Grom Social Enterprises, Inc. (GROM)·Q1 2018 Earnings Summary

Executive Summary

• Q1 2018 revenue grew 19% year over year to $2.03M, driven by increased animation work at Top Draw; gross margin expanded to 61.7% from 56.8% and the net loss narrowed to $(1.09)M, or $(0.01) per share .
• Operating expenses fell 62.7% YoY, primarily from a ~$1.48M reduction in stock‑based compensation and ~$0.35M lower professional fees, partly offset by ~$0.18M higher G&A .
• Liquidity remains tight: cash was $0.41M and net cash used in operations was $(0.50)M; management disclosed a working capital deficit and going‑concern language, indicating need for additional financing .
• Management highlighted early traction from the upgraded MamaBear app and expects subscription/advertising revenue and a children’s nutritional supplement launch to begin contributing in H2 2018, providing potential near‑term catalysts if execution materializes .

What Went Well and What Went Wrong

What Went Well

• Revenue and margin expansion: revenues up 19% YoY to $2.03M and gross margin improved to 61.7%, reflecting stronger mix at Top Draw and improved web-filtering margins .
• Material cost discipline: operating expenses decreased ~62.7% YoY, with stock‑based compensation down ~$1.48M and professional fees down ~$0.35M .
• CEO tone on strategy and products: “We remain strongly focused on our strategy which is growing our user base… and in developing original content, technology, branding and marketing the ‘Grom’ name… We recently launched an upgrade version of our acclaimed MamaBear app. The early results are very promising.” .

What Went Wrong

• Netspective softness: revenue growth was “offset by a decline in revenues at Netspective webfiltering,” while GromSocial.com and MamaBear revenues were “nominal” in the quarter .
• Ongoing losses and cash burn: net loss was $(1.09)M and net cash used in operations was $(0.50)M, underscoring continued negative cash generation .
• Balance sheet constraints: long‑term debt of $5.61M, current liabilities of $5.77M vs current assets of $2.39M, and going‑concern risk with an estimated $2.0M financing need to fund operations disclosed in filings .

Financial Results

Q1 year-over-year comparison

Sequential snapshot (latest prior quarter available vs Q1 2018)

KPIs and balance sheet (point-in-time)

Note: Prior quarter beyond Q3 2017 (Q4 2017) was not filed as a discrete quarterly document; FY 2017 context is included separately .

Guidance Changes

No quantitative ranges were provided for revenue, margins, or EPS in Q1 2018 materials .

Earnings Call Themes & Trends

No earnings call transcript was located for Q1 2018; themes below reflect press release and filings.

Management Commentary

• Strategy and focus: “We remain strongly focused on our strategy which is growing our user base both organically and through synergistic acquisitions… and in developing original content, technology, branding and marketing the ‘Grom’ name” .
• Product update: “We recently launched an upgrade version of our acclaimed MamaBear app. The early results are very promising.” .
• Monetization outlook: “Subscription and advertising revenue… for the period ended March 31, 2018 was nominal. The Company expects to start generating increasing levels of revenue from these sources in the second half of 2018.” .
• Financing stance: Management noted efforts to avoid “expensive financings that could have negatively impacted our cap structure,” while filings disclosed anticipated financing needs and going‑concern risk .

Q&A Highlights

No Q1 2018 earnings call transcript was filed; Q&A highlights are not available from primary sources .

Estimates Context

Wall Street consensus estimates via S&P Global for Q1 2018 were unavailable for GROM at the time of this analysis; therefore, no estimate comparison can be provided. Where estimates are required, we default to S&P Global, but no data was returned for this period.

Key Takeaways for Investors

• The quarter shows tangible operating leverage: 19% revenue growth and ~500 bps gross margin expansion, coupled with a ~63% reduction in operating expenses, narrowed the loss materially .
• Mix matters: Animation (Top Draw) momentum offset Netspective softness; social/app monetization remains a 2H opportunity and is a key swing factor for trajectory .
• Liquidity is the principal risk: low cash, negative operating cash flow, and disclosed financing need/go‑concern language constrain optionality; monitor capital raises and debt refinancings .
• Execution catalysts: MamaBear upgrade and planned nutritional supplement launch could begin contributing in H2 2018; watch for evidence of paid subscriber adoption or advertiser wins .
• Balance sheet and cost discipline are improving, but debt load remains high; any margin stability at TDA and recovery at GES would further support cash burn reduction .
• Absence of Wall Street estimate data and an earnings call limits near‑term external expectation setting; price discovery may be more sensitive to operational updates and financing news (filed 8‑Ks) .

Sources: All figures and statements are drawn from Grom Social Enterprises’ Q1 2018 8‑K press release and exhibits **[1662574_0001683168-18-001481_grom_ex9901.htm:1]** **[1662574_0001683168-18-001481_grom_ex9901.htm:3]**, Q1 2018 10‑Q **[1662574_0001683168-18-001367_grom_10q-033118.htm:4]** **[1662574_0001683168-18-001367_grom_10q-033118.htm:36]**, Q3 2017 10‑Q **[1662574_0001683168-17-003105_grom_10q-093017.htm:4]** **[1662574_0001683168-17-003105_grom_10q-093017.htm:28]**, and FY 2017 10‑K **[1662574_0001683168-18-001022_grom_10k-123117.htm:2]** **[1662574_0001683168-18-001022_grom_10k-123117.htm:38]** **[1662574_0001683168-18-001022_grom_10k-123117.htm:40]**.