United States
Securities and Exchange Commission
Washington, D.C. 20549
Form
For the quarterly period ended
OR
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
☒ |
Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class |
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Outstanding at October 27, 2023 |
Class A Common Stock ($0.0001 par value) |
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Class B Common Stock ($0.0001 par value) |
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GAIA, INC.
FORM 10-Q
INDEX
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Item 1. |
3 |
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Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 |
4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 |
7 |
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Notes to interim condensed consolidated financial statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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19 |
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2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Unaudited Interim Condensed Consolidated Financial Statements
We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of September 30, 2023, the interim results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. Operating results for the three and nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results that may be expected for a full year or any future interim period. These interim statements have not been audited. The balance sheet as of December 31, 2022 was derived from our audited consolidated financial statements included in our Annual Report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2022.
3
GAIA, INC.
Condensed Consolidated Balance Sheets
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September 30, |
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December 31, |
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(in thousands, except share and per share data) |
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2023 |
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2022 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Media library, software and equipment, net |
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Right-of-use lease asset, net |
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Real estate, investment and other assets, net |
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Goodwill |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable, accrued and other liabilities |
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$ |
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$ |
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Short-term debt and lease liability |
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Deferred revenue |
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Total current liabilities |
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Long-term debt, net |
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Long-term lease liability |
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Deferred taxes |
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Total liabilities |
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Shareholders’ equity: |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. See accompanying notes to the interim condensed consolidated financial statements.
4
GAIA, INC.
Condensed Consolidated Statements of Operations
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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(in thousands, except per share data) |
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2023 |
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2022 |
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2023 |
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2022 |
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(unaudited) |
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(unaudited) |
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Revenues, net |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues |
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Gross profit |
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Expenses: |
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Selling and operating |
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Corporate, general and administration |
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Acquisition costs |
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— |
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— |
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— |
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Total operating expenses |
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Income (loss) from operations |
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( |
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( |
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( |
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Interest and other expense, net |
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( |
) |
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( |
) |
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( |
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( |
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SEC settlement |
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— |
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( |
) |
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— |
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( |
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Loss before income taxes |
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( |
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( |
) |
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( |
) |
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( |
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Provision for (benefit from) income taxes |
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— |
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— |
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— |
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— |
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Loss from continuing operations |
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( |
) |
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( |
) |
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( |
) |
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( |
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Loss from discontinued operations |
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— |
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( |
) |
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— |
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( |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Earnings (loss) per share: |
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Basic |
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Continuing operations |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Discontinued operations |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
( |
) |
Basic earnings (loss) per share |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Diluted |
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Continuing operations |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Discontinued operations |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
( |
) |
Diluted earnings (loss) per share |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Weighted-average shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to the interim condensed consolidated financial statements.
5
GAIA, INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
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(unaudited) |
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(in thousands, except shares) |
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Total Shareholders’ |
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Accumulated |
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Common |
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Additional |
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Common |
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Balance at January 1, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, stock option exercises and share-based compensation |
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— |
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— |
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Net Income |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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Net loss |
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( |
) |
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( |
) |
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— |
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— |
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— |
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Balance at September 30, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Balance at January 1, 2023 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation |
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— |
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— |
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Net loss |
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( |
) |
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( |
) |
|
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Issuance of Gaia, Inc. common stock for media library acquisition |
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— |
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— |
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Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, and share-based compensation |
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— |
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— |
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Net loss |
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( |
) |
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( |
) |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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$ |
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$ |
( |
) |
|
$ |
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$ |
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Share-based compensation |
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— |
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— |
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— |
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Net loss |
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( |
) |
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( |
) |
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— |
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— |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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See accompanying notes to the interim condensed consolidated financial statements.
6
GAIA, INC.
Condensed Consolidated Statements of Cash Flows
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For the Nine Months Ended September 30, |
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(in thousands) |
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2023 |
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2022 |
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(unaudited) |
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Operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Loss from discontinued operations |
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— |
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Loss from continuing operations |
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( |
) |
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( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Share-based compensation expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
) |
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( |
) |
Prepaid expenses and other assets |
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( |
) |
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( |
) |
Accounts payable and accrued liabilities |
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( |
) |
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Deferred revenue |
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( |
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Net cash provided by operating activities - continuing operations |
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Net cash used in operating activities - discontinued operations |
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— |
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( |
) |
Net cash provided by operating activities |
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Investing activities: |
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Additions to media library, software and equipment |
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( |
) |
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( |
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Acquisitions, net of cash acquired, and purchase of intangible assets |
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— |
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( |
) |
Net cash used in investing activities |
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( |
) |
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( |
) |
Financing activities: |
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Repayment of debt |
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( |
) |
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( |
) |
Proceeds from short-term borrowings |
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Proceeds from the issuance of common stock |
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Net cash provided by (used in) financing activities |
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( |
) |
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Net change in cash |
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( |
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Cash at beginning of period |
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Cash at end of period |
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$ |
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$ |
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Supplemental cash flow information |
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Interest paid |
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$ |
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$ |
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Value of shares issued for acquisition of content added to Media Library |
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$ |
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— |
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See accompanying notes to the interim condensed consolidated financial statements.
7
Notes to interim condensed consolidated financial statements
References in this report to “we”, “us”, “our” or “Gaia” refer to Gaia, Inc. and its consolidated subsidiaries, unless we indicate otherwise. All textual currency references are expressed in thousands of U.S. dollars (unless otherwise indicated).
1. Organization, Nature of Operations, and Principles of Consolidation
Gaia, Inc. (“Gaia,” “we” or “us”) operates a global digital video subscription service and on-line community that caters to a unique and underserved member base. Our digital content library includes over
Our mission is to create a transformational network that empowers a global conscious community. Content on our network is currently organized into
We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”), and they include our accounts and those of our subsidiaries. Intercompany transactions and balances have been eliminated. The unaudited condensed consolidated financial position, results of operations and cash flows for the interim periods disclosed in this report are not necessarily indicative of future financial results.
There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2022.
Use of Estimates and Reclassifications
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and disclosures. Although we base these estimates on our best knowledge of current events and actions that we may undertake in the future, actual results may be different from the estimates. We have made certain reclassifications to prior period amounts to conform to the current period presentations.
Discontinued Operations
Yoga International historically had a line of business focused on one-time transactional course sales. With the launch of a premium membership tier that includes this content, this line of business was discontinued in 2022 as the contractual commitments related to this line of business lapsed. There are
2. Revenue Recognition
Revenues consist primarily of subscription fees paid by our members. We present revenues net of taxes collected from members. Members are billed in advance and revenues are recognized ratably over the subscription term. Deferred revenue consists of subscription fees collected from members that have not been earned and is recognized ratably over the remaining term of the subscription. We recognize revenue on a net basis for relationships where our partners have the primary relationship, including billing and service delivery, with the member. Payments made to partners to assist in promoting our service on their platforms are expensed as marketing expenses in the period incurred. We do not allow access to our service to be provided as part of a bundle by any of our partners.
3. Equity and Share-Based Compensation
During the first nine months of 2023 and 2022, we recognized approximately $
4. Goodwill and Other Intangible Assets
There were
8
The following table represents our other intangible assets by major asset class as of the dates indicated, which are included in Real estate, investment and other assets, net on the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.
(in thousands) |
|
September 30, 2023 |
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December 31, 2022 |
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Amortizable Intangible Assets |
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Customer relationships |
|
$ |
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$ |
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Tradenames |
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Accumulated amortization |
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( |
) |
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( |
) |
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$ |
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$ |
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Unamortized Intangible Assets |
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Domain names |
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$ |
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$ |
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Our amortizable assets are expected to be amortized on a
(in thousands) |
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2023 (remaining) |
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$ |
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2024 |
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2025 |
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$ |
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|
5. Debt
On September 9, 2020, Boulder Road sold a
On December 28, 2020, Boulder Road and Westside entered into a loan agreement with First Interstate Bank, as lender, providing for a mortgage loan in the principal amount of $
On August 25, 2022 (the Closing Date), Gaia, as borrower, and certain subsidiaries, as guarantors, entered into a Credit and Security Agreement (the Credit Agreement) with KeyBank National Association (KeyBank). The Credit Agreement provides for a revolving credit facility in an aggregate amount of up to $
Loans made, or letters of credit issued, under the Credit Agreement mature on
Any advance under the Credit Agreement shall bear interest at the Daily Simple SOFR rate (subject to a floor of
The aggregate outstanding amount of advances under the Credit Agreement is required to be $
The Credit Agreement contains customary affirmative and negative covenants (each with customary exceptions), including limitations on the Company’s ability to incur liens or debt, make investments, pay dividends, enter into transactions with its affiliates and engage in certain fundamental changes. Additionally, the Credit Agreement requires Gaia to maintain a Fixed Charge Coverage Ratio of not less than
9
Maturities on long-term debt, net are:
(in thousands) |
|
|
|
|
2023 (remaining) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
|
|
$ |
|
|
6. Leases
In connection with the sale of a portion of our corporate campus as further discussed in Note 5,
Because the rate implicit in the lease is not readily determinable, we used our incremental borrowing rate to determine the present value of lease payments. Information related to our right-of-use asset and related lease liability were as follows:
|
|
|
|
September 30, |
|
|
December 31, |
|
||
(in thousands) |
|
Balance Sheet Classification |
|
2023 |
|
|
2022 |
|
||
|
Right-of-use lease asset, net |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
||
Operating lease liability (current) |
|
|
|
$ |
|
|
$ |
|
||
Operating lease liability (non-current) |
|
|
|
|
|
|
|
|
||
|
|
|
|
$ |
|
|
$ |
|
||
|
|
For the Three Months Ended September 30, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Cash paid for operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
For the Nine Months Ended September 30, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Cash paid for operating lease liabilities |
|
$ |
|
|
$ |
|
||
Operating lease expense is recognized on a straight-line basis over the lease term. Future amortization of our lease liability as of September 30, 2023 is expected to be:
(in thousands) |
|
|
|
|
2023 (remaining) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Future lease payments, gross |
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
Operating lease liability |
|
$ |
|
|
7. Earnings Per Share
Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period (“common stock equivalents”). Common stock equivalents consist of incremental shares issuable upon the assumed exercise of stock options and vesting of restricted stock units utilizing the treasury stock method.
10
The weighted-average diluted shares outstanding computation is:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(in thousands, except per share data) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(unaudited) |
|
|
(unaudited) |
|
||||||||||
Weighted-average common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted-average number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive.
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(unaudited) |
|
|
(unaudited) |
|
||||||||||
Common stock equivalents excluded due to net loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Employee stock options and RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
8. Income Taxes
Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. Based on our historical operating losses, combined with our plans to continue to invest in our revenue growth and content library, we have a full valuation allowance on our deferred tax assets as of September 30, 2023. As of September 30, 2023, our net operating loss carryforwards on a gross basis were $
9. Non-income Taxes
The Company is subject to tax examinations for Value Added Taxes (VAT). A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. Where a VAT liability with respect to a jurisdiction is probable and can be reliably estimated, the Company accrues for these matters in corporate, general, and administration expenses in the condensed consolidated statements of operations. Future developments relating to the foregoing could result in adjustments to these accruals.
10. Contingencies
From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us in litigation or arbitration in existence at September 30, 2023 and that can be reasonably estimated are either reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.
11. Subsequent Events
Class A Common Stock Offering
On October 2, 2023, we entered into an underwriting agreement with Lake Street Capital Markets, LLC (the Underwriter) relating to the offer and sale of
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are forward looking statements that involve risks and uncertainties. When used in this discussion, we intend the words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “strive,” “target,” “will,” “would” and similar expressions as they relate to us to identify such forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Risks and uncertainties that could cause actual results to differ include, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively, including for customer engagement with different modes of entertainment; maintenance and expansion of devise platforms for streaming; fluctuation in customer usage of our service; fluctuations in quarterly operating results; service disruptions; production risks; general economic conditions; future losses; loss of key personnel; price changes; brand reputation; acquisitions; new initiatives we undertake; security and information systems; legal liability for website content; failure of third parties to provide adequate service; future internet-related taxes; our founder’s control of us; litigation; consumer trends; the effect of government regulation and programs; the impact of public health threats, including the coronavirus (COVID-19) pandemic and our response to it; and other risks and uncertainties included in our filings with the SEC. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements which reflect our views only as of the date of this report. We undertake no obligation to update any forward-looking information.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information that will assist readers in understanding our consolidated financial statements, changes in certain items in those statements from year to year, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect the consolidated financial statements.
Overview and Outlook
We operate a global digital video subscription service with a library of over 10,000 titles, with a growing selection of titles available in Spanish, German and French that caters to a unique, underserved member base. Our digital content is available to our members on most internet-connected devices anytime, anywhere, commercial-free. Through our online Gaia subscription service our members have unlimited access to a library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 88% of which is exclusively available to our members for digital streaming on most internet-connected devices.
Gaia’s position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content, which provides a complementary offering to other entertainment-based streaming video services. Our original content is developed and produced in-house in our production studios near Boulder, Colorado. By offering exclusive and unique content through our streaming service, we believe we will be able to significantly expand our target member base.
Our available content is currently focused on yoga, transformation, alternative healing, seeking truth and conscious films. This content is specifically targeted to a unique member base that is interested in alternatives and supplements to the content provided by mainstream media. We have grown these content options both organically through our own productions and through strategic acquisitions. In addition, through our investments in our streaming video technology and our user interface, we have expanded the many ways our subscription member base can access our unique library of media titles.
Our core strategy is to grow our subscription business domestically and internationally by expanding our unique and exclusive content library, enhancing our user interface, extending our streaming service to new internet-connected devices as they are developed and creating a conscious community built around our content.
The full impact that the COVID-19 pandemic will have on our business, operations and financial results will depend on a number of evolving factors that we may not be able to accurately predict. See Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional discussion regarding risks related to the COVID-19 pandemic.
Commencing during the second half of March 2020 and continuing through July 2020, we saw an increase in demand for our content from both current and potential members. This created a positive trend in existing member retention, costs to acquire new members, and the corresponding revenue and cash flow impacts from these higher volumes. This trend dissipated beginning in August 2020,
12
when we saw the online paid media advertising market start to return to historical norms with a corresponding effect on the cost of our online advertising efforts. With the rollout of privacy changes affecting a large number of mobile consumers during the summer of 2021 we saw an increase in the costs of our online advertising efforts which reduced the number of new members we add each period with our allocated marketing spend. In addition, in the period of March through October 2022, we lost about 40% of the members we added during the COVID-19 lockdowns in 2020 and 2021.
We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600.
Results of Operations
The table below summarizes certain detail of our financial results for the periods indicated:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(in thousands, except per share data) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues, net |
|
$ |
20,223 |
|
|
$ |
19,907 |
|
|
$ |
59,709 |
|
|
$ |
62,458 |
|
Cost of revenues |
|
|
2,983 |
|
|
|
2,648 |
|
|
|
8,595 |
|
|
|
8,312 |
|
Gross profit margin |
|
|
85.2 |
% |
|
|
86.7 |
% |
|
|
85.6 |
% |
|
|
86.7 |
% |
Selling and operating |
|
|
16,254 |
|
|
|
15,543 |
|
|
|
49,462 |
|
|
|
48,197 |
|
Corporate, general and administration |
|
|
1,433 |
|
|
|
2,019 |
|
|
|
4,726 |
|
|
|
5,598 |
|
Acquisition costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
Total operating expenses |
|
|
17,687 |
|
|
|
17,562 |
|
|
|
54,188 |
|
|
|
53,844 |
|
Income (loss) from operations |
|
|
(447 |
) |
|
|
(303 |
) |
|
|
(3,074 |
) |
|
|
302 |
|
Interest and other expense, net |
|
|
(141 |
) |
|
|
(65 |
) |
|
|
(375 |
) |
|
|
(175 |
) |
SEC settlement |
|
|
— |
|
|
|
(2,000 |
) |
|
|
— |
|
|
|
(2,000 |
) |
Loss before income taxes |
|
|
(588 |
) |
|
|
(2,368 |
) |
|
|
(3,449 |
) |
|
|
(1,873 |
) |
Provision for (benefit from) income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Loss from continuing operations |
|
|
(588 |
) |
|
|
(2,368 |
) |
|
|
(3,449 |
) |
|
|
(1,873 |
) |
Loss from discontinued operations |
|
|
— |
|
|
|
(7 |
) |
|
|
— |
|
|
|
(300 |
) |
Net loss |
|
$ |
(588 |
) |
|
$ |
(2,375 |
) |
|
$ |
(3,449 |
) |
|
$ |
(2,173 |
) |
The following table sets forth certain financial data as a percentage of revenue for the periods indicated:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues, net |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
14.8 |
% |
|
|
13.3 |
% |
|
|
14.4 |
% |
|
|
13.3 |
% |
Gross profit |
|
|
85.2 |
% |
|
|
86.7 |
% |
|
|
85.6 |
% |
|
|
86.7 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling and operating |
|
|
80.4 |
% |
|
|
78.1 |
% |
|
|
82.8 |
% |
|
|
77.2 |
% |
Corporate, general and administration |
|
|
7.1 |
% |
|
|
10.1 |
% |
|
|
7.9 |
% |
|
|
9.0 |
% |
Acquisition costs |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
0.1 |
% |
Total operating expenses |
|
|
87.5 |
% |
|
|
88.2 |
% |
|
|
90.8 |
% |
|
|
86.2 |
% |
Income (loss) from operations |
|
|
(2.2 |
)% |
|
|
(1.5 |
)% |
|
|
(5.1 |
)% |
|
|
0.5 |
% |
Interest and other expense, net |
|
|
(0.7 |
)% |
|
|
(0.3 |
)% |
|
|
(0.6 |
)% |
|
|
(0.3 |
)% |
SEC settlement |
|
|
— |
% |
|
|
(10.0 |
)% |
|
|
— |
% |
|
|
(3.2 |
)% |
Loss before income taxes |
|
|
(2.9 |
)% |
|
|
(11.9 |
)% |
|
|
(5.8 |
)% |
|
|
(3.0 |
)% |
Provision for (benefit from) income taxes |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
Loss from continuing operations |
|
|
(2.9 |
)% |
|
|
(11.9 |
)% |
|
|
(5.8 |
)% |
|
|
(3.0 |
)% |
Loss from discontinued operations |
|
|
— |
% |
|
|
(0.0 |
)% |
|
|
— |
% |
|
|
(0.5 |
)% |
Net loss |
|
|
(2.9 |
)% |
|
|
(11.9 |
)% |
|
|
(5.8 |
)% |
|
|
(3.5 |
)% |
Three months ended September 30, 2023 compared to three months ended September 30, 2022
Revenues, net. Revenues increased $0.3 million, or 1.5%, to $20.2 million during the three months ended September 30, 2023, compared to $19.9 million during the three months ended September 30, 2022. This was primarily driven by an increase in member count.
13
Cost of revenues. Cost of revenues increased $0.4 million or 15.4% to $3.0 million during the three months ended September 30, 2023, compared to $2.6 million during the three months ended September 30, 2022 related to the increase in revenues and increased content amortization. Gross profit margin decreased during the three months ended September 30, 2023 to 85.2% from 86.7% for the three months ended September 30, 2022 primarily due to increased content amortization related to an overall increase in our investment of our original content offerings.
Selling and operating expenses. Selling and operating expenses increased $0.8 million, or 5.2%, to $16.3 million during the three months ended September 30, 2023, compared to $15.5 million for the three months ended September 30, 2022, driven primarily by an increase in marketing spend expenses and tax accruals. These increased expenses are offset by a one-time Employee Retention Tax Credit (ERTC) against payroll tax expense. This ERTC tax credit was recognized upon completion of the filing. As a percentage of net revenues, selling and operating expenses increased to 80.4% for the three months ended September 30, 2023 compared to 78.1% for the three months ended September 30, 2022.
Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.6 million, or 30.0% to $1.4 million for three months ended September 30, 2023 from $2.0 million for three months ended September 30, 2022, driven primarily by decreases in salary and payroll related expenses. As a percentage of net revenues, these expenses decreased to 7.1% for the three months ended September 30, 2023 from 10.1% for the three months ended September 30, 2022.
Nine months ended September 30, 2023 compared to nine months ended September 30, 2022
Revenues, net. Revenues decreased $2.8 million, or 4.5%, to $59.7 million during the nine months ended September 30, 2023, compared to $62.5 million during the nine months ended September 30, 2022. This was primarily driven by a post-COVID subscriber contraction, experienced industry wide during the second half of 2022, which resulted in decreased revenue and overall member count into 2023. The reversal of this trend began during the first half of 2023, when we started to see member count growth along with revenues. This steady pace of growth culminated in the third quarter of 2023, when we started to see a return to the pre-contraction revenue levels.
Cost of revenues. Cost of revenues increased $0.3 million, or 3.6%, to $8.6 million during the nine months ended September 30, 2023, from $8.3 million during the nine months ended September 30, 2022 due to increased content amortization. Gross profit margin decreased during the nine months ended September 30, 2023 to 85.6% from 86.7% for the nine months ended September 30, 2022 primarily due to decreased revenues.
Selling and operating expenses. Selling and operating expenses increased $1.3 million, or 2.7%, to $49.5 million during the nine months ended September 30, 2023, compared to $48.2 million for the nine months ended September 30, 2022, driven primarily by an increase in marketing spend and tax accruals. These increased expenses are offset by a one-time Employee Retention Tax Credit (ERTC) against payroll tax expense. This ERTC tax credit was recognized upon completion of the filing. As a percentage of net revenues, these expenses increased to 82.8% for the nine months ended September 30, 2023 compared to 77.2% for the nine months ended September 30, 2022.
Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.9 million or 16.1% to $4.7 million for the nine months ended September 30, 2023 compared to $5.6 million for the nine months ended September 30, 2022, primarily driven by decreases in salary and payroll expenses. As a percentage of net revenues, these expenses decreased to 7.9% for the nine months ended September 30, 2023 from 9.0% for the nine months ended September 30, 2022, driven primarily by a decrease in revenues.
Seasonality
Our member base growth reflects seasonal variations driven primarily by periods when consumers typically spend more time indoors and, as a result, tend to increase their viewing, similar to those of traditional TV and cable networks. The effects of the global pandemic have shifted our historical pattern over the past two years, but we have historically experienced the greatest member growth in the fourth and first quarters (October through February), and slowest growth during May through August. This has historically driven quarterly variations in our spending on member acquisition efforts and the number of net new subscribers we add each quarter but has not historically resulted in corresponding seasonality in net revenue. As we continue to expand internationally, we also expect regional seasonality trends to demonstrate more predictable seasonal patterns as our service offering in each market becomes more established and we have a longer history to assess such patterns.
Liquidity and Capital Resources
Our capital needs arise from working capital required to fund operations, capital expenditures related to acquisition and development of media content, development and marketing of our digital platforms, acquisitions of new businesses and other investments,
14
replacements, expansions and improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including the rate of market acceptance of our offerings, our ability to expand our customer base, the cost of ongoing upgrades to our offerings, our expenditures for marketing, and other factors. Additionally, we will continue to pursue opportunities to expand our media libraries, evaluate possible investments in businesses and technologies, and increase our marketing programs as needed.
Our budgeted content and capital expenditures for the remainder of 2023 are expected to be between $3.0 to $4.0 million which we intend to fund with cash flows generated from operations. These planned expenditures will be predominately utilized to expand our content library and build out the capabilities of our digital platforms. The planned expenditures are discretionary and, with our in-house production capabilities, we have the ability to scale expenditures based on the available cash flows from operations. We began to generate positive cash flows from operations in October 2019 and have continued to generate cash flows from operations since. We expect to continue generating positive cash flows from operations during the remainder of 2023. We generated approximately $10.1 million in cash flows from operations during the nine months ended September 30, 2023. As of September 30, 2023, our cash balance was $11.2 million.
As described in Note 5, during August 2022, we entered into a Credit Agreement with KeyBank, which provides for a revolving credit facility in an aggregate amount of up to $10.0 million. Funds from the Credit Agreement are available for working capital and general corporate purposes, but not to fund any permitted acquisitions or other investments. As of September 30, 2023, $9.0 million was drawn under the Credit Agreement, which is included in Long-term debt, net on the accompanying condensed consolidated balance sheets.
In the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, minority investment, strategic relationship and other business combination opportunities in our market. For any future investment, acquisition, or joint venture opportunities, we may consider using then-available liquidity, issuing equity securities or incurring indebtedness.
While there can be no assurances, we believe our cash on hand, our cash expected to be generated from operations, our $10 million revolving line of credit, our potential additional borrowing capabilities now that we have a history of generating positive operating cash flows, and our potential capital raising capabilities will be sufficient to fund our operations on both a short-term and long-term basis. However, our projected cash needs may change as a result of acquisitions, product development, unforeseen operational difficulties, or other factors.
Class A Common Stock Offering
On October 2, 2023, we entered into an underwriting agreement with Lake Street Capital Markets, LLC (the Underwriter) relating to the offer and sale of 1,855,000 shares of our Class A Common Stock ($0.0001 par value) (the Shares). We sold the Shares to the Underwriter at the public offering price of $2.70 per share less underwriting discounts and commissions, resulting in net proceeds of $4,678. We provided a 30-day option to the Underwriter to purchase up to an additional 278,250 Shares to cover over-allotments. At time of filing, the over-allotment option was not exercised. Proceeds were, and are, expected to be used for general corporate purposes, which may include additions to working capital, financing of capital expenditures, repayment of indebtedness, acquisitions and strategic investment opportunities.
Cash Flows
The following table summarizes our sources (uses) of cash during the periods presented:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating activities - continuing operations |
|
$ |
3,601 |
|
|
$ |
1,686 |
|
|
$ |
10,081 |
|
|
$ |
8,373 |
|
Operating activities - discontinued operations |
|
|
— |
|
|
|
(7 |
) |
|
|
— |
|
|
|
(300 |
) |
Operating activities |
|
|
3,601 |
|
|
|
1,679 |
|
|
|
10,081 |
|
|
|
8,073 |
|
Investing activities |
|
|
(3,252 |
) |
|
|
(4,484 |
) |
|
|
(10,371 |
) |
|
|
(14,903 |
) |
Financing activities |
|
|
1 |
|
|
|
7,451 |
|
|
|
(43 |
) |
|
|
7,402 |
|
Net change in cash |
|
$ |
350 |
|
|
$ |
4,646 |
|
|
$ |
(333 |
) |
|
$ |
572 |
|
Operating activities. Cash flows provided by operations increased approximately $2.0 million during the first nine months of 2023 compared to the same period in 2022. The increase was primarily driven by changes in earnings, timing of working capital, primarily accounts payable and deferred revenues.
15
Investing activities. Cash flows used in investing activities decreased $4.5 million during the first nine months of 2023 compared to the same period in 2022 due primarily to the cost reduction initiatives we completed in the first quarter of 2023.
Financing activities. Cash flows provided by financing activities were primarily impacted by borrowing and repayment activities associated with our revolving line of credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon its evaluation as of September 30, 2023, our management has concluded that those disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
16
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
We incorporate by reference the Risk Factors included as Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 that we filed with the SEC on March 6, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
17
Item 6. Exhibits
Exhibit No. |
|
Description |
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
104 |
|
Cover Page Interactive Data File |
* Filed herewith
** Furnished herewith
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Gaia, Inc. |
|
|
(Registrant) |
|
|
|
October 30, 2023 |
By: |
/s/ Jirka Rysavy |
Date |
|
Jirka Rysavy |
|
|
Chief Executive Officer |
|
|
(Authorized Officer) |
|
|
|
October 30, 2023 |
By: |
/s/ Ned Preston |
Date |
|
Ned Preston |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
19