Gaia, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Unaudited; amounts below are in U.S. dollars unless noted. Gaia operates a global subscription streaming service focused on wellness, yoga, transformation, and related content.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $13.7m | $10.9m | $39.3m | $30.1m |
| Gross margin | 86.8% | 87.3% | 86.8% | 87.2% |
| Operating loss | $3.9m | $10.5m | $14.6m | $25.1m |
| Net loss | $4.1m | $10.3m | $15.3m | $22.7m |
| Basic and diluted net loss per share | $0.23 | $0.58 | $0.84 | $1.33 |
- Q3 revenue rose 25.7%; management attributed growth to 16% more paying subscribers year over year and higher average revenue per subscriber. Nine-month revenue increased 30.6%, primarily from subscriber-base growth.
- Cost of revenue increased faster than revenue in both periods, mainly reflecting amortization from greater content investment; gross margin contracted modestly.
- Selling and operating expense declined 23.1% in Q3 and 6.2% for the nine months. Management cited reduced customer-acquisition spending. Operating and net losses narrowed versus 2018.
- At September 30, 2019, cash was $11.6m, down from $30.0m at December 31, 2018. Current assets were $17.1m and current liabilities $16.6m.
- Nine-month cash used in operating activities was $5.9m, versus $13.1m in 2018; continuing operations used $6.0m. Investing activities used $16.5m, including $14.9m for media library, property and equipment and $1.6m for acquisitions and intangible assets. Financing provided $4.1m. Cash declined $18.3m.
- Long-term debt was $18.4m, compared with $12.5m at year-end 2018. Total liabilities were $35.3m and equity $71.2m. Accumulated deficit was $73.5m.
Material changes and unusual items
- In April 2019, Gaia replaced a subsidiary’s line of credit with a $17.0m mortgage secured by its corporate campus, bearing a 5.78% current rate and maturing May 1, 2022, with a two-year extension option. Gaia guarantees the loan; the lender has no recourse against other assets. The subsidiary’s assets and credit are restricted to its own obligations.
- In June, Gaia acquired a complementary Alternative Healing streaming platform and more than 450 original content titles. Consideration included 484,832 Class A shares, a $1.45m secured convertible note and a $0.30m secured convertible note. Up to 139,665 additional shares may be issued if specified profitability and subscriber-growth conditions are met by June 30, 2020.
- The legacy DVD subscription club was classified as a discontinued operation in Q1 2019. The filing reports no related balance-sheet assets or liabilities.
- Goodwill increased $6.7m to $17.3m, primarily from the acquisition. The two acquisition notes bear 2% interest, are due January 2, 2021, and are convertible into shares at the holders’ option.
Outlook, risks and other disclosures
- Gaia estimated remaining-2019 capital expenditures, including media-library investment, of $3.0m–$4.0m, expected to be funded by available cash and operating cash flows anticipated in Q4. Management stated that cash, expected operating cash flow, and potential borrowing capacity should fund operations in the short and long term, while noting needs may change with acquisitions, development, or operational difficulties.
- No specific revenue or earnings guidance was provided. Management expects subscriber growth to be seasonal, generally strongest October–February and slowest May–August.
- Risks highlighted include ongoing losses, competition, subscriber and consumer trends, pricing, customer acquisition, acquisitions and new initiatives, key-personnel retention, cybersecurity and service-provider reliability, legal and regulatory matters, and founder control. Management expects continued investment and losses through 2019; deferred tax assets carry a full valuation allowance.
- Management said probable and estimable litigation matters were reserved or not expected to materially affect results; the filing lists no legal proceedings. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether subscriber growth and average revenue per subscriber continue to support revenue growth, and whether lower acquisition spending affects future subscriber additions.
- Cash burn, remaining-2019 capital spending, and the company’s ability to fund operations without further financing.
- Mortgage terms and covenants, debt balances, and possible conversion or contingent-share issuance related to the June acquisitions.
- Acquired platform performance, including whether the conditions for additional shares are achieved, and the returns on increased content investment.
- Progress toward reducing operating losses; interim results are unaudited and the company cautions they are not necessarily indicative of full-year or future results.