GAIA, INC. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited interim financial statements; dollar amounts below are in millions unless otherwise noted.
Business context
Gaia operates a global digital video subscription service and online community. Its library contains approximately 8,000 titles, with more than 80% of viewership attributed to company-produced and owned content. Subscriptions are billed in advance, with revenue recognized over the subscription term.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $20.4 | $17.5 | $58.7 | $48.2 |
| Gross profit | $17.8 | $15.3 | $51.2 | $42.0 |
| Gross margin | 87.1% | 87.1% | 87.1% | 87.0% |
| Operating income (loss) | $0.7 | $0.4 | $1.8 | ($5.1) |
| Net income | $0.6 | $6.3 | $1.6 | $0.2 |
| Diluted EPS | $0.03 | $0.32 | $0.08 | $0.01 |
| Cash from operating activities | Not separately stated for quarter | $14.6 | $7.2 |
Revenue increased 16.6% in Q3 and 21.8% for the nine-month period, driven by growth in members and average monthly revenue per member. Q3 selling and operating expenses rose 14.8% to $15.5 million, primarily on personnel and technology costs; nine-month expenses increased 5.7% to $44.8 million. Corporate, general and administrative costs were $4.5 million for the nine months, down from $4.7 million.
Operating margin improved to 3.1% for the first nine months from a 10.6% operating loss margin in 2020. Cash generation improved: operating cash flow was $14.6 million, compared with $7.2 million a year earlier. Investing used $13.4 million, principally for media library, property and equipment additions. Financing provided $0.6 million, including common-stock proceeds.
Liquidity, debt and balance sheet
At September 30, 2021, cash was $14.4 million, up from $12.6 million at December 31, 2020. Current assets were $18.9 million and current liabilities $24.0 million; deferred revenue was $14.1 million. Total assets were $115.7 million, total liabilities $37.8 million, and shareholders’ equity $77.9 million.
The balance sheet reported long-term mortgage, net, of $6.1 million; the debt maturity schedule showed $6.3 million of total long-term debt. The mortgage bears fixed interest at 3.75%, matures December 2025, is secured by the corporate campus, and is guaranteed by Gaia. It is subject to financial covenants. Operating lease liabilities totaled $8.1 million.
Changes, outlook and risks
- Q3 2020 net income included a $6.1 million gain on sale of part of the corporate campus. This unusual, nonrecurring item explains much of the year-over-year decline in Q3 net income and the large comparative difference in interest and other income (expense). The sale proceeds also affected 2020 investing cash flow.
- Management budgeted $4 million to $6 million of content and capital expenditures for the remainder of 2021, primarily for content and digital-platform capabilities, intended to be funded from operating cash flow. The spending is discretionary and can be scaled to cash availability.
- Management expected to continue generating operating cash flow during the remainder of 2021 and stated that available cash, expected operating cash generation and potential financing capabilities should fund short- and long-term needs. No revenue or earnings forecast was provided.
- Management cited seasonal member growth, generally strongest in the fourth and first quarters and slowest in the second and third quarters. It also noted that pandemic-related demand gains from 2020 had moderated, with online advertising costs returning toward historical norms beginning in August 2020.
- Risks identified include competition, member growth and retention, pricing, consumer trends, key-personnel loss, technology and information-security issues, third-party service providers, legal and regulatory matters, acquisitions, economic conditions and COVID-19 impacts. Management said actual results may differ materially from forward-looking statements.
- The company reported a full valuation allowance on deferred tax assets; federal and state net operating loss carryforwards were $74.3 million and $20.0 million, respectively. Management said probable and estimable litigation exposures were reserved or not expected to materially affect the company. No legal proceedings were listed in Part II.
Important facts for investors to verify
- Whether subscriber growth and average revenue per member continued to support revenue growth after the reported period.
- Whether operating cash flow remains sufficient to fund the planned $4–$6 million of remaining-2021 content and platform spending.
- The sustainability of improved operating profitability, including the growth and effectiveness of selling, technology and content spending.
- Mortgage covenant compliance, debt repayment schedule, and the obligations associated with the campus lease and guarantee.
- Potential effects of seasonality, competition, advertising costs and changes in post-pandemic consumer behavior.