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Good afternoon, everyone, and thank you for participating in today's conference call to discuss Gaia's financials results for the second quarter ended June 30, 2023. Joining us today are Gaia's CEO, Jirka Rysavy and CFO, Ned Preston. [Operator Instructions].
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 under the Private Securities Litigation Reform Act of 1995. The matters discussed today include forward-looking statements that involve numerous assumptions, risks and uncertainties.
These include, but are not limited to, our ability to attract new members and retain existing members, our ability to compete effectively, including for customer engagement with different modes of entertainment, maintenance and expansion of device platforms for streaming, fluctuations in customer usage of our service, fluctuations in quarterly operating results, service disruptions, production risks, general economic conditions, future losses, loss of key personnel, price changes, brand reputation, acquisitions, new initiatives that we undertake, security and information systems, legal liability for website content, failure of third parties to provide adequate service, future Internet-related taxes, our founders' control of us, litigation, consumer trends, the effect of government regulation and programs, the impact of public health threats, including the coronavirus COVID-19 pandemic and our response to it, and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission, including our 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.
Good afternoon, everyone, and I'm glad that we can report positive results. Revenue for the second quarter increased again sequentially to $19.8 million from $19.6 million, but it's still down from the last quarter of $20.7 million due to post-COVID subscriber contraction experienced industry-wide during 2022.
Member count increased during the quarter by 8,000 to 774,500, this is virtually all the growth coming from our direct subscribers. Our ARPU, which is showing steady growth as it increased from $7.95 in 2019 to $8.46 in 2020 to $8.60 in 2021 and $8.75 in 2022. It now shall be further supplemented by the launches of Gaia Marketplace, which is now rolling to a select group of our members.
Total operating expenses in the quarter were about $950,000 higher than in the year ago quarter, still including a of the contracts and related expenses incurred as a result of our 20% staff reduction that was completed during the first quarter. We still reported GAAP loss, the company has returned to a net cash generation. The cash balance on June 30 was $10.9 million, and I would let Ned now speak more about our results.
Thank you, Jirka. Revenues for the second quarter were $19.8 million, a slight sequential increase for the second consecutive quarter, continuing the return to growth in our member base during the first half of 2023. Compared to a year ago quarter, revenues declined 4% due primarily to the hard compare against Q2 2022, which benefited from the COVID-related subscriber growth experienced in 2020 and 2021.
In the quarter, we continued to invest in and release new content, particularly to support our language expansion efforts. As a result of these strategic growth investments, gross margins were 85.7% during the second quarter of 2023, and we expect them to remain at this level in the near term as we expand our language offerings and tactically support the growth of the business. Total member acquisition costs during the quarter were $8.2 million or 41% of revenues compared to $7.2 million in the year ago quarter.
In the quarter, we benefited from our efforts to optimize customer acquisition costs over the past several quarters, with per customer acquisition cost down 9% sequentially. In the second quarter, we experienced growth in our direct member base, which is a continuation from the first quarter. Additionally, we witnessed a return to growth among our largest third-party partners, which is a reversal of the contraction we experienced in the first quarter. The growth in both our direct member base and third-party member bases during the quarter is building our confidence that we are through the worst of the post-COVID member unwinding.
Selling and operating expenses, including marketing and member acquisition costs in the second quarter were $8.9 million or 45% of revenues, which is up slightly from the prior year period. This increase reflects the end of contracts and related expenses incurred as a result of the company's cost improvements that were completed during the first quarter. Corporate G&A and corporate expense in the second quarter were $1.5 million or 8% of revenues, down 15% from the prior year period.
We expect to realize most of the benefits of the cost reductions undertaken in the first quarter in the second half of 2023 and anticipate the cost improvements will support the financial state of the business going forward. During the second quarter of 2023, we recorded a net loss of $1.7 million or negative $0.08 per share compared to the net income of $0.1 million in the year ago period. The decline was primarily driven by the reductions in revenues between periods.
Adjusted EBITDA was $3.1 million or 16% of revenues in the quarter, and we generated free cash. Our deferred revenues for the second quarter were $15.5 million, an increase of $1.4 million from the year ago period. We expect to continue to benefit from the inherent negative working capital cycle in our business model as we continue to grow our member base and revenues. In addition, we expect to be in a position to continue generating cash flows from operations in excess of the cash flows we reinvest back into our content library and production enhancements going forward.
Due to our in-house production capabilities and lack of contractual commitments tied to our content production, we have significant discretion in the amount and timing of our investments. This flexibility allows us to adjust our investment levels as needed to withstand a downturn in the macroeconomic environment, if necessary.
Through the company's focus on accelerating growth and a return to positive operating margins, we have made tremendous progress over the past several quarters on numerous key areas of improvement for the business. With continued disciplined execution and the launch of Gaia Marketplace, we are well positioned to continue growing revenues and to remain cash flow positive going forward.
With that, I will hand it back to Jirka for some closing remarks.
Well, this is the of our staggering action now being gone, our annualized gross profit per employee recently reached all-time high of over $610,000. With the number growth -- this member growth in July running above the pace for the second quarter plus Gaia Marketplace beginning to be rolled out to improve our ARPU and revenue, we can look for a stronger second half of the year. And with that, that concludes our remarks, and I would like to open it for the questions. Please, Maria. Operator, please?
[Operator Instructions]. Our first question comes from Mark Argento with Lake Street.
I just wanted to drill down a little bit on the customer acquisition, subscriber acquisition cost. Are you seeing the cost to acquire in terms of going out buying keywords or other types of online ad spend. What trends are you seeing there? And do you think it's sustainable to be able to kind of cost-effectively acquire at this point?
Generally, we'll see right now the cost of acquisition has definitely improved from the last year when this -- the overall environment was much more negative still as opposed to COVID. So this year, we target generally about 39% to 41% of revenue depends efficiencies. We were on a higher end of it because the efficiencies start to be good. And I kind of hope that, that will kind of continue as where it is.
Second, with COVID gone, also seasonality came back and second quarter was historically our slowest quarter. So we were pleased to start with the results. And I think as we are kind of focusing on some of new initiative, we talk about it now for a little bit for focusing on the members with higher retention just rather than just low cost is definitely overall growth start to be helped by the improved retention. Does it answer your question?
Yes. No, yes. No, that's helpful. It sounds like the environment hopefully continues there. Just shifting gears quickly. Obviously, nice to see you guys cash flow positive in the quarter. I mean you did -- I think in your prepared remarks, did you say you anticipate that being with cash flow positive going forward? Is that what I'm hearing?
Yes. Mark, it's Ned. Thanks for the question. That is correct. So Q2 was a big transition quarter for us in moving to that positive cash, and we do anticipate forecast that continuing for the second half.
Yes. Improvement in the quarter between -- from the first quarter was about $1.3 million in a positive way, direction. So we kind of hope that with all the tale of the staff reduction being gone, that obviously, that will improve.
It's good to hear. Just last one for me. In terms of the Marketplace, could you just refresh us on what should we look for there in terms of a rollout? Or how does that stage out over the next quarter or two?
Yes. So we just kind of right now rolling it to a small amount of people. We're putting it from about 10,000 to 20,000 members, active members and see kind of the response. So we kind of know how to market because there's several ways to display it mostly on a screen of those people as we can target.
And as we're kind of looking a lot for like experience rather than products, our first product ties to our Ancient Civilizations series. We also have a conference with [indiscernible] civilization. So we are going to have a -- we're marketing tool to [indiscernible] Egypt, which is probably about 8,000 to 10,000 range. We kind of obviously jobbing it out, we keep about 30% of that, that's what will be booked as a margin. We would -- won't book to haul price only to 30% we keep. However, of that, our members -- if the members, they get 10% discount, that come from our side. So that's roughly how it goes.
We're going to slowly increase the number of people. And then we see it's running smooth. We had other experiences of potential some products. So it's something that I think as we go to end of the year, it should start really meaningfully improve our ARPU and hopefully also the revenue, of course.
Our next question comes from Thierry Wuilloud with Water Tower Research.
Mark covered quite a few questions there. But I was curious you had some good momentum you told that on the foreign language subscribers earlier this year. Is that continuing? Can you give us some color there?
Yes. That's kind of started already like a couple of quarters and it's increasing. We did invest in the languages over the last 2 years as we were dealing with COVID. We didn't have, as this was more challenging marketing environment, and we didn't want to fight it. We went ahead and reserved the cash last year. So we did spend it on getting ready for a language offering, especially in the French and German. Spanish was existing before.
So obviously, those are the languages we kind of going there. And anytime you go to new language, especially in some European countries, we're kind of ahead of the curve. There is not a really strong offering on those languages. So we so far see both acquisition cost and retention being better than in the U.S.
So we're probably spending more as a percentage of revenue in those countries than we spend in the U.S. right now. So overall, our international kind of increasing. Our international membership, it's right now about 35% overall because our direct. So our third parties like almost on YouTube, Comcast, they're all in English.
So if I take our percentage of our direct, it's probably more on the high 40s as a percentage, but either one if you look at Netflix, they're about 2/3. So I expect over the next few years, our international percentage will grow, providing the trend what we feel right now will sustain.
Great. In terms of your -- I guess, not just your U.S., but all your subscribers, your members, do you have any color on consumption that you're seeing more consumption of your content or real differences there post the whole COVID situation?
Well, I mean, during the COVID, especially when we're talking from mid-2021 to mid-2022, which we still compare it to, we have more viewing and more subscribers there. But after the post COVID wave when those subscribers like everywhere left. So we kind of saw -- obviously, we kind of saw decrease post COVID, but I have to say that starting this year, in the first quarter, which is kind of going to the people start to have a free time last year, I mean they could travel like they can do now. We actually see increases this year. Again, we used to see it before COVID and COVID went quite high. Obviously it came down, but now we see increases on the viewing again.
Okay. Any update on -- do you have some events scheduled for the balance of the year? Can you give us some updates there?
Sure. We have about 2 weeks. We have our -- 1 of the main conferences, what we call Ancient Civilization, which is about 10, 11 speakers, which is kind of one of our key conferences. So it's coming, I think, 12, 13 of August, with another one like a few weeks later. So we're going to -- you probably see our cadence and promotion of all events plus will probably increase with the kind of -- we obviously have a little bit of disruption through COVID. So we're picking up where we kind of stopped before. So I think it's -- we didn't focus on it until beginning of this year. But I think the second part of the year, it will be focused on it. And I think this Gaia Marketplace getting launched, we also have a better way how to promote it.
Our next question comes from Mark Argento with Lake Street.
Just a quick follow-up. So just going everything down, maybe just an update on that 5,000, 10,000 fee kind of the strategy for the company here. Now that we think you're able to cost effectively acquire subs again, you going to lean into growth a little more aggressively? Maybe just -- maybe a little higher level, Jirka, how you see the world right now and kind of where you guys are after the high and the low given the COVID and then a post COVID overhang, it seems like maybe we're kind of normalizing at all. But given the kind of the environment we're in and what you're seeing, what's the higher-level strategy at this point?
Well, this like from the like B and it's the C level, it's -- I actually could see from my point that because now we kind of the new team as we have a couple of new additions. It's kind of started to click, and it's a really good team as a chemistry-wise. So I'm very pleased with that. And obviously with the growth and increasing ARPU, I feel pretty good about where we're heading. So I think you can expect the company acceleration and producing, say, with positive cash flow.
And I think the question, cash flow versus growth, I think we want to really start to increase the growth. But at staying a positive cash flow. So basically, we want to stay in positive cash flow and we generate more dollars we put it back in the growth, but we do not go negative on free cash flow. So I think that's pretty much where it is, it's pretty simple right now, grow as fast as we can without going negative in the cash flow.
And the cost per employee, which is the gross profit for employee, which is $610,000, which you start to be up there. And as long as we can keep it on these levels, I think that the cash flow and profitability would kind of come from there as well. But I think it's -- grow as fast as we can while staying positive cash flow is the strategy.
Yes. And Mark, if I could, this is Ned. I'll just elaborate just a little bit as the person that's just been here for a month. It's a big reason why I came to Gaia. It just because of that leverage. And I'm just very impressed with the company that runs with around 110, 120 full-time employees driving over $80 million of revenue. But the efficiencies that I've seen and the ability to pull the levers when needed around increased marketing spend, for the right reasons. It really is impressive. So as I said in my commentary earlier, the continued execution against the existing plan is very much what I look forward to here, but we just really look forward to the upside leverage of that model.
And also to mention Ned talked about leverage, as Ned mentioned, our gross margin came 90 basis points or something down. It actually was purely because we keep growing -- putting new content and with the revenue slowdown last year, it changed the ratio compared to revenue. But if you look at what we call net-- we have basically a line what we call a cash contribution, it's basically cash margin that how much -- what it will cost to have a new customer that's kind of the same number, but less amortization that actually increased from 93% to 94% of revenue. So from the cash point, our margins are actually expanding as where we're talking free cash flow.
There are no further questions at this time. I would now like to turn the floor back over to Jirka Rysavy for closing comments.
Well, thank you, everyone, for joining, and we look forward to speaking with you when we report our third quarter, which should be in early November. Thank you very much.
Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.