Attached files
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| 8-K - AeroGrow International, Inc. | aerogrow8k021111.htm |
Exhibit 99.1
AeroGrow Announces Improved Financial Results for the Third Quarter Ended December 31, 2010
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·
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Company Reports EBITDA Profit of $213,933 and Operating Profit of $35,619
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Boulder, CO – February 14, 2011 - AeroGrow International, Inc. (OTCBB: AERO) ("AeroGrow" or the "Company"), makers of the AeroGarden® line of indoor gardening products, announced results for the quarter ended December 31, 2010. The December quarter is the third quarter of AeroGrow’s fiscal year.
Financial Highlights for the Three Months Ended December 31, 2010
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·
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EBITDA profit of $213,933 for the quarter, versus a loss of $168,977 for the same quarter prior year
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·
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Operating profit of $35,619 for the quarter, up $403,451 from a loss of $367,832 in the quarter ended December 31, 2009
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Gross margin improved to 42.4%, a 17.7 percentage point improvement from the September 30, 2010 quarter, reflecting increased efficiencies in manufacturing and distribution operations
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·
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Overhead expense was reduced 37% year-over-year, and was down more than 70% over the past two years
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Seed kit and accessory sales, the recurring revenue portion of the business, represented 35% of total sales and continues to grow
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Unit sales of grow lights, a major component of recurring revenue, increased 51% year-over-year
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Cumulative gardens sold surpassed 1 million units
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Proprietary database, including purchasers and active buyers, reached almost 700,000 names
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Successfully implemented a new in-house order management system, improving fulfillment, online ordering and real-time marketing visibility
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“One year ago we began the transformation from an unprofitable company generating revenue largely through wholesale sales to retailers, to a profitable one generating the majority of its revenue by selling directly to the consumer,” said Jack Walker, Chairman and CEO of AeroGrow. “We believe that with our enhanced advertising effectiveness, improved gross margins and reduced overhead, we are now well-positioned to invest in the growth of our revenue base to drive towards a full year of profitability. Executing these plans will require new capital, which we are currently seeking to acquire.”
Mr. Walker continued, “During the third quarter we experienced successful pilot tests in our mall kiosk programs, as well as print and TV advertising campaigns that we believe can provide strong growth in the coming years. The Company sold approximately 50,000 AeroGardens in the quarter, which bodes well for our recurring revenue plan of selling seed kits, lighting equipment, and other accessories. Going forward, management remains committed to maximizing its presence amongst all relevant markets, increasing profitability and improving overall shareholder value.”
Results of Operations
Three Months Ended December 31, 2010 and December 31, 2009
For the three months ended December 31, 2010, sales totaled $5,002,871, a $2,936,377, or 37.0% decrease from the same period in the prior year. Approximately 78%, or $2,283,423, of the overall decline in revenue resulted from a 62.6% reduction in sales to retailers, a result of our strategic decision to reduce our exposure to the retail channel because of its low margins and high capital requirements. Our direct-to-consumer sales also declined, by 14.3% from the prior year, reflecting the combined impact of a 44.9% reduction in the amount of revenue-generating media spending, and lower average pricing on sales of our products resulting from our shift to an “everyday low pricing” sales model. Despite these issues, the effectiveness of our direct-to-consumer advertising continued to improve, and increased 55.5% year-over-year as we generated $5.30 of direct-to-consumer revenue for every dollar of revenue-generating media spent in the 2010 period, as compared to $3.41 of direct-to-consumer revenue per media dollar in 2009. The strategic shift away from sales to retailers, the reduced media spend, and the lower pricing for certain of our products was reflected in lower sales of AeroGardens, which declined by 42.6% from the prior year. Recurring revenue from seed kit and accessories declined as well, by 23.1%, principally because of lower pricing for seed kits and grow bulbs. On a unit basis, seed kit sales were down 7.4% year-over-year, while grow bulb unit sales were up 51.2%. Seed kit and accessory sales represented 35.0% percent of total revenue for the three months ended December 31, 2010, up from 28.7% in the prior year period.
Gross margin for the three months ended December 31, 2010 was 42.4%, as compared to 39.2% for the year earlier period. The increase in percentage margin reflected a variety of factors during the current year period, including efficiencies achieved in our manufacturing and distribution operations and an increased mix of higher-margin direct-to-consumer and seed kit and accessory sales. Operating expenses other than cost of revenue decreased $1,388,845, or 39.9%, from the prior year reflecting cost saving initiatives, reductions in media spending, and staffing reductions.
Our profit from operations totaled $35,619 for the three months ended December 31, 2010, as compared to a loss of $367,832 in the prior year period. EBITDA, which we define as profit or loss from operations adjusted to exclude the impact of non-cash depreciation and amortization (reconciled in the table below), totaled to a profit of $213,933 as compared to an EBITDA loss in the prior year period of $168,977, representing a year-over-year improvement of $382,910. The improved operating performance reflected the higher gross margin in the 2010 period combined with the significant decrease in operating expenses other than cost of revenue, partially offset by the impact of lower sales. EBITDA is a non-GAAP financial measure that should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. We track EBITDA as a measure of the cash generating ability of our business.
Other income and expense for the three months ended December 31, 2010 totaled to a net other expense of $1,475,381, as compared to net other expense of $342,835 in the prior year period. The net other expense in the current year period included $1,088,427 in non-cash expense related to the combined effect of the amortization of deferred financing costs (principally the value of warrants granted to a placement agent) and a debt discount, on convertible notes we issued during the current fiscal year. These notes were considered to have been issued at a discount because they had a conversion price lower than the market price of our stock at the time of issuance, and because the notes were issued with warrants to purchase our common stock. The resulting discount is being amortized to expense over the life of the notes, as are the related financing costs.
The year-over-year increase in other expense more than offset the improvement in operating performance, and, as a result, the net loss for the three months ended December 31, 2010 increased to $1,439,762 from a net loss of $710,667 in the same period a year earlier.
The following table sets forth, as a percentage of sales, our financial results for the three months ended December 31, 2010 and the three months ended December 31, 2009:
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Three Months Ended December 31,
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2010
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2009
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Revenue
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Product sales – retail, net
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27.3
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%
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46.0
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%
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Product sales – direct to consumer, net
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71.2
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%
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52.4
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%
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Product sales – international
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1.5
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%
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1.6
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%
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Total sales
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100.0
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%
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100.0
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%
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Operating expenses
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Cost of revenue
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57.6
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%
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60.8
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%
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Research and development
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1.1
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%
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1.2
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%
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Sales and marketing
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26.6
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%
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29.8
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%
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General and administrative
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14.0
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%
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12.8
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%
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Total operating expenses
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99.3
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%
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104.6
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%
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Profit/(loss) from operations
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0.7
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%
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-4.6
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%
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CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months ended
December 31,
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Nine Months ended
December 31,
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2010
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2009
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2010
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2009
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Revenue
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Product sales
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$ | 5,002,871 | $ | 7,939,248 | $ | 8,200,507 | $ | 14,204,890 | ||||||||
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Operating expenses
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Cost of revenue
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2,879,404 | 4,830,387 | 5,239,919 | 8,970,748 | ||||||||||||
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Research and development
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56,810 | 93,046 | 146,570 | 385,598 | ||||||||||||
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Sales and marketing
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1,328,326 | 2,369,726 | 2,738,613 | 4,777,624 | ||||||||||||
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General and administrative
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702,712 | 1,013,921 | 2,411,195 | 3,767,727 | ||||||||||||
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Total operating expenses
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$ | 4,967,252 | $ | 8,307,080 | $ | 10,536,297 | $ | 17,901,697 | ||||||||
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Profit (loss) from operations
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35,619 | (367,832 | ) | (2,335,790 | ) | (3,696,807 | ) | |||||||||
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Other (income) expense, net
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Interest (income)
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(38 | ) | (94 | ) | (8,568 | ) | (235 | ) | ||||||||
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Interest expense
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1,198,705 | 297,975 | 2,650,205 | 736,594 | ||||||||||||
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Interest expense – related party
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129,432 | 31,922 | 285,181 | 77,593 | ||||||||||||
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Other (income)
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147,282 | 13,032 | 35,757 | (973,106 | ) | |||||||||||
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Total other (income) expense, net
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1,475,381 | 342,835 | 2,962,575 | (159,154 | ) | |||||||||||
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Net income (loss)
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$ | (1,439,762 | ) | $ | (710,667 | ) | $ | (5,298,365 | ) | $ | (3,537,653 | ) | ||||
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Net income (loss) per share, basic
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$ | (0.09 | ) | $ | (0.06 | ) | $ | (0.39 | ) | $ | (0.28 | ) | ||||
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Net income (loss) per share, diluted
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$ | (0.09 | ) | $ | (0.06 | ) | $ | (0.39 | ) | $ | (0.28 | ) | ||||
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Weighted average number of common shares
outstanding used to calculated basic net
income (loss) per share
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15,242,660 | 12,398,249 | 13,461,788 | 12,618,432 | ||||||||||||
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Effect of dilutive securities:
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Equity based compensation
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- | - | - | - | ||||||||||||
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Weighted average number of common shares
outstanding used to calculated diluted net
income per share
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15,242,660 | 12,398,249 | 13,461,788 | 12,618,432 | ||||||||||||
AEROGROW INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
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December 31, 2010
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March 31, 2010
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ASSETS
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(Unaudited)
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(Derived from Audited Statements)
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Current assets
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Cash
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$ | 790,246 | $ | 249,582 | ||||
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Restricted cash
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160,102 | 443,862 | ||||||
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Accounts receivable, net of allowance for doubtful accounts of
$97,375 and $87,207 at December 31, 2010 and March 31,
2010, respectively
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926,010 | 478,113 | ||||||
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Other receivables
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184,436 | 259,831 | ||||||
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Inventory
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3,922,125 | 3,493,732 | ||||||
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Prepaid expenses and other
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747,208 | 338,095 | ||||||
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Total current assets
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$ | 6,730,127 | $ | 5,263,215 | ||||
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Property and equipment, net of accumulated depreciation of
$2,468,812 and $2,486,377 at December 31, 2010 and March 31,
2010, respectively
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472,860 | 1,002,530 | ||||||
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Other assets
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Intangible assets, net of $20,825 and $6,854 of accumulated
amortization at December 31, 2010 and March 31, 2010,
respectively
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277,090 | 275,599 | ||||||
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Deposits
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190,131 | 240,145 | ||||||
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Deferred debt issuance costs, net of accumulated amortization
of $512,163 and $486,791 at December 31, 2010 and March
31, 2010, respectively
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1,713,859 | 62,291 | ||||||
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Total other assets
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$ | 2,181,080 | $ | 578,035 | ||||
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Total Assets
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$ | 9,384,067 | $ | 6,843,780 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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Current liabilities
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Notes payable
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$ | 638,312 | $ | - | ||||
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Notes payable – related party
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318,513 | - | ||||||
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Current portion – long term debt – related party
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104,583 | 911,275 | ||||||
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Current portion – long term debt
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938,917 | 3,053,984 | ||||||
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Accounts payable
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2,192,061 | 3,354,703 | ||||||
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Accrued expenses
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898,320 | 1,449,977 | ||||||
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Customer deposits
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126,904 | 339,041 | ||||||
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Deferred rent
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28,391 | 40,773 | ||||||
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Total current liabilities
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$ | 5,246,001 | $ | 9,149,753 | ||||
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Long term debt
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3,537,577 | 1,020,957 | ||||||
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Long term debt – related party
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254,088 | - | ||||||
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Stockholders' equity
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Preferred stock, $.001 par value, 20,000,000 shares authorized
and 7,586 shares issued and outstanding at December 31,
2010 and March 31, 2010
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8 | 8 | ||||||
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Common stock, $.001 par value, 500,000,000 shares authorized,
15,242,660 and 12,398,249 shares issued and outstanding at
December 31, 2010 and March 31, 2010, respectively
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15,242 | 12,398 | ||||||
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Additional paid-in capital
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61,902,320 | 52,933,467 | ||||||
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Accumulated (deficit)
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(61,571,169 | ) | (56,272,803 | ) | ||||
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Total Stockholders' Equity (Deficit)
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$ | 346,401 | $ | (3,326,930 | ) | |||
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Total Liabilities and Stockholders' Equity (Deficit)
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$ | 9,384,067 | $ | 6,843,780 | ||||
SALES BY CHANNEL
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Three Months Ended December 31,
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Product Revenue
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2010
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2009
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Retail, net
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$ | 1,366,060 | $ | 3,649,483 | ||||
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Direct to consumer, net
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3,563,597 | 4,159,984 | ||||||
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International
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73,214 | 129,781 | ||||||
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Total
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$ | 5,002,871 | $ | 7,939,248 | ||||
SALES BY PRODUCT TYPE
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Three Months Ended December 31,
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2010
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2009
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Product Revenue
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AeroGardens
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$
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3,251,866
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$
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5,662,031
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Seed kits and accessories
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1,751,005
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2,277,217
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Total
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$
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5,002,871
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$
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7,939,248
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% of Total Revenue
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AeroGardens
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65.0
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%
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71.3
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%
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Seed kits and accessories
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35.0
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%
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28.7
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%
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Total
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100.0
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%
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100.0
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%
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CALCULATION OF EBITDA
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Three Months Ended December 31,
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2010
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2009
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Operating Profit (Loss)
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$ | 35,619 | $ | (367,832 | ) | |||
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Add Back Non-Cash Items:
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Depreciation
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173,957 | 212,947 | ||||||
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Amortization
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4,357 | (14,092 | ) | |||||
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Total Non-Cash Items
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178,314 | 198,855 | ||||||
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EBITDA
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$ | 213,933 | $ | (168,977 | ) | |||
About AeroGrow International, Inc.:
Founded in 2002 in Boulder, Colorado, AeroGrow International, Inc. is dedicated to the research, development and marketing of the AeroGarden line of foolproof, dirt-free indoor gardens. AeroGardens allow anyone to grow farmer's market fresh herbs, salad greens, tomatoes, chili peppers, flowers and more, indoors, year-round, so simply and easily that no green thumb is required. See www.aerogrow.com.
FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements by Jack Walker and/or the Company, statements regarding growth of the AeroGarden product line, optimism related to the business, direct-to-consumer strategy, expanding sales, improved margins, operating efficiencies and other statements in this press release are forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about the Company's business. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of the Company's products or the need to raise additional capital. In addition, actual results could vary materially based on changes or slower growth in the indoor garden market; the potential inability to realize expected benefits and synergies; domestic and international business and economic conditions; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufacturing capacity; future production variables impacting excess inventory and other risk factors listed from time to time in the Company's Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K for the year ended March 31, 2010 under the caption "Item 1A. Risk Factors." The forward-looking statements contained in this press release speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.
Contact:
Company
John Thompson
AeroGrow International, Inc.
303-444-7755
Or
Investor Relations
Alliance Advisors, LLC
Thomas Walsh or Chris Camarra
212-398-3487