FitLife Manufacturers, Inc. (NASDAQ:FTLF) Q2 2024 Earnings Convention Name August 14, 2024 7:00 AM ET
Firm Contributors
Dayton Judd – Chief Government Officer
Convention Name Contributors
James Bogan – Legend Capital
Operator
Good day, and welcome to the FitLife Manufacturers’ Second Quarter 2024 Monetary Outcomes Convention Name. At the moment, all contributors have been positioned on listen-only mode. The ground will probably be open for questions and feedback following the presentation.
It’s now my pleasure to show the ground over to your host, Dayton Judd, CEO of FitLife Manufacturers. Sir, the ground is yours.
Dayton Judd
Thanks, Paul. Welcome everybody to FitLife’s second quarter 2024 earnings name. We respect you taking the time to hitch us this afternoon. Becoming a member of me on the decision is FitLife’s CFO, Jakob York. And FitLife’s EVP, Ryan Hansen. For this name, we’ll observe the same sample to our earlier earnings name. I will present some opening commentary in regards to the completely different components of our enterprise after which open the decision up for Q&A.
Starting with our reporting for the second quarter of 2024, now we have offered some further metrics for some teams of our manufacturers. This reporting is in response to investor questions in regards to the efficiency of manufacturers subsequent to their acquisition by the corporate. We have beforehand offered some income numbers, however we at the moment are offering a breakdown of wholesale income versus on-line income, gross revenue and gross margin, promoting and advertising and marketing expense, in addition to a metric we name contribution.
There could also be different corporations that report the same metric, and so they might outline contribution in a different way than we do. So, for functions of our firm and our reporting and our dialogue in the present day, we outline contribution as gross revenue much less promoting and advertising and marketing expense for the manufacturers in query. And the rationale we do that is apart from promoting and advertising and marketing expense, nearly all different working bills usually are not simply allocable to particular manufacturers or teams of manufacturers, which is why we make the most of this metric contribution as a key efficiency metric for our manufacturers.
We’re offering this degree of element for legacy FitLife, which consists of 9 manufacturers, MRC or Mimi’s Rock, which consists of the three manufacturers acquired within the Mimi’s Rock transaction, and MusclePharm. Additional, our present intention is to offer this degree of element for acquired manufacturers for a interval of not more than two years following the acquisition of the manufacturers, after which the outcomes of the acquired manufacturers will probably be reported as a part of legacy FitLife.
We hope you will discover this degree of disclosure useful and informative. I will start by offering a brief overview of the efficiency of the consolidated enterprise after which present some commentary on the efficiency of the manufacturers as outlined within the contribution tables. So first, with regard to consolidated efficiency, for the second quarter of 2024, complete income elevated 15% year-over-year with wholesale income rising 18% and on-line income rising 13%.
Gross revenue elevated 27% and excluding the impression of the stock step-up ensuing from the acquisition of MRC, gross margin expanded from 41.9% final 12 months to 44.8% this 12 months. Contribution elevated 39% pushed by the addition of MusclePharm, gross margin enlargement and the discount in promoting and advertising and marketing spend. Web revenue elevated 34%, primary earnings per share elevated 30% and absolutely diluted earnings per share elevated 33%.
Adjusted EBITDA for the second quarter of 2024 elevated 29% to $3.8 million bringing our LTM adjusted EBITDA to $12.4 million. So now with regard to model degree efficiency, let me begin with an outline of legacy FitLife. Whole legacy FitLife income for the second quarter of 2024 was $6.8 million of which roughly 62% was from wholesale clients and 38% was from on-line gross sales. This represents a ten% year-over-year decline in wholesale income and a 7% year-over-year enhance in on-line income or a 5% decline in complete income.
Regardless of the income decline, gross revenue elevated barely as a result of enhance in greater margin on-line income greater than offsetting the gross revenue impression of the declining wholesale income. Gross margin elevated from 42.0% final 12 months to 44.2% on this 12 months’s second quarter. Contribution was down lower than 1% as a consequence of elevated promoting spend in assist of on-line gross sales. We additionally proceed to expertise robust subscriber progress with subscriber depend for our legacy FitLife merchandise rising roughly 19% on a year-over-year foundation.
Transferring on now to the manufacturers acquired within the Mimi’s Rock transaction or MRC. Simply as a reminder, this can be a firm we bought on February 28, 2023. Whole MRC income for the second quarter of 2024 was $7.5 million, nearly all of which got here from on-line gross sales. This represents a 2% year-over-year decline in complete income. Simply to drill down a bit bit additional although, MRC consists of three manufacturers, a complement model referred to as Dr. Tobias, which represents about 90% of MRC’s income and two smaller skincare manufacturers.
Income for the Dr. Tobias model was up 4% through the quarter, whereas income for the skincare manufacturers was down 37%. The elevated income for Dr. Tobias is encouraging, notably given the numerous reductions in promoting expenditures over the identical interval. On the time we acquired MRC, promoting spend in assist of Dr. Tobias was materially greater and income was declining. At this time, promoting spend is considerably decrease and income is rising.
Now with regard to the skincare manufacturers, on the time of the acquisition these manufacturers had been offered in a lot of geographies, completely different international locations on Amazon. And sadly, the manufacturers had been experiencing unfavourable gross margins in some markets and unfavourable contribution in nearly all markets. To deal with this drawback, we exited a lot of geographies, and we raised costs in all different geographies. The results of these adjustments is decrease income, however considerably greater gross margins and constructive contribution versus unfavourable contribution.
General, gross revenue for MRC elevated 21% year-over-year, whereas gross margin excluding the impression of the stock step-up ensuing from the acquisition of MRC elevated from 41.7% to 48.2%. This vital enhance in gross margin was as a result of beforehand described optimization of the skincare manufacturers in addition to useful product combine throughout the Dr. Tobias model.
Contribution for MRC for the second quarter of 2024 elevated 61% year-over-year, pushed by the skincare model optimization, useful combine throughout the Dr. Tobias product line and a 23% year-over-year discount in promoting and advertising and marketing expenditures. On an LTM foundation, contribution for MRC was $8.9 million, which compares very favorably to the $17.1 million we paid for the manufacturers. As well as, I might level out that the $8.9 million LTM contribution for MRC doesn’t but embody the total LTM impression of the skincare model optimization and the reductions in promoting and advertising and marketing spend.
For the quarter, Amazon subscribers for MRC merchandise grew 5% year-over-year. Skincare subscribers declined as a result of beforehand mentioned value and geography optimization, however Dr. Tobias subscribers grew roughly 8%. So now I will transfer on to debate MusclePharm. As a reminder, we bought the MusclePharm belongings out of chapter in October of final 12 months. MusclePharm income was roughly $2.7 million for the second quarter of 2024, of which 48% was from on-line gross sales and 52% was from wholesale clients.
Whole income elevated 27% sequentially from the primary quarter of 2024 to the second quarter of 2024 with wholesale rising 24% sequentially and on-line income rising 31% sequentially. Gross revenue elevated 16% sequentially, whereas gross margin declined as a consequence of elevated promotional exercise meant to drive income progress. Contribution elevated 8% sequentially with contribution as a share of income declining as a consequence of elevated promotional exercise and elevated promoting and advertising and marketing expenditures.
Our subscriber progress on Amazon for MusclePharm continues to be robust. In earlier calls, we disclosed that our subscriber depend for MusclePharm merchandise on Amazon grew from 5 subscribers as of the top of 2023, December 31, 2023, to over 1,600 on the finish of the primary quarter of 2024. As of the top of the second quarter 2024, the subscriber depend was over 3,700 and it has continued to develop at an encouraging tempo through the first half of the third quarter.
For comparability functions, once we started promoting the legacy FitLife merchandise on Amazon, it took greater than two years to attain the variety of subscribers that MusclePharm has acquired in our first six months of promoting the model on Amazon.
Now let me give a couple of extra high-level feedback in regards to the enterprise earlier than shifting into Q&A. For the consolidated enterprise, roughly two-thirds of our income now comes from on-line gross sales. When the present administration took over the corporate in 2018, lower than 1% of income got here from on-line gross sales. We’re happy with the outcomes of the strategic shift with the corporate reaching file progress, file gross margins and robust money move, whereas concurrently lowering its focus danger with giant wholesale clients.
With regard to the again half of 2024, please needless to say our enterprise does expertise seasonality with the primary half of the 12 months being stronger than the second half of the 12 months. You possibly can see these tendencies within the 5 quarter contribution tables that we offered within the press launch and within the 10-Q. That stated, we anticipate to proceed to ship double-digit year-over-year income progress for the rest of the 12 months.
In my remarks, I offered some commentary about Amazon subscribers. We love all of our clients, however we particularly love our subscribers. Traditionally, income from subscribers has usually accounted for roughly 20% of our on-line income, generally greater and generally decrease, however typically it is in that vary.
We do not plan to usually present subscriber counts for our particular person manufacturers or teams of manufacturers, however as an organization, we just lately surpassed over 100,000 subscribers on Amazon. We’re blissful about this milestone and look ahead to buying the subsequent 100,000 subscribers.
With regard to our steadiness sheet, it stays robust with $15.4 million of time period mortgage excellent at a price of SOFR +2.75% and now we have no excellent steadiness on our $3.5 million revolver. We ended the second quarter of 2024 with $3.7 million of money, bringing web debt to $11.7 million or roughly 0.9x LTM adjusted EBITDA. As of the top of 2023, the corporate’s web debt was $18.2 million. So now we have lowered our web debt by $6.5 million or 36% through the first half of 2024.
So now we will shift to the Q&A earlier than we open it up for questions. We’ve a long-time investor who emailed some questions. So I will learn you the questions. He is unable, I feel, to take part within the name in the present day. Let me learn the questions that he has requested, and I will do my greatest to reply them after which we will ballot for added questions. So the questions requested are what are the targets administration has for the corporate in 5 to 10 years? I feel we all know the technique for the subsequent six to 12 months. That is the primary query. Subsequent query, will share buybacks be reinitiated? The third query, is a dividend being thought-about? And quantity 4, the query is, I am positive everybody together with me will probably be very keen on listening to about progress with MusclePharm and getting some shade round how a lot income we will anticipate from MusclePharm when it ranges out?
So, let me tackle these one-by-one. I will possibly go in reverse order. MusclePharm, we’re simply very reluctant to provide a quantity. If I had a extremely good concept what it was going to be in 12 months or in 24 months or in 5 years, I might let you know. However the actuality of the state of affairs is, I do not know, and I might fairly simply let you know we will develop it with out placing parameters round that.
I feel we’d be disenchanted if we have not doubled our run price on this enterprise over the subsequent 12 months. So, we anticipate to proceed to develop. As I indicated in my remarks and you’ll see within the contribution desk, we’re investing in progress by promotional gives to wholesale companions, by elevated promoting on-line, and we’ll proceed to spend money on progress as we search to revive the model to what it was earlier than. I apologize that we’re not going to provide something extra particular, however we actually anticipate it to develop going ahead.
The query on the share buybacks and dividend, let me possibly lump these two collectively. These are form of capital allocation questions. And I suppose the best way I might reply that’s, proper now, we expect the most effective use of our capital is to accumulate different manufacturers at enticing multiples and produce them into the fold. Hopefully, with Mimi’s Rock, you may see a number of quarters now of historical past of what we have been in a position to do there.
Once more, simply taking a look at contribution not EBITDA, it is just about not possible at this level to calculate an EBITDA for these manufacturers given the truth that SG&A is unfold throughout all of our manufacturers. However once more, utilizing contribution, I imply, we’re underneath 2 occasions contribution by way of what we paid for that enterprise and we expect that quantity will proceed to enhance. So we expect that is the best and greatest use of capital and we proceed to search for acquisitions. If we won’t discover any, at that time, I feel we’d look to issues like share buybacks and dividends.
With regard to share buybacks, actually if there was a giant pullback within the inventory for no matter motive, we’d consider that on a case-by-case foundation. However proper now, our capital allocation technique is in the beginning to M&A.
And with regard to targets that administration has for the corporate in 5 to 10 years, I feel that is considerably associated to what I simply stated relating to capital allocation. We predict that the largest alternative right here is to consolidate throughout the complement trade. We have had a great observe file of doing that. It is an extremely fragmented trade and we expect there are lots of manufacturers to contemplate.
In reality, we all know there are, as a result of we’re taking a look at them. We’ve fairly whole lot move. We get to take a look at lots of offers and we’ll look forward to the fitting pitch. And once we do, we anticipate to drive hopefully comparable outcomes like now we have with Mimi’s Rock. We hope to do the identical with MusclePharm and with different manufacturers that we might take a look at as effectively.
So with that, Paul, why do not we go forward and open the road up for questions?
Query-and-Reply Session
Operator
Definitely. At the moment we will probably be conducting a question-and-answer session. [Operator Instructions]. The primary query is from James Bogan from Legend Capital. James, your line is reside.
James Bogan
Hiya, good afternoon, and thanks on your presentation. Within the final name, you spoke about MusclePharm and the acquisition and the way distributors of MusclePharm merchandise have been very disenchanted by MusclePharm’s demise and that you just had been attempting to rebuild that up. And I might identical to to get a bit extra shade into how that is going, and whether or not you anticipate attending to — the muscle half had enormous gross sales and so they had only a few gross sales. I am questioning the way you’re doing in constructing that backup mainly. I do know it is a long-term mission and I do not anticipate new quantity estimates, however I am simply questioning, typically how is it getting into getting the religion again amongst the businesses, amongst the shops and individuals who purchase MusclePharm merchandise? Thanks.
Dayton Judd
Sure. Thanks James for the query. Joyful to offer commentary, however I will not discuss particular potential wholesale clients. However now we have had and proceed to have dialogue with a lot of potential companions. And the excellent news is, I imply, no person is saying no, get out of right here and do not ever speak to us once more.
The dialogue is going on, which is nice. We have had a lot of conferences with giant nationwide sort chains and now we have others which might be scheduled right here throughout this quarter. There are others who’ve indicated that they are possible to herald among the merchandise, however till we see POs, we do not need to rejoice and we do not need to declare success.
So these clients have stated they plan to herald among the merchandise. Once more, we proceed to work with them, and there are agreements which might be being negotiated and documented. And once more, we absolutely anticipate that we’ll be beginning small with a few of these of us, however the excellent news is that I feel we’re getting some traction. And I hope as we proceed to have these calls going ahead, we’ll have extra to report. However the dialogue is going on, conferences are going down, and we’re having good discussions.
And the purchasers who’ve introduced it in already and which might be reported in our wholesale income numbers for MusclePharm, for instance, within the contribution tables, roughly 50% of our income, these of us have been blissful thus far with what they’ve seen. I feel with just about all of them, I haven’t got the numbers in entrance of me, however I can not consider an exception proper now. I feel each single certainly one of them is rising with the model.
So we’re seeing encouraging uptake, proper? After we get again in, we’re excited after which every week-to-week and month-to-month, we’re seeing elevated purchases from them and elevated gross sales to their finish shoppers. So we’re inspired by the tendencies. It actually is a marathon and never a dash. So we’re persevering with to run the marathon and are inspired by what we’re seeing thus far within the early phases.
James Bogan
Thanks very a lot.
Dayton Judd
Sure, you are welcome.
Operator
Thanks. [Operator Instructions]. And there have been no different questions in queue right now. I might now like at hand the decision. Truly, I feel we have got James simply got here in with a follow-up. Only one second please. Yep. James, your line is reside.
James Bogan
It is an unrelated query, however I used to be simply questioning if provided that Dayton is on the on the board of LifeVantage. I am simply questioning if there are any synergies between the 2 corporations, LifeVantage and Fitlife?
Dayton Judd
Sure. The reply to that’s no. We’re clearly not rivals, or I could not be on the board of LifeVantage and I could not be on the board of FitLife and run FitLife. So that they function in a totally completely different channel. I feel lots of you understand my background which is I am an investor primarily, I run a hedge fund. I nonetheless run my fund and it nonetheless invests in a lot of different corporations and LifeVantage simply occurs to be a kind of corporations.
So, FitLife has nothing to do with LifeVantage, however my fund Sudbury Capital does have a stake in LifeVantage. However actually something additional associated to LifeVantage, I am positive that the LifeVantage group would love to speak to extra traders. Q: Proper. Okay. Thanks. Dayton Judd I respect the query.
James Bogan
I am a shareholder in each, personally.
Dayton Judd
All proper. Admire that. Thanks.
James Bogan
Thanks.
Operator
Thanks. And there have been no different questions in queue right now. I might now like at hand the decision again to Dayton Judd for closing remarks.
Dayton Judd
All proper. Nicely, thanks everybody on your participation in our name. You probably have questions going ahead, please be at liberty to succeed in out to us. The easiest way to contact us initially is thru our Investor Relations electronic mail, which is investor, that is simply singular, not traders, however [email protected]. So for those who ship us an electronic mail together with your questions, we might be blissful to reply them. We’re blissful to get on the decision and discuss our firm. However we respect your curiosity and look ahead to speaking to you subsequent quarter. Thanks.
Operator
Thanks. This does conclude in the present day’s convention name. You might disconnect your strains right now and have an exquisite day. Thanks on your participation.
