GAIA, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars; financial-statement amounts below are in millions unless otherwise stated.
Business context
Gaia operates a global subscription streaming service focused on yoga, transformation, alternative healing and “Seeking Truth” content. Its library includes approximately 8,000 English-language titles and offerings in French, German and Spanish; the company says more than 85% of its content is exclusive to Gaia. About 30% of direct subscribers were outside the United States. Revenue is primarily subscription-based.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $43.8 million | $28.3 million |
| Streaming revenue | $42.0 million | $26.2 million |
| Gross profit / gross margin | $38.1 million / 87.0% | $24.4 million / 86.1% |
| Operating loss | $(36.1) million | $(25.1) million |
| Net loss | $(33.8) million | $(23.3) million |
| Net loss per diluted share | $(1.96) | $(1.54) |
| Cash used in operating activities | $(21.4) million | $(20.8) million |
| Cash used in investing activities | $(18.9) million | $(13.0) million |
- Revenue rose 54.8%; streaming revenue rose 60.3%, primarily alongside reported growth of 51% in paying subscribers. The filing does not provide a clear year-end subscriber count.
- Marketing expense was $46.3 million, compared with $25.7 million in 2017. Selling and operating expenses increased 55.2% to $68.3 million, mainly from marketing and personnel costs.
- Cash at year-end was $30.0 million, versus $32.8 million a year earlier. Current assets were $34.5 million and current liabilities $13.0 million.
- Outstanding line-of-credit borrowings were $12.5 million at year-end, secured by company real estate and guaranteed by Gaia. The rate was 6.0% at December 31, 2018; the facility matures December 28, 2020 and includes a 1.2-to-1.0 debt-service coverage covenant.
- In March 2018, Gaia raised approximately $37.1 million net from a public offering of 2,683,333 Class A shares at $15 per share.
Material changes and fourth-quarter results
Gross margin improved 0.9 percentage points year over year, while operating and net losses widened as spending—particularly marketing—grew substantially. International revenue increased to $9.6 million from $6.3 million; U.S. revenue was $34.3 million, up from $22.0 million.
For Q4 2018, revenue was $12.4 million, gross margin was 87.2%, operating loss was $11.3 million and net loss was $11.1 million, or $0.62 per share. Q4 2017 revenue was $8.4 million and net loss was $5.6 million, or $0.37 per share.
Outlook, risks and unusual items
- Management estimated 2019 capital expenditures, including produced content, of approximately $12 million to $18 million, to be funded by available cash and operating cash flows. The filing provides no specific revenue, subscriber or profitability guidance.
- Management said available cash, expected operating cash flows and potential access to equity or credit were believed sufficient for near- and long-term needs, while noting that needs could change with acquisitions, content development or operating difficulties. Operating cash flow was negative in each of the last two years.
- Principal risks include continued losses and cash use; competition and subscriber cancellations; the cost and effectiveness of marketing; international expansion and foreign regulation; cybersecurity, privacy and service interruptions; content production, licensing and intellectual-property claims; and reliance on third-party platforms and payment processors.
- Gaia recorded a $1.9 million income-tax benefit for 2018 and a $14.2 million valuation allowance against deferred tax assets, citing cumulative losses. No impairment of goodwill or the media library was recorded in 2018.
- Legal proceedings were described as arising in the normal course; management said estimable probable losses were reserved or not expected to materially affect the company. No material unresolved staff comments were reported.
- Founder and CEO Jirka Rysavy held approximately 82% of voting power through Class B and Class A shares, giving him substantial control, including over change-of-control matters. No dividends were paid in 2018 or 2017.
Important facts for investors to verify
- Whether subscriber additions and retention support the reported 51% subscriber growth and sustain the sharp increase in streaming revenue.
- Whether marketing spending can produce improved unit economics and reduce operating losses and negative operating cash flow.
- Cash runway and funding needs relative to the $12–$18 million 2019 capital-expenditure estimate, debt obligations, and credit-facility covenant requirements.
- The composition and recoverability of the media library, investments and deferred tax assets, including the assumptions underlying impairment and valuation-allowance assessments.
- Potential dilution from equity compensation and future capital raises, and the governance implications of the founder’s voting control.