The Daily Camera
January 22, 2003
By Matt Branaugh, For the Enterprise

Two Broomfield businesses from the natural products industry - one sells such products, the other follows them - recently shaved their staffs.

Both Gaiam Inc. and Natural Business Communications, which publishes the bi-monthly trade publication LOHAS Journal, pared down their respective work forces.

Gaiam cut about 14 people - roughly 6 percent of its employees - last week as the seller of health and lifestyle products consolidates operations from California to Colorado.

Yudi Bahl, the company's chief financial officer, said the company has been slowly consolidating the West Coast site since early last year. Workers stationed in both states were affected.

"(The consolidation) makes for a much more productive organization," Bahl added.

Gaiam (Nasdaq: GAIA) now employs 225 workers companywide.

While Gaiam has expanded its distribution during the past couple of years, and reported mostly glowing earnings reports along the way, it has also shown signs of using more cash than it generates.

During third quarter, for instance, the company reported net income of $1.4 million, or 10 cents a share, on sales of $25.8 million. But its cash flow from operations was a negative $1.4 million.

Florida-based StockDiagnostics.com, a 6-year-old private financial software company, says Gaiam has done the same thing in five out of its last six quarters, and nine out of its last 15.

"This company is generally a consumer of cash," said Mike Markowski, a director of research for the Web site who considers the trend a major concern.

Bahl declined to comment specifically on Gaiam's cash position, citing its upcoming fourth-quarter and year-end financial reports due out toward the end of February.

But he did say the cash situation stems mostly from awaiting payments from retailers, which make up 50 percent of Gaiam's sales, and building up inventory.

"I would not classify that as any cash flow problems," he said. "It's just utilizing cash for the growth of our business."

Carole Beyers, an analyst with RBC Capital Markets in Denver, said the cash flow from operations is an important factor to follow with public companies.

But in Gaiam's case, its gradual shift from a catalog-based business to one split evenly with retail channels like Target, Kohl's and Whole Foods means payments for products take longer, she said.

"In their case, they get a reprieve for their transition," she said of the negative cash flow.

Natural Business Communications, a division of Conscious Media Inc., also recently released four employees.

"It was due to lower-than-expected advertising sales," said Frank Lampe, the company's editorial director.

Natural Business now staffs two full-timers and a group of part-timers, he said, while Conscious Media as a whole employs about 24 people.

The group estimates the Lifestyles of Health and Sustainability marketplace, or LOHAS, in the United States is worth $230 billion each year. But, Lampe said, the industry's maturation has shifted advertising priorities.

Instead of trying to gain an identity in the industry and pick up distributors through trade publications like his, companies are trying to catch the eyes of consumers in more mainstream formats, he said.

The slowing economy also has dented those companies, hampering their marketing budgets, he added.

The January/February hard-copy edition of LOHAS Journal is postponed for the moment.

"LOHAS Journal will reappear but we just don't have a timeline yet on when that will be," Lampe said.

Natural Business will still release its weekly electronic newsletter and plans to provide an in-depth monthly e-newsletter, too.

The annual LOHAS conference the group puts on is still moving forward, Lampe said, with this year's event set for June 18-20 at Broomfield's Omni Interlocken Resort.