Gaia, Inc. (GAIA) Q3 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Gaiam 2014 Third Quarter Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this call is being recorded Monday, November 10, 2014. And I would now like to turn the conference over to Norberto Aja, Investor Relations. Please proceed.

Thank you, operator, and good afternoon everyone. Thank you for participating in Gaiam's 2014 third quarter conference call. Joining me today on the call are Gaiam's Chairman, Jirka Rysavy, Gaiam's CEO, Lynn Powers and Steve Thomas, Gaiam's CFO. Following some prepared remarks, we will open the call for your questions. Before we get started however, I would like to take a minute to read the Safe Harbor language. The following constitutes the Safe Harbor statement of the Private Securities Litigation Reform Act of 1995. Except for historic information contained herein, the matters discussed in this call today are forward-looking statements and involve risks and uncertainties including but not limited to general business conditions, integration of acquisitions, timely development of new businesses, impact of competition and other risk details from time-to-time as described in the SEC reports. The risks and uncertainties associated with the forward-looking statements are described in today's announcement and in the Company's filings with the Securities and Exchange Commission including the Company's reports on Form 10K and 10-Q. Gaiam assumes no obligation to publicly update or revise any forward-looking statements. Today's call, November 10, 2014 includes non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as the Company's website. With that, I would now like to turn the call over to Gaiam's Chairman, Jirka Rysavy. Please go ahead, Jirka.

Thank you, Norberto, and good afternoon, everyone. So revenue for the third quarter which ended September 30, increased to $41.3 million, a 14.2% from the third quarter of 2013. Gross profit increased to $18 million, a 300 basis point margin improvement. Operating loss improved 26% to $1.9 million including a $2.4 million loss from Gaiam TV unit. During the quarter, we secured placement of another 1600 new branded store-within-stores which is a nice addition to our existing 15,000 store-within-stores. We added 8 foot store-within-store display for Gaiam products to all Kohl's 1100 doors. Kohl’s will also become a launch partner for Gaiam branded yoga apparel in March next year. And Lynn will expand on this in detail to get over all of our retail partner initiatives. Our video subscription unit keeps progressing nicely during the quarter. Gaiam TV revenue grew 107% driven by library of over 6500 videos. And over 90% of all these videos are available exclusively on Gaiam TV for streaming to virtually all devices connected to internet. Recently, we launched a new feature for our subscribers that will provide an unlimited secure download and will allow subscribers to keep the content on their devices to watch offline as long their subscription remain active. We are also in the final stage of our new language support software that will allow streaming language voice over are subtitled worldwide as selected without duplicating our video files. And as we mentioned last night, our Board of Directors have approved the separation of Gaiam TV from Gaiam branded product business as we remain on track to file this transaction following our 2014 audit. And in summer, we are creating great momentum across our business units to take this momentum into 2015 and beyond. We believe that we can look for strong 2015 as revenue grows about 20%. And I would like to turn the call over to Steve to give you some color on financials. Steve?

Thank you, Jirka. I’ll spend a few minutes reviewing the financial results and offering additional perspective on the performance for the third quarter. Let me begin by reminding everyone that the results we reported earlier today and that we will discuss on this call do not include any contributions from Gaiam Vivendi Entertainment or GVE, our former non-Gaiam branded entertainment media business, nor do they include contributions from our direct response television marketing operations as we made a strategic decision to discontinue that business in the fourth quarter of 2013. As a result, we now report both of these businesses as discontinued operations in all figures reflected only are continuing operations. Beginning with the income statement. Net revenue for the third quarter of 2014 was $41.3 million, an increase of approximately $5.2 million or 14.2% compared to net revenue of $36.1 million in the prior year period. Net revenue for our business segment increased by 1% or $0.2 million to $23.6 million, while the direct-to-consumer segment net revenue increased 38% or $4.9 million to $17.7 million, compared to the third quarter of fiscal 2013. As a reminder, our business segment is comprised of our sales to domestic and international retailers including store-within-store presentations. New customer and customer expansion offset weaker than expected sales at our largest retailer after their well-publicized security breach and our decision to focus on the Gaiam brand and transition away from a third-party branded equipment license. Lynn will provide more detail on these impacts in a few moments. Our direct to consumer segment is comprised of our branded e-commerce, catalog, and travel businesses, as well as our Gaiam TV subscription service. This segment continues to demonstrate healthy growth in both our Gaiam TV and travel businesses. Gross profit for the 2014 third quarter improved to $18 million or 44% of net revenue, a significant improvement when compared to gross profit of $14.7 million or 41% of net revenue in the third quarter of 2013. The 300 basis point improvements in gross profit was driven by improved margins in our business segment and increased revenues from our higher margin Gaiam TV subscription business. The business segment improvement resulted from the transition away from a third-party branded product line, which resulted in increased revenues from higher margin lines. To a lesser extent the change in our media category management business, to a distribution model which we discussed last quarter, has enabled us to achieve similar gross profit dollars on lower revenues, as we now recognize only our earned distribution fees revenue. This change also improved the business segments’ gross profit margin. Operating expenses totaled $48 million of net revenue in the 2014 third quarter which is in line with the third quarter of 2013 and includes approximately $300,000 of expenses relate to our forthcoming apparel product line. The year-over-year increase in operating expenses reflects our continued investments in Gaiam TV and growth in our travel business offset by reductions in online and catalog expenditures. Moving down the income statement, operating loss for the three months ended September 30, 2014 improved 26% year-over-year to $1.9 million compared to an operating loss of $2.6 million in the third quarter of last year as a result of the improved gross margin. Our business segment generated income from operations of $1.2 million compared to $1.5 million in the same period last year, primarily reflecting the apparel-related expenses I just mentioned. Our direct-to-consumer segment recorded a net loss from operations of $3.1 million compared to a net loss of $4.1 million in the same period of last year resulting from the growth in our Gaiam TV and travel businesses, as well as improved profitability from the reductions of catalog circulation. We’ve discussed our strategic decision to move away from catalogs as a part of Gaiam’s direct-to-consumer marketing and sales effort and focus exclusively on digital and mobile strategies. As a result, we continue to reducing catalog expenses during the quarter and this change while negatively impacting revenue as increased operating profit in the direct-to-consumer strategy. Our third quarter operating losses for Gaiam TV were $2.4 million compared to $2 million loss in 2013. Our net loss for the 2014 third quarter was $3 million or $0.12 per share compared to net income of $0.1 million or $0.01 per share for the third quarter of 2013. It’s important to note that the prior period included a $2 million gain from the sale of Real Goods stock and income from discontinued operations of $1 million. Taxes from our non-wholly owned subsidiaries and related non-controlling interest in the earnings of those same subsidiaries impacted the net loss for the quarter by approximately $847,000 this quarter, compared to approximately $322,000 last year. The company recognized a net loss for the quarter, but in accordance with GAAP did not record a tax benefit as it continues to record valuation allowance against its deferred tax assets. Although fully reserved on the balance sheets, Gaiam’s deferred tax assets remain available to offset any income tax liabilities. At the end of the quarter, we had approximately $17 million of Federal NOLs. Taking a look at the balance sheet, we ended the quarter with total cash of $23.4 million and no debt. Our current ratio at September 30, 2014 was 2.8, up from 2.0 in the third quarter of 2013. The metric that continues to reflect the health of our balance sheet and our ability to fund our growth. Inventory turns improved to an annualized rate of 4.7 times in the quarter from 3.6 times in the third quarter of 2013. Overall, we are pleased with our performance in the third quarter and are excited about our initiatives to launch new products that will help us grow our business and drive increased value to our shareholders. We remain confident that our business strategy, product offerings and financial position will result in future revenue growth and profitability. With a healthy and robust balance sheet, including a good cash position and no debt and a leading consumer brand in a fast-growing category, we have the financial flexibility to invest in and support our repositioned yoga, fitness and well-being business and to leverage our resources in a more focused and efficient manner. With that, I would now like to turn the call over to Lynn, who will provide some additional detail on the status of the industry and our business after which we will open up the call for questions. Lynn?

Thanks, Steve. Overall our third quarter results were in line with our expectations. As I discussed on prior calls, we began the year with the four-thronged growth strategy for the Gaiam brand. Expand our stores-within-stores placement, grow overall placement for our SPRI brand, invest in product innovation and refine and improve our ecommerce presence, as well as our corporate initiatives to invest in our subscription business Gaiam TV. On the call today, I am going to offer a brief review of the quarter followed by a deeper dive on a few of the major steps we took during the quarter that further our strategic execution. During the fourth quarter, we had many successes partially muted by continued slow sales at our largest customer. The difficulties at our largest customer began in first quarter after a widely publicized data breach and have continued through the year. Additionally, we made two strategic decisions to change our business model and our business segment. Our first decision was to move away from media aggregation to media distribution and our media category management role. This decision which we began implementing in late 2013 and continued to implement during early 2014 affected our revenue but not our margin and we had a positive impact on our working capital. Second, we determined it was in our long-term best interest to focus on our owned brands, so we dropped a third-party license in favor our SPRI brand. Together, these events had an approximate $2 million impact on revenue in the quarter and an approximate $5 million impact year-to-date. The structural decisions I just mentioned will have a positive impact on the P&L and working capital going forward. As I stated on the last call, we accelerated our repositioning of our direct business and will circulate over $1 million fewer catalogs in the fourth quarter than we did last year. We still anticipate a $5 million reduction in revenues in direct next year, which drives a $3 million improvement in the bottom-line. As a part of our repositioning and focus on our brands, we launched our redesigned SPRI.com a week ago and our hard work at the redesign for Gaiam.com. We invite you to view the new SPRI website to a get a preview of our vision. As we announced on the last call, we successfully launched a number of key retail partnerships this quarter. Over 300 doors at British retailer Tesco, 220 doors at Meyer added store-within-stores for SPRI and over 1100 doors at Kohl's, the leading US specialty department store. These launches brought on 1600 new branded stores-within-stores sets bringing our total stores-within-store presentations to over 16,000 and contributed to some strong product line revenue gains with Gaiam restore products up 33% and SPRI products up more than 100% in retail since Q3 of last year. The additional stores and store presentations create true destinations for our brands within the retail environment. I am also pleased to announce that excluding Kohl's and Target, our top-25 retail accounts are up over 20% year-to-date driven by strong sales at the Sports Authority and Amazon. Regarding our commitment to product innovation, I am happy to report that we secured placement for additional space for our Gaiam restore brand and our active sitting initiatives for fourth quarter. We are seeing more and more retailers want to be the health and wellness destination and are expanding their product mix in order to do so. We will continue to add to our product mix and restore and expect to be able to offer expansion from our current 4 feet to 8 feet of products by fall 2015. Categories currently being offered in restore are rehabilitated products, foot care, back care and hand care. We will be adding additional back care, active sitting, neck care and stress relief products in the coming year. Now I want to spend the remainder of the call discussing three key areas of our business, yoga apparel, digital and yoga for athletes and end with articulating some growth opportunities for 2015. Yoga apparels an opportunity we’ve been talking about for a while now because of some incredibly strong trends. A recent Wall Street Journal article announced that yoga apparel grew 43% last year. With those trends at our back and quantitative research showing strong brand recognition and permission for Gaiam to be apparel, we brought in a topnotch apparel team earlier this year with backgrounds from Spider, REI and Meyer. As you saw in the press release, this investment paid off with an incredible launch opportunity beginning in April 2015, Kohl's will be the exclusive retail provider of Gaiam branded yoga apparel in all of its 1100 doors. In 2015, we expect this to be a $15 million to $20 million business. At its recent Investor Day, Kohl’s announced its intention to lead in the active category and become a destination to the wellness lifestyle. With our yoga set in all doors and our exclusive yoga apparel launching next year, Gaiam could help Kohl’s achieve its goal with high-end design, technical fabric and outstanding performance, but an affordable price point, our yoga apparel will be the first of its kind available outside of company-owned stores. In case you can’t tell I am very excited about the apparel opportunity because it represents a scalable way to leverage our brand and achieve substantial growth. To that end, to lead our apparel design team we recently hired a Senior Director of Design of Athleta, Nancy Taylor Nancy’s experience and insight will be important as we plan our 2016 line-up that includes the launch of a higher-end line of Gaiam’s sole branded apparel and as we continue to develop our Gaiam retail line. Nancy was with for Athleta for nine years and helps lead their move to multi-channel distribution and their current design direction. She will also be a valuable asset as we transform our direct-to-consumer business. Digital is an area we’ve also been looking at for sometime and recent years; we’ve tried to offset the declines in the DVD market by digitizing our content and offering it for sale through third-party platforms like iTunes, as well as through our streaming service Gaiam TV. However, this was just the first step. During the third quarter, we acquired the Yoga Studio app, the most popular yoga app in the Apple store with a five star rating and recommended by Gizmodo, Fox and the Guardian to name a few. The Yoga Studio app has it all. Users can tailor their classes to fit their individual needs or choose from one of the many available classes divided by level and focus and then further divide into timeframes ranging from 15 minutes to over an hour. In addition, users can look at each pose and receive step-by-step instruction or how to get into that pose. This app takes all the guess work out of the yoga practice. This is a great entry point for beginners. We plan to grow our digital business by leveraging the unique technology of the Yoga Studio App to develop similar apps for a variety of other practices in addition to our 2015 plans for internationalization and an android version. We see digital technologies, particularly mobile apps as a way for us to expand on our solution-based strategy and to build a more internet and interactive relationship with our consumer that encompasses not only accessories and apparel, but individualized content and instruction as well. Finally, I want to turn the yoga for athletes. In the last quarter, I talked about our new line of yoga for athletes accessories. Now I am excited to announce that we are going to support this effort with two forthcoming video programs, one featuring Kevin Love, NBA All-Star, the Cleveland Cavaliers and the second featuring Eddie George, the former NFL All-Pro running back and the Heisman Trophy winner. Love and George appear in these videos with a professional coach in yoga instructor Kent Katich. These videos and the athletic yoga accessories will help us target the male consumers represents half of the 80 million people who want to practice yoga according to a yoga journal study. Our athletic yoga accessories will launch in first quarter with a 100 store test at DICK'S Sporting Goods. Gaiam TV continued to grow nicely during the quarter with a 107% growth and our travel business also posted strong quarterly increase due to both growth as well as the timing issue that shifted some trips into the quarter from Q2. Together these efforts reflect the progress we made on our strategies for the year including first , growing our customer base by adding new programs and products to appeal to a new yoga demographic as evidenced by athletic yoga launch as well as our upcoming yoga kids launch. Second, expanding our distribution by adding 1600 stores-within-stores this year and bringing on our first major new international account Tesco and third, adding new product categories, yoga apparel and wellness. So far this year, with not some good wins, but moreover, have built a solid foundation for growth next year and we take on further international expansion, segmenting our apparel growth and building new products and a new distribution base for wellness as well as engaging our direct customers through new and improved web experiences. We have a lot to be excited about and a lot of work yet ahead, but I am really looking forward to a great 2015 as we expect our comp growth to be approximately 20%. I’ll now turn the call back to the operator, so we can answer questions. Operator?

[Operator Instructions] And our first question is from the line of George Kelly from Craig Hallum Capital Group. Please proceed. George Kelly – Craig-Hallum Capital Group: Hi, guys. Really nice quarter. But, just a couple of questions. First, Steve, can you, you mentioned that revenues by segment, can you go through that again?

Sure. The net revenue the business segment increased to $23.6 million, in the direct-to-consumer to $17.7 million. George Kelly – Craig-Hallum Capital Group: Okay, okay. And then, Lynn, you talked a lot about the new apparel launch, upcoming next year, wondering could you – so if we look at to sort of late 2015 and even 2016, what does apparel bring to the other categories, the core business you operate now? Does it gets you exposure at retailers that you currently don’t have or you are currently not sold because you have a fuller suite of products nor can you kind of talk about the growth you expect in the core business that apparel will bring?

Sure, well, first of all, it’s yoga apparel, George and we want to make sure that we said that. But what we see it doing is creating true destination for the yoga consumer. Now the retailer can hold together yoga apparel with yoga accessories under the Gaiam brand which as you know, we have terrific brand recognition in yoga and we are the top rated brand in yoga accessories and one of the top three recognized brands for apparel as well. George Kelly – Craig-Hallum Capital Group: Okay, okay. And…

And George, I also believe that will bring on the opportunity now that we are into apparel to bring on department stores which is shown through our launch with Kohl’s, but additional department stores as well. George Kelly – Craig-Hallum Capital Group: Okay and the launch with Kohl’s is that exclusive for an amount of – period of time?

For 2015, it is. George Kelly – Craig-Hallum Capital Group: Okay, okay. And then on the TV side, can you go through some of the metrics you’ve given before like conversion in number of subscribers any of that stuff?

Yes, they pretty much remained the same, it’s about conversions, it’s kind of high 70s, now it really changed kind of holding steady, I said revenue grew 107%. We – as we did – do audit preparing for the split; we kind of changed a little bit of our reporting to basically report same as Netflix does, because we assumed investors in that sector would kind of used to that reporting. So, we changed a little bit how it’s run. How it is recognized of defer revenue and stuff. So, effectively, last year based on the audit we just finished, that’s about $5.4 million for 2013 to current rate is about $11 million as of October and we have – the gross margin has kind of increasing pretty steadily as it grows. The fixed expenses had less impact and we also start to report would pick all contribution margins similar as Netflix does. But, when we talk about in this call and yet to explain what’s there, but it puts us to be comparable to Netflix. George Kelly – Craig-Hallum Capital Group: Okay, okay. Thank you very much.

Thanks, George.

Our next question is from the line of Robert Routh from National Alliance Capital Markets. Please proceed. Robert Routh – National Alliance Capital Markets: Hey, good afternoon. Thanks for taking my questions. Good quarter. First question is, given the – of apparel with Kohl’s and it’s exclusive for a year in 2015 and is that for brick and mortar or does that also include home shopping, because I have seen is though you have a great audience with either QBC or HSN for your apparel line and obviously you have the relationships. I am wondering because any chance you’d be getting through distribution in those areas or you have to wait after 2015 to do that?

I think, right now, we are probably waiting till 2016 for that kind of a launch. But we also have our own line that we sell directly to the consumer on our website which is our high-end sole line and we certainly have that opportunity to go out into the home shopping channel with. Robert Routh – National Alliance Capital Markets: Great, great. Okay, and then, a couple more from me, last week announced results and on the call they hinted that they are going to start their own branded channels, kind of an OTT model globally due to the initial deal they do with Alibaba. And I was wondering if given you guys manage our belief their health and wellness library, is there is any chance for you guys to work together and bring the expanded distribution for Gaiam TV in other areas around the world, given what you have in the proprietary nature of that and what you are looking to do. Is there any possibility that something with that could happen?

We didn’t have any discussion, but it represent from this current 6500 titles total lines titles we do is what like 20?

Yes, about that. But that’s only for physical distribution for our category management role.

So, it’s cited and they are going to have a big impact why we have to do that and others, but we’d proudly open to explore that but it’s not going to have a big impact, because, as far as the subscription business, we are in a position to become pre-mandatory to all the people like Netflix, HBO Go, Amazon, and we have our libraries pretty much international. So, it’s – we cannot sit nicely to be complementary result of all the players. The things what we recently launched was very unique and then all the other big players who do have is because is they are a lot of question on rights, but since we aren’t all of those styles, so we are 90% of those titles. So we could launch them on this – download that means that if you subscribe, you can download to all videos to in a device as you want and take them when you travel or you go to other country and watch them offline which is not of the big players allowed or have the ability to do for at least right now. So, we don’t really think that, it’s pretty niche business, but we try to be unique in technology and also the fact that we already in about 100 countries and that we can – we are just finishing to source that will allow us to stream voice-over or subtitles in different languages as a separate stream over the existing video stream. So we don’t have to duplicate this tremendous number of terabytes what we have in storage, because each title has about 20 different files. So we can serve different package depends on – the kind of media player you have or the broadband to you or it should have available the moment. So we check every five seconds and so, it’s creates a huge amount of storage. So, you really view all these languages free, it’s really key to have this software going.

But there is no question that’s huge opportunity internationally.

Yes, I mean, we definitely look, – international we believe that our international will be far bigger than our US presence. And so, if any players like Alliance or somebody corporate and this might be definitely open we can see to have corporate as everybody. Robert Routh – National Alliance Capital Markets: Right, okay, that’s our place I think international given your content, you do own all the rights, it’s a lot of the others, but people don’t realize the value of that could be much bigger than domestic given how popular you are popular here that it was 10 years ago, but obviously in other countries it’s even more popular than it is here now. So, along those lines, is there any country in particular where you are not out of the 100, where you are currently available, would you be with a huge opportunity that you are looking to get into with Gaiam TV?

I think, we pretty much are in the big countries, as you can think, there is a total – from the countries we are not into, there is really big meaningful player. It’s more – we don’t have a problem with border lines for us it’s just going to be a language. So we don’t really struggle which border line that Netflix would do for their rights, it’s purely the language support. Robert Routh – National Alliance Capital Markets: Right, right.

We spent so far no marketing dollars anywhere outside of US. And so – but, except we are building this – we have a quite investment right now in this international liaison to site, but it’s effectively the marketing dollars or you can look at that, people find aside, they come inside clearly with their language that even in the US there is lot of people who prefer to watch in their native language than in English. Robert Routh – National Alliance Capital Markets: Right. Great, okay and then one final question, I’ll get back in queue. Could you give how well you’ve done, so obviously if you didn’t have that one-time gain last year, you did just as well this year without that in this quarter. But obviously, historically, the companies has had losses. So you have huge tax NOLs. So can you give us a sense as to what the size of that would be and how we could value that the cash values and then if you have any sense as to how much of that NOLs could go into Gaiam TV and into the regular Gaiam when the company is up if you know that yet in terms of – because it seems like a lot of hidden value and you start making money, you are going to be fantastic, I assume.

There is a total – there is a state on Fed, so the Fed is little over 70 and states are only 38%, Steve, right?

Yes, 36.

36 and so, how much will fall as we kind of – it really depends how we end the year, because there are rules what we have used for. So, how much exactly we’ll get split them we will decide after the audit. But the majority of those or at least most of them would be with the brand and brand will also in January in a short-term income. Robert Routh – National Alliance Capital Markets: Okay, great. Any sense to the cash value of that, because obviously, that’s lower but on a per share it’s like a couple bucks of value just about tax, that’s what I would think.

You can stick to the Federal at 34 roughly. Robert Routh – National Alliance Capital Markets: Okay.

Yes, so, I think, it’s like, it’s purely a question of the time value. So, really, this calculation depends for those, it’s $2 probably north, but it’s probably definitely over $1. Robert Routh – National Alliance Capital Markets: Great, great. Thank you very much.

Thanks, Routh.

Our next question is from the line of Mark Argento from Lake Street Capital Markets. Please proceed. Mark Argento – Lake Street Capital Markets: Yes, hi guys. Good afternoon.

Hi, Mark. Mark Argento – Lake Street Capital Markets: Hi, first question, back on the yoga apparel line with Kohl’s, do they plan any kind of launch marketing around rolling out the line or the active line? It sounds like, you quote from their Analyst Day that they are wanting to be kind of thought of and known as a destination for this type of product. Any point on terms of really launch marketing to kind of kick this off?

Absolutely, Mark and we are still working on that with them. But, we have plans to incorporate our media, our apparel and our accessories and the launch as well as they are doing some pretty incredible fixturing really create that destination for the consumer to find everything yoga in one place. And it will be Gaiam branded. Mark Argento – Lake Street Capital Markets: Okay, good. And then how expansive is the line on launch?

Well, it will create enough of a presence in their store from a fixturing and branding that you will definitely know there in the yoga apparel business. Mark Argento – Lake Street Capital Markets: Got it. And then, you had mentioned, I think, 20, is it late 2015 or 2016 Gaiam sole will higher end products, maybe walk us through the time into that and then the distribution or retail channel that that might go through?

Well, right now, it’s just direct-to-consumers who are ecommerce site. We expect to try to take that into the studios would be our primary placement or first primary placement and then some of our top sporting goods account is again at the higher end. And we hope to launch that sometime in late 2015 or early 2016. Mark Argento – Lake Street Capital Markets: Got it and then how long, as you had mentioned that you’d hired an executive, I think you said here name was Nancy Taylor. How long has Nancy been with you guys and she had any direct impact in terms of the product or maybe talk a little bit about her role?

Her role will be VP, it’s a newly created role, VP of Apparel Design and she had no impact yet because she is just going to be starting with us at the beginning of the year. She spent nine years at Athleta. Really been the creation of their design looks, so, we are thrilled that we have brought her on board and now that she can really help take both the Gaiam line and the Gaiam sole line to the next level. Mark Argento – Lake Street Capital Markets: Great, it sounds like you get higher there. And then, shifting over to some of the media, since I know you had acquired the Yoga Studio app in the quarter. Any, ideas in terms of rollout or expanding your leveraging that kind of any in out purchases or marketing opportunities or how do you think about using that asset going forward?

We’ll definitely be doing in app purchases. We think that’s a huge opportunity. We also want to get it on the android devices and make it more international and then to launch, some additional practices, whether that practice might e-meditation or mindfulness, Polaris, let the different opportunities now with that platform is built for us to leverage it into other practices. Mark Argento – Lake Street Capital Markets: Right and then, Steve or Jirka, in terms of margins, given forward gross margins, what’s your expectation as apparel starts to hit the mix in terms of margins, I think you guys have been running in the low 40s going forward, is that a good level?

It’s definitely, there is a margin mix. So you have – the Gaiam TV for example, we have the margin is going to be high 80s where the clothing is going to be…

More 40s.

Mark Argento – Lake Street Capital Markets: And then, in terms of the Gaiam TV spin-off, so will that be a tax free spin to shareholders or how you are thinking about proceeding with that?

I think the current thinking is, to have a tax-free dividend. Mark Argento – Lake Street Capital Markets: Okay. So basically, it’s not for publicly traded company, it’s created in the stock as dividend to existing Gaiam holders, is in other words?

It’s kind of, yes, as you dividend the shares on that unit which is separate companies, so you dividend to a share and registers in time. Mark Argento – Lake Street Capital Markets: Got you. Great, nice quarter. Thank you.

Thanks Mark.

[Operator Instructions] Our next question is from the line of George Kelly, Craig Hallum and Capital Group. Please proceed. George Kelly – Craig-Hallum Capital Group: Hi, guys. Just one quick follow-up, wondering what you are seeing from Target in the fourth quarter so far?

About the same as we’ve been seeing in previous quarters. So, still a little bit – it’s pretty flat to be very honest. George Kelly – Craig-Hallum Capital Group: Okay, all right. That does it. Thanks.

Yes, it’s kind of actually, if you think in our largest customer being flat then we are still saying we are going to have a 20% growth means, the rest of the business to be growing well over that. George Kelly – Craig-Hallum Capital Group: Yes, that’s excellent. Okay, thank you.

Thank you.

There are no further questions from the phone lines.

So we would want to thank you everyone for being with us.

Thanks.

Bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you.