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, 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

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

Additional paid-in capital

159,798

159,608

Treasury stock, at cost; 875,621 shares

(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

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

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

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

Property and equipment acquired in conjunction with capital leases

—

Purchase of property and equipment included in current liabilities

Interest paid through issuance of shares of common stock

—

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

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)

Non-GAAP adjustments:

Stock-based compensation

137

2,096

408

540

541

607

Restructuring and asset impairment charges

—

180

—

Gain on settlement of accounts payable

—

(430)

—

(22)

(449)

Amortization of prepaid sponsorship fees

461

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

320

Provision for doubtful accounts

164

1,524

310

990

144

Settlement, including legal

332

3,643

866

532

1,942

303

Provision for income taxes

142

Adjusted EBITDA

$
85

$
2,174

$
1,224

$
1,285

$
702

$
(1,037)

One-time events:

Executive Severance

831

109

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

3,566

109

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

ReleaseID: 499679

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