GAIA, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Unaudited interim results; dollar amounts below are in millions unless stated otherwise.
Business context
Gaia operates a global digital video subscription service focused on yoga, transformation, seeking truth, and related content. Its library contained more than 8,000 titles; the company said over 90% of its content was exclusive to Gaia and owned productions generated over 80% of views. The figures presented for continuing operations reflect this subscription business following the 2016 sales of its Gaiam Brand and Natural Habitat businesses.
Financial performance
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Revenue | $7.522 | $4.462 | $19.864 | $12.490 |
| Streaming revenue | $7.025 | $3.802 | $18.290 | $10.641 |
| Gross profit | $6.485 | $3.761 | $17.098 | $10.329 |
| Operating loss | $(5.827) | $(4.214) | $(19.035) | $(11.269) |
| Loss from continuing operations | $(5.634) | $(0.151) | $(18.125) | $(7.361) |
| Net income (loss) | $(5.205) | $100.444 | $(17.696) | $90.380 |
| Basic and diluted EPS | $(0.34) | $6.64 | $(1.17) | $4.22 |
Revenue grew 68.6% in Q3 and 59.0% in the first nine months, driven primarily by more paying subscribers. Streaming revenue increased 84.8% and 71.9%, respectively. Gross margin improved to 86.2% in Q3 from 84.3%, and to 86.1% for nine months from 82.7%. Selling and operating expense rose to $10.784 million in Q3 and $31.812 million for nine months, primarily from increased marketing to accelerate subscriber growth. For nine months, that expense increased faster than revenue.
Cash, liquidity, and debt
Cash was $30.107 million at September 30, 2017, down from $54.027 million at December 31, 2016. Current assets were $33.448 million and current liabilities $9.571 million. The company reported no debt.
For the first nine months, cash used in continuing operating activities was $14.956 million, compared with $4.149 million a year earlier. Capital additions to the media library, property, and equipment used $9.472 million. Total cash decreased by $23.920 million. Management estimated approximately $3.5 million of capital expenditures, including media-library investment, for the remainder of 2017.
Changes, outlook, and risks
- Losses from continuing operations widened year over year as Gaia increased marketing investment. Management attributed Q3 marketing growth to its planned subscriber-acquisition acceleration and cited improved marketing efficiency relative to revenue in the quarter.
- 2016 net income is not comparable to 2017: it included discontinued-operation income, primarily gains associated with the Gaiam Brand sale. The 2016 discontinued-operation gain on sale, net of tax, was $100.388 million for Q3 and $110.715 million for nine months. 2017 discontinued-operation income of $0.429 million consisted of an income-tax benefit.
- Management said cash on hand, expected operating cash, potential stock issuance, and borrowing capacity should be sufficient for short- and long-term needs, while noting needs could change with acquisitions, product development, or operating difficulties. No specific revenue, subscriber, or earnings guidance was provided.
- The company said subscriber growth is generally strongest in the fourth and first quarters and slowest from May through August. It reported no material changes to previously disclosed risk factors. Risks cited include ongoing losses, competition, capital availability, consumer trends, and dependence on technology and third-party services.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The filing describes ordinary-course legal matters but says management did not expect reasonably estimable probable outcomes to materially harm results or financial condition.
Important facts for investors to verify
- Subscriber growth, retention, and acquisition costs: the filing attributes revenue growth to paying subscribers but does not provide subscriber counts or unit economics.
- Whether higher marketing and content investment can produce sustained revenue growth and reduce operating losses and cash burn.
- Cash runway and capital requirements against the stated spending plans; cash declined by $23.920 million in the first nine months.
- Assumptions behind the full valuation allowance on deferred tax assets and the reported $0.429 million discontinued-operations tax benefit.
- The effects of seasonality and the timing and return on media-library and platform investments.