Q2 2025 FitLife Brands Inc Earnings Call

Speaker #6: Good day and welcome to the FITLIFE BRANDS second quarter 2025 financial results conference call. At this time, all participants have been placed on a listen-only mode.

Paul: Good day and welcome to the FITLIFE BRANDS second quarter 2025 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 at FitLife. Sir, the floor is yours.

Speaker #6: 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 at FITLIFE.

Speaker #6: Sir, the floor is yours.

Speaker #7: Thank you, Paul. I'd like to welcome everyone to FITLIFE's second quarter 2025 earnings call. We appreciate you taking the time to join us this afternoon.

Dayton Judd: Thank you, Paul. I'd like to welcome everyone to FitLife's second quarter 2025 earnings call. 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. As we typically do, I'll provide some opening commentary to get us started, and then we'll open up the call for Q&A. For the company overall, for the second quarter of 2025, total revenue declined 5% year over year to 16.1 million. Online sales were 10.4 million, or 65% of total revenue. Gross profit declined 9%, and gross margin declined from 44.8% in the second quarter of last year to 42.8% in the second quarter of 2025. Contribution, which we define as gross profit less advertising and marketing expense, declined 9% to 5.7 million.

Speaker #7: Joining me on this call is FITLIFE's CFO, Jacob York, and FITLIFE's EVP, Ryan Hansen. As we typically do, I'll provide some opening commentary to get us started.

Speaker #7: And then we'll open up the call for Q&A. For the company overall, for the second quarter of 2025, total revenue declined 5% year over year to $16.1 million.

Speaker #7: On-line sales were $10.4 million, or 65% of total revenue. Gross profit declined 9%, and gross margin decreased from 44.8% in the second quarter of last year to 42.8% in the second quarter of 2025.

Speaker #7: Contribution, which we define as gross profit less advertising and marketing expense, declined 9% to $5.7 million. Net income for the second quarter of 2025 was $1.7 million, compared to $2.6 million during the second quarter of 2024.

Dayton Judd: Net income for the second quarter of 2025 was 1.7 million compared to 2.6 million during the second quarter of 2024. Most of the decline in net income is due to elevated merger and acquisition-related expense associated with the acquisition of Erwin Naturals and its affiliates, which transaction closed on August the 8th, 2025, subsequent to the second quarter. Basic earnings per share declined from $0.29 last year to $0.19 this year. Diluted earnings per share declined from $0.27 last year to $0.18 this year. Adjusted EBITDA for the second quarter of 2025 was 3.3 million, a 13% decrease compared to the second quarter of 2024, bringing adjusted EBITDA for the trailing 12 months to 13.4 million. With regard to the balance sheet, the company ended the quarter with 10.9 million outstanding on its term loans and no balance on its revolving line of credit.

Speaker #7: Most of the decline in net income is due to elevated merger and acquisition-related expenses associated with the acquisition of Irwin Naturals and its affiliates.

Speaker #7: Which transaction closed on August the 8th, 2025, subsequent to the second quarter. Basic earnings per share declined from $0.29 last year to $0.19 this year.

Speaker #7: Diluted earnings per share declined from $0.27 last year to $0.18 this year. Adjusted EBITDA for the second quarter of 2025 was $3.3 million, a 13% decrease compared to the second quarter of 2024, bringing adjusted EBITDA for the trailing 12 months to $13.4 million.

Speaker #7: With regard to the balance sheet, the company ended the quarter with $10.9 million outstanding on its term loans, and no balance on its revolving line of credit.

Speaker #7: Considering our cash of $6.6 million outstanding at the end of the second quarter, including the $5 million deposit related to the Irwin Naturals transaction.

Dayton Judd: Considering our cash of 6.6 million outstanding at the end of the second quarter, including the $5 million deposit related to the Erwin Naturals transaction, net debt was 4.3 million, which is equivalent to approximately 0.3 times the company's adjusted EBITDA. With regard to brand-level performance, I'll start with Legacy FitLife. Total Legacy FitLife revenue for the second quarter of 2025 was 7.3 million, of which 59% was from wholesale customers and 41% was from online sales. This represents a 1% year-over-year increase in wholesale revenue and a 17% year-over-year increase in online revenue, or a 7% increase in total revenue. Gross margin decreased to 43.8% compared to 44.2% during the second quarter of 2024. Contribution increased 5% to 3.1 million, and contribution as a percentage of revenue decreased to 42.0% compared to 42.8% in the same quarter last year.

Speaker #7: Net debt was $4.3 million. Which is equivalent to approximately 0.3 times the company's adjusted EBITDA. With regard to brand-level performance, I'll start with legacy FITLIFE.

Speaker #7: Total legacy FITLIFE revenue for the second quarter of 2025 was $7.3 million, of which 59% was from wholesale customers and 41% was from online sales.

Speaker #7: This represents a 1% year-over-year increase in wholesale revenue and a 17% year-over-year increase in online revenue, resulting in a 7% increase in total revenue. Gross margin decreased to 43.8%, compared to 44.2% during the second quarter of 2024.

Speaker #7: Contribution increased 5% to $3.1 million, and contribution as a percentage of revenue decreased to 42.0%, compared to 42.8% in the same quarter last year.

Speaker #7: Moving on now to the brands acquired in the Mimi's Rock transaction, or MRC. On our previous earnings call, I mentioned that we would start including MRC in legacy FITLIFE going forward, as we're now more than two years removed since the initial acquisition.

Dayton Judd: Moving on now to the brands acquired in the Mimi's Rock transaction, or MRC. On our previous earnings call, I mentioned that we would start including MRC in Legacy FitLife going forward, as we're now more than two years removed since the initial acquisition. However, given the challenges the brand has been experiencing, we decided to keep it separate in our disclosure for one more quarter. Total MRC revenue for the second quarter of 2025 was 6.3 million, down 16% from the previous year. MRC's gross margin declined to 46.5% for the second quarter of 2025 compared to 48.2% during the second quarter of 2024. The primary reasons for the gross margin decline are tariffs impacting the two skincare brands, as well as product mix for the Dr. Tobias brand.

Speaker #7: However, given the challenges the brand has been experiencing, we decided to keep it separate in our disclosure for one more quarter. Total MRC revenue for the second quarter of 2025 was $6.3 million, down 16% from the previous year.

Speaker #7: MRC's gross margin declined to $46.5% for the second quarter of 2025, compared to $48.2% during the second quarter of 2024. The primary reasons for the gross margin decline are tariffs impacting the two skincare brands, as well as product mix for the Dr. Tobias brand.

Speaker #7: With regard to tariffs, both skincare brands were subject to a 25% tariff applied to the full product cost on the majority of the brand's revenue during the second quarter of 2025.

Dayton Judd: With regard to tariffs, both skincare brands were subject to a 25% tariff applied to full product cost on the majority of the brand's revenue during the second quarter of 2025, which cut gross margin for those products by approximately one-half. Contribution declined 17% to 2.1 million, with contribution as a percentage of revenue decreasing from 33.9% last year to 33.4% during the second quarter of 2025. With regard to Muscle Farm, total Muscle Farm revenue declined 4% during the second quarter, with wholesale and online revenue declining 6% and 3%, respectively. Muscle Farm's gross margin declined from 36.6% last year to 30.8% during the second quarter of 2025. As previously disclosed, in an effort to drive revenue growth, the company is making targeted investments in advertising and promotion in both the wholesale and online channels.

Speaker #7: Which cut gross margin for those products by approximately one half. Contribution declined 17% to $2.1 million, with contribution as a percentage of revenue decreasing from $33.9% last year to $33.4% during the second quarter of 2025.

Speaker #7: With regard to muscle farm, total muscle farm revenue declined 4% during the second quarter, with wholesale and online revenue declining 6% and 3%, respectively.

Speaker #7: Muscle farm's gross margin declined from $36.6% last year to $30.8% during the second quarter of 2025. As previously disclosed, in an effort to drive revenue growth, the company is making targeted investments in advertising and promotion in both the wholesale and online channels.

Speaker #7: Beginning in the fourth quarter of 2024, the company offered additional promotional incentives to certain wholesale partners in an effort to drive incremental growth for the Muscle Farm brand.

Dayton Judd: Beginning in the fourth quarter of 2024, the company offered additional promotional incentives to certain wholesale partners in an effort to drive incremental growth for the Muscle Farm brand, and those efforts are ongoing. Wholesale revenue for this brand is somewhat lumpy, so quarter-to-quarter wholesale revenue may not accurately reflect our progress. For example, monthly wholesale revenue for Muscle Farm in July was the highest it has ever been since we bought the brand. In mid-March 2025, the company launched the new Muscle Farm Pro series. A collection of... All right, one sec. Can you just... So, Ryan's going to take over for a sec while I get something to drink. So, in... Yeah, in mid-March, the company launched the new Muscle Farm Pro series, a collection of premium sports nutrition products in a pilot in high-volume Vitamin Shop stores, consisting of approximately 60% of Vitamin Shop's nationwide store base.

Speaker #7: And those efforts are ongoing. Wholesale revenue for this brand is somewhat lumpy, so quarter to quarter wholesale revenue may not accurately reflect our progress.

Speaker #7: For example, monthly wholesale revenue for muscle farm in July was the highest it has ever been since we bought the brand. In mid-March 2025, the company launched the new muscle farm pro series.

Speaker #7: A collection of... One sec. Can you just... So, Ryan's going to take over for a sec while I get something to drink. So, in...

Speaker #7: Yeah, in mid-March, the company launched the new muscle farm pro series, a collection of premium sports nutrition products, in a pilot in high-volume vitamin shop stores, consisting of approximately 60% of vitamin shops nationwide store base.

Speaker #7: Certain items from the muscle farm pro series line will remain in vitamin shop stores beyond the conclusion of the pilot. We have begun selling the muscle farm pro series line online as well, through international...

Dayton Judd: Certain items from the Muscle Farm Pro series line will remain in Vitamin Shop stores beyond the conclusion of the pilot. We have begun selling the Muscle Farm Pro series line online as well, as well as through international wholesale partners. Now, let me provide some additional comments, high level, and then we can move to Q&A. As is evident in the results, the second quarter of 2025 was strong for our Legacy FitLife business, but somewhat challenged for MRC. Among our existing brands, the performance of the Dr. Tobias brand is our primary concern. The brand is experiencing reduced session counts on Amazon. However, once customers get to the brand's product pages, they are converting at the same or higher percentages. So, it is a traffic problem and not a product or conversion problem.

Speaker #7: As well as through international wholesale partners. Now, let me provide some additional comments high level and then we can move to Q&A. As is evident in the results, the second quarter of 2025 was strong for our legacy FITLIFE business, but somewhat challenged for MRC.

Speaker #7: Among our existing brands, the performance of the Dr. Tobias brand is our primary concern. The brand is experiencing reduced session counts on Amazon. However, once customers get to the brand's product pages, they are converting at the same or higher percentages.

Speaker #7: So, it is a traffic problem and not a product or conversion problem. We are focused on a number of initiatives to increase session counts including targeted increases in advertising spend, improved SEO for our listings, and driving external traffic to our Amazon product pages.

Dayton Judd: We are focused on a number of initiatives to increase session counts, including targeted increases in advertising spend, improved SEO for our listings, and driving external traffic to our Amazon product pages. For many of our products, the decline in sessions started during the third quarter of 2024, and session counts have been fairly stable sequentially throughout 2025 since that time. As long as session counts continue to remain stable, the year-over-year comparison should be more favorable later this year. We finished the quarter with a strong balance sheet. That enabled us to complete the acquisition of Erwin Naturals with no dilution to shareholders. With regard to Erwin, let me first say how excited we are to be stewards of the Erwin Naturals brands and to welcome the Erwin team to the FitLife family.

Speaker #7: For many of our products, the decline in sessions started during the third quarter of 2024, and session counts have been fairly stable sequentially throughout 2025 since that time.

Speaker #7: As long as session counts continue to remain stable, the year-over-year comparison should be more favorable later this year. We finished the quarter with a strong balance sheet.

Speaker #7: That enabled us to complete the acquisition of Irwin Naturals with no dilution to shareholders. With regard to Irwin, let me first say how excited we are to be stewards of the Irwin Naturals brands and to welcome the Irwin team to the FITLIFE family.

Speaker #7: Since announcing the acquisition, we have received a number of questions about Irwin, so I will provide some general commentary now and we will be happy to answer additional questions during the Q&A session.

Dayton Judd: Since announcing the acquisition, we have received a number of questions about Erwin, so I will provide some general commentary now, and we will be happy to answer additional questions during the Q&A session. First, a bit of history. We have been working on the Erwin transaction for more than a year. We signed our first NDA with the company on August 2nd, 2024, a week before they filed bankruptcy. Navigating the bankruptcy was a circuitous process, which ultimately resulted in FitLife acquiring a claim from a creditor, submitting its own plan of reorganization for Erwin, and then ultimately participating in an organized sale process and becoming the stocking horse bidder for the assets. This lengthy and often litigious process is the reason for the elevated M&A expense you saw in the P&L during the first and second quarters, and there will be additional transaction-related expense during Q3.

Speaker #7: First, a bit of history. We have been working on the Irwin transaction for more than a year. We signed our first NDA with the company on August 2, 2024, a week before they filed for bankruptcy.

Speaker #7: Navigating the bankruptcy was a circuitous process, which ultimately resulted in FITLIFE acquiring a claim from a creditor, submitting its own plan of reorganization for Irwin, and then ultimately participating in an organized sale process and becoming the stalking horse bidder for the assets.

Speaker #7: This lengthy and often litigious process is the reason for the elevated M&A expense you saw in the P&L during the first and second quarters.

Speaker #7: And there will be additional transaction-related expense during Q3. One question several people have asked is why Irwin wasn't bankruptcy. And whether that was an indication something was wrong with the brand.

Dayton Judd: One question several people have asked is why Erwin was in bankruptcy and whether that was an indication something was wrong with the brand. The company started in 1994 and was focused on nutritional supplements for most of its existence. Our understanding is that over the course of its existence, the company generated somewhere in the range of $200 to $250 million of pre-tax profit for its owner and operated without debt. Then, in 2022, the owner decided to expand into ketamine clinics, and the company did a couple of things to accommodate that strategic shift. First, the company did a small public offering in Canada in order to have a public currency to use as consideration in acquiring the ketamine clinics. And second, in 2023, the company borrowed a bunch of money from a bank to provide cash consideration it could use in acquiring the clinics.

Speaker #7: The company started in 1994 and was focused on nutritional supplements for most of its existence. Our understanding is that over the course of its existence, the company generated somewhere in the range of $200 to $250 million of pre-tax profit.

Speaker #7: For its owner, and operated without debt. Then, in 2022, the owner decided to expand into ketamine clinics, and the company did a couple of things to accommodate that strategic shift.

Speaker #7: First, the company did a small public offering in Canada in order to have a public currency to use as consideration in acquiring the ketamine clinics.

Speaker #7: And second, in 2023, the company borrowed a bunch of money from a bank to provide cash consideration it could use in acquiring the clinics.

Speaker #7: The strategy was ultimately unsuccessful, and the company fairly quickly fell into default with its bank. By early 2024, after being in default for some time, Irwin decided to exit the ketamine clinic business and refocus on its core nutritional supplement business.

Dayton Judd: The strategy was ultimately unsuccessful, and the company fairly quickly fell into default with its bank. By early 2024, after being in default for some time, Erwin decided to exit the ketamine clinic business and refocus on its core nutritional supplement business. But by then, the damage was unfortunately done, and Erwin was unable to adequately address its debt burden, which is ultimately what led to the bankruptcy filing. In terms of the performance of the nutritional supplement business, revenue peaked in 2021 and then declined about 13% per year through 2024. Reasons for the decline were, first, the post-COVID pullback experienced by many supplement brands, two, distraction of the ketamine business, and three, the loss of Costco US as a customer.

Speaker #7: But by then, the damage was unfortunately done, and Irwin was unable to adequately address its debt burden, which is ultimately what led to the bankruptcy filing.

Speaker #7: In terms of the performance of the nutritional supplement business, revenue peaked in 2021 and then declined about 13% per year through 2024. Reasons for the decline were, first, the post-COVID pullback experienced by many supplement brands.

Speaker #7: Two, distraction of the ketamine business. And three, the loss of Costco US as a customer. The company had two SKUs in Costco US stores and the lead-up to...

Dayton Judd: The company had two skews in Costco US stores and the lead-up to, oh, excuse me, yeah, two skews in Costco US stores and leading up to and during COVID, those skews did well, and Costco became Erwin's largest customer. A couple of years ago, Costco discontinued one of the two skews, and then it discontinued the second skew in early 2025. For the trailing 12 months, as of June 30, 2025, adjusting for the loss of distribution in Costco US stores in early 2025, Erwin generated revenue of approximately $60 million at a gross margin of approximately 35%. We expect to generate improved gross margins over time as we increase the percentage of revenue generated from online sales and as we focus on making our supply chain more efficient. Erwin's SG&A for the trailing 12 months as of June 30, 2025, was approximately $14.5 million.

Speaker #7: Oh, excuse me. Yeah, two SKUs in Costco US stores and leading up to and during COVID, those SKUs did well and Costco became Irwin's largest customer.

Speaker #7: A couple of years ago, Costco discontinued one of the two SKUs and then it discontinued the second SKU in early 2025. For the trailing 12 months as of June 30, 2025, adjusting for the loss of distribution in Costco US stores in early 2025, Irwin generated revenue of approximately $60 million at a gross margin of approximately $35%.

Speaker #7: We expect to generate improved gross margins over time as we increase the percentage of revenue generated from online sales and as we focus on making our supply chain more efficient.

Speaker #7: Irwin's SG&A for the trailing 12 months as of June 30, 2025, was approximately $14.5 million. As previously announced, we expect annual SG&A to be approximately $1.5 million lower based on the number of employees rehired by FITLIFE as part of the transaction.

Dayton Judd: As previously announced, we expect annual SG&A to be approximately $1.5 million lower based on the number of employees rehired by FitLife as part of the transaction. And we expect to identify further cost-saving opportunities as we become more familiar with Erwin's operations. Erwin has an incredible brand with strong distribution. We look forward to updating our investors on Erwin's progress during our third quarter earnings call. For the first full year of operations, we expect the combined FitLife and Erwin businesses to generate in excess of $120 million of revenue and adjusted EBITDA of between $20 to $25 million. Those of you who are good at math can figure out that just adding the numbers for the two businesses together already puts us at or above those thresholds.

Speaker #7: And we expect to identify further cost savings opportunities as we become more familiar with Irwin's operations. Irwin has an incredible brand with strong distribution.

Speaker #7: We look forward to updating our investors on Irwin's progress during our third quarter earnings call. For the first full year of operations, we expect the combined FITLIFE and Irwin businesses to generate an excess of $120 million of revenue and adjusted EBITDA of between $20 to $25 million.

Speaker #7: Those of you who are good at math can figure out that just adding the numbers for the two businesses together already puts us at or above those thresholds.

Speaker #7: To be clear, we are not forecasting a decline but there are uncertainties anytime a new business is acquired and we want to avoid overpromising and underdelivering.

Dayton Judd: To be clear, we are not forecasting a decline, but there are uncertainties anytime a new business is acquired, and we want to avoid overpromising and underdelivering. As our familiarity with Erwin increases and we become more aware of the improvement opportunities, we will continue to update investors with our outlook for the combined business. This concludes our opening commentary, so Paul, feel free to go ahead and poll for questions.

Speaker #7: As our familiarity with Irwin increases and we become more aware of the improvement opportunities, we will continue to update investors with our outlook for the combined business.

Speaker #7: This concludes our opening commentary. So, Paul, feel free to go ahead and pull for questions.

Speaker #6: Thank you. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press *1 on your phone at this time.

Paul: Thank you. At this time, we will be conducting a question-and-answer session. If you have any questions or comments, please press star one 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. Once again, please press star one on your phone at this time if you wish to ask a question. And please hold while we poll for questions. And the first question today is coming from Ryan Myers from Lake Street Capital Markets. Ryan, your line is live.

Speaker #6: We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press *1 on your phone at this time.

Speaker #6: If you wish to ask a question, please hold while we pull for questions. The first question today is coming from Ryan Myers from Lake Street Capital Markets.

Speaker #6: Ryan, your line is live.

Speaker #7: Thank you, guys. Thanks for taking my questions. Congratulations on the acquisition. But just to, you know, kick things off, wondering if you can give us any commentary, maybe on how you're thinking about the growth rate for the organic business.

Ryan Myers: Thank you, guys. Thanks for taking my questions. Congratulations on the acquisition. But just to, you know, kick things off, wondering if you can give us any commentary maybe on how you're thinking about the growth rate for the organic business in the second half of the year. I know you gave a little bit of commentary on that, but if we look at Q1 and Q2, it's kind of been this mid-single-digit decline. Just, you know, maybe curious if you've seen any stabilization here in the third quarter and kind of how we should be thinking about that in the second half.

Speaker #7: in the second half of the year, I know you gave a little bit of commentary on that, but if we look at Q1 and Q2, it's kind of been this mid-single-digit decline.

Speaker #7: Just, you know, maybe curious if you've seen any stabilization here in the third quarter and kind of how we should be thinking about that in the second half.

Speaker #8: Yeah, this is Dayton. Sorry, I've had a coughing fit. I'll do my best to talk, and Ryan can back me up. So, look, I think we still are hoping to achieve organic growth in the legacy business, or, you know, not counting the Irwin acquisition.

Dayton Judd: Yeah, this is Dayton. Sorry, I've had a coughing fit. I'll do my best to talk and Ryan can back me up. So look, I think we still are hoping to achieve organic growth in the legacy business or, you know, not counting the Erwin acquisition. I think if you look at the numbers, we're down about $1.4 million over the first half of last year. So we're optimistic we can make that up. The biggest challenge in the business is Mimi's Rock and in particular Dr. Tobias. And I'm sure we'll talk more about that here in the Q&A. But if you take that out again and you look at the rest of the business, the rest of the business was up 4%, right? So it's not a problem that we're seeing across all brands.

Speaker #8: I think if you look at the numbers, we're down about 1.4 million over the first half of last year. So, we're optimistic we can make that up.

Speaker #8: The biggest challenge in the business is, Mimi's Rock and in particular Dr. Tobias. And I'm sure we'll talk more about that here in the Q&A.

Speaker #8: But if you take that out again, and you look at the rest of the business, the rest of the business was up 4%, right?

Speaker #8: So, it's not a problem that we're seeing across all brands. It's a problem we're seeing with one brand that is unfortunately dragging down the portfolio overall.

Dayton Judd: It's a problem we're seeing with one brand that is unfortunately dragging down the portfolio overall. So we're hopeful, we're optimistic that we can still deliver some organic revenue growth in 2025, although we also acknowledge that the challenges we've had with Dr. Tobias have kind of, you know, not been ideal here for the first half of the year.

Speaker #8: So, we're hopeful we're optimistic that we can still deliver some organic revenue growth in 2025. although we also acknowledge that the challenges we've had with Dr. Tobias have kind of, you know, not been ideal here for the first half of the year.

Speaker #7: Okay, that's helpful. And then just want to make sure I'm understanding this correctly. I think you guys said 35% gross margins for the Irwin business.

Ryan Myers: Okay, that's helpful. And then just want to make sure I'm understanding this correctly. I think you guys said 35% gross margins for the Erwin business. So if we take the FitLife business and combine that, are we looking at high 30% or so blended gross margins for the two businesses?

Speaker #7: So if we take the FITLIFE business and combine that, are we looking at high 30% or so blended gross margins for the two businesses?

Speaker #8: Yeah, I think if you just do the math since the businesses are roughly equivalent sizes, yeah, you're in the high 30s. A couple of things I would point out.

Dayton Judd: Yeah, I think if you just do the math, since the businesses are roughly equivalent sizes, yeah, you're in the high 30s. A couple of things I would point out. So if you go back and look at FitLife before we made the online transition that we did, right, something in the high 30s was pretty typical, right? So that's not unusual for a business that is predominantly wholesale to be in the mid to high 30s. So we would expect that number, right, the Erwin number to increase as we sell more products online. But yeah, if you just do the math. The other thing I will say is the numbers that we've given you are, you know, our best analysis with the numbers that we've been given and making adjustments on our part.

Speaker #8: So, if you go back and look at FITLIFE before we made the online transition that we did, right, something in the high 30s was pretty typical, right?

Speaker #8: So that's not unusual for a business that is predominantly wholesale to be in the mid to high 30s. So we would expect that number, right?

Speaker #8: The Irwin number will increase as we sell more products online. But yeah, if you just do the math. The other thing I will say is the numbers that we've given you are, you know, our best analysis with the numbers that we've been given and making adjustments on our part.

Speaker #8: And by that, I mean, you know, it's somewhat tricky sometimes to remove a customer, right? All of the math, all of the economics associated with a customer.

Dayton Judd: And by that, I mean, you know, it's somewhat tricky sometimes to remove a customer, right? All of the math, all of the economics associated with a customer, like we did with Costco US. And the other thing I would say is, you know, if you went and looked at Erwin's numbers when they were public, you'd see a very, very high gross margin. Different companies account for things differently. You know, Erwin was including all distribution and logistics expense below the line in SG&A, whereas we included above the line in COGS. And so, you know, we've had to try and normalize their numbers to ours or put the accounting on kind of apples-to-apples basis. And so, yeah, that 35% is our best guess of where the business is adjusting for those items, right?

Speaker #8: like we did with Costco US. And the other thing I would say is, you know, if you went and looked at Irwin's numbers when they were public, you'd see a very, very high gross margin.

Speaker #8: Different companies account for things differently. you know, Irwin was including all, distribution and logistics expense below the line in SG&A, whereas we included above the line in COGS.

Speaker #8: And so, you know, we've had to try and normalize their numbers to ours or put the accounting on kind of apples to apples basis.

Speaker #8: And so, yeah, that 35% is our best guess of where the business is adjusting for those items, right? Standardizing their accounting to how we do the accounting.

Dayton Judd: Standardizing their accounting to how we do the accounting, as well as trying to strip out the effects of the Costco business. But yeah, to answer your question, Ryan, directly, yeah, we think somewhere in the high 30s if you just, you know, merge the two businesses together or, you know, average the numbers across with the expectation that that number will increase over time.

Speaker #8: As well as trying to strip out the effects of the Costco business. But yeah, to answer your question, Ryan, directly, yeah, we think somewhere in the high 30s if you just, you know, merge the two businesses together or, you know, average the numbers across, with the expectation that that number will increase over time.

Speaker #7: Got it. And then last question for me, you know, makes sense on the surface just where you guys can gain scale taking SG&A out as well as kind of on the gross margin side.

Ryan Myers: Got it. And then last question for me, you know, makes sense on the surface just where you guys can gain scale, take an SG&A out as well as kind of on the gross margin side, but just curious, any, you know, potential revenue synergies between the two companies that you think you've seen so far?

Speaker #7: But just curious, any, you know, potential revenue synergies between the two companies that you think you've seen so far?

Speaker #8: Yeah, yeah, for sure. I think we tried to call this out in our press release when we announced the transaction, or what I'll call revenue synergies.

Dayton Judd: Yeah, yeah, for sure. And I think we tried to call this out, I think, in our press release when we announced the transaction, or what I'll call revenue synergies. Maybe you're thinking something differently, but you know, they don't sell anything online, or I should say on Amazon. They sell on their own websites. You know, we will, they sell products, you know, wholesale to, you know, one or more third parties who then sell the products on Amazon, right? We, just like we did with the Muscle Farm transaction, we will internalize that. So, you know, we will help them grow online revenue that they would not be able to do on their own. So that'd be kind of one source of potential kind of revenue benefit or synergy. The other I would say is they have a very strong mass market commercial sales team.

Speaker #8: Maybe you're thinking something differently, but, you know, they don't sell anything online or I should say on Amazon. They sell on their own websites.

Speaker #8: You know, we will. They sell products, you know, wholesale to, you know, one or more third parties. Who then sell the products on Amazon, right?

Speaker #8: Just like we did with the muscle farm transaction, we will internalize that. So, you know, we will help them grow online revenue that they would not be able to do on their own.

Speaker #8: So that'd be kind of one source of potential revenue benefit or synergy. The other, I would say, is they have a very strong mass market commercial sales team.

Speaker #8: You know, I can't remember the number off the top of my head, but I think they have something like 80 products in CVS. CVS is Irwin's largest customer.

Dayton Judd: You know, I can't remember the number off the top of my head, but I think they have something like 80 products in CVS. CVS is Erwin's largest customer. They're very strong in Walmart. They're very strong in Walgreens. They're very strong in Costco up in Canada. You know, those are stores where, you know, retailers where we have some relationship, but certainly not the relationship that the Erwin team has. And so we're hopeful, right? We, as you all know, we have been working hard to, you know, line up more brick-and-mortar distribution for Muscle Farm products, right, in mass market channel. You know, perhaps leveraging the existing Erwin sales force to help bring some, you know, strength to that effort might bear fruit. So we're optimistic, right, that these complimentary channel strengths can benefit each part of the organization.

Speaker #8: They're very strong in Walmart. They're very strong in Walgreens. They're very strong in Costco up in Canada. You know, those are stores where, you know, retailers where we have some relationship, but certainly not the relationship that the Irwin team has.

Speaker #8: And so we're hopeful, right? As you all know, we have been working hard to, you know, line up more brick-and-mortar distribution for muscle farm products.

Speaker #8: Right, in mass market channel. You know, perhaps leveraging the existing Irwin Salesforce to help bring some, you know, strength to that effort might bear fruit.

Speaker #8: So, we're optimistic, right, that these complementary channel strengths can benefit each part of the organization.

Speaker #7: Makes sense. Thanks for taking my questions.

Ryan Myers: Makes sense. Thanks for taking my questions.

Speaker #8: Yeah, thanks, Ryan.

Dayton Judd: Yeah, thanks, Ryan.

Speaker #6: Thank you. The next question will be from Sean McGown from Roth Capital Partners. Sean, your line is live.

Paul: Thank you. The next question will be from Sean McGowan from Roth Capital Partners. Sean, your line is live.

Speaker #9: Yeah, thank you. Hi, guys. I'm going to follow up with a couple of Irwin questions and then swing to something else. Can you comment on the seasonality of their business relative to the rest of yours?

Sean McGowan: Yeah, thank you. Hi guys. I'm going to follow up with a couple of Erwin questions and then swing to something else. Can you comment on their seasonality of their business relative to the rest of yours? Is it comparable?

Speaker #9: Is it comparable?

Speaker #8: Yeah, I would say the general trend is comparable, but the magnitude is maybe not as much, right? So all supplement companies are stronger the first half of the year and weaker the back half of the year.

Dayton Judd: Yeah, I would say the general trend is comparable, but the magnitude is maybe not as much, right? So all supplement companies are stronger the first half of the year and weaker the back half of the year. It's particularly pronounced though in sports nutrition, which is, you know, an area of focus for FitLife, but not at all for for Erwin. So yeah, you should expect the back half of the year to be, you know, not as strong as the front half, but but not to the same extent that you would see it for our sports nutrition business. For example, in sports nutrition, it's not uncommon, you know, for November, December revenue to be 20% lower or 25% lower than January, February. Whereas with our general health brands, general health products, it tends to be about half of that. So does that answer your question, Sean?

Speaker #8: It's particularly pronounced though in sports nutrition, which is, you know, an area of focus for FITLIFE. But not at all for Irwin. So, yeah, you should expect the back half of the year to be not as strong as the front half, but not to the same extent that you would see it for our sports nutrition business.

Speaker #8: For example, in sports nutrition, it's not uncommon for November and December revenue to be 20% lower or 25% lower than January and February. Whereas with our general health brands and general health products, it tends to be about half of that.

Speaker #8: So, does that answer your question, Sean?

Speaker #9: Yes, it does. And then looking at SG&A, you talked about expecting it to be a million and a half lower than that 14 and a half million but kind of breaking that out a little bit more.

Sean McGowan: Yes, it does. And then looking at SG&A, you talked about expecting it to be a million and a half lower than that 14 and a half million. But kind of breaking that out a little bit more, do they spend a similar amount as a percentage of revenue on, you know, kind of marketing and advertising? You know, the kind of numbers that you break out?

Speaker #9: Do they spend a similar amount, as a percentage of revenue, on marketing and advertising? You know, the kind of numbers that you break out?

Speaker #8: Yeah, so the 14 and a half that we gave you, excludes advertising, not because we took it out, but because they did during bankruptcy.

Dayton Judd: Yeah, so the 14 and a half that we gave you excludes advertising, not because we took it out, but because they did during bankruptcy. They quit their advertising and marketing. Or I don't want to say take it out, eliminated it entirely, but it's in the, you know, very, very low kind of hundreds of thousands. So that is something that, again, as we get the company stabilized and on a good path going forward, we will be introducing additional advertising and marketing expense to benefit the brand, right? But our expectation is that will drive additional growth as opposed to being a cost drag on the business.

Speaker #8: They quit their advertising and marketing. Or I don't want to say take it out, eliminated it entirely, but it's in the, you know, very, very low kind of hundreds of thousands.

Speaker #8: So that is something that, again, as we get the company stabilized and on a good path going forward, we will be introducing additional advertising and marketing expense to benefit the brand, right?

Speaker #8: But our expectation is that will drive additional growth as opposed to being a cost drag on the business.

Speaker #9: Okay. You know, I’d say you, but I think Brian read it—there will be additional transaction costs in the third quarter. Are you anticipating any kind of big restructuring costs as well?

Sean McGowan: Okay. Are you expecting, I know you, I'd say you, but I think Brian read it, you know, there'll be additional transaction costs in the third quarter. Are you anticipating any kind of big restructuring costs as well?

Speaker #8: No, no restructuring, right? So this was an asset transaction, and so there are, costs. For example, we didn't hire all of the employees, of Irwin.

Dayton Judd: No, no restructuring, right? So this was an asset transaction, and so there are costs. For example, we didn't hire all of the employees of Erwin, and any restructuring costs associated, or, you know, layoff severance, whatever you want to call it, of employees we did not hire are not borne by us. So no, we don't anticipate any restructuring costs, so to speak, but there will be a number of initiatives, right? I mean, obviously legal expenses that we still need to pay, you know, audit work that we need to get done, valuation work that we need to get done. There will be incremental one-time expenses that we expect to incur largely in the third quarter and to a lesser extent beyond that, but no restructuring costs, so to speak.

Speaker #8: And any restructuring costs associated or, you know, layoffs, severance, whatever you want to call it, of employees we did not hire are not borne by us.

Speaker #8: So no, we don't anticipate any restructuring costs, so to speak. But there will be a number of initiatives, right? I mean, obviously, legal expenses that we still need to pay.

Speaker #8: You know, audit, work that we need to get done, valuation work that we need to get done. There will be incremental one-time expenses that we expect to incur largely in the third quarter and to a lesser extent beyond that.

Speaker #8: But no restructuring costs, so to speak.

Speaker #9: Is there a factor you need to pay on this or a finder or something?

Sean McGowan: Is there a banker you need to pay on this or a finder or something?

Speaker #8: No, there was a banker involved in the sale process, in the court-supervised sale process, but the banker is paid, out of the proceeds of the sale, and not by us.

Dayton Judd: No, there was a banker involved in the sale process, in the court-supervised sale process, but the banker is paid out of the proceeds of the sale and not by us.

Speaker #9: Okay. and then, two other questions on Irwin. Will there be, will you be filing any like pro forma numbers with more detail?

Sean McGowan: Okay. And then two other questions on Erwin. Will there be, will you be filing any like pro forma numbers with more detail?

Speaker #8: Yeah, good question. So we are required, within 75 days of closing the transaction to file on a Form 8K with the SEC. a couple of things.

Dayton Judd: Yeah, good question. So we are required within 75 days of closing the transaction to file on a form 8K with the SEC a couple of things. One would be some audited historical financial statements for Erwin and also some pro forma financials. It's going to be, I mean, you'll see it when we file it, but this is a somewhat of a unique situation because, you know, historical audited financials for Erwin for 2023 and 2024 do not reflect the business that we bought, right? And we didn't buy the ketamine business. We didn't buy any of the other, you know, various parts of their business. We didn't assume any of those liabilities. We didn't have their tax profile or their leverage profile. So what you will see from us when we file is what's called abbreviated financial statements.

Speaker #8: One would be some audited historical financial statements for Irwin. And also some pro forma financials. it's going to be, I mean, you'll see it when we file it, but this is a somewhat of a unique situation because, you know, historical audited financials for Irwin for 2023 and 2024 do not reflect the business that we bought.

Speaker #8: Right? You know, we didn't buy the ketamine business. We didn't buy any of the other, you know, various parts of their business. We didn't assume any of those liabilities.

Speaker #8: We didn't have their tax profile or their leverage profile. So, what you will see from us when we file is what's called abbreviated financial statements.

Speaker #8: There will be two years: 2023 and 2024 full-year abbreviated income statements, which will essentially be an income statement for the nutritional supplement business from revenue down to and including operating income.

Dayton Judd: There will be two years, 2023 and 2024, full-year abbreviated income statement, which will essentially be an income statement for the nutritional supplement business from revenue down to and including operating income. So nothing below the line. Again, no taxes, no interest, none of that. And rather than a historical balance sheet for those two years, what you'll see is an audited, essentially opening balance sheet for the company reflecting the assets that we acquired. And that's due, if my math is correct, I think we have to file that by October 22nd.

Speaker #8: So nothing below the line. Again, no taxes, no interest, none of that. And rather than a historical balance sheet, for those two years, what you'll see is an audited, essentially opening balance sheet for the company reflecting the assets that we acquired.

Speaker #8: And that's due, if my math is correct, I think we have to file that by October 22nd.

Speaker #9: Okay. And what would the pro forma financials be then?

Sean McGowan: Okay. And what would the pro forma financials be?

Speaker #8: They'll be, yeah, we're actually needing to clarify that with the SEC because we've been working with them on the disclosure required. But since we only have to produce the abbreviated financial statements for Irwin, our expectation, again to be confirmed with the SEC, is that the pro forma financials will also be abbreviated.

Dayton Judd: Yeah, we're actually needing to clarify that with the SEC because we've been working with them on the disclosure required. But since we only have to produce the abbreviated financial statements for Erwin, our expectation, again, to be confirmed with the SEC is the pro forma financials will also be abbreviated. So essentially revenue down through the operating income line.

Speaker #8: So essentially, revenue down through the operating income line.

Speaker #9: So, just to be clear, we should not look at whenever that is filed; we should not look at those pro forma financials as an indication of what you think the business would have been had you actually bought it at that time.

Sean McGowan: So just to be clear, we should not look at whenever that is filed, we should not look at those pro forma financials as an indication of what you think the business would have been, you know, had you actually bought it at that time. It's just kind of taking what it was, which is not what you bought, and adding it to what you are. Is that what it's going to look like?

Speaker #9: It's just kind of taking what it was, which is not what you bought, and adding it to what you are. Is that what it's going to look like?

Speaker #8: Yeah, it's not what it would have been if we had owned it as of 2023, but to be clear, what's being included in those abbreviated financial statements for Irwin is only the asset, is only the nutritional supplement business, right?

Dayton Judd: Yeah, it's not what it would have been if we had owned it as of 2023. But to be clear, what's being included in those abbreviated financial statements for Erwin is only the asset, is only the nutritional supplement business, right? So, you know, Erwin had a cannabis business. We didn't acquire that. They had the ketamine clinics or what was left of that business. We didn't acquire that. So what will be reflected in the financial statements we file are only the revenue, the cost of goods, the gross profit, and the operating expenses associated with the assets we acquired.

Speaker #8: So you know Irwin had a cannabis business. We didn't acquire that. They had the ketamine clinics or what was left of that business. We didn't acquire that.

Speaker #8: So, what will be reflected in the financial statements we file are only the revenue, the cost of goods, the gross profit, and the operating expenses associated with the assets we acquired.

Speaker #9: Okay. Last question on Irwin. Any idea — not that you need one with Costco — but is there any idea why Costco dropped those two lines?

Sean McGowan: Last question on Erwin. Any idea, not that you need one with Costco, but is there any idea why Costco dropped those two lines?

Speaker #8: Yeah, again, I mean, we know what explanation we were given. The Costco likes a lot of promotional support. And promotional support can be not ideal for margins, and sometimes companies, you know, if they're in bankruptcy, maybe aren't in a position to offer the promotional support that Costco wants.

Dayton Judd: Yeah, I mean, we know what explanation we were given. Costco likes a lot of promotional support, and promotional support can be not ideal for margins. And sometimes companies, you know, if they're in bankruptcy, maybe aren't in a position to offer the promotional support that Costco wants. So, you know, we had the same challenge with Muscle Farm where they had, you know, very strong distribution and cost counter. They had been out of Costco for quite some time before we bought the brand. Whereas this is a bit more recent. Our understanding is the products are still being sold online. And, you know, again, we've been told that Costco is open to, you know, resuming discussions once the company has exited bankruptcy. So certainly, you know, that's on our list of follow-up conversations.

Speaker #8: So you know we had the same challenge with muscle farm where they had, you know, very strong distribution costs, kind of. They had been out of Costco for quite some time before we bought the brand.

Speaker #8: Whereas this is a bit more recent. Our understanding is the products are still being sold online. And you know, again, we've been told that Costco is open to, you know, resuming discussions once the company has exited bankruptcy.

Speaker #8: So certainly, you know, that's on our list of follow-up conversations. I will also point out that, you know, Costco Canada, right, separately has been a client a customer of Irwin for some time.

Dayton Judd: I will also point out that, you know, Costco Canada, right, separately has been a client, a customer of Erwin for some time, and a pretty, pretty big customer, and they continue to be a customer. So none of the products that were in Costco Canada have been discontinued at this point.

Speaker #8: And a pretty, pretty big customer. They continue to be a customer, so none of the products that were in Costco Canada have been discontinued at this point.

Speaker #9: Okay. And then my final question is on Dr. Tobias and MRC in general. Is Dr. Tobias the only thing that's weak at MRC?

Sean McGowan: Okay. And then my final question is on Dr. Tobias and MRC in general. Is that the only, is Dr. Tobias the only thing that's weak at MRC? It seems to be having an outsized impact on the overall sales.

Speaker #9: It seems to be having an outsized impact on the overall sales.

Speaker #8: Yeah, so it's 90-something percent, right? MRC is 90, probably 92, 93 percent of revenue is Dr. Tobias. There's the two skincare brands also. And we, you know, talked a bit about their performance.

Dayton Judd: Yeah, so it's 90-something percent, right? MRC is probably 92, 93 percent of revenue is Dr. Tobias. There's the two skincare brands also, and we, you know, talked a bit about their performance. Their performance has been a challenge since we bought them. They're not core to our business. They're very small, and their skincare, right, which is not something we looked to acquire. It just so happened that they came along with that business. So they're continuing to struggle, and we mentioned the tariffs that are associated just with that business. Just on the tariffs, the issue there is our manufacturer for those products, even though it's in the United States, and the primary outlet in terms of where we sell for those brands is in Canada.

Speaker #8: Their performance has been a challenge since we bought them. They're not core to our business. They're very small, and their skincare, right? Which is not something we looked to acquire.

Speaker #8: It just so happened that they came along with that business. So they're continuing to struggle. And we mentioned the tariffs that are associated just with that business.

Speaker #8: Just on the tariffs, the issue there is our manufacturer for those products, even though is in the United States, and the primary outlet in terms of where we sell for those brands is in Canada.

Speaker #8: And so, when all of the tariff fighting started and the reciprocal tariffs, right, we now have to pay a 25% tariff to bring the products from the U.S. up into Canada to sell them.

Dayton Judd: And so when all of the tariff fighting started and the reciprocal tariffs, right, we now, you know, have to pay a 25% tariff to bring the products from the US up into Canada to sell them. So, yeah, I would say all part, right, that both the skincare brands and Dr. Tobias are challenged, but for different reasons. For the skincare, it's the economics and the tariffs, and for Dr. Tobias, it's the, you know, the sessions, the page views that we're experiencing on Amazon.

Speaker #8: So yeah, I would say all part, right? Both the skincare brands and Dr. Tobias are challenged. But for different reasons. For the skincare, it's the economics and the tariffs.

Speaker #8: And for Dr. Tobias, it's the, you know, the sessions, the page views that we're experiencing on Amazon.

Speaker #9: Well, since you mentioned the tariffs then, are there steps that you can take to mitigate that? You made the assumption that that's not going to change.

Sean McGowan: Well, since you mentioned the tariffs, then, are there steps that you can take to mitigate that? If you made the assumption that that's not going to change, a risky assumption, of course, but are there steps you can take to source that product differently?

Speaker #9: Risky assumption, of course. But are there steps you can take to source that product differently?

Speaker #8: Yeah, there are. Ironically, the manufacturer, these were Canadian businesses, right? Manufactured in Canada, sold in Canada. Until, you know, a couple of few years ago, the owner of that manufacturing company decided they'd rather live in Florida than in Canada.

Dayton Judd: Yeah, there are. Ironically, our manufacturer, these were Canadian businesses, right, manufactured in Canada, sold in Canada. Until, you know, a couple of few years ago, the owner of that manufacturing company decided they'd rather live in Florida than in Canada. So they moved their business down to Florida, and now because of that, right, we're dealing with tariff implications. You know, to frame it maybe more precisely though, and to let you know where it falls in our kind of list of priorities, you know, the impact is in the low tens of thousands. But you know, you can do the math and look at our, you know, our MRC table, for example.

Speaker #8: So, they moved their business down to Florida, and now because of that, we're dealing with tariff implications. To frame it maybe more precisely, though, and to let you know where it falls in our kind of list of priorities.

Speaker #8: You know, the impact is in the low tens of thousands. But, you know, you can do the math and look at our MRC table, for example.

Speaker #8: If you assume our current revenue level at our gross margin percentage that we achieved in the second quarter of last year, we're talking about, you know, this roughly I don't know what is it, 170 basis point decline in margin for MRC.

Dayton Judd: If you assume our current revenue level at our gross margin percentage that we achieved in the second quarter of last year, we're talking about, you know, this roughly, I don't know, what is it, 170 basis point decline in margin for MRC is, let me make sure I got that number right. Yeah, MRC went from 48.2% down to 46.5%. So 170 basis point decline. That's about, it's only about a $100,000 decline, right, in gross profit. So, and tariffs are, again, to frame it for you, in the low tens of thousands. So yeah, I'd love to fix that, but the amount of work I'd have to do to do that, you know, and the fact that, you know, I just bought, you know, Erwin and we've got a lot of other priorities, such as Dr.

Speaker #8: Is let me make sure I got that number right. Yeah, MRC went from 488.2% down to 46.5. So 170 basis point decline. That's about, it's only about 100,000 dollar decline, right, in gross profit.

Speaker #8: So and tariffs are, again, to frame it for you in the low tens of thousands. So yeah, I'd love to fix that, but the amount of work I'd have to do to do that, you know, and the fact that, you know, I just bought, you know, Irwin and we've got a lot of other priorities, such as Dr. Tobias, right?

Dayton Judd: Tobias, right, we're focused on solving the biggest opportunities or the biggest pain points. But, you know, yeah, if I had more time and more people, absolutely, we'd be looking to fix that. But in the grand scheme of things, again, we're talking about tens of thousands and not millions.

Speaker #8: We're focused on solving the biggest opportunities or the biggest pain points. But, you know, yeah, if I had more time and more people, absolutely, we'd be looking to fix that.

Speaker #8: But in the grand scheme of things, again, we're talking about tens of thousands and not millions.

Speaker #9: Yeah, that's worth it. Okay. Thank you very much. Appreciate the color.

Sean McGowan: Okay. Thank you very much. Appreciate the caller.

Speaker #8: Yeah. Thanks, Sean.

Dayton Judd: Yeah. Thanks, Sean.

Speaker #6: Thank you. And once again, it will be *1 on your phone at this time if you wish to ask a question on today's call.

Paul: Thank you. And once again, it will be star one on your phone at this time if you wish to ask a question on today's call. The next question is coming from Samir Patel from Ask Aladdin Capital. Samir, your line is live.

Speaker #6: The next question is coming from Samir Patel from Ask Aladdin Capital. Samir, your line is live.

Speaker #10: Hey, Dayton. Congrats on the Irwin deal. I've got three questions. So the first is, if you could dig in a little bit more on what you put in the press release and what the previous caller asked about the revenue synergies.

Samir Patel: Hey, Dayton. Congrats on the Erwin deal. I've got three questions. So the first is, if you could dig in a little bit more on what you put in the press release and what the previous caller asked about the revenue synergies, I mean, what do you think kind of the low-hanging fruit is over the next, you know, 6, 12, 18 months with Erwin? Is it kind of regaining some of those doors that were lost, you know, due to the bankruptcy and the distraction, or is it taking Muscle Farm or Dr. Tobias or kind of one of your other brands and trying to get more distribution through those retail doors? That's the first one.

Speaker #10: I mean, what do you think kind of the low-hanging fruit is over the next, you know, 6, 12, 18 months with Irwin? Is it kind of regaining some of those doors that were lost?

Speaker #10: You know, due to the bankruptcy and the distraction? Or is it taking muscle farm or Dr. Tobias or kind of one of your other brands and trying to get it more distribution through those retail doors?

Speaker #10: That's the first one.

Speaker #8: Okay. Yeah, so in terms of lost distribution, to be clear, you know, the brands are very strong, right? The only distribution, right, that we're aware of that the company lost has been Costco.

Dayton Judd: Okay. Yeah, so in terms of lost distribution, to be clear, you know, the brands are very strong, right? The only distribution, right, that we're aware of that the company lost has been Costco. And I talked about that. In fact, you know, we subscribe to or, you know, get IRI data, and many of you may get that as well. Like, if you look at the sales of the Erwin brand through other through mass market store, right, through drug stores, through grocery stores, right, it's growing as we look at the data provided, you know, from IRI, for example. So this is not, you know, Muscle Farm was a very different situation where we acquired that brand and they had lost, you know, the majority of their distribution.

Speaker #8: And I talked about that. In fact, you know, we subscribe to or, you know, get IRI data and many of you may get that as well.

Speaker #8: Like if you look at the sales of the Irwin brand, through other mass market store, right, through drug stores, through grocery stores, right, it's growing.

Speaker #8: As we look at the data provided, you know, from IRI, for example. So this is not, you know, muscle farm was a very different situation where we acquired that brand and they had lost, you know, the majority of their distribution.

Speaker #8: And it was, you know, the situation where to really, you know, grow that brand, we had to go back and regain distribution. And as you all know, it's been more of a challenge than we thought it would be.

Dayton Judd: And it was, you know, the situation where to really, you know, grow that brand, we had to go back and regain distribution. And as you all know, and you know, it's been more of a challenge than we thought it would be. One thing we love about this acquisition is, again, other than Costco, they have not lost any distribution. And where they still have distribution, they are growing. You know, I mentioned the, I think in our press release, when we announced the transaction, we put their kind of their first quarter revenue. I can't remember, but I believe off the top of my head, it was around $33 million. If you look, if you compare the half, that's for the, sorry, the first half of 2025.

Speaker #8: One thing we love about this acquisition is, again, other than Costco, they have not lost any distribution. And where they still have distribution, they are growing.

Speaker #8: You know, I mentioned the, I think in our press release when we announced the transaction, we put there kind of their first quarter revenue.

Speaker #8: I can't remember, but I believe off the top of my head it was around 33 million. If you look, if you compare the half, yeah, that's for the, sorry, the first half of 2025.

Speaker #8: If you compare that number to the first half of 2024, and you again, well, even if you don't adjust for Costco, it's a slight decline, let's call it single-digit decline.

Dayton Judd: If you compare that number to the first half of 2024, and you again, well, even if you don't adjust for Costco, it's a slight decline. Let's call it a single-digit decline. If you adjust for Costco out of both the first half of 2024 and the first half of 2025, it's a very, very, like a very small single-digit decline. So we're, you know, we like the fact and are encouraged by the fact that the brand does not appear to be declining, right? I mentioned in, or maybe Ryan mentioned in our prepared remarks that it was declining 13% per year from '21 to '22 to '23 to '24. You know, if you look just at the first half numbers, right, that is dramatically lower and much closer to being stable. So again, this is not a bet.

Speaker #8: If you adjust for Costco out of both the first half of 2024 and the first half of 2025, it's a very, very small single-digit decline.

Speaker #8: So we're, you know, we like the fact and are encouraged by the fact that the brand does not appear to be declining, right? I mentioned in or maybe Ryan mentioned in our prepared remarks that it was declining 13% per year from '21 to '22 to '23 to '24.

Speaker #8: You know, if you look just at the first half numbers, right, that is dramatically lower and much closer to being stable. So again, this is not a bet.

Speaker #8: You know, muscle farm was a bet that we could, you know, or our goal was to success. Required, you know, regaining distribution. Success here doesn't require us to regain distribution.

Dayton Judd: You know, Muscle Farm was a bet that we could, you know, or our goal was to success required, you know, regaining distribution. Success here doesn't require us to regain distribution. It just requires us to pick up where they left off and, you know, incrementally try and do better and try and do more. So does that answer your question, Samir?

Speaker #8: It just requires us to pick up where they left off and, you know, incrementally try and do better and try and do more. So does that answer your question, Samir?

Speaker #8: Yeah, I mean, the second part of it, I guess, was what do you see as the biggest opportunity in terms of taking, you know, taking those brands online, but then also taking some of your existing, you know, we'll call it legacy FITLIFE brands and, you know, including MRC and muscle farm and gaining, you know, getting those into those doors that they're already in?

Samir Patel: Yeah, I mean, the second part of it, I guess, was what do you see as the biggest opportunity in terms of taking, you know, taking those brands online, but then also taking some of your existing, you know, we'll call them legacy FitLife brands, you know, including MRC and Muscle Farm and gaining, you know, getting those into those doors that they're already in.

Speaker #8: Yeah. So online, taking Irwin online, again, they they don't sell anything on their own right now on Amazon. They sell everything through a third party.

Dayton Judd: Yeah. So online, taking Erwin online, again, they don't sell anything on their own right now on Amazon. They sell everything through a third party. I think if you look at their DTC, like their Shopify, their own website sales, it's between $2 and $3 million annually, right? There's no reason Amazon, right, and other platforms, you know, shouldn't be at least that much, if not more, right? What we have seen as we've transitioned brands from offline to online is, you know, pretty significant growth potential. So, you know, I'm reluctant to give you a number and tell you how big it's going to be, but again, we think that's a, you know, tremendous opportunity. And even if you're talking, you know, single digits of millions, again, that's the highest gross margin, you know, opportunity for a supplement company, right, is selling online directly to the end consumer.

Speaker #8: I think if you look at their DTC, like their Shopify, their own website sales, it's between $2 million and $3 million annually, right? There's no reason Amazon, right, and other platforms, you know, shouldn't be at least that much if not more, right?

Speaker #8: What we have seen as we've transitioned brands. From offline to online is, you know, pretty significant growth potential. So you know, I'm reluctant to give you a number and tell you how big it's going to be, but again, we think that's a tremendous opportunity.

Speaker #8: And even if you're talking, you know, single digits of millions, again, that's the highest gross margin opportunity for a supplement company, right? Is selling online directly to the end consumer.

Speaker #8: So that has the potential to, you know, be a nice boost to revenue, but you know, more importantly, an outsized boost to gross margin, gross profit, and profitability.

Dayton Judd: So that has the potential to, you know, be a nice boost to revenue, but, you know, more importantly, an outsized boost to gross margin, gross profit, and profitability. In terms of other brands, look, I think the biggest, we have a number of brands, as you all know. Muscle Farm is the one where we have been, you know, working to restore brick-and-mortar distribution for those products. And we've been calling on companies, and we have relationships with all the companies that I've mentioned. But, you know, having an experienced sales force that has certainly deeper and, you know, more longstanding relationships with these companies, having them include or introduce, for example, Muscle Farm products, and Muscle Farm RTD is an example, the ready-to-drink protein, you know, as part of those sales calls, right? We think that's an opportunity, right?

Speaker #8: In terms of other brands, look, I think the biggest, we have a number of brands, as you all know, muscle farm is the one where we have been working to restore brick-and-mortar distribution for those products.

Speaker #8: And we've been calling on companies and we have relationships with all the companies that I've mentioned, but you know, having an experienced sales force that has certainly deeper and, you know, more long-standing relationships with these companies having them include or introduce, for example, muscle farm products and muscle farm RTD is an example.

Speaker #8: They're ready to drink protein. You know, as part of those sales calls, right? We think that's an opportunity, right? What it's going to amount to, I couldn't tell you.

Dayton Judd: What it's going to amount to, I couldn't tell you. But, you know, it's not going to hurt the business. It just has the potential to help. So.

Speaker #8: But you know, it's not going to hurt the business. It just has the potential to help. So.

Speaker #9: Perfect. Okay. Second question with regards to MRC is just philosophically now that you have a larger portfolio of brands, I mean, how much do you really care about optimizing for any individual brand at an individual point in time?

Samir Patel: Perfect. Okay. Second question with regards to MRC is just philosophically, now that you have a larger portfolio of brands, I mean, how much do you really care about optimizing for any individual brand at an individual point in time, vis-à-vis just kind of looking across the business and seeing where your highest ROI is? I mean, you mentioned, you know, kind of priorities and things like that, right? So not just in terms of cost, but in terms of time.

Speaker #9: Vis-a-vis just kind of looking across the business and seeing where your highest ROI is? I mean, you mentioned, you know, kind of priorities and things like that, right?

Speaker #9: So not just in terms of cost, but in terms of time? So I guess, you know, would you ask investors to kind of focus on the performance of the individual sub-brands, or just kind of focus on the overall top-line EBITDA cash flow? If you're choosing to kind of invest where you're getting the highest ROI, even if that means that some brands are being run more as cash cows versus growth engines, like in the kind of classic quadrant analysis?

Samir Patel: So I guess, you know, would you ask investors to kind of focus on the performance of the individual sub-brands or just kind of focus on the overall top-line EBITDA cash flow if you're choosing to kind of just invest where you're getting the highest ROI, even if that means that some brands are being run more as cash cows versus growth engines, like in the kind of classic quadrant analysis?

Speaker #8: Yeah, I think, so good question. I think clearly the overall view, the overall performance of the business is the most important number to look at.

Dayton Judd: Yeah, I think, so good question. I think clearly the overall view, the overall performance of the business is the most important number to look at. You know, that said, right, I think as an investor, right, I am an investor, right? If I were an investor in this company and was a participant on the conference call and not the CEO of the business, right, I would, I would have questions about Mimi's Rock. It is a business that has done well for us and it has, you know, more recently has been a bit challenged. It's a pretty big part of our business, right? Skincare brands, I would tell you, you guys should never leave or never lose one minute of sleep over the skincare brands, right? Dr.

Speaker #8: You know, that said, right, I think as an investor, right, I am an investor, right? If I were an investor in this company and was a participant on the conference call and not the CEO of the business, right, I would I would have questions about Mimi's Rock.

Speaker #8: It's a, it is a business that has done well for us and it has, you know, more recently has been a bit challenged. It's a pretty big part of our business, right?

Speaker #8: Skincare brands, I would tell you, you guys should never leave or never lose one minute of sleep over the skincare brands, right? Dr. Tobias, on the other hand, is a good, you know, what, 40% of our business and is a cash cow.

Dayton Judd: Tobias, on the other hand, is a good, you know, what, 40% of our business and is a cash cow, generates a lot of cash for us. So it is a priority for us and we'll continue working on it. Now, that said, to your point, this is not a brand that is a high-growth brand, right? It is, the word you used was more of a cash cow, and that is what it is. That said, we don't, a cash cow should be more stable. And if you look back over time, over several years, the revenue generated by.Brand

Speaker #8: Generates a lot of cash for us. So it is a priority for us and we'll continue working on it. Now, that said, to your point, this is not a brand that is a high growth brand, right?

Speaker #8: It is, the words you used were it was more of a cash cow and that is what it is. That said, we don't, a cash cow should be more stable.

Speaker #8: And if you look back over time, over several years, the revenue generated by this brand, it has been quite stable. There are ups and downs, right?

Paul: has been quite stable. There are ups and downs, right? It might swing up and down, I don't know, maybe 3 million from peak to trough, and we're closer to a trough right now. So we're hopeful that what we're seeing right now is just that normal cycle. But you know, you can bet that we're going to spend a lot of effort making sure we understand what's going on and doing our best to address it.

Speaker #8: It might swing up and down; I don't know, maybe $3 million from peak to trough, and we're closer to a trough right now. So we're hopeful that what we're seeing right now is just that normal cycle.

Speaker #8: But, you know, you can bet that we're going to spend a lot of effort making sure we understand what's going on and doing our best to address it.

Speaker #6: Okay, perfect. And then just a final question is your, you know, future M&A and obviously that's over the story. You just executed on a big one here.

Operator: Okay, perfect. And then just the final question is, you're you know at the future M&A, and obviously that's part of the story. You just executed on a big one here. You know, you do leverage close to four times, you know, within a few years. You know, so at what point, I mean, I know you kind of have that upper half of two and a half times leverage. So there's the financial angle, but for just kind of an operational perspective, I presume you want to spend some amount of time pursuing.

Speaker #6: You know, you leverage close to four times, you know, within a few years. You know, so at what point, I mean, I know you kind of have that upper half of two and a half times leverage.

Speaker #6: So there's the financial angle, but for just kind of an operational perspective, I presume you want to spend some amount of time focusing on.

Paul: Yeah, I think we may have lost you there. Or you, I think most of that. I think the question was about leverage and how comfortable we are with that and what our priorities are. Is that right?

Operator: No, the question was more around just operationally. I mean, like we can do the math on kind of when you do leverage, say one time, and you'd have, you know, financial ability. But I'm just asking from an operational perspective since this is so transformational. I mean, I assume it's going to be a while before you're back in the market on M&A.

Paul: So yeah, I guess what I would say, yes, with a caveat. So the yes is that this is obviously the biggest transaction we've done. This is transformative. We're very excited. And this is where we're going to be spending our time. In fact, both Ryan and I right now are sitting in Los Angeles, right, at Irwin Naturals, right? So we are engaged and focused, and our number one priority, you know, is Irwin Naturals. And I would say our number two priority right now is Mimi's Rock, right, and Dr. Tobias specifically. But to your question about, you know, does this mean we're going to be out of the market for a while? I would say yes. Like you should not expect to see us close another transaction in the next quarter.

Paul: But I will point out, and I think I've commented on this before, a lot of these transactions are very, very long lead time. And so if we want to potentially have a transaction to close 6 months, 12 months, 18 months down the road, we have to always be looking. So I mentioned in the prepared remarks that, you know, Irwin was a little more than a year from the time we first signed the NDA to when we closed the transaction. Muscle Farm, we signed the NDA, I think, in November of '22, closed the transaction in October of '23, so almost a full year. Mimi's Rock, we signed the NDA, I think, initially in November of '21, and closed the transaction in February of '23, so more than a year.

Paul: So if we want to be able to continue to do some large-scale transactions in the future, we need to kind of keep a toe in the water, so to speak, and stay in the deal flow. There were other transactions we've been looking at. At the same time, we were looking at Irwin, as you can imagine, right, because it's been going on for a year. And you know, we would just, depending on the ebb and flow, put stuff on the back burner and, you know, and then sometimes, you know, bring it forward to work on a bit. So there were transactions that were at the LOI stage. At the time, it looked like, you know, that we finally, you know, made a breakthrough on Irwin, and we just kind of put it on the back burner.

Paul: So, so we're actively, you know, we will look, but we don't have the appetite or the capacity to close a deal right now, but we want to stay in the deal flow so that we can, you know, in the next 6, 12, 18 months, whatever timeframe makes sense, maybe do the next transaction.

Operator: Okay, thanks. And if I can sneak in just one more, I mean, at this point, kind of given your new scale, is there is there a minimum threshold for a deal size that makes sense for you now, or would you still be willing to consider really small tuck-ins if there was no integration effort really and it was financially attractive?

Paul: Yeah, no, we would definitely still do tuck-ins. So, you know, I don't think we'd be looking at tuck-ins that don't provide at least, you know, call it 10% or so of EBITDA, you know, maybe a million and a half minimum, maybe 2 million minimum EBITDA, right? Just as we get bigger, it doesn't make sense to do a bunch of small deals. They take a similar amount of work, similar amount of effort, similar legal fees. So, you know, as we get bigger, certainly our preference is to do bigger deals, but we love tuck-ins. The reason we love tuck-ins is, you know, Muscle Farm is one example, right? We bought that brand and we brought on one person. So if it's a smaller deal, it's very easy to bolt onto our existing platform and incur very little incremental SG&A.

Paul: You know, whereas a deal like Irwin, obviously, right, is substantial and is not a tuck-in and does not just bolt onto our platform and, you know, doesn't bring incremental SG&A. Their SG&A is higher than ours. So, yeah, we're looking at both, or we will continue to look at both, as we go forward.

Operator: Fantastic. Thanks. That's all for me.

Paul: Yes. Yeah, thanks, Shamir.

Rachel Smith: Thank you. And that does conclude today's Q&A session. I will now hand the call back to Dayton Judd for closing remarks.

Paul: Thank you all for, your interest in FITLIFE. if you have any questions between now and our next earnings call, feel free to reach out to us. you can email us at investor@fitlifebrands.com. we'd be happy to answer your questions. Otherwise, we look forward to speaking with you next quarter. Thank you.

Rachel Smith: 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.