GAIAM, INC. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; comparisons are primarily with FY2014. The filing also reports fourth-quarter results. Amounts below are in U.S. dollars unless noted.
Business context
Gaiam sells yoga, fitness and wellness products and operates Gaia, a digital video subscription service. Its two reportable segments are Gaiam Brand, including eco-travel, and Gaia. In 2015, they accounted for 92.8% and 7.2% of revenue, respectively. The company reported products in more than 38,000 retail doors worldwide.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $188.0 million | $166.7 million |
| Gross profit / gross margin | $84.8 million / 45.1% | $75.5 million / 45.3% |
| Operating income (loss) / operating margin | $4.2 million / 2.2% | ($5.1 million) / (3.1%) |
| Net income (loss) from continuing operations | $1.1 million | ($5.6 million) |
| Net loss attributable to Gaiam, Inc. | ($11.7 million); ($0.48) per share | ($9.9 million); ($0.41) per share |
| Cash from operating activities, continuing operations | $12.0 million | ($8.8 million) |
Revenue grew 12.8%. Gaiam Brand revenue increased 11.3% to $174.6 million; Gaia revenue rose 35.8% to $13.5 million. Consolidated operating results improved to income, but the larger discontinued-operations loss drove a greater net loss attributable to Gaiam. That loss included $12.1 million of Cinedigm-related charges recorded in discontinued operations.
At December 31, 2015, cash was $13.8 million, working capital was $33.2 million, total assets were $128.5 million and total liabilities were $39.7 million. Gaiam reported no long-term debt. A subsidiary had a $5.5 million revolving credit line, with no amount drawn at year-end. Consolidated cash decreased $2.0 million during the year; cash from all operating activities was $8.2 million, including $3.8 million used by discontinued operations.
Material changes versus FY2014
- Revenue increased by $21.3 million, led by the 2015 yoga apparel launch and other branded product sales; this growth was partly offset by a planned $7.6 million reduction in catalog business.
- Gross margin edged down from 45.3% to 45.1%. Gaiam Brand cost of goods sold rose as a share of segment revenue, primarily due to lower margins on new apparel.
- Selling and operating expense fell $4.3 million, chiefly because of reduced catalog spending. Corporate, general and administrative expense rose $4.3 million, including approximately $1.8 million of one-time business-separation and severance costs.
- Cash from continuing operating activities improved by $20.8 million, with management citing revenue growth, stronger receivable collections and lower inventory.
- The Cinedigm dispute was settled in 2015. Gaiam recorded $12.1 million in charges, including a $7.3 million non-cash write-off of a working-capital receivable; the filing describes a $2.3 million settlement payment and a further $1.6 million payment to resolve the remaining claim.
Outlook, risks and unusual items
- Potential Gaia spin-off: A tax-free separation was being pursued, subject to conditions and board discretion to abandon it. The board was reviewing funding structures, enhancements and alternatives for the businesses, with that review expected to conclude by the end of March 2016. No assurance was given that the spin-off would occur.
- Spending outlook: Management estimated 2016 capital expenditures of approximately $10.0 million, including Gaia, expected to be funded from operating cash flow. No specific revenue or earnings guidance was provided.
- Customer concentration: Target represented 21.8% and Kohl’s 18.1% of 2015 revenue. Target, Kohl’s and Amazon together represented 74% of gross receivables at year-end.
- Other key risks: The company cited a history of losses, competition, changing consumer preferences, inventory and returns exposure, dependence on third-party suppliers and a centralized fulfillment center, foreign-currency and shipping costs, litigation, and reliance on key personnel. Founder Jirka Rysavy held approximately 74% of voting power.
- Fourth-quarter revenue was $57.9 million and net income attributable to Gaiam was $2.1 million, or $0.09 per diluted share. Fourth-quarter discontinued operations recorded income of $0.2 million, following a $10.7 million loss in the third quarter, largely reflecting the timing of Cinedigm-related charges.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the proposed Gaia separation proceeds, and how any separation would allocate assets, liabilities, funding needs and shared services.
- Whether continuing operations sustain positive operating cash flow and meet the estimated 2016 capital expenditure requirement.
- Revenue and margin trends in Gaiam Brand apparel and Gaia subscriptions, including the cost of subscriber growth.
- Exposure to major retail customers, especially Target and Kohl’s, and the collectability of concentrated receivables.
- The final accounting and cash impact of the Cinedigm settlement and any remaining legal contingencies.