Gaia, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results. Gaia operates a global subscription streaming service with approximately 8,000 titles.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $16.2 million | $13.2 million | $30.7 million | $25.6 million |
| Gross margin | 87.1% | 86.4% | 87.0% | 86.8% |
| Operating loss | $2.2 million | $4.3 million | $5.5 million | $10.7 million |
| Net loss | $2.5 million | $4.5 million | $6.1 million | $11.2 million |
| Basic and diluted loss per share | $0.13 | $0.25 | $0.33 | $0.62 |
- First-half operating cash flow was positive $3.9 million, versus negative $5.3 million in the prior-year period. Cash used in investing was $7.1 million, principally for media library, property and equipment additions; financing provided $0.2 million. Cash declined $3.0 million to $8.5 million.
- At June 30, 2020, total assets were $104.2 million, current assets $12.8 million, current liabilities $20.4 million, and long-term debt, net, $16.8 million. Equity was $66.7 million. Deferred revenue was $12.3 million, up from $8.0 million at year-end 2019.
- Quarterly revenue grew 22.7% and first-half revenue grew 19.9% year over year. Management attributed growth to more members and higher average monthly revenue per member. Expense discipline improved operating results; gross margin also increased modestly.
Outlook, risks and unusual items
- Management said increased demand from late March through June supported member retention, acquisition costs, revenue and cash flow, but the duration of the trend was uncertain. The company expected to continue generating cash for the remainder of 2020.
- Management estimated approximately $6.0 million of capital expenditures for the remainder of 2020, primarily for content and platform development. These expenditures were described as discretionary and adjustable to cash generation. Management believed available cash, expected operating cash flow and potential borrowing capacity would fund operations, while noting needs could change.
- COVID-19 had coincided with increased streaming demand, but management warned that prolonged economic effects could reduce discretionary consumer spending and demand. Live events scheduled for March through July were canceled or postponed, and GaiaSphere events were expected to operate at limited in-person capacity. Tenant rent defaults could also affect the company.
- Q2 included $0.7 million of non-recurring share-based compensation expense. In June, Gaia issued 139,617 shares as acquisition earnout consideration and converted $1.75 million of secured convertible notes into 247,270 shares. The notes were canceled upon conversion.
- The mortgage is secured by the corporate campus, bears a stated current rate of 5.75%, and matures May 1, 2022, with a two-year extension option. Management reported no material pending legal contingency; no legal proceedings were listed. Disclosure controls were deemed effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the pandemic-related gains in demand, retention and cash generation persisted beyond June 2020, and the related impact on member acquisition costs and revenue.
- Whether the projected $6.0 million second-half capital spending and operating cash flow expectations were achieved, given cash of $8.5 million and current liabilities exceeding current assets.
- Debt service and refinancing or extension plans for the campus-secured mortgage, including the effect of its LIBOR-linked spread and stated current rate.
- The filing describes exclusive content as approximately 90% in one section and 85% in another; confirm the intended figure. The MD&A also appears to compare Q2 2020 net loss with “the first quarter of 2019,” although the financial statements show the comparable period is Q2 2019.