Gaiami Inc. reported net revenue for its continuing wellness-centric apparel accessories and media businesses grew by $600,000, or 1.7 percent, to $32.5 million in the quarter ended June 30, compared to the prior-year period.
The results are adjusted to exclude businesses Gaiam divested in the fourth quarter of last year. Going forward, Gaiam will focus on its branded yoga, fitness, and wellbeing business. The latter includes fitness media content and products; an e-commerce platform; and Gaiam TV, a global digital subscription service.
“Our 2014 results demonstrate the continued progress we are achieving since the recent repositioning of our business,” said CEO Lynn Powers. “While our initiatives to focus on growing Gaiam across yoga, fitness and wellbeing are still in the early stages of implementation, we are already generating positive momentum. Notable high profile retail placements over the balance of the year include: 1,100 door store-within-store presentation with a major retailer for Gaiam and Gaiam Restore products and media, further expansion of the SPRI line of products in our largest retail account and an increase in our international presence across a major European retail chain.”
Gross profit for the 2014 second quarter improved to $15.5 million, or 47.7 percent of net revenue, compared to gross profit of $13.3 million, or 41.7 percent of net revenue, in the second quarter of 2013. The 600 basis point improvement in gross profit was driven by improved margins in our business segment and increased revenues from our high margins subscription business.
Operating expenses were 55.5 percent of net revenue in the 2014 second quarter, compared to 53.4 percent of net revenue in the second quarter of 2013, due to continued investments in Gaiam TV partially offset by lower expenses in our business segment.
Operating loss for the three months ended June 30, 2014 improved 22 percent year over year to $3.2 million, compared to $4.1 million in the second quarter of 2013. Included in the operating loss for the 2014 second quarter is $0.6 million of costs related to the proposed separation of Gaiam TV. Excluding these costs, operating losses improved 32 percent over the prior year.
Gaiam’s business segment generated income from operations of $1.4 million in the second quarter, compared to $0.2 million in the same period last year primarily reflecting lower operating expenses. The company’s direct-to-consumer segment recorded a net loss from operations of $4.6 million, compared to a net loss of $4.3 million in the same period of last year.
During the quarter, the company recorded a gain of $1.0 million on the sale of a portion of its shares of Real Goods Solar stock and all of the Cinedigm stock it received from Cinedigm in connection with the sale of GVE last year.
The company recognized income tax expense of $0.1 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 because it continues to record a valuation allowance against its deferred tax assets. Although fully reserved on the balance sheet, Gaiam’s deferred tax assets remain available to offset any income tax liabilities.
Net loss for the 2014 second quarter was $2.4 million, or a loss of $0.10 per share, inclusive of the $0.6 million of legal and audit costs related to the proposed separation of Gaiam TV and the $1.0 million gain from the sale of stock, compared to net income of $8.0 million, or $0.35 per share, for the second quarter of 2013. The prior year period included a $16.4 million gain from the sale of stock and a tax provision of $4.4 million. In accordance with GAAP, the company recorded a valuation allowance against its net operating losses during the current quarter that prevented it from recognizing a net tax benefit.
“Gaiam TV continues to gain traction with consumers seeking curated, quality, conscious media content delivered across a digital platform,” said Jirka Rysavy, Gaia’s chairman. “Our board of directors believes that both businesses and shareholders will benefit from Gaiam TV operating as a standalone business.”
Gaiam’s board of directors recently approved the separation of the company’s media subscription unit from the Gaiam-branded business into two separate publicly traded companies, which is expected to occur after the company files it Form 10-K for 2014. The company currently expects the separation to take the form of a tax-free spin-off to shareholders. 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.
Gaiam TV is a global digital video streaming service that provides curated conscious media content to its subscribers in over 100 countries. Over 90 percent of its 6,000 titles are available for streaming exclusively on Gaiam TV through almost any device connected to the internet.
GAIAM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) | ||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||
| Net revenue | $ | 32,451 | 100.0 | % | $ | 31,897 | 100.0 | % | ||||||
| Cost of goods sold | 16,983 | 52.3 | % | 18,583 | 58.3 | % | ||||||||
| Gross profit | 15,468 | 47.7 | % | 13,314 | 41.7 | % | ||||||||
| Selling and operating | 15,230 | 46.9 | % | 14,437 | 45.2 | % | ||||||||
| Corporate, general and administration | 2,782 | 8.6 | % | 2,616 | 8.2 | % | ||||||||
| Other general expense | 611 | 1.9 | % | 308 | 1.0 | % | ||||||||
| Loss from operations | (3,155 | ) | -9.7 | % | (4,047 | ) | -12.7 | % | ||||||
| Interest and other income (expense) | 27 | 0.1 | % | 93 | 0.3 | % | ||||||||
| Gain on sale of investments | 1,042 | 3.2 | % | 16,429 | 51.5 | % | ||||||||
(Loss) income before income taxes and noncontrolling interest | (2,086 | ) | -6.4 | % | 12,475 | 39.1 | % | |||||||
| Income tax expense | 130 | 0.5 | % | 4,363 | 13.7 | % | ||||||||
| (Loss) income from continuing operations | (2,216 | ) | -6.9 | % | 8,112 | 25.4 | % | |||||||
| Income (loss) from discontinued operations | 2 | 0.0 | % | (129 | ) | -0.4 | % | |||||||
| Net (loss) income | (2,214 | ) | -6.9 | % | 7,983 | 25.0 | % | |||||||
| Net income attributable to the noncontrolling interest | (174 | ) | -0.5 | % | (135 | ) | -0.4 | % | ||||||
| Net (loss) income attributable to Gaiam, Inc. | $ | (2,388 | ) | -7.4 | % | $ | 7,848 | 24.6 | % | |||||
Net (loss) income per share attributable to Gaiam, Inc. common shareholders basic and diluted: | ||||||||||||||
| From continuing operations | $ | (0.10 | ) | $ | 0.36 | |||||||||
| From discontinued operations | 0.00 | (0.01 | ) | |||||||||||
| Basic net (loss) income per share attributable to Gaiam, Inc. | $ | (0.10 | ) | $ | 0.35 | |||||||||
