Good day and welcome to the FitLife brand's first 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, Chief Executive Officer at FitLife Brands. Sir, the floor is yours.

Thank you, Paul. I would like to welcome everyone to FitLife's First Quarter 2025 Earnings Call. We appreciate you taking the time to join us this afternoon. Joining me on this call is FitLife's CFO, Jakob 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 the call up for Q&A. My opening remarks will be a bit more brief than on previous calls since we provided a fairly specific preview of our first quarter performance during our fourth quarter earnings call at the end of March. As a reminder, the company effected a two-for-one forward stock split on February 7, 2025. All per share amounts in our 10-Q, press release and discussion today have been retroactively adjusted to account for the forward split. For the company overall, for the first quarter of 2025, total revenue declined 4% year-over-year to $15.9 million. Online sales were $10.6 million or 67% of total revenue. Gross profit declined 6% and gross margin declined from 44% in the first quarter of last year to 43.1% in the first quarter of 2025. Contribution, which we define as gross profit less advertising and marketing expense, declined 4% to $5.8 million. Net income for the first quarter of 2025 was $2 million compared to $2.2 million during the first quarter of 2024. Basic earnings per share declined from $0.23 last year to $0.22 this year. Diluted earnings per share declined from $0.21 last year to $0.20 this year. As is evident in our income statement, the company incurred fairly significant M&A-related expense during the first quarter of 2025. Excluding the impact of that M&A expense, net income and earnings per share would have been the same as or higher than the prior year. Adjusted EBITDA for the first quarter of 2025 was $3.4 million, a 6% decrease compared to the first quarter of 2024. With regard to the balance sheet, the company ended the quarter with $12 million outstanding on its term loans and no balance on its $3.5 million revolving line of credit. Considering our cash of $6 million outstanding at the end of the first quarter, net debt was $6 million, which is equivalent to approximately 0.4x the company's adjusted EBITDA of $13.9 million for the past 12 months. With regard to brand level performance, I'll start with Legacy FitLife. Total Legacy FitLife revenue for the first quarter of 2025 was $7.3 million, of which 63% was from wholesale customers and 37% was from online sales. This represents a 2% year-over-year increase in wholesale revenue and an 11% year-over-year increase in online revenue or a 5% increase in total revenue. Gross margin increased to 44.6% compared to 42.1% during the first quarter of 2024. Contribution increased 11% to $3.2 million, and contribution as a percentage of revenue increased to 43.4% compared to 40.9% in the same quarter last year. Moving on now to the brands acquired in the Mimi's Rock transaction or MRC. Total MRC revenue for the first quarter of 2025 was $6.7 million, down 11% from the previous year. MRC's gross margin declined to 45.4% for the first quarter of 2025 compared to 47% during the first quarter of 2024. The primary reason for the gross margin decline is product mix. Contribution declined 9% to $2.2 million with contribution as a percentage of revenue increasing from 32.8% last year to 33.5% during the first quarter of 2025. Revenue for the largest brand, Dr. Tobias, declined 11%, while revenue for the skincare brands declined 14% or 9% on a constant currency basis. Last, when we began breaking out the detailed financial performance of acquired brands in our 10-Qs, 10-Ks and press releases, we indicated that the company intended to provide that level of disclosure for a period of no more than two years, after which the performance of acquired brands would be reported as part of Legacy FitLife. We completed the acquisition of MRC during the first quarter of 2023, so this is the last quarter we will provide the detailed financial breakdown. However, when relevant, we will continue to provide certain financial or operational metrics on the performance of specific brands. With regard to MusclePharm, total MusclePharm revenue declined 6% during the first quarter, with wholesale revenue declining 41% and online revenue increasing 33%. MusclePharm's gross margin declined from 40% last year to 30.1% during the first quarter of 2025. As previously disclosed, in the fourth quarter of 2024, the company began investing in increased promotion in an attempt to drive increased sales of MusclePharm products. This investment in increased promotions primarily consisted of increased marketing allowances to wholesale customers. Under GAAP, these marketing allowances are accounted for as a price reduction, which lowers reported net revenue and gross profit and therefore, gross margin. In addition, the company has invested in higher marketing and advertising spending in support of the MusclePharm products. The company intends to continue investing in promotional support for the foreseeable future, although the timing and amounts may vary. As previously disclosed, the decline in wholesale revenue during the first quarter of 2025 was primarily due to a large wholesale customer that took advantage of the company's promotional investment during the fourth quarter of 2024 without increasing their sell-through of the product, which affected their reorder volumes during the first quarter of 2025. As we indicated in the press release, purchases from this customer have increased more recently, with their purchase volumes thus far during the second quarter exceeding those of the entire first quarter. Now let me provide a few additional high-level comments, and then we can move into Q&A. As you are likely aware, the tariff environment continues to be uncertain with tariffs on ingredients from China being our primary concern. Fortunately, there was a 90-day de-escalation announced recently, which is obviously encouraging for us. As previously disclosed, when the tariff noise started, we opportunistically increased some of our finished goods and raw materials inventories at pre-tariff prices. So you can see inventory at an all-time high as of the end of the first quarter of 2025. Again, I reiterate that these increases are intentional, and we expect to be able to free up some cash from our inventory balances once the dust settles. Our balance sheet is strong and continues to get stronger. As of quarter end, our total leverage net of cash was approximately 0.4x adjusted EBITDA, and it is lower now due to incremental cash generated thus far during the second quarter. Earlier in my remarks, I mentioned some elevated M&A-related expense. We have frequently and regularly indicated that we will be active in this regard. Spend has increased substantially in our pursuit of one or more possible transactions. I obviously cannot comment further on this other than to acknowledge the expense, and I caution everyone that increased spend may not always result in a successful transaction. Another question we frequently receive from investors relates to the number of customers that have active subscriptions to the company's products. As of about a week ago, we had approximately 104,000 active subscribers, and customers on subscription presently account for approximately 30% of the company's online revenue, with the amount ranging between 25% and 35%, depending on the brand. Last, based on analysis and commentary we have received from a number of investment banks, we believe that FitLife will likely be added to the Russell 2000 Index next month. April 30 was the ranking day for purposes of the Russell 2000 Index reconstitution. On that day, our market capitalization was around $140 million. According to the analysis communicated to us by multiple investment banks, the estimated market cap threshold for inclusion in the Russell 2000 Index ranges from $95 million to $118 million. This is obviously outside of our control, but we wanted to share the perspectives of the investment banks since inclusion in the index would potentially be a positive catalyst for the stock. Russell is scheduled to formally announce the preliminary index additions and deletions the evening of May 23rd, with possible revisions happening prior to the actual rebalancing occurring on June 27. Last, as has historically been our practice, we will not be providing formal forward-looking guidance. However, I do want to take a moment to briefly comment on what we've seen since the end of the first quarter. Total company revenue and adjusted EBITDA were up year-over-year in the month of April despite the Dr. Tobias brand declining at a similar rate year-over-year as we observed in the first quarter. While we are encouraged by April's performance, those results may not be representative of the rest of the second quarter due to the timing of POs from certain wholesale customers, as well as other factors. So that concludes my opening commentary, and Paul, you can go ahead and poll for questions.

And the first question today is from Ryan Meyers from Lake Street Capital Markets. Ryan, your line is live.

Hey guys, thanks for taking my questions first. First one for me, Dayton, I know you're not providing guidance. But if we think back to last quarter, you guys did give some commentary that you expect to at least grow revenue and EBITDA for the year. So not asking to reiterate that, but have you seen any changes over the first quarter, sorry, in the first month of April that would think or that would cause you to change that expectation?

No. And yes, look, I'm happy to reiterate that. I guess I don't view that as formal guidance like we're not giving a revenue number or an EBITDA number for the full year. But yes, our hope and expectation would be that we deliver organic revenue growth for the company overall in 2025.

Okay. Got it. And then just thinking about where margins for the year can look quarter-on-quarter. There were obviously some mix dynamics that impacted the margins here in the first quarter. But maybe any commentary on how we should think about margins for the rest of this year?

I don't have a specific number for you, but you can see in the tables we provided where we break it down by brand. For MusclePharm, we began making intentional investments in Q4 that continued into Q1. In Q1, we were closer to 30%, compared to about 25% in Q4. As long as we’re continuing to invest in MusclePharm to drive growth for that brand, a margin around 30% seems realistic. For Mimi's Rock, margins fluctuate between roughly 44% and 47%, depending on product mix. Some products have higher margins than others, which can lead to variability. For Legacy FitLife, margins have historically been in the low 40s, and we performed better in Q1, with stronger online growth for those products. Online sales are the most profitable aspect of our business, allowing us to earn retail gross margins instead of wholesale. As we move more of our Legacy FitLife revenue online, we'll see margin expansion benefits. Notably, Legacy FitLife's gross margins were significantly higher in Q1 compared to previous quarters. We mentioned last quarter that we faced challenges with GNC in Q4, which slightly carried into Q1. To address this, we shipped directly to GNC franchisees when GNC corporate was not receiving shipments. This direct shipping to franchisees was at a higher price than what we sold to GNC corporate, contributing to a bit of the margin increase in Q1. However, this also led to higher logistics and fulfillment expenses. I hope this provides some clarity. There's not much dramatically different occurring aside from our intentional investments in MusclePharm. Historically, we've guided that gross margins usually range from 42% to around 45% for the company overall, influenced by mix and promotions among other factors.

Got it. And then just the last question for me on the topic of MusclePharm. So you called out the wholesale revenue was down. There was kind of that pull forward in orders, but I think you also called out that you didn't subsequently see a lot of reorders heading into the quarter. So just any dynamics to call out there? Maybe how has that business begun to perform at the wholesale level? Are they seeing strong end customer demand? But any commentary there would be helpful.

It's a mixed situation. Some customers are definitely benefiting from our promotional support, resulting in a noticeable increase in consumer demand and higher sales volume. However, there are others, like one we mentioned last quarter, where despite substantial discounts, the outcome was not successful. We lack the means to fully audit customer actions, which makes it challenging to assess their effectiveness. Some customers might choose to keep the additional support as higher profit margins instead. If promotional spending isn't yielding results, we’ll have to limit that support. For instance, a key customer is currently receiving significantly less promotional discount than in the previous quarter. Essentially, we're willing to assist if it leads to increased sales, but if not, that support won’t continue. Overall, while some customers are seeing a return on our investment, others are not, which results in varying levels of promotional aid based on their sales performance.

And the next question will be from Sean McGowan from ROTH Capital Partners. Sean, your line is live.

Thank you. Thanks for taking the question. A couple of questions to tie into what you were just talking about and then a couple of unrelated questions. So any update on what the situation is with that major customer with GNC corporate? Has there been any change there?

No change. That was resolved back in January during the first quarter. We mentioned the impact during the fourth quarter call in March, where we discussed the effects on both the fourth and first quarters and noted that we were shipping directly. By the third or fourth week of January, that issue was settled, and it just took a couple of weeks to get shipments into their distribution network. Since then, things have been running smoothly. Our relationship is very positive; they have been constructive, and we feel the same way. We're satisfied with the inventory levels they are maintaining now, which we believe are an improvement compared to late last year. Overall, everything is good in our relationship with GNC.

Okay. Regarding MusclePharm, the way that promotion is accounted for is as a reduction in the sales price, which affects revenue. Can you provide us with an idea, on a like-for-like basis, perhaps in terms of volume or units, on how MusclePharm performed compared to the first quarter of '24?

I don’t have that information at the moment. It’s specific to each account. For one account in particular, which I can’t name, we are providing extra support and seeing continued growth, while there are other accounts where that isn't happening. Yes, as you mentioned, our accounting practices mean that we might offer a 10% discount on invoices for promotional support. Under GAAP, this support is recorded as a reduction in our revenue. For instance, if we sell $100 worth of product, our gross revenue remains $100, but our net revenue would then be $90. This explains why revenue may appear lower or gross margins might be reduced because our costs remain the same, but revenue is about 10% lower. Additionally, you’ll see in Q4 that advertising and marketing expenses were slightly elevated, with even more spending in Q1. So alongside those promotional discounts, we are also investing more in advertising and marketing.

Right. Okay. So is it fair to ask what the gross-to-gross comparison would be on MusclePharm?

What do you mean by gross to gross?

Gross revenue in Q1 of '25 compared to gross revenue in first quarter of '24?

Sure, I don't have the exact numbers in front of me, but it is clearly going to be down. Our wholesale was down around 40-something percent. We had an issue with one customer that didn't reorder for much of Q1. It might be more relevant to compare Q2 with Q4 or Q1, but I don't have those numbers right now. I can definitely follow up with you later.

I'll move on. Can you provide an update on the status of the new product launches we discussed a month or so ago at our conference, specifically regarding the beverages and bars? How is that progressing?

Yes. The bars have been available for nearly a year, and we recently launched two new flavors. I'm considering if there have been any new customers in the past few weeks who have started carrying them. However, we’ve seen good sell-in at several regional convenience store chains and grocers, though we haven't yet engaged with the major accounts. Online, the performance remains strong. As for the ready-to-drink protein beverages, that's a newer launch from late March. I need to be cautious about naming specific partners, but all major distributors have picked it up. There are significant distributors like Muscle Foods and Europa that focus on sports nutrition products which have placed orders. We've also seen some international customers adopting it, as well as several gyms selling it in their coolers for patrons. I can't mention names, but there are big gyms in Venice Beach that should have our RTDs available. Overall, we believe we have an excellent product and encourage everyone to give it a try. In developing it, we conducted multiple rounds of testing and blind taste tests with potential customers who aren't employees. We offer vanilla, chocolate, and salted caramel flavors, and our products generally received favorable comparisons with others in the market. While personal preferences can vary, we feel confident in the quality of our offering. Now, the focus is on driving sell-in and sell-through.

Okay. So it sounds like it wouldn't have had much of an impact then in first quarter revenue, but sometimes with these new products, there's a bit of a load-in period and then maybe a lull before reorders kind of pick up. So would you expect second quarter sales of the beverage product to be higher than the first quarter?

Yes, I would expect them to be higher in Q2. I think Q1 was around mid-March when we received them after finishing production. So there wasn’t much in Q1 for those.

Okay. And my last question is, I thought there was an exclusion on tariffs for certain kinds of supplements and wellness products that covered vitamins and etc. Are your products not benefiting from that exemption?

Some products are exempt from tariffs, while others are not, particularly regarding vitamins and minerals. For instance, creatine has been excluded. There is a government document outlining the exclusions. In our multivitamins, we do not anticipate significant effects. However, some ingredients we frequently use, such as Carnitine, are not exempt. Each case is evaluated individually. We have assessed our major products and asked manufacturers to provide repricing based on the ingredients affected by tariffs, including the tariff rates. The impact on our products varies; some may experience no increase, while others could see a rise of 10% or 11%. Not all components of these products are subject to tariffs, as a significant portion of the costs comes from onshore suppliers and manufacturing charges. Therefore, the impact ranges from 0% to 10%. While it is not an ideal situation, it is not entirely detrimental either.

It's a nuisance.

And the next question is coming from James Bogin from Legend Capital. James, your line is live.

Hi, good afternoon. The other analyst mentioned MusclePharm, which was my focus as well. I find it interesting that it used to generate over $150 million in sales, and now it's at a $5 million annual rate. I'm curious about your long-term outlook for it. In a broader sense, what are your objectives? You acquired this company when its adjusted value was $1, and now it's $29. Are you aiming to build a large business? Do you see yourself being acquired by Unilever? What is your vision for the future and over what timeframe?

Yes, there are two significant questions there, and I'll do my best to address them. Regarding MusclePharm, I think we're running at roughly a $5 million annual rate based on the latest quarter. In Q1, our net revenue was about $2 million, indicating $2 million for that quarter. When we acquired the brand, it was valued under $10 million, and our current trajectory aligns with that. We believe there's room for improvement. This brand has considerable awareness and substantial investment behind it, which is why we are disappointed not to see more growth to date. However, our focus was mainly on stabilizing the stock and revamping a significantly reduced product line of around 15 items. We have since reintroduced products like bars and worked on ready-to-drink options, along with rebranding and updating packaging, and we are now actively promoting sales. It appears we may have underestimated the impact of the brand's prior bankruptcy. Our intention has always been to grow this brand, and we continue to hope for that. When we engage in acquisitions of distressed brands, we aim to ensure it's a good deal even if growth does not occur. I used an analogy in the last earnings call suggesting that we have a favorable outcome regardless of growth, indicating we're still in a scenario where we can succeed. If we decided to halt marketing and promotional efforts, historical data shows there were quarters last year where we generated more profit than we are currently achieving due to our investment in growth.

I'm not a quarter guy, but...

If things don't work out as planned, we can scale back. Currently, about 50% of our revenue comes from online sales. This brand can generate a good amount of cash at a mid-single-digit multiple based on our acquisition cost, even if we can't drive growth. Our objective has always been to achieve growth, but it has been somewhat challenging, and we recognize that. Regarding MusclePharm, there's significant potential for scaling and consolidation in the nutrition supplement sector, which is quite fragmented. Depending on the size of an acquisition, we could make a major acquisition at an attractive multiple, leading to substantial SG&A savings. In many instances, we believe we can manage these brands more effectively than prior owners. For smaller acquisitions, there's a notable difference in EBITDA between previous owners and our performance. MusclePharm and Mimi's Rock are examples of larger acquisitions where we took over employees and offices, rather than simply slashing SG&A. With MusclePharm, we added one employee from their team, so nearly all incremental gross profit from that brand is generated with just that addition plus any advertising and minor legal expenses. We're not at the stage where we need to sell the business yet; we think we are still in the fifth or sixth inning, and there remains plenty of opportunity for mergers and acquisitions. M&A is a significant opportunity for us, evident in how we allocate our time and reflected in the M&A expense line on the income statement.

And the next question will be from Samir Patel from Askeladden Capital. Sameer, your line is live.

Hey, Dayton, just following up on that last question. I think previously, we've discussed that the multiples you typically see are maybe 6, 7x for really good, rapidly growing businesses, south of that for businesses that aren't as attractive. With the understanding that you obviously can't comment on any specific transaction, is that still consistent with the valuation multiples that you're kind of seeing out there for prospective deals?

Yes, it's fairly consistent.

And the next question will be from William Anderson from Bard Associates.

Yes. Just curious how the Vitamin Shoppe pilot program with MusclePharm Pro is going. Any readouts there?

Yes, we have some updates. It's going well, although we wish it were even better. We don't have all the details yet, but we’re seeing week-over-week improvements. Initially, there were some challenges getting the product onto store shelves. It was scheduled to be available around March 15 but didn’t reach stores until early April. This situation serves as a good example of our efforts and expenditures. We're advertising on streaming platforms, and our ads have garnered about 1.5 million views across services like Hulu. If you're located within a few miles of a Vitamin Shoppe that sells our products and watch streaming content, you might have seen our advertisements. We're investing significantly in marketing, which is reflected in our numbers, to make this initiative successful. However, it's still early stages. Initially, we planned for a two-month trial, but given the delays with product availability, it looks like it will extend beyond that. We're continuing to sell and market the products and aim to provide a more formal update at our next earnings call.

And there are no other questions from the lines at this time.

All right. Well, thank you all for joining our first quarter conference call. We look forward to speaking with you again in about three months. Thank you.

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.