(VPCO) Reports Second Quarter 2015 Results

Sales increased 105%; Gross Margins and Adjusted EBITDA Improved Compared to First Quarter of 2015

DANIA BEACH, Fla., Aug. 17, 2015  — Vapor Corp. (NASDAQ CM: VPCO, VPCOU) (“Vapor” or the “Company”), a leading U.S.-based distributor and retailer of vaporizers, e-liquids and e-cigarettes, today announced its financial and operating results for the second quarter ended June 30, 2015.

Second Quarter 2015 Financial Highlights

• Net Sales More Than Double Q2 2015 vs Q1 2015
  Net sales for the second quarter of 2015 were $3.0 million compared to $1.5 million in the first quarter of 2015, an increase of 105%. This increase was primarily due to the Company’s retail Vape Stores expansion strategy and increased wholesale sales.
• Gross Margins Increase
  Gross margins for the second quarter of 2015 increased to 45.2% from 25.3% the same quarter one year ago and from (-12.4)% from the first quarter of 2015. This increase was primarily related to product returns and discounts that were recognized in the previous quarters, as well as improved operating margins from the Company’s retail operations. The Company has struck new wholesale agreements with many of its retail customers to minimize the impact of future product returns and discount programs.
• Adjusted EBITDA Loss Reduced 46% in Q2 2015 vs Q1 2015
  Adjusted EBITDA, a non-GAAP financial measure, was ($1.5) million in the second quarter of 2015 compared to ($2.8) million in the first quarter of 2015. This significant reduction was a result of the Company’s two-pronged strategy to shift its wholesale business to concentrate on smaller retail chains (generally 150 stores and less), while seeing the benefit from operating more of its vape stores for a full quarter.

“In the second quarter of 2015, we drove sequential quarterly revenue growth of 105% through our revised wholesale strategy and the strong performance of our ‘The Vape Store’ retail locations,” said Jeff Holman, CEO of Vapor Corp. “The recent completion of our $41.4 million capital raise offers us the ability to significantly expand our direct-to-consumer model, ‘The Vape Store,’ by opening new locations and acquiring existing vaporizer retailers, which will be transitioned over to our brand. We currently have 11 ‘The Vape Store’ locations, with a goal of increasing the number of company-owned retail stores by 20 to 30 locations before the end of the calendar year.”

Greg Brauser, President of Vapor Corp., stated, “Vapor Corp.’s competitive differentiator is rooted in our buying power and fast-growing network of retail locations. As we continue to acquire stores and expand our brand, our economies of scale and purchasing power will increasingly improve, further enhancing our ability to offer the industry’s highest quality e-liquids and vaporizers to customers at reduced prices. These strengths elevate our competitiveness in the approximately $3.5 billion vaporizer market and favorably position us to achieve our long-term goal of being the leading national vaporizer retailer.”

Recent Business Highlights

• Completed an offering of 3,761,657 convertible preferred stock units at $11 per unit for gross proceeds of approximately $41.4 million and net proceeds to Vapor Corp. of approximately $38.7 million.
• Opened 11th “The Vape Store” location in Kissimmee, FL, in response to the growing consumer demand for vaping products and in recognition of the shift in consumer preferences to shop in vape-dedicated stores.
• Fully implemented a new point-of-sale and retail software system in all of the Company’s Vape Stores to improve efficiencies and controls as part of its expansion plan.
• Completed overhaul and relaunch of TheVapeStoreOnline.com, Vapor Corp.’s e-commerce channel and premier destination for e-liquids, devices, tanks and coils, as well as educational resources for both new and experienced vaping customers.
• Successfully relaunched Vapor Corp.’s affiliate program, whereby affiliates are supplied with a unique coupon code and receive commission for every product purchased online at Vapor Corp.’s e-commerce websites when a customer enters their code at checkout.
• Rolled out a rewards program across all retail store locations and on Vapor Corp.’s e-commerce site.
• Launched “Naked Fish”, a new, premium line of dripper e-liquids. The Naked Fish line is mixed using the highest quality USP Kosher Food Grade Vegetable Glycerin and Propylene Glycol.

“On the heels of our recent capital raise, we are in a much stronger financial position.  We are debt-free as of today and have what is likely the largest cash war chest in this segment of the industry. During the second quarter we completed the recognition of all returns and write-downs on expired e-cigarette product. In addition, we have entered new agreements with many of our larger wholesale retail customers that minimize our responsibility for the sell-through of product through their stores, mitigating our exposure to the magnitude of returns that stymied the e-cig industry in 2014,” concluded Mr. Holman.

Non-GAAP Financial Measure

This press release includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of Vapor nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.

Our management uses and relies on adjusted earnings before interest, tax, depreciation and amortization, plus non-cash stock based compensation and changes in the fair value of derivatives or Adjusted EBITDA, as a non-GAAP financial measure. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measure in planning, forecasting and analyzing future periods. Our management uses this non-GAAP financial measure in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison.  Our management recognizes that the non-GAAP financial measure has inherent limitations because of the excluded items described below.

We have included a reconciliation of our non-GAAP financial measure to the most comparable financial measures calculated in accordance with GAAP. We believe that providing the non-GAAP financial measure, together with the reconciliation to GAAP, helps investors make comparisons between Vapor and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.

The following table presents a reconciliation of Adjusted EBITDA to Net loss, a GAAP financial measure:

 

About Vapor Corp.
Vapor Corp., a NASDAQ company, is a U.S. based distributor and retailer of vaporizers, e-liquids and electronic cigarettes. It recently acquired the retail store chain “The Vape Store” as part of a merger with Vaporin, Inc. The Company’s innovative technology enables users to inhale nicotine vapor without smoke, tar, ash or carbon monoxide. Vapor Corp. has a streamlined supply chain, marketing strategies and wide distribution capabilities to deliver its products. The Company’s brands include VaporX®, Krave®, Hookah Stix® and Vaporin™ and are distributed to retail stores throughout the U.S. and Canada. The Company sells direct to consumer via e-commerce and Company-owned brick-and-mortar retail locations operating under “The Vape Store” brand.

Safe Harbor Statement
This press release includes forward-looking statements including statements regarding future profitability, opening up to 20-30 new vape stores and minimizing future product returns. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include a shift in consumer preferences, contractual difficulties which adversely affect Vapor’s acquisition strategy and future federal and/or state regulation regarding vaporizers and tobacco alternatives. Further information on our risk factors is contained in our filings with the SEC, including the Prospectus dated July 23, 2015. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.