FitLife Brands, Inc.

And I tell you to turn the floor over to your host, Joe Eshad, 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 time to join us this afternoon. Joining me on this call is Fitlife CFO, Jacob York, and Fitlife's EBT, Ryan Hanson. 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 -for-one forward stock split on February the 7th, 2025. All per share amounts in our 10-queue 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 .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. Deluded 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 &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 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 .6% compared to .1% during the first quarter of 2024. Contribution increased 11% to 3.2 million and contribution as a percentage of revenue increased to .4% compared to .9% in the same quarter last year. Moving on now to the brands acquired in the Meany Grok 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 .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 .8% last year to .5% during the first quarter of 2025. Revenue for the largest brand, Dr. Sabias, 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 the legacy of their life. 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 Muscle Farm, total Muscle Farm revenue declined 6% during the first quarter, with wholesale revenue declining 41% and online revenue increasing 33%. Muscle Farm's gross margin declined from 40% last year to .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 Muscle Farm products. This investment in increased promotions primarily consisted of increased marketing allowances to wholesale customers. Under GAAP, these marketing allowances are accounted for in 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 Muscle Farm 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 cut-hammer 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 tariffs 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 tariffs noise started, we opportunistically increased some of our finished goods and raw materials inventories at pre-tariff prices. So you can see inventory then 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 even though, and it is lower now due to incremental cash generated thus far during the second quarter. Earlier in my remarks, I mentioned some elevated &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 thresholds 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 perspective 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 one on your telephone at this time. We ask that while posing your question, you please pick up your handset, a system-mounted speakerphone, to provide optimum sound quality. Once again, please press star one on your phone at this time, if you wish to ask your question. Please hold while we poll for questions. And the first question today is coming from Ryan Meyers from Lake Street Capital Markets. Ryan, your line is live.

Hey guys, thanks for taking my questions. You know, first of all, for me, and I know you're not providing guidance, but if we think back to last quarter, you guys did get some commentary that you expect to at least grow revenue and even dock for the year. So, you know, 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 yeah, 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 even down number for the full year. But yeah, 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 what margins for the year can look quarter on quarter, you know, there was obviously some mixed dynamics that impacted the margins here in the first quarter. But you know, maybe any commentary on how we should take our changeable margins for the rest of this year.

Not specific, like I don't have a number for you. Obviously, you can see in the tables that we provided where we break it out by groupings of brands. Muscle Farm, there's been an intentional investment that started in Q4 and continued in Q1. Q1 was closer to 30% whereas Q4, I think, was around 25%. So as long as we're continuing to try and invest in Muscle Farm and drive some growth for that brand, something around that 30% level is probably realistic. On Mimi's rock side, that kind of fluctuates between 44 and 47%, roughly, depending on, again, product mix, we have some products that are higher margin than others and we like when those are outperforming but it sometimes moves against us as well. On the legacy fit life side, we tend to be historically in the low 40s there. We did a bit better in Q1, so we're seeing much stronger online growth for the legacy fit life products. Online is the most profitable part of our business. We're earning retail growth margins as opposed to wholesale. So as we shift more of legacy fit life revenue from wholesale to online, not that we're looking to move it from wholesale to online but as we grow more online relative to wholesale, we should benefit from some margin expansion there. The other thing I'll point out for legacy fit life growth margins because they were materially higher in Q1 relative to some previous quarters, we talked last quarter about the challenges we had with GNC during the fourth quarter, which trickled a little bit into the first quarter and as you probably recall, one of our approaches to deal with that was to ship directly to the GNC franchisees, for example, when we're not shipping to GNC corporate. When we ship directly to the franchisees, that's at a higher price than where we were selling to GNC corporate. So a little bit of the bump in Q1 is due to higher pricing. We're also incurring higher expense there in terms of the logistics and the fulfillment. Hopefully that gives you some color. Like I don't think there's anything dramatically different going on other than the intentional investments on the Muscle Farms side. We've kind of historically guided that growth margins are generally in the 42 to 45-ish percent range for the company overall, depending on again, mix and promotions and other things.

Got it. And then just the last question for me on the topic of Muscle Farms, 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 quarters. So just any dynamics to call out there, maybe call out that business begun to perform at the wholesale level. Are they seeing strong end customer demand? But any commentary there would be helpful.

Sure. So it's a mixed bag. There are some customers that we are certainly supporting and giving promotional support to that is showing very clear end consumer lift, right? Where we're having the desired effect, right? The promotional discounts are converting into higher unit movement. There are others, like the one that we called out last quarter where that wasn't the case, where we gave pretty substantial discounts. And they would say that they spent the money and maybe just didn't get the desired result. It's hard for us to know what people do and what they don't do. We don't have the ability to audit it. So some customers may choose to just take it in terms of higher margins for themselves. Well, if they do that, right? Or if we give them promotional spend, promotional support, and it's not effective, the net result of that is they don't get it anymore. So that particular customer, which is a good customer and an important customer for us, the promotional discounts they're getting now and that they received in the first quarter and they continue to receive in the second quarter quite a bit lower than they got in the fourth quarter. So it's a little bit like, look, we'll help you out if you can drive volume, but if we help you out and you don't, then you don't get it anymore. So it's a mixed bag. And there's some that are where we're seeing the investment translate to unit movement and there's others where we don't. And as a result of that, we work, different customers will get different promotional support based on their ability to increase movement.

Got it. Thank you for taking my questions.

Yeah,

thank you.

Thank you. And the next question will be from Sean McGowan from Rock Tackle Partners. Sean, your line is live.

Thank you for taking the questions, Aidan. 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, GFC corporate, has there been any change

there? No, no change. I mean, that was resolved in really the, in January during the first quarter. We called that out in the first quarter call, the impact, or sorry, the fourth quarter call that we did in March. We called out the impact on the fourth quarter and the impact on the first quarter and the fact that we were shipping direct. So I think it was like third or fourth week of January when that was resolved. And then it was just a matter of getting shipments into their distribution network and that happened within a couple of weeks. And we've been kind of off to the races since then. So I would characterize our relationship as very, very positive. They have been very constructive with us and us with them. And if anything, we're happy with the levels of inventory they're carrying now, which is certainly in our view, better than it was late last year. So, you know, everything is good from our perspective in our relationship with GNC.

Okay, thank you. And then back on Muscle Farm. So the way you account for that promotion is a reduction in the sales price, so it affects revenue. Can you give us an idea kind of on an apple to apple basis, like maybe volume or units, you know, how Muscle Farm compared to the first quarter of 24?

Yeah, I don't have that in front of me. It's gonna be account specific, but we have like one account in particular, and I obviously can't give names, but where we were providing additional support and you see continued growth. And there's others where that's not the case. Yeah, and the accounting is exactly like you described. For example, we might offer a 10% off invoice discount that is intended to be used for promotional support. The way the accounting works under doubt is that support is recorded as a reduction in revenue for us that our gross revenue, we sold $100 worth of product, our gross revenue would be 100, but our net revenue would be 90. In addition to that, so that's where you see, you know, maybe revenue not as high perhaps, or it's really, you see it in the lower gross margin, because our costs are the same, but the revenue is, again, call it 10% lower. You know, you also notice, I think in Q4, you know, slightly elevated advertising and marketing expense, and then even more in Q1. So in addition to giving some of those promotional discounts to customers, we're also spending more, you know, of our money on advertising and marketing.

Right, okay. So is it fair to ask what the gross to gross comparison would be on local farms?

What do you mean by gross to gross?

Gross revenue in Q1 is 25, it's fair to gross revenue in the first quarter of 24.

Sure, it would, but I actually don't have it in front of me, but yeah, it's gonna be down clearly, right, because

I think

what I bear a wholesale is down, where's my number, I think what, 40 something percent, right, there's that issue with the one customer that didn't reorder for much of Q1. It's probably a bit more relevant to look at Q2, maybe versus Q4 or Q2, but again, I don't have those numbers in front of me, but I will, I can certainly connect with you after that.

I'll move on, a couple of other things. Can you tell us the status of the various new product launches that we discussed a few months ago or so, or more than that, at our conference, beverage and bars, how's that going? Yeah,

so the bars continue to, those were coming up on, I think, close to a year, although we did launch two new flavors of those. I'm trying to think if there's any, like in the last few weeks, any new customers that have brought those in, but we've had decent sell-in of those into some convenience, you know, again, regional convenience store chains, regional grocers, none of the big accounts yet, continue to do fairly well online. The beverages, so the -to-drink protein, again, that's a much more recent launch, I think that was towards the end of March. Again, I have to be careful, because some people don't

let

us say their names, but certainly all the major distributors have picked it up. So there's a couple of big distributors, one called Muscle Foods and one called Europa, that does distribution of sports and nutrition products, so they have ordered it. We have some international customers that have brought it in. There are a number of gyms that have brought it in and are selling it, kind of, healing their coolers in the gym for people that go there. Again, I probably can't say names, but there's some big gyms in Venice Beach, for example, that if somebody were to walk in there, they should see our RCDs in the cooler. But we think that, we think we have an amazing product. If you haven't tried these, we'd encourage you to try them. In our product development here, we did multiple rounds of development, but we also did blind taste tests with, kind of, non-employees, with potential customers of our product. We've got a vanilla, a chocolate, and a salted caramel, and we did kind of blind taste tests with pretty much everything else in the market. Occasionally, people have maybe different preferences, but for the most part, ours were pretty highly favored. So, we think we've got a good product. Is this a matter of now trying to get the selling going and sell through?

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

Yeah, I would expect them to be higher in Q2. I think in Q1, I don't have the date in front of me, but I'm gonna guess it was, like, mid-March or something like that, when we kind of received them, when we finished production. So, yeah, there wasn't a whole lot in Q1 for

this. Okay, and another question is, I thought there was an exclusion on tariffs for certain kind of supplements and wellness products that covered vitamins and so on. Are your products not benefiting from that exemption?

Sure, some are and some aren't. So, there are a number of exclusions. So, pretty much all vitamins, all minerals have exclusions. We've been told that certain, like, that creatine has an exclusion. There's a document, I can't remember what it's called, a government document that lists what's excluded. I mean, so certainly, like, in our multivitamins and whatnot, we don't expect to see much impact there, but there are a number of ingredients that we use quite a bit, like carnitine is one example, that is not excluded. So, it's very much on a -by-case basis. And, you know, I can't remember if I shared this previously, but, you know, we've looked at all of our major products, our biggest products, and had our manufacturers essentially reprice them or tell us what the cost impact would be based on the product or the ingredients that are subject to tariff and what the, you know, tariff amount is. And, you know, the impact ranges from about, you know, 0% impact, again, for some of our products where they're not subject to tariff. And, you know, at the high end, it was, you know, a possible 10 or 11% increase, right? Because it's not everything that's in these products is subject to the tariff. And a lot of the cost is, you know, component through your labels, right, which is coming from onshore, and a lot of the cost is, you know, the manufacturer's charge, which again is coming from onshore. So it's kind of a 0 to 10% impact, depending on the product, and, you know, so it's not the end of the world by any stretch, but it's certainly not a positive thing to have these tariffs.

And it's amazing. Okay, all right, thank you very much. That's it for me. Thank you. Thank you, Sean.

Thank you, and once again, it will be star one on your phone if you wish to ask a question today. And the next question is from James Foggin from Legend Capital. James, you're on the fly.

Hi, good afternoon. The other analyst focused on Muscle Farm, which is what I was going to do. So I don't know if there's anything else to say about it. I'm always fascinated that it used to sell over $160 million worth of goods, and now it's $5 million running rate per year. So I'm just wondering what your long-term hopes or prospects for that might be. And just a bigger picture. What are your goals? I mean, you bought this company when it was a dollar, it's just a basis, it's now $29. Do you want to build an empire? Do you want to be acquired by Unilever? Where are you going with this thing and over what time period? Thank you.

Yeah, two very big, broad questions. I'll do my best to answer. So on Muscle Farm. So yeah, I think, again, I don't have the numbers right now, but like, it was certainly not, maybe we're at a five million run rate based on the current quarter. Let me just see. Yeah, four or less. In Q1, net revenue was, it looks like we're at two million. So that's two million over a quarter. So yeah, that's, you know, it was, look, when we bought this, it was under 10. And on a run rate basis, again, based on Q1, we're under 10, again, we think we'll do better. What I would care, the way I would characterize the situation is it certainly had a lot of brand awareness. A lot of money was spent kind of building this brand. I would say that we are certainly disappointed that we have not been able to grow it much more than we have. Obviously, we haven't done much to try and do, to grow it until the last couple of quarters. Like we were focusing on getting it in stock and developing, like they had dwindled their product portfolio very substantially, right, down to something like 15 products. So things like hitting the bars back in stock, working on the ready to drink, right? So we kind of fixed the product portfolio. We kind of changed the branding and the packaging, right? And now we're out there trying to sell it. I think, you know, I would say that we probably underestimated the extent to which this brand was impaired by the bankruptcy that it went through. And, you know, certainly our hope was to be able to grow it and we certainly hope still that we will be able to. When we do these deals, particularly for a distressed brand, the way we like to do the math is if we don't grow it, right, if we're not successful at growing it, we want it to still be a good acquisition. So that, you know, I think I use the analogy on the left, we're going to call heads we win and tails we win a lot, right, so we're still in kind of a heads we win scenario. In fact, if we decided to flip off all of the, you know, turn off all of the marketing and the promotional discounting, right, like you can look back and see, you know, there were quarters last year where we made more money than we're doing now, right, because of the investments we're making in growth. So if it doesn't pan out what we're doing, right, we can just dial back and even if this is primarily, you know, an online brand right now, about 50% of the revenue's online, right, this, you know, this is a brand that can throw off, you know, a decent amount of cash at a, you know, mid single digit multiple in terms of what we paid for it, right, if we're not able to get it to grow. Again, our goal is to get it to grow and it's been a bit of a challenge, right, I think we acknowledge that. Yes. So that's what I would say about MuscleForm. Your other question about what's the long game here, what's the strategy, you know, look, I'd love to be acquired by you, Nalivar, I don't think that's gonna happen. We think, and I think we've been consistent in saying this, there is a tremendous opportunity to scale and to consolidate in the nutritional supplement space. It's an incredibly fragmented industry. Depending on the size of the acquisition, right, we could do, you know, a big acquisition at a compelling multiple, there'd be, you know, decent, you know, SG&A savings, right, and we think, you know, in many cases, we can run these brands better than some of the, you know, maybe previous owners. In terms of smaller acquisitions, there's a very significant increment between kind of EBITDA to the previous owner and us. MuscleFarm is, Nene's Rock would be an example of one that is more like, again, a bigger acquisition where we inherited employees and an office and stuff like that, and so it's not like you cut all of the SG&A and you just bolt it on, right, but MuscleFarm was one where, I think we've commented before, there's one employee that we brought on from the MuscleFarm team, right, so it's literally all of the incremental gross profit from that brand, right, minus one employee plus any, again, advertising spend that we choose to make, you know, maybe a little bit of legal expense, you know, the incrementality is pretty significant, so

we

think, you know, we're not in the eighth, we're in the eighth or ninth inning, yeah, it's probably time to sell the business, and we think that there would be people that would be interested, whether they're strategic, again, it's probably not Unilever, maybe it is, that'd be nice, but maybe private equity or something like that, but for now, you know, we think it's more like the fifth or fifth inning, and there's plenty of M&A to do, so we think M&A is the biggest opportunity, you can see that in terms of how we're spending our time, and to a certain extent, you can see it in the M&A expense line item on the income statement.

Right, okay,

thank you very much, yeah, much appreciated. Thank you, James.

Thank you, and the next question will be from Samir Prasour from Askew Lab and Capital, Samir, you're lying aside.

Hey, Dayton, just following up on that last question, I think previously we discussed that the multiples you typically see are maybe, you know, six, seven times for really good, rapidly growing businesses, you know, south of that for businesses that aren't as attractive, you know, with the understanding that you obviously can't comment on any specific trade action, is that still consistent with the valuation multiples that you're kind of seeing now, pair for prospective yields?

Yes, that's fairly consistent.

Okay,

thanks, Lippel. All right, thanks, Samir.

Thank you, and the next question will be from William Anderson from Guard Associates. William, you're lying aside.

Yeah, just curious how the Vitamin Shaft pilot program with Muscle Farm Pro is going, any readouts there?

Yeah, we do have some readouts, I think, you know, it's going well, we wish it were going better. We don't know, it's still going, and we are seeing improvements kind of week over week. It was a little bumpy at the start in terms of getting the product to the store shelves, it was supposed to be there, I think, on shelf, and it started arriving on shelf around March 15th, but it was actually closer to early April before all of the stores had the product. So we're, you know, that's a great example, by the way, of kind of what we're doing and how we're sending it. We are, we're doing ads on streaming services. I think we have something like 1.5 million views of these ads that are on, you know, anything from Hulu to whatever, like if you live within, I can't remember, it's three or five miles from the Vitamin Shop store that is carrying these products, and you watch streaming, hopefully you've seen our ads. So we're doing, you know, a fair amount of sending, and you can see that reflected in the numbers as well, to try and make that successful. But it's still early days, like the, I think the intent at the beginning was it'd be a two-month trial. I think we're talking about something longer than that now, given the, you know, the bumpy start in terms of the products getting to the store shelves. So we're still, you know, still there, still selling and still marketing, but hope to have more of a formal readout on that, certainly as part of our next earnings call.

Right. Okay, Mr. Skirris, thank you very much.

Yeah, thank you.

Thank you, and if there were any other questions after this time, please press star run on your phone. And there were no other questions from the line-drafter staff.

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 line-drafter staff and have a wonderful day. Thank you for your participation.