Gaia, Inc. — Q1 2017 Form 10-Q Summary
Reporting period: Three months ended March 31, 2017; unaudited. Comparisons are with Q1 2016 unless stated otherwise. Financial amounts below are in U.S. dollars.
Business context
Gaia operates a global digital video subscription service and online community focused on yoga, transformation, and “seeking truth” content. Its library had more than 7,900 titles; the filing says over 90% was exclusive to Gaia. The company’s former Gaiam Brand and eco-travel operations are presented as discontinued operations following their 2016 sales.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Net revenue | $5.784 million | $3.830 million |
| Streaming revenue | $5.209 million | $3.229 million |
| Gross profit / margin | $4.964 million / 85.8% | $3.117 million / 81.4% |
| Operating loss | $(6.853) million | $(4.087) million |
| Continuing-operations net loss | $(6.180) million | $(4.126) million |
| Net loss, including discontinued operations | $(6.180) million | $(7.624) million |
| Basic and diluted loss per share | $(0.41) | $(0.31) |
| Cash from continuing operating activities | $(6.191) million | $(5.044) million |
| Cash used in investing activities | $(2.456) million | $(2.041) million |
At March 31, 2017, cash was $45.380 million, down from $54.027 million at year-end 2016. Current assets were $47.302 million and current liabilities $8.274 million. The company reported no debt. Total assets were $100.052 million, versus $107.196 million at December 31, 2016. Management estimated approximately $10.2 million of capital expenditures, including media-library investment, for the remainder of 2017, to be funded from available cash.
Changes versus the prior period
- Revenue increased 51.0%, primarily as streaming revenue grew 61.3% due to growth in paying subscribers. Streaming represented 90.1% of revenue, compared with 84.3%.
- Gross margin rose to 85.8% from 81.4%; management attributed lower streaming cost as a share of streaming revenue to higher volumes and revenue.
- Selling and operating expenses rose 82.8% to $10.465 million, mainly from increased marketing to accelerate subscriber growth. Operating loss consequently widened.
- Q1 2016 included a $3.498 million discontinued-operations loss and $8.048 million of operating cash inflow from discontinued operations; neither was present in Q1 2017.
- Cash used by continuing operations increased to $6.191 million, which management attributed primarily to increased operating losses. Investing outflow also rose, primarily due to increased media-library investment.
- Loss per share increased despite a smaller consolidated net loss than in Q1 2016; the prior-year share comparison was affected by the July 2016 repurchase of approximately 40% of outstanding shares.
Outlook, risks, and notable items
Management’s strategy is to grow subscriptions domestically and internationally through exclusive content, platform and user-interface improvements, device availability, and community development. It said cash on hand, expected operating cash generation, possible equity issuance, and potential borrowing capacity should be sufficient for short- and long-term needs, while noting cash requirements could change. No quantified revenue, earnings, or subscriber guidance was provided. Management noted subscriber growth is generally strongest in the fourth and first quarters and slowest from May through August.
The company reported a $629,000 income tax benefit for Q1 2017. It said expected future operating losses and continued investment led it to conclude a full valuation allowance on deferred tax assets was appropriate; federal and state gross net operating loss carryforwards were $10.1 million and $0.5 million, respectively. Management stated that pending legal matters considered probable and reasonably estimable were reserved or not expected to materially affect financial condition, results, or cash flows, while unfavorable outcomes in some proceedings remain reasonably possible. No material changes to previously disclosed risk factors were reported. Management assessed disclosure controls as effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether subscriber growth and streaming revenue growth continue, and how acquisition spending affects losses and cash burn.
- Actual remaining-2017 capital expenditures versus the approximately $10.2 million estimate and the resulting cash balance.
- Future operating cash flows and the company’s ability to fund growth while continuing to incur losses.
- Effects of the full deferred-tax valuation allowance and the company’s ongoing assessment of deferred tax assets.
- Any developments in legal proceedings, which the filing does not quantify individually.