GAIA, Inc. — FY2013 Form 10-K Summary
Business context and reporting period
Reports the fiscal year ended December 31, 2013. Gaiam sells yoga, fitness and wellbeing products and media through retail, business-to-business and direct-to-consumer channels, including its Gaiam TV streaming subscription service. In October 2013, it sold its non-branded entertainment distribution business (GVE) and discontinued direct-response television (DRTV); those operations are presented as discontinued operations, and comparisons below generally reflect continuing operations.
Financial and operating metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net revenue | $155.5 million | $127.2 million |
| Gross profit / gross margin | $65.3 million / 42.0% | $56.5 million / 44.4% |
| Operating loss | $21.6 million | $10.2 million |
| Loss from continuing operations | $20.1 million | $19.2 million |
| Net loss attributable to Gaiam | $22.8 million | $12.9 million |
| Diluted loss per share | $0.98 | $0.57 |
| Cash from continuing operating activities | $(15.6) million | $(1.1) million |
- Revenue rose 22.2% (organic growth 21.7%). Business-segment revenue increased 22.5% to $103.4 million; direct-to-consumer revenue increased 21.5% to $52.1 million.
- Cost of goods sold grew faster than revenue, up 27.5% to $90.2 million. Gross margin contracted 2.4 percentage points, primarily from business-segment product mix and lower-margin travel growth in direct to consumer.
- 2013 operating expenses included $11.0 million of other general expense: $7.1 million of impairments, $2.5 million of restructuring and executive retirement/termination benefits, and $1.4 million of transaction-related and other costs.
- Gaiam recognized a $25.1 million gain on the sale of Real Goods Solar (RSOL) shares and $2.4 million of interest and other income, including a $2.3 million gain from collecting RSOL loans. A $23.2 million valuation allowance against deferred tax assets contributed to income tax expense of $26.0 million.
- At year-end, cash was $32.2 million, working capital was $60.5 million, total assets were $140.0 million and total liabilities were $34.7 million. The filing reports no financing arrangements in place after repayment and termination of the PNC credit facility; it does not show outstanding borrowings on the balance sheet.
- Cash increased $22.4 million during the year, largely reflecting $47.5 million cash proceeds from the GVE sale and $25.1 million net proceeds from RSOL stock sales. Continuing operating activities used $15.6 million. Gaiam repaid $19.6 million, including principal, interest and fees, under the PNC facility and paid a $350,000 termination fee.
- Business-segment contribution margin fell to $1.1 million from $7.1 million; direct-to-consumer contribution loss widened to $22.8 million from $17.3 million. Direct-to-consumer figures include $8.5 million of investment in digital subscriptions and 2013 impairment and severance costs.
Material changes versus the prior comparable period
- Continuing-operations revenue increased, driven by sales at major retailers, Gaiam Restore and SPRI products, and Gaiam TV subscriber growth. The My Yoga Online acquisition also contributed to direct-to-consumer revenue.
- Despite higher revenue, operating loss more than doubled, while net loss attributable to Gaiam widened. Nonrecurring investment-sale gains did not offset operating losses and the deferred-tax valuation allowance.
- Cash rose from $9.9 million to $32.2 million, chiefly due to asset-sale proceeds; meanwhile, cash used by continuing operations increased substantially.
- The company exited GVE and DRTV, repaid its PNC borrowing and released the related liens. The exits also generated impairment, closure and restructuring charges.
Outlook, commentary, risks and unusual items
- Management plans to focus on branded yoga, fitness and wellbeing products and Gaiam TV, investing in digital subscriptions, content, product development and retail relationships. It expects approximately $6.0 million of 2014 capital expenditures, including Gaiam TV; anticipated 2014 royalties for acquired and produced media content were approximately $3.0 million. No specific revenue or earnings guidance is provided.
- Management cited strong growth in the business segment’s branded accessories and in digital subscriptions, while noting continued DVD-market decline as media consumption shifts to digital. Fourth-quarter revenue is typically strongest due to holiday spending and retailer purchases.
- GVE was sold for stated consideration of $51.7 million, including $47.5 million cash, Cinedigm shares, assigned receivables and an assumed payment obligation; a working-capital adjustment remained under negotiation. DRTV wind-down was expected to conclude by December 31, 2014, with no material proceeds expected.
- Key risks include customer concentration (Target represented 32.1% of FY2013 revenue and 43.6% of year-end receivables), reliance on suppliers and fulfillment providers, inventory and returns exposure, competition, the shift away from DVDs, and investment needs in digital operations. Founder Jirka Rysavy held approximately 75% of voting power through high-vote Class B shares.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. No material legal proceeding was identified in the supplied filing text.
Important facts for investors to verify
- Whether continuing operations can improve margins and reduce cash consumption as revenue grows, particularly in the direct-to-consumer segment.
- The final GVE working-capital sale adjustment and the remaining costs and proceeds, if any, from the DRTV wind-down.
- The recoverability of deferred tax assets after the $23.2 million valuation allowance and the assumptions underlying future utilization.
- Customer concentration, receivable collection risk and the sustainability of Target-related sales.
- The pace, costs and subscriber economics of Gaiam TV and the integration of My Yoga Online.