FitLife Brands, Inc. (PNK:FTLF) Q4 2023 Earnings Call Transcript

FitLife Brands, Inc. (PNK:FTLF) Q4 2023 Earnings Call Transcript April 1, 2024

FitLife Brands, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day. And welcome to the FitLife Brands’ Fourth Quarter and Full Year 2023 Financial Results Conference Call. At this time, all participants have been placed on listen-only mode. The floor will be open for questions-and-comments following the presentation. It is now my pleasure to turn the floor over to your host, Dayton Judd, CEO of FitLife Brands. Sir, the floor is yours.

Dayton Judd: Thank you, Paul. Welcome everyone to FitLife’s first ever earnings call. I appreciate you taking the time to join us this afternoon. Joining me on the call is FitLife CFO, Jakob York. Rather than have Jakob read you the press release, like often happens on earnings calls, I thought instead I’ll just give an introduction, talking about the different parts of our business and our priorities going forward and then open it up for Q&A. We tend to talk about our business in three parts, legacy FitLife, Mimi’s Rock or what we now call MRC, and MusclePharm. As a side note, we’ll continue to do that for the near future, because we understand that investors want to evaluate the success of our transactions. But the businesses are largely integrated and we don’t run them separately.

For example, with MusclePharm, we only hired two of their former employees. One benefit of that is that much of the gross profit translates into incremental EBITDA for FitLife. But it does make it hard for us to produce and communicate specific financial statements for each company or each brand. So I’ll start with what we call legacy FitLife. On the wholesale side, GNC is our largest and most important customer. Like many specialty retailers, GNC has been struggling with foot traffic for some time. As a result, we continue to see low double-digit decline in wholesale revenue for this part of our business. So that’s the bad news. The good news is that within wholesale for legacy FitLife, we aren’t losing share. We’re just losing customers at the same pace as other participants.

We’re also exploring some international wholesale opportunities for some of our legacy FitLife brands. The online side of our business is a positive for legacy FitLife, where we continue to see positive revenue and subscriber growth. We also continue to innovate within these brands and plan to launch several new products in 2024. In summary, then, even though online is growing for legacy FitLife, we don’t expect to see much topline growth as a whole in the near-term, although we expect it to continue to generate strong cash flow. With regard to Mimi’s Rock or what we now call MRC, this is a transaction that we closed a little more than a year ago on February 28, 2023. We paid just over $17 million for the business and post-closing invested a couple million more in working capital.

MRC’s primary brand is Dr. Tobias, which is one of the largest sellers of fish oil and colon cleanse products on Amazon. The primary opportunity for us with MRC was cutting costs, but there was a lot to do commercially as well, since unit sales were declining. I can’t remember exactly what we’ve specifically disclosed previously, but within a few months after the transaction, monthly EBITDA was pretty consistently at or exceeding US$500,000 per month. So using the $500,000 monthly EBITDA number, we were able to pretty quickly achieve synergies that bring the acquisition multiple to less than three times EBITDA. MRC also owns a couple of smaller skincare brands that haven’t been our primary focus and are struggling somewhat, but the good news is that Dr. Tobias continues to do well.

A supermarket aisle filled with Household and Personal Care Products.

Going forward, we hope to generate some top line growth with MRC and we also expect it to generate strong free cash flow. And now moving on to MusclePharm, as was our expectation, MusclePharm had a very minimal impact on Q4 due to; first, the deal closing in October; second, the fact that we needed to acquire inventory, we only bought, I think, about $200,000 worth of inventory through the asset purchase in bankruptcy; and third, the need to negotiate new agreements with all of the MusclePharm customers that were buying their product at that point. We could have assumed those contracts in bankruptcy, but that would have cost us a lot of money in terms of cure payments and other liabilities that we would have had to assume. So we set out to renegotiate those agreements.

Some of them took a couple of weeks, others took three months, but the good news is that’s largely behind us. So for us, the MusclePharm business really didn’t begin ramping up in terms of both wholesale and online sales until the first quarter. And I’ll start with the online business for MusclePharm. With regard to Amazon, which is the primary online sales outlet, MusclePharm previously had an agreement with a third-party reseller to be the exclusive Amazon seller of MusclePharm products. Since the transaction where we acquired the MusclePharm assets, we have not sold any product to that reseller, although we have allowed them to sell through their inventory without price competition from us. So what that looks like is, you — during that time, you would see us out there on Amazon as a seller, but we keep our price above their price, allowing them to win the buy box and move through the inventory.

As they sell out of their inventory, we then step in as the primary seller and lower our price to the MSRP. So they largely began selling out of their product in January and into February. At this point, there’s, I think, three products where they’re continuing to sell their inventory, but we are the primary seller of MusclePharm products for approximately 95% of the MusclePharm units currently being transacted on Amazon. On the three remaining SKUs that the reseller has, two of those we estimate they’ll sell through during the second quarter. So far, the Amazon business is scaling nicely for us, but I’m sure the question that you all have in your mind is what to expect for 2024 in terms of online revenue for MusclePharm. My short answer is I don’t know, so I don’t want to give any specific guidance, but conservatively, the previous seller was doing about $5 million annually, so we would expect at least that much.

It’s still early days, but I’m encouraged by the trends. I’ll provide a couple of additional data points that we hadn’t previously provided. First, our subscriber count for MusclePharm products on Amazon as of the end of the fourth quarter, so December 31, 2023, was five. We had five subscribers. As of the end of the first quarter, it was over 1,600, so we’re seeing some nice growth in subscribers on Amazon. Second, I think, we reported MusclePharm online revenue for February in our press release that it was about $330,000. We don’t have March numbers finalized yet, but we expect the number to come in quite a bit higher, probably between $400,000 and $450,000 for the month of March. So now, moving on to wholesale for MusclePharm, I have even less of a perspective about exactly what’s going to happen on that side, but let me walk you through what’s going on and how we view the opportunity here.

During February, we were able to get the full MusclePharm product line back onto iHerb. Sales were initially low to start, but have been increasing at a very encouraging pace. We have a number of other wholesale customers. Coupang, in particular, has been a very big and loyal customer for MusclePharm and our proteins continue to do very well in South Korea. We’ve also had a number of encouraging meetings with other potential wholesale and distribution partners and hope to reach formal agreements with some of them during the second quarter. In addition, as we rebuild the MusclePharm brand, we’re launching some new MusclePharm products, as well as bringing back some discontinued MusclePharm products that previously were quite successful. For example, we’ll be launching three flavors of the Combat Sports Bar in the next couple of weeks, so watch for that on the website, as well as on Amazon.

We also expect that many, if not all, of our wholesale partners will also bring in the bars. So maybe in conclusion, with regard to MusclePharm, the number one question I get from investors is how big do you expect it to be? My answer is always I don’t know, but I do want to tell you how I think about the transaction. We paid $18.5 million for the assets or about $18.8 million if you include the capitalized transaction expenses. I believe that is a fair price for the business, even if we aren’t successful at driving much growth. Said another way, I would hope that with minimal effort and basic blocking and tackling, we can generate between $3 million and $4 million of EBITDA from the baseline MusclePharm business. So if I’m right, right, in the worst case, we paid between 5 times and 6 times for the business, but the deal also comes with a massive call option on the upside if we’re able to restore MusclePharm distribution to even a fraction of what it used to be.

When we did this transaction, my hope was that the outcome for all shareholders was that heads, we win some, tails, we win a lot and I still think that’s the case. So to summarize, while we certainly expect MusclePharm to generate cash, we are even more excited about the revenue growth opportunity, but that is going to take some time to develop. I’ll provide a few more high level comments before moving into Q&A. Our balance sheet remains strong. We have about $16.5 million of term loan outstanding. The interest rate on that is SOFR+275, which works out to be a little bit more than 8%. We have no balance outstanding on our $3.5 million revolver and the term loan balance of $16.5 that I provided was after our scheduled $1.1 million amortization payment and a voluntary $2.5 million principal pay down during the first quarter.

As we reported in our press release, our net debt as of March 28th was approximately $13.5 million, which represents a reduction of about $4.7 million during the first quarter. We intend to continue using our free cash flow to pay down debt. In addition, now that we’re on NASDAQ, we’re taking steps to raise the visibility of the company among potential investors. We participated in the Roth Conference last month and we currently intend to participate in the Sidoti Micro-Cap Conference next month. And if you all find these investor conferences to be helpful, we’re happy to continue doing these on a quarterly basis. To wrap it up, we don’t intend to provide any specific guidance for 2024, other than to say that when we’re having this call a year from now, we expect revenue and profitability to be higher and net debt to be quite a bit lower.

So with that somewhat long introduction, I’ll stop talking and we’ll go ahead and open it up for your questions. So, Paul, if you’d like to poll for questions.

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Q&A Session

Operator: Certainly. [Operator Instructions] The first question is coming from Igor Novgorodtsev from Lares Capital. Igor, your line is live.

Igor Novgorodtsev: Hello, Dayton, and very encouraging results indeed. However, we already had a conversation about the results, and I think, you provided a lot of details. I want to concentrate on something which is obviously struggling, FitLife legacy business. So we all know that FitLife legacy online gross margin is much higher than the store wholesale gross margin. So how much effort is to convert giving reduced food traffic, the people who come to the stores into basically online, for at least you can capture a much higher gross margin? And I guess the same question would be for the future of MusclePharm, because again, if they buy directly from you, obviously, you capture a much higher gross margin.

Dayton Judd: Yeah. Thanks for the question. So it’s somewhat complicated, but I’ll do my best to answer. So, first of all, we four — we have multiple brands within legacy FitLife, right? So it’s all of the brands that are exclusive to GNC, but it’s also iSatori, BioGenetic Labs, Energize, et cetera. So there’s in total probably eight or nine brands that fall under legacy FitLife and some of them have different channels to market than the others. But thinking about GNC in particular, like the brands that are sold within GNC, we need to be very careful, right? We do not want to compete with our GNC franchisee customers. The good news is, right, if foot traffic is down, right, or if the people are not buying them from a GNC store, they’re buying it from us, right?

So we’re the only other way that they can get the product is getting it on Amazon or Walmart.com or eBay.com or from our websites. So we naturally just pick up that volume. So some of the decline is customers just choosing to buy where they want to buy as opposed to always going to a store. So we could — it’d be kind of dangerous for us to go out there on Amazon and try and advertise or lower our price and try and compete with franchisees. And so we don’t want to do that. The franchise business is incredibly important to us and is a priority for us. And so we’re out there, if people don’t want to buy in the store, they can buy from us. Other channels like the iSatori product and Energize, that’s kind of more food, drug and mass, right, from Walmart to Walgreens, Rite Aid, CVS, et cetera.

Again, we do advertise those. So we’re out there advertising on Amazon and elsewhere, and hoping to bring those people into the fold as well. Again, to the extent they choose not to buy in a store, we want to be there where they choose to buy and that’s increasingly online. Does that answer your question?

Igor Novgorodtsev: Yes. Thank you. And a more quick follow-up question. In terms of FitLife franchisees, since GNC is no longer public, do you know if their number is shrinking or do you have any idea or they’re just buying less or have fewer revenue per vacation?

Dayton Judd: Yeah. I don’t — I’m not privy to their financials, so I don’t know. I mean, I did make a comment in my prepared remarks that we’re pretty sure we’re not losing share, right? So if I’m down low-double digits, that’s a pretty good indication that some of the places where we’re selling are down low-double digits. But I’m not privy to their financials. Their store count is not rapidly declining. I know that, right? So we can see the number of both franchise stores and corporate stores. In fact, they’ve opened corporate stores over the past year. So, the other thing I’d just say is it relates in particular to, well, GNC, but also wholesale in general for supplement type products in the brick-and-mortar channels.

If you go back and look at even our historical numbers for FitLife, 2020 — starting in 2020, right, even though that’s the year GNC went bankrupt, that was also when COVID started. And 2020, 2021 and into 2022, the first half of 2022, were some of the strongest years, right, the strongest period of time performance for GNC and a lot of other retailers. And so we absolutely participated in that surge. If you go back and look, we were growing wholesale revenue during that time. To a certain extent, what you’re seeing in the back half of 2022 and then into 2023 and we’ll see what happens in 2024, is that business just coming back down to the level where it was? Again, we — our numbers are out there so you can see it. But if you go look at where we are right now in wholesale to GNC, yet we’re below 2021, 2022 and 2023, but we’re not below 2019 and 2020.

So, there was an acceleration that happened because of COVID. It’ll be interesting to see how 2024 plays out. It may be that by the time we’re in the back half of 2024, we’re not declining, right, that it’s just come back down to where it was. I don’t know, right? I can’t I can’t tell you that for sure. But that is a phenomenon that we saw, which was the GNC franchisees were very close to many of them. They had their best years in 2021 and 2022, like better than the best year they’ve had in 20 years. So part of it was unique, perhaps, to the pandemic, but time will tell if it stabilizes or if it continues to decline.

Igor Novgorodtsev: Thank you, Dayton. I’ll get on the back of the queue and I’ll ask questions afterwards if there is time permits.

Dayton Judd: Thanks, Igor.

Operator: Thank you. [Operator Instructions] The next question is coming from George Marema from Pareto Ventures. George, your line is live.

George Marema: Thank you. Good afternoon, Dayton.

Dayton Judd: Hi, George.

George Marema: Yeah. First of all, I want to vote yes on conference calls. I appreciate you very much you’re doing it and thank you very much for not reading the press release to me. But I appreciate your format. My first question is on your operating expenses. The last couple of quarters or so is sort of in the $3.5 million per quarter range. In 2024, assuming no further acquisitions as you stand today, is the OpEx going to be somewhat level or is it going to change much?

Dayton Judd: Yeah. And I don’t have the financials in front of me. Is that when you’re looking at OpEx, you’re looking at excluding the merger and acquisition related expenses?

George Marema: Correct. Yeah. Just SG&A.

Dayton Judd: Yeah. Yeah. So, what I would say is, with the acquisition of MRC, we do spend quite a bit on advertising, although we spend a lot less now than they did when we purchased them. So there will be a similar, yeah, I think, what you’re seeing in Q3 and Q4 is probably fairly similar, should be consistent going forward. That said, again, we bought MusclePharm. We did no advertising to speak of in Q4 and we have started doing that on Amazon in Q1. So, to the extent it goes up, it will be investments in advertising, right, which we would hope to generate a return from as opposed to just kind of overhead that we’re adding, like, we’re not adding a bunch of people and we’re hiring somebody here and there, but nothing material. So, I don’t think that the number is going to be too much higher, again, with the caveat that to the extent we choose to invest in marketing, it may be, but that’s what the expectation of generating a return on the spend.

George Marema: No. That’s perfect. I was just trying to get a general feel for the operating leverage of the model here. So, and then in terms of gross margins, year-over-year, it’s really more or less flat around 41%-ish. Since your online went up quite a bit, I would have thought that your online margins are significantly higher than wholesale margins, I would assume. Do you expect the gross margins to start, like, what would be your target gross margin as you look out over the next year or two?

Dayton Judd: Yeah. I think it will be something in the low 40%s, let’s say 41% to 43% if I had to put a number on it. Online is a lot higher, but it’s very different by brand, right? And so I’ll give you an example, again, the GNC products are the products that we sell in GNC where we’re not trying to compete with the franchisees. We price very high on Amazon. We price above them, right, because we’re not trying to pull traffic away from them. We just want people that, if they want the convenience of having it show up at their doorstep instead of going to a store, they’ll pay a premium. Those margins are quite a bit higher, right? You can also, though…

George Marema: Yeah.

Dayton Judd: … go and look, you’d have to do some mathematical gymnastics because of the way that Mimi’s Rock was reporting their numbers. They previously included their Amazon fees in SG&A as opposed to in COGS, which is how we do it under GAAP as opposed to, I guess, IFRS. But their margins are, especially for the Dr. Tobias line, are generally in the, again, low 40%s, call it 42%, 43%, maybe 44%. So, as we layer in that, again, we’re not out there pricing at a premium, right, to other channels there. We’re being more competitive. We’re advertising. We’re trying to get customers. And so as you average those, right, you end up, that’s why you end up in the kind of call it 42%, 43%. If we didn’t have the other product lines, right, then, online for legacy FitLife, you should expect significantly higher gross margins. But again, that’s not the entirety of our business anymore.

George Marema: Okay. And do you know approximately how many years it’s been since those Combat Sports Bars have been on the market…

Dayton Judd: Yeah. It’s been…

George Marema: …less so far?

Dayton Judd: Yeah. Less than two years that they’ve been out of the market. And it’s kind of fascinating, right, that a company with a very successful product would kill it. But it — again, it wasn’t intentional, they were in financial distress and they hadn’t paid some of their manufacturers, including the one that makes their bars and so they just couldn’t get anyone to make them. So we have them. They completed in the last week or so. And we’ve been — I’ve been on the road and taken samples to various customers. And so we’re pretty sure, right, there’s going to be people bringing it in. Again, I just can’t tell you how big it’s going to be and they were successful on Amazon and in other places as well. The good news is I’m pretty sure we can just resurrect the old listing on Amazon with the I mean, I can’t remember how many thousands of reviews it had, but we’ll just reactivate that listing and begin selling.

George Marema: Yeah. And then my last thing, I’ve never spoken to you before and I hope to on offline after — in the days ahead. But could you give me kind of your, well, first of all, let me step back, I really a fan of your capital allocation strategy that you’ve done in the last several years. I think it’s been masterful. But I was sort of curious, what is your next three-year sort of strategic vision here for the company?

Dayton Judd: Yeah. Good question. So, like, I think, we indicated in the press release, as well as in my prepared remarks, right? We will we will keep a clean balance sheet, right? So we’re rapidly paying down debt. That gives us the flexibility to do other stuff, including more transactions. We — I believe I indicated in our earnings press release that we’re continuing to look at other transactions, which we are. I — we have the ability and in fact we will be picky. We were picky in the in the three acquisitions that we’ve done since I took over as CEO and will continue to be in the future, right? I’m not looking to bet the company or put things at risk. I obviously own a lot of it and I don’t — I’m not looking, I don’t want to lose money, right?

Just like you all as investors don’t. So we’ll be judicious. The transactions that we have done, I mean, Nutrology was very small, but I think we generated — the gross profit in the first year of ownership that we generated, I think, paid for the acquisition. I talked about Mimi’s Rock, that when all was said and done, we paid less than 3 times, right? And we’ll see what the final multiple is on MusclePharm. But the trend that maybe you can notice is I like good brands and when you have a good brand with a bad balance sheet that can present an opportunity, right? So Mimi’s Rock was in financial distress. They were in default on their debt. That’s what facilitated that transaction. MusclePharm was obviously in bankruptcy. So we’ll continue to look for transactions, but we’re not going to do a deal just for sake of doing a deal, if that makes sense.

George Marema: Okay. I really appreciate. Thank you, Dayton.

Dayton Judd: Yeah. Thank you, George.

Operator: Thank you. The next question is coming from Daniel Smoak from Smoak Capital. Daniel, your line is live.

Daniel Smoak: All right. Thanks. Hey, Dayton. Thanks for thanks for all the comments early on in the call. That was all very helpful. So, my first question, which kind of tags on to your last answer. So regarding the pipeline that you guys are looking at today, are you still — are you seeing an elevated level of opportunities, given that we’ve had higher interest rates for longer or what are you kind of seeing in that pipeline lately versus 2021 and 2022?

Dayton Judd: Yeah. So, again, I’m sure I don’t see every deal that exists, but we see we do see a fair amount. I don’t know if I’d say we’re seeing more deals, but what — there’s always a pretty steady flow of supplement companies for sale. It’s an incredibly fragmented market. What does change, right, is the expected transaction multiple. When I first started looking, you could buy companies for kind of 3 times to 4 times cash flow as kind of during COVID, right, as the businesses were doing better, right? People were running 6 times to 7 times cash flow, and as interest rates have come up, gone up, right, that multiple has come down somewhat. So the deal flow is still pretty consistent, right? But the expected multiple is what appears to move around. So, again, there’s plenty of opportunities to look at. It’s what do people kind of expect to be paid or what would they going to have to accept? So I don’t know if that answers your question, but.

Daniel Smoak: Yeah. Yeah. That does. That’s very helpful. And one other question I had on the Canadian NOLs, which is kind of interesting. I know that’s fully valued against right now, but do you anticipate being able to use a material amount of those Canadian NOLs?

Dayton Judd: I don’t know how to quantify material, right? It’s an asset. It’s a tremendous asset. Many of you know, we had — I think when I took over FitLife, we had something like $35 million of NOLs in the U.S. So it’s been a beautiful thing to have them and be able to use them. Unfortunately, that merry go round is coming to a halt here probably this year. We still have several million, but much of what remains, we have a little bit we can use here in the first quarter of 2024. But the remainder is what we have from our — the company’s acquisition of iSatori back in 2015 and that was obviously a change of control for iSatori. So that triggered the 382 limitation, which limits our ability to use, so we can only use something like $130,000 per year.

So we will take whatever steps we can to try and be tax efficient. So there’s a number of things that we have done and that we will continue to do. When we bought Mimi’s Rock. One of the challenges and one thing that perhaps made it somewhat less palatable for other buyers and certainly was a concern for us as well was it had a somewhat complicated legal structure with multiple Canadian entities, a financing entity in Barbados. And then at least for the Dr. Tobias side of the business, the OpCo was in Germany, right? So we have been working to simplify that structure and that will allow us to bring cash from overseas to the U.S. in a more tax efficient manner. But there’s also a lot that we can do and that we’ve started to do. I’ve mentioned how the businesses are largely integrated.

We have a team up in Canada, for example, that manages all of the advertising for all of FitLife, right? And so they can build FitLife in the U.S. and they can build Dr. Tobias in Germany for their services, which moves cash flow right to Canada and would allow us to start to chip away at those NOLs. Now, again, how much and how quickly that I just don’t know yet. But, yeah, I’m going to do whatever we can to be as tax efficient as possible.

Daniel Smoak: Great. Thanks. And then last question for me. Congratulations on sounds like you’ve got the Combat Crunch Bar close to launch here coming in Q2. So that’s a great accomplishment. Do you think that helps your case with new potential wholesale relationships given that you have that Combat Crunch Bar and it was pretty successful historically? I’d like to hear your thoughts on that?

Dayton Judd: Yeah. I mean, I do. It’s something we heard from customers. So it wasn’t like we had to push it on them.

Daniel Smoak: Right.

Dayton Judd: So I think a lot of people are excited to see it come back. We have presented it to some new clients as well. For example, some drugstore chains. Again, I don’t know if they’re going to take it, and just as a reminder for the way brick-and-mortar retail generally works, they don’t have multiple planogram resets every year, right? Sometimes it’s once a year. Sometimes it’s a couple of times a year, right? So you can kind of present it, but they may not decide until August, right? So it’s it is an entree into some stores that have never sold it, but there are there are customers that used to carry it that were not carrying MusclePharm products or hadn’t carried MusclePharm products for a couple of years that are taking steps right now to bring it in.

So, we know we’ll sell some. Again, I can’t put a number on it, but there definitely is interest, and like I said, it was it was popular online as well and so we’ll take advantage of that and put it out there in our online channels.

Daniel Smoak: Okay. Thanks. That’s all for me.

Operator: Thank you. [Operator Instructions] The first one is coming from George Marema. George, your line is now.

George Marema: Yeah. Hi again. I want to clarify something. So, in your remarks, you’d mentioned that the vendors selling the MusclePharm stuff for the last, I don’t know, year or two online or the business when you bought it was roughly $5 million annually online. Is it online — was it online only or was that $5 million in total online and wholesale? And how much did they also sell, was that only powders and they sell bars at all?

Dayton Judd: Yeah. Good question…

George Marema: That number…

Dayton Judd: So, yeah, the $5 million was just online. So there was additional wholesale…

George Marema: Just online.

Dayton Judd: … business that they were doing at least during bankruptcy. I think, I’m pretty sure we have continued with all of those customers or if not all of them, almost all of them. Again, it took some time, though, to kind of negotiate new agreements with them. But I’m pretty sure that all of them are still customers. We just had to go through that process and no, there were no bars, right? So the bars have been out of market for about two years. So the bars is a new opportunity or new after a couple of years.

George Marema: And do I understand correct the bars are primarily going to be sold through wholesale distributors rather than directly online from you?

Dayton Judd: No. No. We will — the first place you’ll be able to buy is online. Like I watch in the next two weeks and please go buy them. And I may be biased, but I eat a lot of protein bars, and look, I think, ours are really, really good. So, but no, they’ll absolutely be online. That’s the first place they’ll be available. But we’re making them available to our wholesale customers as well.

George Marema: The wholesale customers. Okay. Okay. Great. Thank you.

Dayton Judd: Yeah.

Operator: Thank you. And we did have another question come from Igor Novgorodtsev. Igor, your line is live.

Igor Novgorodtsev: Hi, Dayton. So, a MusclePharm, I know that you’re working hard to restore the old wholesale channels and that is probably residual bitterness from the previous relationship when Muscle Formed went bankrupt. So what would it take to get this channels restored? Would you have to sacrifice a gross margin for a while and basically give them very good pricing to get in or it just takes time? I understand that you don’t have the precise numbers, but I just kind of want to get your thinking of how you want to proceed with basically getting the business back?

Dayton Judd: Yeah. Good question. So, we are not discounting at all right now, right? Our view is the way this business was run for many, many years was it was all about discounting, it was all about revenue and profit didn’t matter, and you can see where that led, right, for the company previously. So, we — our strategy right now is we’re seeking to get in with decent margins, and then once we’re in, right, we’re happy to on occasion, right, or as necessary to promote. And so, we — I mentioned some of the retailers where we have gotten the product or where we’ve started selling the product, as that scales, right, we probably will make some decisions to invest, right, and to drive additional growth, right? But again, I view that as completely separate.

Our — we’re not discounting to get in. We’re trying to get in and then offering promotional spend to help drive growth for both partners, if that makes sense. In terms of the timing, again, it’s — this is where — it’s just a total uncertainty. There’s no one that I think could predict what would happen when. But many retailers, right, they have one reset a year, right, or maybe two and so we’re kind of somewhat at their mercy. It has been — for as widely as these products were distributed, there’s a lot of buyers. When I say buyers, I mean, retail buyers, not the end consumer, but the people that work for the companies that got burned by my MusclePharm and it’s been an education process for us to try and tell them that that wasn’t us, right?

We’re somebody different. We’re the new owner. And look, there are some of them who have said, unless you make us whole for the damage that was caused previously then we don’t want to talk about it, right? So that’s just some of the issues that we’re working through and we’ll deal with it as it comes. But it’s just — again, it’s really hard for me to say I can tell you exactly where and when we’re going to be and at what point. I will say, I think many of you know, it wasn’t Costco. And Costco is a very, very big customer for MusclePharm. If we are Costco generally carries just a couple of different powdered proteins, right? And one of them is going to be optimum and the other is going to be somebody else. Once they replace you, they’re not exactly looking to welcome you back with open arms, right.

You got to kind of work your way back in. And so if we are going to be successful with a place like Costco and I’ve put some other retailers on that list as well, it may be that we start with online, right, with their online offering or maybe in a regional assortment, right, of stores as opposed to going chain wide. So, I — look I — like I said, my prepared remarks, I wish I could give you all a number, but we’re going to do our best and we’re going to try and grow, and the way the way I view it, right, the day I signed the deal, right, it was, like, I think, we’re getting a pretty good deal and we’ve got this massive call option. Maybe it takes a year, maybe it takes five years. I don’t know, right? But I do know that, in the end, I think, there’s going to be a good investment for us.

Igor Novgorodtsev: Okay. No. That’s great. So, basically discounting is what I wanted to hear. So glad to hear that. My other question is about international opportunities. So traditionally, before Mimi’s Rock, it was based in the U.S. and Canada and maybe a little bit abroad. Now you have Mimi’s Rock and now you have MusclePharm. How much do you think can grow international business? I mean, something like Mexico or maybe South America, maybe the Middle East or anything. So just kind of how you think about international growth?

Dayton Judd: Yeah. So we — I mean, we always field calls from international buyers and international distributors. One thing in the numbers is, if we sell to — we may sell to a company or to a distributor that’s U.S. based that distributes the products internationally, right? For us, that shows up as U.S. revenue. But the end consumer is outside the U.S. I’ll give you a very specific example. Dr. Tobias products have been on iHerb for a while. They’re predominantly sold on Amazon, obviously. But we also sell to iHerb and then iHerb resells them. Well, 90% of iHerb’s revenue roughly is coming from international markets. So they’re selling in Saudi Arabia and India and Japan and Asia and Latin America, right? So we’re selling to iHerb in the U.S. that shows up to us as U.S. dollar revenue, but ultimately, the end consumer is outside the U.S. So we know there’s demand for the products outside the U.S., because we’re selling to people who are selling it.

I mentioned Coupang as well, which is similar. It’s like kind of the Amazon of South Korea. I mean, MusclePharm does quite a bit of business with Coupang. And Coupang is, we’ve talked to Coupang about a number of our brands. So, again, that’s a domestic sale for us, but it’s to an international customer that you cannot buy domestically on Coupang, right? So, the demand is there and we’re looking at ways to capitalize on it. But the good news for us is like we like selling domestically. We don’t have the currency issues. We don’t have to deal with foreign currencies. We most times — most of the time when we sell product, we have to pay for the shipment. So, I’d much rather pay to ship it to California and have them move it around the world than we have to ship it over an ocean.

Does that answer your question?

Igor Novgorodtsev: Yeah. Thank you. I don’t have any more questions. Thank you, Dayton.

Dayton Judd: Yeah. Thanks, Igor.

Operator: Thank you. And there were no other questions at this time. I would now like to hand the call back to Dayton Judd for closing remarks.

Dayton Judd: All right. Thank you, Paul. And thank you everybody for participating in our conference call this afternoon. We certainly appreciate your interest in FitLife. Happy to speak to you all individually if you would like or if you have additional questions between now and the next time we talk. But again, appreciate your interest and look forward to speaking with you in the future.

Operator: Thank you. This does conclude today’s conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.