Gaia(GAIA) - 2022 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides the unaudited interim financial information for GAIA, INC., including financial statements, management's discussion, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents the unaudited interim condensed consolidated financial statements for GAIA, INC. for the three months ended March 31, 2022 and 2021, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with accompanying notes detailing accounting policies, revenue recognition, equity, goodwill, debt, leases, earnings per share, income taxes, and contingencies - The unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP, with certain information condensed or omitted as per SEC rules, including normal recurring adjustments and are not necessarily indicative of future financial results[9] - No material changes in significant accounting policies were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2021[23] Condensed Consolidated Balance Sheets This section provides a snapshot of GAIA, INC.'s financial position, detailing assets, liabilities, and shareholders' equity as of March 31, 2022, and December 31, 2021 | (in thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | ASSETS | | | | Cash | $8,398 | $10,269 | | Total current assets | $13,210 | $14,983 | | Total assets | $132,785 | $133,676 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total current liabilities | $28,511 | $29,809 | | Total liabilities | $41,944 | $43,461 | | Total shareholders' equity | $90,841 | $90,215 | | Total liabilities and shareholders' equity | $132,785 | $133,676 | - Total assets decreased slightly from $133.7 million at December 31, 2021, to $132.8 million at March 31, 2022, primarily due to a decrease in cash[11] - Total liabilities decreased from $43.5 million to $41.9 million, while total shareholders' equity increased from $90.2 million to $90.8 million[11] Condensed Consolidated Statements of Operations This section outlines GAIA, INC.'s financial performance, including revenues, expenses, and net income for the three months ended March 31, 2022 and 2021 | (in thousands, except per share data) | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Revenues, net | $21,831 | $18,896 | | Cost of revenues | $2,905 | $2,438 | | Gross profit | $18,926 | $16,458 | | Total operating expenses | $18,619 | $16,034 | | Income from operations | $307 | $424 | | Net income | $86 | $358 | | Basic earnings per share | $0.00 | $0.02 | | Diluted earnings per share | $0.00 | $0.02 | - Net revenues increased by 15.5% to $21.8 million in Q1 2022 from $18.9 million in Q1 2021[13] - Net income decreased significantly from $358 thousand in Q1 2021 to $86 thousand in Q1 2022, partly due to a loss from discontinued operations of $161 thousand in Q1 2022[13] Condensed Consolidated Statements of Changes in Shareholders' Equity This section details the changes in GAIA, INC.'s shareholders' equity, including net income and stock issuances, for the period ending March 31, 2022 | (in thousands, except shares) | Balance at January 1, 2022 | Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation | Net income | Balance at March 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | $90,215 | $540 | $86 | $90,841 | | Accumulated Deficit | $(72,103) | — | $86 | $(72,017) | | Additional Paid-in Capital | $162,316 | $540 | — | $162,856 | | Common Stock Shares | 20,461,337 | 313,823 | — | 20,775,160 | - Total shareholders' equity increased from $90.2 million at January 1, 2022, to $90.8 million at March 31, 2022, driven by net income and issuance of common stock for RSU releases and share-based compensation[15] Condensed Consolidated Statements of Cash Flows This section presents GAIA, INC.'s cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 | (in thousands) | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,003 | $5,188 | | Net cash used in investing activities | $(5,828) | $(4,774) | | Net cash provided by (used in) financing activities | $(46) | $26 | | Net change in cash | $(1,871) | $440 | | Cash at end of period | $8,398 | $13,045 | - Net cash provided by operating activities decreased by $1.2 million to $4.0 million in Q1 2022 compared to $5.2 million in Q1 2021[17][63] - Net cash used in investing activities increased by $1.1 million to $5.8 million in Q1 2022, primarily due to deferred purchase consideration for the Yoga International acquisition[17][64] - Cash balance at the end of Q1 2022 was $8.4 million, a decrease from $10.3 million at the beginning of the period[17] Notes to Interim Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures regarding the accounting policies and specific financial statement line items for GAIA, INC. 1. Organization, Nature of Operations, and Principles of Consolidation This note describes GAIA, INC.'s business model, content offerings, and the impact of the Yoga International acquisition and discontinued operations - Gaia, Inc. operates a global digital video subscription service and online community with over 10,000 titles, 80% of which are exclusive, curated into four primary channels: Yoga, Transformation, Alternative Healing, and Seeking Truth[20][21] - The company completed the acquisition of Yoga International, Inc. on December 22, 2021, expanding its online platform for yoga practice and education[24] - Yoga International's one-time transactional course sales business is being discontinued in 2022, with content integrated into a premium membership tier, and is presented as discontinued operations[26] 2. Revenue Recognition This note explains GAIA, INC.'s policy for recognizing revenue, primarily from subscription fees, and the treatment of deferred revenue - Revenues primarily consist of subscription fees, recognized ratably over the subscription term, with deferred revenue representing unearned subscription fees[27] 3. Equity and Share-Based Compensation This note details GAIA, INC.'s share-based compensation expenses for the three months ended March 31, 2022 and 2021 | (in thousands) | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Share-based compensation expense | $540 | $613 | - Share-based compensation expense decreased from $613 thousand in Q1 2021 to $540 thousand in Q1 2022[28] 4. Goodwill and Other Intangible Assets This note provides information on GAIA, INC.'s goodwill and amortizable and unamortized intangible assets, including amortization expense - Goodwill remained unchanged at $28.87 million from December 31, 2021, to March 31, 2022[29] Amortizable and Unamortized Intangible Assets | (in thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Amortizable Intangible Assets | | | | Customer relationships | $2,000 | $2,000 | | Tradenames | $270 | $270 | | Accumulated amortization | $(154) | $(12) | | Total Amortizable Intangible Assets | $2,116 | $2,258 | | Unamortized Intangible Assets (Domain names) | $563 | $563 | - Amortization expense for intangible assets was $142 thousand for the first three months of 2022, with no expense in the prior year period[30] 5. Debt This note outlines GAIA, INC.'s mortgage debt, including interest rate, maturity, and future principal payments - The company has a mortgage of $13 million, bearing 3.75% interest, maturing December 28, 2025, secured by its corporate campus[31] Maturities on Long-Term Debt | (in thousands) | Maturities on long-term debt, net | | :--- | :--- | | 2022 (remaining) | $108 | | 2023 | $150 | | 2024 | $156 | | 2025 | $5,801 | | Total | $6,215 | 6. Leases This note details GAIA, INC.'s operating lease for its corporate campus, including lease terms, right-of-use assets, and lease liabilities - The company leases its corporate campus under a master lease extending through September 30, 2030, with two five-year extensions[33] Lease Assets and Liabilities | (in thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Right-of-use lease asset, net | $7,679 | $7,871 | | Operating lease liability (current) | $725 | $718 | | Long-term lease liability | $7,050 | $7,234 | | Total Operating lease liability | $7,775 | $7,952 | - Cash paid for operating lease liabilities was $250 thousand for both Q1 2022 and Q1 2021[34] 7. Earnings Per Share This note provides the calculation of basic and diluted earnings per share for GAIA, INC., including weighted-average shares outstanding Weighted-Average Shares Outstanding | (in thousands, except per share data) | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Weighted-average common stock outstanding | 20,465 | 19,201 | | Common stock equivalents | 351 | 523 | | Weighted-average number of shares (Diluted) | 20,816 | 19,724 | - Employee stock options and RSUs totaling 228 thousand shares in Q1 2022 (30 thousand in Q1 2021) were excluded from diluted EPS calculation as their inclusion would be anti-dilutive[37] 8. Income Taxes This note discusses GAIA, INC.'s income tax position, including valuation allowances on deferred tax assets and net operating loss carryforwards - The company has a full valuation allowance on its deferred tax assets due to historical operating losses and plans for revenue growth and content library investment[38] - As of March 31, 2022, net operating loss carryforwards were $76.8 million for federal and $20.7 million for state[38] 9. Contingencies This note addresses management's assessment of potential losses from legal proceedings and their expected impact on GAIA, INC.'s financial statements - Management believes that any probable and estimable losses from legal proceedings would not have a material adverse effect on the company's financial condition, results of operations, or cash flows[39] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on GAIA's financial condition and operational results for the three months ended March 31, 2022, compared to the prior year. It covers an overview of the business, detailed results of operations, seasonality, liquidity, and capital resources, highlighting key drivers of revenue and expense changes, and the impact of the Yoga International acquisition - Gaia operates a global digital video subscription service with over 10,000 exclusive titles, focusing on yoga, transformation, alternative healing, seeking truth, and conscious films[43][45] - The acquisition of Yoga International in December 2021 enhanced Gaia's standalone yoga offering and is a key part of its strategy to grow its subscription business domestically and internationally[44][46] - Net income from continuing operations decreased by $0.2 million in Q1 2022 compared to Q1 2021, primarily due to ongoing integration activities related to the Yoga International acquisition[49] Overview and Outlook This section outlines GAIA, INC.'s strategic priorities, including content expansion, user experience enhancement, and challenges in online advertising effectiveness - Gaia's core strategy is to expand its unique and exclusive content library, enhance its user interface, extend streaming services to new devices, and build a conscious community[46] - The cost of online advertising efforts has increased since August 2020, exacerbated by privacy regulations in summer 2021, reducing the number of new members acquired per marketing spend[48] Results of Operations This section analyzes GAIA, INC.'s financial performance, detailing changes in revenues, cost of revenues, gross profit, and operating expenses for the three months ended March 31, 2022 | (in thousands, except per share data) | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $21,831 | $18,896 | $2,935 | 15.5% | | Cost of revenues | $2,905 | $2,438 | $467 | 19.2% | | Gross profit margin | 86.7% | 87.1% | -0.4% | -0.5% | | Selling and operating expenses | $16,785 | $14,538 | $2,247 | 15.5% | | Corporate, general and administration | $1,785 | $1,496 | $289 | 19.3% | | Acquisition costs | $49 | $0 | $49 | N/A | | Total operating expenses | $18,619 | $16,034 | $2,585 | 16.1% | | Income from operations | $307 | $424 | $(117) | -27.6% | | Net income | $86 | $358 | $(272) | -76.0% | - Revenue growth of 15.3% was driven by an increase in both members and average monthly revenue per member[52] - Gross profit margin decreased slightly to 86.7% from 87.1% due to increased amortization of content library, including new native language content and content from the Yoga International acquisition[53][54] - Selling and operating expenses increased by 15.9% due to higher personnel-related and technology operating costs, and incremental expenses from the Yoga International acquisition, remaining flat at 76.9% of net revenues[55] - Corporate, general and administration expenses increased by 20.0% due to increased personnel costs and Yoga International acquisition expenses, rising to 8.2% of net revenues[56] Seasonality This section discusses the historical and expected seasonal patterns in GAIA, INC.'s member growth and acquisition spending - Historically, member growth is strongest in Q4 and Q1 (October-February) and slowest in May-August, influencing member acquisition spending but not net revenue seasonality[57] - The COVID-19 pandemic shifted historical patterns, but as international expansion continues, more predictable regional seasonality trends are expected[57] Liquidity and Capital Resources This section details GAIA, INC.'s capital requirements, funding sources, and management's assessment of its ability to meet short-term and long-term operational needs - Capital needs include working capital, capital expenditures for content acquisition and development, digital platform development, marketing, and potential business acquisitions[58] - Budgeted content and capital expenditures for the remainder of 2022 are $10 million to $15 million, to be funded by cash flows from operations, primarily for expanding content library and digital platforms[59] - The company generated $4 million in cash flows from operations during Q1 2022 and expects to continue generating positive cash flows[59] - Management believes current cash, expected operational cash flows, and potential capital raising capabilities will be sufficient for short-term and long-term operations[61] Cash Flows This section analyzes GAIA, INC.'s cash flow activities, highlighting changes in operating and investing cash flows for the three months ended March 31, 2022 | (in thousands) | For the Three Months Ended March 31, 2022 | For the Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities - continuing operations | $4,164 | $5,188 | | Net cash used in operating activities - discontinued operations | $(161) | — | | Net cash provided by operating activities | $4,003 | $5,188 | | Net cash used in investing activities | $(5,828) | $(4,774) | | Net cash provided by (used in) financing activities | $(46) | $26 | | Net change in cash | $(1,871) | $440 | - Cash flows from operations decreased by $1.2 million in Q1 2022, primarily due to timing of working capital changes, specifically accounts payable and deferred revenues[63] - Investing activities used $1.1 million more cash in Q1 2022, mainly due to deferred purchase consideration for the Yoga International acquisition[64] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, GAIA, INC. is not required to provide quantitative and qualitative disclosures about market risk - GAIA, INC. is a smaller reporting company and is not required to provide disclosures about market risk[65] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of GAIA's disclosure controls and procedures as of March 31, 2022, concluding they were effective. No material changes in internal control over financial reporting occurred during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2022[66] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[67] PART II—OTHER INFORMATION This section includes additional information not covered in the financial statements, such as legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Item 1. Legal Proceedings. GAIA, INC. reported no legal proceedings for the period - No legal proceedings were reported[70] Item 1A. Risk Factors. As a smaller reporting company, GAIA, INC. is not required to provide risk factor disclosures under this item - GAIA, INC. is a smaller reporting company and is not required to provide risk factor information[71] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. GAIA, INC. reported no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds were reported[72] Item 3. Defaults Upon Senior Securities. GAIA, INC. reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[73] Item 4. Mine Safety Disclosures. Mine safety disclosures are not applicable to GAIA, INC.'s operations - Mine safety disclosures are not applicable[74] Item 5. Other Information. GAIA, INC. reported no other information for the period - No other information was reported[75] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and various Inline XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[77] SIGNATURES This section confirms the official signing of the report by GAIA, INC.'s Chief Executive Officer and Chief Financial Officer - The report was signed by Jirka Rysavy, Chief Executive Officer, and Paul Tarell, Chief Financial Officer, on May 2, 2022[80]