Gaiam Inc.’s LOHAS Revenues Grew 47.8 Percent in Second Quarter

The increase in revenue reflects internal revenue growth of 26.8 percent, or $8.2 million, and a $6.3 million contribution by Gaiam Vivendi Entertainment, which was acquired on March 28, 2012. Excluding a non-cash unconsolidated equity investment loss of $900,000 from RSOL, net loss in the quarter was $1.2 million, or 5 cents per diluted share, compared to a net loss of $3.3 million, or 14 cents per diluted share, in the same quarter last year.

The table below summarizes the Company’s 2012 second quarter results, 2011 pro forma second quarter results (as if RSOL was deconsolidated) and 2011 second quarter historical results:

 

Summary of Second Quarter Results
		Three Months Ended
		June 30,
(in millions except per share data)		2012 Actual						2011 (With RSOL Deconsolidated)						2011 (With RSOL Consolidated)
Net revenues		$	45.4					$	30.8					$	50.7
Gross profit			28.0						17.2						22.6
Operating expenses (1)			30.0						22.5						27.8
Operating loss before acquisition-related costs			(2.0	)					(5.3	)					(5.2	)
Acquisition-related costs			–						N/A						2.0
Adjusted EBITDA (2)			0.3						(3.9	)					(3.4	)
Net loss excluding RSOL (Non-GAAP)(2)			(1.2	)					(3.3	)					(2.9	)
Net loss attributable to Gaiam			(2.1	)					(3.9	)					(4.1	)
Diluted loss per share attributable to Gaiam			(0.09	)					(0.17	)					(0.18	)

(1)

Total operating expenses excluding charges related to a business acquisition of $2.0 for the three months ended June 30, 2011 with RSOL consolidated.

 

 “We are pleased with Gaiam’s improved second quarter financial results, which reflect the progress we are making in positioning the company as a leading independent distributor for quality media, fitness and wellness products,” said Lynn Powers, CEO of Gaiam, Inc. “In addition, Gaiam branded products, such as our Restore line of wellness accessories, are increasingly resonating with consumers and we expect the re-launch of our website later this year with new features and increased functionality will benefit our direct to consumers segment. As a result, we continue to forecast growth over the balance of 2012, including improvements in revenues, operating income, and EBITDA.”

On Dec.  31, 2011, due to the conversion of the company’s holdings of RSOL Class B common stock to Class A common stock, Gaiam changed the accounting for its 38 percent ownership in Real Goods Solar, Inc. (“Real Goods Solar”) from a consolidated basis to an equity method (“deconsolidated”). As a result, for 2012, Gaiam’s interest in Real Goods Solar’s net results are reflected as a single line in Gaiam’s financial statements, whereas for 2011 Real Goods Solar’s financial position and results of operations are consolidated into each line of Gaiam’s financial statements. The year-over-year financial comparisons below are stated as if Real Goods Solar was deconsolidated as of January 1, 2011.

Net revenue increased $14.7 million, or 47.8 percent, to $45.4 million in the second quarter ended June 30, 2012. Net revenue for the business segment increased $14.0 million, or 96.1 percent, to $28.5 million, and excluding the acquisition of Vivendi Entertainment, internal revenue growth was 52.8 percent. The internal growth of the direct to consumer segment was 3.4 percent, or $0.5 million, compared to the prior year quarter. The increase in sales in the business segment includes an over 30 percent aggregate increase in revenue from the company’s top 25 retail accounts as well as a full quarter of contribution from the operations of Gaiam Vivendi Entertainment, which totaled $6.3 million. The increase in direct to consumer sales primarily reflects increases in the company’s direct response marketing business.

Second quarter 2012 gross profit increased to $28.0 million, or 61.6 percent of net revenue, from $17.2 million, or 56.1 percent of net revenue, during the comparable quarter last year. The 550 basis points increase in gross margin primarily reflects a shift in the sales mix to the higher margin direct response television marketing business, as well as the higher margin Gaiam Vivendi Entertainment business. Gross profit margin in the first half of 2012 increased to 59.4 percent of net revenue compared to 55.9 percent in the comparable year-ago period.

Selling and operating expenses improved 710 basis points to 59.2 percent of net revenue, or $26.9 million, in the second quarter of 2012, compared to 66.3 percent of net revenue, or $20.4 million, in the prior-year period. Included in selling and operating expenses in the 2012 second quarter are certain redundant and one-time expenses attributable to the integration of Gaiam Vivendi Entertainment and $0.8 million in non-cash amortization expense related to the Gaiam Vivendi Entertainment acquisition with no such similar expense in the prior year period.

Corporate, general and administration expenses improved to 6.7 percent of net revenue from 7.0 percent in the prior-year period.

Operating loss was $2.0 million compared to $5.3 million in the second quarter of 2011. Adjusted EBITDA increased to $0.3 million in the second quarter of 2012 from a loss of $3.9 million in the prior-year period and rose $6.8 million year over year to $2.9 million for the first half of 2012.

Excluding the $0.9 million non-cash loss resulting from Gaiam’s equity investment in Real Good Solar, net loss for the second quarter of 2012 was $1.2 million, or $0.05 per diluted share, compared to a net loss of $3.3 million, or $0.14 per diluted share, in the prior-year period. Including the loss from Gaiam’s equity investment in Real Goods Solar, Gaiam reported a net loss of $2.1 million, or $0.09 per diluted share, for the second quarter of 2012. (See Non-GAAP Financial Measurements.)