Gaia, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Gaia operates a global subscription streaming service focused on yoga, transformation, alternative healing and “seeking truth” content. This filing covers the fiscal year ended December 31, 2019; quarterly results include the three months ended December 31, 2019. The company reported one operating segment and members in the U.S. and more than 185 foreign countries.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $54.0 million | $42.0 million |
| Gross profit / margin | $46.9 million / 86.8% | $36.6 million / 87.3% |
| Operating loss | $17.2 million | $36.4 million |
| Net loss | $18.2 million ($1.00 per share) | $33.8 million ($1.96 per share) |
| Cash flow from operations | $(2.6) million | $(21.4) million |
| Cash at year-end | $11.5 million | $30.0 million |
Revenue increased 28.6%, driven by growth in paying members and higher average monthly revenue per user; the company cited a 20% increase in the monthly fee for new members. International revenue rose to $15.6 million from $9.6 million. Marketing expense declined to $30.1 million from $46.3 million, contributing to the narrower loss. Cost of revenue grew faster than revenue, and gross margin decreased 0.5 percentage points.
Investing cash outflow was $20.3 million, primarily for the media library, property and equipment, and acquisitions. Current assets were $16.2 million versus current liabilities of $18.6 million. Long-term debt, net, was $18.4 million; the company also disclosed a $17.0 million campus mortgage, bearing 5.75% interest at year-end and maturing May 1, 2022, with a two-year extension option. Total liabilities were $37.3 million.
Material changes and unusual items
- Gaia reduced annual cash used in operations by about 88% versus 2018 and reported $3.3 million of operating cash flow in Q4 2019, compared with $8.3 million used in Q4 2018.
- In 2019, the company acquired a complementary alternative-healing streaming platform and more than 450 titles of original content. The acquisitions contributed to a $6.7 million increase in goodwill; up to 139,665 additional shares could be issued if specified performance conditions are met.
- The company refinanced its subsidiary’s line of credit with the $17.0 million mortgage. It also issued two acquisition-related secured convertible notes totaling $1.75 million, due January 2, 2021, convertible into a total of 249,734 Class A shares.
- Discontinued operations resulted in a $0.3 million loss in 2019, versus $0.3 million of income in 2018.
Outlook, commentary and risks
Management’s 2020 priorities were to grow revenue at a reasonable rate, increase operating cash flow, continue investment in content and digital platforms, and achieve sustained positive operating cash flow in the second half of 2020. It budgeted $12–$16 million of 2020 capital expenditures, primarily for content and digital platforms, describing the spending as discretionary and adjustable to available operating cash flow. The filing does not provide formal revenue or earnings guidance.
Management cited competition for subscribers, member cancellations, marketing efficiency, continued operating losses and the need for additional capital if operating cash flows remain negative. Other disclosed risks include cybersecurity and privacy incidents, service disruptions or dependence on third-party platforms, content production and intellectual-property claims, international expansion and currency or regulatory risks, and the CEO’s voting control. The $18.2 million deferred-tax-asset valuation allowance reflects cumulative losses. Management said probable and estimable litigation exposures were reserved or not expected to materially affect the company. No goodwill or media-library impairment was recorded in 2019.
Most important facts for investors to verify
- Whether subscriber growth and pricing gains continue while marketing costs remain controlled.
- Whether positive operating cash flow is sustained, particularly management’s second-half 2020 target, and how planned capital spending affects cash.
- Cash runway and financing needs given year-end cash of $11.5 million, ongoing losses and debt maturities and covenants.
- Performance and integration of the acquired platform and content, including any contingent share consideration.
- Potential dilution from convertible notes, equity awards and the CEO’s approximately 81% voting control.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2019.