FitLife Brands, Inc. (FTLF) Earnings Call Transcript

Good day, and welcome to the FitLife Brands Second Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Dayton Judd, CEO of FitLife Brands. Sir, please go ahead.

Good afternoon. I'd like to welcome everyone to FitLife's Second Quarter 2026 Earnings Call. We appreciate you taking the time to join us this afternoon. Joining me on the call is FitLife's President, Ryan Hansen; and FitLife's CFO, Jakob York. For the second quarter of 2026, total revenue was $26.5 million, an increase of 65% compared to the same quarter last year, with the increase driven primarily by the acquisition of Irwin, partially offset by lower revenue for Legacy FitLife. Wholesale revenue was $14.6 million or 55% of revenue, an increase of 156% compared to the second quarter of 2025. Online revenue was $11.9 million or 45% of total revenue, an increase of 14% compared to the second quarter of 2025. Gross margin was 37.0% compared to 42.8% during the second quarter of 2025. The decline in gross margin is primarily due to the acquisition of Irwin, which has historically operated at a lower gross margin than Legacy FitLife. Contribution, which we define as gross profit less advertising and marketing expense, increased 46%, driven primarily by the addition of Irwin, partially offset by lower contribution from Legacy FitLife. Net income for the second quarter of 2026 was $2.0 million compared to $1.7 million during the second quarter of 2025. Adjusted EBITDA was $3.7 million, a 10% increase compared to the second quarter of 2025. In addition to the year-over-year numbers, I would like to highlight some sequential comparisons. Total revenue increased 4.8% sequentially compared to the first quarter of 2026, with wholesale revenue increasing 3.7% and online revenue increasing 6.3%. And diluted earnings per share has increased sequentially in each of the past 3 quarters. So although we have been working through a number of challenges in the business over the past 3 quarters, we are pleased with the progress the team is making. With regard to brand level performance, I'll start with Legacy FitLife. Total Legacy FitLife revenue for the second quarter of 2026 was $12.4 million, of which 68% was from online sales and 32% was from wholesale customers. This represents a 31% year-over-year decrease in wholesale revenue and a 19% year-over-year decrease in online revenue, or a 23% decrease in total revenue. The online revenue decline was primarily attributable to MRC, and the wholesale revenue decline was primarily attributable to reduced sales to GNC. Sequentially, total revenue for Legacy FitLife for the second quarter of 2026 declined less than 0.5% compared to the first quarter of 2026, with wholesale revenue increasing 3.0% and online revenue declining 2.0%. So although the year-over-year declines are still high, we were happy to see the sequential stability during the quarter. Gross margin for Legacy FitLife declined from 42.8% in the second quarter of 2025 to 41.7% in the second quarter of 2026. However, gross margin for Legacy FitLife increased sequentially from 41.2% in the first quarter of 2026 to 41.7% in the second quarter of 2026. In fact, the second quarter of 2026 represents the third quarter in a row that gross margin for Legacy FitLife has increased sequentially. So we are encouraged by that trend. Contribution for Legacy FitLife in the second quarter of 2026 declined 25.9% to $4.2 million, and contribution as a percentage of revenue decreased to 34.1% compared to 35.4% in the same quarter of 2025. Sequentially, contribution and contribution as a percentage of revenue were approximately flat from the first quarter of 2026 to the second quarter of 2026. Moving on now to Irwin. Total Irwin revenue for the second quarter was $14.1 million, of which $10.7 million or 76% came from wholesale customers and 24% came from online sales. Gross margin for Irwin for the second quarter was 32.8%, and contribution as a percentage of revenue was 29.2%. As previously mentioned, we began selling Irwin products on Amazon in mid-October, and the business has scaled nicely for the past several months. Monthly revenue for Irwin on Amazon reached approximately $0.5 million in December of 2025, approximately $0.8 million in March of 2026 and just under $1 million in June of 2026, although June revenue was helped by Prime Day, which took place June 23 through the 26th. Sales for Irwin on Amazon have remained strong since the end of the second quarter with July revenue comparable to June, but without the benefit of Prime Day. In early April, on our fourth quarter earnings call, I outlined 5 initiatives we were focused on to drive improved performance in our business. I thought it would be productive to provide a brief update on our progress against each of those. The first initiative was to significantly improve Irwin's supply chain. This is a project that will take several more months before we can declare victory, but I'm pleased with the tangible progress we have made. More specifically, the biggest opportunity was to transition as many of our products as possible to 3-year dating compared to the 2-year dating the products had at the time of the acquisition. As a reminder, Irwin has historically written off and disposed of approximately $2 million worth of inventory each year, largely because of a combination of high MOQs and a short 12-month selling window since retail partners required 12 months of shelf life on incoming products. Increasing the shelf life to 3 years doubles the selling period, resulting in lower inventory obsolescence. As of today, we have approved 3-year formulas for 85% of Irwin's products. We have inventory on hand with 3-year dating for 12% of Irwin's products with POs outstanding for an additional 22%. We will continue to transition more and more of our formulas to 3 years as we reach reorder points. Another supply chain improvement opportunity is to reduce the number of out-of-stock situations. While we don't have this fully behind us yet, I am pleased that lost revenue due to out-of-stocks declined over 50% in the second quarter of 2026 compared to the first quarter of 2026. Additionally, we are working on other supply chain initiatives around better managing logistics expense, which we expect to favorably impact cost of goods sold. Bottom line, we are making progress improving Irwin's supply chain, which we expect to translate into improved margins in the coming quarters. The second initiative was to improve new product development at Irwin. New product launches are important to maintaining relevance in the nutritional supplement industry. When we bought Irwin, the new product pipeline was almost nonexistent. A related problem was that Irwin has historically focused on the nutritional supplement categories where it was the strongest. Unfortunately, its 2 strongest categories, weight loss and men's health, are declining significantly. In other words, Irwin was previously focused primarily on defending share in declining categories rather than strengthening its presence in growing categories. We have 3 new products currently in production and slated for launch late during the third quarter or early in the fourth quarter, although, unfortunately, most of those are in men's health or weight loss. For future product launches, however, we have a robust pipeline of products in development that are more focused on attractive and growing nutritional supplement categories. Our goal is to launch at least 4 of these new products each quarter, beginning in 2027. The third initiative was to drive off-Amazon awareness for our products, which we expect to translate into strength on Amazon as well. This strategic shift is in response to the Amazon algorithm changes that we have previously highlighted. During the second quarter, we increased our advertising and marketing expense by 16.4% sequentially compared to the first quarter of 2026. And importantly, off-Amazon spend is a much higher percentage of that number than it has ever been. Like many of our other initiatives, it is going to take some time before we know the outcome, but we are beginning to see some recent encouraging metrics. For example, average weekly sessions on Amazon for our portfolio of brands, including Dr. Tobias, is higher in the last 5 weeks compared to the 13-week period prior to Prime Day at the end of June. The fourth initiative was to leverage Irwin's sales team to cross-sell other FitLife products into the wholesale channel. The sales process in wholesale is long with many retailers resetting planograms only once or potentially twice a year. We previously announced the 2 MusclePharm SKUs that were added to over 700 Kroger locations late during the second quarter. We also previously announced the placement of 6 MusclePharm SKUs in a regional grocery chain, which was supposed to happen in the second quarter, but has been delayed until later this year. We continue to have productive discussions with a number of retailers and hope to have other updates on this initiative in the coming quarters. The fifth initiative was to operate more efficiently with regard to SG&A. SG&A for the second quarter of 2026 was approximately $4.8 million, down 3.8% sequentially from approximately $5.0 million in the first quarter of 2026. On an annualized basis, this improvement is equivalent to approximately $0.8 million. In addition, since the end of the second quarter, we have acted on other SG&A reductions and have identified other improvement opportunities we intend to implement over the remainder of this year. As previously indicated, we don't believe any individual SG&A reduction opportunity will be material on its own. But in total, we expect them to be compelling. Now let me provide a few additional high-level comments, and then we can move into Q&A. We have previously fielded questions and provided commentary about subscriber counts on Amazon, particularly when subscriber counts started declining after Amazon made onetime purchase, the default buying option about a year ago rather than Subscribe & Save. Following this change, our subscriber counts declined for several months with our weakness on Amazon over the past several months probably contributing to the decline. Our total subscriber count on Amazon across all brands bottomed in mid-April, a little above 90,000 subscribers before starting to grow again and it has increased almost every week since then. Currently, we have approximately 94,000 active subscribers on Amazon across all of our brands. Regarding the balance sheet, we made a scheduled amortization payment of approximately $1.5 million during the second quarter, bringing our term loan balance to $36.1 million. We also paid down an additional $2.2 million on our revolving line of credit during the second quarter, bringing the balance to $2.0 million. Since closing the Irwin acquisition through the end of the second quarter of 2026, we have paid off approximately $8.6 million of indebtedness in addition to paying approximately $2.0 million of transaction-related expenses. At the company's current 6.5% weighted average interest rate, this $8.6 million debt reduction over a period of roughly 3 quarters saves us approximately $0.6 million in annual interest expense. We intend to continue to deploy excess free cash flow to further reduce indebtedness. So on a full year basis, we expect the interest savings to be even greater. To conclude, we've been dealing with a number of challenges over the past 3 quarters. Some of these challenges such as general consumer weakness and changes in the Amazon algorithms are out of our control, and we have to figure out how to adapt. Other challenges such as supply chain difficulties and new product development are largely within our control. And although these challenges persist, we believe we are focused on the right priorities, and we are encouraged by the sequential improvements in revenue and profitability during the second quarter. So that concludes my opening commentary, and we can go ahead and open it up for questions.

[Operator Instructions] And the first question today is coming from Sean McGowan from ROTH Capital Partners.

My first question is about the priority you placed on getting -- on growing the share of Irwin's sales online relative to wholesale. Has that met your expectations so far? I know I would imagine that you have further to go. But so far, has that met your expectations? And I guess related to that, has it eaten into Irwin's wholesale sales? Or has it been largely incremental?

Yes. Sean, thanks for the questions. In terms of expectations, I think it's exceeded our expectations. I think early in the process, we -- shortly after the acquisition, I can't remember the number off the top of my head, but you all may remember that we sold products wholesale to a third party that was kind of like the exclusive seller on Amazon. But that was kind of in the range of $2 million to $3 million a year. And if you looked at the total kind of dollars paid for those products, it was quite a bit lower than what we're getting right now, right? So an easy expectation would have been for us just to take over what they were selling. In a matter of a few months, we not only did that, but we've grown it significantly. And there's a number of products that have a lot of momentum and continue to grow. We've got kind of one product in particular that we're having a hard time keeping in stock, and it's -- I mean, just one product on its own out of 250, 300 that we sell on Amazon under the Irwin brands, that's probably $1.5 million to $2 million a year kind of pacing right now. So we're pleased, right, with the results, and it certainly exceeded our expectations. As far as your second question, it's really hard to determine how much that is cannibalized wholesale, although I think it would be indefensible to argue that it hasn't at all, that it's entirely incremental. Like certainly, some of those sales that we're getting on Amazon are people that used to buy the products in the store. So unfortunately, that we can't quantify it. We're obviously very happy to trade a wholesale unit for a retail unit, right? It's higher revenue for us. It's higher gross profit for us. And so it's a trade we're happy to make. But that said, we wouldn't be where we are without our wholesale partners. And so we want to grow with them. We're not looking to take volumes out of the wholesale channels and move them to online. We want it to be incremental.

And a follow-up then on GNC. This has been a subject for every conference call, it seems like. But relative to your expectations, how is that situation evolving?

Yes. So that one, I would say, is lower than our expectations. It's not -- I'm probably not -- it would not be appropriate for me to comment on other -- someone else's business. But suffice it to say, specialty retail is quite challenged in the U.S. right now. There is significant store closures that are happening. And for the stores that remain open, there are significant drops in kind of comps, comp store sales, traffic, however you want to look at it. So as we kind of try and get a sense for what those numbers are, we think our declines are in excess of that right now. Another thing to remember, though, if you go back and look historically, Q1 and Q2 of 2025 was very strong for the Legacy FitLife wholesale channel, in particular, GNC. You may recall, we'd had a dispute with them late '24 that resulted in us stopping shipments to them. And Q1 in particular, and it probably bled a little bit into Q2, they were kind of restocking their DCs. So it's a little bit of a not apples-to-apples comp. But that said, I mean, this is -- if you look at -- as I look at my business, right, the things I worry the most about are, number one, declining sales with some of those retail partners where we really can't do much about it, right? There's nothing I can do that's going to reverse course for a GNC or any other -- any of our other retail partners that are struggling. So that's kind of one thing where, in some ways, we're along for the ride. The second is, and we've talked about this quite a bit, is MRC where we have been struggling for about 1.5 years. And we think we are -- I don't want to say we've inflected or we're nearing an inflection point, but we're certainly seeing some positive indications. So both of those now roll up into Legacy FitLife. And GNC for the most part explains the declines on the wholesale side and MRC for the most part explains the declines on the online side. The rest of the business, I'm quite content with how things are going.