FitLife Brands Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 14, 2025

Key Takeaways

  • Negative Sentiment: Total Q2 revenue declined 5% to $16.1 M and net income fell to $1.7 M from $6 M, mainly due to elevated M&A expenses related to the Irwin Naturals acquisition.
  • Positive Sentiment: Legacy FitLife revenue grew 7% year‐over‐year to $7.3 M with online sales representing 41% of revenue, while gross margin remained strong at 43.8%.
  • Negative Sentiment: MRC (Mimi’s Rock) revenue dropped 16% to $6.3 M and gross margin fell to 45% as 25% tariffs on its skin care brands weighed on profitability.
  • Positive Sentiment: The acquisition of Irwin Naturals adds $60 M in trailing revenue at about 35% gross margin, with expected SG&A savings of $1.5 M and combined revenue above $120 M and adjusted EBITDA of $20 M–$25 M.
  • Neutral Sentiment: Doctor Tobias is experiencing reduced Amazon session counts, prompting targeted increases in advertising spend and SEO improvements to drive traffic and stabilize sales.
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Earnings Conference Call
FitLife Brands Q2 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Filipends Second Quarter twenty twenty five Financial Results Conference Call. 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 at FitLife. Sir, the floor is yours.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Thank you, Paul. I'd like to welcome everyone to FitLife's Second Quarter twenty twenty five Earnings Call. We appreciate you taking the time to join us this afternoon. Joining me on this call is Fit 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 and A.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

For the company overall, for the 2020, total revenue declined five percent year over year to $16,100,000 Online sales were $10,400,000 or 65% of total revenue. Gross profit declined from $44.08 in the second quarter of last year to 42.8% in the 2025. Contribution, which we define as gross profit, less marketing expense, declined 9% to $5,700,000 Net income for the 2025 was $1,700,000 compared to $6,000,000 during the 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, which transaction closed on 08/08/2025, subsequent to the second quarter. Basic earnings per share declined from $0.29 last year to $0.19 this year.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Diluted earnings per share declined from $0.27 last year to $07 this year. Adjusted EBITDA for the 2025 was $3,300,000 a 13% decrease compared to the 2024, bringing adjusted EBITDA for the trailing twelve months to $13,400,000 With regard to the balance sheet, the company ended the quarter with $10,900,000 outstanding on its term loans line of credit. Considering our cash of $6,600,000 outstanding at the end of the second quarter, including the $5,000,000 deposit related to the Irwin Naturals transaction, Net debt was $4,300,000 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 2025 was $7,300,000 of which 59% was from wholesale customers and 41% was from online sales.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

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 2024. Contribution was

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

43,100,000 and contribution as a percentage of revenue decreased to 42% 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 disclosure for one more quarter. Total MRC revenue for the 2025 was $6,300,000 down 16% from the previous quarter.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

MRC's gross margin declined to 45% for the 2025 compared to 48.2% during the 2024. The primary reasons for the gross margin decline are tariffs impacting the two skin care brands as well as product mix for the Doctor. Tobias brand. With regard to tariffs, both skin care brands were subject to a 25% tariff applied to full product cost to the majority of the brand's revenue during the 2025, which cut gross margin for those products by approximately one half. Contribution declined 17% to $2,100,000 with contribution as a percentage of revenue increasing from 33.9% last year to 34% during the 2025.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

With regard to MusclePharm, total MusclePharm revenue declined 4% during the second quarter, with wholesale and online revenue declining 63% respectively. MusclePharm's gross margin declined from 36.6% last year to 30.8% during the 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 2024, the company offered additional promotional incentives to certain wholesale partners to drive growth for the Muscle Farm brand, and those efforts are ongoing. Wholesale revenue for this brand is somewhat lumpy, so quarter to quarter wholesale revenue will not accurately reflect our progress.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

For example, monthly wholesale revenue for Muscle Farm in July was the highest it has ever been since we bought the brand. In mid March twenty twenty five, the company launched the new Muscle Form Pro series, a collection of hold on one sec. Ryan's going to take over for a sec while you drink.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

So in mid March, the company launched the new Muscle Farm Pro series, a collection of premium sports nutrition products and a pilot in high volume Vitamin Shoppe stores consisting of approximately 60% of Vitamin Shoppe's nationwide store base. Certain items from the Muscle Farm Pro Series line will remain in Vitamin Shoppe stores beyond the conclusion of the pilot. We have begun selling the Muscle Farm Pro Series line online 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 twenty twenty five was strong for our legacy FitLife business but somewhat challenged for MRC. Among our existing brands, the performance of the Doctor.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

Tobias brand is 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. So it is a traffic problem and not a product or conversion problem. We are focused on a number of these session counts including targeted increases in advertising spend, improved SEO for our listings, and driving external traffic to our Amazon product pages.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

For many of our products, the decline in sessions started during the 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 Minerals with no dilution to shareholders. With regard to Erwyn, let me first say how excited we are to be stewards of the Erwyn Naturals brands and to welcome the Erwyn team to the FitLife family.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

Since announcing the acquisition, we have received a number of questions about Erwin. So I will provide some general commentary now and we will be happy to answer additional questions during the Q and A session. First, a bit of history. We have been working on the Erwin transaction for more than a year. We signed our first NDA with the company on 08/02/2024, a week before they filed bankruptcy.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

Navigating the bankruptcy was a circuitous process, which ultimately resulted in FitLife acquiring a claim from a creditor, submitting its own plan of reorganization for Erwin, and then ultimately participating in an organized sale process and becoming the stocking horse bidder for the assets. This lengthy and often litigious process is the reason for the elevated M and A expense you saw in the P and 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 Erwin 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 to 250,000,000 of pretax profit for its owner and operated without debt.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

Then 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. And 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 twenty twenty four, after being in default for some time, Erwin decided to exit the ketamine clinic business and refocus on its core nutritional supplement business.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

But by then, the damage was unfortunately done, and Erwin 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, distraction of the ketamine business. And three, the loss of Costco US as a customer.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

The company had two SKUs in Costco US, stores, and the lead up to oh, excuse me. Yeah. Two two SKUs in Costco US stores. And leading up to and during COVID, those SKUs did well, and Costco became Irwin's largest customer. A couple of years ago, Costco discontinued one of the two SKUs, and then it discontinued the second SKU in early twenty twenty five.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

For the trailing twelve months as of 06/30/2025, adjusting for the loss of distribution in Costco U. S. Stores in early twenty twenty five, Erwin generated revenue of approximately $60,000,000 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. Erwin's SG and A for the trailing twelve months as of 06/30/2025 was approximately $14,500,000 As previously announced, we expect annual SG and A to be approximately $1,500,000 lower based on the number of employees rehired by FitLife as part of the transaction.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

And we expect to identify further cost savings opportunities as we become more familiar with Erwin's operations. Erwin has an incredible brand with strong distribution. We look forward to updating our investors on Erwin's progress during our third quarter earnings call. For the first full year of operations, we expect the combined FitLife and Erwin businesses to generate in excess of $120,000,000 of revenue and adjusted EBITDA of between $20,000,000 to $25,000,000 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.

Ryan Hansen
Ryan Hansen
EVP at FitLife Brands

As our familiarity with Erwin 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. So Paul, feel free to go ahead and poll for questions.

Operator

And the first question today is coming from Ryan Myers from Lake Street Capital Markets. Congratulations

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets

on the acquisition. But 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?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yes. This is Dayton. I've had a coughing fit. I'll do my best to talk and Ryan can back me up. So look, I think we still are hoping to achieve organic growth, in the legacy business or not counting the Erwin acquisition.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

I think if you look at the numbers, we're down about 1,400,000 over the first half of last year. So we're optimistic we can make that up. The biggest challenge in the business is Mimi's Rock, and in particular Doctor. Tobias. And I'm sure we'll talk more about that here in the Q and A.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

But if you take that out, again, and you look at the rest of the business, the rest of the business was up 4%, right? So 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. So, 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 Doctor. Tobias have kind of not been ideal here for the first half of the year.

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. I think if you just do the math, since the businesses are roughly equivalent sizes, you're, yeah, you're in the high thirties. A couple of things I would point out. So if you go back and look at FitLife, before we made the online transition that we did, right, something in the high 30s was pretty typical, right? So that's not unusual for a business that is predominantly wholesale to be in the mid- to high 30s.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So we would expect that number, right, the Irwin number to increase as we sell more products online. But, yeah, if you if you just do the math. The the other thing I will say is the the numbers that we've given you are, you know, our best analysis with the numbers that we've been given and making adjustments on our part. And by that, I mean it's somewhat tricky sometimes to remove a customer, right, all of the math, all of the economics associated with a customer, like we did with Costco U. S.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

And the other thing I would say is if you went and looked at Erwin's numbers when they were public, you'd see a very, very high gross margin. Different companies account for things differently. Erwin was including all distribution and logistics expense below the line in SG and A, whereas we included above the line in COGS. And so we've had to try and normalize their numbers to ours or put the accounting on kind of apples to apples basis. And so, yes, that 35% is our best guess of where the business is adjusting for those items, right?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Standardizing their accounting to how we do the accounting as well as trying to strip out the effects of the Costco business. But yes, to answer your question, Ryan, directly, yes, 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.

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets

Got it. And then last question for me. Makes sense on the surface just where you guys can gain scale, taking SG and A out as well as kind of on the gross margin side. But just curious any potential revenue synergies between the two companies that you think you've seen so far.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. Yeah. For sure. And and I think we tried to call this out, I think, in our press release when we announced the transaction, or what I'll call revenue synergies. You're maybe you're thinking something differently.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

But, you know, they they don't sell anything online or or I should say on Amazon. They sell on their own websites. You know, we we will they they sell products, you know, wholesale to, you know, one or more third parties who then sell the products on Amazon, right? We just like we did with Muscle Farm transaction, we will internalize that. So we will help them grow online revenue that they would not be able to do on their own.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So that would be kind of one source of potential kind of 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's largest customer. They're very strong in Walmart.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

They're very strong in Walgreens. They're very strong in Costco up in Canada. Those are stores where retailers where we have some relationship, but certainly not the relationship that the Irwin team has. And so we're hopeful, right? We as you all know, we have been working hard to line up more brick and mortar distribution for Muscle Farm products, right, in mass market channel.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Perhaps leveraging the existing Erwin sales force to help bring some strength to that effort might bear fruit. So we're optimistic, right, that these complementary channel strengths can benefit each part of the organization.

Ryan Meyers
Senior Research Analyst at Lake Street Capital Markets

Makes sense. Thanks for taking my questions.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. Thanks, Ryan.

Operator

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

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. Would say the general trend is comparable, but the magnitude is maybe not as much. Right? So 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, but not at all for Erwin.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So, yeah, you should expect the back half of the year to be, 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 NovemberDecember revenue to be 20% lower or 25% lower than JanuaryFebruary. Whereas with our general health brands, general health products, it tends to be about half of that. So does that answer your question, Sean?

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

Yes, it does. And then looking at SG and A, talked about expecting it to be a million a half lower than that 14 and a half million. But 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?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yes. So the the 14 and a half that we gave you, excludes advertising, not because we took it out, but because they did during bankruptcy. They they quit their advertising and marketing. Or I don't wanna say take it out, eliminated it entirely, but it's in the, very, very low kind of hundreds of thousands. So 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.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Right? But the our expectation is that will drive additional growth as opposed to being a a cost drag on the business.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

Okay. Are you expecting I know you you you I'd say you, but I think Brian read it. Yeah. There'll be additional transaction costs in the third quarter. Would are you anticipating any kind of big restructuring costs as well?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

No. No restructuring. Right? So this this was an asset transaction, and so there are, costs. For example, we didn't hire all of the employees, of Irwin.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

And and any restructuring costs associated or layoffs, severance, whatever you want to call it, of employees we do not hire are not borne by us. So no, we don't anticipate any restructuring costs, so to speak, but there will be a number of initiatives, right? I mean, obviously, legal expenses that we still need to pay, you know, audit work that we need to get done, valuation work that we need to get done. There will be incremental onetime expenses that that we expect to incur largely in the third quarter and to a lesser extent beyond that, but no restructuring costs, so to speak.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

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

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

Okay. And then two other questions on on Erwin. Will there be will we be filing any, like, pro form a numbers with with more detail?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah, good question. So we are required, within seventy five days of closing the transaction to file on a Form eight ks with the SEC, a couple of things. One would be some audited historical financial statements for Erwin and also some pro form a financials. It's gonna be I mean, you'll see it when we file it, but this is a somewhat of a unique situation because, you know, historical audited financials Erwin for 2023 and 2024 do not reflect the business that we bought, right? We didn't buy the ketamine business.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

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. So 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.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So nothing below the line. Again, no taxes, no interest, none of that. And 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. And that's due if if my math is correct, I think we have to file that by October 22.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

Okay. And what would the pro form a financials be then?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

That they'll be, yeah. We're we're actually needing to clarify that with the SEC, because we've been working with them on the disclosure required. But since we only have to produce the abbreviated financial statements for IRWIN, our expectation, again, to be confirmed with the SEC, is the pro form a financials will also be abbreviated. So essentially, revenue down through the operating income line.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

So just to be clear, we should not look at whenever that is filed, we should not look at those pro pro form a 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 kinda taking what it was, which is not what you bought, and adding it to what you are. Is that is that what it's gonna look like? Like, does it give you

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

kind Yeah. It it's not it's not what it would have been if we had owned it as of 2023. But but to be clear, what what's being included in those abbreviated financial statements for Erwin is only the asset, is only the nutritional supplement business, right? So Erwin had a cannabis business. We didn't acquire that.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

They had the ketamine clinics and or what was left of that business. We didn't acquire that. So 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.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. 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. And sometimes companies, you know, if they're in bankruptcy, maybe aren't in a position to offer the promotional support that Costco wants. So, you know, we had this same challenge with Muscle Farm where they had, you know, very strong distribution in Costco. Now 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.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

And, know, again, we've told that Costco is open to, you know, resuming discussions once the company has exited bankruptcy. So certainly, you know, that's on our list of follow-up conversations. I will also point out that, you know, Costco Canada, right, separately has been a client, a customer of Irwin for some time and and a pretty pretty big customer, and and they continue to be a customer. So the the none of the products that were in Costco Canada have been discontinued at this point.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah, so it's 90 something percent, right? MRC is probably 92, 93% of revenue is Doctor. Tobias. There's the two skin care brands also, and we talked a bit about their performance. Their performance has been a challenge since we bought them.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

They're not core to our business. They're very small. And they're skin care, right, which is not something we looked to acquire. It just so happened that they came along with that business. So they're continuing to struggle, and we mentioned the tariffs that are associated just with that business.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Just on the tariffs, the issue there is our manufacturer for those products, even though, is in The United States, And the primary outlet in terms of, where we sell for those brands is in Canada. And so 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 U. S. Up into Canada to sell them. So, yes, I would say all par, right, that both the skin care brands and Doctor.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Tobias are challenged, but for different reasons. For the skin care, it's the economics and the tariffs, and for Doctor. Tobias, it's the sessions, the page views that we're experiencing on Amazon.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. There are. Ironically, the our manufacturer these were Canadian businesses, right, manufactured in Canada, sold in Canada. Until, you know, a couple few years ago, the owner of that that manufacturing company decided they'd rather live in Florida than in Canada. So they moved their business down to Florida.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

And now because of that, right, 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 low tens of thousands. But you can do the math and look at 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. Yes, MRC went from 48.2% down to 46.5%, so 170 basis point decline.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

That's about it's only about $100,000 decline, right, in gross profit. So and tariffs are, again, to frame it for you, in the low tens of thousands. So, yeah, I'd love to fix that, but the amount of work I'd have to do to do that, you know, and the fact that, you know, I just bought, you know, Erwin and we've got a lot of other priorities such as Doctor. Tobias, right, we're focused on solving the biggest opportunities or the biggest pain points. But yeah, if I had more time and more people, absolutely, we'd be looking to fix that.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

But in the grand scheme of things, again, we're talking about tens of thousands and not millions.

Sean McGowan
MD & Senior Research Analyst at Roth Capital Partners, LLC

Yeah. Not worth it. Okay. Thank you very much. Appreciate the the color.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yep. Thanks, Sean.

Operator

Thank you. The next question is coming from Sameer Patel from Askeladdin Capital. Sameer, your line is live.

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

Dayton. Congrats on the Erwin deal. I've got three questions. So 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. I mean, what do you think kind of the low hanging fruit is, over the next six, twelve, eighteen months with Erwin?

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

Is it kind of regaining some of those doors that were lost due to the bankruptcy and the distraction, or is it taking Muscle Farm or Doctor. Tobias or kind of one of your other brands and trying to get it more distribution through those, retail doors? That's that's the first one.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Okay. Yeah. So in terms of lost distribution, to to be clear, you know, the the brands are very strong. Right? The the only distribution, right, that we're aware of that the company lost has been Costco, and and I talked about that.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

In fact, we subscribe to or get, IRI data, and many of you may get that as well. Like if you look at the sales of the Irwin brand through mass market store, right, through drug stores, through grocery stores, right, it's growing as we look at the data provided from IRI, for example. So is not Muscle Farm was very different situation where we acquired that brand and they had lost the majority of their distribution. And 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.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

One thing we love about this acquisition is, again, other than Costco, they have not lost any distribution. And where they still have distribution, they are growing. I mentioned the I think in our press release when we announced the transaction, we put their kind of their first quarter revenue. I can't remember, but I believe off the top of my head, it was around $33,000,000 you look you compare Yes, that's for the sorry, the 2025. If you compare that number to the 2024 and you well, even if you don't adjust for Costco, it's a slight decline, let's call it single digit decline.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

If you adjust for Costco out of both the 2024 and the 2025, it's a very, very like a very small single digit decline. So we like the fact and are encouraged by the fact that the brand does not appear to be declining, right? I mentioned in or maybe Ryan mentioned in our prepared remarks that it was declining 13% per year from 2021 to 2022 to '23 to 'twenty four. If you look just at the first half numbers, right, that is dramatically lower and much closer to being stable. So again, this is not a bet.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Muscle farm 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. So does that answer your question, Sameer?

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

Yes. I mean, the second part of it, I guess, 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 and, you know, including MRC and Muscle Farm and gaining you know, getting those into those doors that they're already in.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. So so online, taking Erwin online, again, they they they don't sell anything on their own right now on Amazon. They sell everything through a third party. I think if you look at their their DTC, like their Shopify, their own website sales, it's between 2 and $3,000,000 annually. Right?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

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. So 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. And even if you're talking single digits of millions, again, that's the highest gross margin opportunity for a supplement company, right, is selling online directly to the end consumer.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So that has the potential to be a nice boost to revenue, more importantly, an outsized boost to gross margin, gross profit and profitability. In terms of other brands, look, think the biggest we have a number of brands, as you all know. Muscle Farm is the one where we have been working to restore brick and mortar distribution for those products. And we've been calling on companies, and we have relationships with all the companies that I've mentioned. But having an experienced sales force that has certainly deeper and more longstanding relationships with these companies, having them include or introduce, for example, Muscle Farm products Muscle Farm RTD is an example, the ready to drink protein, as part of those sales calls, right, we think that's an opportunity.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Right? What it's gonna amount to, I couldn't tell you. But, you know, it's not gonna hurt the business. It just has the potential to help. So

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

Perfect. Okay. Second question with regards to MRC is just philosophically, that you have a larger portfolio of brands, I mean, much do you really care about optimizing for any individual brand at an individual point in time vis a vis just kind of looking across the business and seeing where your highest ROI is? I mean, you mentioned kind of priorities and things like that, right? So not just in terms of cost, but in terms of time.

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

So I guess, would you ask investors to kind of focus on the performance of the individual sub brands or just kind of focus on the overall top line EBITDA cash flow if you're choosing to kinda 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 kinda classic quadrant analysis? Yeah.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

I I think so good question. I I think, clearly, the overall view, the overall performance of the business is the most important number to look at. You know, that said, right, I think as an investor, right, I am an investor. Right? If I if I were an investor in this company and was a participant on the conference call and not the CEO of the business, right, I would have questions about Mimi's Rock.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

It is a business that has done well for us and it has more recently has been a bit challenged. It's a pretty big part of our business, right? Skin care brands, I would tell you, you guys should never leave or never lose one minute of sleep over the skin care brands, right? Doctor. Tobias, on the other hand, is a good, what, 40% of our business and is a cash cow, generates a lot of cash for us.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So 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, right? It is the words you used was more of a cash cow, and that is what it is. That said, we don't a cash cow should be more stable. And if you look back over time, over several years, the revenue generated by this brand has been quite stable.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

There are ups and downs, right? It might swing up and down, I don't know, maybe $3,000,000 from peak to trough, and we're closer to a trough right now. So we're hopeful that what we're seeing right now is just that normal cycle. But 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.

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

Okay. Perfect. And then just a final question is your, you know, after future M and A, and, obviously, You just executed on a big one here. You know, you can delever close to four times, you know, within a few years.

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

You know, so at what point I mean, I know you kind of had that upper half of two and a half times leverage. So there's the financial angle, but for just kind of an operational perspective, I presume you want to spend some amount of time focusing on

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yes. I think we may have lost you there. I think we've there. Of that. I think the question was about leverage and how comfortable we are with that and what our priorities are. Is that right?

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

No. The question was more around just operationally. I mean, like we can do the math on kind of when you deleverage, say, 1x and you have financial ability. But I'm just asking from an operational perspective since this is so transformational. I mean, I assume it's gonna be a while before you're back in the market on m and a.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So, yeah, I guess what I would I I would say yes with a caveat. So the yes is, this is obviously the biggest transaction we've done. This is transformative. We're very excited.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

And this is where we're going to be spending our time. In fact, both Ryan and I right now are sitting in Los Angeles right at Irwin Naturals, right? So we are engaged and focused, and our number one priority is Irwin Naturals. And I would say our number two priority right now is Mimi's Rock, right, and Doctor. Tobias specifically.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

But to your question about does this mean we're going be out of the market for a while, I would say yes. Like you should not expect to see us close another transaction in the next quarter. But I will point out, and I think I've commented on this before, a lot of these transactions are very, very long lead time. And so if we want to potentially have a transaction to close six months, twelve months, eighteen months down the road, we have to always be looking. So I mentioned in the prepared remarks that Erwin was a little more than a year from the time we first signed the NDA to when we closed the transaction. Muscle Farm, we signed the NDA, I think, in November '2, closed the transaction in October '3, so almost a full year. Mimi's Rock, we signed the NDA, I think, initially in November 2021 and closed the transaction in February 2023, so more than a year. So 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.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

At the same time, we were looking at Erwin, as you can imagine, right, because it's been going on for a year. And 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. So there were transactions that were at the LOI stage. At the time, it looked like that we finally made a breakthrough on Erwin, we just kind of put it on the back burner. So we're 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, you know, in the next six, twelve, eighteen months, whatever time frame makes sense, maybe do the next transaction.

Samir Patel
Founder & Portfolio Manager at Askeladden Capital

Okay. Thanks. And if I can sneak in just one more. I mean, at this point, kinda given your new scale, is there 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 was financially attractive?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Yeah. No. We would definitely still do tuck ins. So, I don't think we'd be looking at tuck ins that don't provide at least, call it, 10% or so of EBITDA, maybe 1.5 minimum, maybe $2,000,000 minimum EBITDA. Right?

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Just 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. So as we get bigger, certainly, our preference is to do bigger deals, but we love tuck ins. The reason we love tuck ins is Muscle Pharma is one example, right? We bought that brand and we brought on one person.

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

So if it's a smaller deal, it's very easy to bolt on to our existing platform and incur very little incremental SG and A. Whereas a deal like Erwin, obviously, right, is substantial and is not a tuck in and does not just bolt on to our platform and doesn't bring incremental SG and A. Their SG and A is higher than ours. So yes, we're looking at both, or we will continue to look at both as we go forward.

Operator

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

Dayton Judd
Dayton Judd
Chairman & CEO at FitLife Brands

Thank you all for your interest in FitLife. If you have any questions between now and our next earnings call, feel free to reach out to us. You can e mail us at investorfitlifebrands dot com, and we'll be happy to answer your questions. Otherwise, we look forward to speaking with you next quarter. Thank you.

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.

Executives
    • Dayton Judd
      Dayton Judd
      Chairman & CEO
    • Ryan Hansen
      Ryan Hansen
      EVP
Analysts
    • Ryan Meyers
      Senior Research Analyst at Lake Street Capital Markets
    • Sean McGowan
      MD & Senior Research Analyst at Roth Capital Partners, LLC
    • Samir Patel
      Founder & Portfolio Manager at Askeladden Capital
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