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

Mark Argento – Lake Street Capital Markets.

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Gaia, Inc.’s Financial Results for the Third Quarter Ended September 30th, 2017. Today, joining us 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, Cathleen, and good afternoon to everyone. So our third quarter results, including subscriber count, ended the gain ahead of our expectations and guidance. Paid subscribers grew 73% to 311,000 from 180,000 at the end of the third Q of 2016, which was 300 basis points ahead of our 70% target.

The subscriber growth increased sequentially 900 basis point from 64% at end of the second quarter and 2,700 basis point from 46% at third quarter of last year. Revenue in the quarter increased 69% to $7.5 million from $4.5 million in the same quarter a year ago, and streaming revenue increased 85%. Gross margin grew again, 190 basis point to 86.6%.

We have maintained our investment discipline and kept our loss, or gain below plan even with the faster subscriber growth in the quarter. Our personalized experience for each subscriber and also increased leverage of the search engine optimization drove, again, our overall performance.

Customer acquisition remained flat, and – which helped to reduce our net loss for another sequential quarter. And Paul will now talk about more in the Q results..

Thanks, Jirka. Jumping right into our Q3 results. Streaming revenues in the third quarter increased 85% to $7 million compared to the year-ago quarter due to the continued strong subscriber growth Jirka just mentioned. Gross profit in the quarter increased 72% to $6.5 million compared to $3.8 million in the year ago quarter.

Gross margin increased to 190 basis points to 86.2% from 84.3% in the third quarter last year. We continue to benefit from increased leverage on our streaming costs compared to revenue growth and the efficient production of our original content.

Total operating expenses were relatively flat sequentially at $12.3 million in the third quarter compared to $12 million in the second quarter and $8 million in the year-ago quarter.

This, once again, came in under our budgeted spend due to increased efficiency in our customer acquisition efforts, particularly considering our accelerated sequential subscriber growth.

Customer acquisition costs as a percentage of revenue declined 1,100 basis points to 80% in the third quarter from 91% and 109% in the second and first quarters of 2017 respectively.

It’s important to reiterate that we elect to expand subscriber acquisition costs in the period incurred and despite the significant lifetime value, do not record any value of our subscribers on the balance sheet. We continued the trend of improving pretax loss from continuing operations, reducing loss by 500K for the second consecutive quarter.

Net loss in the third quarter was $5.2 million or $0.34 per share compared to net income of $100.4 million or $6.64 per share in the year-ago quarter, which reflected $114.5 million gain on the sale of the GAIAM-branded business and the repurchase of approximately 40% of our outstanding common stock in July 2016, in our tender offer at $7.75 a share.

I would also like to highlight that we reduced our cash usage during the quarter by approximately $1.8 million or 20% compared to the previous two quarters. And in the quarter, with $3.1 million in cash, no debt and unencumbered ownership of our 12 acre 150,000-square foot campus.

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

Jirka?.

Yes. The momentum of our business has continued to strengthen as we exceeded our accelerated subscriber gross target while our customer acquisition cost continues to track below our plan.

During the quarter, we expanded our content offering, so our English library grew to over 8,000 titles, and we also grew our geographical footprint with our subscribers now in over 160 countries. We have expanded Gaia in Spanish, now including over 500 titles film in the native language, and we are launching German in this current quarter.

Our special report exploring some archaeology discovery in Nazca, Peru as we mentioned on the last call received additional 20 million views for a total of 80 million. While Discovery, we provide for free of charge, still this amount of view clearly demonstrate the size of the market, which is interested in our content.

As discussed last time, we expect our growth rate to keep accelerating further in the fourth quarter from the current 70s to about 80% for the year. The growth rate of 80% would bring paying subscriber count and end of the year to about 364,000, up from 202,000 and end of 2016. And with that, I would like to open the call for questions.

Operator, Cathleen?.

[Operator Instructions] We’ll hear from Mark Argento with Lake Street Capital Markets..

Good afternoon guys, congrats on the strong quarter. Nice to see the sub-growth exceeding expectations. Just wanted to drill down a little bit on subscriber acquisition costs. I know they continue to be favorable.

Maybe you could drill down a little bit on what you’re seeing in the different acquisition channels, how much you’re spending as a percentage of lifetime value.

And then also if you could touch on any premium offerings or any other new offerings that you guys have that you’ve been testing or actually rolling those out?.

Sure. I’ll take the first question, and I’ll hand it over to Jirka for the second question.

So we benefited tremendously from the tailwind that all of those free views that Jirka mentioned on our Nazca docu series, so we saw incremental improvement in our paid social marketing efforts, which reduced our overall CPA sequentially from last quarter by a decent amount.

As we look across the channels, obviously, Yoga, Seeking Truth and Transformation we continue to spend well under the 50% of lifetime value that we’ve internally set and on a blended average, I’d say we’re probably closer in the 40% range right now when we look across..

For the second part, we – there’s – clearly, when you look at the market, we – especially in the Yoga side, we’re well under the price of everybody else. There’s like 10 others smaller accounts between 30% and 100% more.

So we kind of talking about it for while, should we do something press going upwards? Also offer some potentially more premium, some features, but still under discussion. But we can decide on it relatively quick, but there’s nothing what we would have did right now. But there is clearly room to do it.

And obviously, Netflix did it, so it kind of opens that possibility. But we didn’t make a decision on this yet, but we might make it soon. But we’ll still probably if we do something wouldn’t be affected until late last year – late next year..

Got it, okay. And then in terms of new channels or opportunities, I know you guys have been building still plenty of opportunity, obviously, with the existing channels.

But any more thoughts on other areas that you could see growing? Looks like your content, you’re not having a hard time finding decent content, so the opportunity for other channels, does that exist? And what would be the timing of that?.

We did. Now we have about a year since we launched our last, what we also called Transformation. And it’s a – the LTVs start to increase nicely as we go. So we have positive response clearly internally on it. We have other two channels we’re testing right now under that overall Transformation bucket.

One is Expanded Consciousness, one is alternative healing. So we didn’t make any decision why we’ll introduce it, but that would be likely one of those two will be our next one.

And what was the other part of the question?.

Other channels..

Yes, that’s what I was saying.

Did I answer the question? Did I miss something?.

No, no. That’s fine. I was just wondering. So it sounds like there’s opportunity but you’re going to focus on really what you have at this point just given the small penetration rates on the side of the opportunity..

Yes. The size of the market is, obviously, we see it with Nazca. It’s much bigger than we thought. It’s like – we’ll see when we’re still going to do for probably till the end of the year continue to kind of free, we’re still going to do have some updates, we’re going to publish it. We expect the number might grow still from the 80 million right now.

And obviously, there is a lot of e-mails, what we get probably right now more than 25 million uniques, and the number of uniques or viewers right now, it’s hard to get but I would put it probably 45 million-plus. And so we can still need to kind of look at how we want to capitalize on that.

Right now, we kind of more let it go or have it clear as it go, but it’s definitely a huge pool of people we can go to well beyond what we expected. So the market momentum market size is clearly not an issue here. I think it’s more find out the optimum ROI and the growth rates and stuff like that. So that’s what we will kind of see.

Like, obviously, we kind of now see that growing on this 70%, what we’re doing, we get very favorable indicators. So that’s – and we’ll see when we keep growing farther to next quarter to close – to between 70% and 80%, where if there’s any resistance there, and we’ll see. But it’s clearly not an issue of the market size.

It’s more an issue of to find optimal ROI for the investments for a new acquisitions..

Great. Thanks guys and congrats again..

Thanks, Mark..

Thank you. And gentlemen, we have no additional questions in the queue..

Okay. Well, thank you. So I’d like to thank everyone for joining. Can we look forward to speaking with you when we report our fourth quarter in February. Thank you very much..

Thank you. Ladies and gentlemen, once again, that does conclude today’s conference. Thank you all again for your participation. You may now disconnect..