Gaia's (GAIA) CEO Jirka Rysavy on Q2 2016 Results - Earnings Call Transcript

| About: Gaia Inc. (GAIA)

Gaia, Inc. (NASDAQ:GAIA)

Q2 2016 Earnings Conference Call

August 8, 2016 5:00 PM ET

Executives

Jirka Rysavy – Chairman and Chief Executive Officer

Paul Tarell – Chief Financial Officer

Analysts

Mark Argento – Lake Street Capital Markets

Peter Rabover – Artko Capital

Ben Andrews – Andrews Capital Management

Jamie DeYoung – Goudy Park Capital

Neil Weiner – Foxhill Capital

Operator

Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Gaia’s Second Quarter Earnings. Joining us today are Gaia’s Chairman and CEO, Jirka Rysavy; and CFO, Paul Tarell.

Before we get started, 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 contained herein, the matters discussed in this call today are forward-looking statements and involve risks and uncertainties, including, but not limited to, general business conditions, integration of acquisitions, timely development of new business, impact of competition and other risk details from time-to-time as described in the SEC reports.

The risks and uncertainties associated with the forward-looking statements are described in the company’s 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.

I would like to remind everyone that this call will be available for replay through August 22, 2016 starting at 8:00 PM Eastern Time tonight.

With that, I would like to turn the call over to Gaia’s Chairman and CEO, Jirka Rysavy. Please go ahead.

Jirka Rysavy

Thank you, Camille, and good afternoon everyone. So in July, Gaia completed the sale of its Gaiam branded consumer products to Sequential Brands and its operating partner Fit For Life.

Gross consideration was $167 million, which is subject to closing costs and standard post-closing adjustments, including net working capital, which the escrow currently scheduled to be finalized and released by the end of the third quarter. In May, Gaia also sold its 51% interest in Natural Habitat to Lindblad Expeditions for $12.5 million.

From the total of about $120 million to $125 million of expected combined gains, we realized from these transactions, we expect that the Gaia operating NOL will offset about $85 million to $90 million.

We used majority of the proceeds from these transactions to conduct tender offer for our stock and acquired 9,637,000 shares and also 840,000 vested options at a fixed price of $7.75 per share. The remaining proceeds after paying tax will be used to fund the continuing growth and development of our business, as well as general corporate purposes.

Completing these transactions, which actually follows our disposition of solar energy and DVD distribution businesses, were the final steps on our path to focus on subscription video streaming business. We believe that these transactions actually truly unlocked shareholder value which was underscore by the price of the tender which we set at 34% premium to our year-to-date trading stock price. Because of my personal belief in the tremendous upside for Gaia business model, I did not participate in the tender for any of my ownership interest, which stands today at 38%, and after eight years I have returned to the CEO.

In July, we also changed our corporate name to Gaia from Gaiam, Inc. and we continue to trade on the NASDAQ under our GAIA ticker.

Gaia is now global streaming video service and online community with 170,000 paid subscribers in 120 countries. We actually receive curated and conscious media contents for a monthly fee of $995. Over 90% of our 7,000 plus titles are available for streaming exclusively on Gaia through most of the Internet connected devices.

Because of the exclusive content and niche offering, Gaia’s position to be complimentary to services of the large players, kind of entertainment dependent like Netflix. As over 70% of Gaia subscribers have today also subscription to Netflix. Our in-house original content generates 80% of the total viewing, which is very excel in hedge against the rising cost to acquire content which is recently experienced by the Netflix and others.

Gaia’s subscriber count grew 45% to 170,000 today from 117,000 at the end of the second quarter 2015.

Well, now Paul Tarell, our CFO will speak to our second quarter results and also a little more about transaction capitalization.

Paul Tarell

Thanks, Jirka. The reported results we issued in today’s press release are from continuing operations, excluding the results of the Gaiam branded business and our interest in Natural Habitat which we sold on May 5. While the branded business sale closed on July 1, 2016, the assets and liabilities are reported as available for sale as of June 30, 2016 and December 31, 2015, and the financial results are reported as discontinued operations for all periods presented.

Now moving on to our Q2 results. Streaming revenues in the second quarter increased 40% to $3.6 million compared to the year ago quarter due to continued strong subscriber growth. As Jirka mentioned, total subscribers in the second quarter grew 45% to 170,000 compared to 117,000 in the second quarter of 2015.

Revenues generated from non-streaming including our legacy DVD subscription club declined 16%. While the decline in revenues, our DVD club continues to operate profitably. Gross profit in the second quarter increased 33% to $3.5 million compared to $2.6 million in the year ago quarter. Gross margin increased 318 basis points to 82.2%, up from 79% in the second quarter last year. The increase in gross margin was primarily due to leverage gained on streaming costs due to higher volumes.

Total expenses in the second quarter increased to $6.4 million compared to $4.5 million in the year ago quarter. The increase was primarily due to one-time costs associated with the Gaiam branded business and Natural Habitat which due to the accounting rules are not allowed to be present in discontinued operations. We expect these costs to continue through the third quarter as we work to finalize the sale of the Gaiam branded business.

In addition, there are one-time costs related to our previously discussed spin-off, which due to the sales is no longer being pursued.

Loss from operations in the second quarter was $3 million compared to $1.9 million in the year ago quarter, driven primarily by the increase expenses previously mentioned. Net loss from continuing operations in the second quarter was $3.1 million or $0.13 per share compared to a loss of $2 million or $0.8 per share in the year-ago quarter.

Income from discontinued operations are $0.6 million includes a gain on sale of Natural Habitat, offset by $9.7 million of transaction expenses for the divestures and losses from discontinued operations of the Gaiam branded business for the second quarter. These factors combined to generate net losses of $2.4 or $0.10 per share compared to $1.1 million or $0.5 per share in the second quarter of last year.

At June 30, 2016, total cash was $6.2 million compared to $1.3 million at the end of 2015. The increase was primarily due to the Natural Habitat sale, offset by the transaction expenses and losses from both Gaiam branded business and Gaia continuing operations during the quarter. We continue to carry no debt.

Our 150,000 square foot office headquarters is on our balance sheet with a book value of approximately $17 million. We believe this to be conservative given current market rates. We’ve previously discussed plans in terms of sale/leaseback arrangement in conjunction with the anticipated spin-off. However, with the proceeds from the sale of Gaiam branded business and the near zero rate of return on capital, we’ve expect to retain that asset in the near term as we believe we are funded for our business plans.

Due to the available for sale treatment of the Gaiam branded business and its impact on balance sheet presentation, we have not included a balance sheet in our earnings release. The Form 10-Q will be filed tomorrow which will include the necessary additional information included in the footnotes to allow users to understand the presentation. While the final price of the Gaiam branded business has not been finalized as previously mentioned when combined with the gain from Natural Habitat, we anticipate realizing between $120 million and $125 million in combined gains.

And as Jirka mentioned, we expect to offset $85 million to $90 million of these gains through our utilization of net operating loss carryforwards, which due to accounting rules have been valued at zero on a GAAP basis. We expect to finalize the sale and any related adjustments in the third quarter.

Our issuer tender offer also expired on July 1. And as Jirka mentioned, we successfully tendered 9,637,000 shares and 842,114 options of our common – Class A common stock at $7.75 per share. All shares were retired and all tender options were cancelled as of the expiration of the tender offer.

In addition, prior to the tender, 182,000 options were exercised and sold. To fund the close of the Gaiam branded business sale, an additional 195,000 options were cancelled.

With that I would now like to turn the call back over to Jirka for some closing remarks, after which we will open the call for questions. Jirka?

Jirka Rysavy

Well, today the global OTT market of 218 million video subscribers is large and they have quite significant and growing tailwinds, which is according to the study from Parks Associates which has released this year. Also according to 2015 study completed by Bespoke, streaming is far in a way to prefer method of watching movies. 48% of the survey responded and prefers streaming more than double of those who prefer cable satellite or DVDs.

90% of Gaia content is the available worldwide, which allows us to have subscribers now in 120 countries with the international portion representing 33% of our added some subscribers, which is up from 26% a year ago.

After completion of the tender, Gaia has approximately 15 million shares outstanding. And after the deal, proceeds are kind of finalized is expected to have about $110 million in equity, including over – with over $60 million in cash, plus the ownership of the compass. We expect the subscriber grows will remain about same during the third quarter, and then increased to 50% for full year, and then to accelerate to 80% for next two years.

So with that I’d like to open the call for your question. So coming up, operator?

Question-and-Answer Session

Operator

Thank you, Sir. [Operator Instructions] And we do have our first question from Mark Argento from Lake Street Capital Markets.

Mark Argento

Yes. Good morning or good afternoon, Jirka and Paul. Congrats on the transaction.

Jirka Rysavy

Thanks.

Paul Tarell

Thanks, Mark.

Mark Argento

So just wanted to just review here quicker just two of the numbers. So it’s – I guess you should be using roughly, just say, $15 million in terms of fully diluted share count and $60 million in cash?

Paul Tarell

Yes. The $15 million is right. There’s probably another kind of $0.5 million of equivalence, but we will not – this is about right, $20,000 – but since we expect to have losses going for the short-term that would be – they will be antidilutive, so $15 million is our right number.

Mark Argento

Got it. And then you have mentioned the kind of the growth rate this year 50%. I think you’re – was that revenue growth or was that subscriber growth?

Paul Tarell

The number what I was kind of saying like – it was like 55% – 45% for last two quarters – second quarter. First was slightly above that of probably about 47%. It’s 45% now; we expected about 45% subscriber growth in the second – in the third-Q, then for the year above 50% and then go to 80%. And as we kind of transitioning through the sales in the cleanup, and since we didn’t exactly know if we going to – go spin-off to last minute, if we go in to doing the sale, we were kind of holding little back on that till the sale of our transaction that takes about a quarter to ramp up.

Jirka Rysavy

Yes. You’re going in the right direction, Mark, it is subscriber growth. Revenue growth is about a quarter lag of the subscriber growth given that revenue recognition treatment that we use.

Paul Tarell

Yes, I mean, plus, we kind of try to start to talk about a little bit of about the streaming growth and because we still have a small portion, historically when we started biz with DVD, subscription, what we call spiritual cinema, which we will continue as long as it’s profitable, which is declining similar like Netflix has, it’s a much smaller portion for us. But – so that, we kind of see the difference in the gross there, but it’s kind of full sets about two and half months to a quarter kind of revenue lag. But if you think about revenue few bit, 100,000 subscribers, let’s say, one-year, only 50,000 effectively contributes to revenue. If you kind of give them equally through the years, so it’s like it’s little challenging to kind of build a model that way by the weekend…

Mark Argento

Got it. Okay. And then so just sort of the number, 117,000 were you where at the end of June. What was that – what was the growth rate year-over-year? I know you have…

Paul Tarell

45%. It was 123,000 – sorry, 117,000 on the second-Q. On a third-Q, we going against 123,000 end of the third quarter.

Mark Argento

Got it. And then in terms of kind of your spend roughly $60 million in cash, you talked about your growth rate for this year and targeting growth rate in next couple years, you –there is a $60 million get you through that growth trajectory when you model that out?

Paul Tarell

Yes. The $60 million should be planned and that’s kind of should be plenty to get us to how – growth rate, we want to go relatively fast for next two years to bid like 1 million subscribers. When we kind of go back to kind of the revenue growth rates where we are today, but then we kind of direly reserved significant profitability. So we can spend much less to question how fast we can get there; we can be profitable pretty much any time, it was like 60-, 90-day notice, because we over do threshold when our profitability allies, so we can be profitable any time.

So it’s more than a decision to kind of go faster to 1 million subscribers, but we don’t have to obviously do it if these would change in markets or something, so we can be preferable anyway of view. We don’t plan to chase growth, we can grow over 100% actually but we don’t plan to do that, we want to be kind of responsible to kind of running it as the business should be run; obviously, I want close to 40%, so I try to do it financials responsibly.

Mark Argento

Great. Well, that’s helpful. Congrats again, obviously, price going to – you’d get some more numbers. I guess going to put out the historical profile almost for the Gaia business, Jirka might have added something about that before, but maybe if you add it as a quarterly basis, that would be helpful.

Jirka Rysavy

With Gaia’s – because Gaia’s going through this spin-off, everything was filed as a Form-10, so you have all historical numbers if you look at Form 10-Gaia. And I have few kind of things, you can give us the question, there’s always a lot of numbers, but…

Mark Argento

Sure.

Jirka Rysavy

As we kind of maturity particle we’re looking at, but they are – if you be seeing some numbers, give us a call.

Mark Argento

Okay, great. Congress again, thanks.

Operator

[Operator Instructions] And our next question is from Peter Rabover with Artko Capital.

Peter Rabover

Hi, guys. Can you hear me?

Jirka Rysavy

Yes.

Peter Rabover

Hey, I was wondering maybe I will have a few question. One, what do you guys think about your kind of pricing strategy? I know like Netflix has great prices and other streaming services that they have sort of started to increase. Have you thought about your long-term where your prices will be and you offer try to do like an Amazon model where one-time $120 fee rather than a monthly one?

Jirka Rysavy

We took a lot – we price it as $9.95 a month. We don’t charge extra for streaming or devices as Netflix does. So the comparable Netflix offering is kind of $99 right now. We’re still on limited screens. We can definitely raise the price. There was a study done on sensitivity for Netflix that pricing sensitivity was somewhere in high-$13, but we currently don’t plan to really change the price.

If you would consider changing prices would be probably offering a new channel on the premium, and grandfather, all the existing people probably for life. But we talked about the losses, you kind of probably hear from these comments, but we did – our plan right now which kind of really grow subscribers not really worry about price.

Our gross margin – the cash contribution margin of customers is about 88%, we should probably increase it to about 90%; we’ll talk about it more in future calls. So there’s no really drive to need to do it, so there were more questions when we did profitably part of the growth we will start to look at that, but doesn’t mean that we wouldn’t change it, but it’s definitely not needed right now.

Peter Rabover

Okay. I know you guys are kind of private about your attrition rate, but maybe you can just say, give me a trend on how that’s going? Has that been going down or up? I guess the 45% number would grow from that?

Paul Tarell

As I think as you look at our subscription business that matures turn naturally declined if I would say the overall trend is down, we’re not going to get into specifics publicly because it’s hard to compare across companies what churn is because everyone can calculate it in their own way, but generally the trend has been favorable. It’s pretty much good.

Peter Rabover

Great.

Jirka Rysavy

We really don’t focus on the churn per se; we call it pretension, because I think it’s a positive way to look at it and kind of go in that. But people, for us, if customer leaves, they come back as a new customer. For Netflix, for example, if you come back within a year, they count you as a same customer, and they said in the call that average customer lasts more than once, even the kind of more than twice for all other things.

So it’s a different way to calculate and they don’t really publish that number, because again it’s from a GAAP number, everybody calculates the difference. So we would tend to follow all the kind of Netflix, but they’re reporting here, so people kind of had know what you’d expect because it’s established out there. But as a new business, your attention improving steadily, which means the churns goes down. And it’s actually pretty meaningful, is a kind of the retention increases, but it would be probably expected relatively in a new business.

Peter Rabover

Great. And then maybe the last question, maybe you could talk about trends in your customer acquisition cost and channel. I’d love to hear some color on that.

Jirka Rysavy

Well, it’s like we kind of hold it pretty steady, we did say several times, Paul can talk about it. We have a discipline. We don’t really ever go as we trend the lifetime value, which is kind of retention multiplied by our cash margin, is not based on revenue like most other people who we calculated based on our cash margin which let’s say it’s about 80% right now. And we never spend more than half of the cash – customer value and we spending actually much less, and some of the better channels are actually more like now 25%, 30%. So it’s – that’s kind of why you can go faster you spend a little more, so we kind of try to manage to grow such that we can go over 100%, but we don’t plan to do that we want to be disciplined to this kind of model.

Peter Rabover

Okay. That’s good. Great. I appreciate all the color and keep growing looking forward to getting shareholder.

Jirka Rysavy

Thanks.

Paul Tarell

Thanks.

Operator

Our next question is from Ben Andrews with Andrews Capital Management.

Ben Andrews

Hi, guys. The $6 million cash…

Jirka Rysavy

Hi, Ben.

Paul Tarell

Hi, Ben.

Ben Andrews

Is that net of tax side on the sales?

Paul Tarell

Yes. I mean we kind of expect that. We still the taxes – there’s still $5-plus million escrow, and there’s still couple of unsettled things. So we just making guesses, but we hope to have $60 million of the repay taxes.

Ben Andrews

Because you own $8 million, $10 million or $15 million in taxes from the sales, right?

Paul Tarell

Well, we’ll see because that’s also going to really depend on what’s our losses will be between now and end of the year.

Ben Andrews

Okay, okay. I got it. You just actually give us any color on how Amazon is doing?

Jirka Rysavy

Well, it’s hard for us to provide the color of Amazon. They don’t republish much on the stuff. Their similar reports were people guessing, but – you mean Amazon – our channel, is what you mean?

Paul Tarell

Our channel.

Ben Andrews

Exact, exactly.

Jirka Rysavy

Okay. Yes, that’s started in the beginning of the year. And we actually don’t want to talk specifically because it’s on our contracts. But it’s doing pretty well, but it’s new business. They just approached us. If you would want to – go with them to UK and potentially other countries, so I’m sure they happy, otherwise they wouldn’t have approached us. But we pretty happy with it, but also we want to refocus on direct business. We don’t want to really go that far with the third-party. So we went on, we do it consciously. But so far they appear to be good partner, however it’s Amazon, so you always want to watch what you doing.

Ben Andrews

Help me understand as far as a channel for you. Okay, so I turn on my Samsung TV at home and I can push a button that connects me to the Internet and we’ll also have a menu of choices, Netflix or HBO GO et cetera, one of them will be Amazon.

And you can click on Amazon and you can watch the prime or you see all these different channels within the Amazon that you can pay for and it will be included with in the Amazon providers you’re getting under plan. I would assume that Amazon has to pay somebody likes Samsung to have them in the menu there. Do you see regular TV and this going through Amazon, is a new platform opening up for you?

Paul Tarell

I think this fall. I think it is a potentially a new platform for that perspective. I would question a session that Amazon has to pay. I think actually device manufacturers will probably be coming to Amazon because that’s a draw for them to have that type of service through their platform, right, which is why Netflix is pre-loaded on almost every single thing you can buy these days because it’s what people use those devices for primarily.

But what it does allow for us because we’ve been rebranding and focusing on the new product launch through which is coming out in the fall, trying to be everywhere at our stage with a number of subscribers we have. There’s a lot more capital intensive they are willing to spend. When you think about an Amazon and a Netflix, and how many subscribers they have to spend that investment over, for us it doesn’t make sense right now to try and be everywhere, but we will be working on rolling all of our own apps back out to those device manufacturers as they get consolidated on operating systems.

Jirka Rysavy

We actually tried about a year ago, we were actually everywhere. But from the number of subscribers, they were in some of – especially smart TVs, which was like less than 2%, actually more than – even less than that. And you typically spend about $250,000 for new app every year because the technology changes didn’t make financial sense to be kind of everywhere until we get bigger. So that was kind of – trying to be totally everywhere, we kind of felt it’s not – financially it doesn’t make sense because so many new technology releases and you can always update the apps. And so for people who have a good experience, we kind of fairly forfeited to 1.5% to 2% of subscribers. So we don’t cover some of the smart TVs. There were actually – we would go through some, but I like Amazon.

Ben Andrews

Okay. So you think that traditional channel it might be where you grow in the future.

Jirka Rysavy

But trust me traditional channel – like – you mean like…

Ben Andrews

Like you put on your TV and you essentially will go up your channel via your TV, not in your laptop, not in your Tablet.

Jirka Rysavy

Yes. I think what we’re seeing is from a user interface perspective. The smart TV native interfaces are probably the least intuitive customer interface. And has those evolve, then that will be something their consumers evolved too. But with Samsung you mentioned, if you want to be on a Samsung manufacture device, there’s probably 10 different versions of Samsung operating system that you have to have different builds for. And so for us it doesn’t make sense to do that when you can be on a connected device and only have to be one and it works with any TV. And I think consumers from a choice perspective, we see it with Apple TV and Roku devices which we’ve had for a while, the viewership on those is staggeringly more than any connected TV even all grouped together.

Jirka Rysavy

And it’s not that we won’t go there, we just – we don’t have to go there for over next 18 months probably unless somebody will gain somehow bigger market share. And we would hear from – because we kind of get a feedback from our people, so we kind of know what it is. But if we make those decisions, we get to see that kind of right away. So it’s something what we talked a lot like year ago and it’s pretty obvious that we’re a little – I mean, when we kind of stop doing, because we have those connected; and when we basically stop doing it, the number of customers, in fact, it was about 500 out of the time 100, 30,000 or something.

So it was really not meaningful for us to really have a spending a lot of time right now thinking about that. But we will get there – we will be everywhere, is it a question of financial, let it makes sense. But I think for us to do some of the cable standard like a Comcast or we do Verizon, we do front-tier, we probably expand that a little bit for like a typical cable. That’s probably more what I would call traditional than even the smart TVs.

Ben Andrews

Okay. Thank you, guys.

Jirka Rysavy

Welcome.

Operator

Our next question comes from Jamie DeYoung with Goudy Park Capital.

Jamie DeYoung

Good afternoon. Congratulations on a good quarter. Just had two questions I want to follow-up on. Given roughly $60 million you have in cash on the balance sheet, and your flexibility in terms of how aggressively – even if you are incredibly aggressive in terms of your sales growth, it appears that you’ll still have some cash cushion. So what’s the right way to look at that component of cash that ends up being excess? Is there opportunistic share repurchases or how are you thinking about that cash going forward?

Paul Tarell

Well, we talked about internal quite a bit, of course, we probably – first we definitely way through to quarter after we know what we have – you’re right so because there’s still some pending issues. And then we probably – we’re not going to look any people ask what do we do in a new special dividend on other tender, I think the answer for those will be no. I think we will probably put the regular buyback and we’d do it opportunistically. And as we have to operational profitability of the company, we proudly will set some percentage over the cash flow for regular dividends which increase quite a bit as we kind of grow.

And so that would be probably kind of used to maybe for – mean time to do some opportunistic buyback. And then kind of set up the dividends, but dividends wouldn’t use their existing cash flow, just use percentage of free cash flow, because this is for us. We have pretty heavy negative working capital as we get paid everything upfront and there’s no inventory returns or refunds. So – and we have a couple of months to pay vendors. So the free cash flow is pretty nice. So we will plan to use it for probably a dividend unless there is some good opportunity to buy the stock back.

Jamie DeYoung

Okay. And then would you care to comment on what you’re seeing with respect to your return or the cost in your Internet advertising and acquiring new subs at this time?

Paul Tarell

We don’t really do advertising per se, we’re very much focused on acquiring the customers and we kind of say that we kind of set 50% lifetime value for each channel which we break it in several. But the main channels today, we have basically three. We have Seeking Truth, we have Yoga, we have Spiritual Growth which will be re-launched in fall as a transformation, and then we kind of look at subcategories there. So everyone has a – everybody has a different retention, different costs of acquisition.

Yoga is typically cheaper to acquire, but people stayed along shorter, so that’s how we kind of look at that. And today as I said, you don’t have to spend from internally roughly for this first six months compared what we expected it. We have revenue just – we’re are like $10,000 ahead of the first six months already projected last year. But in bottom line, we were better for like a $1 million, $1.5 million because we didn’t have to pay as much for customers as we expected.

Jamie DeYoung

So the spread has been able to maintain the levels from months prior if not a – if anything it’s gotten better.

Paul Tarell

Yes. I mean it’s maybe also seasonal because in the first quarter as we’ve been kind of more focused especially in Gaiam and Yoga, because that’s kind of yume kind of year. So we know that from Gaiam experienced, that it’s more like when you kind of get closer to your goals, when we kind of go – now it’s more like seekers acquisition which is quite less than we budgeted it.

Jamie DeYoung

Okay. But it appears that seekers and some of these channels perhaps are having more stickiness than what I was modeling from a summer seasonality standpoint. But some of these people are staying on because of the way you’ve created these shows to be more episodic, perhaps?

Paul Tarell

I think you just hit it on the head there. The episodic – thinks actually help as we do more of episodic, it’s a one thing. And second, its like – there’s not – the Yoga’s, they had some small side, but you kind of have a choice in the seekers and the things, it’s much more pretty much dominating. So once people find it, they find home.

Jamie DeYoung

And lastly besides the re-launch of Spiritual Group growth in the fall, will you be launching any new segments this year?

Paul Tarell

Not this year, but with the transformation, we would have several – what we called now categories, what we – in the future probably grow into channels, but one of them is Alternative Health. It’s on the transformation, but already has like 1,000 plus titles. And we would watch for three months to six months depends on how – what customer viewing, so we want to have some healing habits in this new way. I’ll be watching it and based on that we start to produce original content. When we decide to produce original content, we tend to take it and create – launch it as a new channel.

Jamie DeYoung

Terrific. Thanks. Thanks so much.

Operator

[Operator Instructions] And we do have a question from Zacary Sherman with Foxhill Capital.

Neil Weiner

Hi, this is Neil Weiner. Hi, gentlemen.

Jirka Rysavy

Hello.

Neil Weiner

Couple of questions. One, can please give us the breakdown in subscriber growth in the quarter has it tended along the lines previously of U.S. versus international subscriber are they changed.

Paul Tarell

Can you – it’s kind of getting break.

Jirka Rysavy

Are you asking about the mix of growth between the U.S. and international?

Neil Weiner

Yes.

Paul Tarell

From a growth perspective.

Neil Weiner

Yes. Correct.

Jirka Rysavy

It was we didn’t really focus that much by international before. Besides your are going to more formalize it as we kind of – we tested languages we talked a little bit on previous call like in – like last July which is about a year ago. We tested first time languages we thought maybe Spanish will be good to go second. But we tested Spanish, Portuguese, Chinese, German and Russian and Spanish came four. Then first two languages were Chinese and German, which in our top six countries. We have two, six – two German speaking in out of 10 countries, there are nothing Spanish speaking. So we had to rethink a little bit how we going to play it because one of the things like in German. If you still want to say something in a German takes about 30% more space in the fields. So we had to – as we launched Paul mentioned this new launch in the fall we created this flexible fields. So we can do better of some of these languages, which we didn’t think about doing first.

But pretty much that kind of start to grow the international segment and that’s what we expect going forward. We plan to go to about 20 languages over the next couple of years and will see it’s kind of thinking between 10 and 20 but we kind of would like to get to 20. But it’s we need first do few fully. And that’s what we expect to grow to percentage.

Neil Weiner

Okay, great. And also in terms of viewership in the quarter? Is it still been around 40% seeking through 40% Yoga and 20% transformational?

Paul Tarell

Yes. I would say that’s fair, some things bridge cross categories but at a top level I would say that’s a pretty fair statement.

Neil Weiner

And is that different kind of U.S. versus international just in general is that the breakdown to say….

Paul Tarell

To be honest we haven’t looked at the skew that – from that perspective yet that’s something that would we’ve obviously as we’re looking to expand internationally – we’re starting to mind that data more but it’s not a data point that we’ve tracked historically.

Jirka Rysavy

We actually how we look at it so you understand why I don’t answer in this way, we look internationally for languages we don’t expect when we’re launched say German to go over 7,000 plus titles, we probably started with 1,000 or some inner level. So we really kind of focusing what’s international viewing is in the top 1,000. So that’s where we can be very precise – how it’s overall viewing we didn’t really look because I mean we’re look kind of generally by – to answer the question is really same because we don’t plan to launch all the titles to start internationally and then we add titles, obviously all the new titles as we go – we got launch and we’ll add them based on a viewership per country. That’s kind of beauty of our system. So we can really kind of add it depends to traction of the country as we do the translation because the translation of existing titles. It’s all has to be expense upfront. So that will basically ahead of P&L, when we do – when we launched in country before we have any revenues.

Neil Weiner

And how many titles are now international?

Jirka Rysavy

How many what?

Neil Weiner

How many titles?

Jirka Rysavy

90%. So you’re going to have about 60% I mean we have maybe right now 7,200 titles or something. So it’s probably 6,500.

Paul Tarell

Yes. But I think the caveat there is it’s predominantly English. So what we’re embarking on as we look to rollout true internationals as we able to have language support so that it won’t be English only….

Neil Weiner

What do you think cost over time?

Paul Tarell

Cost over time.

Jirka Rysavy

It’s going to depend by language. So we haven’t really – we’re not going to disclose that just yet.

Paul Tarell

We would say that when we do the first language but we are actually in negotiating with some of the vendors and number coming quite different.

Neil Weiner

Yes.

Paul Tarell

And something we might do in-house. So we will experiment different way. And so you have an idea. We have now some partners in Europe and the title get launch for like $20 with subtitles and some languages we get a quote of $2,000. So we need to kind of really kind of horn it on and which is going to be right way to do it.

Neil Weiner

So you walkthrough that in-house, you’re going to sub contract that out?

Paul Tarell

We were going to try three different models. One is doing in-house. Second have a U.S. partner to do it return. Third, we would have like international partner when we probable buy like half of the company and that would be for like smaller especially European countries. They have still their language limitation is like less than 10 million English speaking people. We probably won’t do it here but he will get a partner in the country but we will try low stream models and define which is the best one for you to do long-term.

Neil Weiner

And do you – hard to say the equivalent of 9.99 in all the foreign countries?

Jirka Rysavy

Currently it’s USD9.95 across the globe. Again this is something that as we grow internationally will evaluate it does makes sense to capture additional market share to do local denomination, but for simplicity everything’s USD9.95.

Neil Weiner

Okay. Terrific, thanks guys for the update. We look for further updates, same exciting story.

Jirka Rysavy

Great, thanks.

Operator

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

Jirka Rysavy

Thank you, Camille. And thanks for everyone for joining, and we look forward to speak with you when we report our third quarter, which will be early November. Thank you.

Operator

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

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