MusclePharm Corporation Reports Second Quarter 2018 Financial Results
Achieves third consecutive quarter of sequential revenue growth
Conference call begins at 4:30 p.m. Eastern time today
BURBANK, Calif. (August 14, 2018) – MusclePharm® Corporation (OTCQB: MSLP) (“MusclePharm” or the “Company”), a scientifically driven, performance-lifestyle sports nutrition company, reports financial results for the three and six months ended June 30, 2018 and provides a business update.
Second quarter 2018 financial highlights include the following (all comparisons are with the second quarter of 2017):
●
Revenue was $27.1 million, an increase of 3.5% from $26.2 million
●
Operating profit was $0.1 million, compared to an operating loss of $2.4 million
●
Net loss was $1.1 million, a decrease of 65.9% from $3.1 million
●
Non-GAAP adjusted EBITDA was $1.5 million compared with $0.7 million
●
Cash and equivalents were $2.4 million as of June 30, 2018
“Q2 represents our third consecutive quarter of sequential revenue growth and improved operating results, demonstrating continued progress toward our goal of sustained growth and profitability. We continue to manage our operating costs and expenses diligently while investing in our trade partnerships and online marketing platforms,” said Ryan Drexler, Chairman, President and CEO of MusclePharm.
“In addition to the customer wins reported last quarter, I am proud to report that we have continued to expand our distribution footprint with additional customer wins and product category expansions at major retailers in both the US and Canada,” he added.
“As you can see from our continued top-line growth, the efforts and investments we are making, particularly with our key trading partners, Costco, Amazon and iHerb, are starting to show significant payback as each customer exceeded 10% of our revenues for the Quarter.”
Second Quarter Financial Results
Net revenue for the second quarter of 2018 was $27.1 million, a 3.5% increase from $26.2 million for the second quarter of 2017. The increase was primarily due to higher domestic sales, as well as a decrease in discounts and sales allowances reflecting a shift away from traditional discounts and allowances and toward partnership advertising and marketing efforts with key customers.
Gross margin for the second quarter of 2018 was 30%, up from 29% for the second quarter of 2017. Gross margin was positively impacted by the decrease in traditional discounts and sales allowances noted above, combined with improved per unit pricing and lower whey protein costs.
Advertising and promotion expenses for the second quarter of 2018 were $5.0 million, compared with $2.2 million for the second quarter of 2017, with the increase primarily related to costs associated with in-store support and advertising initiatives with key partners as we continue to invest in the relationships with our largest customers. Salaries and benefits expenses for the second quarter of 2018 were $2.3 million, down 12% from $2.6 million for the second quarter of 2017, with the decrease due primarily to lower stock-based compensation expense and a reduction in headcount. Selling, general and administrative expenses for the second quarter of 2018 were $2.7 million, down 6% from $2.8 million for the second quarter of 2017, with the decrease related to lower office and freight expenses, lower depreciation and amortization, and lower board of directors and information technology expenses. Research and development expenses were $208,000 and $152,000 for the second quarters of 2018 and 2017, respectively. Professional fees for the second quarter of 2018 were $626,000 down from $727,000 for the prior-year period, due mainly to lower legal fees.
In the second quarter of 2018 the Company recorded a $2.7 million reversal of an accrual related to the favorable settlement of an employment related litigation for executive severance, compared with $1.5M settlement expense in the second quarter of 2017. Interest and other expense, net, for the second quarter of 2018 was $1.2 million compared with $0.7 million for the second quarter of 2017, with the increase primarily due to interest-related expenses and the amortization of related-party debt discount.
Net loss for the second quarter of 2018 was $1.1 million, or $0.07 per share, compared with a net loss of $3.1 million, or $0.23 per share, for the second quarter of 2017. Adjusted EBITDA for both the three and six months ended June 30, 2018 was $1.5 million compared with adjusted EBITDA of $0.7 million and negative $0.3 million for the three and six months ended June 30, 2017, respectively, with the improvement primarily related to improved operating results. A reconciliation of GAAP to non-GAAP measures is provided below.
Year-to-Date Financial Results
Net revenue for the six months ended June 30, 2018 was $53.7 million, a 2.8% increase from $52.2 million for the six months ended June 30, 2017. Gross margin for the first six months of 2018 was 31%, an improvement from 27% for the first six months of 2017.
Advertising and promotion expenses for the six months ended June 30, 2018 were $8.7 million, compared with $4.1 million for the six months ended June 30, 2017. Salaries and benefits expenses for the first six months of 2018 were $4.4 million, compared with $5.9 million for the first six months of 2017. SG&A expenses for the six months ended June 30, 2018 were $5.2 million, compared with $5.7 million for the first six months of 2017. R&D expenses were $420,000 for the first six months of 2018, compared with $289,000 for the first six months of 2017. Professional fees were $1.2 million for the six months ended June 30, 2018, compared with $1.6 million for the first six months of 2017.
The net loss for the six months ended June 30, 2018 was $3.4 million, or $0.23 per share, compared with a net loss of $6.3 million, or $0.46 per share, for the six months ended June 30, 2017.
Cash and cash equivalents as of June 30, 2018 were $2.4 million compared with $6.2 million as of December 31, 2017. The Company used $39,000 of cash to fund operations during the six months ended June 30, 2018, an improvement from $1.8 million of cash used during the first six months of 2017.
All results summarized in this press release (including in the financial statement tables) should be considered preliminary, are qualified in their entirety by the financial statement tables included in this press release, and are subject to change. Please refer to MusclePharm’s Quarterly Report on Form 10-Q for the period ended June 30, 2018, which will be filed with the U.S. Securities and Exchange Commission on or about August 14, 2018.
Second Quarter and Recent Business Highlights
●
Secured distribution at Giant Food stores, one of several grocery banners under the Ahold Delhaize umbrella.
●
Secured distribution at Uniprix, one of Quebec’s largest drugstore retailers.
●
Outstanding start to Walmart Canada launch – all new items are performing above category hurdle rates.
●
Launched expansion of our successful Combat franchise with the addition of Pre-Workout and BCAA+Recovery formulations.
●
Realized a substantial increase in net revenue from a key online partner, iHerb.com.
Non-GAAP Financial Measures
Adjusted EBITDA, including certain one-time adjustments, is a non-GAAP measure that excludes stock-based compensation expense, restructuring charges, depreciation and amortization, as well as other items defined in the reconciliation table included in the press release. Management believes Adjusted EBITDA is a primary metric to track company performance as it excludes one-time and non-recurring items, and reflects the state of the underlying business.
Conference Call and Webcast
MusclePharm will hold a conference call and webcast today, Tuesday, August 14, 2018, as follows:
Time:
4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Domestic Dial-In:
800-608-8202
International Dial-In:
702-495-1913
A live webcast will be available online at http://ir.musclepharmcorp.com/MSLP/events/2181 and archived for 90 days. An audio replay of the conference call will be available for 48 hours beginning approximately two hours after the completion of the call by dialing 855-859-2056 for domestic callers and 404-537-3406 for international callers and use conference ID 8986598.
About MusclePharm Corporation
MusclePharm® develops, manufactures, markets and distributes branded nutritional supplements. Its portfolio of recognized brands includes MusclePharm® Sport Series, Essential Series and FitMiss™, as well as Natural Series, which was launched in 2017. These products are available in more than 100 countries worldwide. MusclePharm is an innovator in the sports nutrition industry with clinically proven supplements that are developed through a six-stage research process utilizing the expertise of leading nutritional scientists, physicians and universities. For more information, visit www.musclepharmcorp.com.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Statements that are not a description of historical facts constitute forward-looking statements and may often, but not always, be identified by the use of such words as "expects," "anticipates," "intends," "estimates," "plans," "potential,” "possible," "probable,” "believes," "seeks," "may,” "will,” "should," "could" or the negative of such terms or other similar expressions. Actual results may differ materially from those set forth in this release due to the risks and uncertainties inherent in the Company's business. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, the Company's Quarterly Reports on Form 10-Q and other filings submitted by the Company to the Securities and Exchange Commission, copies of which may be obtained from the SEC's website at www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement and the Company undertakes no obligation to revise or update this release to reflect events or circumstances after the date hereof.
Investors Contact
LHA Investor Relations
Jody Cain
jcain@lhai.com
Kevin McCabe
kmccabe@lhai.com
310-691-7100
Financial Tables to Follow
MusclePharm Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
| | | |
| | | |
| ASSETS | | |
| Current assets: | | |
| Cash | $2,442 | $6,228 |
| Accounts receivable, net of allowance for doubtful accounts of $1,556 and $1,363, respectively | 16,278 | 16,668 |
| Inventory | 7,651 | 6,484 |
| Prepaid expenses and other current assets | 1,140 | 1,082 |
| Total current assets | 27,511 | 30,462 |
| Property and equipment, net | 1,491 | 1,822 |
| Intangible assets, net | 1,157 | 1,317 |
| Other assets | 238 | 225 |
| TOTAL ASSETS | $30,397 | $33,826 |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | |
| Current liabilities: | | |
| Accounts payable | $16,562 | $11,742 |
| Accrued liabilities | 5,700 | 7,761 |
| Accrued restructuring charges, current | 564 | 595 |
| Obligation under secured borrowing arrangement | 2,787 | 5,385 |
| Line of credit | 2,000 | 3,000 |
| Total current liabilities | 27,613 | 28,483 |
| Convertible note with a related party, net of discount | 17,071 | 16,669 |
| Accrued restructuring charges, long-term | 80 | 120 |
| Other long-term liabilities | 1,248 | 1,088 |
| Total liabilities | 46,012 | 46,360 |
| Commitments and contingencies | | |
| Stockholders' deficit: | | |
Common stock, par value of $0.001 per share; 100,000,000 shares authorized 15,940,288 and 15,526,175 shares issued as of March 31, 2018 and December 31, 2017, respectively; 15,064,667 and 14,650,554 shares outstanding as of June 30, 2018 and December 31, 2017, respectively | 15 | 14 |
| Additional paid-in capital | 159,918 | 159,608 |
| Treasury stock, at cost; 875,621 shares | (10,039) | (10,039) |
| Accumulated other comprehensive loss | (165) | (150) |
| Accumulated deficit | (165,344) | (161,967) |
| TOTAL STOCKHOLDERS’ DEFICIT | (15,615) | (12,534) |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $30,397 | $33,826 |
MusclePharm Corporation
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
| | Three Months Ended June 30, | |
| | | | | |
| Revenue, net | $27,104 | $26,192 | $53,651 | $52,201 |
| Cost of revenue | 18,952 | 18,576 | 37,280 | 38,115 |
| Gross profit | 8,152 | 7,616 | 16,371 | 14,086 |
| Operating expenses: | | | | |
| Advertising and promotion | 4,991 | 2,240 | 8,652 | 4,128 |
| Salaries and benefits | 2,295 | 2,620 | 4,449 | 5,889 |
| Selling, general and administrative | 2,654 | 2,829 | 5,200 | 5,715 |
| Research and development | 208 | 152 | 420 | 289 |
| Professional fees | 626 | 727 | 1,198 | 1,609 |
| Settlement of obligation | (2,747) | 1,453 | (2,747) | 1,453 |
| Total operating expenses | 8,027 | 10,021 | 17,172 | 19,083 |
| Profit/(Loss) from operations | 125 | (2,405) | (801) | (4,997) |
| Gain on settlement of accounts payable | — | 22 | — | 471 |
| Interest and other expense, net (Note 6) | (1,165) | (690) | (2,473) | (1,668) |
| Loss before income taxes | (1,040) | (3,073) | (3,274) | (6,194) |
| Income taxes | 34 | 76 | 103 | 104 |
| Net loss | $(1,074) | $(3,149) | $(3,377) | $(6,298) |
| | | | | |
| Net loss per share, basic and diluted | $(0.07) | $(0.23) | $(0.23) | $(0.46) |
| | | | | |
| Weighted average shares used to compute net loss per share, basic and diluted | 14,701,473 | 13,845,301 | 14,658,812 | 13,809,603 |
MusclePharm Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | |
| | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| Net loss | $(3,377) | $(6,298) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | |
| Depreciation and amortization | 558 | 790 |
| Gain on settlement of accounts payable | — | (471) |
| Settlement of obligation | (2,747) | — |
| Bad debt expense | 414 | — |
| Amortization of debt discount | 403 | — |
| Stock-based compensation | 257 | 1,148 |
| Other | — | 819 |
| Changes in operating assets and liabilities: | | |
| Accounts receivable | (71) | (120) |
| Inventory | (1,169) | 2,465 |
| Prepaid expenses and other current assets | (56) | (607) |
| Other assets | (15) | — |
| Accounts payable and accrued liabilities | 5,835
| 530 |
| Accrued restructuring charges | (71) | (73) |
| Net cash used in operating activities | (39) | (1,817) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | |
| Purchase of property and equipment | (73) | — |
| Net cash used in investing activities | $(73) | $— |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Payments on line of credit | (1,000) | — |
| Proceeds from secured borrowing arrangement, net of reserves | 23,785 | 12,116 |
| Payments on secured borrowing arrangement, net of fees | (26,383) | (11,650) |
| Repayment of capital lease obligations | (69) | (63) |
| Net cash used in financing activities | (3,667) | 403 |
| Effect of exchange rate changes on cash | (7) | 24 |
| NET CHANGE IN CASH | (3,786) | (1,390) |
| CASH — BEGINNING OF PERIOD | 6,228 | 4,943 |
| CASH — END OF PERIOD | $2,442 | $3,553 |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | |
| Cash paid for interest | $1,936 | $1,086 |
| Cash paid for taxes | $69 | $62 |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: | | |
| Property and equipment acquired in conjunction with capital leases | $— | $12 |
| Purchase of property and equipment included in current liabilities | $4 | $— |
| Interest paid through issuance of shares of common stock | $53 | $— |
Non-GAAP Adjusted EBITDA
In addition to disclosing financial results calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release discloses Adjusted EBITDA, which is net loss adjusted for stock-based compensation, restructuring and asset impairment charges, gain/(loss) on settlement of accounts payable, amortization of prepaid sponsorship fees, other expense, net, depreciation and amortization of property and equipment, amortization of intangible assets, (recovery)/provision for doubtful accounts, settlement related, including legal and income taxes. In addition, the Company provides an Adjusted EBITDA excluding one-time events that excludes charges related to executive severance, discontinued business/product lines, unusual credits against revenue and unusual spikes in whey protein costs. Management believes that these non-GAAP measures provide investors with important additional perspectives into our ongoing business performance.
The GAAP measure most directly comparable to Adjusted EBITDA is net loss. The non-GAAP financial measure of Adjusted EBITDA and Adjusted EBITDA excluding one-time events should not be considered as an alternative to net loss. Adjusted EBITDA and Adjusted EBITDA excluding one-time events are not a presentation made in accordance with GAAP and have important limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and Adjusted EBITDA excluding one-time events exclude some, but not all, items that affect net loss and are defined differently by different companies, our definition of Adjusted EBITDA and Adjusted EBITDA excluding one-time events may not be comparable to similarly titled measures of other companies.
Set forth below are reconciliations of our reported GAAP net loss to Adjusted EBITDA and Adjusted EBITDA excluding one-time events (in thousands):):
| | | | | |
| | Six Months Ended June 30, 2018 | | | | | | | |
| Net loss | $(3,377) | $(1,074) | $(2,303) | $(10,973) | $(2,547) | $(2,128) | $(3,149) | $(3,149) |
| | | | | | | | | |
Non-GAAP adjustments: | | | | | | | | |
| Stock-based compensation | 257 | 120 | 137 | 2,096 | 408 | 540 | 541 | 607 |
| Restructuring and asset impairment charges | — | — | — | 180 | 180 | — | — | — |
| Gain on settlement of accounts payable | — | — | — | (430) | 41 | — | (22) | (449) |
| Amortization of prepaid sponsorship fees | 216 | 125 | 91 | 461 | 86 | 120 | 110 | 145 |
| Other expense, net | 2,473 | 1,165 | 1,308 | 4,072 | 1,546 | 858 | 690 | 978 |
| Depreciation and amortization of property and equipment | 398 | 191 | 207 | 1,139 | 230 | 279 | 290 | 340 |
| Amortization of intangible assets | 160 | 80 | 80 | 320 | 80 | 80 | 80 | 80 |
| Provision for doubtful accounts | 414 | 250 | 164 | 1,524 | 310 | 990 | 144 | 80 |
| Settlement, including legal | 896 | 564 | 332 | 3,643 | 866 | 532 | 1,942 | 303 |
| Provision for income taxes | 103 | 34 | 69 | 142 | 24 | 14 | 76 | 28 |
| Adjusted EBITDA | $1,540 | $1,455 | $85 | $2,174 | $1,224 | $1,285 | $702 | $(1,037) |
| | | | | | | | | |
| One-time events: | | | | | | | | |
| Executive Severance | (2,685) | (2,740) | 55 | 831 | 109 | 66 | 134 | 522 |
| Discontinued business/product lines | — | — | — | 272 | — | — | 132 | 140 |
| Unusual credits against revenue | — | — | — | 1,141 | — | — | — | 1,141 |
| Whey protein costs | — | — | — | 1,322 | — | — | 296 | 1,026 |
| Total one-time adjustments | (2,685) | (2,740) | 55 | 3,566 | 109 | 66 | 562 | 2,829 |
| Adjusted EBITDA excluding one-time events | $(1,145) | $(1,285) | $140 | $5,740 | $1,333 | $1,351 | $1,264 | $1,792 |
# # #
