Gaiam Reports Third Quarter Fiscal 2008 Results

BOULDER, Colo., Nov. 6 /PRNewswire-FirstCall/ -- Gaiam, Inc. (Nasdaq: GAIA), a lifestyle media company providing information, media, products and services to customers who value personal development, wellness, ecological lifestyles, responsible media and conscious community, announced today results for its third quarter ended September 30, 2008.

Gaiam also announced that it will host a conference call today, November 6, 2008, at 2:30 p.m. MST (4:30 p.m. EST) to review the third quarter fiscal 2008 results.

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Revenue for the third quarter ended September 30, 2008 decreased 14.3% to $60.3 million from $70.3 million recorded in the same quarter last year. Excluding international revenues, which were affected by the transition from product sales to licensing arrangements, the revenue growth for the quarter was approximately 2%. The quarter over quarter comparison was also impacted by early holiday orders shipped in 2007 during third quarter.

Gross profit decreased to $33.8 million or 56.1% of revenue for the third quarter of 2008, from $46.1 million, or 65.6% of revenue, in the comparable quarter last year. The change in gross margin reflects the company's investment in the lower margin solar business and additional store within store presentations. The margin was also impacted by the decision to expand Gaiam's distribution footprint by maintaining retail prices while absorbing cost increases from higher freight charges and the dollar decline. The company strategy to aggressively pursue store-within-store and media category management expansion will continue to impact the margin through fourth quarter. Gaiam expects to return to mid 60's margin, excluding the solar business, by first quarter 2009 and achieve its goals of 75,000 retail doors and 10,000 store-within-store presentations.

Selling and operating expenses decreased $4.6 million, or 11.9%, to $34.0 million during the third quarter of 2008 from $38.6 million during the same quarter last year.

Other expenses of $13.9 million for the quarter include a non-cash, tax-deductable impairment charge related to the company's acquired media libraries, web site development costs, and related assets. This charge increased our overall tax benefit by approximately $5.5 million and, as a result, the company expects to receive tax refunds and benefits of approximately $12 million early next year.

Interest and other income decreased to $0.4 million for the third quarter of 2008 compared to $1.0 million during the third quarter last year, primarily reflecting the decline in average interest rates received on Gaiam's cash investments and recent repurchase of 1.3 million shares of Gaiam common stock.

Net loss for the third quarter, including the above charge representing $0.36 per share, was $10.1 million, or $0.42 per share. Comparable earnings for the third quarter of 2007 were $2.9 million, or $0.12 per share.

For the nine months ended September 30, 2008, Gaiam recorded net revenue of $182.7 million, a 0.8% increase from $181.1 million in the comparable period a year ago. Including the third quarter charge of $13.9 million or $0.36 per share, the Company recorded a net loss of $5.3 million, or $0.22 per share, compared to net income of $4.3 million, or $0.17 per share, for the nine months ended September 30, 2007.

In October 2008, Gaiam's solar energy subsidiary, Real Goods Solar, Inc, acquired, through a merger, Regrid Power, Inc., a northern California solar energy integrator for $3.8 million in cash, and approximately 2 million shares of Real Goods Solar's common stock. Regrid Power's revenue for the last 12 months was approximately $15 million. Following this merger, Gaiam owns approximately 56% of Real Goods Solar's outstanding shares and 79% of Real Goods Solar's voting power.

"Our financial results for the third quarter reflect the slowdown at retail and the effects of cautious consumer spending, especially during the month of September," commented Lynn Powers, Gaiam's President. "During the quarter, we continued to strengthen our market position and increase shelf space through expansion of our category management strategy and store within a store initiative. We currently have over 9,000 store-within-store doors up from 7,500 announced at the end of second quarter and expect to hit our goal of 10,000 by the end of January 2009. We are also exploring licensing opportunities that will expand our core demographic and continue to diversify our portfolio of respected brands."

"We continue to evaluate opportunities, which the current macroeconomic environment can yield for debt free companies with solid balance sheets and good cash flow," said Jirka Rysavy, Gaiam CEO. "With $50 million of cash, an upcoming tax refund, no debt and a current ratio over five, we have the ability to weather a prolonged downturn in the economy and accelerate the implementation of our strategic plan."

A replay of the call will begin approximately one hour after the end of the call and will continue until 5:00 p.m. EST on November 11, 2008.

Replay number: 800-839-9317

For more information about Gaiam, please visit http://www.gaiam.com, or call 1-800-869-3603.

This press release includes forward-looking statements relating to matters that are not historical facts. Forward-looking statements may be identified by the use of words such as "expect," "intend," "believe," "will," "should" or comparable terminology or by discussions of strategy. While Gaiam believes its assumptions and expectations underlying forward-looking statements are reasonable, there can be no assurance that actual results will not be materially different. Risks and uncertainties that could cause materially different results include, among others, introduction of new products and services, completion and integration of acquisitions, the possibility of negative economic conditions, and other risks and uncertainties included in Gaiam's filings with the Securities and Exchange Commission. Gaiam assumes no duty to update any forward-looking statements.

     Contact:  John Mills
               Senior Managing Director
               ICR, Inc.
               310-954-1105
               jmills@icrinc.com



                                 GAIAM, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)
                    (In thousands, except per share data)

                            Three months ended        Three months ended
                            September 30, 2008        September 30, 2007

    Net revenue            $60,285       100.0%      $70,318       100.0%
    Cost of goods sold      26,440        43.9%       24,174        34.4%

    Gross profit            33,845        56.1%       46,144        65.6%

    Selling and operating   34,049        56.5%       38,634        55.0%
    Corporate, general and
     administration          3,126         5.2%        3,314         4.7%
    Other expenses, net     13,947        23.1%         ----         0.0%

    Earnings (loss) from
     operations            (17,277)      -28.7%        4,196         5.9%

    Interest and other
     income                    355         0.6%        1,028         1.5%

    Earnings (loss)
     before income taxes   (16,922)      -28.1%        5,224         7.4%

    Income tax expense
     (benefit)              (6,922)      -11.5%        2,060         2.9%

    Minority interest in
     net income of
     consolidated
     subsidiaries             (115)       -0.2%         (246)       -0.4%

    Net income (loss)     $(10,115)      -16.8%       $2,918         4.1%

    Shares outstanding:
      Basic                 24,020                    24,705
      Diluted               24,020                    24,970

    Income (loss) per
     share:
      Basic                 $(0.42)                    $0.12
      Diluted               $(0.42)                    $0.12



                                 GAIAM, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)
                    (In thousands, except per share data)

                            Nine months ended        Nine months ended
                            September 30, 2008       September 30, 2007

    Net revenue           $182,675       100.0%     $181,137       100.0%
    Cost of goods sold      71,699        39.2%       63,886        35.3%

    Gross profit           110,976        60.8%      117,251        64.7%

    Selling and operating  102,686        56.2%      103,533        57.2%
    Corporate, general
     and administration      9,601         5.3%        9,824         5.4%
    Other expenses, net     40,655        22.2%         ----         0.0%

    Earnings (loss)
     from operations       (41,966)      -22.9%        3,894         2.1%

    Interest and other
     income                 32,363        17.7%        3,375         1.9%

    Earnings (loss)
     before income taxes    (9,603)       -5.2%        7,269         4.0%

    Income tax expense
     (benefit)              (4,031)       -2.2%        2,868         1.6%

    Minority interest
     in net (income) loss
     of consolidated
     subsidiaries              251         0.1%          (77)        0.0%

    Net income (loss)      $(5,321)       -2.9%       $4,324         2.4%

    Shares outstanding:
      Basic                 24,611                    25,000
      Diluted               24,611                    25,222

    Income (loss) per
     share:
      Basic                 $(0.22)                    $0.17
      Diluted               $(0.22)                    $0.17



                                 GAIAM, INC.
                         CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share information)

                                                  September 30,   December 31,
                                                      2008           2007
                                                   (Unaudited)
    Assets
    Current assets:
      Cash and cash equivalents                      $50,317        $66,258
      Accounts receivable, net                        26,641         30,157
      Inventory, net                                  32,950         29,839
      Deferred advertising costs                       3,475          3,602
      Deferred tax assets                             12,837          6,005
      Other current assets                             7,223          5,205
    Total current assets                             133,443        141,066

    Property and equipment, net                       25,635          9,509
    Media library, net                                12,086         37,566
    Deferred tax assets, net                             978          4,057
    Goodwill and other intangibles, net               52,197         44,410
    Notes receivable and other assets                  3,401          4,104
    Total assets                                    $227,740       $240,712

    Liabilities and shareholders' equity
    Current liabilities:
      Accounts payable                               $18,645        $23,620
      Accrued liabilities                              5,999         10,631
    Total current liabilities                         24,644         34,251

    Minority interest                                 19,432          6,073

    Commitments and contingencies

    Shareholders' equity:
      Class A common stock, $.0001 par value,
       150,000,000 shares authorized, 18,625,855
       and 19,553,631 shares issued and
       outstanding at September 30, 2008 and
       December 31, 2007, respectively                     2              2
      Class B common stock, $.0001 par value,
       50,000,000 shares authorized, 5,400,000
       issued and outstanding at September 30,
       2008 and December 31, 2007                          1              1
      Additional paid-in capital                     163,541        174,046
      Accumulated other comprehensive income              93            991
      Retained earnings                               20,027         25,348
    Total shareholders' equity                       183,664        200,388
    Total liabilities and shareholders' equity      $227,740       $240,712

SOURCE Gaiam, Inc.