FitLife Brands, Inc.

Now, my pleasure to turn the floor over to your host, Dave Ejad, 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, Jacob York, and FitLife's EVT, 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 affected a two-for-one forward stock split on February the 7th, 2025. All per share amounts in our 10Q 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 23 cents last year to 22 cents this year. Diluted earnings per share declined from 21 cents last year to 20 cents 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 0.4 times 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 fit life. Total legacy fit life 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. Ceballos, 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 10Qs, 10Ks, 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 MRCs 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 spend in support of the MusclePharm products. The company intends to continue investing in promotional support for the foreseeable future, although the timing and amount 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 of 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 inventories 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 0.4 times 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 30th was the ranking day for purposes of the Russell 2000 Index reconstitution. On that day, our market capitalization was around $140 million, and 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 the 23rd, with possible revisions happening prior to the actual rebalancing occurring on June the 27th. 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.

Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your telephone at this time. We ask that while posing your question, you please pick up your handset and listen on speakerphone to provide optimum sound quality. Once again, please press star 1 on your phone at this time if you wish to ask a question. Please hold while we call for questions. And the first question today is coming from Ryan Myers from Lake Street Capital Markets. Ryan, your line is live.