drugstore.com inc. Reports Record Gross Margins and Bottom Line Results for the Third Quart...( - Third Quarter Revenues Increase Ye...),Health

- Third Quarter Revenues Increase Year-over-Year to $107.3 Million and Net

Loss Decreases to $0.02 per Share - Company Expects to More Than Double Adjusted EBITDA in Fourth Quarter of

2007

BELLEVUE, Wash., Oct. 22 /PRNewswire-FirstCall/ -- drugstore.com, inc. (Nasdaq: DSCM), a leading online provider of health, beauty, vision, and pharmacy products, today announced its financial results for the third quarter ended September 30, 2007. The company reported quarterly net sales of $107.3 million and a net loss of $2.4 million, or $0.02 per share. The company achieved record performance across a number of key financial metrics: gross margins reached 23.2%, adjusted EBITDA was approximately $2.1 million and operating cash flow was $4.4 million. 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.

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"In the seasonally challenging third quarter, we continued to grow our OTC business, reported strong gross margin improvement and record adjusted EBITDA," said Dawn Lepore, chief executive officer and chairman of the board of drugstore.com, inc. "OTC revenues increased by 20% year-over-year with a number of our key growth initiatives rolling out later in the quarter. Gross margins increased 170 basis points year-over-year leading to record adjusted EBITDA of $2.1 million, an improvement of over 57% from the same period in
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