Gaia, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited. Gaia operates a global subscription video service with more than 10,000 titles; approximately 88% of its content is exclusive to members.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $20.2M | $19.9M | $59.7M | $62.5M |
| Gross margin | 85.2% | 86.7% | 85.6% | 86.7% |
| Operating income (loss) | ($0.4M) | ($0.3M) | ($3.1M) | $0.3M |
| Net income (loss) | ($0.6M) | ($2.4M) | ($3.4M) | ($2.2M) |
| Operating cash flow | $3.6M | $1.7M | $10.1M | $8.1M |
Q3 basic and diluted loss per share was $0.03; the nine-month loss per share was $0.16. No income tax provision or benefit was recorded. Gross margin declined as content amortization increased, reflecting investment in original content.
Liquidity, debt and cash flows
- Cash was $11.2M at September 30, versus $11.6M at December 31, 2022. Total assets were $138.4M and total liabilities $51.6M.
- The balance sheet reports $9.9M in current debt and lease liability and $5.8M in long-term debt, net. The company reported $9.0M drawn on its $10.0M KeyBank revolving facility; the facility matures August 2025 and carries a floating rate.
- Nine-month investing cash outflow was $10.4M, mainly media library, software and equipment additions. Financing cash flow was a net outflow of $0.04M, including $20.0M of debt repayments and $19.9M of short-term borrowings.
- On October 2, 2023, Gaia sold 1.855M Class A shares at $2.70 per share, receiving net proceeds of $4.678M. The underwriter’s additional-share option had not been exercised as of the filing.
Changes, outlook and notable items
- Q3 revenue grew 1.5% year over year, which management attributed primarily to higher member count. For the first nine months, revenue fell 4.5%, reflecting post-COVID subscriber contraction; management said member and revenue growth resumed in the first half of 2023 and Q3 returned to pre-contraction revenue levels.
- Nine-month operating costs rose: selling and operating expense increased 2.7%, while corporate, general and administrative expense decreased 16.1%. The prior-year comparisons include a $2.0M SEC settlement charge in 2022, contributing to the smaller Q3 net loss in 2023.
- Q3 selling and operating expenses included a one-time $1.75M Employee Retention Tax Credit, recorded as an expense reduction with a related government receivable. Management says the credit offset higher marketing spend and tax accruals.
- Management expects $3.0M–$4.0M of content and capital expenditures for the remainder of 2023, to be funded from operating cash flows, and expects positive operating cash flow for the rest of the year. It said cash, operating cash generation and available borrowing and capital-raising options should fund near- and long-term needs. No formal revenue or earnings guidance was provided.
- The revolver requires a zero outstanding balance for at least 30 consecutive days during the applicable period; the company expected to meet this requirement in Q4 2023. It is also subject to fixed-charge coverage and leverage covenants.
- Risks cited include member acquisition and retention, competition, marketing costs, content production and service disruptions, technology and security, and economic conditions. VAT examinations are ongoing and some have resulted in assessments; management stated probable, estimable legal matters were reserved or not expected to materially affect results. No legal proceedings were reported in Part II.
Key facts for investors to verify
- Whether member growth and revenue recovery continued after Q3, and the cost to acquire and retain subscribers.
- Collection of the $1.75M employee retention credit receivable and any related tax or eligibility developments.
- Revolver balance classification and repayment activity, compliance with covenants, and completion of the required zero-balance period.
- Use of the $4.678M offering proceeds, potential dilution, and whether the over-allotment option was exercised after filing.
- Progress on content spending, gross-margin trends, and any material outcomes from VAT examinations.