Gaiam Inc. reported revenue increased 14.2 percent in the third quarter, fueled by big gains in sales of its Restore and Spri exercise accessories.

In the quarter ended Sept. 30, 2014, Gaiam reported net revenues reached $41.3 million in the quarter ended Sept. 30, an increase of approximately $5.1 million, or 14.2 percent, compared to net revenue of $36.1 million in the prior-year period. Excluding the impact of  the decision to focus on the Gaiam brand and not renew the Reebok license which accounted for over $2.0 million in revenue in third quarter of 2013, year over year revenue growth was approximately 20 percent.

Our third quarter results reflect the progress we are achieving in expanding our leading position in yoga, fitness and wellbeing,” said CEO Lynn Powers. “This success is reflected in the growth of our Gaiam Restore wellness product revenues, up 33 percent, and sales of the SPRI line, up over 100 percent, at our retail accounts during the 2014 third quarter. We are also pleased that our new retail partner, Kohls, recently added an 8-foot store-within-store display space for Gaiam and Gaiam Restore products to its 1,100 doors, bringing our total store-within-store count to over 16,000.”

In addition to securing new customers, we are focused on the
opportunity to expand our reach within the accessory category by
appealing to new demographics in the expanding yoga and fitness market,”
Powers continued. “Last quarter, we announced the launch of a
Gaiam-branded line of yoga accessories targeted at athletes. To support
this demographic, during the third quarter, we produced new yoga video
content featuring world-class athletes, Kevin Love and Eddie George
along with their yoga instructor Kent Katich. These videos will appear
in retail in early 2015.

Progress is also being made with the
introduction of Gaiam-branded yoga apparel, which is an important
strategic initiative for the company as we work to leverage our brand
recognition in adjacent and complementary categories. Were very excited
that Kohls will launch an exclusive line of Gaiam-branded yoga apparel
beginning in April, 2015. In addition, we recently appointed Nancy
Taylor, previously the Senior Director of Design for Athleta, to the
newly created position of Vice President of Apparel Design. We are
looking forward to Nancys experience and leadership on our future Gaiam
apparel opportunities.

Gross margin up 300 basis points
Gross profit for the 2014 third quarter improved to $18.0 million, or 43.7 percent of net revenue, compared to gross profit of $14.7 million, or 40.7 percent of net revenue, in the third quarter of 2013. The 300 basis point improvement in gross margin was driven by improved margins in  the business segment and increased revenues from  the high-margin subscription business.

Operating expenses were 48.4 percent of net revenue in the 2014 third quarter, compared to 47.8 percent of net revenue in the third quarter of 2013. The year-over-year increase in operating expenses reflects continued investments in Gaiam TV partially offset by lower expenses in Gaiams business segment.
Operating loss for the three months ended Sept. 30, 2014 improved 25 percent year over year to $1.9 million, compared to $2.6 million in the third quarter of 2013.

The company recognized income tax expense of $0.5 million during the quarter related to its majority-owned subsidiaries. The company recognized a net loss for the quarter but, in accordance with GAAP, did not record a tax benefit as it continues to record a valuation allowance against its deferred tax assets. Although fully reserved on the balance sheet, Gaiams deferred tax assets remain available to offset any income tax liabilities.

Net loss for the 2014 third quarter was $3.0 million, or $0.12 per share, compared to net income of $0.1 million, or $0.01 per diluted share, for the third quarter of 2013. The prior year period included a $2.0 million gain from the sale of shares of Real Goods Solar stock, and $1.0 million of earnings from discontinued operations. In accordance with GAAP, the  company recorded a valuation allowance against its net operating losses during the current quarter and therefore did not recognize a net tax benefit.

The third quarter saw 107 percent revenue growth and improvements across Gaiam TV led by the recently launched offering of an unlimited download feature that offers subscribers the ability to download and watch video offline as long as their subscription remains active, providing a major point of differentiation from other video streaming providers,” said Gaiam Chairman Jirka Rysavy. “With the recent announcement around our partnership with Kohl’s and growth with our international retail partners, we can look for a strong 2015.

Spin off of TV subscription service pending
Gaiams Board of Directors approved the separation of the  companys Gaiam TV media subscription unit from the Gaiam-branded business into two separate publicly traded companies. The filing for the spin-off is expected to occur after finalizing the  companys year-end audit. The  company currently expects the spin-off to take place in the form of a tax-free spin-off to shareholders. The  company 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. Gaiam TV is a global digital video streaming service that provides curated conscious media content to its subscribers in approximately 100 countries. Over 90 percent of its 6,500 titles are available for streaming exclusively on Gaiam TV through almost any device connected to the internet.

During the fourth quarter of 2013, Gaiam 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  companys branded yoga, fitness, and wellbeing business, including fitness media content and products; the  companys e-commerce platform; and Gaiam TV, a global digital subscription service.

In addition, in the fourth quarter of 2013, Gaiam converted its media category management business from an inventory model to a distribution model. This change has had the effect of reducing reported revenue by approximately $3 million through the first nine months of 2014, but does not impact profit and improves the  companys cash flow.