FitLife Brands - Earnings Call - Q2 2025

Executive Summary

• Q2 delivered small beats vs S&P Global consensus on revenue and EPS, aided by strength in Legacy FitLife online sales, but margins compressed and EBITDA declined year over year; the quarter closed days before FitLife completed the Irwin Naturals acquisition (8/8) [Revenue $16.13M vs $16.08M cons; EPS $0.18 vs $0.175 cons; Adjusted EBITDA $3.33M, -13% YoY]. Consensus values marked with * are retrieved from S&P Global.*
• Consolidated revenue fell 5% YoY to $16.13M as MRC (Dr. Tobias and skincare) declined 16% on lower Amazon sessions and Canadian tariffs; gross margin fell 200 bps to 42.8% on mix and promo investment at MusclePharm.
• Post-quarter, FitLife closed Irwin Naturals for $42.5M, guiding the combined business to >$120M revenue and $20–$25M adjusted EBITDA in the first full year; Irwin TTM revenue was ~$60M at ~35% gross margin with expected mix/supply-chain driven improvement.
• Tactical near-term catalysts: pro forma 8‑K with historical and abbreviated pro forma financials due within 75 days of close (expected by ~Oct 22), plus integration updates and online channel internalization for Irwin; management also flagged record July wholesale for MusclePharm as evidence of distribution momentum.

What Went Well and What Went Wrong

What Went Well

• Legacy FitLife grew revenue 7% YoY on 17% online growth; contribution rose 5% despite slight margin compression (43.8% vs 44.2%). Management: “the second quarter of 2025 was strong for our Legacy FitLife business”.
• MusclePharm distribution momentum: “Monthly wholesale revenue for MusclePharm in July was the highest it has ever been since we bought the brand,” with MusclePharm Pro Series piloted at ~60% of Vitamin Shoppe stores and selectively continuing post pilot.
• Closed Irwin Naturals (asset deal, minimal assumed liabilities) funded with new term loan/revolver; management expects combined revenue >$120M and adjusted EBITDA $20–$25M in the first full year and $1.5M lower Irwin SG&A run‑rate post-rehire footprint.

What Went Wrong

• MRC revenue down 16% YoY (Dr. Tobias -16%; skincare -20%) driven by lower Amazon sessions; gross margin fell to 46.5% (−170 bps) with Canadian tariffs (25%) on US‑manufactured skincare cited as a headwind.
• Consolidated gross margin compressed to 42.8% (−200 bps YoY) on mix, MusclePharm promotional investments, and tariffs; adjusted EBITDA declined 13% YoY to $3.33M.
• Net income fell to $1.75M (from $2.63M) primarily on elevated M&A-related expenses tied to the Irwin process; diluted EPS $0.18 vs $0.27 last year.

Transcript

Speaker 5

Today, and welcome to the FitLife Brands. We appreciate you taking the time to join us this afternoon. With me on this call is FitLife's CFO, Jacob 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 2024, total revenue declined 5% year over year to $16.1 million. Online sales were $10.4 million, or 65% of total revenue. Gross profit declined 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 than marketing expense, declined 9% to $5.7 million. Net income for the second quarter of 2025 was $1.7 million compared to $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, with the transaction closed on August 8, 2025, subsequent to the second quarter. Basic earnings per share declined from $0.29 last year to $0.19 this year. Dual earnings per share declined from $0.27 last year to $0.27 this year. Adjusted EBITDA for the second quarter of 2025 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 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 7% year-over-year increase in online revenue, or a 7% increase in total revenue. Gross margin decreased to 43.8% compared to 44.2% during the second quarter of 2024. 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 from our disclosure for one more quarter. Total MRC revenue for the second quarter of 2025 was $6.3 million, down 16% from the previous quarter. MRC's gross margin declined to 45% 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 contribution as a percentage of revenue decreasing from 33.9% last year to 34% during the second quarter of 2025. With regard to MusclePharm, total MusclePharm revenue declined 4% during the second quarter, with wholesale and online revenue declining 6% and 3% respectively. MusclePharm'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 for the MusclePharm brand, and those efforts are ongoing. Wholesale revenue for this brand is somewhat lumpy, so quarter-to-quarter wholesale revenue does 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 new MusclePharm Pro Series, a collection of... All right, one sec. Ryan's going to take over for a sec while you drink.

Speaker 1

In mid-March, the company launched the new MusclePharm Pro Series, a collection of premium sports nutrition products in high-volume Vitamin Shoppe 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 well as through international wholesale partners. Now, let me provide some additional comments, high level, and then we can move to... 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. It is a traffic problem and not a product or conversion problem. We are focused on a number of 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 Irwin Naturals with no dilution to shareholders.

With regard to Irwin, let me first say how excited we are to be stewards of the Irwin Naturals brands and to welcome the Irwin team to the FitLife family. Since announcing the acquisition, we have received a number of questions about Irwin, 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 Irwin transaction for more than a year. We signed our first NDA with the company on August 2, 2024, a week before they filed bankruptcy. Navigating the bankruptcy was a circuitous process, which ultimately resulted in FitLife Brands acquiring a claim from a creditor, submitting its own plan of reorganization for Irwin Naturals, and then ultimately participating in an organized sale process and becoming the stalking horse bidder for the assets.

This lengthy and often litigious process is the reason for the elevated merger and acquisition expenses 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 Irwin Naturals 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 million to $250 million of pre-tax profit for its owner and operated without debt. 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. 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. By early 2024, after being in default for some time, Irwin Naturals decided to exit the ketamine clinic business and refocus on its core nutritional supplement business. By then, the damage was unfortunately done, and Irwin Naturals 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, the distraction of the ketamine business, and three, the loss of Costco US as a customer. The company had two SKUs in Costco US stores and leading up to and during COVID, those SKUs did well and Costco became Irwin Naturals' 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 US stores in early 2025, Irwin Naturals 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 Naturals' 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 Brands as part of the transaction. We expect to identify further cost-saving opportunities as we become more familiar with Irwin Naturals' operations. Irwin Naturals has an incredible brand with strong distribution. We look forward to updating our investors on Irwin Naturals' progress during our third quarter earnings call.

For the first full year of operations, we expect the combined FitLife Brands and Irwin Naturals 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 anytime a new business is acquired, and we want to avoid overpromising and under-delivering. As our familiarity with Irwin Naturals 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. Paul, feel free to go ahead and pull for questions.

Speaker 5

Thank you. At this time, we will be conducting a question-and-answer session. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star one on your phone at this time if you wish to ask a question. Please hold while we pull for questions. The first question today is coming from Ryan Hansen from Lake Street Capital Markets. Ryan, your line is live.

Speaker 4

Thank you, guys. Thanks for taking my questions. Congratulations on the acquisition. Just to kick things off, wondering if you can give us any commentary maybe on how you're thinking about the growth rate for the organic business in the second half of the year. I know you gave a little bit of commentary on that, but if we look at Q1 and Q2, it's kind of been this mid-single-digit decline. Just maybe curious if you've seen any stabilization here in the third quarter and kind of how we should be thinking about that in the second half.

Speaker 0

Yeah, this is Dayton. Sorry, I've had a coughing fit. I'll do my best to talk and Ryan can back me up. I think we still are hoping to achieve organic growth in the legacy business, not counting the Irwin Naturals acquisition. I think if you look at the numbers, we're down about $1.4 million over the first half of last year. We're optimistic we can make that up. The biggest challenge in the business is Mimi's Rock, and in particular, Dr. Tobias. I'm sure we'll talk more about that here in the Q&A. If you take that out again and you look at the rest of the business, the rest of the business was up 4%, right? It's not a problem that we're seeing across all brands. It's a problem we're seeing with one brand that is unfortunately dragging down the portfolio overall.

We're hopeful, we're optimistic that we can still deliver some organic revenue growth in 2025, although we also acknowledge that the challenges we've had with Dr. Tobias have kind of not been ideal here for the first half of the year.

Speaker 4

Okay, that's helpful. I just want to make sure I'm understanding this correctly. I think you guys said 35% gross margins for the Irwin Naturals business. If we take the FitLife Brands business and combine that, are we looking at high 30% or so blended gross margins for the two businesses?

Speaker 0

Yeah, I think if you just do the math, since the businesses are roughly equivalent sizes, you're in the high 30s. A couple of things I would point out. If you go back and look at FitLife Brands before we made the online transition that we did, something in the high 30s was pretty typical, right? That's not unusual for a business that is predominantly wholesale to be in the mid to high 30s. We would expect that number, the Irwin Naturals number, to increase as we sell more products online. If you just do the math. The other thing I will say is the numbers that we've given you are our best analysis with the numbers that we've been given and making adjustments on our part.

By that, I mean it's somewhat tricky sometimes to remove a customer, all of the math, all of the economics associated with a customer, like we did with Costco US. The other thing I would say is, if you went and looked at Irwin Naturals' numbers when they were public, you'd see a very, very high gross margin. Different companies account for things differently. Irwin Naturals was including all distribution and logistics expense below the line in SG&A, whereas we included it above the line in COGS. We've had to try and normalize their numbers to ours or put the accounting on kind of an apples-to-apples basis. That 35% is our best guess of where the business is adjusting for those items, standardizing their accounting to how we do the accounting, as well as trying to strip out the effects of the Costco US business.

To answer your question, Ryan, directly, we think somewhere in the high 30s if you just merge the two businesses together or average the numbers across with the expectation that that number will increase over time.

Speaker 4

Got it. Last question for me, it makes sense on the surface just where you guys can gain scale, take SG&A out as well as on the gross margin side. Just curious, any potential revenue synergies between the two companies that you think you've seen so far?

Speaker 0

Yeah, for sure. I think we tried to call this out in our press release when we announced the transaction, or what I'll call revenue synergies. Maybe you're thinking something differently, but you know, they don't sell anything online, or I should say on Amazon. They sell on their own websites. We will, they sell products wholesale to one or more third parties who then sell the products on Amazon, right? Just like we did with the MusclePharm transaction, we will internalize that. We will help them grow online revenue that they would not be able to do on their own. That'd be kind of one source of potential revenue benefit or synergy. The other I would say is they have a very strong mass market commercial sales team.

I can't remember the number off the top of my head, but I think they have something like 80 products in CVS. CVS is Irwin Naturals' largest customer. They're very strong in Walmart. They're very strong in Walgreens. They're very strong in Costco up in Canada. Those are retailers where we have some relationship, but certainly not the relationship that the Irwin Naturals team has. We're hopeful, right? As you all know, we have been working hard to line up more brick-and-mortar distribution for MusclePharm products in the mass market channel. Perhaps leveraging the existing Irwin Naturals sales force to help bring some strength to that effort might bear fruit. We're optimistic that these complementary channel strengths can benefit each part of the organization.

Speaker 4

Makes sense. Thanks for taking my questions.

Speaker 0

Yeah, thanks, Ryan.

Speaker 5

Thank you. The next question will be from Sean Patrick McGowan from Roth Capital Partners. Sean, your line is live.

Speaker 2

Yeah, thank you. Hi guys. I'm going to follow up with a couple of Irwin Naturals questions and then swing to something else. Can you comment on their seasonality of their business relative to the rest of yours? Is it comparable?

Speaker 0

Yeah, I would say the general trend is comparable, but the magnitude is maybe not as much, right? All supplement companies are stronger the first half of the year and weaker the back half of the year. It's particularly pronounced though in sports nutrition, which is, you know, an area of focus for FitLife Brands, but not at all for Irwin Naturals. You should expect the back half of the year to be, you know, not as strong as the front half, but not to the same extent that you would see it for our sports nutrition business. For example, in sports nutrition, it's not uncommon for November, December revenue to be 20% lower or 25% lower than January, February. Whereas with our general health brands, general health products, it tends to be about half of that. Does that answer your question, Sean?

Speaker 2

Yes, it does. Looking at SG&A, you talked about expecting it to be $1.5 million lower than that $14.5 million. Kind of breaking that out a little bit more, do they spend a similar amount as a percentage of revenue on, you know, kind of marketing and advertising? You know, the kind of numbers that you break out?

Speaker 0

Yeah, so the $14.5 million that we gave you excludes advertising, not because we took it out, but because they did during bankruptcy. They quit their advertising and marketing. I don't want to say eliminated it entirely, but it's in the very, very low kind of hundreds of thousands. That is something that, again, as we get the company stabilized and on a good path going forward, we will be introducing additional advertising and marketing expense to benefit the brand, right? Our expectation is that will drive additional growth as opposed to being a cost drag on the business.

Speaker 2

Okay. Are you expecting, I know you, I think Ryan read it, there'll be additional transaction costs in the third quarter. Are you anticipating any kind of big restructuring costs as well?

Speaker 0

No restructuring, right? This was an asset transaction, and there are costs. For example, we didn't hire all of the employees of Irwin Naturals, and any restructuring costs associated, or layoff severance, whatever you want to call it, of employees we did not hire are not borne by us. We don't anticipate any restructuring costs, so to speak, but there will be a number of initiatives, right? Obviously, legal expenses that we still need to pay, audit work that we need to get done, valuation work that we need to get done. There will be incremental one-time expenses that we expect to incur largely in the third quarter and to a lesser extent beyond that, but no restructuring costs, so to speak.

Speaker 2

Is there a banker you need to pay on this, or a finder or something?

Speaker 0

No. There was a banker involved in the sale process, in the court-supervised sale process, but the banker is paid out of the proceeds of the sale and not by us.

Speaker 2

Will you be filing any pro forma numbers with more detail on Irwin?

Speaker 0

Yeah, good question. We are required within 75 days of closing the transaction to file on a Form 8-K with the SEC a couple of things. One would be some audited historical financial statements for Irwin Naturals and also some pro forma financials. You will see it when we file it, but this is somewhat of a unique situation because historical audited financials for Irwin Naturals for 2023 and 2024 do not reflect the business that we bought, right? We didn't buy the ketamine business. We didn't buy any of the other various parts of their business. We didn't assume any of those liabilities. We didn't have their tax profile or their leverage profile. What you will see from us when we file is what's called abbreviated financial statements.

There will be two years, 2023 and 2024, full-year abbreviated income statement, which will essentially be an income statement for the nutritional supplement business from revenue down to and including operating income. Nothing below the line. No taxes, no interest, none of that. Rather than a historical balance sheet for those two years, what you'll see is an audited, essentially opening balance sheet for the company reflecting the assets that we acquired. That's due, if my math is correct, I think we have to file that by October 22.

Speaker 2

Okay, what would the pro forma financials be then?

Speaker 0

Yeah, we're actually needing to clarify that with the SEC because we've been working with them on the disclosure required. Since we only have to produce the abbreviated financial statements for Irwin Naturals, our expectation, again, to be confirmed with the SEC, is the pro forma financials will also be abbreviated. Essentially, revenue down through the operating income line.

Speaker 2

Just to be clear, we should not look at whenever that is filed, we should not look at those pro forma financials as an indication of what you think the business would have been, you know, had you actually bought it at that time. It's just kind of taking what it was, which is not what you bought, and adding it to what you are. Is that what it's going to look like?

Speaker 0

Yeah, it's not what it would have been if we had owned it as of 2023. To be clear, what's being included in those abbreviated financial statements for Irwin Naturals is only the asset, is only the nutritional supplement business, right? Irwin Naturals had a cannabis business. We didn't acquire that. They had the ketamine clinics or what was left of that business. We didn't acquire that. What will be reflected in the financial statements we file are only the revenue, the cost of goods, the gross profit, and the operating expenses associated with the assets we acquired.

Speaker 2

Okay. Last question on Irwin. Any idea, not that you need one with Costco US, but is there any idea why Costco US dropped those two lines?

Speaker 0

Yeah, again, I mean, we know what explanation we were given. Costco likes a lot of promotional support, and promotional support can be not ideal for margins. Sometimes companies, you know, if they're in bankruptcy, maybe aren't in a position to offer the promotional support that Costco wants. We had the same challenge with MusclePharm where they had very strong distribution in Costco. They had been out of Costco for quite some time before we bought the brand, whereas this is a bit more recent. Our understanding is the products are still being sold online. We've been told that Costco is open to resuming discussions once the company has exited bankruptcy. Certainly, that's on our list of follow-up conversations. I will also point out that Costco Canada, separately, has been a customer of Irwin Naturals for some time, and a pretty big customer. They continue to be a customer.

None of the products that were in Costco Canada have been discontinued at this point.

Speaker 2

Okay. My final question is on Dr. Tobias and MRC in general. Is Dr. Tobias the only thing that's weak at MRC? It seems to be having an outsized impact on the overall sales.

Speaker 0

Yeah, so it's 90-something %, right? MRC is probably 92, 93% of revenue is Dr. Tobias. There's the two skincare brands also. We talked a bit about their performance. Their performance has been a challenge since we bought them. They're not core to our business. They're very small. Their skincare, right, which is not something we looked to acquire. It just so happened that they came along with that business. They're continuing to struggle. We mentioned the tariffs that are associated just with that business. Just on the tariffs, the issue there is our manufacturer for those products, even though it's in the United States, and the primary outlet in terms of where we sell for those brands is in Canada.

When all of the tariff fighting started and the reciprocal tariffs, right, we now have to pay a 25% tariff to bring the products from the US up into Canada to sell them. I would say all part, right, that both the skincare brands and Dr. Tobias are challenged, but for different reasons. For the skincare, it's the economics and the tariffs. For Dr. Tobias, it's the sessions, the page views that we're experiencing on Amazon.

Speaker 2

Since you mentioned the tariffs, are there steps that you can take to mitigate that? If you made the assumption that that's not going to change, a risky assumption, of course, are there steps you can take to source that product differently?

Speaker 0

Yeah, there are. Ironically, our manufacturer, these were Canadian businesses, right, manufactured in Canada, sold in Canada. Until, you know, a couple of few years ago, the owner of that manufacturing company decided they'd rather live in Florida than in Canada. They moved their business down to Florida. Now, because of that, we're dealing with tariff implications. To frame it maybe more precisely, though, and to let you know where it falls in our kind of list of priorities, the impact is in the low tens of thousands. You can do the math and look at our, you know, our MRC table, for example.

If you assume our current revenue level at our gross margin percentage that we achieved in the second quarter of last year, we're talking about this roughly, I don't know, what is it, 170 basis point decline in margin for MRC is, let me make sure I got that number right. Yeah, MRC went from 48.2% down to 46.5%. So 170 basis point decline. That's about, it's only about a $100,000 decline in gross profit. Tariffs are, again, to frame it for you, in the low tens of thousands. I'd love to fix that, but the amount of work I'd have to do to do that, and the fact that I just bought Irwin, and we've got a lot of other priorities, such as Dr. Tobias, we're focused on solving the biggest opportunities or the biggest pain points.

If I had more time and more people, absolutely, we'd be looking to fix that. In the grand scheme of things, again, we're talking about tens of thousands and not millions.

Speaker 2

Yeah, that works. Okay, thank you very much. Appreciate it.

Speaker 0

Yeah, thanks, Sean.

Speaker 5

Thank you. Once again, it will be star one on your phone at this time if you wish to ask a question on today's call. The next question is coming from Samir Patel from Ask Aladdin Capital. Samir, your line is live.

Speaker 3

Hey, Dayton. Congrats on the Irwin deal. I've got three questions. The first is, if you could dig in a little bit more on what you put in the press release and what the previous caller asked about the revenue synergies, what do you think kind of the low-hanging fruit is over the next 6, 12, 18 months with Irwin? Is it kind of regaining some of those doors that were lost due to the bankruptcy and the distraction, or is it taking MusclePharm or Dr. Tobias or one of your other brands and trying to get more distribution through those retail doors? That's the first one.

Speaker 0

Okay. Yeah. In terms of lost distribution, to be clear, the brands are very strong, right? The only distribution that we're aware of that the company lost has been Costco US. I talked about that. In fact, we subscribe to or get IRI data, and many of you may get that as well. If you look at the sales of the Irwin Naturals brand through other mass market stores, through drug stores, through grocery stores, it's growing as we look at the data provided from IRI, for example. This is not, you know, MusclePharm was a very different situation where we acquired that brand and they had lost the majority of their distribution. It was the situation where to really grow that brand, we had to go back and regain distribution. As you all know, it's been more of a challenge than we thought it would be.

One thing we love about this acquisition is, again, other than Costco US, they have not lost any distribution. Where they still have distribution, they are growing. I mentioned, I think in our press release when we announced the transaction, we put their first quarter revenue. I can't remember, but I believe off the top of my head, it was around $33 million. If you compare the first half of 2025, if you compare that number to the first half of 2024, even if you don't adjust for Costco US, it's a slight decline. Let's call it single-digit decline. If you adjust for Costco US out of both the first half of 2024 and the first half of 2025, it's a very small single-digit decline. We like the fact and are encouraged by the fact that the brand does not appear to be declining.

I mentioned in, or maybe Ryan Hansen mentioned in our prepared remarks, that it was declining 13% per year from 2021 to 2022 to 2023 to 2024. If you look just at the first half numbers, that is dramatically lower and much closer to being stable. This is not a bet. MusclePharm was a bet that we could, or our goal was to, success required regaining distribution. Success here doesn't require us to regain distribution. It just requires us to pick up where they left off and incrementally try and do better and try and do more. Does that answer your question, Samir?

Speaker 3

Yeah, I mean, the second part of it was what do you see as the biggest opportunity in terms of taking those brands online, but then also taking some of your existing, you know, we'll call it legacy FitLife Brands, including MRC and MusclePharm, and getting those into those doors that they're already in.

Speaker 0

Yeah. Online, taking Irwin Naturals online, again, they do not sell anything on their own right now on Amazon. They sell everything through a third party. I think if you look at their DTC, like their Shopify, their own website sales, it's between $2 million and $3 million annually, right? There's no reason Amazon, right, and other platforms, shouldn't be at least that much, if not more, right? What we have seen as we've transitioned brands from offline to online is pretty significant growth potential. I'm reluctant to give you a number and tell you how big it's going to be, but again, we think that's a tremendous opportunity. Even if you're talking single digits of millions, that's the highest gross margin opportunity for a supplement company, right, is selling online directly to the end consumer.

That has the potential to be a nice boost to revenue, but more importantly, an outsized boost to gross margin, gross profit, and profitability. In terms of other brands, I think the biggest, we have a number of brands, as you all know. MusclePharm is the one where we have been working to restore brick-and-mortar distribution for those products. We've been calling on companies, and we have relationships with all the companies that I've mentioned. Having an experienced sales force that has certainly deeper and more longstanding relationships with these companies, having them include or introduce, for example, MusclePharm products, and MusclePharm RTD is an example, the ready-to-drink protein, as part of those sales calls, right? We think that's an opportunity. What it's going to amount to, I couldn't tell you. It's not going to hurt the business. It just has the potential to help.

Speaker 3

Perfect. Okay. Second question with regards to MRC is just philosophically, now that you have a larger portfolio of brands, how much do you really care about optimizing for any individual brand at an individual point in time, vis-à-vis just kind of looking across the business and seeing where your highest ROI is? You mentioned priorities and things like that, right? Not just in terms of cost, but in terms of time. I guess, would you ask investors to focus on the performance of the individual sub-brands or just focus on the overall top-line EBITDA cash flow if you're choosing to just invest where you're getting the highest ROI, even if that means that some brands are being run more as cash cows versus growth engines, like in the classic quadrant analysis?

Speaker 0

Yeah, I think, good question. I think clearly the overall view, the overall performance of the business is the most important number to look at. That said, I think as an investor, I am an investor, right? If I were an investor in this company and was a participant on the conference call and not the CEO of the business, I would have questions about Mimi's Rock. It is a business that has done well for us, and it has more recently been a bit challenged. It's a pretty big part of our business. Skincare brands, I would tell you, you guys should never leave or never lose one minute of sleep over the skincare brands. Dr. Tobias, on the other hand, is a good, you know, what, 40% of our business and is a cash cow, generates a lot of cash for us.

It is a priority for us, and we'll continue working on it. Now, that said, to your point, this is not a brand that is a high-growth brand. The words you used, was it more of a cash cow? That is what it is. That said, we don't, a cash cow should be more stable. If you look back over time, over several years, the revenue generated by this brand has been quite stable. There are ups and downs. It might swing up and down, I don't know, maybe $3 million from peak to trough, and we're closer to a trough right now. We're hopeful that what we're seeing right now is just that normal cycle. You can bet that we're going to spend a lot of effort making sure we understand what's going on and doing our best to address it.

Speaker 3

Okay, perfect. Just the final question is your, you know, at the future imminent, and obviously that's part of the story, you just executed on a big one tier, you know, you can do leverage close to 4 times, you know, within a few years. At what point, I mean, I know you kind of have that upper half of 2.5 times leverage. There's the financial angle, but for just kind of an operational perspective, I presume you want to spend some amount of time focusing.

Speaker 0

I think the question was about leverage and how comfortable we are with that and what our priorities are. Is that right?

Speaker 3

The question was more around just operationally. I mean, like we can do the math on kind of when you do leverage, let's say one time, and you'd have, you know, financial ability. I'm just asking from an operational perspective since this is so transformational. I mean, I assume it's going to be a while before you're back in the market on M&A.

Speaker 0

Yes, with a caveat. The yes is, this is obviously the biggest transaction we've done. This is transformative. We're very excited. This is where we're going to be spending our time. In fact, both Ryan and I right now are sitting in Los Angeles, at Irwin Naturals, right? We are engaged and focused, and our number one priority is Irwin Naturals. I would say our number two priority right now is Mimi's Rock, and Dr. Tobias specifically. To your question about, does this mean we're going to be out of the market for a while? I would say yes. You should not expect to see us close another transaction in the next quarter. I will point out, and I think I've commented on this before, a lot of these transactions are very, very long lead time.

If we want to potentially have a transaction to close 6 months, 12 months, 18 months down the road, we have to always be looking. I mentioned in the prepared remarks that Irwin was a little more than a year from the time we first signed the NDA to when we closed the transaction. MusclePharm, we signed the NDA, I think, in November of 2022, closed the transaction in October of 2023, so almost a full year. Mimi's Rock, we signed the NDA, I think, initially in November of 2021, and closed the transaction in February of 2023, so more than a year. If we want to be able to continue to do some large-scale transactions in the future, we need to kind of keep a toe in the water, so to speak, and stay in the deal flow.

There were other transactions we've been looking at at the same time we were looking at Irwin, as you can imagine, because it's been going on for a year. We would just, depending on the ebb and flow, put stuff on the back burner and then sometimes bring it forward to work on a bit. There were transactions that were at the LOI stage at the time it looked like we finally made a breakthrough on Irwin. We just kind of put it on the back burner. We are actively, we will look, but we don't have the appetite or the capacity to close a deal right now, but we want to stay in the deal flow so that we can, in the next 6, 12, 18 months, whatever timeframe makes sense, maybe do the next transaction.

Speaker 3

Okay, thanks. If I can sneak in just one more, at this point, given your new scale, is there a minimum threshold for a deal size that makes sense for you now, or would you still be willing to consider really small tuck-ins if there was no integration effort really and it was financially attractive?

Speaker 0

Yeah, no, we would definitely still do tuck-ins. I don't think we'd be looking at tuck-ins that don't provide at least, I call it 10% or so of EBITDA, maybe $1.5 million minimum, maybe $2 million minimum EBITDA, right? As we get bigger, it doesn't make sense to do a bunch of small deals. They take a similar amount of work, similar amount of effort, similar legal fees. As we get bigger, certainly our preference is to do bigger deals, but we love tuck-ins. The reason we love tuck-ins is, MusclePharm is one example, right? We bought that brand and we brought on one person. If it's a smaller deal, it's very easy to bolt onto our existing platform and incur very little incremental SG&A.

Whereas a deal like Irwin Naturals, obviously, is substantial and is not a tuck-in and does not just bolt onto our platform and doesn't bring incremental SG&A. Their SG&A is higher than ours. We're looking at both, or we will continue to look at both as we go forward.

Speaker 3

Fantastic. Thanks. That's all for me.

Speaker 0

Yes, thanks, Samir.

Speaker 5

Thank you. That does conclude today's Q&A session. I will now hand the call back to Dayton Judd for closing remarks.

Speaker 0

Thank you all for your interest in FitLife Brands. If you have any questions between now and our next earnings call, feel free to reach out to us. You can email us at [email protected], and we'd be happy to answer your questions. Otherwise, we look forward to speaking with you next quarter. Thank you.

Speaker 5

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.