-- EBITDA profit of $213,933 for the quarter, versus a loss of $168,977
for the same quarter prior year
-- Operating profit of $35,619 for the quarter, up $403,451 from a loss of
$367,832 in the quarter ended December 31, 2009
-- 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
-- Overhead expense was reduced 37% year-over-year, and was down more than
70% over the past two years
-- Seed kit and accessory sales, the recurring revenue portion of the
business, represented 35% of total sales and continues to grow
-- Unit sales of grow lights, a major component of recurring revenue,
increased 51% year-over-year
-- Cumulative gardens sold surpassed 1 million units
-- Proprietary database, including purchasers and active buyers, reached
almost 700,000 names
-- Successfully implemented a new in-house order management system,
improving fulfillment, online ordering and real-time marketing
visibility
"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:
Three Months Ended
December 31,
------------------------
2010 2009
----------- -----------
Revenue
Product sales - retail, net 27.3% 46.0%
Product sales - direct to consumer, net 71.2% 52.4%
Product sales - international 1.5% 1.6%
----------- -----------
Total sales 100.0% 100.0%
Operating expenses
Cost of revenue 57.6% 60.8%
Research and development 1.1% 1.2%
Sales and marketing 26.6% 29.8%
General and administrative 14.0% 12.8%
----------- -----------
Total operating expenses 99.3% 104.6%
----------- -----------
Profit/(loss) from operations 0.7% -4.6%
=========== ===========
AEROGROW INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended Nine Months ended
December 31, December 31,
-------------------------- --------------------------
2010 2009 2010 2009
------------ ------------ ------------ ------------
Revenue
Product sales $ 5,002,871 $ 7,939,248 $ 8,200,507 $ 14,204,890
Operating expenses
Cost of revenue 2,879,404 4,830,387 5,239,919 8,970,748
Research and
development 56,810 93,046 146,570 385,598
Sales and
marketing 1,328,326 2,369,726 2,738,613 4,777,624
General and
administrative 702,712 1,013,921 2,411,195 3,767,727
------------ ------------ ------------ ------------
Total operating
expenses $ 4,967,252 $ 8,307,080 $ 10,536,297 $ 17,901,697
------------ ------------ ------------ ------------
Profit (loss) from
operations 35,619 (367,832) (2,335,790) (3,696,807)
Other (income)
expense, net
Interest (income) (38) (94) (8,568) (235)
Interest expense 1,198,705 297,975 2,650,205 736,594
Interest expense -
related party 129,432 31,922 285,181 77,593
Other (income) 147,282 13,032 35,757 (973,106)
------------ ------------ ------------ ------------
Total other
(income) expense,
net 1,475,381 342,835 2,962,575 (159,154)
------------ ------------ ------------ ------------
Net income (loss) $ (1,439,762) $ (710,667) $ (5,298,365) $ (3,537,653)
============ ============ ============ ============
Net income (loss)
per share, basic $ (0.09) $ (0.06) $ (0.39) $ (0.28)
============ ============ ============ ============
Net income (loss)
per share, diluted $ (0.09) $ (0.06) $ (0.39) $ (0.28)
============ ============ ============ ============
Weighted average
number of common
shares outstanding
used to calculate
basic net income
(loss) per share 15,242,660 12,398,249 13,461,788 12,618,432
============ ============ ============ ============
Effect of dilutive
securities:
Equity based
compensation - - - -
Weighted average
number of common
shares outstanding
used to calculate
diluted net income
per share 15,242,660 12,398,249 13,461,788 12,618,432
============ ============ ============ ============
AEROGROW INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
December 31, March 31,
2010 2010
------------ ------------
(Derived
(Unaudited) from Audited
ASSETS Statements)
Current assets
Cash $ 790,246 $ 249,582
Restricted cash 160,102 443,862
Accounts receivable, net of allowance for
doubtful accounts of $97,375 and $87,207
at December 31, 2010 and March 31, 2010,
respectively 926,010 478,113
Other receivables 184,436 259,831
Inventory 3,922,125 3,493,732
Prepaid expenses and other 747,208 338,095
------------ ------------
Total current assets $ 6,730,127 $ 5,263,215
Property and equipment, net of accumulated
depreciation of $2,468,812 and $2,486,377
at December 31, 2010 and March 31, 2010,
respectively 472,860 1,002,530
Other assets
Intangible assets, net of $20,825 and $6,854
of accumulated amortization at December 31,
2010 and March 31, 2010, respectively 277,090 275,599
Deposits 190,131 240,145
Deferred debt issuance costs, net of
accumulated amortization of $512,163 and
$486,791 at December 31, 2010 and March 31,
2010, respectively 1,713,859 62,291
------------ ------------
Total other assets $ 2,181,080 $ 578,035
------------ ------------
Total Assets $ 9,384,067 $ 6,843,780
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Notes payable $ 638,312 $ -
Notes payable - related party 318,513 -
Current portion - long term debt - related
party 104,583 911,275
Current portion - long term debt 938,917 3,053,984
Accounts payable 2,192,061 3,354,703
Accrued expenses 898,320 1,449,977
Customer deposits 126,904 339,041
Deferred rent 28,391 40,773
------------ ------------
Total current liabilities $ 5,246,001 $ 9,149,753
Long term debt 3,537,577 1,020,957
Long term debt - related party 254,088 -
Stockholders' equity
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 8 8
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 15,242 12,398
Additional paid-in capital 61,902,320 52,933,467
Accumulated (deficit) (61,571,169) (56,272,803)
------------ ------------
Total Stockholders' Equity (Deficit) $ 346,401 $ (3,326,930)
------------ ------------
Total Liabilities and Stockholders' Equity
(Deficit) $ 9,384,067 $ 6,843,780
============ ============
SALES BY CHANNEL
Three Months Ended
December 31,
------------------------
Product Revenue 2010 2009
----------- -----------
Retail, net $ 1,366,060 $ 3,649,483
Direct to consumer, net 3,563,597 4,159,984
International 73,214 129,781
----------- -----------
Total $ 5,002,871 $ 7,939,248
=========== ===========
SALES BY PRODUCT TYPE
Three Months Ended
December 31,
------------------------
2010 2009
----------- -----------
Product Revenue
AeroGardens $ 3,251,866 $ 5,662,031
Seed kits and accessories 1,751,005 2,277,217
----------- -----------
Total $ 5,002,871 $ 7,939,248
=========== ===========
% of Total Revenue
AeroGardens 65.0% 71.3%
Seed kits and accessories 35.0% 28.7%
----------- -----------
Total 100.0% 100.0%
=========== ===========
CALCULATION OF EBITDA
Three Months Ended
December 31,
------------------------
2010 2009
----------- -----------
Operating Profit (Loss) $ 35,619 $ (367,832)
Add Back Non-Cash Items:
Depreciation 173,957 212,947
Amortization 4,357 (14,092)
----------- -----------
Total Non-Cash Items 178,314 198,855
----------- -----------
EBITDA $ 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 Information: Contact: Company John Thompson AeroGrow International, Inc. 303-444-7755 Or Investor Relations Alliance Advisors, LLC Thomas Walsh or Chris Camarra 212-398-3487