Earnings Call Transcript - GAIA Q4 2025

Operator, Operator

Good afternoon. Welcome to Gaia's Fourth Quarter 2025 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, expectations of future events or 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 referenced in today's call are reconciled in 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, March 2, 2026. 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 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. Our first quarter was a good one. Our revenue increased to $25.5 million with a gross margin of 87.6%, which was above the 87.1% average for the year. Free cash flow increased $1.1 million to $1.7 million, and our member count reached first time over 900,000. Revenue for the year grew 11% to $99 million, driven by increased member count and higher ARPU. Gross margin for the year improved 100 basis points to 87.1% from 86.1%. Our gross profit per employee increased to $827,000 from $730,000 during last year. Our free cash flow grew $2.2 million to $4.9 million. Our cash position end of the year improved to $13.5 million from $5.9 million a year ago. And Kiersten will now speak about business.

Kiersten Medvedich, CEO

Thank you, Jirka. Good afternoon, everyone. The past quarter marked an important milestone in Gaia's evolution as we continue building on our strong SVOD foundation while advancing toward a more integrated AI platform. We delivered a strong fourth quarter, growing revenue to $25.5 million and exiting the year at an annualized run rate of approximately $100 million. Subscriber growth for the quarter remained solid, adding 20,000 members. For the year, we generated approximately $5 million in free cash flow and operating efficiency continued to improve with gross profit per employee increasing to $825,000, up from $730,000 last year. With disciplined management of operating expenses, we see a clear path to profitability in 2026. Now before moving forward, I would like to briefly address a leadership update. In January, James Colquhoun's contract reached its conclusion, and we have transitioned his responsibilities to our new Chief Operating Officer, Yonathan Nuta. Yon previously spent over 5 years in executive leadership roles at Gaia from 2016 to 2021 before rejoining the company. He also served as Chief Product Officer at Babylon and Fabric, bringing additional operational and product leadership experience to Gaia. With the leadership transition complete, we are focused on execution and building momentum across the business. Moving forward, our direct channel remains central to our progress. Approximately 2/3 of our direct members have been with Gaia for more than 1 year, and that percentage continues to increase. That level of loyalty speaks to the strength of our community and supports long-term lifetime value expansion. With continued investment in AI and community, the direct platform delivers a differentiated experience, driving double retention and approximately double the revenue per member compared to third-party distribution. This directly shapes our distribution strategy. Third-party platforms simply do not support the AI and community capabilities that define the next phase of Gaia. And as a result, we are intentionally concentrating our capital and innovation focus on our direct platform. Subscriber growth remains important. However, as this strategy progresses, beginning this quarter, we will no longer report total subscriber count as a primary metric. As our business matures, we believe revenue growth, free cash flow, lifetime value, and earnings provide a clear reflection of the health of our model consistent with broader SVOD industry trends. Importantly, this strategic focus is translating into financial performance, and we expect to achieve profitability in the fourth quarter this year. With high gross margins and continued operating discipline, incremental revenue is increasingly flowing through to the bottom line, positioning Gaia for sustained profitability and long-term value creation. This year, we will continue to integrate AI across the business. AI is now embedded across major functions from our code base to content production and creative workflows, improving speed, scalability, and efficiency. This is reflected in our continued improvement in gross profit per employee. Late last year, we launched a beta version of our AI Guide to direct members, generating more than 2 million prompts in its first 60 days. Early engagement data showed deeper session activity and increased repeat usage following interaction with the feature. Although still early, these trends reinforce our view that combining purpose-built AI with our predominantly exclusive content library enhances the direct member experience. Now as rollout expands, we are extending AI-driven capabilities, including personalized onboarding, intelligent recommendations, enhanced search, and contextual guidance, further strengthening engagement and long-term value for members. Given the strength of our direct member relationships and engagement trends, we are implementing a price increase that begins this quarter and will roll out progressively throughout the year. We are approaching this thoughtfully, and churn patterns are tracking favorably relative to the prior price increase. In closing, 2026 represents an important year for Gaia. We're entering it from a position of financial strength, strong performance, and a clear commitment to our members. We are staying focused on the steady progress as we build a stronger company for the long term. Now over to Ned for the financial details.

Ned Preston, CFO

Thank you, Kiersten. Revenues for the fourth quarter of 2025 rose to $25.5 million from $24.1 million in the fourth quarter of 2024, mainly due to growth in our member base and an increase in ARPU. Gross profit for the fourth quarter grew to $22.3 million from $21.3 million in the same quarter last year. The gross margin was 87.6% for the fourth quarter. The net loss improved to $0.5 million or $0.02 per share, compared to a net loss of $0.8 million or $0.03 per share a year ago. Operating cash flow was $1.8 million for the fourth quarter, and free cash flow increased by $1.1 million year-over-year to $1.7 million, marking the eighth consecutive quarter of positive free cash flow. Regarding the full year 2025 financial results, revenue for the year totaled $99.0 million, up from $89.3 million in 2024, representing an 11% growth year-over-year. Gross profit rose to $86.2 million from $76.9 million in 2024, with gross margin increasing to 87.1% from 86.1%. We anticipate gross margin to remain at this level for fiscal year 2026. The loss for the year was $4.5 million or $0.18 per share compared to a loss of $5.2 million or $0.22 per share in 2024, alongside increased marketing expenditure and amortization, and an operating cash flow of $5.7 million. Free cash flow improved by $2.2 million to $4.9 million from $2.7 million in the previous year, demonstrating ongoing operational discipline. Our cash balance grew to $13.5 million as of December 31, 2025, up from $5.9 million a year earlier, with a fully available $10 million line of credit. The company's financial position is strengthening with double-digit revenue growth, improving margins, and an increasing cash balance through accelerating cash flow generation. We achieved all of this with no debt beyond our campus mortgage, for which we finalized a new five-year extension in December. In summary, Gaia has a strengthening balance sheet. We continue to manage costs wisely and maintain healthy margins while investing in strategic areas that will create long-term value for our shareholders. That concludes my summary. I will now turn the call back over to Jirka for his closing comments.

Jirka Rysavy, Chairman

For a summary, in this year, we expect a similar annual revenue growth rate as we just had with continuing growth of ARPU and focus on direct member, increasing gross profit per employee, and continued generation of positive cash flow. This concludes our remarks. So I would like to open the call for questions. Operator, please?

Operator, Operator

Our first question comes from Ryan Meyers with Lake Street Capital.

Ryan Meyers, Analyst

Kiersten, congratulations on the outstanding quarter and successfully achieving both ARPU and member growth. Regarding the member growth you've experienced, could you discuss your customers' willingness and ability to pay the higher prices as you implement the price increases that took place in the fourth quarter? Additionally, how are you approaching this in 2026?

Kiersten Medvedich, CEO

Sure. Well, our member growth in Q4 was driven by strong execution and typical seasonal strength within our core SVOD business. And as far as our price increase, we are delivering more value to our members between rolling out our AI Guide and a very strong content slate and our AI personalization. So as the price increase, we already rolled it out this quarter, and we're already seeing lower churn compared to last year or the previous price increase.

Ryan Meyers, Analyst

Got it. As we consider 2026 and the initiatives you have in place, Igniton is clearly one of those. How should we think about the potential for monetization? Additionally, how are you approaching the expectation of double-digit growth in 2026? Can you elaborate on the balance regarding ARPU? I understand that you won't be providing member growth or member numbers anymore, but could you explain the double-digit growth rate for us in 2026 and what we should keep an eye on?

Ned Preston, CFO

Yes. Ryan, it's Ned. So for 2026, our growth will really be coming mostly from our core business. So in regards to the price increase, our shift to more of a direct member base as well as just general momentum that we have. That will be the driver, and we'll be watching ARPU quite closely. We will, on top of that, have some of these new business initiatives. You just mentioned Igniton, but we have some others that will add, and we've given some numbers in the past. But really at this point, on a nearly $100 million revenue business, those are not material yet. The majority of our growth will come from our core business.

Jirka Rysavy, Chairman

On the question about Igniton, it generated $3.2 million in 2025. We introduced the Igniton products in the latter half of the year, and it benefitted from Photonics. It is expected to grow, and while I cannot specify the pace, it is likely to grow faster than our core business. That concludes the questions.

Operator, Operator

The next question comes from the line of George Kelly with ROTH Capital Partners.

George Kelly, Analyst

First, just wanted to make sure I didn't miss something. Did you reiterate the guidance for double-digit revenue growth in 2026?

Ned Preston, CFO

Yes. George, it's Ned. Yes, that's correct. We are reiterating the numbers that you have for 2026. No changes there.

Jirka Rysavy, Chairman

What I said in the call will be roughly the same as this year.

George Kelly, Analyst

And then how much pricing are you taking?

Ned Preston, CFO

So we're between 14% and 17% price increases. And again, that's to all new customers and to all existing customers in opt-out countries, similar to what we did in October of 2024.

George Kelly, Analyst

Okay. And then a couple of other questions for me. AI licensing, I was wondering if you could give any detail just on the status, if that's still something you're contemplating? And if so, what's the expected timing and materiality of any of those potential AI licensing deals?

Ned Preston, CFO

Yes. So that really didn't factor in, in Q4. We're really still at the beginning stages of our AI and content licensing efforts. We're still going down that path, and we anticipate maybe a small pickup. But again, these are onetime nonrecurring revenue streams. And anything that would hit here in 2026 would really drive a little bit of upside. The numbers that we've reiterated to you are really our core business, and we're not reliant on those really nonmaterial numbers from licensing. So nothing yet. It's not something that we're going to stop pursuing, but it's not something that we're dependent on either.

George Kelly, Analyst

Okay. The last question I have is about the community. I was wondering if you could go to the mailback. Can you hear me?

Kiersten Medvedich, CEO

Can you repeat that question?

George Kelly, Analyst

Yes. Sorry about that. So community. Can you give more detail just about the sort of timing of different community initiatives and what you're most excited about, I guess, with respect to the community offering in 2026?

Kiersten Medvedich, CEO

Okay. So for community, we remain on track to launch the community experience later this year, and I will be very, very excited to talk about it when we're closer to launch. But right now, we're still building it.

Jirka Rysavy, Chairman

It's kind of closer to that means we might do the different tests, but actual launching is closer to the end of the year.

Operator, Operator

The next question comes from James Sidoti with Sidoti & Company.

James Sidoti, Analyst

Can you give us a sense on what percentage of your 900,000 subscribers are third-party subscribers and what the plan is to convert those subscribers to direct subscribers?

Ned Preston, CFO

Yes. Jim, it's Ned. So really, we have shared that in the past. I think we've talked about trying to limit that to 20% from a number of third-party members as well as revenue attribution. So we'll work towards bringing that down a couple of percentage points to Kiersten's earlier points around a focus on first party. So for 2025, it was around that 20% level, and we'll take it from there going forward.

James Sidoti, Analyst

Okay. And do you have specific things you can do to convert that 20% to direct members? And can you give us a sense on how you can accomplish that?

Jirka Rysavy, Chairman

We're not planning to per se actively convert a lot. We'll convert some percentage. But I think it's a valid channel. We just need to focus on marketing on our direct channel.

Kiersten Medvedich, CEO

Yes. And we'll be coming out with really strong brand campaigns this year to let the broader audience know what the value prop is for coming to Gaia as a direct member.

James Sidoti, Analyst

And it sounds like you expect to continue to be free cash flow positive. Any plans for that cash? Are there acquisition targets out there? Do you plan to share buyback? Can you share what your plans are for that?

Ned Preston, CFO

Yes. So Jim, just to be clear, our plan is to continue to be free cash flow positive. We've been free cash flow positive the last 8 quarters. But what Kiersten shared earlier is for us to be P&L positive by Q4 of this year and really not to comment on any of those other specifics. We have a strong business model with our SVOD business. We are rolling out some of these new strategic initiatives, but not really ready to comment on any sort of acquisition or other elements at this time.

Operator, Operator

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

Jirka Rysavy, Chairman

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

Operator, Operator

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