FTLF FitLife Brands Inc

November 13, 2023 – FitLife Brands, Inc. (“FitLife,” the “Company,” or “we”) (Nasdaq: FTLF), a provider of innovative and proprietary nutritional supplements and wellness products, today announced financial results for the third quarter ended September 30, 2023.

Highlights for the third quarter ended September 30, 2023 include:

• Total revenue was $13.9 million, an increase of 67% compared to the third quarter of 2022. 
• Adjusted EBITDA was $2.5 million, an increase of 36% compared to the third quarter of 2022.
• Net income for the third quarter of 2023 was $1.7 million compared to $1.2 million during the same period last year, an increase of 39%.
• Basic earnings per share increased from $0.27 to $0.38 and fully diluted earnings per share increased from $0.24 to $0.35, an increase of 41% and 46%, respectively.
• Online revenue accounted for 68% of the Company’s total revenue during the third quarter of 2023 compared to 26% during the same period last year.
• Gross margin was 41.0% compared to 39.0% during the third quarter of 2022. 
• The Company ended the quarter with $11.3 million outstanding on its term loan and cash of $8.3 million, or total net debt of $3.0 million.

Financial Performance

For the third quarter ended September 30, 2023, total revenue was $13.9 million, an increase of 67% compared to $8.3 million during the same period last year.  Online revenue for the quarter was $9.4 million, an increase of 338% compared to the quarter ended September 30, 2022.  Online revenue accounted for 68% and 26% of the Company’s total revenue during the quarters ended September 30, 2023 and 2022, respectively.

Gross margin for the quarter ended September 30, 2023 was 41.0% compared to 39.0% during the same period in the prior year.  The increase in gross margin is primarily attributable to higher online sales compared to the third quarter of 2022.

The effective tax rate for the quarter ended September 30, 2023 was 20.4%.  A substantial portion of the reported GAAP income tax provision is non-cash due to ongoing utilization of the Company’s net operating loss carryforwards.

Net income for the third quarter of 2023 was $1.7 million, an increase of 39% compared to $1.2 million during the quarter ended September 30, 2022.  Basic earnings per share for the quarter ended September 30, 2023 was $0.38, an increase of 41% compared to $0.27 during the same period in 2022.  Diluted earnings per share increased 46% during the third quarter of 2023 to $0.35 compared to $0.24 last year.

Adjusted EBITDA for the quarter ended September 30, 2023 was $2.5 million, an increase of 36% compared to the same period in 2022.  The Company ended the quarter with $11.3 million outstanding on its term loan and cash of $8.3 million, or total net debt of $3.0 million. 

MRC Integration and Operational Improvements

The Company continues to focus on improving cash flow and profitability at Mimi’s Rock Corp (“MRC”).  Since acquiring MRC on February 28, 2023, we have focused primarily on improving profitability through cost reductions.  Specifically, we have eliminated over $1.5 million of annual non-advertising SG&A expense (all numbers in this press release are reported in USD and not CAD).

Separately, we continue to evaluate the effectiveness of MRC’s advertising spend.  As previously reported, during the second quarter of 2023 we reduced MRC’s advertising expense by 20% compared to the second quarter of 2022 with no material impact on revenue.

We experimented with further reductions during the third quarter of 2023, reducing advertising expense by approximately 30% compared to the same quarter in 2022.  Although the additional reduction in advertising expenditure resulted in approximately 8% lower revenue, it increased contribution (defined as gross profit minus advertising expense) by approximately 15%.  In other words, through these actions, the Company is increasing its profitability by eliminating unprofitable revenue. 

As a result of our efforts, MRC advertising expense during the third quarter of 2023 was 16.6% of MRC revenue, compared to 21.9% during the same quarter in the prior year, a quarterly impact of over $0.5 million or an annualized impact of approximately $2.1 million.  With these changes, MRC’s profitability has increased significantly since the acquisition, accounting for approximately 69% of the Company’s reported net income for the third quarter of 2023.

Going forward, we intend to continue to closely monitor and optimize advertising expenditures, increasing spending on effective campaigns while reducing spending on ineffective campaigns.  As a result, advertising expense may increase or decrease in the future.

Legacy FitLife Performance

During the third quarter of 2023, legacy FitLife revenue declined 19%, driven by a 27% decline in wholesale revenue partially offset by an 8% increase in online revenue. 

Due to the size and timing of wholesale orders, wholesale revenue recognized by the Company during a quarter is not necessarily reflective of the retail demand for the Company’s products.  During the quarter ended September 30, 2023, based on data shared by our wholesale partners, the retail movement of the Company’s products through wholesale channels declined approximately 14%.  The Company is exploring new international wholesale opportunities for some of its legacy FitLife brands that are expected to at least partially offset the declines being experienced in the U.S.

While still positive, the growth rate for legacy FitLife’s online revenue declined over the first eight months of the year.  The declines were driven primarily by a combination of fewer consumer sessions as well as underperformance of certain brands and products.  Although session counts have declined, indicating lower traffic on our online listings, conversion rates have generally increased during the year, partially offsetting the decline in sessions. 

The year-over-year growth rate was lowest during August before improving sequentially in September and again in October.  Thus far in November, the year-over-year growth rate has continued to show sequential improvement.  During the third quarter of 2023, subscriptions accounted for approximately 23% of legacy FitLife’s online sales volumes.

Acquisition of MusclePharm Assets

As previously reported, the Company successfully closed the acquisition of substantially all of the assets of MusclePharm Corporation (“MusclePharm”), which primarily consisted of intangible assets.  None of the liabilities of MusclePharm were assumed other than de minimus cure costs relating to certain assumed contracts.  Total consideration for the acquisition was approximately $18.5 million cash.  Of this amount, $10.0 million was funded using proceeds from a new term loan provided by First Citizens Bank, with the remainder funded from FitLife’s available cash balances. 

Since closing the acquisition, management has begun engaging in discussions with several of MusclePharm’s previous customers in an effort to restore wholesale distribution of the brand.  The Company is also in the process of re-launching some historically successful MusclePharm products. 

Online sales of MusclePharm products are expected to be limited in the fourth quarter while third-party resellers deplete their inventory.  As these resellers run out of product, the Company will become the primary seller of MusclePharm products online.  We expect online revenue from MusclePharm products to exceed $5 million in 2024.

Dayton Judd, FitLife’s Chairman and CEO, commented, “Although the third and fourth quarters of each year are traditionally the slowest for the Company, I am pleased with our overall performance.  While recent legacy FitLife performance has not met expectations, the weakness has been largely offset by strong financial performance at MRC.  Going forward, I am optimistic that legacy FitLife performance will improve, and I am excited about the continued improvements at MRC as well as the potential of the MusclePharm brand to create additional stockholder value.”

About FitLife BrandsFitLife Brands is a developer and marketer of innovative and proprietary nutritional supplements and wellness products for health-conscious consumers.  FitLife markets over 240 different products primarily online, but also through domestic and international GNC® franchise locations as well as through more than 17,000 additional domestic retail locations.  FitLife is headquartered in Omaha, Nebraska.  For more information, please visit our website at www.fitlifebrands.com.

Forward-Looking StatementsStatements in this release that are forward looking involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to be materially different from any future performance that may be suggested in this news release.  Such factors may include, but are not limited to, the ability of the Company to continue to grow revenue, the Company’s ability to successfully integrate acquisitions, and the Company's ability to continue to achieve positive cash flow given the Company's existing and anticipated operating and other costs.  Many of these risks and uncertainties are beyond the Company's control.  Reference is made to the discussion of risk factors detailed in the Company's filings with the Securities and Exchange Commission including its reports on Form 10-K and 10-Q.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

Non-GAAP Financial Measures   The financial presentation below contains certain financial measures defined as “non-GAAP financial measures” by the SEC, including non-GAAP EBITDA and adjusted non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.   As presented herein, non-GAAP EBITDA excludes interest, foreign exchange gains and losses, income taxes, and depreciation and amortization. Adjusted non-GAAP EBITDA excludes, in addition to interest, taxes, depreciation and amortization, equity-based compensation, M&A/integration activities, restatement related expense and non-recurring gains or losses. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook. The Company believes that the inclusion of non-GAAP measures in the financial presentation herein allows investors to compare the Company’s financial results with the Company’s historical financial results and is an important measure of the Company’s comparative financial performance. 

FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
		September 30,			December 31,
		2023			2022
		(Unaudited)
ASSETS:
CURRENT ASSETS
Cash and cash equivalents		$	7,343		$	13,277
Restricted cash		969			-
Accounts receivable, net of allowance of doubtful accounts of $33 and $50, respectively		1,428			705
Inventories, net of allowance for obsolescence of $142 and $107, respectively		7,724			9,105
Sales tax receivable		1,276			-
Prepaid expenses and other current assets		787			116
Total current assets		19,527			23,203
Deposit for MusclePharm asset acquisition		1,825			-
Property and equipment, net		199			46
Right of use asset		141			103
Intangibles, net of amortization of $103 and $72, respectively (provisional)		7,746			150
Goodwill (provisional)		13,321			358
Deferred tax asset		1,213			1,847
TOTAL ASSETS		$	43,972		$	25,707
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable		$	2,379		$	2,995
Accrued expense and other liabilities		1,828			631
Product returns		587			590
Term loan - current portion		2,500			-
Lease liability - current portion		94			54
Total current liabilities		7,388			4,270
Term loan, net of current portion		8,750			-
Long-term lease liability, net of current portion		59			49
Deferred tax liability		2,526			-
TOTAL LIABILITIES		18,723			4,319
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 10,000 shares authorized, none outstanding
as of September 30, 2023 and December 31, 2022		-			-
Common stock, $0.01 par value, 60,000 shares authorized; 4,446 and 4,507
issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		44			45
Additional paid-in capital		30,151			30,056
Accumulated deficit		(4,897)			(8,713)
Foreign currency translation adjustment		(49)			-
TOTAL STOCKHOLDERS' EQUITY		25,249			21,388
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	43,972		$	25,707

FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(In thousands, except per share data)
(Unaudited)
		Three months ended						Nine months ended
		September 30,						September 30,
		2023			2022			2023			2022
Revenue		$	13,902		$	8,314		$	39,401		$	23,433
Cost of goods sold		8,206			5,070			23,332			13,587
Gross profit		5,696			3,244			16,069			9,846
OPERATING EXPENSES:
Selling, general and administrative		3,172			1,680			8,758			4,620
Merger and acquisition related expense		32			6			1,519			214
Depreciation and amortization		22			17			64			49
Total operating expenses		3,226			1,703			10,341			4,883
OPERATING INCOME		2,470			1,541			5,728			4,963
OTHER EXPENSES (INCOME)
Interest income		(119)			(43)			(269)			(59)
Interest expense		249			-			598			-
Foreign exchange loss		210			-			93			-
Total other (income) expense		340			(43)			422			(59)
NET INCOME BEFORE INCOME TAX PROVISION		2,130			1,584			5,306			5,022
PROVISION FOR INCOME TAXES		434			364			1,490			1,066
NET INCOME		$	1,696		$	1,220		$	3,816		$	3,956
NET INCOME PER SHARE
Basic		$	0.38		$	0.27		$	0.86		$	0.87
Diluted		$	0.35		$	0.24		$	0.78		$	0.79
Basic weighted average common shares		4,446			4,556			4,458			4,555
Diluted weighted average common shares		4,891			4,988			4,901			4,979

FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(In thousands)
(Unaudited)
		Nine months ended September 30,			Nine months ended September 30,
		2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	3,816		$	3,956
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		64			49
Allowance for doubtful accounts		(17)			(5)
Allowance for inventory obsolescence		35			147
Stock compensation expense		94			295
Changes in operating assets and liabilities:
Accounts receivable - trade		(498)			(585)
Inventories		2,534			(1,205)
Deferred tax asset		709			1,053
Prepaid expenses and other assets		(463)			93
Right of use asset		60			41
Accounts payable		(3,570)			1,086
Lease liability		(60)			(41)
Product returns		(3)			(15)
Accrued liabilities and other liabilities		71			134
Net cash provided by operating activities		2,772			5,003
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(60)			-
Cash paid for acquisition of Mimi's Rock Corp.		(17,099)			-
Cash deposit paid for the acquisition of assets		(1,825)			-
Net cash used in investing activities		(18,984)			-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		-			29
Borrowings on term loan		12,500			-
Payments on term loan		(1,250)			-
Net cash provided by financing activities		11,250			29
Foreign currency impact on cash		(3)			-
CHANGE IN CASH AND RESTRICTED CASH		(4,965)			5,032
CASH, BEGINNING OF PERIOD		13,277			9,897
CASH AND RESTRICTED CASH, END OF PERIOD		$	8,312		$	14,929

		For the three months ended September 30,						For the nine months ended September 30,
		2023			2022			2023			2022
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net Income		$	1,696		$	1,220		$	3,816		$	3,956
Interest expense		249			-			598			-
Interest income		(119)			(43)			(269)			(59)
Foreign exchange loss		210			-			93			-
Provision for income taxes		434			364			1,490			1,066
Depreciation and amortization		22			17			64			49
EBITDA		2,492			1,558			5,792			5,012
Non-cash and non-recurring adjustments
Stock compensation expense		21			91			94			295
Merger and acquisition related costs		32			6			1,519			214
Amortization of inventory step-up		-			-			323			-
Non-recurring loss on foreign currency forward		-			-			112			-
Restatement related costs		-			220			-			275
Adjusted EBITDA		$	2,545		$	1,875		$	7,840		$	5,796

investor@fitlifebrands.com