Gaia, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Unaudited. Gaia operates a global subscription streaming service and online community; its library comprised more than 8,000 titles, with approximately 90% available exclusively on Gaia for streaming.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2018 | Q2 2017 | H1 2018 | H1 2017 |
|---|---|---|---|---|
| Revenue | $10.46 | $6.56 | $20.08 | $12.34 |
| Gross profit / margin | $9.08 / 86.8% | $5.65 / 86.1% | $17.43 / 86.8% | $10.61 / 86.0% |
| Operating loss | $(6.51) | $(6.35) | $(14.39) | $(13.21) |
| Net loss | $(6.35) | $(6.31) | $(12.38) | $(12.49) |
| Basic and diluted loss per share | $(0.35) | $(0.42) | $(0.74) | $(0.82) |
- Streaming generated $10.00 million in Q2 and $19.14 million in H1, up 63.9% and 69.0%, respectively, year over year. Management attributed growth primarily to an increase in paying subscribers; subscriber counts were not provided in this filing excerpt.
- DVD subscription and other revenue declined to $0.46 million in Q2 and $0.94 million in H1, from $0.50 million and $1.08 million, respectively.
- Operating expenses grew, though more slowly than revenue. Selling and operating expense rose 34.9% in Q2 and 38.6% in H1; management cited revenue growth and greater efficiency in subscriber acquisition. Corporate, general and administrative expense declined 7.1% in Q2 and was approximately flat for H1.
- Q2 net loss was broadly unchanged year over year; H1 net loss improved slightly despite a larger operating loss, primarily alongside a larger income tax benefit. The H1 tax benefit of $1.83 million reflected historical alternative minimum tax payments becoming refundable. Gaia reported a full valuation allowance on deferred tax assets.
Cash, liquidity and capital
- Cash was $41.16 million at June 30, 2018, versus $32.78 million at December 31, 2017. The company reported no debt and an undrawn $13.0 million line of credit secured by real estate.
- For H1, operating cash use was $6.83 million, improving from $11.61 million used in H1 2017; investing cash use increased to $9.43 million from $5.58 million, principally reflecting investment in the media library, product enhancements and corporate campus.
- Financing provided $24.64 million, including approximately $37.1 million of net proceeds from a March public stock offering, partly offset by repayment of $12.5 million on the line of credit. The offering issued 2,683,333 Class A shares at $15 per share.
- Management estimated $5 million to $10 million of capital expenditures for the remainder of 2018, expected to be funded from available cash, and stated that available and potential financing sources should be sufficient for short- and long-term needs. This is not specific revenue or earnings guidance.
Material changes, outlook and risks
- Revenue growth and improved gross margin were accompanied by continued operating losses. Management’s strategy is to expand subscriptions domestically and internationally through exclusive content, platform and user-interface improvements, additional device availability, and community development.
- Management described seasonal member growth as generally strongest in the fourth and first quarters and slowest from May through August; it said this affects customer-acquisition spending but does not create corresponding revenue seasonality.
- Management cautioned that ongoing losses and factors including competition, customer trends, pricing, content and platform investment, key-personnel retention, security, third-party services, legal liability, regulation and founder control could affect results. It provided no quantified subscriber or revenue outlook.
- No legal proceedings were reported. Management stated that probable, estimable litigation or arbitration matters were reserved or not expected to materially affect financial condition, results or cash flows. No material changes to previously disclosed risk factors were reported.
- The company adopted Topic 606 in Q1 2018; the impact was not material. It preliminarily expected no material impact from the forthcoming lease accounting standard.
Important facts for investors to verify
- Subscriber additions, retention, acquisition costs and revenue per subscriber, which are not quantified in the provided filing text.
- Whether subscriber growth and operating efficiencies can outpace rising selling and operating expenses and ongoing losses.
- Actual remaining-2018 capital expenditures, cash burn and financing needs, including any use of the undrawn credit line or further equity financing.
- The nature and timing of the substantial decline in accounts payable, accrued and other current liabilities, from $16.85 million at year-end to $5.96 million at June 30.
- Content investment requirements, the pace of international expansion and the impact of seasonality on acquisition spending and subscriber growth.