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 |
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Accelerated filer |
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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 May 2, 2024 |
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 as of March 31, 2024 and December 31, 2023 |
4 |
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Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 |
5 |
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6 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 |
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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. |
15 |
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Item 4. |
15 |
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17 |
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Item 1. |
17 |
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Item 1A. |
17 |
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Item 2. |
17 |
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Item 3. |
17 |
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Item 5. |
17 |
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Item 6. |
18 |
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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 United States Securities and Exchange Commission (“SEC”). While certain information and note disclosures normally included in annual audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our condensed consolidated balance sheets as of March 31, 2024, the interim condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023, and condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023. Operating results for the three months ended March 31, 2024 and 2023 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, 2023 was derived from our annual 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 annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2023.
3
GAIA, INC.
Condensed Consolidated Balance Sheets
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March 31, |
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December 31, |
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(in thousands, except share and per share data) |
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2024 |
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2023 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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— |
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Accounts receivable |
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Other receivables |
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Prepaid expenses and other current assets |
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Total current assets |
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Media library, net |
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Operating right-of-use asset, net |
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Property and equipment, net |
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Equity method investment |
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— |
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Investments 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 EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued and other liabilities |
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Long-term debt, current portion |
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Operating lease liability, current portion |
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Deferred revenue |
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Total current liabilities |
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Long-term debt, net of current portion (Note 4) |
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Operating lease liability, net of current portion |
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Deferred taxes, net |
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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 Gaia, Inc. shareholders’ equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and 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 (unaudited)
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For the Three Months Ended March 31, |
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(in thousands, except per share data) |
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2024 |
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2023 |
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Revenues, net |
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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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Operating Expenses: |
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Selling and operating |
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Corporate, general and administration |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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Equity method investment loss |
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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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Loss before income taxes |
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( |
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( |
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Provision for income taxes |
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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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Net income attributable to noncontrolling interests |
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Net loss attributable to common shareholders |
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$ |
( |
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$ |
( |
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Loss per share: |
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Basic |
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Continuing operations (attributable to common shareholders) |
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$ |
( |
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$ |
( |
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Basic loss per share |
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$ |
( |
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$ |
( |
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Diluted |
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Continuing operations (attributable to common shareholders) |
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$ |
( |
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$ |
( |
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Diluted loss per share |
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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 Equity (unaudited)
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(in thousands, except shares) |
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Common |
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Accumulated |
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Common |
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Additional |
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Non-controlling interests |
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Total |
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Balance at December 31, 2022 |
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$ |
( |
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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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— |
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Net income (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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$ |
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(in thousands, except shares) |
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Common |
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Accumulated |
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Common |
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Additional |
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Non-controlling interests |
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Total |
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Balance at December 31, 2023 |
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$ |
( |
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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 employee stock purchase plan |
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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 |
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— |
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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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— |
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Net income (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, 2024 |
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$ |
( |
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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 (unaudited)
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For the Three Months Ended March 31, |
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(in thousands) |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Media library amortization |
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Depreciation and amortization |
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Noncash operating lease expense |
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Share-based compensation expense |
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Additions to media library |
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( |
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( |
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Equity method investment losses |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Other receivables |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
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Accounts payable |
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( |
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Accrued and other liabilities |
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( |
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Deferred revenue |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Additions to property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Repayment of long-term debt |
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( |
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( |
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Proceeds from short-term borrowings |
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— |
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Proceeds from the issuance of common stock |
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Net cash (used in) provided by financing activities |
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( |
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Net change in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities |
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Additions to property and equipment in Accounts payable |
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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”, the “Company” 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. operates a global digital video subscription service and on-line community that strives to connect 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 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.
Restricted Cash
When applicable Gaia restricts cash designated for future investment funding. These funds are held in compliance with contractual agreements or other projects earmarked for capital raises to support strategic investments. The restriction ensures the dedicated allocation of funds for intended investment purposes. Restricted cash has an offsetting liability in Accrued and other liabilities.
Use of Estimates and Reclassifications
The preparation of the interim condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying interim condensed consolidated 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.
During the year ended December 31, 2023, the Company determined it had the ability to exercise influence over Telomeron, Inc. (“Telomeron”) and, therefore, used the equity method of accounting to account for its equity interest. During the first quarter of 2024, the Company determined it no longer has the ability to exercise significant influence over Telomeron and, as such, the investment was reclassified at its carrying value to an equity security investment. The investment has been reclassed into Investments and other assets, net on our condensed consolidated balance sheets.
Recently Issued Accounting Pronouncements Not Yet Adopted
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, 2023. The following recently issued accounting pronouncements are being evaluated but have not yet been adopted.
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09.
8
2. Revenue Recognition
Revenues consist primarily of subscription fees paid by our members. We present revenues net of the taxes that are collected from members and remitted to governmental authorities. Members are billed in advance and revenues are recognized ratably over the subscription term. Deferred revenues consist of subscription fees collected from members that have not been earned and are recognized ratably over the remaining term of the subscription. We recognize revenue on a net basis for relationships where our third-party platform partners (“Partner”) have the primary relationship, including billing and service delivery, with the member. We recognize revenue on a gross basis for members whose primary relationship is with Gaia. Payments made to Partners to assist in promoting our service on their platforms are expensed to 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 three months of 2024 and 2023, we recognized approximately $
4. Debt
On September 9, 2020, our wholly owned subsidiary Boulder Road LLC (“Boulder Road”) sold a
On December 28, 2020, Boulder Road and Westside (“Borrower”) 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 Secured Overnight Financing Rate (“SOFR”) (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) |
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2024 (remaining) |
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$ |
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2025 |
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$ |
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5. Leases
In connection with the sale of a portion of our corporate campus as further discussed in Note 4,
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:
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March 31, |
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December 31, |
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(in thousands) |
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2024 |
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2023 |
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Operating right-of-use asset, net |
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$ |
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$ |
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Operating lease liability, current portion |
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$ |
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$ |
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Operating lease liability, net of current portion |
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$ |
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$ |
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Operating lease expense is recognized on a straight-line basis over the lease term. Our operating lease expense was $
(in thousands) |
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2024 (remaining) |
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$ |
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2025 |
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2026 |
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2027 |
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2028 |
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Thereafter |
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Future lease payments, gross |
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Less: Imputed interest |
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( |
) |
Operating lease liability |
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$ |
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6. Loss Per Share
Basic loss per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted loss 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.
The weighted-average diluted shares outstanding computation is:
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For the Three Months Ended March 31, |
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(in thousands, except per share data) |
|
2024 |
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2023 |
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|
|
(unaudited) |
|
|||||
Weighted-average common stock outstanding |
|
|
|
|
|
|
||
Weighted-average number of shares |
|
|
|
|
|
|
||
10
We excluded the effect of the below elements from our calculation of diluted loss per share, as their inclusion would have been anti-dilutive, as there were no earnings attributable to common shareholders:
|
|
For the Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
|
|
(unaudited) |
|
|||||
Common stock equivalents excluded due to net loss |
|
|
|
|
|
|
||
Employee stock options and RSUs |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
7. 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 March 31, 2024. As of March 31, 2024, our net operating loss carryforwards on a gross basis were $
8. 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 March 31, 2024 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.
The Company is subject to tax examinations for non-income taxes in foreign jurisdictions where it provides services to consumers residing in foreign jurisdictions. A number of these examinations are ongoing and, in certain cases, have resulted in assessments from foreign tax authorities. An accrual for non-income tax liability is recognized for foreign jurisdictions when it is probable that a liability has been incurred and the non-income tax exposure can be reasonably estimated. For other foreign jurisdictions requiring non-income taxes, the Company has determined that the non-income tax exposure is reasonably possible. However, due that the Company is in early stages of the examination or a lack of communication from foreign tax authorities, and the Company’s prior experience with foreign tax authorities, the Company is unable to reasonably estimate the amount of non-income tax exposure that may be incurred.
9. Segment and Geographic Information
Our chief operating decision maker reviews operating results on a consolidated basis and has determined that we have one reportable segment. We have members in the United States and over 185 foreign countries. The major geographic territories are the U.S., Canada and Australia based on the billing location of the member.
The following represents geographical data for our operations:
|
|
For the Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Revenue: |
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
International |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
11
10. Subsequent Events
During April of 2024, a majority owned subsidiary of the Company raised approximately $
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, 2023. 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 device 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; our ability to remediate the material weaknesses in our internal control over financial reporting; 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 unaudited condensed consolidated financial statements and related notes included elsewhere in this report. This section is designed to provide information that will assist readers in understanding our unaudited 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 live communications and live events 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, live events, 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 lifestyle campus 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.
12
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 March 31, |
|
|||||
(in thousands, except per share data) |
|
2024 |
|
|
2023 |
|
||
Revenues, net |
|
$ |
21,693 |
|
|
$ |
19,647 |
|
Cost of revenues |
|
|
3,168 |
|
|
|
2,773 |
|
Gross profit margin |
|
|
85.4 |
% |
|
|
85.9 |
% |
Selling and operating |
|
|
17,759 |
|
|
|
16,123 |
|
Corporate, general and administration |
|
|
1,629 |
|
|
|
1,773 |
|
Total operating expenses |
|
|
19,388 |
|
|
|
17,896 |
|
Loss from operations |
|
|
(863 |
) |
|
|
(1,022 |
) |
Equity method investment loss |
|
|
— |
|
|
|
(125 |
) |
Interest and other expense, net |
|
|
(108 |
) |
|
|
(121 |
) |
Loss before income taxes |
|
|
(971 |
) |
|
|
(1,268 |
) |
Provision for income taxes |
|
|
— |
|
|
|
— |
|
Net loss |
|
|
(971 |
) |
|
|
(1,268 |
) |
Net income attributable to noncontrolling interests |
|
|
74 |
|
|
|
38 |
|
Net loss attributable to common shareholders |
|
$ |
(1,045 |
) |
|
$ |
(1,306 |
) |
The following table sets forth certain financial data as a percentage of revenues, net for the periods indicated:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Revenues, net |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenues |
|
|
14.6 |
% |
|
|
14.1 |
% |
Gross profit margin |
|
|
85.4 |
% |
|
|
85.9 |
% |
Operating Expenses: |
|
|
|
|
|
|
||
Selling and operating |
|
|
81.9 |
% |
|
|
82.1 |
% |
Corporate, general and administration |
|
|
7.5 |
% |
|
|
9.0 |
% |
Total operating expenses |
|
|
89.4 |
% |
|
|
91.1 |
% |
Loss from operations |
|
|
(4.0 |
)% |
|
|
(5.2 |
)% |
Equity method investment loss |
|
|
0.0 |
% |
|
|
(0.6 |
)% |
Interest and other expense, net |
|
|
(0.5 |
)% |
|
|
(0.6 |
)% |
Loss before income taxes |
|
|
(4.5 |
)% |
|
|
(6.5 |
)% |
Provision for income taxes |
|
|
— |
% |
|
|
— |
% |
Net loss |
|
|
(4.5 |
)% |
|
|
(6.5 |
)% |
Net income attributable to noncontrolling interests |
|
|
0.3 |
% |
|
|
0.2 |
% |
Net loss attributable to common shareholders |
|
|
(4.8 |
)% |
|
|
(6.6 |
)% |
Three months ended March 31, 2024 compared to three months ended March 31, 2023
Revenues, net. Revenues increased $2.1 million, or 10.7%, to $21.7 million during the three months ended March 31, 2024, compared to $19.6 million during the three months ended March 31, 2023. This was primarily driven by an increase in member count.
Cost of revenues. Cost of revenues increased $0.4 million or 14.3% to $3.2 million during the three months ended March 31, 2024, compared to $2.8 million during the three months ended March 31, 2023 related to the increase in revenues and increased content amortization. Gross profit margin decreased during the three months ended March 31, 2024 to 85.4% from 85.9% for the three months ended March 31, 2023 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 $1.7 million, or 10.6%, to $17.8 million during the three months ended March 31, 2024, compared to $16.1 million for the three months ended March 31, 2023, driven primarily by an increase in people related expenses and marketing expense. As a percentage of net revenues, selling and operating expenses decreased to 81.9% for the three months ended March 31, 2024 compared to 82.1% for the three months ended March 31, 2023.
13
Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.2 million, or 11.1% to $1.6 million for three months ended March 31, 2024 from $1.8 million for three months ended March 31, 2023, driven primarily by decreases in salary and payroll related expenses. As a percentage of net revenues, these expenses decreased to 7.5% for the three months ended March 31, 2024 from 9.0% for the three months ended March 31, 2023.
Seasonality
Our member base 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. We have generally experienced the greatest member growth in the fourth and first quarters (October through February), and slowest during May through August. This drives quarterly variations in our spending on member acquisition efforts and the number of net new subscribers we add each quarter but does not result in a corresponding seasonality in net revenue. As we continue to expand internationally, we 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, 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 2024 are expected to be between $10.0 to $12.0 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 since 2020 and have continued to generate cash flows from operations since. We expect to continue generating positive cash flows from operations during the remainder of 2024. We generated approximately $5.9 million in cash flows from operations during the three months ended March 31, 2024. As of March 31, 2024, our cash balance was $8.6 million.
As described in Note 4, 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 March 31, 2024, there were no outstanding borrowings under the Credit Agreement.
As described in Note 10, during April of 2024, a majority owned subsidiary of the Company raised approximately $10.8 million of equity financing, including $4.0 million from Gaia, with a majority of the proceeds being used to acquire a technology license. The shares associated with this $10.8 million were issued in April 2024. The Company is still evaluating the transaction from an accounting perspective.
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.
14
Cash Flows
The following table summarizes our sources (uses) of cash during the periods presented:
|
|
For the Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
|
5,936 |
|
|
|
686 |
|
Investing activities |
|
|
(1,073 |
) |
|
|
(1,418 |
) |
Financing activities |
|
|
(30 |
) |
|
|
18 |
|
Net change in cash |
|
$ |
4,833 |
|
|
$ |
(714 |
) |
Operating activities. Cash flows provided by operations increased approximately $5.3 million during the first three months of 2024 compared to the same period in 2023. The increase was primarily driven by changes in earnings, timing of working capital, primarily accrued liabilities and deferred revenues.
Investing activities. Cash flows used in investing activities decreased $0.3 million during the first three months of 2024 compared to the same period in 2023 due primarily to lower budgeted capital expenditures.
Financing activities. Cash flows provided by financing activities were primarily impacted by repayment of long term debt
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
Management (i.e., the Company’s principal executive officer and principal 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 March 31, 2024, our management has concluded that those disclosure controls and procedures were not effective at a reasonable assurance level based on the previously identified material weaknesses in our internal control over financial reporting as described below. Notwithstanding the previously identified material weaknesses, management, including our Chief Executive Officer and Chief Financial Officer, believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Previously Identified Material Weakness
In the course of preparing our consolidated financial statements for the fiscal year ended December 31, 2023, we identified two material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting, we identified the following control deficiencies that represent material weaknesses as of December 31, 2023.
Specifically, we determined that we did not have appropriate technical accounting and financial reporting capabilities to properly record in our financial statements certain complex or unusual transactions. Additionally, we determined our financial close and reporting process was inadequate due to insufficient analysis of certain accounts and inadequate financial reporting systems.
These material weaknesses resulted in incorrect accounting entries that were identified and corrected through the audit of our fiscal year ended December 31, 2023. In addition, these material weaknesses resulted in errors in the consolidated financial statements and related disclosures in our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 through September 30, 2023.
Ongoing Remediation of Previously Identified Material Weakness
We have begun taking measures, and plan to continue to take measures, to remediate the material weaknesses. In order to address these material weaknesses, we have begun to implement additional procedures and controls in the financial statement close and reporting process, which include enhanced system capabilities in most areas, enhanced reconciliation controls, enhanced review controls and financial close checklists which aim to ensure all necessary reviews and reconciliations are occurring as designed.
15
Additionally, we have begun to enhance access to accounting training, literature, research materials and plan to increase communication channels among our personnel and outsourced third-party professionals with whom we may consult regarding the application of complex accounting transactions. We also plan to hire additional accounting and finance personnel with technical accounting and financial reporting experience.
We believe the measures described above along with other elements of our remediation plan will remediate the material weaknesses identified and strengthen our internal controls over financial reporting. We are committed to continuing to improve our internal control processes and have begun to implement the measures described above. We will also continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or we may modify certain of the remediation measures described above. We will not consider our material weaknesses remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
For more information concerning the material weakness identified and remediation steps, see the section titled “Risk Factors – Risks Related to our Material Weakness and Restatements” included in our Annual Report on Form 10-K, filed on March 29, 2024.
Changes in Internal Control over Financial Reporting
Other than the ongoing material weakness remediation activities described above, there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2024, 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, 2023 that we filed with the SEC on March 29, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
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) |
|
|
|
May 6, 2024 |
By: |
/s/ James Colquhoun |
Date |
|
James Colquhoun |
|
|
Chief Executive Officer |
|
|
(Authorized Officer) |
|
|
|
May 6, 2024 |
By: |
/s/ Ned Preston |
Date |
|
Ned Preston |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
19