GAIA, INC. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Gaia operates a global subscription streaming service and online community, with more than 10,000 titles. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $20.7 | $19.4 | $42.6 | $38.3 |
| Gross profit / margin | $18.0 / 86.7% | $16.9 / 87.1% | $36.9 / 86.7% | $33.4 / 87.1% |
| Operating income / margin | $0.3 / 1.4% | $0.7 / 3.6% | $0.6 / 1.4% | $1.1 / 2.9% |
| Continuing-operations income | $0.2 | $0.6 | $0.5 | $1.0 |
| Net income | $0.1 | $0.6 | $0.2 | $1.0 |
| Basic and diluted EPS | $0.00 | $0.03 | $0.01 | $0.05 |
Revenue increased 6.7% in Q2 and 11.2% in the first half, which management attributed to higher membership and average monthly revenue per member. Net income included losses from discontinued operations of $0.1 million in Q2 and $0.3 million in the first half; the prior-year periods had none.
- Cash flow: First-half cash from continuing operations was $6.7 million, down from $9.4 million. Total operating cash flow, including discontinued operations, was $6.4 million. Investing used $10.4 million, including $9.6 million for media library, property and equipment and $0.8 million for acquisitions and intangible assets. Cash declined $4.1 million to $6.2 million.
- Liquidity and debt: Current assets were $11.4 million and current liabilities $26.8 million at June 30, 2022. Cash was $6.2 million. Net long-term mortgage was $6.0 million; the mortgage bears fixed interest of 3.75% and matures in December 2025. Lease liabilities totaled $7.6 million, including $0.7 million classified within current liabilities.
- Balance sheet: Total assets were $131.4 million, total liabilities $40.0 million, and shareholders’ equity $91.4 million. Deferred revenue was $15.2 million.
Changes versus prior period
- Despite revenue growth, operating income fell to $0.3 million in Q2 from $0.7 million, and to $0.6 million for the first half from $1.1 million. Operating expenses grew faster than revenue.
- Gross margin declined 0.4 percentage points to 86.7%, primarily due to higher content amortization, including investment in original multilingual content and content from Yoga International.
- Selling and operating costs rose 8.2% in Q2 and 11.6% for the first half. General and administrative costs increased 20% in both comparisons, with personnel, technology, Yoga International and business-continuity initiative costs cited as drivers.
- Operating cash flow decreased by $3.0 million year over year, mainly due to working-capital timing, particularly accounts payable and deferred revenue. Investing cash use increased, primarily due to deferred purchase consideration for Yoga International.
Outlook, risks and other notable items
- Management expected $6 million to $10 million of content and capital expenditures for the remainder of 2022, mainly for content and digital-platform capabilities. These expenditures were described as discretionary and intended to be funded by operating cash flow.
- Management expected positive operating cash flow for the remainder of 2022 and believed available cash, expected operating cash flow and potential financing capacity would fund operations in the short and long term; it noted cash needs could change, including due to acquisitions or unforeseen operating difficulties. No revenue or earnings guidance was provided.
- Management cited higher online advertising costs following privacy changes affecting mobile consumers, which constrained new-member additions for a given marketing budget. Other disclosed risks include competition, membership growth, consumer trends, economic conditions, technology and security, acquisitions, regulation and COVID-19 effects.
- Yoga International’s one-time transactional course-sales business is being wound down as related contractual commitments lapse; its course content is being incorporated into a premium membership tier. The related results are presented as discontinued operations.
- The company reported a full valuation allowance on deferred tax assets, citing historical operating losses and planned investment. Gross net operating loss carryforwards were $76.6 million federal and $20.7 million state.
- Management stated that disclosure controls were effective and that no material changes to internal control over financial reporting occurred during the quarter. No legal proceedings were reported; management stated that existing contingencies were not expected to have a material adverse effect.
Key facts for investors to verify
- Whether membership and average revenue per member continued to grow, and how those trends affected customer acquisition and retention.
- Whether content amortization and operating-cost growth continue to pressure margins and earnings.
- Actual second-half content and capital spending versus the $6 million–$10 million plan, and whether operating cash flow funds it.
- Cash and working-capital trends, including the impact of deferred revenue, accounts payable and ongoing investment needs.
- Progress integrating Yoga International and the transition of course content into the premium membership tier.
- Mortgage covenant compliance and the company’s ability to meet mortgage and lease commitments.