Gaiam: Q1 results

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BOULDER, Colorado - Gaiam, Inc. (GAIA), a lifestyle media company, reported financial results for the quarter ended March 31, 2014.

 During the fourth quarter of 2013, the Company sold its non-branded entertainment media distribution operations (“GVE”) and discontinued its direct response television marketing (“DRTV”) operations. As a result, the Company now reports these businesses as discontinued operations, and has reclassified the financial results for all periods presented below accordingly. Unless otherwise noted, all figures below reflect the continuing operations of Gaiam, which is comprised of the Company’s branded yoga, fitness, and wellbeing business, including fitness media content and products, which have a presence in over 38,000 retail doors worldwide; the Company’s e-commerce platform; and GaiamTV, a global digital subscription service.

Lynn Powers, Chief Executive Officer of Gaiam, commented, “While there was a general slowdown in consumer retail spending early in the year, our total revenue rose 5.1% in the first quarter of 2014 and revenue from the top 25 retail accounts in our business segment rose 7% year over year excluding the impact of a strategic decision to convert our media category management business from an inventory model to a distribution model during the fourth quarter 2013. This change would have reduced reported revenue in the first quarter of 2013 by approximately $1 million. However, the change does not impact profit and improves our cash flow. Another key highlight was the significant revenue growth generated in the quarter by GaiamTV, which helped drive a nearly 17% year-over-year improvement in direct to consumer segment revenue.

“As a leading brand in the expanding yoga, fitness and wellbeing market, Gaiam is well positioned to achieve consistent growth as we continue to execute on our focused strategic initiatives. We achieved impressive year-over-year gains with sporting goods and online retailers and secured retailer commitments for an additional eight feet of Gaiam- and SPRI-branded products in 1,200 doors nationwide. We have similar expectations for growth in international markets as we begin to leverage the growing global recognition of our brand outside the U.S. During the quarter, we secured placement of Gaiam products in 220 doors in a major European retailer with potential for expansion in many additional locations. We expect to ship to both new retailers in the second half of 2014.”

Ms. Powers concluded, “The overall market growth, expansion of our Gaiam and SPRI rehabilitative products, introduction of SPRI Cross Train fitness products, anticipated launch of Gaiam yoga apparel, and our strong balance sheet provide us with the product breadth and financial strength to continue growing our brands both domestically and internationally. We also believe that the proposed separation of GaiamTV, expected to occur in the fourth quarter of this year, will unlock new value for our shareholders.”

2014 First Quarter Review

In the quarter ended March 31, 2014, net revenue was $37.6 million, an increase of approximately $1.0 million, or 2.5%, compared to $36.7 million in the prior-year period, including the impact of the Company’s decision to convert its media category management business to a distribution model that would have reduced revenue by approximately $1 million in the first quarter of 2013.

Gross profit for the 2014 first quarter was $17.0 million, or 45.3% of net revenue, compared to gross profit of $15.7 million, or 42.9% of net revenue, in the first quarter of 2013. The increase in gross margin reflects the growth in GaiamTV and the conversion of the Company’s media category management business to a distribution model. As a result of this conversion, Gaiam continues to recognize gross profit at levels similar to prior periods, while recognizing revenue related only to earned distribution fees rather than the total sales to customers. Therefore, the change has the impact of reducing revenues and increasing gross profit margins. Additionally, Gaiam no longer owns inventory associated with the converted arrangements, which reduces working capital requirements and improves cash flow.

Operating expenses were 51.8% of net revenue in the 2014 first quarter, compared to 51.5% of net revenue in the first quarter of 2013, due to lower operating expenses in the business segment, offset by investments in GaiamTV.

Operating loss for the three months ended March 31, 2014 improved 21% to $2.5 million, compared to $3.2 million in the first quarter of 2013.

During the quarter, the Company recorded a gain of $0.4 million on the sale of 100,000 shares of Real Goods Solar common stock.

The Company also recognized an income tax expense of $0.1 million during the quarter as a result of the valuation allowance it recorded against deferred tax assets in the fourth quarter of 2013. The deferred tax assets remain available to offset future income.

Gaiam’s business segment generated income from operations of $2.4 million compared to $2.0 million in the same period last year primarily reflecting lower operating expenses. The direct to consumer segment recorded a net loss from operations of $4.8 million compared to a net loss of $5.2 million in the same period of last year.

Net loss from continuing operations for the 2014 first quarter was $2.1 million, or a loss of $0.09 per share, compared to a net loss from continuing operations of $2.2 million, or a loss of $0.10 per share, for the first quarter of 2013. The prior year period included a tax benefit of $1.0 million, or $0.04 per share. In accordance with GAAP, the Company recorded a valuation allowance against its net operating losses during the quarter that prevented it from recognizing a net tax benefit.

Jirka Rysavy, Chairman, commented, “GaiamTV continues to gain traction with consumers seeking quality conscious media content. The separation of GaiamTV will allow the Gaiam brand to focus on yoga, fitness and wellbeing and our Board of Directors believes that both businesses and shareholders will benefit from GaiamTV operating as a standalone business.”

On March 17, 2014, Gaiam announced that its Board of Directors agreed to pursue the separation of the Company’s subscription unit from the Gaiam-branded business into two separate publicly traded companies. The Company currently expects the separation to take the form of a tax-free spin-off to shareholders. GaiamTV is a global digital video streaming service that provides conscious media to its subscribers in over 100 countries. Over 90% of its 6,000 titles are available for streaming exclusively on GaiamTV through almost any device connected to the internet. In 2013, GaiamTV generated revenue of approximately $5.6 million, and the Company expects that 2013 initiatives will help the unit’s revenue to at least double in 2014.

Gaiam may, at any time and for any reason until the proposed spin-off is complete, abandon, modify or change the terms of its contemplated spin-off.

About GAIAM

Gaiam, Inc. (GAIA) is a leading producer and marketer of lifestyle media and fitness accessories. With a wide distribution network that consists of approximately 38,000 retail doors, 15,000 store within stores, 5,000 category management locations, and e-commerce, Gaiam is dedicated to providing solutions for healthy and eco-conscious living and personal transformation. Gaiam TV is a global digital subscription service with over 6,000 exclusive videos available for streaming. The Company dominates the health and wellness category and owns the largest library of conscious media. For more information about Gaiam, please visit www.gaiam.com or call 1.800.869.3603.


Contact:
Gaiam, Inc.
Steve Thomas, 303-222-3782
Chief Financial Officer
steve.thomas@gaiam.com
or
JCIR
Joseph N. Jaffoni, Norberto Aja, Richard Land
212-835-8500 / gaia@jcir.com
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