OTC, Beauty and Vision Continue to Outpace the Industry
Adjusted EBITDA Increases 81% Year-Over-Year to $5.5 Million
Company Achieves GAAP Profitability and Free Cash Flow of
$3.7 Million
BELLEVUE, Wash., July 30, 2009 (GLOBE NEWSWIRE) -- drugstore.com, inc. (Nasdaq:DSCM), a leading online retailer of health, beauty, vision, and pharmacy products, today announced its financial results for the second quarter ended June 28, 2009. The company reported record quarterly net sales of $100.3 million, driven by strong OTC and vision sales. Gross margins increased 80 basis points year-over-year and net income for the quarter was $1.0 million. The company increased adjusted EBITDA by 81% to a record $5.5 million from $3.0 million reported in the same period of the prior year. Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, and amortization of intangible assets and non-cash marketing expense, adjusted to exclude the impact of stock-based compensation expense.
"I am very pleased to report another strong quarter for drugstore.com," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "Revenues, net income and adjusted EBITDA were all the highest in company history and we posted our third consecutive quarter of GAAP profitability and delivered $3.7 million in free cash flow. In a challenging consumer environment, we continue to outpace the industry, with OTC sales growth of 10% year-over-year, total beauty sales growth of 13% and vision growth of 11%."
"During the second quarter, our marketing strategy, new partnerships, and improved conversion helped drive new customer growth of 14%. OTC gross margins of 31.7% were highest in company history -- up 120 basis points year-over-year and 100 basis points sequentially -- due to our profitability initiatives and the mix of promotions in the quarter. In addition to the strength of our core business, we will continue to layer on strategic growth opportunities that leverage our platform. On June 1st, we successfully launched our partnership with Medco Health Solutions (NYSE:MHS), the nation's leading pharmacy benefit manager, and we expect revenues from this partnership to start to ramp in the second half of the year," concluded Ms. Lepore.
Net income for the second quarter of 2009 was $1.0 million, or $0.01 per share, compared to a net loss of $2.3 million, or $0.02 per share, for the second quarter of 2008. The second quarter of 2009 net income includes $1.1 million in non-cash stock-based compensation expense.
Outlook for Third Quarter of 2009
For the third quarter of 2009, the company is targeting net sales in the range of $94.0 million to $96.0 million, a net loss in the range of $2.8 to $3.8 million, and adjusted EBITDA in the range of $1.0 million to $2.0 million.
Financial and Operational Highlights for the Second Quarter of 2009
(All comparisons are made to the second quarter of 2008 and reflect the reporting of the local pick-up business as discontinued operations)
Key Financial Highlights:
* Gross margins increased 80 basis points to 28.5%; excluding the impact of mail-order pharmacy wholesale orders, gross margins were 29.3%. * Total contribution margin dollars increased by approximately 15% to $20.7 million. * Total orders grew by 9% to 1.5 million, while contribution margin dollars per order increased to approximately $14.30. * Fulfillment expenses as a percentage of sales decreased 110 basis points to 10.8%. * Cash, cash equivalents, and marketable securities were $39.5 million at quarter end.
Net Sales Summary:
* OTC net sales grew approximately 10% to $71.3 million for the quarter, including Beauty.com growth of 10%. * Vision net sales grew 11% to $17.6 million for the quarter. * Mail-order pharmacy net sales remained flat at $11.5 million and included $3.3 million in wholesale orders. * Average net sales per order were $69. Average net sales per order remained flat at $57 for OTC, increased to $117 for vision, and were up over 30% to $209 for mail-order pharmacy due to wholesale orders. * Net sales from repeat customers [1] represented 78% of net sales.
Key Customer Milestones:
* We served approximately 403,000 new customers, inclusive of
our strategic partnerships, during the quarter, up 14% over the
same period in the prior year.
* Marketing and sales expense per new customer remained flat
at approximately $23.
* We have now served over 10.6 million customers since inception.
* The number of active customers [2] was 2.8 million, up 12% year
over year.
1. Net sales from repeat customers exclude Weil Lifestyle, LLC
(Weil) related Custom Nutrition Services (CNS) net sales and
reflect only the activity of customers making purchases through
the Web sites of drugstore.com, inc. and its subsidiaries.
2. Active customer base reflects those customers who have purchased
at least once within the last 12 months. Both the active customer
base (a trailing 12-month number) and average annual spend per
active customer exclude net sales and orders generated by the
company's CNS fulfillment relationship with Weil, and reflect
only the activity of customers making purchases through the Web
sites of drugstore.com, inc. and its subsidiaries.
Conference Call
Investors, analysts, and other interested parties are invited to join the drugstore.com, inc. quarterly conference call on July 30, 2009 at 5:00 p.m. ET (2:00 p.m. PT). To participate, callers should dial 877-941-8418 (international callers should dial 480-629-9809) five minutes beforehand. Investors may also listen to the conference call live at http://investor.drugstore.com/, by clicking on the "audio" hyperlink. A replay of the call will be available through Monday, August 3, 2009 by dialing 800-406-7325 (enter pass code 4119640#) or internationally at 303-590-3030 (enter pass code 4119640#) beginning two hours after completion of the call.
Non-GAAP Measures
To supplement the consolidated financial statements presented in accordance with GAAP, drugstore.com, inc. uses the non-GAAP measure of adjusted EBITDA, defined as earnings before interest, taxes, depreciation, and amortization of intangible assets and non-cash marketing expenses, adjusted to exclude the impact of stock-based compensation expense. This non-GAAP measure is provided to enhance the user's overall understanding of the company's current financial performance. Management believes that adjusted EBITDA, as defined, provides useful information to the company and to investors by excluding certain items that may not be indicative of the company's core operating results. In addition, because drugstore.com, inc. has historically provided adjusted EBITDA measures to investors, management believes that including adjusted EBITDA measures provides consistency in the company's financial reporting. However, adjusted EBITDA should not be considered in isolation, or as a substitute for, or as superior to, net income/loss, cash flows, or other consolidated income/loss or cash flow data prepared in accordance with GAAP, or as a measure of the company's profitability or liquidity. Although adjusted EBITDA is frequently used as a measure of operating performance, it is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Net income/loss is the closest financial measure prepared by the company in accordance with GAAP in terms of comparability to adjusted EBITDA. A reconciliation of adjusted EBITDA to net income/loss is included with the financial statements attached to this release.
In addition, the company uses the non-GAAP measure of free cash flow, defined as net cash provided by (used in) operating activities plus proceeds from the sale of discontinued operations less purchases of fixed assets as disclosed on our consolidated statements of cash flows. Management believes that free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to service debt obligations, make investments, fund acquisitions and for certain other activities. Free cash flow is not a measure determined in accordance with GAAP and may not be defined or calculated by other companies in the same manner. Additionally, this financial measure is subject to variability quarter over quarter as a result of the timing of payments related to accounts payable, including inventory purchases, and accounts receivable. Since free cash flow includes investments in operating assets, management believes this non-GAAP liquidity metric is useful in addition to the most directly comparable GAAP measure of net cash provided by (used in) operating activities, and should not be used as a substitute for it or any other measure determined in accordance with GAAP. A reconciliation of free cash flow to net cash provided by operating activities is included with the supplemental financial schedules attached to this release.
About drugstore.com, inc.
drugstore.com, inc. (Nasdaq:DSCM) is a leading online retailer of health, beauty, vision, and pharmacy products. Our portfolio of brands includes: drugstore.com(tm), Beauty.com(tm), and VisionDirect.com(tm). All are accessible from http://www.drugstore.com and provide a convenient, private, and informative shopping experience while offering a wide assortment of more than 45,000 products at competitive prices.
The drugstore.com pharmacy is certified by the National Association of Boards of Pharmacy (NABP) as a Verified Internet Pharmacy Practice Site (VIPPS) and operates in compliance with federal and state laws and regulations in the United States.
The drugstore.com, inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6419
The financial results contained in this press release are preliminary and unaudited. In addition, this press release contains forward-looking statements regarding future events or the future financial and operational performance of drugstore.com, inc. Words such as "expect," "target," "believe," "may," "will," "continue," "start," "should," and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are based on current expectations, are not guarantees of future performance and involve assumptions, risks, and uncertainties. Actual performance may differ materially from those contained or implied in such forward-looking statements. Risks and uncertainties that could lead to such differences could include, among other things: effects of changes in the economy, changes in consumer spending, fluctuations in the stock market, changes affecting the Internet, online retailing and advertising, difficulties establishing our brand, and building a critical mass of customers, the unpredictability of future revenues and expenses and potential fluctuations in revenues and operating results, risks related to business combinations and strategic alliances, possible tax liabilities relating to the collection of sales tax, consumer trends, the level of competition, seasonality, the timing and success of expansion efforts, changes in senior management, risks related to systems interruptions, possible governmental regulation, and the ability to manage a growing business. Additional information regarding factors that potentially could affect the business, financial condition, and operating results of drugstore.com, inc. is included in the company's periodic filings with the SEC on Forms 10-K, 10-Q, and 8-K. drugstore.com, inc. expressly disclaims any intent or obligation to update any forward-looking statement, except as otherwise specifically stated by it.
drugstore.com, inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended Six Months Ended
---------------------- ----------------------
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net sales $ 100,341 $ 92,248 $ 198,656 $ 184,816
Costs and
expenses:(1)(2)
Cost of sales 71,762 66,679 142,314 133,862
Fulfillment and order
processing 10,878 10,946 21,902 21,946
Marketing and sales 9,160 8,248 18,570 16,562
Technology and
content 6,070 5,736 11,995 10,939
General and
administrative 4,206 4,900 7,577 10,294
Amortization of
intangible assets 214 210 421 455
---------- ---------- ---------- ----------
Total costs and
expenses 102,290 96,719 202,779 194,058
---------- ---------- ---------- ----------
Operating loss (1,949) (4,471) (4,123) (9,242)
Interest income, net 14 100 57 379
---------- ---------- ---------- ----------
Net loss from
continuing operations (1,935) (4,371) (4,066) (8,863)
Net income from
discontinued
operations 2,961 2,099 5,946 3,906
---------- ---------- ---------- ----------
Net income (loss) $ 1,026 $ (2,272) $ 1,880 $ (4,957)
========== ========== ========== ==========
Basic and diluted net
income (loss) per
share $ 0.01 $ (0.02) $ 0.02 $ (0.05)
========== ========== ========== ==========
Weighted average shares
used in computation of:
Basic and dilutive net
income (loss) per
share 99,828,307 96,478,573 98,591,960 96,435,655
========== ========== ========== ==========
--------
(1) Set forth below are the amounts of stock-based compensation by
operating function recorded in the Statements of Operations:
Fulfillment and order
processing $ 95 $ 103 $ 214 $ 288
Marketing and sales 306 417 656 732
Technology and content 219 246 464 604
General and
administrative 448 1,082 755 2,308
---------- ---------- ---------- ----------
$ 1,068 $ 1,848 $ 2,089 $ 3,932
========== ========== ========== ==========
(2) Set forth below are the amounts of depreciation by operating
function recorded in the Statements of Operations:
Fulfillment and order
processing $ 745 $ 686 $ 1,491 $ 1,144
Marketing and sales 1 1 2 2
Technology and content 2,337 1,976 4,560 3,481
General and
administrative 111 113 223 225
---------- ---------- ---------- ----------
$ 3,194 $ 2,776 $ 6,276 $ 4,852
========== ========== ========== ==========
SUPPLEMENTAL INFORMATION: Gross Profit and Gross Margin Information:
Three Months Ended Six Months Ended
------------------ ------------------
(In thousands, unless June 28, June 29, June 28, June 29,
otherwise indicated) 2009 2008 2009 2008
-------- -------- -------- --------
Net sales $100,341 $ 92,248 $198,656 $184,816
Cost of sales 71,762 66,679 142,314 133,862
-------- -------- -------- --------
Gross profit $ 28,579 $ 25,569 $ 56,342 $ 50,954
======== ======== ======== ========
Gross margin 28.5% 27.7% 28.4% 27.6%
======== ======== ======== ========
SUPPLEMENTAL INFORMATION: Segment Information:
Three Months Ended Six Months Ended
------------------ ------------------
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
-------- -------- -------- --------
Net sales:
Over-the-Counter (OTC) $ 71,299 $ 64,911 $143,386 $129,762
Vision 17,581 15,850 35,022 31,286
Mail-order pharmacy 11,461 11,487 20,248 23,768
-------- -------- -------- --------
$100,341 $ 92,248 $198,656 $184,816
Cost of sales:
Over-the-Counter (OTC) $ 48,687 $ 45,099 $ 98,614 $ 90,112
Vision 13,353 12,238 26,952 24,266
Mail-order pharmacy 9,722 9,342 16,748 19,484
-------- -------- -------- --------
$ 71,762 $ 66,679 $142,314 $133,862
Gross profit:
Over-the-Counter (OTC) 22,612 19,812 44,772 39,650
Vision 4,228 3,612 8,070 7,020
Mail-order pharmacy 1,739 2,145 3,500 4,284
-------- -------- -------- --------
$ 28,579 $ 25,569 $ 56,342 $ 50,954
======== ======== ======== ========
Gross margin:
Over-the-Counter (OTC) 31.7% 30.5% 31.2% 30.6%
Vision 24.0% 22.8% 23.0% 22.4%
Mail-order pharmacy 15.2% 18.7% 17.3% 18.0%
-------- -------- -------- --------
28.5% 27.7% 28.4% 27.6%
======== ======== ======== ========
Variable order costs:
Over-the-Counter (OTC) $ 6,372 $ 5,869 $ 12,820 $ 11,834
Vision 787 747 1,563 1,490
Mail-order pharmacy 696 904 1,375 1,833
-------- -------- -------- --------
7,855 7,520 15,758 15,157
Contribution margin:
Over-the-Counter (OTC) $ 16,240 $ 13,943 $ 31,952 $ 27,816
Vision 3,441 2,865 6,507 5,530
Mail-order pharmacy 1,043 1,241 2,125 2,451
-------- -------- -------- --------
$ 20,724 $ 18,049 $ 40,584 $ 35,797
======== ======== ======== ========
SUPPLEMENTAL INFORMATION: Reconciliation of Net Income (Loss) to
Adjusted EBITDA (See Note 3 below):
Three Months Ended Six Months Ended
------------------ ------------------
(In thousands, unless June 28, June 29, June 28, June 29,
otherwise indicated) 2009 2008 2009 2008
-------- -------- -------- --------
Net income (loss) $ 1,026 $ (2,272) $ 1,880 $ (4,957)
Amortization of intangible
assets 214 210 421 455
Amortization of non-cash
marketing -- 573 -- 1,145
Stock-based compensation 1,068 1,848 2,089 3,932
Depreciation 3,194 2,776 6,276 4,852
Interest income, net (14) (100) (57) (379)
-------- -------- -------- --------
Adjusted EBITDA $ 5,488 $ 3,035 $ 10,609 $ 5,048
======== ======== ======== ========
NOTE 3: Supplemental information related to the Company's adjusted
EBITDA for the three and six months ended June 28, 2009 and June 29,
2008 is presented for informational purposes only and is not prepared
in accordance with generally accepted accounting principles. Adjusted
EBITDA is defined as loss before interest, taxes, depreciation, and
amortization of intangible assets and non-cash marketing expense,
adjusted to exclude the impact of stock-based compensation expense.
SUPPLEMENTAL INFORMATION: Reconciliation of Forecasted Q3 2009 Net
Loss Range to Forecasted Q3 2009 Adjusted EBITDA Range:
Range Calculated As: Three Months Ended
September 27, 2009
------------------
(In thousands, unless Range Range
otherwise indicated) High Low
-------- --------
Net loss $ (2,800) $ (3,800)
Amortization of intangible
assets 30 30
Stock-based compensation 1,500 1,500
Depreciation 3,300 3,300
Interest income, net (30) (30)
-------- --------
Adjusted EBITDA $ 2,000 $ 1,000
======== ========
SUPPLEMENTAL INFORMATION: Reconciliation of Net Cash Provided by
Operating Activities to Free Cash Flow:
Trailing Twelve
Three Months Ended Months Ended
------------------ ------------------
(In thousands, unless June 28, June 29, June 28, June 29,
otherwise indicated) 2009 2008 2009 2008
-------- -------- -------- --------
Net cash provided by operating
activities $ 2,640 $ 4,233 $ 6,333 $ 9,586
Add: Proceeds from sale of
discontinued operations 2,973 -- 9,910 --
Less: Purchase of fixed assets (1,961) (2,934) (8,774) (17,235)
-------- -------- -------- --------
Free Cash Flow $ 3,652 $ 1,299 $ 7,469 $ (7,649)
======== ======== ======== ========
drugstore.com, inc.
Consolidated Balance Sheets
(in thousands, except share data)
June 28, December 28,
2009 2008
------------ ------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,033 $ 25,197
Marketable securities 15,443 12,997
Accounts receivable, net of allowances 10,780 9,108
Inventories 30,300 32,704
Other current assets 3,067 2,128
Assets of discontinued operations -- 5,954
------------ ------------
Total current assets 83,623 88,088
Fixed assets, net 25,837 28,306
Other intangible assets, net 3,455 3,731
Goodwill 32,202 32,202
Prepaid marketing expenses and other 222 222
------------ ------------
Total assets $ 145,339 $ 152,549
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,795 $ 31,208
Accrued compensation 5,757 4,416
Accrued marketing expenses 4,338 4,630
Other current liabilities 1,464 4,560
Current portion of long-term debt 2,618 2,998
Liabilities of discontinued operations -- 5,946
------------ ------------
Total current liabilities 43,972 53,758
Long-term debt, less current portion 1,530 2,567
Deferred income taxes 956 953
Other long-term liabilities 1,151 1,071
Stockholders' equity:
Common stock, $.0001 par value, stated at
amounts paid in:
Authorized shares - 250,000,000
Issued and outstanding shares -
99,991,524 and 96,547,079 as of
June 28, 2009 and December 28, 2008,
respectively 865,919 864,282
Treasury stock - 105,419 shares as of
June 28, 2009 (151) --
Accumulated other comprehensive income
(loss) (64) 57
Accumulated deficit (767,974) (770,139)
------------ ------------
Total stockholders' equity 97,730 94,200
------------ ------------
Total liabilities and stockholders'
equity $ 145,339 $ 152,549
============ ============
drugstore.com, inc.
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended Six Months Ended
------------------ ------------------
June 28, June 29, June 28, June 29,
2009 2008 2009 2008
-------- -------- -------- --------
(unaudited)
Operating activities:
Net income (loss) $ 1,026 $ (2,272) $ 1,880 $ (4,957)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 3,194 2,776 6,276 4,852
Amortization of intangible
assets 214 210 421 455
Stock-based compensation 1,068 1,848 2,089 3,932
Other, net (4) (9) (52) (15)
Changes in:
Accounts receivable (1,434) (466) (1,672) (107)
Inventories 1,613 (1,252) 2,404 391
Prepaids and other (148) 595 (939) 796
Accounts payable, accrued
expenses and other
liabilities 82 2,439 (3,641) (1,944)
Net cash provided by
activities of discontinued
operations (2,971) 364 (5,946) 997
-------- -------- -------- --------
Net cash provided by
operating activities 2,640 4,233 820 4,400
Investing activities:
Purchases of marketable
securities (9,453) (20,560) (11,153) (35,344)
Sales and maturities of
marketable securities 4,750 15,660 8,649 34,098
Proceeds from sale of
discontinued operations 2,973 -- 5,946 --
Purchases of fixed assets (1,961) (2,934) (3,693) (8,116)
Purchases of intangible assets (11) -- (145) --
-------- -------- -------- --------
Net cash used in investing
activities (3,702) (7,834) (396) (9,362)
-------- -------- -------- --------
Financing activities:
Proceeds from exercise of
stock options and employee
stock purchase plan 46 -- 94 423
Proceeds from line of credit -- -- -- 3,500
Principal payments on capital
leases, term loan obligations
and line of credit (776) (732) (1,531) (1,218)
Purchase of treasury stock (151) -- (151) --
-------- -------- -------- --------
Net cash (used in) provided
by financing activities (881) (732) (1,588) 2,705
-------- -------- -------- --------
Net decrease in cash and
cash equivalents (1,943) (4,333) (1,164) (2,257)
Cash and cash equivalents,
beginning of period 25,976 20,648 25,197 18,572
-------- -------- -------- --------
Cash and cash equivalents,
end of period $ 24,033 $ 16,315 $ 24,033 $ 16,315
======== ======== ======== ========