Gaia, Inc. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Gaia operates a global subscription streaming service focused on yoga, transformation, alternative healing and related content, with about 8,000 titles; approximately 80% of its content is exclusive. Its financial statements were audited, and the auditor issued an unqualified opinion.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $66.8 million | $54.0 million |
| Gross profit / margin | $58.2 million / 87.1% | $46.9 million / 86.8% |
| Operating expenses | $62.8 million | $64.1 million |
| Operating income (loss) | $(4.6) million | $(17.2) million |
| Net income (loss) | $0.5 million | $(18.2) million |
| Cash from operating activities | $11.7 million | $(2.6) million |
| Cash at year-end | $12.6 million | $11.5 million |
- Revenue increased 23.7%, attributed to member growth and higher average monthly revenue per member. International revenue rose to $26.1 million from $15.6 million; U.S. revenue was $40.7 million.
- Gross margin edged up 0.3 percentage points. Selling and operating expense fell 2.4% to $56.9 million, while corporate, general and administrative expense increased 1.7% to $5.9 million.
- Net income included a $6.1 million gain from selling part of the corporate campus. Gaia still recorded an operating loss for the year.
- Operating cash flow improved by $14.3 million. Investing activities used $0.2 million, including $13.3 million of additions to the media library, software and equipment, offset in part by $13.2 million of real estate sale proceeds. Financing activities used $10.4 million, including debt repayments.
- Year-end current assets were $16.4 million and current liabilities were $21.3 million. Cash was $12.6 million; deferred revenue was $12.4 million.
- Balance-sheet mortgage debt was $6.4 million, including current maturities. A new $13 million mortgage was entered into jointly by Gaia’s subsidiary and the buyer of a campus interest; each party received half the proceeds and is responsible for half the installments, and Gaia guarantees the loan. The mortgage bears 3.75% interest and matures in 2025. Lease liabilities from the campus transaction totaled $8.6 million.
Fourth-quarter results
For the quarter ended December 31, 2020, revenue was $18.6 million, operating income was $0.5 million, and net income was $0.3 million, or $0.02 per diluted share. Gross margin was 87.1%. Revenue increased from $14.7 million in fourth-quarter 2019, when Gaia reported a net loss of $2.8 million.
Changes, outlook and risks
- Management said demand and retention improved from the second half of March through July 2020 as more people stayed home. Paid online advertising costs began returning to historical norms in August. Gaia cautioned that the pandemic’s longer-term effects remain uncertain and could weaken discretionary consumer demand.
- Gaia reported positive net income and cash flows in the second half of 2020 and said it expects to continue generating operating cash flow in 2021. It plans $16 million to $20 million of discretionary content and capital spending in 2021, primarily for content and digital platforms, funded from cash and operating cash flow; management said spending can be scaled to available cash flows. No specific revenue or earnings guidance was provided.
- Gaia sold a 50% undivided interest in part of its campus for $13.15 million, recorded a $6.1 million gain, and leased the property back through September 2030, with two five-year extension options. It retained a 50% interest in that portion and full ownership of its studio and production facilities.
- Principal risks include competition and member cancellations, content and marketing costs, COVID-19 uncertainty, cybersecurity and privacy breaches, reliance on third-party streaming platforms and cloud services, international regulatory and currency risks, content-related claims, and the possibility that profitability or positive cash flow may not continue.
- Founder and CEO Jirka Rysavy controls approximately 80% of voting power through high-vote Class B shares, substantially limiting other shareholders’ influence over corporate matters and any change of control.
- The auditor identified media-library valuation and a cost-method investment valuation as critical audit matters. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to audit internal controls.
Investor verification points
- Assess how much of 2020’s return to net income depended on the one-time real estate gain, given the full-year operating loss.
- Verify whether revenue and member growth can sustain positive operating cash flow as pandemic-related demand and advertising conditions normalize.
- Review the funding and flexibility of the planned $16 million to $20 million 2021 investment program against cash, working capital and operating cash flow.
- Examine the mortgage guarantee, shared loan obligations, property leaseback terms and financial covenants.
- Evaluate media-library capitalization, useful-life and impairment judgments, and the carrying value and risks of the $10 million cost-method investment.
- Consider dilution from outstanding equity awards and the effect of the founder’s voting control.