Q1 2024 FitLife Brands Inc Earnings Call
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[music].
Good day and welcome to the Salt life brands first quarter 2024 financial results Conference call. At this time, all participants have been placed on listen only mode. The floor will be open for questions and comments. Following the presentation. It is now my pleasure to turn the floor over to your host Dayton Judd CEO of Salt life brands.
Operator: Good day and welcome to the FitLife Brands First Quarter 2024 Financial Results Conference Call. At this time, all participants have been placed in a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Dayton Judd, CEO of FitLife Brands. Sir, the floor is yours.
Dayton Judd: Sir the floor is yours.
Dayton Judd: Thank you Paul and welcome everyone to fit lifes first quarter 'twenty 'twenty four earnings call. We appreciate you taking the time to join US This afternoon joining.
Dayton Judd: Thank you, Paul, and welcome everyone to FitLife's first quarter 2024 earnings call. We appreciate you taking the time to join us this afternoon.
Dayton Judd: Joining me on the call is FitLife CFO Jacob Bjork and also FitLife's Executive Vice President, Ryan Hampton. For this call, we'll plan to follow a similar pattern to our previous earnings call. I'll provide some opening commentary about the different parts of our business, and then we'll open the call up for Q&A. As I mentioned in the last call, we don't intend to provide specific profitability metrics for the different parts of our business going forward.
Dayton Judd: Joining me on the call is fit life CFO Jacob York.
Brian Hansen: And also fit life's executive Vice President Brian Hansen.
Paul Smith: For this call will plan to follow a similar pattern to our previous earnings call I'll provide some opening commentary about the different parts of our business and then we'll open the call up for Q&A.
Dayton Judd: The reason for this is that our operations are largely integrated, which means, for example, that employees of Mimi's Rock or MRC are doing work in support of Legacy FitLife and MusclePharm, and employees of Legacy FitLife are doing work in support of MRC and MusclePharm. And we don't allocate costs to try and come up with a precise P&L, but we do intend to provide revenue figures and other commentary just to give you all a sense of how the different parts of our business are performing. So I'll begin with what we call Legacy FitLife.
As I mentioned in the last call, we don't intend to provide specific profitability metrics for the different parts of our business going forward.
Paul Smith: The reason for this is that our operations are largely integrated which means for example that employees of mimi's rock or MRC are doing work in support of legacy fit life and muscle farm and employees of legacy fit life are doing work in support of MRC and muscle farm.
Paul Smith: And we don't allocate costs to try and come up with a precise P&L, but we do intend to provide revenue figures and other commentary just to give you all a sense for how the different parts of our business are performing so.
Dayton Judd: Total Legacy FitLife revenue for the first quarter of 2024 was approximately $7 million, of which 65% came from wholesale customers and 35% from online customers. On the wholesale side, we continue to see declining foot traffic in many of our brick and mortar retail partners. Wholesale revenue was down about 21% during the quarter.
Speaker Change: So I'll begin with what we call legacy fit life.
Speaker Change: Total legacy fit life revenue for the first quarter of 2024 was approximately $7 million of which 65% came from wholesale customers and 35% from online customers.
Speaker Change: On the wholesale side, we continue to see declining foot traffic in many of our brick and mortar retail partners wholesale revenue was down about 21% during the quarter, but as a reminder, wholesale revenue is very lumpy quarter to quarter. So the best way to look at that part of our business is to look at periods of two or more quarters.
Dayton Judd: But as a reminder, wholesale revenue is very lumpy quarter to quarter. So the best way to look at that part of our business is to look at periods of two or more quarters. For example, wholesale revenue was up 18% year-over-year during the fourth quarter of 2023, followed by a 21% decline in the first quarter. On the wholesale side, GNC is our largest customer, but we also sell to Vitamin Shop, Walgreens, Rite Aid, CVS, Coupang, and others.
Speaker Change: For example, wholesale revenue was up 18% year over year during the fourth quarter of 2023, followed by the 21% decline in the first quarter.
On the wholesale side GNC is our largest customer, but we also sell to vitamin Shoppe, Walgreens Rite aid Cvs coupon and others.
Speaker Change: With regard to online revenue legacy fit life grew its online revenue, 3% during the first quarter of 'twenty 'twenty four.
Dayton Judd: With regard to online revenue, Legacy FitLife grew its online revenue by 3% during the first quarter of 2024. This was obviously lower than the 9% growth we experienced in the fourth quarter of 2023 and certainly lower than our expectations.
Speaker Change: This was obviously lower than the 9% growth we experienced in the fourth quarter of 2023, and certainly lower than our expectations.
Dayton Judd: However, the good news is that online growth has picked up significantly, with online revenue for Legacy FitLife being up approximately 13% year-over-year in the month of April. We also continue to experience strong subscriber growth online, with subscriber counts for our Legacy FitLife products increasing approximately 10% since December 31st, 2023. Moving on now to Mimi's Rock or what we call MRC.
Speaker Change: However, the good news is that online growth has picked up significantly with.
Speaker Change: With online revenue for legacy fit life being up approximately 13% year over year in the month of April.
Speaker Change: And we also continued to experience strong subscriber growth online with subscriber count for our legacy fit life products, increasing approximately 10% since December 31 2023.
Mimi: Moving on now to Mimi's rock or what we call MRC.
Dayton Judd: Just as a reminder, this is a company that we purchased a little more than a year ago, closing the transaction on February 28, 2023. Almost all of MRC's revenue comes from online sales, predominantly on Amazon.com. MRC consists of three brands, a supplement brand called Dr. Tobias, which represents the bulk of the business, and then two smaller skin care brands.
Speaker Change: Just as a reminder, this is a company that we purchased a little more than a year ago closing the transaction on February 28, 2023, almost all of MRC revenue comes from online sales predominantly on Amazon Dot com.
Mimi Rock: MRC consists of three brands, a supplement brand called Doctor Tobias, which represents the bulk of the business.
MRC representative: And then two smaller skincare brands.
Dayton Judd: With Dr. Tobias being the largest brand in the MRC portfolio, that has been our primary focus as we have worked on optimizing this business. We've previously talked about how one of the key opportunities for MRC was to rationalize and optimize advertising spend, and so I'll talk a little bit more about that. As previously reported, subsequent to the acquisition, we experimented with various levels of reduced advertising, with year-over-year monthly reductions ranging between 20% and 50%.
Speaker Change: With Doctor Tobias being the largest brand in the MRC portfolio that has been our primary focus.
Speaker Change: As we have worked on optimizing this business.
Speaker Change: We've previously talked about how one of the key opportunities for MRC was to rationalize and optimize advertising spend and so I'll talk a little bit more about that.
As previously reported subsequent to the acquisition, we experimented with various levels of reduced advertising spend with year over year monthly reductions ranging between 20% and 50%.
Dayton Judd: I should also point out that this was a bottom-up effort, looking at the hundreds of campaigns across the product portfolio and focusing spend on the high-performing campaigns while reducing or eliminating spend on less effective campaigns. In other words, this wasn't just an exercise to cut the budget and see what happened.
Speaker Change: I should also point out that this was a bottoms up effort looking at the hundreds of campaigns across the product portfolio and focusing spend on the high performing campaigns, while reducing or eliminating spend on less effective campaigns.
Speaker Change: Other works this wasn't just an exercise to cut the budget and see what happened.
Speaker Change: I think it's also worth pointing out that advertising is just one of the levers to drive growth and performance on Amazon. There are a lot of other tools at our disposal, including listing optimization coupons virtual bundles and others.
Dayton Judd: I think it's also worth pointing out that advertising is just one of the levers to drive growth and performance on Amazon. We have a lot of other tools at our disposal, including listing optimization, coupons, virtual bundles, and others. So while we were working to optimize advertising, we were simultaneously taking other steps to try and improve the performance of the business. The result of these efforts has been dramatically improved profitability and cash flow for MRC.
Speaker Change: So while we were working to optimize advertising we were simultaneously taking other steps to try and improve the performance of the business.
MRC representative: The result of these efforts has been dramatically improved profitability and cash flow for MRC.
Dayton Judd: In the first quarter of 2024, Dr. Tobias' revenue was higher than it was during the first quarter of 2023, despite a 39% year-over-year reduction in advertising. In addition, we're pleased to see our Dr. Tobias subscriber count start to grow. It had been largely stagnant for more than two years, but since December 31st, 2020, we've added 7.5% to our subscriber base. For the first quarter of 2024, total MRC revenue was $7.5 million, with a very high free cash flow generated. And now on to MusclePharm.
MRC representative: In the first quarter of 2020 for Dr. Tobias revenue was higher than it was during the first quarter of 2023, despite a 39% year over year reduction in advertising spend.
MRC representative: In addition, we were pleased to see our Doctor Tobias subscriber count start to grow it had been largely stagnant for more than two years.
Dr. Tobias: But we've added seven 5% to our subscriber base.
Dr. Tobias: Since December 31 2023.
Dr. Tobias: For the first quarter of 2024 total MRC revenue was $7 5 million with very high free cash flow generation.
Speaker Change: And now onto mussel farm as a reminder, we purchased the muscle farm assets out of bankruptcy in October of last year.
Dayton Judd: As a reminder, we purchased the MusclePharm assets out of bankruptcy in October of last year, so we've owned this brand for only a few months. Muscle Farm revenue was approximately $2.1 million for the first quarter of 2024, of which roughly half was from online sales and half was from wholesale customers.
Speaker Change: So we've owned this brand for only a few months.
Speaker Change: Bustle farm revenue was approximately $2 1 million for the first quarter of 2024.
Speaker Change: Of which roughly half was from online sales and half was from wholesale customers.
Speaker Change: We're seeing nice trends across the business with online sales growing sequentially each month.
Dayton Judd: We are seeing nice trends across the business with online sales growing sequentially each month, and orders from many of our wholesale partners also growing each month. Our subscriber growth on Amazon continues to be very strong. I mentioned last earnings call that we grew from five subscribers as of December 31st, 2023 to over 1,600 on March 31st, 2024.
Speaker Change: And orders from many of our wholesale partners also growing each month.
Speaker Change: Our subscriber growth on Amazon continues to be very strong I mentioned last earnings call that we grew from five subscribers as of December 31, 2023 to over 1600 on March 31, 2024, just a few weeks later, we're now over 2700 subscribers.
Dayton Judd: Just a few weeks later, we're now over 2,700 subscribers. Also, with regard to the Combat Sport Protein Bars that we recently relaunched, we are definitely seeing interest. Demand is growing on Amazon, and there is interest from wholesale customers as well. Of note, we expect the bars to be available through some of our online wholesale partners very soon. Brick-and-mortar retailers are more limited in their ability to bring in new products since many of them revise their assortment only one to two times per year.
Speaker Change: Also with regard to the combat sport protein bars that we recently relaunched we are definitely seeing interest demand is growing on Amazon and there is interest from wholesale customers as well.
Speaker Change: Of note, we expect the bars to be available for some of our online wholesale partners very soon.
Speaker Change: Brick and mortar retailers are more limited in their ability to bring in new products since many of them revised their assortment only one to two times per year.
Dayton Judd: But that said, we expect to receive our first POs for the bars from a brick-and-mortar wholesale partner in the next few weeks. And now, I'll just provide a few more high-level comments about the company and where we are and where we're headed, and then we can move into Q&A. For this quarter, the majority of our revenue, actually approximately two-thirds of our revenue, now comes from online sales. We like this. We pursued this strategic shift because the online business is more profitable than the wholesale business, and it helps to reduce the risk of concentration with large wholesale accounts. Going forward, we expect to continue to grow online with all of our brands. But for Muscle Farm, the biggest opportunities are on the wholesale side.
Speaker Change: But that said, we expect to receive our first pose for the bars from a brick and mortar wholesale partner in the next few weeks.
Dayton Judd: So success with that brand may mean a higher percentage of our total revenue coming from wholesale than the current 65-35 split. With regard to gross margins, gross margins were quite a bit higher in the first quarter of 2024 at 44%, compared to 42.1% for the first quarter of 2023, and that's adjusting for the step-up amortization associated with the acquisition of MRC. We tend to get questions a lot about gross margins, so I'll just comment on them now. We've previously commented that we typically expect gross margins to be in the low 40s. I think between 41 and 44 is probably a realistic range.
Speaker Change: And now I'll just provide a few more high level comments about the company and where we are and where we're headed and then we can move into Q&A.
Dayton Judd: Q1 is typically one of our strongest margin quarters, and we had a very favorable product mix during Q1 as well. I'm definitely not saying you should expect them to plummet going forward, but 44% is toward the high end of the expected range. Our balance sheet remains strong with $16.5 million of term loans outstanding, and that's at a rate of SOFR plus $275, and no outstanding balance on our three and a half million dollar revolver.
Dayton Judd: We ended the quarter with $3.3 million of cash, bringing net debt to $13.2 million, or just a little bit more than one times LTM Majestic EBITDA. As previously reported, we made a scheduled $1.1 million amortization payment and a voluntary $2.5 million principal paydown during the first quarter of 2021.
Speaker Change: For this quarter the majority of our revenue I'm actually approximately two thirds of our revenue now comes from online sales. We like this right. We pursued this strategic shift because the online business is more profitable than the wholesale business and it helps to reduce the risk of concentration with large wholesale accounts.
Speaker Change: Going forward, we expect to continue to grow online with all of our brands.
Speaker Change: But for muscle farm the biggest opportunities are on the wholesale side. So success with that brand may mean, a higher percentage of our total revenue coming from wholesale than the current 65 35 split.
Speaker Change: With regard to gross margins gross margins were quite a bit higher in the first quarter of 2024 at 44% comp.
Speaker Change: Compared to 42, 1% for the first quarter of 2023.
Speaker Change: And that is suggesting for the step up amortization associated with the acquisition of MRC, we tend to get questions. A lot about gross margin. So I'll just comment about them now.
Speaker Change: We've previously commented that we typically expect gross margins to be in the low forties I think between 41 and 44 is probably a realistic range.
Speaker Change: Q1 is typically one of our strongest margin quarters, and we had a very favorable product mix during Q1 as well.
Speaker Change: I'm definitely not saying you should expect them to plummet going forward, but 44% is toward the high end of the expected range.
Speaker Change: Our balance sheet remains strong with $16 5 million of term loan outstanding and that's at a rate of sofa plus $2 75.
Speaker Change: And no outstanding balance on our three and a half million dollar revolver.
Speaker Change: We ended the quarter with $3 3 million of cash, bringing net debt to $13 2 million or just a little bit more than one times LTM adjusted EBITDA.
Speaker Change: As previously reported we made our scheduled $1 1 million amortization payment and a voluntary $2 5 million principal pay down during the first quarter of 2024.
Speaker Change: I spent some time talking about the combat sports protein bars for muscle farm, but let me also comment on product development for some of our other brands.
Dayton Judd: I spent some time talking about the Combat Sport Protein Bars for MusclePharm, but let me also comment on product development for some of our other brands. We expect to launch several new products under the Dr. Tobias brand in the next 2-3 months. In addition, we're also launching a number of new legacy FitLife products through the GNC channel over the next two to three months, with the first of these products launching late next month at GNC's Global Convention.
Speaker Change: We expect to launch several new products under the Doctor Tobias brand in the next two to three months.
GNC representative: In addition, we're also launching a number of new legacy fit life products through the GNC channel over the next two to three months with the first of these products launching late next month at Gnc's Global Convention.
GNC representative: I note also that we continue as a company to evaluate additional acquisition opportunities.
Dayton Judd: I note also that we continue, as a company, to evaluate additional acquisition opportunities. And last, I don't want to provide too many specifics in terms of the performance of the business thus far during the second quarter. But I'll just end my remarks by saying that we are very pleased with the performance of the business in the early weeks of the second quarter, with revenue, Gross Margin, net income, and EBITDA all nicely up in April of 2024 compared to April of 2018. So with that, Paul, let's go ahead and open up the line to questions. Certainly.
GNC representative: And last I don't want to provide too many specifics in terms of performance of the business thus far during the second quarter.
GNC representative: But I'll just end my remarks by saying that we are very pleased with the performance of the business in the early weeks of the second quarter with revenue gross margin net income and EBITDA.
GNC representative: All nicely up in April of 2024 compared to April of 2023.
GNC representative: So with that Paul Let's go ahead and open up the line to questions.
Operator: Certainly. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star 1 on your phone at this time if you wish to ask a question. Please hold while we poll for questions. And once again, that is star number one if you wish to ask a question at this time. And the first question is coming from Igor Novgorodzev from Larus Capital. Igor, your line is live.
Paul Smith: Certainly at this time, we will be conducting a question and answer session.
Paul Smith: Have any questions or comments. Please press star one on your phone at this time.
Paul: We ask that while posing your question you. Please pick up your handset if listening on speaker phone to provide optimum sound quality. Once again. Please press star one on your phone at this time, if you wish to ask a question.
Speaker Change: Please hold while we poll for questions.
Speaker Change: And once again that is star one if you wish to ask a question at this time.
Igor <unk>: And the first question is coming from Igor <unk> from an IRS capital Igor Your line is live.
Igor Novgorodzev: Hi Dayton. Overall, this is an excellent quarter, but I'd like to ask you about the part which is obviously struggling is your legacy business, especially on the wholesale side. How is J&C doing, especially the franchisers? Is there a number declining, or to what do you attribute the struggles? Because we've been struggling already for a couple of quarters.
Nathan: Hi, Nathan overall on an excellent quarter, but I'd like to ask you about the park, which is obviously struggling is your legacy business, especially on the wholesale side.
Nathan Overall: How is the ANC doing that especially the franchisers is there a numbers declining or what do you attribute the struggles because they've been struggling already for a couple of quarters now.
Speaker Change: Yeah. Thanks for the question, it's probably not my place to talk about how someone else's business is performing.
Dayton Judd: Yeah, thanks Igor for the question. It's probably not my place to talk about how someone else's business is performing. So I'll be very limited in my comments there. All I can talk about is what, you know, our business is experiencing. We've talked previously about how we're seeing kind of low double-digit declines in terms of sell-through of the products in the GMC channel, and our exposure is primarily to the GMC franchise channel. We've been told by franchisees and by others that are very familiar with the company that we're not losing share, right? In other words, this isn't a FitLife problem.
Speaker Change: So I'll be very limited on my comments there all I can talk about is what our business is experiencing.
Speaker Change: We've talked previously about how we're seeing kind of low double digit declines in terms of sell through of the products in the GNC channel and our exposure is primarily to the GNC franchise channel. We've been told by by franchisees and by others that are very familiar with the company that we're in.
Speaker Change: Losing share right in other words this isn't they fit life problem, it's a traffic problem if foot traffic problem.
Dayton Judd: It's a traffic problem, a foot traffic problem. And so we'll continue to do what we can there, but I can't, it's not entirely within our control. Like I can't, there's not a lot of buttons I can push to make it grow.
Speaker Change: So we'll continue to do what we can there but.
Speaker Change: I can't it's not entirely within our control like I can't there's not a lot of buttons I can push to make it grow.
Dayton Judd: I'll comment that when I took over the business in 2018... You know, it was fully my expectation that this part of our business would be declining right every year from then on out. And in reality, that wasn't the case, and it was actually boosted quite a bit by COVID. GNC had some of their best years, I think, in 2021 and 2022, probably better than they'd had in 15 to 20 years. So we got a bit of a reprieve, right, with the COVID surge. And I think, right, I don't know for sure.
Speaker Change: You know I'll comment that when I took over the business in 2018.
Speaker Change: It was fully my expectation that this part of our business would be declining every year from from then on out and in reality that wasn't the case it was actually boosted quite a bit by COVID-19.
GNC CEO: GNC had some of their best years, I think in 2021, and 2022, probably better than they've had in 15 to 20 years. So we got a bit of a reprieve right with with the Covid surge in and I think I don't know for sure, but I think that part of what we're seeing in these declines.
Dayton Judd: But I think that part of what we're seeing in these declines is a pullback from, you know, again, what I called the COVID surge. We track on a weekly basis our sales through that channel, and we've got visibility into sales to the end consumer. So when we track that, we're seeing double-digit declines, but the rates that we're at right now are now back in line with where we were in 2019.
I: He is a pull back from you know again, what I called the Covid surge.
I: We track on a on a weekly basis, our sales through that channel, we've got visibility into sales to the end consumer. So so when we when we track that we're seeing double digit declines, but the rates that we're at right. Now are now back in line with where we were in 2019.
Dayton Judd: And 2020, you know, prior to, you know, COVID hitting initially, when COVID hit, their sales got hurt pretty bad because their stores got... But so we're kind of back down to pre-COVID levels. You know, I don't know, but I'm hopeful that that means that further declines will be somewhat mitigated going forward. But I just don't know, right.
Covid: And 2020, you know prior to Covid hitting initially when COVID-19 hit their sales.
Speaker Change: Got hurt pretty bad because our stores got close but so so we're kind of back down to pre COVID-19 levels. I, you know I don't know, but I'm hopeful that that means that that further declines will be somewhat mitigated going forward, but I just don't know right. So we will continue to do what we can in that channel and I talked about some new products.
Dayton Judd: So we'll continue to do what we can in that channel. I talked about some new products. We still have a phenomenal relationship with the franchisees. They love us; we love them.
Speaker Change: We still have a phenomenal relationship with the franchisees they love US, we love them and and.
Dayton Judd: We'll continue to provide products for them, and we hope that some of our new products will help to provide some additional growth. The other thing I should point out is that GNC is our biggest wholesale customer. As I mentioned in the prepared remarks, we sell Legacy FitLife. It's also in Vitamin Shop, and in Walgreens, and CVS, and Rite Aid, and Coupang, and others.
Speaker Change: We will continue to provide products for them and we hope that some of our new products will help to provide some additional growth now that and the other thing I should point out I mean, GNC is our biggest wholesale customers I mentioned in the prepared remarks.
Speaker Change: We sell legacy fit life has also been vitamin shoppe, and in Walgreens, and Cvs and Rite aid and coupon and others right. So <unk>.
Dayton Judd: Certainly, I provide some commentary about GNC, but when we provide our numbers, we're looking at our wholesale business in totality, if that makes sense. So, the other thing I would say is, you know, we, like I said, we have visibility for most of our wholesale partners, not all of them, we have visibility into the kind of retail movement, number of units that are sold, right, each day, each week, each month, you know we we we had a twenty one percent decline in our wholesale revenue during the quarter but that's nowhere i mean that that that's dramatically higher than what we're seeing in terms of, The sell-through is still, call it low double digits, but it's not down 21%.
Speaker Change: Certainly I'll provide some commentary about GNC, but when we provide our numbers.
Speaker Change: We're looking at our wholesale business in totality.
Speaker Change: If that makes sense. So the other thing I would say is.
Speaker Change: Like I said, we have visibility for most of our wholesale partners not all of them, we have visibility into the kind of retail movement number of units that are sold each day each week each month.
Speaker Change:
Speaker Change: We had a 21% decline in our wholesale revenue during the quarter, but thats nowhere I mean by that.
Speaker Change: That's dramatically higher than what we're seeing in terms of sell through.
Speaker Change: The sell through is still call it low double digits, but it's not down 21% and it's somewhat encouraging that if I look at the numbers in April and May there theyre better declines aren't as pronounced as they were in the first quarter. So does that answer your question again, I can't probably provide yeah, yeah commentary about <unk> business and how they are.
Dayton Judd: And it's somewhat encouraging that if I look at the numbers in April and May, they're better, right? The declines aren't as pronounced as they were in the first quarter. So does that answer your question? Again, I probably can't provide commentary about GNC's business and how they're doing, but I know how my business is doing.
Speaker Change: Doing but I don't know how my business is doing.
Igor Novgorodzev: Right, yeah, unfortunately, it's no longer public, so we kind of have to guess now how, you know, their business is doing versus knowing it. My other, hopefully, my question is...
Speaker Change: Alright, yeah. Unfortunately, let alone a longer public still get kind of have to guess now that business is doing versus knowing it my other hopefully much shorter.
Speaker Change: A short question, but not necessarily as simple about your tax rate I know that MRC was losing money. So but it is a tricky situation because the structure of the company I saw that that seems to be this quarter. Your actual tax rate was 180000 less than the nominal tax rate could be to your books.
Speaker Change: How should we look at the tax rate going forward in other words, how much of Nols, maybe not so quantitatively or qualitatively you will be able to use in the following your ears, because right now you're already running out of your seat left legacy Nols, but you'll have an MRC Nols.
Dayton Judd: Yeah, another very good question that's going to be hard for me to answer, at least..., you know, in any amount of detail. But let me comment first on the tax side as opposed to the gap side. We, you're right, as of the first quarter, in the first quarter, with the taxable income that we generated, we have effectively depleted our FitLife NOLs with one exception. We, when the company bought Isatori in 2015, they had a bunch of NOLs, but that was obviously a change of control for Isatori.
Speaker Change: Yeah. So another very good question, that's going to be hard for me to answer at least.
Speaker Change: You know in any amount of detail but.
Speaker Change: But let me let me comment first on the kind of the tax side as opposed to the GAAP side.
Speaker Change: We are you're right right as of the first quarter in the first quarter right with with the the taxable income that we generated we are effectively.
Speaker Change: Depleted our fit life Nols with one exception, we when the company by ice at Torrey in 2015, they had a bunch of Nols, but that was obviously a change of control for ice at Torrey.
Speaker Change: And so we're limited in how much of those Nols, we can use each year going forward I think the numbers around 130000 or 140000, a year right is all that we can shield in our U S operations using U S. Nols.
Dayton Judd: And so we're limited in how much of those NOLs we can use each year going forward. I think the numbers around 130,000 or 140,000 a year, right, is all that we can shield in our US operations using US NOLs. Canadian NOLs, we've got more than 15 million of those, but again, that only helps us to the extent we generate profits in Canada, and we hope to continue to generate profits in Canada, and we will take steps and have taken steps, and are taking steps to, through transfer pricing and other means, to have profits in Canada that we can use to offset some of those NOLs.
Speaker Change: Canadian Nols, we've got more than 15 million of those but again, that's only that only helps us to the extent, we generate profits in Canada.
Speaker Change: And we hope to continue to January hope to generate profits in Canada, and we will take steps and have taken steps and are taking steps to.
Speaker Change: Through transfer pricing and other means to have.
Speaker Change: Profits in Canada.
Speaker Change: We can use to offset some of those Nols.
Dayton Judd: The other thing I would say, and this gets to the gap... tax expense, but it's also relevant for the cash tax expense. Dr. Tobias, as an operating company, is German, and you know, we were a cash taxpayer if you look at our financials in 2023. We had cash taxes that we paid. That's because we can't use our US NOLs or our Canadian NOLs to offset profits in Germany. So we've been a cash taxpayer in Germany, and we'll continue to be a cash taxpayer in Germany.
Speaker Change: The other thing I would say and this gets to the GAAP tax expense, but it's also relevant for the cash tax expense Doctor Tobias as an operating company is a German entity.
Doctor Tobias: We were a cash taxpayer if you look at our financials and 2023, we had cash taxes that we paid.
Doctor Tobias: That's because we can't use our U S Nols or our Canadian Nols to offset profits in Germany. So we've been a cash taxpayer in Germany and will continue to be a cash taxpayer in Germany, but kind of all of those things wrapped together is.
Dayton Judd: But kind of all of those things wrapped together is what is driving kind of both the GAAP-reported expense and now with us, you know, depleting the U.S. and a well, uh... will become a cash taxpayer during twenty twenty four here in the U.S. So hopefully that gives you enough detail. That's kind of where we are on tech.
Doctor Tobias: Is what is driving kind of the both the GAAP reported expense.
Speaker Change: And now with us depleting the U S Nols.
Speaker Change: Will become a cash taxpayer during 2024 here in the U S as well.
Speaker Change: So hopefully that gives you enough detail.
Speaker Change: But that's kind of where we are in Texas right now.
Igor Novgorodzev: Okay, great. Thank you, Dave, and I'll get to the back of the queue and let other people ask questions. All right. Thanks, Igor.
Speaker Change: Okay great.
Igor <unk>: Thank you, David and I'll get to the back of the queue and let other people ask questions alright. Thanks Igor.
Igor <unk>: Thank you and once again it is star one on your phone if you wish to ask a question today that star one if you wish to enter the Q&A queue. The next question is coming from George Marina from Toronto Ventures, George Your line is lives.
Operator: Thank you, and once again, it is star one on your phone if you wish to ask a question today. That's star one if you wish to enter the Q&A queue. The next question is coming from George Morema from Pareto Ventures. Georgia Line of Life
George Marina: Alright. Thank you. Thank you David for taking my call.
Operator: Thank you. Thank you, Dayton, for taking our call. George and yeah, a couple of questions.
George Marina: Thanks, George and Yeah, a couple a couple of questions.
George Marina: Could you illustrate a little bit more on these new products. You're developing is this are you in your your customers sort of co developed like customer calls and says Hey can you produce a new flavor protein powder and you guys.
George Morema: Could you explain a little bit more about these new products you're developing? Is this, like, you and your customers sort of co-develop? Like, your customer calls you and says, Hey, can you produce a new flavor of protein powder? And you guys... make that for them, or how does this work?
George Marina: Make that for them or how does this work.
Dayton Judd: Yeah, it's usually not. I mean, sometimes we might get input from GNC franchisees, for example, about what customers are asking for, but we're pretty in touch. I mean, we sell more than 250 different products across 13 brands, so we're pretty in touch with the market and the consumers and what they're looking for. The new products on the GNC side are largely sports nutrition. There's always a kind of... you know, one-upsmanship that happens, particularly with pre-workouts.
George Marina: Yeah, it's usually not I mean, sometimes we might get input from GNC franchisees for example, about what customers are asking for it but we're pretty Intouch I mean, we sell.
George Marina: More than 250 different products across 13 brands. So we're pretty in touch with the market and the consumers what they're looking for.
GNC franchisees: The new products on the GNC side are largely sports nutrition.
Speaker Change: There's always a kind of.
Speaker Change: One upsmanship that happens, particularly with pre workouts.
Dayton Judd: So everyone's always trying to come up with the next kind of newest and greatest and the best packaging and, you know, the one that's got the most ingredients and all of that. So we continue to play that game.
Speaker Change: Everyone's always trying to come out with the next kind of newest and greatest and the best packaging and you know the one that's got the most ingredients and all of that so we continue to play that game I mean are the number one selling pre workout in the GNC franchise channel is pre workout called pump fuel right, which is our pre workout our product. So we're launching.
Dayton Judd: I mean, the number one selling pre-workout in the GNC franchise channel is a pre-workout called Pump Fuel, right, which is our pre-workout, our product, and so that will be launching soon. We also upgraded another one of our pre-workouts. It's called ACG3.
GNC franchisees: A new.
GNC franchisees: Hi, and.
GNC franchisees: It's got all the ingredients in that type of thing.
Speaker Change: And so that that will be launching soon we also upgraded another one of our pre workouts is called ACG three so a lot of it is sometimes.
Dayton Judd: So a lot of it is sometimes new ingredients come along or again, new flavoring, new packaging. So that's largely what's happening on the GNC side. The other thing I would say on the GNC side is that we have historically been largely focused on sports nutrition and diet. GMC has historically wanted to keep a lot of the general health stuff for themselves. So, for example, their fish oil, their multivitamin stuff like that. They've historically not wanted to bring in a lot of people to compete with their store brand when it comes to that, but they're being much more open now to different brands.
Speaker Change: Sometimes new ingredients come along or.
GNC spokesperson: Again, new flavoring, new packaging. So so that's largely what's happening on the GNC side. The other thing I would say on the GNC side as we have been historically largely focused on sports nutrition and diet.
GNC: GNC has historically wanted to keep a lot of the general health stuff for themselves. So for example, their fish oil theyre multi vitamins and stuff like that they have.
GNC CEO: Historically not wanted to bring in a lot of people to compete with their their store brand when it comes to that but there they're being.
GNC: Much more open now to different brands.
Dayton Judd: So we're able to launch a multivitamin here this summer in GNC. And that, again, allows us to reach a different kind of consumer that we weren't otherwise reaching on the sports nutrition side. So those are the new products, or some of the new products, but they tend to be sports nutrition related and general health related on the GMC side. On the Dr. Tobias side, there's a number of new products coming that, You know, I would say they fit kind of into one of two different categories.
GNC: So we were able to launch a multi vitamin here. This summer in GNC and that again is it allows us to reach a different kind of consumer that we weren't otherwise reaching on the sports nutrition side.
GNC spokesperson: So that those are the new products or some of the new products, but they they tend to be sports nutrition related and general health related on the GNC side.
Speaker Change: On the Doctor to bias side, there's a number of new products coming that.
Speaker Change: You know I would say they fit kind of one of two different categories. One category is similar too.
Dayton Judd: One category is, you know, similar to some of our existing hero products. I'll give you an example: we're the number one seller of colon cleanse products on Amazon. What we don't have is like a traditional, you know, daily use type, almost just like a powder that you can add to your water that has fiber and what not that can help people on a more daily basis as opposed to something you take occasionally.
Speaker Change: Some of our existing hero products I'll give you. An example, like we're the number one seller of colon cleanse products on Amazon.
Speaker Change: What we don't have is like a traditional daily use type.
Speaker Change: Most just like a powder that you can add to your water that has you know.
Speaker Change: Fiber and whatnot that can help people on a more daily basis as opposed to something.
Speaker Change: Something you take occasionally.
Dayton Judd: So we're hoping that launching a product like that, where we already have a lot of awareness and reputation when it comes to our colon cleanse product, that some ancillary products might be successful as well. The other thing we're doing is there's a trend, again, that we have noticed in the supplement space, where more and more consumers are actually looking for single-ingredient supplements. They're doing their own research, and they're researching individual ingredients and wanting to kind of build their own supplement regimen.
Speaker Change: So we're hoping that that launching a product like that where we already have a lot of.
Speaker Change: Awareness and.
Speaker Change: And.
Speaker Change: Mutation when it comes to our colon cleanse product that some ancillary products.
Speaker Change: Might be successful as well.
Speaker Change: Other things we're doing is theirs.
Speaker Change: And again that we have noticed in the supplement space.
Speaker Change: We're more and more consumers are actually looking for single ingredient supplements there they're doing their own research.
Speaker Change: And they're they're researching individual ingredients and wanting to kind of build their own supplement regimen, whereas if you go into you look at many of our products in GNC and look many of our products on Amazon as well.
Dayton Judd: Whereas if you go into, and look at many of our products in GNC and look at many of our products on Amazon as well, they're blends, right? They might have six or eight or 10 different ingredients that are, you know, combined to provide certain benefits and effects. You know, we're seeing decent growth as we look at a lot of single-ingredient supplements. And so many of the products that we're launching in the coming months will be kind of single-ingredient supplements where people can... Buy them. Decide exactly what they want to take, by the individual supplements as opposed to a blend. So those are some of the themes that we see, but we don't get a lot of inbound.
Speaker Change: Lens right they might have six or eight or 10 different ingredients that are combined.
Speaker Change: Combined to provide certain benefits and effects.
Speaker Change: We're seeing decent growth as we look at a lot of single ingredient supplements and so many of the products that we're launching under under Dr. Tobias.
Speaker Change: In the coming months will be kind of a single ingredient supplements where people can buy.
Speaker Change: But by it decided exactly what they want to take in and just buy the individual supplements as opposed to a blend. So those are some of the themes that we see but we don't we don't get a lot of inbound.
Speaker Change: Yeah.
Speaker Change #100: Inquiries mhm, saying, Hey can you build a product like this or build a product like that.
Dayton Judd: saying, "hey, can you build a product like this or build a product like that?"
Speaker Change: Yes that makes sense.
George Morema: My second question is, I know last quarter and for the past couple of quarters or so, on MuscleFarm, you guys were sort of transitioning from, you had some other providers providing online sales with existing inventory, and as we're looking at Q2 now, what's the status of the transition? Is it fully transitioned yet, or are there still some material amounts in the channels?
Speaker Change: My second question is.
Speaker Change: I know last quarter.
Muscle Farm: A couple of quarters or so on muscle farm.
Speaker Change: You guys were sort of transitioning from you had some other providers providing.
Speaker Change: Online sales with existing inventory and as we're looking at Q2 now.
Speaker Change #102: What's the status of the transition is it fully transitioned yet or is it still a material amount in the channels or how does that in Q2, the transition yeah definitely not a material amount in the channel where roughly where we were the last time, we had a call I think on the last earnings call. We did I mentioned that we're selling a little.
Dayton Judd: Yeah, definitely not a material amount in the channel. We're roughly where we were the last time we had a call. I think on the last earnings call we did, I mentioned that we're selling a little over 95% of the products on Amazon that are being sold under the Muscle Farm brand. This previous reseller has two of our products, and they're not big movers, but they just have a lot of inventory of these two products.
unknown: Over 95% of the products on Amazon that are being sold under the muscle farm brand. This previously reseller theres two two of our products and Theyre not big movers.
Speaker Change: But they just have a lot of inventory of these two products and so they're still selling that but we're.
Speaker Change #101: 295, and 96% right now of all units moved on Amazon are being sold by us.
Dayton Judd: And so they're still selling units moved on Amazon are being sold by us. So that hasn't really changed since our last call, but it's a good sign that despite the fact that it hasn't changed, our revenue is growing on Amazon. So it's not just taking it back from them. We're selling more.
Speaker Change #101: So so that hasn't really changed since our last call right, but it's a good sign that despite the fact that it hasnt changed our revenue is growing still on Amazon. So it's not just taking it back from them. It's we're selling more.
George Morema: So I'm on MusclePharm Brands. I'm familiar with, they have, you know, several flavors of powders and like three flavors of the Combat Protein Bars. Did Muscle Farm Legacy have a lot of other SKUs that you plan to introduce or just primarily those two main SKUs, or what sort of product set did they have and are you planning on rolling with? Yes, we've already brought in some.
Speaker Change #101: So I'm on muscle farm brand I'm familiar with they have several flavors of powders and like three flavors.
Speaker Change #101: In combat protein bars, and muscle farm legacy have a lot of other skus that you've introduced or just primarily in those two main skus or what kind of product set that they have and are you planning on rolling with.
Dayton Judd: Yes, we've already brought back many. You know, for example, there's EAAs, essential amino acids, that those were underway when we acquired the assets but they launched right under our ownership. We've launched a fish oil, we've launched a multivitamin. They had probably, you know, 10 to 12 flavors of the bars. We launched three, and we'll probably be launching more of those as we get traction with the three that we already have, um... you think they had uh... you know i i i probably at their peak they probably had around a hundred different skews right and we're nowhere near that even the different flavors of the bars and what not you know maybe work twenty five or thirty or something like that so so there are others that we can bring back uh... You know, I think, I don't know, one that we're evaluating is there's a lot of trends toward ready to drink.
Speaker Change #101: Yeah. So we've already brought back many.
Speaker Change #101: For example, the E. There's a as essential amino acids that.
Speaker Change #101: Those were underway when we acquired the assets, but they launched right under our ownership.
Speaker Change #101: We've launched.
Speaker Change #106: Official oil we've launched a multi vitamin.
Speaker Change #101:
Speaker Change #103: They had probably 10 to 12 flavors of the bars, we launched three.
Speaker Change #108: And we'll probably be launching more of those as we get traction with the three that we already have.
Speaker Change #108: They had.
Speaker Change #111: Probably at their peak, they probably had around 100 different skus right and we're nowhere near that even with the different flavors of the bars and whatnot, maybe we're at 25 or 30 or something like that so there are others that we can bring back.
Speaker Change #104: You know I I think I don't know what one that we're evaluating is theres a lot of trends toward ready to drink.
Dayton Judd: Whether that's an energy drink or ready-to-drink protein. We're not close to pulling the trigger on either one of those, and I think energy drink is maybe one of the last horizons we would look at. That's ironically, I think, the investment that put MusclePharm into bankruptcy when they did file. They made an attempt to launch an energy drink, and it didn't pan out. We'd be more likely to do a protein-ready drink or something like that, but we continue to look at all of the options in front of us rather than launching 15 new products. We're focused on making the ones that we've already launched successful.
Speaker Change #105: Whether that's an energy drink or ready to drink protein.
Speaker Change #107: We're not close to pulling the trigger on either one of those and I think energy drink is.
Speaker Change #110: Maybe like one of the last Horizons, we would look at that Ironically, I think the investment that that put muscle farm into bankruptcy. When they did file was they made an attempt to launch an energy drink and didn't pan out so we'd be more likely to do a protein ready to drink right or something like that but we continue to look at all of our.
Speaker Change #110: The options in front of us and look rather than launching 15 new products.
Speaker Change #107: We're focused on making the ones that we've already launched successful and we'll continue to evaluate other opportunities as they.
Speaker Change #107: As they come up.
David: Okay. Thank you David.
Dayton Judd: Yeah, thank you, George.
George Marina: Yeah. Thank you George.
David: Thank you and once again, if you do wish to ask a question on today's call you can press star one on your phone that is star one if there was any other questions at this time.
Operator: Thank you. And once again, if you do wish to ask a question on today's call, you can press star one on your phone. That's star one. If there are any other questions at this time, we did have a couple more come in. We have a question coming from David Jury from Option Opportunities. David, your line is live. Thank you.
David: And we did have a couple of more come in we have a question coming from David Drury from option opportunities. David Your line is live.
David Drury: Thank you.
David Drury: I'd like to go back to the question regarding the Nols with muscle for them.
David Drury: The question is muscle farm had over $100 million Nols. When you purchased it out of bankruptcy were you able to capture any of those.
David: Yeah. That's the the short answer is no right. So we bought their assets, which are simply the intellectual property like the brands and their inventory.
David Jury: Yeah, that's the short answer is no, right? So we bought their assets, which are simply the intellectual property, like the brand and their inventory. The NOLs remain with the bankruptcy estate, and as far as I know, that's still being fought over in court. Their plan has not yet been confirmed. So, no, we had nothing to do with their NOI.
David: Nols remain with the bankruptcy estate and as far as I know that's still being.
David: Over in court right there, they're all there.
Speaker Change #118: Our plan has not yet been confirmed so now we had nothing to do with their Nols.
Speaker Change #117: You simply bought the intellectual property.
David: Correct.
Speaker Change #114: Regarding the maintenance.
Speaker Change #114: Yes.
Dayton Judd: David's colleague Hunter here. Looking at the SG&A after the Mimi's Rock Corporation acquisition, uh increase. You mentioned at the beginning of the call how your uh your teammates are now working across brands. That wasn't immediately true after the acquisition. Does that open up opportunities to be more efficient on the SG&A side? I think it does, but I...
Hunter: David colleague Hunter here.
Speaker Change #112: Looking at.
Speaker Change #121: The SG&A after the meetings Rock Corporation.
Speaker Change #120: You mentioned at the beginning of the call how you're.
Speaker Change #113: Your teammates are now working across brands.
Speaker Change #115: That wasn't immediately after the acquisition does that open up opportunities to be more efficient on the SG&A side.
Dayton Judd: I think it does, but I think you'll start to see that we've started to see that already, right? That's not new that we started doing that. I'll give you some examples, look at it like within a day of closing the acquisition, you know, we don't need a board of directors, we don't need CEOs, we don't need directors, right? So there were some immediate savings. And then over time, for example, Mimi's Rock had an operations team based in Canada, and over time, that was transitioned to the operations team in Omaha, part of Legacy FitLife, so we didn't have to hire anyone in Omaha to do it.
Speaker Change #122: I think it does but I think you'll start to see that we've started to see that already right. That's not new that we started doing that.
Speaker Change #115: I'll give you some examples.
Speaker Change #115: Look like within a day of closing the acquisition, we don't need we didn't need to board of directors, we didn't need two Ceos, we didnt need to see how those right. So there were some immediate savings and then over time for example, mimi's rock had an operations team.
Speaker Change #115: <unk> up in Canada, and over time that was transitioned to the operations team in Omaha a.
Speaker Change #115: Part of legacy fit life.
Speaker Change #115: And we didn't have to hire anyone in Omaha to do at the current team was able to just absorb it and then we didnt need the operations team up in Canada. So I would say those those benefits were largely captured in a few.
Dayton Judd: The current team was able to just absorb it, and then we didn't need the operations team up in Canada. So I would say those benefits were largely captured in the few months after the acquisition, but there's not a lot more opportunity on that front. The opportunities going forward are more on the revenue side; we'll continue to optimize advertising, etc.
Speaker Change #115: A few months after the acquisition.
Speaker Change #115: But it's not there's not a lot more opportunity on that front right. The opportunities going forward. There are more on the revenue side will continue to optimize advertising et cetera.
Speaker Change #123: Thank you.
Speaker Change #123: Yeah.
Operator: Thank you, and we did have a follow-up question from Igor Novgorodtsev from Larus Capital. Igor, your line is live.
Speaker Change #125: Thank you and we did have a follow up question come from Igor <unk> from <unk> capital Igor Your line of lives.
Speaker Change #129: One follow up question speaks you, probably probably it would be like to talk about.
Igor Novgorodzev: One follow-up question, which you probably would be very interested to talk about: acquisition pipeline. So now you have three successful acquisitions, so obviously you have quite a track record here, and the interest rates are still staying up, so I assume some smaller players may be in financial distress, something similar to Mimiroc.
Speaker Change #127: Acquisition pipelines. So now you have three successful acquisitions. So obviously you have quite a track records here and the interest rates are still staying up so I assume some smaller players may be in financial distress, some takes and more female rock.
Dayton Judd: What is your acquisition pipeline now? Are you evaluating new opportunities? How much would you be willing to acquire? How do you think about this, and what are you doing kind of day-to-day on this project?
Speaker Change #130: What does your acquisition pipeline are you evaluating new opportunities how much would you be willing.
Speaker Change #125: Links to acquire how do you think about this and what they are doing kind of day to day on this crop.
Dayton Judd: Yeah, it's a good question, and I'm happy to talk about it. Look, we have been very active in looking at acquisitions since 2019, probably early 2019. Obviously, we've only closed three. I think in our investor deck, we have something that says we kind of looked at around 50; the number's probably more like, you know, 60 or more at this point. The deal flow is still there. As far as I can see, there's been no slowdown whatsoever.
Dayton Judd: Yeah, I think so.
Speaker Change #124: Yeah. It's a good good question and happy to talk about it.
Speaker Change #128: Look we have been very active in looking at acquisitions since 2019, probably early 2019.
Speaker Change #128: Obviously, we've only close three I think in our Investor deck, We've got something that says we've kind of looked at around 50. The number is probably more like 60 or more at this point.
Speaker Change #128: The the deal flow is still there.
Speaker Change #128: Like I haven't seen there's been no slowdown whatsoever.
Speaker Change #128: Hum.
Speaker Change #128: There's multiple deals right now for example, I mean, we've signed an NDA on and we're looking at so there's been no shortage of deals some of them are.
Dayton Judd: There are multiple deals right now, for example, I mean, we've signed an NDA on them, and we're looking at them. So there's been no shortage of deals. Some of them are maybe a product of the interest rate environment and a bad balance sheet, and there's some level of distress, and they're looking to sell, whereas others are doing well and growing and just looking to capitalize on an exit. So there's no shortage of businesses to look at.
Speaker Change #128: Maybe a product of the interest rate environment, and a bad balance sheet and there is some level of distress and they're looking to sell whereas others are.
Speaker Change #128: Doing well and growing and just looking to capitalize on an exit. So there's no shortage of business is to look at we continue to look at them I think I've talked in the past about sometimes these things take a long time to play out.
Dayton Judd: We continue to look at them. I think I've talked in the past about sometimes these things take a long time to play out. You know, Neutrology, which was our first acquisition, started talking to them pre-COVID. Right, and obviously COVID.
Speaker Change #128: Neutrality, which was our first acquisition started talking to them pre COVID-19.
Speaker Change #128: And obviously COVID-19.
Dayton Judd: We caused that one to grind to a halt for a period of time, and then we closed it in, I think, April of 21. Mimi's Rock, we signed the NDA in November of 21, and we closed the transaction in February of 23. Muscle Farm, we signed the NDA in November 22, and we closed the acquisition in October 23. So it just makes sense to keep going with the deal flow, right? Even when you've closed a deal, right? Because you never know when you're going to find something and how long it's going to take.
Speaker Change #131: Cause that wanted to grind to a halt for a period of time and then we closed it in.
Speaker Change #131: April of 'twenty one.
Speaker Change #131: <unk> rock, we signed the NDA in November of 'twenty, one and we closed the transaction in February of 'twenty three mussel farm, we signed the NDA in November of 'twenty, two and we closed the acquisition in October of 23. So it just it just makes sense to keep them in the deal flow right, even even when you've closed.
Speaker Change #131: The deal right because you never know when you're going to find something and how long it's going to take so very much still looking at a number of different opportunities and we'll continue to do so.
Dayton Judd: So, very much still looking at a number of different opportunities, and we'll continue to do so. We've talked in some of our investor presentations about, "What are the gating factors to continuing to execute this strategy and grow through M&A?" We believe we have a platform, the FitLife Brands platform, the team that we have, uh... you know we can add more brands to it, and uh... and we can buy these brands at low to mid single-digit multiples, and we can nurture them and grow them and cut out a lot of SG&A and, in many cases, help the brands perform better.
Speaker Change #131: We've talked in some of our investor presentations about.
Speaker Change #131: What are the gating factors to continuing to execute this strategy and grow through M&A right. We believe we have a platform there.
Speaker Change #131: The fit life brand platform. The team that we have we can add more brands to it and.
Speaker Change #131: And we can buy these brands at it.
Speaker Change #131: Low to mid single digit.
Speaker Change #131: Multiples.
Speaker Change #131: And we can nurture them and grow them and cut out a lot of SG&A and in many cases helped the brands perform better and the.
Dayton Judd: The benefit of that is we get more EBITDA out of these businesses, and we've got a higher multiple ourselves. So there's this multiple arbitrage opportunity that's a part of the strategy that we're employing. So the kind of three gating factors are you've got to have deal flow; you've got to have a balance sheet to get the deal done, right? And then your team needs to be able to handle the, you know, integration or operations of the new brand.
Speaker Change #131: Of that as we get more EBITDA out of these businesses and we've got a higher multiple ourselves. So there's just multiple arbitrage opportunity that that's part of the strategy that we're employing here.
Speaker Change #131: So.
Speaker Change #131: They're kind of three gating factors are you got to have deal flow.
Speaker Change #131: You've got to have a balance sheet to get the deal done right and then your team needs to be able to handle.
Speaker Change #131: The you know the.
Speaker Change #131: <unk> or the operations of the new brand.
Speaker Change #131: We've got the deal flow and we've got the balance sheet and I think mimi's rock is absolutely to the point, where we've we've got things under control and muscle farm, we're very confident with where we are but you know, there's just new products and new growth that we're focused on for that brand. So.
Dayton Judd: We've got the deal flow, and we've got the balance sheet, and, you know, I think Mimi's Rock is absolutely to the point where we've got things under control. And, you know, Muscle Farm, we're very confident with where we are, but, you know, there are just new products and new growth that we're focused on for that brand. So really, I think the team has been our gating factor, but it's not out of the question at all that we do another transaction, you know, again, assuming we find something we like, you know, doing another transaction this year.
Speaker Change #131: Really I think team has been our gating factor, but it's not out of the question at all that we do another transaction again, assuming we find something we like doing another transaction this year.
Speaker Change #134: What would be the size of transaction like the maximum size you'd be comfortable with.
Dayton Judd: What would be the size of the transaction, like the maximum size you'd be comfortable with? Yeah, I don't know.
Dayton Judd: Yeah, I don't know if I'd put a maximum size on it. I think again going back to the gating factors. If you think about the balance sheet side of it, you know, we, our lender, will very comfortably lend us two and a half to three times EBITDA. Um, you know, on an LTM basis, we're at, you know, I think eleven-and-a-half or something like that, and based on my comments, forward-looking comments about April, you can assume we're even higher than that.
Speaker Change #133: I don't know if I'd put a maximum size on it I think.
Speaker Change #132: Going back to the gating factors.
Speaker Change #132: If you think about the balance sheet side of it.
Speaker Change #132: We are our lender I think we're very comfortably lend us two and a half to three times EBITDA.
Speaker Change #131: On a.
Speaker Change #131: LTM basis, we're at.
Speaker Change #131: I think 11, and a half or something like that and you know based on my my.
Speaker Change #131: Comments forward looking comments about April.
Speaker Change #131: You can assume were even higher than that so you slap a two and a half multiple or a three times multiple on.
Dayton Judd: So you slap a two and a half multiple or a three times multiple on just say $12 million to pick a round number, right? You're talking about, you know, $30 to $35 million of debt. Not that I want to go and do that, but that gives you a sense for the borrowing capacity that we have. And so that would probably be the gating factor in terms of how big of a deal we could do.
Speaker Change #135: Let's just say 12 million to pick a round number you're talking about.
Speaker Change #135: 30.
Speaker Change #135: To $35 million of debt not not that I want to go and do that but that that gives you a sense for the borrowing capacity that we have and so that that would probably be the gating factor in terms of how big of a deal we could do.
Speaker Change #135: I don't want to do small like I'm not interested in buying billion dollar brands.
Dayton Judd: I don't want to do small, like I'm not interested in buying million-dollar brands. We've got a decent cash flow. Due diligence is the same amount of effort; the lawyers charge the same amount whether you're buying a company for a million dollars or you're buying a company for 15 million or whatever the number is, so we are focused on larger companies as opposed to smaller companies, but you know we don't have anything else other than that.
Speaker Change #135: We've got decent cash flow and.
Speaker Change #135: Due diligence is the same amount of effort the lawyers charge the same amount, whether you're buying a company for a million dollars or you're buying a company for $15 million or whatever the number is so so we are focused on larger companies as opposed to smaller companies, but you know we we don't have like other than that we don't have a metric or a guide book that says.
Dayton Judd: We don't have a metric or a guidebook that says that it has to be this. If we put the effort in, we want it to have an impact on our business. And I don't think that would happen if it was a million-dollar brand.
Speaker Change #135: As you know that it has to be this big if we put the effort and we wanted to have an impact on our business and I don't think that would happen if it was a yeah.
Speaker Change #135: Dollar brand.
Speaker Change #135: And then I assume though you're not.
Igor Novgorodzev: And I assume you're not even thinking about issuing stock to do an acquisition. So that would be the sixth. I think it would be...
Speaker Change #136: Even thinking about issuing stock to do an acquisition like that so that would be.
Speaker Change #136: I think it would be.
Dayton Judd: I think it would be, it's certainly not a priority. You know, obviously, if there was a bigger acquisition and we didn't want to, or if we were maxed out on debt or we didn't want to incur as much debt, we might consider something like that. But most of what we look at, we approach with the perspective that we want to use cash. Where possible, we'll use our own cash, you know, because the business is pretty cash-generative, as you've seen, but we're willing to borrow money.
Speaker Change #137: Certainly not the priority.
Speaker Change #137: Obviously, if there was a bigger acquisition and we didn't want to you know.
Speaker Change #137: If we were maxed out on that or we didn't want to encourage much debt, we might consider something like that but most of what we look at we approach with the perspective that we want to use cash.
Speaker Change #137: Where possible we use our own cash.
Speaker Change #135: Because the business is pretty cash generative and as you've seen.
Speaker Change #135: And but we're willing to borrow money like we borrowed in 2023, 22, and a half million dollars to do the two acquisitions that we did.
Dayton Judd: Look, we borrowed in 2023, 22 and a half million dollars to do the two acquisitions that we did. You know, and on a net debt basis now, barely a year after the first loan that we took out, we're down to 13.2, right? So we're not afraid of borrowing because we think we have a business that can support the debt and where we can pay it down pretty quickly.
Speaker Change #135: And on a net debt basis now barely a year. After the first loan that we took out were down to 13 point too right.
Speaker Change #135: So we were not afraid of borrowing and because we think we have a business that we can that can support the debt and where we can pay it down pretty quickly.
Speaker Change #139: Okay. Thank you Nathan.
Dayton Judd: OK. Thank you, Dayton.
Igor: Yeah. Thanks Igor.
Igor: Thank you and there were no other questions currently in the queue. At this time I would now like to hand, the call back to Dayton Judd for closing remarks.
Dayton Judd: Thank you, and there were no other questions currently in the queue at this time. I would now like to hand the call back to Dayton Judd for closing remarks.
Dayton Judd: Wonderful well. Thank you all for your interest in fit life. We are available to answer any questions. You guys may have feel free to reach out to us. The best way is probably just through E mail at investor at fit life brands Dot com.
Dayton Judd: Beautiful, well, thank you all for your interest in FitLife. We are available to answer any questions you guys may have. Feel free to reach out to us. The best way is probably just through email at investor at FitLifeBrands.com. But otherwise, we look forward to speaking with you again in three months. Thank you very much.
Dayton Judd: But otherwise we look forward to speaking with you again in three months. Thank you very much.
Speaker Change #140: Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.