Vitacost.com, Inc. Announces Record Third Quarter 2009 Results

http://www.businesswire.com/news/home/20091104005551/en

Third Quarter Net Sales Increased 32% to $48.4 Million

Third Quarter Gross Profit Improves 71% to $15.1 Million

Company Generated Adjusted EBITDA of $5.1 Million, an increase of 465%

Third Quarter Pro Forma Net Income Grew to $3.1 Million or $0.13 Per Diluted
Share
BOCA RATON, Fla.--(Business Wire)--
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, December 31,

2009
2008

(unaudited)
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 )

Investor Contact:
ICR, Inc.
John Mills
Senior Managing Director
(310) 954-1105

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