Jirka Rysavy - Chief Executive Officer Paul Tarell - Chief Financial Officer.

Mark Argento - Lake Street Capital Markets Zacary Sherman - Foxhill Capital..

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Gaia’s Inc. Financial Results for the First Quarter Ended March 31, 2017. 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 of the Private Securities Litigation Reform Act of 1995.

Except for historic information, the matters discussed today are forward-looking statements and involve numerous assumptions as well as risks and uncertainties, including, but not limited to, general business conditions, integration of acquisitions, timely development of new business, impact of competition and other risks and uncertainties detailed from time-to-time in our filings with the Securities and Exchange Commission, including the company’s 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 the call over to Gaia’s CEO, Jirka Rysavy. Please go ahead..

Thank you, Bethany and good afternoon everyone. Our first quarter results, including the subscriber count ended again ahead of our expectation and guidance. Paid subscribers grew 58% to 247,300 from 157,000 at the end of the first quarter 2016.

The growth rate increased sequentially again 6% up from 52% end of the fourth quarter and 46% during the third quarter. The revenue in the first quarter increased 51% to $5.8 million from $3.8 million in the same quarter a year ago. Gross margin increased 440 basis points to 85.8% from 81.4%.

We aim to maintain our investment discipline and kept our loss again below plan even with the faster subscriber growth.

Our relaunched site increased pitch low speed and personalized experience for each subscriber as well as increased leverage of the search engine optimization resulted in improvement in our conversion rate which is driving some of our overall performance. Loss for the quarter was $6.2 million compared to $7.6 million in the year ago quarter.

Now Paul Tarell will speak more for the first two – first quarter results.

Paul?.

Thanks, Jirca. Jumping right into our Q1 results, streaming revenues in the first quarter increased 61% to $5.2 million compared to the year ago quarter due to the 58% growth in paid subscribers Jirca mentioned. Gross profit in the first quarter increased 59% to $5 million compared to $3.1 million in the year ago quarter.

Gross margin increased 440 basis points to 85.8% from 81.4%. The increase in gross margin was primarily due to leverage gain on our streaming cost due to the higher volumes and our investment in owned and produced content.

Total operating expenses in the first quarter increased to $11.8 million, which was slightly better than our expectations and are comparable to $7.2 million in the year ago quarter. The increase was due to the planned increase in selling and operating expenses associated with the announced acceleration of subscriber growth throughout 2017.

I’d like to remind our listeners that we like [ph] to expense subscriber acquisition cost in the period incurred and despite the significant life time value do not record any value of our subscribers on the balance sheet.

Net loss in the first quarter was $6.2 million or $0.41 per share, compared to a loss of $7.6 million or $0.31 per share in the year ago quarter. Our net loss for the first quarter of 2016 included approximately $3.5 million losses related to the operations of the disposed Gaiam brand business segment.

The per share amounts reflect the repurchase of approximately 40% of our outstanding shares in July of 2016.

During the quarter, we’ve had approximately $2 million of accrued payables remaining from the sale of the Gaiam consumer product business and on March 31, we had $45.4 million in cash, no debt and unencumbered ownership of its 12-acre, 150,000 square foot campus.

With that, I would now like to turn the call back over to Jirka after which we’ll open the call up for questions.

Jirka?.

Now during the quarter we have expanded our subscriber reach to several new territories, bringing our current count to 150 plus countries. We also grew our current U.S. library to approximately 7900 titles. About 80% of all the views from Gaia were gain generated by the content produced or owned by us.

At the end of the quarter, we also launched Gaia on all Comcast Xfinity platforms. As announced we also expect our subscriber growth rate to keep accelerating. After higher than expected jumps, we expect subscriber growth keep increasing to about 62% in the second quarter.

The second quarter for us is the same as for example, Netflix is slow as the seasonal quarter. The gross rate of 62% would bring the paying subscriber count at the end of the second quarter to about 275,000 up from 169,500 at the end of the second quarter 2016.

In May of last year, based over the market value of our share float, Gaia was added to Russel 2000 and 3000 indexes. After that in July of last year, we have repurchased about 52% of our float in a stock buyback. Our shares price increased since then above 40%.

So we expect that our current market cap will not be enough to maintain our inclusion and the rest of the indexes for the coming year. And that during the rebalancing occurring these months and some of which you kind of start to experience in the last few days about 20% of our float which is currently held by index funds will be available for sale.

We intend for subscriber growth rate to keep accelerating by about 4% to 6% per quarter to end up this 80% for 2017. The subscriber count during the first quarter grew sequentially 45,000 to 247,000 from 202,000 at the beginning of the quarter which is already well above the 80% annualized growth rate target.

As to 58% subscriber gross rate in the quarter exceeded, again our target and guidance and our cost of acquiring these customers continues to track at or below our plan. We believe that these results supports our subscriber growth expectation for remainder of the year. And with that, I’d like to open it for the question.

Operator, Bethany?.

Thank you, sir. [Operator Instructions] And we will take our first question from Mark Argento of Lake Street Capital Markets..

Hey, Jirk. Hey Paul. Nice quarter. Just wanted to maybe drill down a little bit, looks like you’re doing a decent job on the acquisition side beating our number in terms of total sub adds in the quarter.

You talk a little bit about the channels in which you’re requiring the subscribers and then some of the – I know you don’t breakout specific subscriber acquisition costs, maybe you could just talk about general trends and where they are, obviously it looks like you’ve been able to acquire and fairly cost-effectively?.

So, we right now really focusing on our – what do we call seekers for kind of this time of the year. However, in January which is part of a first SKU was primarily Yoga because it's kind of new me, so it's for this quarter was about mixed. Those are pretty much.

We don't really go after transformation almost at all since the channel is relatively new and we still don't have enough data, so pretty much there was kind of mixed in the first quarter..

In terms of the CPA trend, as you know we don't disclose those for competitive purposes, but they’ve been continuing to trend in line with the numbers that we’re targeting and actually part of their overperformance in ads is because – underspend is because we’re able to get them less than we are budgeting.

We’re just continuing to tweak and refine our growth audiences as we go out and expand and we’re just not hitting an upper threshold of growth as we thought we might which is good for us for the rest of the year.

It was actually interesting that since this was probably, obviously, our fastest grow in the quarter as we keep accelerating so far the numbers as we’re getting in March to [CPA] actually get quite below what we expected to pay which we’re really pleased to see, which kind of supports the idea of the big size of the market, so it was pretty important to us and we were happy about it..

Thanks guys.

So the combination, I would assume of page search and Facebook and any mixed changes there or has it been fairly consistent?.

I would say it’s been fairly consistent overall what we’re doing now, that was since we’ve been accelerating and we have several months, we’re just continuing to tweak and refine the mix of what we’re doing and how we’re doing it.

So I’d tell you, same overall channels and mix, it's just much better insight into the customers that stick around versus just the customers that are easy to get but maybe don't retain..

Also as I mentioned, when we re-launched the site end of the last year, the conversion rates with personalized offering, all these other features kind of helping us to overachieve to what we thought would be our target..

Got it. All right. And then in terms of the content costs, obviously you guys are going to be spending, spending a little more.

Any thoughts around to kind of where you see content costs shaken out for the year?.

Well. It’s kind of changing pretty much by the quarter as number of subscribers changing. But you know the numbers of the cost per hour production it's probably came from 4,000, 5,000 two years ago to you know probably right now it's running between 8,000 and 10,000 which is still kind of quite less than 10 million of Netflix.

But we’re going to be pretty discipline on that stuff. The license content is probably, it’s quite cheaper than produced content..

Great. And I hop back in the queue. Thanks..

[Operator Instructions] And we will take our next question from Zacary Sherman of Foxhill Capital..

Hi, guys. Congratulations on a great quarter. I think in the previous quarters you did break out what your subscriber acquisition costs were.

I may have missed it, if you said that previously, could you give that for this quarter?.

Yes. Zacary, this is Paul. It is a required annual disclosure on our GAAP, which is why we’ve done it in Q4, it’s not something that we plan on providing quarterly updates on. But for this quarter I will give you the breakout here just, because you’ve asked so it is about 6.3 million in terms of the spend for Q1 in customer acquisition..

Great. That’s very helpful..

And just a little bit of context there. Some of that spend was related to what we were doing with the Gaia on Xfinity platform launch. So it may not all be directly correlated to the direct business..

Great. That’s all I got. Thanks a lot..

And 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..

Well, thank you. And thanks everyone for joining. And we look forward to speak with you when we report our second quarter which will be in early August. Thank you very much..

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect you lines at this time. Thank you for participation..