GAIA, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019. The interim financial statements are unaudited; amounts below are in millions of dollars except per-share data and percentages.
Business context
Gaia operates a global digital-video subscription service and online community focused on yoga, transformation, alternative healing and related content. Its library contains approximately 8,000 English-language titles, with some French, German and Spanish content; the company says more than 85% of its content is exclusive. Revenue is primarily subscription fees.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $13.164 | $10.000 | $25.631 | $19.138 |
| Gross profit margin | 86.4% | 87.1% | 86.8% | 87.1% |
| Operating loss | $(4.287) | $(6.591) | $(10.735) | $(14.562) |
| Net loss | $(4.468) | $(6.349) | $(11.194) | $(12.384) |
| Net loss per share, diluted | $(0.25) | $(0.36) | $(0.62) | $(0.74) |
- Q2 revenue rose 32% year over year; management attributed the increase primarily to a 26% increase in paying subscribers. Six-month revenue grew 34%, driven primarily by subscriber-base growth.
- Q2 selling and operating expense increased 1.4% to $14.173 million, while its share of revenue fell to 107.7% from 139.6%. Management cited reduced customer-acquisition spending. Six-month expense increased 4.9% to $29.895 million, but fell as a share of revenue to 116.6% from 148.8%.
- Cost of revenue rose faster than sales in Q2, and gross margin declined 0.7 percentage points; management cited higher amortization from increased content spending.
- At June 30, cash was $17.477 million, current assets $22.787 million, and current liabilities $15.973 million. Long-term debt was $18.365 million. Accumulated deficit was $69.397 million.
- For the six months, operating cash use was $5.241 million, investing cash use $11.338 million, and financing cash provided $4.092 million. Cash declined $12.487 million to $17.477 million.
Material changes and financing
- In April, Gaia replaced a subsidiary’s line of credit with a $17.0 million mortgage, secured by the corporate campus, guaranteed by Gaia, bearing interest at a fixed spread over LIBOR and maturing May 1, 2022. The filing reports a current rate of 6.53%. The subsidiary’s assets and credit are stated to be available only for its own obligations.
- In June, Gaia acquired a complementary Alternative Healing streaming platform and acquired more than 450 original-content titles. The transactions contributed $6.680 million of goodwill. Consideration included Class A shares and secured convertible notes.
- Cash and equivalents fell from $29.964 million at year-end 2018. Investing cash use increased year over year, primarily reflecting the platform acquisition and ongoing media-library, product and campus investments. Financing cash provided was lower than in 2018, when it included $37.1 million of stock-sale proceeds.
- The legacy DVD subscription club was reclassified as a discontinued operation in Q1 2019; no related assets or liabilities were reported on the balance sheet.
Outlook, risks and other matters
- Management expected capital expenditures, including media-library investment, of approximately $5 million to $8 million for the remainder of 2019, funded from available cash and expected operating cash generation.
- Management expected positive EBITDA in Q4 2019 and stated that available cash, anticipated operating cash generation, potential equity issuance and borrowing capacity should be sufficient for short- and long-term needs. These are forward-looking expectations, not guarantees.
- Subscriber growth is generally strongest from October through February and slowest from May through August. Management noted that international seasonality may become clearer as markets mature.
- The company reported ongoing operating losses and identified risks including competition, customer trends, acquisitions and new initiatives, key-personnel loss, pricing, security and information systems, third-party service providers, legal liability, litigation, regulation and founder control. It stated that it planned to continue investing and generating losses for the next few years.
- Management reported disclosure controls and procedures were effective as of June 30, 2019, with no material change in internal control over financial reporting during the quarter. The filing reported no legal proceedings and no defaults upon senior securities. It did not provide a quantified market-risk analysis or a specific update to risk factors.
Important facts for investors to verify
- Confirm subscriber-growth and retention trends underlying revenue growth, and whether reduced acquisition spending can be sustained without weakening subscriber additions.
- Track cash burn, remaining 2019 capital expenditures, and whether the company achieves its stated Q4 2019 positive-EBITDA expectation.
- Review mortgage terms and interest-rate exposure, and how the $18.365 million reported long-term debt relates to the mortgage and acquisition notes.
- Resolve a filing inconsistency in the platform-acquisition note: the note describes conversion into 200,379 shares, while the unregistered-sales disclosure states 208,589 shares for the $1.45 million note. The filing also discusses up to 208,589 additional shares tied to an earnout threshold; verify the definitive terms and potential dilution.
- Assess acquisition performance, including the platform’s profitability and subscriber-growth conditions for possible additional shares, and the integration and amortization costs of acquired content and assets.