James Colquhoun and the CFO, Ned Preston. As always, we have 30 minutes. There should be time at the end for Q&A, so if you do have a question, you can type them into the Q&A screen at the bottom of the Q&A tab at the bottom of your screen. With that, it's all yours, Ned and James.
Thank you, Jim. Good afternoon. James Colquhoun here. By way of introduction, I came to this company through the sale of one of my companies, became a board member since 2020, audit committee member, and joined the executive team a little over a year and a half ago alongside my colleague here, Ned Preston.
Hi there. Good afternoon, everybody.
I'm going to kick off with some details about the company. Ned will follow with some financials, and then we'll open for a Q&A. At Gaia, really, our mission is to create a transformational network that empowers a global conscious community. We really believe there's a meta trend happening where people are expressing more of an interest in independent media, in media that uplifts them, mainstream media. We're seeing more and more people move away from that model.
We've been growing our community very successfully over a number of years and excited to keep that trend happening. As a company, we offer a recurring revenue stream model. We have a monthly membership and annual membership fee. You can see there are $13.99 and $119 a year. We also have a premium membership tier at $299 a year, circa 3x annual membership. And we cover content across three main categories. The first is Wellness, Yoga, and Meditation, which is really the company was built on this category. You may know a previous incarnation of this company called GAIAM, which I'll discuss in a minute. Then in the center of the category here, we have Personal Development, Spiritual Growth, and Transformation. And then we have Ancient History, Supernatural, and The Unexplained. So we serve this sort of aggregate of underserved niches.
Our core demographic is an avatar we like to call Celeste. She's a mid-50s-year-old woman, high disposable income, highly educated, has a lot of time on her hands. And she loves a lot of the teachers and content that we have on Gaia. If you see here, this is a little bit of the life cycle of the company. But I'll take your attention down to the very bottom area there. In 2016, we sold off our consumer packaged goods company, GAIAM, to Sequential Brands. And at that point, we used some of that cash to accelerate growth in the streaming business and to buy back some stock. And we've continued to accelerate and grow from that point on. On the content side, we have 10,000 titles across four languages: English, Spanish, French, and German. We have 85% gross margin.
Sorry, 85% content that we own is exclusive to Gaia. And we have 98% worldwide rights to that content, which gives us an incredible leverage to continue to expand globally. And we are also not a distributor per se because we own the vast majority of our content library. So that's on our balance sheet and as part of our exclusive IP. We have a 93% cash contribution and an 86% gross margin. So we have enormous leverage in the model. And we have 846,000 members globally in over 185 different countries around the world. In terms of TAM and addressable market, the category of content that we distribute is really part of a larger trend that's expanding. Obviously, we have global SVOD households that are expanding with the advent of streaming video on demand.
And then we have an increasing number of people that are interested in topics that we cover. We have a $5 million subscriber target. One of the things I like to think of is the previous businesses I built prior to coming to Gaia were in the health and wellness space. And I saw that industry from 2005 - 2007 had its infancy really be a very niche industry where there was juicing and gluten-free and vegan and paleo and detox and organics to really the peak of that cycle in 2018 where Whole Foods sold to Amazon. And what I'm seeing here in this aggregate of niches in Gaia's category is that we're at the beginning of a larger trend that we're seeing of people taking a broad interest in this aggregate of niche content that we have on the platform.
We're starting to see Joe Rogan talk about it. We're seeing Netflix cover a small amount of it. People continue to come to us because we have the deepest library and the largest aggregate number of teachers and experts and practices and content for them. You can see here a little bit of the ramp-up in revenue and members. Up until 2019, we were spending a vast majority of our revenue on growth. In doing so, we're obviously a negative EBITDA. In 2019, we made the decision to slow down the percentage of spend on growth from about 80% or more, 60%-80%, down to 40% so we could start to go EBITDA positive and cash positive. This was before COVID, and then we had the boom of COVID through those sort of two years.
If you look on the right, revenue 2021, 2022, 2023 was relatively stable. This year, we're projecting to close at around $90 million and then continue accelerating to around $100 million in 2025. You can see ARPU here and GP per employee. On the ARPU side, not only do we have this premium membership tier as a differentiator for other streamers, which includes live events and workshops at our campus here in Colorado, but it also includes Marketplace. This was an initiative we launched in Q3 of this year, August 5th. This is where our members will get access to retreats, courses, training programs, and physical products that we've curated. They get them at a 10% discount. We keep the revenue from that at 100% gross margin. That will also be driving up ARPU.
In 2025, we publish it on an annual basis. There'll be an update coming when we publish our full year results. We expect that that will continue to grow not only with the price increase, but also, which we've just implemented actually this quarter, Q4, for direct members, and also with Marketplace and also with the premium tier. GP per employee. We use this as a measure of the efficiency of our business model. We have circa 100 employees here at our headquarters generating what will be $90 million in revenue this year. We anticipate that we'll be able to continue to scale top-line revenue without any large incremental increases to any operating expenditure or the team. That will continue to give us leverage in the model. We anticipate that will grow to over $1 million GP per employee.
On the content side, one of the key differentiators we have as well in comparison to streaming is that not only do we own a lot of our content library, but in the latter part of this slide here, you'll see that there was some content we produced that released in 2014, and that cohort of content has had more viewership in 2023 than it did in 2014, which speaks to this idea that our members view equally new content and legacy content. Whereas if you look at the entertainment industry, and my first two films went to Netflix. I've done five of my own feature film projects. I know that industry quite well. A lot of the viewership in that entertainment industry really happens in the first six months to a year.
And so we have a much stronger legacy viewing pattern, which speaks to sort of a deeper retention story that we have with our member base as well. We've done this slide, so we'll jump through. Here we go. So earlier, I mentioned that we have 98% of the rights on our content. We have international rights for, which gives us a capacity to expand into foreign territories in a very efficient manner. We currently have dubbed versions of our library and site in Spanish, French, and German. And also, we have localized content that we've produced and/or signed in those territories. And we're currently around 35% international. And we expect that to continue to expand to around north of 50% within five years.
One of the secret sauces that we have as a company is that we've been able to grow to where we are today by spending a relatively small percentage of our annualized revenue on content. This is primarily driven by, I would say, three reasons. Number one is that we own our campus and studio facilities. So we have a 150,000 sq ft campus facility on 13 acres here just outside of Boulder, Colorado. Number two, because we produce most everything on site, we fly our talent into DIA. It's a 30-minute drive from the airport to our studio facilities. And this offers us an enormous efficiency. Really, with the third point is that our production team are on staff.
We're not beholden to any labor laws or strikes in relation to some of the production industry, which has been a bit of an issue bicoastally for many production houses. And with these three things combined, alongside, I would also say there's a natural pool that we have for talent wanting to be on Gaia. It helps them improve their personal brand in this category, sell more books, etc. So it's very easy for us to negotiate talent agreements. And all summed up, our cost per hour comes in at around $35,000 fully produced per hour. And Netflix is north of $10 million. So I think Ned will share some details. But we spend about 11%-13%, 14% of our revenue on content right now. We do anticipate that will increase a little bit over the years, but nothing north of 17%, 18%, 20%.
Then in terms of partnerships, so we have distribution with Roku, iOS, and Android. And if you have your iPhone or something out in front of you now, you can Google Gaia in the App Store. You'll see we have 128,000 ratings, five-star ratings. 4.8 is the rating. We also have third-party distribution on YouTube and Amazon and Xfinity and Comcast. And with Amazon, I think we have a Prime Video channel partnership in the U.S., Mexico, U.K., and soon to be Australia and New Zealand. And the feedback they give us, we had some of the team at our headquarters here the other week, is that we are the premium provider in this space by a long shot. And nobody aggregates the content and delivers on such a consistent basis as us.
With that being the case, we've been one of their top Prime Video channel partners, especially this year. Now, Ned is going to cover some of the financials, and then we'll have some time for a Q&A as well.
Yeah, perfect. Just a couple of three slides here by way of very brief introduction. My name is Ned Preston. I've been here for a year and a half at Gaia. I spent most of my almost 30-year career working for high-tech SaaS companies. And so when James and I started here, one of the things I started with, as you would expect as a CFO, were the financials.
When I started looking at P&L such as this and seeing gross margins north of 85% and cash contribution margin at almost mid-90%s and a recurring revenue stream, I thought, "Wow, this is like a SaaS model." Since we've come on board, we've really been talking with not only the investors with that in mind, but running the company as such, really making sure that we're focused on generating free cash flow over the last six consecutive quarters. As James and I always say, we're fierce defenders of margin, which at its core is what the SaaS model is all about. Briefly here, from a P&L standpoint, as you saw in an earlier graph, we have leveled off on revenues the last two years. In 2023, we finished the year at just over $80 million and 85% gross margins.
And then we're driving to an EBITDA of 12.5% and 16%. I'm sure a lot of you have seen the model that Jim Sidoti put out earlier this week and initiation coverage of Gaia. We're expecting to finish this year just north of $90 million. And that will represent 12% revenue growth with improving gross margins, EBITDA close to 14, and EBITDA margin growing. As I said before, one of the things that got James and I very excited when we came here was the opportunity ahead of us. And so again, referencing that initiation report that came out, you can kind of see next year directionally what we're looking at from a P&L standpoint. However, this is a pro forma. And we just want to kind of make sure people out there understand what's going on as we grow.
This comes back to the leverage that James mentioned earlier. We can continue to spend about 40%-42% of our revenue on marketing expenses and then keep our G&A and other expenditures relatively flat to slightly down as a percentage of revenue compared to what we're doing currently. With that leverage point, you can really see that we will be throwing off quite a bit of free cash flow in the years ahead. Then lastly, from a balance sheet standpoint, we feel very good about a strong balance sheet. We have over $4 million of cash, and that does not include access to an additional $10 million line of credit, which we have not been leaning into the last several quarters, but we have access to that.
We have a growing deferred revenue that is up over $5 million in the last year and a half, an indication of more of our monthly members moving to annual subscriptions. And one of the things that we like to point to not include in our balance sheet is kind of off-balance sheet items, that being our media library, which James commented on earlier, our member base of approximately 850,000 members, just with a pretty conservative $350 per member would be approximately $300 million. And then we're carrying about $18 million of NOLs. So with that, let me turn it back over to Jim, and we'll take some Q&A.
Great. So let's start off talking about the member base. With companies like Netflix or Apple TV, you see those subscription levels go up and down based on the next series that's coming out.
If Ted Lasso's out, you see a big surge, and then once the viewer's done, they tend to drop off. Do you have that going on with your videos?
So we see a little bit different. I'll speak probably to some data, and then I'll speak anecdotally. Anecdotally, so we have this live event center at our campus here. So some of our hit experts and series, they come here. We had six live events here this year, and when I speak to members, they typically say that they joined Gaia because they went through a life event. There was a chronic illness diagnosis, a midlife crisis, a death, or grief in their family, and they found it through some of the teachers and experts on the platform.
One lady here last weekend had been a member for eight years and came to an event and didn't realize we were just down the road, and she's from Denver, and she said she's been a huge raving fan of Gaia ever since. So people don't typically go onto the streets and say they love being a Paramount+ member or Netflix members. We have this different effect going on there. Additionally, I'd say that we have circa 2/3 of our member base plus one year and circa 1/3 plus three years. We see the retention curves on those member cohorts as very, very, very stable. It's almost as if once we get over that period of a year, the likelihood that they'll stay for three or more increases dramatically.
And so there is a different type of connection that our members tend to have with our content. And we see less of the unsubscribe and resubscribe things, this pattern that happens. We saw some data actually at an executive level yesterday that about 35% of, I'll have to double-check the data, sort of, churn and come back. And we have around half of that when we look at our data.
When I started working on the company, the thing that impressed me most was the ability to increase the revenue per member. And one of the ways you do that is the price increase. Can you go into specifics what that is and how this price increase differs from previous price increases?
Sure. So over the history of the company, we've only ever increased prices for new members, and then we grandfathered existing members on legacy pricing.
Now, with what's being termed as streamflation, customers are a lot more accustomed to price increases with their membership. We felt it was time for us to increase prices on our legacy member base. We offer membership in Euro, GBP, MXN, CAD, AUD, and NZD. We did price increases across those currencies. Euro and GBP went a little higher, and GBP in particular, because of the currency fluctuations. In the UK, we did a test price increase for legacy members. The price was increased by about 30%. We're seeing single-digit churn event from that. We're by far and above making the delta on that. Low single-digit churn. We're August, September, October, you go four months into that event. We've now increased prices on our core member base in USD, CAD, MXN for legacy members just in this quarter.
And we're low single-digit churn on a 17% price increase. So we're by far and above making the delta on this, which is going to contribute in part to our accelerating growth next year, from circa 12% to around 14% + what we're sort of tracking for internally. I think you have us a little lower than that. Mark's got us, other analysts have us around 14%. And then on top of that, we'll be growing the member base and also members upgrading to our premium tier and purchasing through our Marketplace initiative.
And that leads into my next question. When do you think the Marketplace initiative really starts to contribute to revenue?
Yeah. So I think the first comment here, I would say, is that one thing we're doing as a company is we're not about vanity revenue. So Ned mentioned this term, fierce defenders of margin.
We think having a high-margin business gives us the greatest opportunity to prove our leverage in the model. If Marketplace hypothetically does circa $5 million in sales next year, we would book around $1 million and keep on that at 100% gross margin. We see that it will incrementally add revenue to the business as we grow, and especially as we start to integrate the product experience with Marketplace a little deeper because a lot of our content is edutainment. It's educational and entertaining. People also want to take action after watching it. If you watch a movie on a streaming platform, you don't want to go buy something. There's a movie that we have, for instance, on grounding and earthing, which is this ancient technology of being barefoot on the ground. Then people want to go buy a grounding sheet.
And so it's this sort of niche connection that we're making and offering members this sort of conscious Costco discount membership for our Gaia members. That's not only another reason for members to stay sticky with the brand, but also an opportunity for them to meet with other members with these tours and travel that we have in Egypt and Peru and Costa Rica and so forth.
Right. What are the other ways you have to increase that revenue per viewer?
So I mean, price increase, Marketplace, premium tier. And then we have a subsidiary that we've raised some capital in in Q2 of this year. We raised $12 million of outside money. And I'll let Ned explain it a little further. I'll start whereby we'll be selling that in the Marketplace. We'll be selling it through practitioner distribution.
With that being offered to our member base, that also gives us an enormous opportunity to have a brand and a product that we own sold into our community as well.
Yeah. We started talking about a subsidiary as Igniton, I-G-N-I-T-O-N. People can go to www.igniton.com to learn more. We announced after Q2 and elaborated a little bit on our last earnings call whereby Gaia owns over 70% of the subsidiary. It really is not going to market until middle of next year. In the middle of 2025, in the June timeframe, we'll be releasing some supplements that have to do with cognition, longevity, and sleep. On that website, you can go and see some independent study results from these enhanced supplements. It'll explain the science and everything else behind that.
But Jim, to your point, this is really like an upside call option, right? The $100 million 2025 revenue stream that we're talking about includes nothing from this. As we start selling these supplements in the second half of 2025, we believe we have about 800,000+ members that might be interested in sampling this. But again, we're just being careful to ensure that the product is perfect, that it is really well thought out. We have a strong go-to-market strategy, but that will certainly be a growth opportunity for us down the line.
And as the revenue growth accelerates between these new initiatives, do you have to go back and invest in sales and marketing folks or operations? Or do you think the bottom line should grow faster than the top?
So Gaia has done the initial investment and incubation to launch Igniton, which at this time is because we did join an existing Bio-Well hardware business. Right now, Igniton is break-even. And so we could go ahead and launch that, but we are looking anything that we spend on Igniton going forward would be from Igniton as a standalone private company. Gaia does not need to push any of our money going forward to support this. To answer your question, our support will be for Gaia go-to-market, marketing, and content, as well as any other growth initiatives. A couple of other things that James touched upon in 2025, we're very excited about AI, as a lot of companies are talking about AI.
We think that's a great opportunity for our international business, things as simple as translating from English to other languages, as well as just our site itself. As I'm sure everyone understands, when I'm going to a streaming site. It's like, how do they know that I watched this show and I would probably like this other show? It's stuff like that, along with other AI initiatives and eventually moving on to our Gaia community in 2025 that James just touched upon. That's what excites us most and where we'll be spending Gaia's incremental free cash flow to grow our top line as quickly as possible.
And I'm thinking that the bulk of the revenue now is North America, Western Europe. With AI, do you have the potential to move into other regions of the world?
We do.
So yeah, the core of our business is, I would say, U.S., Canada, U.K., Australia in terms of core English-speaking territories. As we, over the last just few years, began our expansion into foreign languages, we typically experience a lot of growth very early on when we go into languages because there's nothing like our product in those markets. So it's very easy for us to get growth. So the French, Spanish, and German markets have all grown very fast over the past few years. So while we don't have any immediate plans for any other foreign language expansion, we are laying the groundwork for being able to do that. And with the advent of AI, at some point in the future, instead of going into one language, we'll be able to go into maybe four, five, or six for a similar cost as one.
That will give us some leverage. However, I would note that there's still so much upside for us, I believe, domestically, even in the U.S. So if we think about the marketplace and premium tier initiatives and high ARPU customers and high LTV customers, we have opportunities domestically here in the U.S. for many years to come. And international will be a cream on top for us as a brand.
And then I think we have time for one more. We'll take one of the questions in the audience. Do you have any introductory subscription offerings that are at a lower rate? And what's the conversion rate for those?
So we have a free trial offer that's typical to most streamers. And so that's like a seven-day free trial period. And we typically convert from free trial 50%-60%, depending on the cohort of subscribers.
But one thing we have done more recently in the last six to eight months, in particular, is lent into what we're calling direct-to-paid offers. So we're incentivizing members to pay for an annual membership upfront and skip a free trial by offering certain bonuses or meditation programs or things like this. And this has been very successful for us. And we were able to acquire customers at less than the 12-month ARPU of that customer. So essentially, we're making our return on day zero or day one. And then that goes to defer it on the balance sheet. And we're acquiring at a fraction of our LTV for that customer cohort. So the effectiveness of acquisition on these annual upfront paid memberships has been really successful. And we continue to lean into that as a company.
Like I said earlier, once a member passes one year, the retention is very, very, very successful. We're just continuing to build a very strong stable membership base and build a business that I want to own. I mean, I'm the second largest internal shareholder along with founder. We're having a first-principles sort of business-owner-led philosophy when it comes to building this brand.
Okay. Great. All right. We are at time. I just want to say thank you for the time for the presentation. Thank you for doing the meetings today. Looking forward to staying updated on progress you're making.
Great. Thank you, Jim.
Thank you, Jim.
Thank you.