VITC Vitacost.Com, Inc. (MM)

Vitacost.com, Inc. (NASDAQ: VITC), a leading online retailer and direct marketer of health and wellness products, today reported financial results for the third quarter and nine-month periods ended September 30, 2009.

Third Quarter of 2009 Operating Highlights Include:

• Net Sales increased 32% to $48.4 million, compared to $36.7 million for the third quarter of 2008
• Active customer base (1) expanded to over 1 million customers during the quarter
• Gross Profit Margin Increased 720 basis points to 31.2% from the prior year period
• Pro Forma Operating Margins improved to 8.7% compared to 0.1% in the prior year period
• Adjusted EBITDA improved to $5.1 million, a 465% increase
• Pro Forma Net Income increased to $3.1 million or $0.13 Per Fully Diluted Share, calculated on weighted average of 23.7 million shares outstanding, excluding $10.9 million of a one-time IPO related non-cash compensation

Three Month Results

For the third quarter, net sales increased 32% to $48.4 million from net sales of $36.7 million for the third quarter of the prior year. Both of the Company’s primary sales categories, propriety and third party products, contributed to this strong year-over-year increase by generating record third quarter results.

Gross profit for the third quarter increased 71% to $15.1 million, compared to $8.8 million in the third quarter of the prior year. The Company's gross profit margin increased to 31.2% in the third quarter versus 24.0% in the third quarter of the prior year. Overall, gross profit margins improved by 720 basis points primarily due to transitioning manufacturing of proprietary capsules and tablets from third-party manufacturers to in-house manufacturing, increased purchasing power due to higher sales volume of third-party product, and the raw materials used for manufacturing our proprietary products.

Pro forma operating income for the third quarter was $4.2 million compared to $0.1 million in the same period a year ago. The Company’s pro forma operating margin expanded to 8.7% from 0.0% for the same period last year. This improvement was due to strong net sales growth, leverage of sales and marketing expense, and the strength of the Company’s proven business model. The company's GAAP operating loss, which includes a $10.9 million one-time non-cash stock-based compensation expense in connection with the recent initial public offering, was $(6.7) million in the third quarter of 2009 compared with $0.1 million in the third quarter of 2008.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and related non-cash compensation expense) for the third quarter of 2009 was $5.1 million, compared to $0.9 million in the previous year.

Pro Forma net income for the third quarter of 2009 was $3.1 million, or $0.13 per diluted share calculated on a weighted average fully diluted share count of 23.7 million shares, versus a net loss of $(0.1) million, or $(0.01) per diluted share, for the comparable period last year. The Company's GAAP net loss, which includes the $10.9 million one-time non-cash stock-based compensation expense in connection with the recent initial public offering, was $(3.8) million in the third quarter of 2009 or $(0.17) per diluted share, compared with a net loss of $(0.1) million or $(0.01) per diluted share in the third quarter of 2008.

“We are extremely pleased with our top-line growth, operating and manufacturing improvements, and strong operating cash flow for the third quarter and first nine months of this year. Third quarter net sales increased in our two primary net sales sources — third party products and propriety products — underscoring our expanding product offering as well as customer growth. Notably, both our propriety and third party sales achieved record results, driven by many factors including our superior customer value, product selection, and experience,” said Ira Kerker, Vitacost’s Chief Executive Officer. “Our business is well positioned for long-term profitable growth and margin expansion even as we continue to invest in our information technology and marketing strategies. Customer acquisition cost was $12.68 for the quarter and by offering the best value, superior customer service and timely and accurate delivery of leading products we expect our active customer base of over 1 million customers to continue growing for many years to come.”

Nine Month Results

For the nine months ended September 30, 2009, net sales increased 34% to $141.5 million compared to $105.4 million in the same period last year.

Pro Forma operating income for the nine months ended September 30, 2009 improved to $16.1 million compared to $1.1 million in the same period last year. GAAP operating income, which includes the $10.9 million one-time non-cash stock-based compensation expense in connection with the recent initial public offering, was $5.2 million compared to $1.1 million in the same period last year.

Operating cash flow was $14.3 million for the nine months compared to a $(0.9) million for the previous year nine-months and Adjusted EBITDA for the nine-months was $19.0 million compared to $3.4 million in the same period last year.

Free cash flow was $8.2 million for the nine months ended September 30, 2009 compared to $(5.5) million last year. (Free cash flow is calculated using net cash provided by operating activities less capital expenditures for property, plant and equipment).

Pro forma net income was $10.3 million, or $0.44 per diluted share, compared to net income of $0.6 million, or $0.02 per diluted share, in the same period last year. The Company's GAAP net income, which includes the $10.9 million one-time non-cash stock-based compensation expense in connection with the recent initial public offering, was $3.3 million or $0.14 per fully diluted share for the first nine months of 2009 compared with net income of $0.6 million or $0.02 per fully diluted share for the first nine months of 2008.

Successful Initial Public Offering

On September 24, 2009, the Company completed an initial public offering of its common stock at $12.00 per share and raised $132 million. The Company received approximately $47.1 million in net proceeds. The net proceeds to the Company from this offering are being used to repay existing indebtedness, approximately $20 million to fund capital expenditures such as purchasing fulfillment and manufacturing equipment and retrofitting and expanding the manufacturing and distribution facilities; and the balance for working capital, reducing notes payables and general corporate purposes.

Richard Smith, Chief Financial Officer, commented, “Our recent initial public offering combined with over $14.3 million of operating cash flow for the first nine months of this year enables us to complete our manufacturing expansion and continued investments in technological infrastructure. Our growing active customer base of over 1 million customers and the strength of our balance sheet have us well positioned for many years of future growth.”

Balance Sheet

The Company ended the third quarter of 2009 with cash and cash equivalents of $48.4 million as of September 30, 2009. As of September 30, 2009, the Company had $7.7 million of notes payable.

Outlook

For the fourth quarter of 2009, the Company anticipates revenue of $48.0 to 49.0 million. Earnings per diluted share for the fourth quarter are expected to be in the range of $0.07 to $0.08. Weighted average shares for diluted EPS in the fourth quarter of 2009 are estimated to be approximately 29.5 million shares, compared to 23.7 million shares at the end of the third quarter 2009, primarily resulting from the issuance of shares in the Company's IPO.

For the full year ending December 31, 2009, the Company expects revenue of $189.5 to $190.5 million and pro forma earnings per diluted share of $0.50 to $0.51, excluding the non-cash stock-based compensation expense in connection with the recent IPO outlined above. Weighted average shares used to calculate diluted earnings per share for the full year ending December 31, 2009 are estimated to be approximately 25.1 million shares.

Conference Call Information

The Company will also host a conference call today, November 4, 2009, to discuss these results with additional comments and details. Participating on the call will be Ira Kerker, Chief Executive Officer, and Richard Smith, Chief Financial and Accounting Officer.

The conference call is scheduled to begin at 8:30 a.m. EDT on November 4, 2009. The call will be broadcast live over the Internet hosted at the Investor Relations section of Vitacost.com, Inc.’s website at www.vitacost.com, and will be archived online within one hour of its completion and continue through November 18, 2009. In addition, you may dial (877) 407-0789 to listen to the live broadcast.

A telephonic playback will be available from 11:30 a.m. EDT, November 4, 2009, through November 18, 2009. Participants can dial (877) 660-6853 to hear the playback. The account number is 3055 and the passcode is 335652 to hear the playback.

About Vitacost.com, Inc.

Vitacost.com, Inc. (Symbol: VITC) is a leading online retailer and direct marketer of health and wellness products, including dietary supplements such as vitamins, minerals, herbs or other botanicals, amino acids and metabolites, as well as cosmetics, organic body and personal care products, sports nutrition and health foods. Vitacost.com, Inc. sells these products directly to consumers through its website, www.vitacost.com, as well as through its catalogs. Vitacost.com, Inc. strives to offer its customers the broadest product selection supported by current scientific and medical research at the best value, while providing superior customer service and timely and accurate delivery.

Forward-Looking Statements

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements made herein, which include management’s plans with respect to the use of proceeds from the Company’s initial public offering and statements regarding the Company’s expected results of operations for the fourth quarter of 2009 and the full year of 2010, involve known and unknown risks and uncertainties, which may cause Vitacost’s actual results in current or future periods to differ materially from forecasted results. Those risks and uncertainties include, among other things, the current global economic downturn or recession; difficulty expanding its manufacturing and distribution facilities; significant competition in its industry; unfavorable publicity or consumer perception of its products on the Internet; the incurrence of material product liability and product recall costs; Inability to defend intellectual property claims; costs of compliance and its failure to comply with government regulations; its failure to keep pace with the demands of our customers for new products; disruptions in its manufacturing system, including information technology systems, or losses of manufacturing certifications; and the lack of long-term experience with human consumption of some of its products with innovative ingredients. Those and other risks are more fully described in Vitacost’s filings with the Securities and Exchange Commission, including the Registration Statement on Form S-1, as amended, filed in connection with the Company’s initial public offering.

1. Definition of active customers, Active customer base: defined as customers who have purchased from Vitacost.com within the last 12 months.

 

Vitacost.com, Inc.

   

Condensed Consolidated Balance Sheets

September 30, 2009 and December 31, 2008

 

Assets

September 30,

2009

(unaudited)

December 31,

2008

Current Assets Cash and cash equivalents

$

48,382,910

$

61,326

Accounts receivable

1,071,811

842,523

Other receivables

722,356

645,451

Related party receivable

-

215,241

Inventory, net

23,872,776

21,662,746

Prepaid expenses

1,583,220

656,975

Deferred tax asset  

1,645,605

 

1,179,288

 

Total current assets

 

77,278,678

 

25,263,550

    Property and Equipment, net

22,422,369

19,305,832

  Goodwill

2,200,000

2,200,000

Intangible assets, net

10,571

13,947

Deferred tax asset

4,033,923

-

Deposits  

251,953

 

85,207

   

6,496,447

 

2,299,154

 

Total assets

$

106,197,494

 

46,868,536

   

Liabilities and Stockholders' Equity

Current Liabilities Line of credit

$

-

$

9,412,630

Current maturities of notes payable

1,085,843

983,032

Current maturities of capital lease obligation

51,874

58,343

Accounts payable

15,689,012

15,769,909

Deferred revenue

2,802,129

2,379,298

Accrued expenses

5,157,171

2,620,760

Income taxes payable  

558,176

 

29,252

 

Total current liabilities

25,344,205

31,253,224

  Notes payable, less current maturities

5,098,250

5,740,436

Notes payable, related party

1,500,000

2,000,000

Capital lease obligation, less current maturities

-

37,698

Deferred tax liability

2,358,782

167,368

Interest rate swap liability  

531,450

 

704,840

 

Total liabilities

 

34,832,687

 

39,903,566

    Commitments and Contingencies  

Stockholders' Equity

Preferred stock, par value $.00001 per share; authorized 25,000,000; no shares issued and outstanding at September 30, 2009 and December 31, 2008

-

-

Common stock, par value $.00001 per share; 100,000,000 authorized, 27,488,353 and 23,188,380 shares outstanding at September 30, 2009 and December 31, 2008, respectively

275

232

Additional paid-in capital

71,352,235

11,457,241

Note receivable from exercise of options

-

(1,165,625

)

Retaining earnings (deficit)  

12,297

 

(3,326,878

)

Total stockholders' equity

 

71,364,807

 

6,964,970

 

Total liabilities and stockholders' equity

$

106,197,494

$

46,868,536

   

Vitacost.com, Inc.

       

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)

 

Three Months Ended

Nine Months Ended

 

2009

2008

2009

2008

Net sales

$

48,353,730

$

36,744,385

$

141,516,249

$

105,436,567

Cost of goods sold  

33,287,677

   

27,918,219

   

96,353,173

   

78,799,336

 

Gross profit

 

15,066,053

   

8,826,166

   

45,163,076

   

26,637,231

    Operating expenses: Fulfillment

2,294,965

2,005,604

6,027,153

5,698,818

Sales and marketing

3,694,433

3,088,069

9,970,962

9,501,434

General and administrative  

15,779,586

   

3,662,270

   

23,951,561

   

10,304,487

   

21,768,984

   

8,755,943

   

39,949,676

   

25,504,739

 

Operating (loss) income

 

(6,702,931

)

 

70,223

   

5,213,400

   

1,132,492

    Other income (expense): Interest income

20,790

21,127

63,044

63,381

Interest expense

(219,163

)

(239,077

)

(457,975

)

(546,249

)

Other income (expense)  

2,520

   

3,960

   

26,392

   

13,812

   

(195,853

)

 

(213,990

)

 

(368,539

)

 

(469,056

)

(Loss) income before income taxes

(6,898,784

)

(143,767

)

4,844,861

663,436

Income tax benefit (expense)  

3,048,808

   

-

   

(1,505,686

)

 

(92,597

)

Net (loss) income

$

(3,849,976

)

$

(143,767

)

$

3,339,175

 

$

570,839

    Basic per share information: Net (loss) income available to common stockholders

$

(0.17

)

$

(0.01

)

$

0.14

 

$

0.02

  Weighted average shares outstanding  

23,231,356

   

23,188,380

   

23,130,239

   

23,188,380

    Diluted per share information: Net (loss) income available to common stockholders

$

(0.17

)

$

(0.01

)

$

0.14

 

$

0.02

  Weighted average shares outstanding  

23,231,356

   

23,188,380

   

23,648,641

   

23,202,308

    VITACOST.COM, INC. AND SUBSIDIARY Reconciliation of GAAP Net (loss) Income to Pro Forma Net Income (Loss) Available to Common Shareholders       Three Months Ended Nine Months Ended     2009   2008 2009   2008   Net (loss) income $ (3,849,976 ) $ (143,767 ) $ 3,339,175 $ 570,839 Stock based compensation charge related to IPO 10,896,864 - 10,896,864 - Tax benefit of stock based compensation charge related to IPO   (3,931,911 )   -     (3,931,911 )   - Adjusted non-GAAP net income $ 3,114,977   $ (143,767 ) $ 10,304,128   $ 570,839   Basic per share information: Net (loss) income available to common stockholders $ 0.13   $ (0.01 ) $ 0.45   $ 0.02 Weighted average shares outstanding   23,231,356     23,188,380     23,130,239     23,188,380   Diluted per share information: Net (loss) income available to common stockholders $ 0.13   $ (0.01 ) $ 0.44   $ 0.02 Weighted average shares outstanding   23,657,398     23,188,380     23,648,641     23,202,308

This earnings release includes information presented on a pro forma basis. These pro forma financial measures are considered "non-GAAP" financial measures within the meaning of SEC Regulation G. The Company believes that this presentation of pro forma results provides useful information to both management and investors by excluding specific expenses that the Company believes are not indicative of core operating results. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliations set forth below are provided in accordance with Regulation G and reconcile the pro forma financial measures with the most directly comparable GAAP-based financial measures.

VITACOST.COM, INC. AND SUBSIDIARY Reconciliation of GAAP Operating (loss) Income to Adjusted EBITDA       Three Months Ended Nine Months Ended     2009   2008 2009   2008   Operating (loss) income $ (6,702,931 ) $ 70,233 $ 5,213,400 $ 1,132,492 Stock based compensation charge 11,012,508 70,000 11,238,809 211,630 Depreciation and amortization   813,310     765,938   2,515,613   2,063,211 Adjusted EBITDA $ 5,122,887   $ 906,171 $ 18,967,822 $ 3,407,333

EBITDA (earnings before interest, income taxes, depreciation, and amortization, including goodwill and intangible asset impairment) is not a measure of financial performance under generally accepted accounting principles, or GAAP, but is used by some investors to determine the strength of a company's cash flow. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliation set forth above is provided in accordance with Regulation G and reconciles EBITDA, with the most directly comparable GAAP-based financial measure. EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.

    Three Months Ended   Nine Months Ended     2009   2008 2009   2008   Net cash provided by (used in) operating activities 8,502,964 (1,518,159 ) $ 14,338,887 $ (907,253 ) Payments for the purchase of property and equipment   (2,617,697 )   (1,661,720 )   (6,068,018 )   (4,572,968 ) Free cash flow $ 5,885,267   $ (3,179,879 ) $ 8,270,869   $ (5,480,221 )