Advances Toward Profitability with Second Consecutive Quarter of Sequential Revenue Growth and Narrowed Operating Loss
Conference Call Begins at 4:30 p.m. Eastern Time Today
BURBANK, CA / ACCESSWIRE / May 14, 2018 / MusclePharm® Corporation (OTCQB: MSLP) ("MusclePharm" or the "Company"), a scientifically driven, performance-lifestyle sports nutrition company, reports financial results for the three months ended March 31, 2018 and provides a business update.
First quarter 2018 financial highlights include the following (all comparisons are with the fourth quarter of 2017):
- Revenue was $26.5 million, an increase of 4% from $25.6 million
- Operating loss was $926,000, a decrease of 1% from $936,000
- Net loss was $2.3 million, a decrease of 8% from $2.5 million
- Non-GAAP adjusted EBITDA was $85,000 compared with $1.2 million
- Cash and equivalents were $5.1 million as of March 31, 2018
"Today, I'm excited to report on several major customer wins with recent commitments at national retail partners including Walmart Canada, Circle K(R), Wegmans, Giant Eagle (R) and Gateway Newstands," said Ryan Drexler, Chairman, President and CEO of MusclePharm. "These commitments are indicative of our strategic intent to diversify our customer base and effectively capitalize on a meaningful shift that is happening in sports nutrition. We expect to begin generating revenues from these new customers in the second half of 2018.
"Q1 represents our second consecutive quarter of sequential revenue growth and narrowed operating loss, demonstrating progress toward our goal of sustained, profitable growth. We continue to manage costs and expenses diligently. To further illustrate, our gross margin for 1Q 2018 improved to 31% from 25% for the prior-year period.
"Furthermore, we're experiencing solid growth via the strategic e-commerce and international channels, and are continuing to invest in the relationships with our largest customers," he added. "We remain committed to reinvigorating relationships with legacy customers by working to understand their needs and to provide suitable product solutions, while also seeking to expand business through the continuing development of our Natural Series product line."
First Quarter Financial Results
Net revenue for the first quarter of 2018 was $26.5 million, a 2% increase from $26.0 million for the first quarter of 2017. The increase was primarily due to higher international 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.
The gross profit margin for the first quarter of 2018 was 31%, an improvement from 25% for the first quarter of 2017. Gross profit 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 first quarter of 2018 were $3.7 million compared with $1.9 million for the first 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 first quarter of 2018 were $2.2 million, down 33% from $3.3 million for the first 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 first quarter of 2018 were $2.5 million, down 14% from $2.9 million for the first 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 $212,000 and $137,000 for the first quarters of 2018 and 2017, respectively. Professional fees for the first quarter of 2018 of $572,000 declined from $882,000 for the prior-year period, due mainly to lower legal fees.
The Company did not record a gain on settlement of accounts payable for the first quarter of 2018 compared with a gain of $449,000 for the first quarter of 2017. Other expense, net, for the first quarter of 2018 was $1.3 million compared with $978,000 for the first quarter of 2017, with the increase primarily due to interest-related expenses and the amortization of debt discount.
Net loss for the first quarter of 2018 was $2.3 million, or $0.16 per share, compared with a net loss of $3.1 million, or $0.23 per share, for the first quarter of 2017. Adjusted EBITDA for the first quarter of 2018 was $85,000, compared with adjusted EBITDA loss of $1.0 million for the first quarter of 2017, with the improvement primarily related to operating results. A reconciliation of GAAP to non-GAAP measures is provided below.
Cash and cash equivalents as of March 31, 2018 were $5.1 million compared with $6.2 million as of December 31, 2017. The Company used $232,000 of cash to fund operations during the first quarter of 2018, an improvement compared with $1.0 million of cash used during the first quarter 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 three months ended March 31, 2018, which will be filed with the U.S. Securities and Exchange Commission on or about May 15, 2018.
First Quarter and Recent Business Highlights
- Received distribution commitments from several national retailers including Walmart Canada, Circle K®, Wegmans, Giant Eagle® and Gateway Newstands
- Received notification from Shoppers Drug Mart – Canada's largest drugstore chain – that the number of points of distribution within the chain will increase
- Conducted qualitative focus group research to more deeply understand the needs and perceptions of core consumer segments
- Participated in a major Costco promotion, which produced favorable results and led to strong post-promotional velocities
- Invested in advertising to expand our Amazon presence and optimize placement within the Amazon search ecosystem
- Showcased the MP Natural Series product line at the 83rd Annual Natural Products Expo in Anaheim, the world's largest natural, organic and health products event
- Hosted a Supplier Led Innovation Summit, whereby more than a half-dozen co-manufacturers were invited to present new product concepts and prototypes
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, Monday, May 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
Conference ID: 2876888
A live webcast will be available online at http://ir.musclepharmcorp.com/ 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 2876888.
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.
MusclePharm Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
| March 31,2018 | December 31,2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 5,114 | $ | 6,228 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $1,518 and $1,363, respectively | 16,925 | 16,668 | ||||||
| Inventory | 7,738 | 6,484 | ||||||
| Prepaid giveaways | 111 | 89 | ||||||
| Prepaid expenses and other current assets | 895 | 993 | ||||||
| Total current assets | 30,783 | 30,462 | ||||||
| Property and equipment, net | 1,632 | 1,822 | ||||||
| Intangible assets, net | 1,237 | 1,317 | ||||||
| Other assets | 239 | 225 | ||||||
| TOTAL ASSETS | $ | 33,891 | $ | 33,826 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 14,897 | $ | 11,742 | ||||
| Accrued liabilities | 7,441 | 7,761 | ||||||
| Accrued restructuring charges, current | 560 | 595 | ||||||
| Obligation under secured borrowing arrangement | 5,547 | 5,385 | ||||||
| Line of credit | 2,000 | 3,000 | ||||||
| Total current liabilities | 30,445 | 28,483 | ||||||
| Convertible note with a related party, net of discount | 16,917 | 16,669 | ||||||
| Accrued restructuring charges, long-term | 110 | 120 | ||||||
| Other long-term liabilities | 1,060 | 1,088 | ||||||
| Total liabilities | 48,532 | 46,360 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' deficit: | ||||||||
| Common stock, par value of $0.001 per share; 100,000,000 shares authorized 15,607,288 and 15,526,175 shares issued as of March 31, 2018 and December 31, 2017, respectively; 14,731,667 and 14,650,554 shares outstanding as of March 31, 2018 and December 31, 2017, respectively | 14 | 14 | ||||||
| Additional paid-in capital | 159,798 | 159,608 | ||||||
| Treasury stock, at cost; 875,621 shares | (10,039) | (10,039) | ||||||
| Accumulated other comprehensive loss | (142) | (150) | ||||||
| Accumulated deficit | (164,272) | (161,967) | ||||||
| TOTAL STOCKHOLDERS’ DEFICIT | (14,641) | (12,534) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 33,891 | $ | 33,826 | ||||
MusclePharm Corporation
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
| Three Months EndedMarch 31, | ||||||||
| 2018 | 2017 | |||||||
| Revenue, net | $ | 26,547 | $ | 26,009 | ||||
| Cost of revenue | 18,328 | 19,539 | ||||||
| Gross profit | 8,219 | 6,470 | ||||||
| Operating expenses: | ||||||||
| Advertising and promotion | 3,661 | 1,888 | ||||||
| Salaries and benefits | 2,154 | 3,269 | ||||||
| Selling, general and administrative | 2,546 | 2,886 | ||||||
| Research and development | 212 | 137 | ||||||
| Professional fees | 572 | 882 | ||||||
| Total operating expenses | 9,145 | 9,062 | ||||||
| Loss from operations | (926) | (2,592) | ||||||
| Gain on settlement of accounts payable | — | 449 | ||||||
| Other expense, net | (1,310) | (978) | ||||||
| Loss before provision for income taxes | (2,236) | (3,121) | ||||||
| Provision for income taxes | 69 | 28 | ||||||
| Net loss | $ | (2,305) | $ | (3,149) | ||||
| Net loss per share, basic and diluted | $ | (0.16) | $ | (0.23) | ||||
| Weighted average shares used to compute net loss per share, basic and diluted | 14,615,677 | 13,773,508 | ||||||
MusclePharm Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Three Months EndedMarch 31, | ||||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,305) | $ | (3,149) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 287 | 420 | ||||||
| Gain on settlement of accounts payable | — | (449) | ||||||
| Bad debt expense | 164 | — | ||||||
| Amortization of debt discount | 248 | 153 | ||||||
| Stock-based compensation | 137 | 607 | ||||||
| Other | — | 363 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (443) | (1,925) | ||||||
| Inventory | (1,255) | 2,463 | ||||||
| Prepaid giveaways | (23) | 132 | ||||||
| Prepaid expenses and other current assets | 100 | (387) | ||||||
| Other assets | (14) | — | ||||||
| Accounts payable and accrued liabilities | 2,917 | 803 | ||||||
| Accrued restructuring charges | (45) | (73) | ||||||
| Net cash used in operating activities | (232) | (1,042) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (14) | — | ||||||
| Net cash used in investing activities | $ | (14) | $ | — | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on line of credit | (1,000) | — | ||||||
| Proceeds from secured borrowing arrangement, net of reserves | 13,494 | 4,087 | ||||||
| Payments on secured borrowing arrangement, net of fees | (13,332) | (4,951) | ||||||
| Repayment of capital lease obligations | (34) | (36) | ||||||
| Net cash used in financing activities | (872) | (900) | ||||||
| Effect of exchange rate changes on cash | 4 | 15 | ||||||
| NET CHANGE IN CASH | (1,114) | (1,927) | ||||||
| CASH - BEGINNING OF PERIOD | 6,228 | 4,943 | ||||||
| CASH - END OF PERIOD | $ | 5,114 | $ | 3,016 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 614 | $ | 672 | ||||
| Cash paid for taxes | $ | 68 | $ | 8 | ||||
| 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 | $ | 13 | $ | 9 | ||||
| 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 should not be considered as an alternative to net loss. Adjusted EBITDA is not a presentation made in accordance with GAAP and has 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 excludes some, but not all, items that affect net loss and is defined differently by different companies, our definition of Adjusted EBITDA 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):
| Three Months Ended | ||||||||||||||||||||||||
| Three Months Ended Mar. 31,2018 | Year Ended Dec. 31,2017 | Dec. 31, 2017 | Sept. 30, 2017 | June 30, 2017 | Mar. 31, 2017 | |||||||||||||||||||
| Net loss | $ | (2,305) | $ | (10,973) | $ | (2,547) | $ | (2,128) | $ | (3,149) | $ | (3,149) | ||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||
| Stock-based compensation | 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 | 91 | 461 | 86 | 120 | 110 | 145 | ||||||||||||||||||
| Other expense, net | 1,310 | 4,072 | 1,546 | 858 | 690 | 978 | ||||||||||||||||||
| Depreciation and amortization of property and equipment | 207 | 1,139 | 230 | 279 | 290 | 340 | ||||||||||||||||||
| Amortization of intangible assets | 80 | 320 | 80 | 80 | 80 | 80 | ||||||||||||||||||
| Provision for doubtful accounts | 164 | 1,524 | 310 | 990 | 144 | 80 | ||||||||||||||||||
| Settlement, including legal | 332 | 3,643 | 866 | 532 | 1,942 | 303 | ||||||||||||||||||
| Provision for income taxes | 69 | 142 | 24 | 14 | 76 | 28 | ||||||||||||||||||
| Adjusted EBITDA | $ | 85 | $ | 2,174 | $ | 1,224 | $ | 1,285 | $ | 702 | $ | (1,037) | ||||||||||||
| One-time events: | ||||||||||||||||||||||||
| Executive Severance | 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 | 55 | 3,566 | 109 | 66 | 562 | 2,829 | ||||||||||||||||||
| Adjusted EBITDA excluding one-time events | $ | 140 | $ | 5,740 | $ | 1,333 | $ | 1,351 | $ | 1,264 | $ | 1,792 | ||||||||||||
Investors Contact
LHA Investor Relations
Jody Cain
jcain@lhai.com
310-691-7100
SOURCE: MusclePharm Corporation
