BOULDER, CO--(Marketwire - Nov 14, 2011) - AeroGrow International, Inc. (
Financial Highlights for the Three Months Ended September 30, 2011
- Operating loss decreased by more than 89% year-over-year, to $121,801 from $1,117,549 during the prior year period.
- EBITDA close to breakeven at a loss of $44,685 during one of the seasonally lowest sales quarters of the year, an $868,196 year-over-year improvement.
- Gross margin improved to 50.7%, a 26 percentage point improvement from the quarter ended September 30, 2010, reflecting improved efficiencies in manufacturing and distribution operations, and increased average pricing.
- Total revenue increased 8.5% year-over-year, to $1,497,519, due to continued strong response from the Company's customer database and efficient marketing campaigns.
- Marketing efficiency increased by more than 210% year-over-year as direct response sales per dollar of advertising rose to $27.23 from $8.68 in 2010.
- Overhead expense was reduced 37% year-over-year, and was down 67% from the same quarter two years ago.
- Seed kit and accessory sales, the recurring revenue portion of the Company's business, increased 17.6% over the same quarter in the prior year, and represented 68.3% of total sales in the quarter.
"During the quarter ended September 30th, our turnaround efforts yielded tangible, bottom line results," said Mike Wolfe, CEO of AeroGrow. "For the quarter we delivered year-over-year sales growth with lower advertising spending, a much higher gross margin and lower overhead. And, most important, we generated EBITDA that fell just short of breakeven and that was almost $870,000 better than a year ago, despite the September quarter being one of our seasonally slowest quarters. We achieved these results while continuing our trend of reducing the Company's overhead to levels that are appropriate for our scale of business. These results signal the success we've had in dramatically changing our business model and point toward what we believe will be continued improvements over the short and long term."
Results of Operations
Summary Overview
For the three months ended September 30, 2011, sales totaled $1,497,519, a $117,902, or 8.5%, increase from the same period in the prior year. The increase in revenue principally reflected the increased effectiveness of our direct-to-consumer advertising as we generated $27.23 of direct-to-consumer revenue for every dollar of advertising expenditures, as compared to $8.68 in the prior year period, a 213.7% increase. The increase in dollars of revenue per dollar of advertising expense primarily reflected an increased utilization of electronic marketing media, such as online advertising and email, which is less expensive than traditional catalogue mailings. Partially offsetting the improved marketing effectiveness was a 62.3% decline in the amount of revenue-generating media spending during the quarter, reflecting cash constraints we faced. Also offsetting the improved marketing was the impact of temporary price increases and a reduction in promotional activity implemented to support a test of the network marketing sales channel that continued through the first week of August 2011. The reduced media spend and the impact of higher prices and lower promotional activity was principally reflected in lower sales of AeroGardens, which declined by 6.9% from the prior year. Recurring revenue from seed kit and accessories increased by 17.6%, however, as the temporary price increases taken on these products were more moderate and we continued to benefit from the growing installed base of AeroGardens. Seed kit and accessory sales represented 68.3% percent of total revenue for the three months ended September 30, 2011, up from 63.0% in the prior year period.
Gross margin for the three months ended September 30, 2011 was 50.7%, up from 24.7% 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 assembly, fulfillment, and distribution operations, an increased mix of higher-margin direct-to-consumer and seed kit and accessory sales, and higher average selling prices for our products.
Operating expenses other than cost of revenue decreased $576,702, or 39.5%, from the prior year reflecting cost saving initiatives, reductions in media spending, and staffing reductions.
Our operating loss totaled $121,801 for the three months ended September 30, 2011, 89.1%, or $995,748, lower than the $1,117,549 reported in the prior year period. The improved operating performance reflected the increase in sales, higher gross margin, and the significant decrease in operating expenses other than cost of revenue.
Other income and expense for the three months ended September 30, 2011 totaled to a net other expense of $908,626, as compared to net other expense of $1,012,004 in the prior year period. The net other expense in the current year period included $709,808 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 prior fiscal year. For the three months ended September 30, 2010 these non-cash expenses totaled $760,900. The discount was recognized because the notes 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 net loss for the three months ended September 30, 2011 was $1,030,427, which was $1,099,126 lower than the net loss of $2,129,553 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 September 30, 2011 and the three months ended September 30, 2010:
| Three Months Ended September 30, | |||||||
| 2011 | 2010 | ||||||
| Revenue | |||||||
| Product sales - direct to consumer, net | 84.7 | % | 77.7 | % | |||
| Product sales - retail, net | 13.2 | % | 20.8 | % | |||
| Product sales - international | 2.1 | % | 1.5 | % | |||
| Total sales | 100.0 | % | 100.0 | % | |||
| Operating expenses | |||||||
| Cost of revenue | 49.3 | % | 75.3 | % | |||
| Research and development | 0.4 | % | 3.8 | % | |||
| Sales and marketing | 22.2 | % | 43.0 | % | |||
| General and administrative | 36.2 | % | 58.9 | % | |||
| Total operating expenses | 108.1 | % | 181.0 | % | |||
| Profit/(loss) from operations | (8.1 | )% | (81.0 | )% | |||
| AEROGROW INTERNATIONAL, INC. | ||||||||||
| CONDENSED BALANCE SHEETS | ||||||||||
| September 30, 2011 | March 31, 2011 | |||||||||
| ASSETS | (Unaudited) | (Derived from Audited Statements) | ||||||||
| Current assets | ||||||||||
| Cash | $ | 102,444 | $ | 355,781 | ||||||
| Restricted cash | 36,983 | 162,837 | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $2,087 and $17,791 at September 30, 2011 and March 31, 2011, respectively | 148,500 | 290,997 | ||||||||
| Other receivables | 106,615 | 260,692 | ||||||||
| Inventory | 2,147,751 | 2,547,570 | ||||||||
| Financed Inventory | 52,416 | -- | ||||||||
| Prepaid expenses and other | 182,624 | 335,854 | ||||||||
| Total current assets | 2,777,333 | 3,953,731 | ||||||||
| Property and equipment, net of accumulated depreciation of $2,685,605 and $2,525,853 at September 30, 2011 and March 31, 2011, respectively | 200,536 | 359,962 | ||||||||
| Other assets | ||||||||||
| Intangible assets, net of $34,537 and $24,834 of accumulated amortization at September 30, 2011 and March 31, 2011, respectively | 281,685 | 273,081 | ||||||||
| Deposits | 91,359 | 159,631 | ||||||||
| Deferred debt issuance costs, net of accumulated amortization of $1,076,226 and $737,531 at September 30, 2011 and March 31, 2011, respectively | 1,149,796 | 1,488,491 | ||||||||
| Total other assets | 1,522,840 | 1,921,203 | ||||||||
| Total Assets | $ | 4,500,709 | $ | 6,234,896 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||
| Current liabilities | ||||||||||
| Notes Payable | $ | 7,570 | $ | 350,798 | ||||||
| Notes Payable - Related Party | 14,884 | 211,321 | ||||||||
| Current portion - long term debt - related party | 57,206 | 13,947 | ||||||||
| Current portion - long term debt | 1,811,888 | 1,168,160 | ||||||||
| Accounts payable | 1,623,717 | 1,506,841 | ||||||||
| Accrued expenses | 494,967 | 614,234 | ||||||||
| Customer deposits | 42,070 | 122,377 | ||||||||
| Deferred rent | 20,043 | 22,513 | ||||||||
| Total current liabilities | 4,072,345 | 4,010,191 | ||||||||
| Long term debt | 4,188,008 | 3,716,229 | ||||||||
| Long term debt - related party | 531,206 | 359,751 | ||||||||
| Stockholders' equity | ||||||||||
| Preferred stock, $.001 par value, 20,000,000 shares authorized, 7,576 and 7,576 shares issued and outstanding at September 30, 2011 and March 31, 2011 | 8 | 8 | ||||||||
| Common stock, $.001 par value, 500,000,000 shares authorized, 19,244,160 and 19,244,160 shares issued and outstanding at September 30, 2011 and March 31, 2011, respectively | 19,244 | 19,244 | ||||||||
| Additional paid-in capital | 62,457,844 | 62,324,016 | ||||||||
| Accumulated (deficit) | (66,767,946 | ) | (64,194,543 | ) | ||||||
| Total Stockholders' Equity (Deficit) | (4,290,850 | ) | (1,851,275 | ) | ||||||
| Total Liabilities and Stockholders' Equity (Deficit) | $ | 4,500,709 | $ | 6,234,896 | ||||||
| AEROGROW INTERNATIONAL, INC. | |||||||||||||||||
| CONDENSED STATEMENTS OF OPERATIONS | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months ended September 30, |
Six Months ended September 30, |
||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
| Revenue | |||||||||||||||||
| Product sales | $ | 1,497,519 | $ | 1,379,617 | $ | 2,977,422 | $ | 3,197,636 | |||||||||
| Operating expenses | |||||||||||||||||
| Cost of revenue | 737,668 | 1,038,812 | 1,588,500 | 2,360,515 | |||||||||||||
| Research and development | 6,470 | 52,745 | 28,533 | 89,760 | |||||||||||||
| Sales and marketing | 332,941 | 593,309 | 846,941 | 1,410,287 | |||||||||||||
| General and administrative | 542,241 | 812,300 | 1,256,560 | 1,708,483 | |||||||||||||
| Total operating expenses | $ | 1,619,320 | $ | 2,497,166 | $ | 3,720,534 | $ | 5,569,045 | |||||||||
| Profit (loss) from operations | (121,801 | ) | (1,117,549 | ) | (743,112 | ) | (2,371,409 | ) | |||||||||
| Other (income) expense, net | |||||||||||||||||
| Interest (income) | (2 | ) | (1,900 | ) | (14 | ) | (8,530 | ) | |||||||||
| Interest expense | 799,585 | 933,400 | 1,630,241 | 1,451,500 | |||||||||||||
| Interest expense - related party | 111,238 | 94,490 | 229,579 | 155,749 | |||||||||||||
| Other (income) | (2,195 | ) | (13,986 | ) | (29,516 | ) | (111,525 | ) | |||||||||
| Total other (income) expense, net | 908,626 | 1,012,004 | 1,830,290 | 1,487,194 | |||||||||||||
| Net income (loss) | $ | (1,030,427 | ) | $ | (2,129,553 | ) | $ | (2,573,402 | ) | $ | (3,858,603 | ) | |||||
| Net income (loss) per share, basic | $ | (0.05 | ) | $ | (0.17 | ) | $ | (0.13 | ) | $ | (0.31 | ) | |||||
| Net income (loss) per share, diluted | $ | (0.05 | ) | $ | (0.17 | ) | $ | (0.13 | ) | $ | (0.31 | ) | |||||
| Weighted average number of common shares outstanding, basic and diluted | 19,244,160 | 12,566,486 | 19,244,160 | 12,566,486 | |||||||||||||
Sales by Channel
| Three Months Ended September 30, | |||||||
| Product Revenue | 2011 | 2010 | |||||
| Direct to consumer, net | $ | 1,268,479 | $ | 1,071,606 | |||
| Retail, net | 197,658 | 287,373 | |||||
| International | 31,382 | 20,638 | |||||
| Total | $ | 1,497,519 | $ | 1,379,617 | |||
Sales by Product Type
| Three Months Ended September 30, | ||||||||||
| 2011 | 2010 | |||||||||
| Product Revenue | ||||||||||
| AeroGardens | $ | 475,184 | $ | 510,458 | ||||||
| Seed kits and accessories | 1,022,335 | 869,159 | ||||||||
| Total | $ | 1,497,519 | $ | 1,379,617 | ||||||
| % of Total Revenue | ||||||||||
| AeroGardens | 31.7 | % | 37.0 | % | ||||||
| Seed kits and accessories | 68.3 | % | 63.0 | % | ||||||
| Total | 100.0 | % | 100.0 | % | ||||||
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 Mike Wolfe, and/or the Company, statements regarding growth of the AeroGarden product line, ability to raise capital, optimism related to the business, expanding sales, 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 (SEC) filings, including in "Item 1A Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2011. 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