Attached files
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| 8-K - QUARTERLY REPORT - MusclePharm Corp | mslp_8k.htm |
Exhibit
99.1
MusclePharm Corporation Reports First Quarter 2018 Financial
Results
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, Calif. (May 14, 2018) – MusclePharm®
Corporation (OTC/QB: 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®, Wegmans, Giant Eagle® 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 ecommerce
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.
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.
Investors Contact
LHA
Investor Relations
Jody
Cain
jcain@lhai.com
310-691-7100
Financial
Tables to Follow
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 Ended
March 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 Ended
March 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
|