Q3 2024 FitLife Brands Inc Earnings Call
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Speaker Change: Good day and welcome to the FitLife Brands third quarter 2024 financial results conference call. At this time, all participants have been placed on 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: Great. Thank you, Paul. I would like to welcome everyone to FitLife's third quarter 2024 earnings call.
Dayton Judd: We appreciate you taking the time to join us this afternoon. Joining me on this call is Fitlife's CFO, Jacob York, and Fitlife's EVP, Ryan Hansen.
Dayton Judd: Today we will follow a similar pattern to our previous earnings call. I'll provide some opening commentary about the company overall, as well as the different parts of our business, and then we will open the call up for Q&A.
Dayton Judd: So for the company overall, total revenue during the third quarter of 2024 increased 15% year-over-year to $16 million, with wholesale revenue increasing 16% and online revenue increasing 14%.
Dayton Judd: Gross profit increased 23% and gross margin expanded from 41% to 43.8%.
Dayton Judd: Contribution, which we define as gross profit, less advertising and marketing expense, increased 34%.
Dayton Judd: Net income increased 25% with basic EPS increasing 21% and fully diluted EPS increasing 23%.
Dayton Judd: Adjusted EBITDA for the quarter increased 41% to $3.6 million, bringing our LTM adjusted EBITDA to $13.4 million.
Dayton Judd: With regard to brand level performance, let me start with an overview of Legacy FitLife.
Dayton Judd: Total Legacy FitLife revenue for the third quarter of 2024 was $6.3 million, of which 61% was from wholesale customers and 39% was from online sales.
Dayton Judd: This represents a 12% year-over-year decline in wholesale revenue and a 4% year-over-year increase in online revenue, or a 6% decline in total revenue.
Dayton Judd: Despite the revenue decline, both gross profit and contribution increased approximately 8%, with gross margin expanding from 37.2% last year to 42.6% this year.
Dayton Judd: On the wholesale side, we continue to see declines in retail sales of our products in brick and mortar locations, driven primarily by store closures and lower foot traffic.
Dayton Judd: However, we are encouraged that the pace of decline has moderated in each of the past four months and the decline percentage is now in the single digits.
Dayton Judd: Also, and we make a point of saying this quite regularly, some of the lost wholesale revenue migrates to online revenue as more and more customers choose to shop online and online revenue is significantly more profitable for the company.
Dayton Judd: That is part of the reason why the profitability metrics for Legacy FitLife are all up year-over-year while revenue is down.
Dayton Judd: Moving on to the brands acquired in the Mimi's Rock transaction or what we refer to as MRC.
Dayton Judd: As a reminder, this is a company we acquired on February the 28th, 2023.
Dayton Judd: Total MRC revenue for the third quarter of 2024 was $7.2 million, approximately flat on a year-over-year basis.
Dayton Judd: MRC's gross margin increased year-over-year from 44.5% to 47.7%, and contribution as a percentage of revenue increased from 27.9% to 34.8%.
Dayton Judd: It is somewhat unusual to see strong increases in profitability while revenue is flat, so let me provide a bit more color on the brands within the MRC portfolio.
Dayton Judd: So, MRC consists of three brands, a supplement brand called Dr. Tobias, which now represents a little more than 90% of MRC's revenue, and two smaller skincare brands.
Dayton Judd: Revenue for the Dr. Tobias brand increased 6% during the quarter, while revenue for the skincare brands was down 33%. We love seeing revenue for the Dr. Tobias brand go up, even while we continue to reduce and optimize advertising spend.
Dayton Judd: Regarding the skin care brands, at the time of the acquisition in early 2023, the skin care brands were sold in a number of countries and unfortunately they were experiencing negative gross margins in some markets and negative contribution in almost all markets.
Dayton Judd: To address this problem, we exited a number of geographies and raised prices in all other geographies.
Dayton Judd: The result of these changes is lower revenue but much higher gross margin and positive contribution.
Dayton Judd: So, this explains in part why you see strong increases in gross profit and contribution within MRC, even though revenue is roughly flat.
Dayton Judd: In dollar terms, contribution for MRC during the third quarter was $2.5 million, bringing LTM contribution to $9.4 million.
Dayton Judd: which, approximately only 18 months after the acquisition, compares very favorably to the $17.1 million we paid for MRC.
Dayton Judd: With regard to MusclePharm, and as a reminder, we purchased the MusclePharm assets out of bankruptcy in October of last year.
Dayton Judd: During the third quarter, Muscle Farm wholesale revenue declined slightly sequentially compared to the second quarter, primarily due to some customer orders that slipped into October.
Dayton Judd: That shift of customer orders into October, along with orders from new wholesale customers that I'll describe in more detail shortly, resulted in both wholesale revenue and total revenue for MusclePharm in October being higher than in any other month since we bought the brand.
Dayton Judd: Online revenue was also slightly lower in the third quarter compared to the second quarter, but that seasonality is customary for the supplement category, and you can see the same trend in online sales in the contribution tables for Legacy FitLife and MRC.
Dayton Judd: Gross margin for mussel farm declined slightly sequentially, while contribution as a percentage of revenue increased slightly.
Dayton Judd: In our earnings press release, we announced some recent wins for the MusclePharm brand.
Dayton Judd: More specifically, we have recently gained placement for the bars in a number of regional grocery and convenience chains totaling several hundred doors.
Dayton Judd: We also recently signed a licensing agreement with a partner and a manufacturer in Israel.
Dayton Judd: We are also very excited about our new Muscle Farm Pro Series, a line of premium sports nutrition products that will launch as a pilot initially in more than 400 high-volume vitamin shop locations during the first quarter of 2025.
Dayton Judd: The line will initially consist of nine protein pre-workout and intra-workout and recovery SKUs.
Dayton Judd: If the pilot is successful, the Pro Series line is anticipated to gain permanent shelf space system-wide within the chain and will be exclusive to Vitamin Shoppe for a period of 12 months.
Dayton Judd: In addition to designing the Pro Series, we've recently completed a refresh of the branding and packaging for the existing line of MusclePharm products, and the new look will begin rolling out early in the first quarter as we sell through our existing inventory.
Dayton Judd: Now, let me give a few more high-level comments before moving into Q&A. First, after the market closed this afternoon, the company filed a shelf registration statement with the SEC, and I want to take a few minutes to talk through that decision.
Dayton Judd: Close to 50% of eligible exchange-traded companies in the U.S. have an effective shelf registration statement.
Dayton Judd: These are inexpensive to put in place, but they provide a high degree of flexibility if a scenario ever arises where a company wants to raise capital.
Dayton Judd: When declared effective, our shelf will permit sales of SOC by either the company or by Sudbury Capital Fund, our largest shareholder, in a registered offering.
Dayton Judd: you can look at our track record of not diluting shareholders over the years and be confident that if the company decides to sell shares there will be a really good reason.
Dayton Judd: So, to conclude on this topic, I will just say that while neither the company nor Sudbury has any current plans to sell equity, having an effective shelf registration statement is just good corporate hygiene, and that is why we are putting one in place.
Dayton Judd: Regarding the company's balance sheet, our financial flexibility is strong, with a little more than $14 million outstanding on our term loan, and no balance outstanding on our $3.5 million revolving line of credit.
Dayton Judd: The combination of quarterly scheduled amortization and the Fed cutting rates means that our annual interest expense is declining, which results in increased earnings.
Dayton Judd: We ended the third quarter with $4.7 million of cash or net debt of $9.5 million.
Dayton Judd: A reduction of approximately $2.2 million since the end of the second quarter, and approximately $8.7 million since December 31, 2023.
Dayton Judd: At current levels, our leverage is approximately 0.7 times our LTM adjusted EBITDA.
Dayton Judd: Regarding outlook for the fourth quarter, as is customary, we don't plan to provide specific guidance, other than to remind everyone that the fourth quarter is generally the slowest for both our wholesale and online channels.
Dayton Judd: That said, we still expect double-digit year-over-year revenue and EBITDA growth as well as continued cash generation and deleveraging.
Dayton Judd: Last, I won't provide any specific commentary on M&A other than to say we remain actively engaged in reviewing potential transactions and will be selective about which opportunities we pursue.
Dayton Judd: As evidenced by the deals we have previously closed, our favourite transactions are ones that are non-dilutive, with the potential to be rapidly accretive.
Dayton Judd: What this means is that we don't do deals just to get one done, but rather we wait patiently, continuing to strengthen our balance sheet until the right opportunity presents itself.
Speaker Change: So, with that, Paul, you can go ahead and poll for questions.
Paul: 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 posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.
Paul: Once again, that's star 1 on your phone at this time, if you wish to ask a question. And please hold while we pull for questions.
Paul: Once again that will be star 1 on your phone at this time if you wish to ask a question.
Speaker Change: And the first question today is coming from Samir Patel from Ashkelon Capital.
Samir, your line of life.
Speaker Change: Hey, Dayton. First off, thanks for the disclosures. Those are super helpful, the incremental disclosures on –
Dayton Judd: the individual parts of the business. I know you don't provide guidance, but on the last call, you had mentioned that you'd be disappointed if you hadn't managed to double the farm's revenues kind of over the next
Speaker Change: 12 months. So I guess with that context, could you maybe try to contextualize a little bit the scope or scale of those opportunities? I know you mentioned the number of doors you are going to be in. Is that tracking towards that kind of rough figure?
Speaker Change: Yeah, thanks Samir for the question. Yeah, so look, this is a hard question to answer because the reality is...
Speaker Change: There's a lot of balls in the air, right? There's a lot of accounts that we're going after, and we don't know kind of where we're going to have wins and where we're not going to have wins.
Speaker Change: So it's really hard to accurately predict. Now that said, you obviously were encouraged by the recent orders that we've had primarily for the bars. One thing to remember about the bars is they are small dollar items.
Speaker Change: right, they're not expensive for retailers to bring in, and so they don't move the needle a whole lot for us, but if they, you know, what we're looking for are turns. So we'll see kind of how those sell in our new grocery and convenience partners.
Speaker Change: Obviously, the vitamin shop, when you get nine much bigger and more expensive SKUs into an assortment, that can be a very material amount of revenue and gross profit right over the course of a year. So that will go a long way toward contributing to our goals.
Speaker Change: We're working with other partners, we have other partners, wholesale customers that we've been selling to for some time that are talking about significant growth for us in 2025. So certainly we think the opportunity is there for us to...
Speaker Change: you know, double revenue for MusclePharm. I don't think it's outside the realm of reality. But it's really hard for me to be precise. Like, I would be guessing if I could give you a precise revenue number for MusclePharm for 2025.
Speaker Change: So that's a reason we shy away from kind of specific guidance, but I have to say we're very happy with the traction that we've had, particularly recently with both the sports nutrition line more broadly as well as with the bars.
Speaker Change: That makes sense. So basically, I mean, and that's just what I was trying to get at. So particularly, it sounds like the vitamin shop opportunity could be material in terms – not to put a number on what material is, but it would move the needle is what you're saying, obviously, if you sold through and etc.
Yeah, absolutely, it would be material, right?
For sure.
Speaker Change: Okay, perfect. And then a second question, I know you don't want to discuss any specifics on M&A, but I think historically you've talked about kind of two constraints on that. One is just the balance sheet, which obviously today is not a constraint. But the second is being a small company, just kind of your organizational capabilities in terms of wanting to have too many balls in the air. So do you feel like you're at a point
Speaker Change: So if the right deal were to come along, you feel like you could close on it from that integration standpoint.
Speaker Change: Yeah, we do. And just to kind of bring everyone up to speed, what Samir is referring to is in the past we've talked about there's kind of three things you need to be able to successfully pull off a transaction. You need deal flow.
Speaker Change: We have plenty of deal flow. You need a balance sheet so you can do the deal and we're in a great place there as far as our balance sheet goes. And then you need capacity, right? I need the team to be able to absorb and execute.
Speaker Change: And I think we're definitely at a point where we could do a deal. Obviously, it would depend on the size of the deal. The bigger the deal, the more challenging it would be. But look, MRC, the heavy lifting is behind us.
Speaker Change: muscle farm much of the heavy listing lifting operationally is behind us right with the rebranded is done.
Speaker Change: The Pro Series is in production. So, I mean, there's always more to do. But, you know, we are actively engaged.
Speaker Change: I mean I'll just give you some data points. We negotiated two LOIs during the third quarter.
Speaker Change: both of which we ultimately passed on, or couldn't come to terms with the sellers in terms of valuation. So we are actively engaged. I don't want anyone to come away from the call thinking we're just kind of sitting back and waiting. We look at a lot of deals, and we get the opportunity to look at a lot of deals.
Speaker Change: We'll do the work and you always see numbers in our EBITDA table for merger and acquisition related expenses, right? There's lawyers and there's real expenses that we're paying every quarter as we look at other deals.
Speaker Change: Yeah, I mentioned walking away from two deals during the third quarter. Those aren't the only deals we looked at and and I'll tell you There's deals were actively pursuing right now. So it's it's just one of those things. We will always be looking
Speaker Change: But we will wait for the fat pitch. We're not going to swing at everything. We're going to wait for the right deal.
Speaker Change: And, you know, the good thing about taking your time also is that, you know, the balance sheet just gets better and better. And the better the balance sheet is, the bigger deal, you know, we can accommodate without issuing any equity, right, just by borrowing.
Speaker Change: from our bank. So we're happy with where we are and we're actively looking and don't have anything to report and don't anticipate that there will be anything to report in the next couple of months, right? But we're actively engaged and
and would like to find another deal.
Awesome. That's great to hear. And finally,
Speaker Change: With regards to the shelf, I completely agree with you that it's just good policy to have one in place. I guess with regards to your question or your comment about you or Sudbury rather not having any plans to sell stock, have you considered that if you did sell a little bit, it might help with liquidity and might even help with the company's valuation just by allowing people to have a little bit more opportunity to accumulate shares?
Speaker Change: Yeah, so I appreciate you asking that. A couple of things. I'll go a little bit deeper on the shelf. I'm guessing your response is that it's still your best idea. So here's what I would say. I mentioned that with the shelf registration, you can set it up where the company can sell stock, and that means dilution.
Speaker Change: Or you can set it up where an existing shareholder sells stock, and that means no dilution.
Speaker Change: Or you can do both. We did both. The likelihood of us needing to raise equity as a company is very slim.
Speaker Change: I would be lying if I told you that I don't think once a week about whether it might be beneficial for the shareholder base for there to be more liquidity in the stock.
Speaker Change: And so that the second part of the shelf that allows Sudbury to sell some stock is predominantly, you know,
Speaker Change: preparing us to do that, right? Again, if it makes sense, I...
Speaker Change: Sudbury and I are kind of the same. I'm the managing partner of Sudbury. You'll also note in that registration statement, I personally am not listed as a selling stockholder. I own a lot of stock. I have no intentions of selling my stock. If I did, I would be in that as a selling stockholder.
Speaker Change: So, look, at some point it may make sense to increase the liquidity. The number one comment I get when we talk to investors is, love the story, but can't buy the stock.
because there's not enough liquidity.
Speaker Change: So, again, it's something we think about, this takes that step to make it possible, but there's no immediate plans and nothing's imminent.
Speaker Change: Understood. All right. I'll pass the line. Thanks for the thanks for the color. Yep. Thanks, Samir.
Speaker Change: Thank you and once again it will be star one if you wish to ask a question today. The next question is coming from Johnson and Shee. Johnson please announce your affiliation and pose your question.
Johnson: I'm a private investor based in Seattle. I have a few questions for Baden. You mentioned over past interactions that you're open to growth not just through M&A, but also through organic growth.
Ciao!
Johnson: Having said that, I'm not seeing the social media accounts of recent acquisitions, especially MusclePharm and Dr. Tobias, which is part of MRC, being that active. You know, I'm seeing like...
MusclePharm's social Instagram account not being active for a while.
Johnson: MRC and Dr. Tobias having one or two likes per day. Meanwhile, I'm seeing other competing brands like Built Bars, Bellring Brands, and Premier Coating having lots of social engagement. And I'm not so sure how that plays into sales.
Speaker Change: So, my question is, does social media play a role in accretive growth, or will it play a role in your strategy for accretive growth for both MusclePharm and Mimisrock? And any comments on your strategy on raising awareness?
So that organic growth improves through social media leads.
Speaker Change: Yeah, so there's a lot of questions embedded in there and I'll do my best to answer them. One thing I will say is, so we've been at this for, I've been at this as a CEO for about seven years.
Speaker Change: On more than one occasion with other brands, we have had extensive kind of social media advertising type efforts where we are advertising on Facebook or Instagram trying to drive traffic to websites, and monetizing it in that way. We've done the same with Google ads, and we obviously spend a lot of money advertising on Amazon.
Speaker Change: What we have found, generally speaking, is that commercially the best money spent is on Amazon, right, for most of our brands. That's where we get the biggest bang for our buck in terms of advertising.
Speaker Change: So for us, at least right now, we view social media as more of community than of kind of a means to, you know,
Encourage people to buy if that makes sense
Speaker Change: We've had some hiccups lately if you go look historically at our Instagram account We used to be very very active there and posting very regularly and we haven't for a while There's an issue with the account with meta that we're working through
Speaker Change: Long story short, somebody got access that wasn't supposed to have access and we're trying to get it back. It's not a big deal. We're not worried and we're confident that we're going to get there. But I think if you go back and look until that happened...
Speaker Change: We are posting, you know, almost every day and there was decent engagement and you know workouts of the week We're probably the most popular thing that we post right so every week we'd post Hey, here's the workout that you can do this week
Speaker Change: and got a decent amount of engagement. So we're not opposed to social media. We want to use social media as more of a way to engage with our consumers as opposed to
Speaker Change: advertise and drive traffic. We do have Instagram influencers and whatnot that we use. But Dr. Tobias, for example, if you go look, we don't have hundreds of thousands of followers on Dr. Tobias, but we sell.
Speaker Change: you know, million plus units a year on Amazon, right? So our interactions with customers there, at least in terms of marketing, have been on the Amazon platform, if that makes sense.
Speaker Change: So I guess long way of saying we've been more active in social media in the past and once we get things back on track with meta, you should expect to see more.
Speaker Change: But in terms of advertising, we have found that the best ROI is on Amazon and in some other venues.
Speaker Change: So got it. So basically return on ad spend is higher from Amazon and at the stage of FitLife.
Speaker Change: social media accounts are primarily for community engagement, but are you open to
Speaker Change: There's national awareness. Are you open to revisiting social media ad spend, even if it means a lower return on ad spend than Amazon? Yeah, because I think you could have a lower return on ad spend on social media, but the returns are much larger in terms of magnitude.
Speaker Change: Yeah, I think for sure and I don't want to give the illusion that we tried it once and it didn't work and so we'll never do it again, right? It's something we've done.
Speaker Change: We probably had four or five initiatives over the seven years where we've tried it again or tried it with a different agency or something like that. So we're always experimenting, we're always trying new things. We've done, we haven't talked about this in much detail, but look, we've sponsored two sports teams with Muscle Farm this football season.
Speaker Change: I think we can talk about it because it's been in the stadiums, but we're sponsoring Army football and we're sponsoring Air Force football. So we do a lot of things. We try a lot of things. We try and measure the impact, and we try and redirect our efforts and our spending towards that.
Speaker Change: where we're getting the biggest payoff, right? The biggest bang for the buck. So yeah, I would never conclude that because we tried something once and it didn't work, we'll never do it again, right? But we're constantly trying new things and shifting money around.
Speaker Change: All right. Thank you. That concludes my questions. Thank you, Baden, for answering them. Yeah. Thanks, Johnson.
Speaker Change: Thank you. The next question will be from Sean McGowan from Roth. Sean, your line is live.
Sean McGowan: Thank you appreciate that and I apologize in advance if you've already addressed some of these because I had a little trouble getting on the call on time but just to circle back to the to the question about the shelf was there already in place a shelf prior to this is this replacing an existing one and if so did that also include the ability for Sudbury to sell?
Speaker Change: Yeah, we have not. This is the first time we've ever had a shelf.
Okay, helpful, thank you.
Speaker Change: Okay, a couple of other questions then. Can you give us a little bit more color on the MusclePharm Pro line? You know, what's the point of differentiation? Is the customer different? You know, you talked about it being in vitamin shop.
Speaker Change: for the first 12 months, is it the plan to expand beyond that after that 12-month period? You know, kind of, what are the, perhaps most importantly, what do you think the relative margins are there? Are they higher than the existing one?
Speaker Change: Yes, so the margins would be higher than the existing line, although I think there'd be a fair amount of promotional expense as well. So considering that, I don't know if they'd be dramatically higher. The reason – so the Pro Series is effectively kind of higher end or higher quality or more bells and whistles, right, in terms of pre-workout with more ingredients and premium ingredients.
Speaker Change: You know, what we've seen, and we've known this, right, GNC's been our biggest customer for, you know, a long, long time, right? The specialty retail consumer, right, a customer that's going to GNC or Vitamin Shop isn't looking for the mass market protein.
or the mass market pre-workout.
Speaker Change: I mean, you can buy those in those stores, right, they'll sell, you know, the high-volume Chelly Core pre-workouts or C4 or whatnot, right, but these are kind of higher-end, you know, more premium ingredients, branded ingredients.
Speaker Change: that the more, I don't want to say educated, but the more serious...
sports nutrition aficionado is looking for.
Speaker Change: So, you know, it wouldn't be a good idea to take kind of your mass market style brand into a chain like a GNC or a vitamin shop.
Speaker Change: And so we didn't want to do that and didn't even try that. Again, we have four brands.
Speaker Change: I guess five brands that are exclusive to GNC, we know what it's like to sell to that consumer. And so, yeah, they're higher ring, right? They're higher dollar price.
Speaker Change: They're generally higher margin, but again, we will invest pretty heavily in marketing, right? There will absolutely be digital marketing. There will probably be, you know, ads. Again, once this launches, right, ads.
Speaker Change: we have the ability to place ads on streaming services within five miles of a Vitamix shop location that's carrying the product, right? So there are initiatives like that that we will put in place, marketing efforts.
to try and drive the consumer to the store.
Speaker Change: It very well may be we don't even put them on Amazon, right, for the first little while and let them get some traction in the brick and mortar.
Speaker Change: environment. So, you know, steady state, yeah, but kind of margins would be a bit higher than they would be on the mass market brand and it's just, you know, it's a little bit kind of like, you know, there's a Toyota and there's a Lexus.
Speaker Change: And, you know, different consumers want a different kind of product.
Speaker Change: And how about channel expansion, like how does GNC feel about this vitamin shop exclusive and what's the plan longer term for channel expansion?
Yeah, so we...
Speaker Change: Look, it's hard for me to know. I think our current intention would be if it's successful in vitamin shop, then after the exclusivity period, we would take it more broadly. The reason I hesitate is, I'm sure you all know, we again have five brands that we've kept exclusive to GNC. So I think at that point, we'll look at the performance, we'll look at the facts and circumstances and other potential clients and make the decision that we think is best for the brands and best for the company. We have had and still have that exclusive relationship with GNC for some of our brands.
Speaker Change: And maybe, right, the Pro Series stays exclusive, but we're, you know, a ways away from that. Our focus right now is getting it launched on time and then putting the spend behind it so that it is able to gain permanent placement and can scale.
Speaker Change: All right. Okay, thanks. And then my other question was, you know, you cited in the press release decreases in customer counts at some brick-and-mortar stores. Do you have concerns about, you know, kind of viability or the health of any of these customers?
Yeah, did you say companies or customers?
Speaker Change: Look, I think we won't be naive, Vitamin Shoppe you may know is in bankruptcy. They filed bankruptcy November 3rd, so earlier this month. Now, they as a company are doing fine. It's their parent company which is called the Franchise Group that was loaded up with a bunch of debt as part of a leveraged buyout a while back. So Vitamin Shoppe is bankrupt.
Speaker Change: you know, still we have products in Vitamix shop right now, right, from some of our other brands. So they're an existing customer. We know them.
Speaker Change: You know, every indication from them and from everyone else in the industry that I've talked to, including people that sell to them, is it's kind of business as usual. So that's more of a situation where the parent company needs to clean things up and vitamin shop. You know, I'm not 100% sure on all the details, but my understanding is they don't have any debt at all. They're just a subsidiary of the parent and that's why they ended up there. So look, we do worry about some of them and what I will say is we have, if it's looking like there's going to be an event.
Speaker Change: We know what to do to minimize the impact on us, and the reason I say that is we've been through this before. GNC was probably 70% of our revenue when they went through bankruptcy in 2020. So we've kind of been there, done that, and my background...
Speaker Change: prior to taking over FitLife and prior to launching my fund was I worked at a very large hedge fund that had its primary strategy is distressed investing, right, the whole kind of bankruptcy.
Speaker Change: opportunity set, whether that's buying debt and taking control through restructuring or how to manage the risk. So we're pretty familiar with that. We've played in that space before, obviously we were there with Muscle Farm and bought those assets out of bankruptcy.
Speaker Change: We're taking steps to mitigate any impact that any financial instability of our customers might have. Now, to be clear, I'm not saying there wouldn't be any impact, but there certainly will be no impact that we can't easily absorb.
Thank you.
Thank you.
Speaker Change: Thank you. And once more, ladies and gentlemen, it's star one if you wish to ask a question on today's call. We did have a follow-up coming from Sameer Patel from Ascolade and Capital. Sameer, your line is live.
Speaker Change: Hey, so just a follow-up on MusclePharm. If I recall when you did the acquisition, one challenge that you had noted was that because of how mismanaged that brand had been previously, they kind of burned a lot of vendors who hadn't gotten paid, things like that. So I guess it seems like you've been sort of successful in convincing the marketplace that hey, it's under new ownership. It's being professionally run. It's not what it was. Would you say that's accurate and that you're pretty optimistic about your ability to kind of go out to other wholesale potential customers beyond these wins that you've had so far?
Speaker Change: Yeah, good question. And, you know, other than Vitamintrop, obviously, which we disclosed and that was with their permission, I'll just tell you some of these other, I mentioned other regional accounts, you know, some of those customers are customers that used to work with MusclePharm, you know, before it went into bankruptcy.
Speaker Change: And so we now have examples, right, of wins, getting back in, but I will also say that when we talk to those guys about, hey, can we say we're back in, right, even though they place POs and they have product, they're kind of, they're a little tenuous, right? So they're, look, some of these, it took literally a year, right? We bought the company in October of 2023. Some of them I started talking to in October of 2023.
and it took 12 months.
until we got POs last month.
Speaker Change: So, I guess just a long way of saying we now have kind of situations where we've gotten brand new customers that were never previously, never previously carried any MusclePharm products, but we've also had the opportunity to win back some of those legacy MusclePharm customers. But even then, right, they're like, look, we'll bring it in and we'll bring it into
Speaker Change: I'll pick a number, 150 or 200 locations, and we'll see how it goes. So they're giving us a chance, right, which is all we can ask for given kind of the circumstances that we inherited. So we're pleased that we've got wins with old customers now and we've got wins with new customers as well.
Speaker Change: And then I don't know, I'm sure you don't want to provide any quantitative details, but any sort of qualitative thoughts on sell-through? Obviously a big part of the acquisition rationale was that this was a brand that had a lot of customers, a lot of loyal customers, a lot of money spent on marketing that brand, a lot of big celebrity endorsements.
Speaker Change: And so kind of there being this opportunity to go out and kind of monetize some of that ad spending that had already been done. So do you see from whatever data you are seeing kind of from these new wholesale partners, do you see kind of validation of that, that it's resonating with customers?
Speaker Change: Numbers are nowhere near what they were before we're also selling at more reasonable margins for us.
Speaker Change: But we're growing like every month, we're continuing to grow with them. So so where we have had these products in market for more than a month, we're absolutely seeing good sell through.
Speaker Change: But with these newer customers that like literally in the last few weeks have become customers. We don't have any data yet on sell through but you know like you I will be anxiously watching that.
Speaker Change: Okay, that's great to hear and then one more just as you are scaling some of these wholesale relationships.
Speaker Change: Do you think about the SG&A and by the way I like the way that Youre doing it kind of in terms of the contribution and doing like the gross margin in the advertising, but how do you think about some of the SG&A behind that like do you are you going to need as you know I don't know what exactly goes into there, but are you going to need more people to manage those relationships.
So just how you think about SG&A kind of below that advertising wine.
Speaker Change: We're below that contribution line, how do you think about that scaling with revenue as you kind of organically grow that muscle of our business here.
Speaker Change: Yeah, I don't think there's a whole lot of incremental SG&A I think if you look.
Speaker Change: It just about every quarter again I don't have the numbers in front of me here, but we tend to be about two and a half million of SG&A every quarter I think this quarter, we were a little bit higher, but but if you back out there there was a some separate if you back out the severance from that number which is a one time.
Speaker Change: Net present value amount of kind of a one time severance event, we're right around the two and a half so there's always incremental stuff right theres always some pluses and minuses.
Speaker Change: There's been a lot more testing requirements on Amazon right, where we've probably paid well over well into the six digits on just testing getting our products tested by a third party so that Amazon let to sell them.
That was completely unexpected and unanticipated a year ago.
Speaker Change: But we are where we are so sometimes legal is a little higher sometimes testing is a little higher.
Speaker Change: But we don't like we don't we don't have five open positions I think we have you know.
Speaker Change: Two open positions right now and what ones for somebody in supply chain and we could use another body in the warehouse right. So these are not.
Speaker Change: We're not we don't need $3 million of quarterly SG&A to to operate the business that we have.
Speaker Change: Perfect understood. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Thank you we did have another follow up coming from Sean Mcgowan from Roth, Sean Your line is life.
Sean McGowan: Yeah. Thanks, So just a quick follow up on that last point you made on that severance is that severance expense added back.
Adjusted EBITDA or is it just you.
Speaker Change: And there is not added back.
Speaker Change: Yeah. It's added back if you look at the EBITDA table I think we the line item was called restructuring.
Okay. So yeah, you'll see it there again, we probably could have called this severance, but we called it restructuring.
Speaker Change: But yeah that we added that back end and that yeah that that's done the cash has been paid and it's all it's all behind us.
Speaker Change: For now.
Speaker Change: Thank you.
Speaker Change: Yep. Thank you.
Speaker Change: Thank you and we did get another question in from Allensbach Husky from ASB consultants Island.
Speaker Change: Hi, Jason how are you good how are you Allen.
Speaker Change: In regards to the.
Speaker Change: Shelf registration.
Speaker Change: Another feasibility be too is to increase shareholder interest and liquidity has again.
Speaker Change: That dividend or a split.
Speaker Change: Which would bring more stock out into the marketplace and bring more liquidity for people to trade the stock.
Speaker Change: Is that a feasibility young stocks.
Speaker Change: Just saying, it's a I know you don't want go below a certain price, but it seems that our people.
Speaker Change: People will be easier for them to.
Speaker Change: Take positions and and concerns that the trading basically has got much better, but many days, which is like four or 5000 shares and people I know who were interested in accumulating said, it's very difficult to to purchase the stock.
Speaker Change: Well it.
Speaker Change: Yeah. So good question and yes under the theme I mentioned before about we we would love for there to be more liquidity.
Speaker Change: Yeah, I'll, just say that we had a board meeting yesterday and a stock split was on the agenda for the board meeting and while nothing has been decided or formally approved at this point.
Speaker Change: You know I would be surprised if if it doesn't happen at some point in the near future but.
Speaker Change: Probably just leave it at that but we're we're looking at all different ways that we can to increase the liquidity of the stock again, we're not we're not going to I don't want to do anything dilutive right I am the biggest shareholder so being dilutive hurts me more than it hurts anybody but short of that we want to do what we can.
Speaker Change: Like I mentioned earlier I can't tell you the number of times I get to the end of an investor meeting or potential investor meeting and I hear that.
Speaker Change: The story, but I can't buy the stock right because there's not enough liquidity. So so we're doing what we can in that regard.
Speaker Change: Yeah, I think we're all aligned and where we're trying to go there.
Speaker Change: As you know ive been with you for almost the entire suite.
Speaker Change: Six seven years et cetera, and that's of interest to people and that's the main comment that I guess and some of them even said.
Speaker Change: Stocks, but it would be advantageous whether they would be able to do more and feel more comfortable with it so.
Speaker Change: I'm glad to hear considering that option yep.
Speaker Change: Yeah, that's a good feedback I appreciate that good luck. Good luck alright, Thank you Allen.
Okay.
Speaker Change: Thank you and we have another follow up coming from Johnson Chi.
Speaker Change: Johnson your line.
Speaker Change: <unk>.
Speaker Change: Hey, Johnson Dayton I have a question have you thought about partnering with let's say market makers or.
Speaker Change: Something of that sort to provide to improve liquidity not just.
Speaker Change: Through stock splits or dividends, but partnering with market makers.
Speaker Change: Yeah look I that that happens kind of automatically you can't be on NASDAQ1 of the conditions of applying to and being accepted to trade on NASDAQ is having a certain number of people are broker dealers willing to make markets and your security. So so we have that right. There will always be a bid and an ask.
Speaker Change: Look I think that the challenge here is.
We got about four and a half 454 6 million shares outstanding and about 60% of those.
Speaker Change: I have and have not been too keen to sell.
Speaker Change: But look that our float is around 2 million shares.
Speaker Change: And and even then right somebody pointed out before I think our average daily volume is like six or 7000 shares a day right out of a $2 million. The float. So so I feel like there's plenty of stock to go around grid, but the situation is that.
I've got some and I don't want to sell and some of you have some and maybe you don't want to sell and so as a result, you know we are where we are so things, though like a stock split.
Speaker Change: Potentially.
Speaker Change: Maybe I begrudgingly sell a little bit or something like that again for no other reason than to to get some liquidity going.
Speaker Change: Because I think we're comfortably north of $150 million market cap.
Speaker Change: And there's there are institutions that are interested and are having a hard time finding stock.
Speaker Change: No.
Speaker Change: Yeah, I'll, just conclude by saying I appreciate you're all asking the questions and there are questions that I asked I've been asking myself for for years and so we take it seriously and we think a lot about it.
Speaker Change: But we'll be thoughtful before we pull the trigger on anything.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you and there were no other questions in queue. At this time I would now like to hand, the call back to Dayton Judd for closing remarks.
Dayton Judd: Alright, well, thank you Paul and thank you all for participating in the call and we appreciate your interest in fit life.
As always we are willing to kind of talk to you one on one or answer any other questions you might have so feel free to reach out to us the.
Dayton Judd: The best way to do that is through our investor email, which is invest or at fit life brands Dot com.
Dayton Judd: So again, we appreciate it and look forward to talking to you on the next earnings call.
Speaker Change: Thank you. This does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Yeah.