Gaia, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited interim financial statements; amounts below are in millions of U.S. dollars unless noted.
Business context
Gaia operates a global subscription video service and online community, with more than 10,000 titles across yoga, transformation, alternative healing and related content. Its December 2021 acquisition of Yoga International expanded its yoga offering. The company is investing in original and international-language content, technology and platform capabilities.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $19.9 | $20.4 | $62.5 | $58.7 |
| Gross profit margin | 86.7% | 87.1% | 86.7% | 87.1% |
| Operating income (loss) | $(0.3) | $0.7 | $0.3 | $1.8 |
| Net income (loss) | $(2.4) | $0.6 | $(2.2) | $1.6 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $8.1 | $14.6 |
Q3 revenue declined 2.5%, which management attributed primarily to lower member count. Nine-month revenue grew 6.5%, primarily from more members and higher average monthly revenue per member. Gross margin eased as content amortization rose. Q3 operating expenses were $17.6 million versus $17.1 million; nine-month expenses were $53.8 million versus $49.3 million, reflecting technology, personnel, legal and Yoga International-related costs. Q3 and nine-month results include a one-time $2.0 million charge for the anticipated SEC settlement. Nine-month results also include a $0.3 million loss from discontinued operations.
For the first nine months, investing cash outflow was $14.9 million, including $14.1 million of additions to the media library, software and equipment and $0.8 million for acquisition-related payments and intangible assets. Financing cash inflow was $7.4 million, principally the $7.5 million revolving-credit draw. Cash increased $0.6 million to $10.8 million.
Liquidity and debt
At September 30, 2022, current assets were $16.7 million and current liabilities were $34.5 million. Gaia had $10.8 million in cash and had drawn $7.5 million of a new $10.0 million KeyBank revolving facility, leaving up to $2.5 million undrawn before considering facility terms and any letters of credit. The facility matures August 25, 2025, is secured by business assets including intellectual property, and carries financial covenants. The balance sheet also reports $6.0 million of long-term mortgage debt, net, and lease liabilities of $7.4 million in total. The mortgage is guaranteed by Gaia and matures in 2025.
Outlook, commentary and notable matters
- Management expected $2–$4 million of content and capital expenditures for the remainder of 2022, primarily for content and digital platforms, funded from operating cash flow. It described the spending as discretionary and scalable.
- Management expected positive operating cash flow for the remainder of 2022 and 2023 and believed available cash, operating cash flow and credit resources would fund short- and long-term operations. This is forward-looking and subject to changing cash needs.
- Management cited higher online advertising costs following mobile privacy changes and elevated cancellations during March–July 2022 among members acquired in the corresponding 2020 period. It also noted historical seasonal member-growth patterns, typically strongest in the fourth and first quarters.
- Gaia reached an agreement in principle with SEC staff in September 2022 to resolve an investigation concerning 2019 subscriber reporting and whistleblower-protection matters. Gaia accrued a $2.0 million penalty payable over one year if the settlement is finalized and approved; the company and CFO would consent without admitting or denying findings. The CFO’s contemplated separate $50,000 penalty is not Gaia’s accrued liability. Final approval was not assured.
- Yoga International’s one-time course-sales business is being wound down as contractual commitments lapse; the content is being incorporated into a premium membership tier. Gaia reported this activity as discontinued operations.
- Management identified risks including membership growth and retention, competition, economic conditions, content and technology investment, acquisitions, legal and regulatory matters, and the uncertain impact of COVID-19. The filing provides no quantified revenue or earnings guidance.
Important facts for investors to verify
- Whether the SEC settlement is finalized and approved, and the timing and cash impact of the $2.0 million payment.
- Subscriber trends, average revenue per member, acquisition costs and cancellations, given lower Q3 member count and management’s discussion of advertising costs and churn.
- Whether operating cash flow can support planned content and platform investment while meeting facility covenants and debt obligations.
- The ongoing impact of Yoga International integration, amortization and discontinued course-sale activity on reported growth and margins.
- Management’s liquidity assumptions against current liabilities exceeding current assets and the secured, covenant-bearing revolving facility.