direct member base and pricing discipline. In March, the 15% price increase was implemented in about 80% of our regions for monthly members. For our annual members, the increase will be effective with a subscription renewal. During the first quarter, we delivered $1.5 million of operating cash flow and $1.1 million of free cash flow. Now Kiersten will tell you about our plan to improve both our retention and ARPU at least 20% between the fourth quarter of last year and the fourth quarter of this year. Kiersten?

Kiersten Medvedich, CEO

Thank you, Jirka. This quarter reflects an important step in Gaia's evolution as we continue to execute on a strategy centered on strengthening the quality, durability and profitability of our membership base. After three quarters in the CEO role, I have a clear view of where Gaia's greatest opportunity lies, and I am confident the strongest path forward is to prioritize our direct relationship with members where we can deliver the full Gaia experience, deepen engagement and capture the greatest lifetime value from our content, technology and brand. Over the past several years, there was a meaningful focus on driving subscriber growth from third-party platforms, supported by increased marketing spend and lower CPAs in those channels. While that supported top-line growth, those members generated lower ARPU, experienced higher churn and do not have access to the core features that we believe will define Gaia's future. In addition, because those relationships sit with the platforms rather than with Gaia, we do not know who those subscribers are and have no ability to engage them directly. That is why we are prioritizing growth in direct memberships where we can deliver the full Gaia experience and drive stronger long-term economics. As a reflection of that focus, for the fourth quarter of 2026 compared with the fourth quarter of 2025, Gaia is targeting an approximate 20% reduction in churn and a 20% to 25% increase in ARPU. As a result, we are making deliberate changes to how we grow, specifically: one, reducing our reliance on lower-value third-party member acquisition; two, taking a very disciplined approach to discounting and promotions; and three, rebuilding our direct marketing capabilities with new leadership and partners, including our recently appointed CMO, Tracy Benson, who has decades of experience scaling iconic consumer brands and high-growth companies. We also recently onboarded new agency partners across paid media and brand. These actions are intentional, and they come with a trade-off. We expect near-term pressure on revenue growth as we make this transition while still expecting growth versus last year. We are doing this because we believe these changes will materially improve the long-term economics of the business. To date, our average member lifetime value exceeds $500 before reflecting the impact of our recent price increase. This is six times our current CPA of $85. We believe this is the metric that matters. Growing a high-value direct member base requires a more deliberate approach, one built on brand strength, marketing efficiency, retention and member experience, and we are giving the organization the time and focus needed to execute that transition. What gives us confidence is the strength of our existing direct member base. I have mentioned this before: approximately 70% of our direct members have been with Gaia for more than one year, and about 40% have been with us for more than three years. This level of loyalty reinforces our belief that the direct model supports a more enduring and more valuable business over time. This is also reflected in the broader recognition of our platform. Gaia was recently ranked the #2 Mindfulness and Wellness App by Newsweek, which we believe speaks to the strength of our content, brand and member experience. At the same time, we continue to invest in the core elements that define the Gaia experience: content, AI, personalization and community. We continue to strengthen our content slate with programming that is closely aligned with the Gaia brand and the interests of our audience. Recent releases include The Monroe Institute Experience, the fourth season of Missing Links with Gregg Braden, and we recently launched a new monthly live format that enables members to engage directly with their favorite Gaia hosts in real time. Additionally, Q1 has shown meaningful product improvements across our core engagement-driving initiatives. These improvements are rolled out slowly and deliberately to make sure these changes are supportive of our goals. On the AI side, we have improved our model meaningfully, reducing our costs and improving the quality of responses. We are also launching AI-powered tarot and astrology features, giving members more reasons to engage with Gaia on a daily basis. All these improvements help reinforce our direct member experience. Turning to Igniton, we're excited that Erica will be interviewed by Dave Asprey at the Biohacking Conference on May 28. We believe this is an important opportunity for Erica to discuss the Igniton technology and broaden awareness of the brand. To support our top-of-funnel Gaia marketing efforts, we have partnered with Amagi with the launch of FAST channels, allowing us to introduce Gaia to new audiences through curated content experiences. We view this as a brand-building and discovery channel that ultimately drives users back to our direct platform for access to a broader offering. As we said last quarter, our goal remains to reach breakeven in the fourth quarter of this year and be profitable for the year 2027. We believe the actions we are taking today are strengthening the foundation of the business in support of that objective. Stepping back, we see Gaia as the intersection of several long-term shifts. More people are seeking content that supports growth, meaning and transformation. At the same time, they expect more personalized, interactive and connected community experiences. We believe Gaia is uniquely positioned at that intersection. Gaia has always been for people who see the world differently, people asking deeper questions and seeking greater meanings. Our role is to help them find their why and support them on their journey. When we look ahead, we see a clear opportunity to build a stronger company, one defined not just by growth, but by quality, engagement and durability. The choices we are making today reflect that focus, and we believe they will drive more meaningful long-term value for both our members and our shareholders. Now over to Ned for the financial details.

Ned Preston, CFO

Thank you, Kiersten. Revenues for the first quarter of 2026 increased to $24.3 million from $23.8 million in the first quarter of 2025, primarily driven by increased ARPU and partially offset by the reduction of discounted pricing. Gross profit in the first quarter was $20.9 million, unchanged from last year; gross margin was 86%. Due to the initiatives Kiersten discussed, net loss was $1.3 million or negative $0.05 per share compared to a net loss of $1 million or negative $0.04 per share in the year-ago quarter. Our annualized gross profit per employee increased to $816,000, up from $806,000 in the year-ago quarter, driving further improvements in our free cash flow. Operating cash flow was $1.5 million with free cash flow of $1.1 million, reflecting ongoing operational discipline and representing the ninth consecutive quarter of positive free cash flow. Our cash balance was $13.1 million as of March 31, 2026, aligned to the $13.1 million at the end of Q1 of 2025, with a fully available $10 million line of credit. As we navigate this transition, our focus remains on maintaining a strong financial foundation while investing in long-term value creation. We continue to operate with high margins, positive free cash flow and a solid balance sheet with no debt outside our small campus mortgage. While we anticipate near-term pressure on growth as we reposition the business, we believe our disciplined approach to cost management and capital allocation will drive improvement to our unit economics and profitability over time. This approach is illustrated in the pro forma revenue benchmark scenario included in our investor presentation available on our website. This analysis outlines our business model at $100 million, $150 million and $200 million in revenue. We were pleased to nearly reach the first milestone in 2025, finishing the year at $99 million in revenue and $15.8 million in adjusted EBITDA. We are now targeting our next milestone of $150 million in revenue and $39.3 million in adjusted EBITDA by 2029. That completes my summary. I'd now like to turn the call back over to Jirka for his closing comments.

Jirka Rysavy, Chairman

So this concludes our remarks. I'd like to open the call for questions. Operator?

Operator, Operator

Our first question today is coming from Ryan Meyers from Lake Street Capital Markets. Ryan, perhaps your phone is on mute?

Ryan Meyers, Analyst, Lake Street Capital Markets

Sorry about that. I was on mute. First one for me, as we think about this pivot here to the direct channel, why do you feel like now is the right time to make this switch and the emphasis here on direct?

Kiersten Medvedich, CEO

The timing reflects what we've learned over the past three quarters. When I stepped into the CEO role, the company already had a growth strategy in motion with a focus on third-party channels and discounted memberships. My role was to assess whether that strategy was still working, especially for the long term. As marketing commitments to those channels increased, the data showed that they were generating customers with higher churn and lower margins and that didn't support the full Gaia experience. At the same time, we are making important investments into AI products and community that are designed to deepen engagement and create more value for our direct members. Third-party members simply do not have access to those features of our platform. This is a disciplined decision based on data, customer behavior and our long-term mission. I believe now is the right time to focus our resources on higher-quality growth, stronger retention and better margins.

Ryan Meyers, Analyst, Lake Street Capital Markets

Okay. Makes sense. And then if we think back to last quarter, I know you guys did communicate low double-digit growth for FY '26. So based on everything that you had talked about, it sounds like we shouldn't be expecting low double-digit growth for this year. Any commentary that you can give us on what we could expect growth to be? It sounds like you guys do expect the business to grow year-on-year, but any color there would be helpful.

Ned Preston, CFO

Yes, Ryan. Our overarching theme is continued positive free cash flow and achieving that 20% to 25% ARPU increase by Q4 of this year. That will lead to our breakeven P&L for the fourth quarter and full-year 2027 profitability. We will see a short- to mid-term lull or kind of consistent revenue field for the next quarter or two with the second half of the year upticking to achieve that Q4 breakeven P&L.

Operator, Operator

Next question comes from Jim Sidoti from Sidoti & Company.

James Sidoti, Analyst, Sidoti & Company

Can you talk a little bit about gross margin? Why it was down over the quarter and where you expect it to be as you go through this transition?

Ned Preston, CFO

Jim, for Q1, gross margin was 86%. On paper, that does look as though it's down year-over-year. We did have a one-time true-up around royalties in Q1 of last year. When you normalize that, it was flat at exactly 86% gross margins. With that being said, we will see a small revenue mix shift from our non-SVOD business leading to a slight decline in our gross margin percentage as we proceed through the year. It makes sense that some of those businesses are growing at a slightly higher growth rate. I can go over that in more detail with all of you when we run through your models, but we're talking about a 2- to 3-point decline by the end of the year on gross margins. We'll still be running, as we go into 2027, back up around 86%.

James Sidoti, Analyst, Sidoti & Company

Okay. And can you break out was there a contribution from Igniton and some of your marketplace initiatives in the quarter?

Ned Preston, CFO

There were contributions. They were nonmaterial and on track to what we were expecting. That 86% for Q1 was on plan relative to them. The mix shift really isn't going into effect there as much as it will in Q2 through Q4.

James Sidoti, Analyst, Sidoti & Company

Okay. And I know you revised your top-line guidance, but did I hear you still expect to be profitable by the fourth quarter?

Ned Preston, CFO

That's correct. Yes.

Operator, Operator

Our next question today is coming from George Kelly from ROTH Capital Partners.