SOURCE: AeroGrow International, Inc.

AeroGrow International, Inc.

November 12, 2012 09:00 ET

AeroGrow Reports Results for the Quarter Ended September 30, 2012

Net Loss Reduced by 61%, Reflecting Higher Margins and Lower Overhead, Financing Costs; New Products, Broader Distribution, and Expanded Marketing Expected to Drive Stronger Results During Key Holiday Quarter and Winter "Indoor Gardening Season"

BOULDER, CO--(Marketwire - Nov 12, 2012) - AeroGrow International, Inc. (OTCQB: AEROD) ("AeroGrow" or the "Company"), makers of the AeroGarden® line of indoor gardening products, announced results for the three months ended September 30, 2012, the second quarter of its fiscal year ending March 31, 2013.

"During the quarter, we continued to make real progress towards our objectives," said Mike Wolfe, President and CEO of AeroGrow. "We delivered improved gross margins, reduced our overhead spending, and invested heavily in business building activities, including almost $250,000 in spending on new product development and advertising. This spending represents a major shift in our efforts away from simply cutting expenses and eliminating unprofitable channels, to investing to drive future growth. While we knew our sales would be down for the quarter, given our strategic steps in the retail channel and the significant non-recurring surge in direct response sales we had last year, we remained focused on executing our plan and readying the business for the critical upcoming holiday season."

Heading into the holiday season, the Company recently launched a new flagship product, the AeroGarden ULTRA, which represents the first new garden product introduction from the Company in more than four years. The ULTRA is AeroGrow's biggest, smartest, and highest-producing garden yet, with more than 100 improvements over the existing garden product line. In addition, AeroGrow is opening kiosks in several high-end malls in Arizona and Colorado, has significantly increased the breadth and scope of its holiday marketing plans, and has cemented expanded distribution arrangements with Amazon.com and Canadian Tire Corporation, as well as a number of other retailers.

"We're excited about our prospects for the upcoming holiday selling season," continued Mr. Wolfe. "The initial orders for the ULTRA have exceeded our expectations and that, along with our increased marketing efforts and broader distribution, supports our belief that we will deliver stronger top and bottom line results for the all-important December quarter, and for the rest of the indoor gardening season."

The Company's net loss of just under $0.4 million was 61% lower than the $1.03 million net loss reported in the previous year, on the strength of continued improvements in margins, lower overhead costs, and substantially reduced financing costs following the completion of a restructuring of the Company's balance sheet earlier in the year. The reduced net loss came despite a significant year-over-year increase in AeroGrow's investment in brand and market-building spending in the current year quarter, as management began the transition from executing a turnaround to driving profitable growth.

Sales declined year-over-year as the Company completed its exit from non-core retail customers, and because the prior year quarter included a one-time sales spike from pent-up demand after a three-month test of a new distribution channel that constrained sales in the Company's base direct response business.

RESULTS OF OPERATIONS

For the three months ended September 30, 2012, total revenue of $1,144,260 was down 23.6%, or $353,259, relative to the same period in the prior year. More than half the total decline was caused by a $191,239, or 96.8%, decline in sales to retailers resulting from our strategic decision to de-emphasize the large retail chain channel because of the low margins and high capital requirements of servicing this channel. In addition, sales in our direct-to-consumer channels were down 12.3%, or $155,423, primarily because direct-to-consumer sales experienced a significant, but temporary spike following the termination of a test of the network marketing channel in the prior year period. This test included a virtual cessation of direct-to-consumer promotional activity and increases in selling prices for most of our products for a three-month period. Upon the termination of the test in early August 2011, we resumed direct-to-consumer marketing and reduced our selling prices, and experienced an immediate increase in direct-to-consumer sales activity, which we attributed to pent-up demand that had built up during the three-month test period. The impact of the spike in prior year sales activity is evidenced by the trend in marketing efficiency, which we measure using the metric of dollars of direct-to-consumer revenue per dollar of advertising expense. For the three months ended September 30, 2012, our marketing efficiency was $9.26, down from $27.23 for the same period in 2011. However, for comparison, our marketing efficiency during the same period in 2010 was $8.68, and during the full fiscal year ended March 31, 2012 was $9.78. As a result, we believe that the results in the quarter ended September 30, 2011 were a non-recurring aberration that resulted from the release of pent-up demand and temporary spike in sales.

On a product line basis, we experienced a year-over-year increase in the mix of AeroGardens as a percent of total revenue as we began to shift more of our marketing efforts to prospecting for new AeroGarden customers. For the three months ended September 30, 2012, AeroGarden sales represented 35.9% of total revenue, as compared to 31.7% in the prior year period. Seed kit and accessory sales dropped as a percent of the total to 64.1% from 68.3% in the prior year period. Both categories of products experienced year-over-year sales declines, reflecting the overall decline in sales discussed above.

Our gross margin for the three months ended September 30, 2012 was 52.3%, up from 50.7% in the prior year period, as we continued to benefit from efficiency gains in our assembly, fulfillment, and distribution operations, as well as a shift in sales mix towards the higher margin direct-to-consumer channels.

In aggregate, our total operating expenses increased 11.9%, or $105,197 year-over-year, principally because we invested $102,330 in higher new product development spending, and because we increased our advertising expenditures by $73,678. While these investments depressed earnings in the current quarter, they represent critical elements in our longer-term strategy to grow revenue in future quarters. These increases were partially offset by continued decreases in other overhead expenses that were achieved across a wide variety of spending categories.

As a result of the lower sales and the increases in investments in product development and advertising, our operating loss increased to $388,457 for the three months ended September 30, 2012, from $121,801 in the prior year period.

Other income and expense for the three months ended September 30, 2012 totaled to a net other expense of $10,197, as compared to net other expense of $908,626 in the prior year period. The net other expense in the current year period included the impact of $80,389 in non-recurring gains relating to adjustments in estimates of certain accounts payable accounts. For the three months ended September 30, 2011, net other expense included $709,808 in non-cash charges related to our convertible debt that was fully converted into common stock in April 2012.

The net loss for the three months ended September 30, 2012 was $398,654, less than the $1,030,427 loss in the prior year because the reduction in other expense more than offset the impact of the greater operating loss.

The following table sets forth, as a percentage of sales, our financial results for the three months ended September 30, 2012 and the three months ended September 30, 2011.

     
  Three Months Ended September 30,  
  2012     2011  
Net revenue          
  Direct-to-consumer 97.3 %   84.7 %
  Retail 0.5 %   13.2 %
  International 2.2 %   2.1 %
    Total net revenue 100.0 %   100.0 %
           
  Cost of revenue 47.7 %   49.3 %
    Gross margin 52.3 %   50.7 %
           
Operating expenses          
  Research and development 10.1 %   0.4 %
  Sales and marketing 37.8 %   22.2 %
  General and administrative 38.4 %   36.2 %
      Total operating expenses 86.3 %   58.8 %
Loss from operations (34.0 )%   (8.1 )%
           
           
           
AEROGROW INTERNATIONAL, INC.
Statements of Operations
 
  Three Months ended
September 30,
    Six Months ended
September 30,
 
  2012     2011     2012     2011  
Product sales $ 1,144,260     $ 1,497,519     $ 2,560,793     $ 2,977,422  
Cost of revenue   545,868       737,668       1,239,200       1,588,500  
  Gross profit   598,392       759,851       1,321,593       1,388,922  
                               
Operating expenses                              
  Research and development   115,114       6,470       208,138       28,533  
  Sales and marketing   432,061       332,941       883,238       846,941  
  General and administrative   439,674       542,241       1,017,290       1,256,560  
  Total operating expenses $ 986,849     $ 881,652     $ 2,108,666     $ 2,132,034  
                               
Loss from operations   (388,457 )     (121,801 )     (787,073 )     (743,112 )
                               
Other (income) expense, net                              
  Interest (income)   (2 )     (2 )     (4 )     (14 )
  Interest expense   103,814       799,585       212,789       1,630,241  
  Interest expense - related party   4,444       111,238       16,094       229,579  
  Debt conversion cost   -       -       6,648,267       -  
  Other (income)   (98,059 )     (2,195 )     (97,757 )     (29,516 )
  Total other expense, net   10,197       908,626       6,779,389       1,830,290  
                               
Net loss $ (398,654 )   $ (1,030,427 )   $ (7,566,462 )   $ (2,573,402 )
                               
Net loss per share, basic $ (0.07 )   $ (5.34 )   $ (1.31 )   $ (13.35 )
                               
Net loss per share, diluted $ (0.07 )   $ (5.34 )   $ (1.31 )   $ (13.35 )
                               
Weighted average number of common shares outstanding, basic and diluted   5,809,545       192,819       5,786,606       192,819  
                               
                               
                               
AEROGROW INTERNATIONAL, INC.
Condensed Balance Sheet
 
  September 30, 2012     March 31, 2012  
  (Unaudited)     (Derived from
Audited Statements)
 
ASSETS          
Current assets          
    Cash $ 921,249     $ 501,577  
    Restricted cash   45,332       42,756  
    Accounts receivable, net of allowance for doubtful accounts of $0 and $768 at September 30, 2012 and March 31, 2012, respectively   45,804       221,713  
    Other receivables   100,202       197,076  
    Inventory   1,991,986       1,784,424  
    Prepaid expenses and other   603,332       309,340  
   Total current assets   3,707,905       3,056,886  
Property and equipment, net of accumulated depreciation of $2,770,970 and $2,709,075 at September 30, 2012 and March 31, 2012, respectively   85,341       133,768  
Other assets              
    Intangible assets, net of $128,427 and $120,923 of accumulated amortization at September 30, 2012 and March 31, 2012, respectively   201,148       198,490  
    Deposits   145,201       145,744  
    Deferred debt issuance costs, net of accumulated amortizationof $2,297,155 and $1,449,581 at September 30, 2012 and March 31, 2012, respectively   219,457       844,116  
   Total other assets   565,806       1,188,350  
Total assets $ 4,359,052     $ 4,379,004  
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)              
Current liabilities              
  Notes payable $ 1,047,565     $ 633,995  
  Notes payable - related party   246,611       307,821  
  Current portion - long term debt - related party   --       100,464  
  Current portion - long term debt   681,472       988,589  
  Accounts payable   384,562       607,840  
  Accrued expenses   218,997       252,562  
  Customer deposits   892       8,270  
  Deferred rent   6,967       6,207  
      Total current liabilities   2,587,066       2,905,748  
Long term debt   1,702,961       5,892,590  
Long term debt - related party   --       702,708  
    Total liabilities   4,290,027       9,501,046  
Commitments and contingencies              
Stockholders' equity (deficit)              
  Preferred stock, $.001 par value, 20,000,000 shares authorized, 0 and 7,526 shares issued and outstanding at September 30, 2012and March 31, 2012, respectively   --       8  
  Common stock, $.001 par value, 750,000,000 shares authorized, 5,904,877 and 210,319 shares issued and outstanding atSeptember 30, 2012 and March 31, 2012, respectively   590,441       20,994  
  Additional paid-in capital   74,790,623       62,602,533  
  Accumulated deficit   (75,312,039 )     (67,745,577 )
Total stockholders' equity (deficit)   69,025       (5,122,042 )
Total liabilities and stockholders' equity (deficit) $ 4,359,052     $ 4,379,004  
               
               
               
AEROGROW INTERNATIONAL, INC.
SUPPLEMENTAL INFORMATION

SALES BY CHANNEL

   
  Three Months Ended September 30,
Net Revenue 2012   2011
  Direct-to-consumer $ 1,113,056   $ 1,268,479
  Retail   6,419     197,658
  International   24,785     31,382
      Total $ 1,144,260   $ 1,497,519
           

SALES BY PRODUCT

   
  Three Months Ended September 30,
Net Revenue 2012   2011
  Direct-to-consumer $ 1,113,056   $ 1,268,479
  Retail   6,419     197,658
  International   24,785     31,382
      Total $ 1,144,260   $ 1,497,519
           

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 extraordinary 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, 2012. 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