FitLife Brands, Inc.

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.

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, 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 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, $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. 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 Irwin Naturals and its affiliates, which transaction closed on August the 8th, 2025, subsequent to the second quarter. Basic earnings per share declined from 29 cents last year to 19 cents this year. Diluted earnings per share declined from 27 cents last year to 18 cents this year. Adjusted EBITDA for the second quarter of 2005 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. 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, 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. increased 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. 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. 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 contributions of revenue decreased 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. 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 MusclePharm brand and those efforts are ongoing. Holesale 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 MusclePharm in July was the highest it has ever been since we bought the brand. In mid-March 2025, the company launched the MusclePharm series, a collection of All right, one sec. So Ryan's going to take over for a sec while I get something to drink.

So in mid-March, the company launched the new MusclePharm Pro Series, a collection of premium sports nutrition products in a pilot in high-volume vitamin shop stores. consisting of approximately 60% of Vitamin Shoppe's nationwide store base. Certain items from the MusclePharm Pro Series line will remain in Vitamin Shoppe stores beyond the conclusion of the pilot. We have begun selling the MusclePharm Pro Series line online 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. 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. 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 Irwin, 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. 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. The strategy was ultimately unsuccessful, and the company fairly quickly fell into default with its bank. And 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. 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. 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 U.S. as a customer. The company had two SKUs in Costco U.S. stores and leading up to and during COVID, Those SKUs did well and Costco became Irwin's largest customer. 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 U.S. stores in early 2025, Irwin 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. 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. And we expect to identify further cost savings 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. To be clear, we are not forecasting a decline. But there are uncertainties any time a new business is acquired, and we want to avoid over-promising and under-delivering. 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.