Synergy CHC - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue declined year over year on FOCUSfactor packaging transition and retailer de‑inventorying; management emphasized the transition is now behind the Company and expects top- and bottom-line growth in 2025.
• Versus S&P Global consensus, revenue was slightly below and EPS underperformed, while EBITDA trailed; the variance was driven by mix, a one-time $0.875M Vision SKU return, and de‑inventorying tied to the rebrand (consensus figures marked with asterisks sourced from S&P Global; see tables).
• Cost discipline continued: Q4 operating expenses fell 20% y/y; debt was reduced by $4.5M in Q4, and total liabilities fell ~$6.6M for the year.
• Catalysts into 2025 include seven new Flat Tummy GLP‑1 support products launched in Q1, scaling RTD beverages, expanded retail distribution (BJ’s, Publix), and international expansion plans.

What Went Well and What Went Wrong

What Went Well

• Eighth consecutive profitable quarter; full-year profitability sustained despite rebranding headwinds. “We had another full year of profitability, marking our eighth consecutive profitable quarter” — Jack Ross, CEO.
• Retail distribution broadened: FOCUSfactor now in all 267 BJ’s Wholesale Clubs and two SKUs in all 1,200 Publix stores, increasing shelf presence and potential sell-through.
• Balance sheet traction: Q4 operating expenses -20% y/y; total liabilities decreased to $33.0M at year-end from $39.5M in 2023; inventory lowered y/y, reflecting better working capital management.

What Went Wrong

• Q4 gross margin compressed to 63.3% (vs. 82.3% in Q4’23), reflecting product mix and a tough compare to a one-time 2023 gain; also impacted by the packaging transition and de‑inventorying.
• Q4 net income fell to $105.7K (from $2.6M y/y) with diluted EPS of $0.01 as revenue headwinds and margin mix outweighed lower opex.
• A specific one-time $0.875M Vision SKU return pressured the quarter; excluding it, revenue would have been ~$11.2M (still below prior-year) — CFO commentary.

Transcript

Operator (participant)

Good morning, everyone, and thank you for participating in today's conference call to discuss Synergy CHC Corp's financial results for the fourth quarter and year ended December 31, 2024. Joining us today are Synergy CEO Jack Ross, CFO Jaime Fickett, and Greg Robles of Investor Relations. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Robles as he reads the company's safe harbor statement. Greg, please go ahead.

Greg Robles (Director)

Thanks, Operator. Good morning, and thanks for joining our conference call to discuss our fourth quarter and full year 2024 financial results. I'd like to remind everyone that this call is available for replay and via a live webcast that will be posted on our Investor Relations website at investors.synergychc.com. The information on this call contains forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will, and other similar expressions. Forward-looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's SEC filings under the caption Risk Factors.

The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now, I would like to turn the call over to the CEO of Synergy, Jack Ross. Jack?

Jack Ross (CEO)

Thank you, Greg. Thank you, and good morning, everyone. Thank you for joining us today to discuss Synergy's performance of the fourth quarter and full year 2024. Before diving into the results, I'd like to address the 8-K filing we filed in conjunction with the earnings release. We are excited to announce the appointment of Jaime Fickett as our new permanent Chief Financial Officer. Jaime has been with Synergy for over 10 years. She's previously served as the CFO of Focus Factor from 2006 until the acquisition of the brand in 2015. Her extensive financial expertise and deep knowledge of our business has been invaluable, and we are confident in her ability to lead the financial strategy moving forward. Now, turning to the performance, we are pleased to report another fantastic year.

We had another full year of profitability, marking our eighth consecutive profitable quarter, a testament to the strength of our business model and dedication of our team. As we mentioned in our last earnings call, our fourth quarter results would be impacted by the same retailer de-inventorying situation related to the rebranding of our Focus Factor products. This initiative required retailers to clear out existing inventory before restocking and the updated packaging, which impacted short-term demand. I am happy to report that this process is now behind us, and we expect Synergy to return to both top-line and bottom-line growth in 2025. Looking back at 2024, we took many important steps to position Synergy for long-term growth and success. We successfully completed our listing on the NASDAQ, raising over $6.2 million in net proceeds, and we finalized our rebranding of the Focus Factor brand, which we had not done since 2015.

We also expanded our retail partnerships and footprint by adding 267 BJ's Wholesale Clubs and 1,200 Publix supermarkets to our distribution network. Our products are now available in all their locations, significantly enhancing our market reach. Furthermore, we conducted another successful ready-to-drink product test in Canada, yielding very strong results and bolstering our confidence in this emerging product line. 2024 was a year of strategic transformation and solid execution. We strengthened our financial position, successfully rebranded Focus Factor, and with strategic growth initiatives already underway, we are well-positioned to drive sustainable growth and create long-term value for our shareholders. Before passing the call over to Jaime, I want to highlight a few key initiatives that we believe will drive growth in 2025. We continue to focus on organic growth by developing and launching new products.

First, in the first quarter of 2025, we've already launched seven new products under our Flat Tummy brand in response to the growing interest in GLP-1 support products. Second, we are aggressively working to expand our distribution for our RTD beverages and shots following the successful tests in Canada and the Texas region, which should start seeing significant results early in the second quarter. Third, we expect to be operating in three major new international markets in 2025. With that, I'd like to turn the call over to our Chief Financial Officer, Jaime Fickett. Jaime?

Jaime Fickett (CFO)

Thank you, Jack. I'll now review our financial results. As Jack mentioned, we had another fantastic year. We had another full year of profitability, which marked our eighth consecutive profitable quarter. Beginning with the fourth quarter, net revenue was $10.3 million compared to $13.2 million in the year-ago quarter, a 22% decrease versus the prior year. As Jack discussed, the decline was driven by new packaging for our Focus Factor products that led to a de-inventorying dynamic at our retail partners, which caused them to pause their ordering while they sold through their existing inventory to reach acceptable reorder levels. Additionally, fourth quarter revenue was impacted by a one-time $875,000 return related to our Vision SKU, and excluding this return, net revenue would have been $11.2 million. Gross margin for the fourth quarter decreased to 63.3% compared to 82.3% a year ago.

The decrease was primarily driven by the product mix sold within the quarter. Margins fluctuate from time to time due to the product mix being sold. This variance was also impacted by a gain on a settlement with a supplier in 2023, which resulted in an increase to gross margin of $2.2 million. Without that gain, gross margin for 2023 would have been 65.3% in line with 2024. Operating expenses for the fourth quarter were $5.1 million compared to $6.4 million in the year-ago quarter. The lower operating expenses were a result of the improved management of our operating costs. Income from operations decreased to $1.4 million compared to $4.4 million in the year-ago quarter. Net income for the fourth quarter was $105,700, or $0.01 per diluted share, compared to $2.6 million, or $0.35 per diluted share in the year-ago quarter.

EBITDA was $1.7 million compared to $4.5 million in the year-ago quarter. Adjusted EBITDA was $2.8 million compared to $-0.3 million in the year-ago quarter, representing an increase of 1,033%. Additionally, in the fourth quarter, we reduced our debt obligations by $4.5 million. Now turning to our full year results. For the full year 2024, revenue was $34.8 million compared to $42.8 million in the year-ago period, a 19% decrease versus the prior year. Gross margin for the full year 2024 was 67.9% compared to 75% a year ago, which was impacted by the same one-time gain in 2023 of $2.2 million. Without that gain, gross margin in 2023 would have been 69.8%, which is in line with 2024. Operating expenses for the year were $17.8 million compared to $21.3 million a year ago, a decrease of $3.5 million. This represents a significant improvement of 16%.

Income from operations decreased to $5.8 million compared to $10.8 million a year ago. Net income for the year was $2.1 million, or $0.28 per diluted share, compared to $6.3 million, or $0.86 per diluted share a year ago. EBITDA was $6.5 million compared to $10.8 million a year ago. Adjusted EBITDA was $7.4 million compared to $6.1 million a year ago, an increase of $1.3 million, or 21%. Moving to our balance sheet and cash flow. As of December 31, 2024, we had cash and cash equivalents of $687,900 compared to $632,500 as of December 31, 2023. Inventory was $1.7 million at the end of the fourth quarter compared to $3.7 million at the end of 2023. At December 31st, 2024, we had $33 million in total liabilities, which compares to $39.5 million in total liabilities on December 31, 2023.

We're happy to report a decrease of $6.5 million, which equals a reduction of 16.5%. Additionally, our working capital position has improved by 49%. For the 12 months ended December 31st, 2024, our cash used in operating activities was $4.8 million compared to cash provided by operating activities of $421,700 in 2023. The decrease was primarily attributable to a reduction in our accounts payable and accrued liabilities of $2.9 million, an increase in our accounts receivable of $3.2 million, and an increase in prepaid expenses of $1.3 million, primarily relating to deposits on inventory. Now, I will turn the call back to the Operator.

Operator (participant)

Certainly. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again, and please stand by while we compile the Q&A roster. Again, as a reminder to ask a question, please press star one one on your telephone. I would now like to turn the call back to Jack for closing remarks.

Jack Ross (CEO)

Okay, thank you. We'd like to thank everyone for joining the 2024 earnings call, and we look forward to speaking with you again when we report the first quarter results in May. Thank you for the call.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.