Gaia, Inc. — Q2 2021 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Gaia operates a global subscription video service and online community, with a library of approximately 8,000 titles; more than 80% of its content is exclusive to members.
Financial performance
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $19.4 million | $16.2 million | $38.3 million | $30.7 million |
| Gross margin | 87.1% | 87.1% | 87.1% | 87.0% |
| Operating income (loss) | $0.7 million | ($2.2 million) | $1.1 million | ($5.5 million) |
| Net income (loss) | $0.6 million | ($2.5 million) | $1.0 million | ($6.1 million) |
| Diluted earnings (loss) per share | $0.03 | ($0.13) | $0.05 | ($0.33) |
Q2 revenue increased 19.8% year over year, which management attributed to growth in members and average monthly revenue per member. H1 revenue rose 24.8%. Operating expenses grew more slowly than revenue: H1 selling and operating costs increased 1.4%, while corporate, general and administrative costs decreased 9.1%. H1 operating cash flow was $9.4 million, compared with $3.9 million a year earlier; content, property and equipment additions used $9.0 million. Cash increased to $13.7 million from $12.6 million at year-end 2020.
Balance sheet and liquidity
At June 30, 2021, total assets were $114.1 million and total liabilities were $37.5 million. Current assets were $18.2 million versus current liabilities of $23.4 million; deferred revenue was $14.7 million. Reported long-term mortgage, net, was $6.2 million, and long-term lease liability was $7.6 million. The company’s mortgage agreement, entered into in December 2020, had a stated principal amount of $13 million, bears fixed interest at 3.75%, matures December 28, 2025, and is secured by its corporate campus; Gaia guarantees payment. H1 financing cash flow was $0.7 million, including $0.08 million of debt repayment and stock issuance proceeds.
Changes, outlook and risks
- Gaia moved from a year-earlier loss to profitability in both Q2 and H1 2021. Management reported H1 net income improved by $7.1 million year over year.
- Management budgeted $8 million to $12 million of content and capital expenditures for the remainder of 2021, primarily for the content library and digital platforms, intended to be funded with operating cash flow. These expenditures are discretionary and may be scaled to available cash flows. Management expected positive operating cash flow to continue during 2021.
- Management said the pandemic-related demand increase observed from March through July 2020 supported retention, customer acquisition costs, revenue and cash flow; online paid-media advertising costs began returning to historical norms in August 2020. The filing cautions that the pandemic’s future impact remains uncertain.
- Key stated risks include membership growth, competition, pricing, consumer trends, partner performance, content-related legal liability, information security, litigation, economic conditions and COVID-19 effects. Management said cash on hand, expected operating cash flow and potential financing capabilities should be sufficient for short- and long-term needs, while noting needs could change with acquisitions, development or operational difficulties.
- The company reported no legal proceedings and said probable, estimable litigation exposures were reserved or not expected to have a material adverse effect. It maintained a full valuation allowance on deferred tax assets; gross net operating loss carryforwards were $76.8 million federal and $20.7 million state.
Important facts for investors to verify
- Whether member growth and average revenue per member continue to support revenue growth; the filing does not provide member counts or detailed subscriber metrics in the supplied text.
- Whether operating cash flow can fund the planned $8 million to $12 million of remaining-2021 content and capital spending while maintaining liquidity.
- The relationship between the mortgage’s stated $13 million principal and the $6.2 million reported long-term mortgage balance, including the agreement’s allocation between the entities involved.
- Future advertising acquisition costs, retention trends and the extent to which 2020 pandemic-driven demand affected comparable-period growth.
- Potential dilution: Class A shares outstanding were 13,917,987 and Class B shares outstanding were 5,400,000 at July 28, 2021.