Gaiam, Inc., a distributor of active lifestyle media, apparel and other products, reported third quarter 2012 net revenue rose 3.0 percent to $43.0 million after excluding results from its solar power business.
Excluding Real Goods Solar, Inc., deconsolidated from the company on Dec. 31, 2011, third quarter 2012 net revenue rose 3.0 percent to $43.0 million, compared to net revenue of $41.8 million in the prior-year period. Revenue for the business segment increased $7.5 million, or 38.6 percent, to $27.1 million, and excluding the revenue benefit from the acquisition of Vivendi Entertainment, internal revenue growth for the business segment was 15.2 percent. The revenue for the direct-to-consumer segment was $15.9 million, compared to $22.2 million for the prior year quarter.
The decrease in direct to consumer sales primarily reflects the company’s previously discussed strategy of reducing media spend and optimizing profitability in its DRTV business during a period in which the Olympic Games and political campaign advertising have the effect of significantly increasing costs. For the first nine months of fiscal 2012, net revenue rose approximately $25.9 million, or 23.5 percent, with an internal revenue growth of $14.2 million, or 13.0 percent, compared to the first nine months of fiscal 2011.
“We are particularly pleased to see continued growth in our media business, as its expanded scale, expertise and operating efficiencies are proving integral to our efforts to provide exceptional service to existing studio partner customers and in attracting new, high-profile content, including our recent agreements with the Hallmark Channel and The Jim Henson company,” said CEO Lynn Powers. “Gaiam has emerged as the industry’s leading independent content distributor and we expect to continue our momentum with this business. In addition, we are pleased to see the continued evolution of our Gaiam-branded products, including our Gaiam Restore line of wellness accessories, across existing and new retail outlets.”
On Dec. 31, 2011, Gaiam converted its RSOL Class B common stock to Class A common stock that changed the GAAP accounting treatment for its approximate 38 percent ownership in RSOL from a consolidated basis to an equity method (“deconsolidated”). As a result, for 2012 Gaiam’s interest in RSOL’s net results are reflected as a single line in Gaiam’s financial statements, whereas for 2011 RSOL’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 RSOL had been deconsolidated as of Jan. 1, 2011.
Third quarter 2012 gross profit was $24.1 million, or 56.0 percent of net revenue, compared to $24.1 million, or 57.6 percent of net revenue, during the comparable quarter last year. The decrease in gross margin primarily reflects reduced net revenues in the typically higher margin direct response television marketing business, partially offset by the 100 percent margin (net fee revenue) of the Gaiam Vivendi Entertainment business.
Operating expenses improved 360 basis points to 56.4 percent of net revenue, or $24.2 million, in the third quarter of 2012, compared to 60.0 percent of net revenue, or $25.1 million, in the prior-year period. Included in operating expenses in the 2012 third quarter is $1.0 million in non-cash amortization expense related to the Gaiam Vivendi Entertainment acquisition with no such similar expense in the prior year period.
Operating loss was $0.2 million compared to a loss of $1.0 million in the third quarter of 2011. Adjusted EBITDA increased to $2.2 million in the third quarter of 2012 from $0.5 million in the prior-year period and rose by $8.7 million in the nine months ended Sept. 30, 2012 to $5.3 million from a loss in the same period in 2011.
Because of RSOL’s third quarter loss, including its non cash impairment charges for some its assets, primarily goodwill and deferred taxes, Gaiam’s recognition of its portion of RSOL’s loss, $14.3 million, reduced the GAAP carrying values of Gaiam’s investments in RSOL to zero. Gaiam will not recognize any future losses from RSOL.
Excluding the non-cash equity investment loss of $15.9 million from RSOL and a related tax benefit of $5.1 million, Gaiam reported a net loss for the quarter of $0.4 million, or $0.01 per share, compared to a net loss of $0.9 million, or $0.04 per share, in the same quarter last year. Including the loss from Gaiam’s equity investment in RSOL, Gaiam reported a net loss of $11.2 million, or $0.49 per share, for the third quarter of 2012. (See Non-GAAP Financial Measurements.)
