MusclePharm Corporation (OTCQB: MSLP) ("MusclePharm" or the "Company"), a scientifically driven, performance-lifestyle sports nutrition company, today announced financial results for the third quarter ended September 30, 2015.

Operating and Financial Highlights for Third Quarter 2015

  • Announced restructuring effort to better align the Company’s resources toward profitable growth;
  • Gross profit margin, excluding a restructuring charge related to inventory write-down, increased to 35%;
  • Advertising and promotion expenses decreased 8% to $7.1 million;
  • Salaries and benefits decreased 6% to $5.7 million;

“MusclePharm recently launched a major restructuring that involved closing facilities and realigning our organization with our needs,” said Ryan Drexler, MusclePharm’s executive chairman.

“While the company’s near-term results will be impacted, we are positioning the company for a much stronger future. This is a long-term project, however. These issues cannot be fixed in a day and will require time and patience. The good news is that we believe that Brad Pyatt and his team have built a unique business with enormous scale that is unusual in this space, and very hard to replicate. Few brands have grown this big, this fast, and it is not by accident.”

Recent Highlights

  • Initiated a restructuring that incurred total restructuring and other charges of $17.9 million, of which $16.6 million was recorded in operating expenses and $1.3 million was included in cost of goods.
  • Announced approval of the final settlement with the United States Securities and Exchange Commission regarding disclosure and internal control deficiencies dating from 2010-2013 which have since been revised.
  • Entered into loan modification agreements with banking institution in exchange for guaranty by Company’s executive chairman.

Financial Results for Third Quarter 2015

Net revenue decreased to $34.0 million, or 29%, year-over-year. The net revenue decline is due primarily to the limited inventory on hand of certain products compared to customer demand, and a reduction in international sales related to the strength of the US dollar. The Company continues to take significant steps to improve and globalize its supply chain to address this issue.

Gross margin was 31% in both the third quarter of 2015 and 2014 and down 4% sequentially. During the quarter, the company initiated a restructuring, discontinued a number of products and recognized an inventory write down of $1.3 million, which is included as a component of costs of revenue. When excluding the restructuring charge, gross margin was 35% in both the third and the second quarter of 2015.

Operating expenses for the quarter excluding restructuring charges were $20.8 million down from $24.2 million in the previous quarter, a reduction of $3.4 million or 14% sequentially.

Adjusted EBITDA, a non-GAAP financial measure, was negative $3.0 million. EBITDA eliminates depreciation, amortization, interest, taxes, stock-based compensation, restructuring charges and other expenses.

Withdrawal of Guidance

In relation to the Company’s previously announced restructuring activities, the Company is withdrawing prior revenue and earning guidance it has issued for 2015 and future periods. The Company also will not be providing updated guidance. The Company’s prior guidance should no longer be relied upon.

2015 Third Quarter Conference Call Information

When: Tuesday, November 10, 2015
Time: 8:00 a.m. Eastern Time
Phone: (800) 860-2442 (domestic)
(412) 858-4600 (international)

A live webcast will be available online on MusclePharm's website at http://ir.musclepharmcorp.com/, where it will be archived for one year.

An audio replay of the conference call will be available through midnight November 17, 2015 by dialing (877) 344-7529 from the U.S. or Canada, or (412) 317-0088 from international locations, passcode 10076071.

About MusclePharm Corporation

MusclePharm® is a scientifically-driven, performance lifestyle company that currently develops, manufactures, markets and distributes branded nutritional supplements. The company offers a complete range of powders, capsules, tablets and gels. Its portfolio of recognized brands, including MusclePharm® Hybrid and Core Series, Arnold Schwarzenegger Series™ and FitMiss™, are marketed and sold in more than 120 countries and available in over 45,000 retail outlets globally. These clinically-proven and scientific nutritional supplements are developed through a six-stage research process utilizing the expertise of leading nutritional scientists, doctors and universities. MusclePharm is the innovator of the sports nutrition industry. For more information, visit http://www.musclepharm.com. Follow MusclePharm Corporation on Facebook, Twitter, and Instagram.

To sign up to receive MusclePharm news via email, please visit http://ir.musclepharmcorp.com/email-alerts

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the earnings release contains non-GAAP financial measures adjusted for income taxes, depreciation and amortization of property and equipment, amortization of intangible assets, provision for doubtful accounts, amortization of prepaid stock compensation, amortization of prepaid sponsorship fees, stock based compensation, issuance of common stock warrants, restructuring and other charges. Management believes that the non-GAAP measures used in this release provide investors with important perspectives into the Company's ongoing business performance. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. All financial data is presented on a GAAP basis except where the Company indicates its presentation is on a non-GAAP basis. Set forth below are reconciliations of non-GAAP net income (loss) to the Company's reported GAAP net income (loss).

Forward-Looking Statements

This 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, 2014, the Company's Quarter Reports on Form 10-Q and other filings submitted by the Company to the SEC, 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
Consolidated Balance Sheets

(In thousands, except share and per share data)

 
September 30,
2015 		December 31,
2014
(Unaudited)
ASSETS
Current assets:
Cash $ 3,457 $ 1,020
Accounts receivable, net of allowance for doubtful accounts of $297 and $159 as of September 30, 2015 and December 31, 2014 15,586 16,644
Inventory 19,320 21,069
Prepaid giveaways 501 1,228
Prepaid stock compensation, current portion 2,344 4,476
Prepaid sponsorship and endorsement fees 541 238
Prepaid expenses and other current assets   3,420   1,742
 
Total current assets 45,169 46,417
Property and equipment, net 7,008 7,805
Long-term investments 977 —
Intangible assets, net 8,904 7,074
Prepaid stock compensation, noncurrent portion — 4,952
Other assets   185   108
TOTAL ASSETS $ 62,243 $ 66,356
 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 40,442 $ 27,761
Accrued liabilities 10,986 7,023
Accrued restructuring charges 10,097 —
Line of credit 2,635 8,000
Term loan 3,269 —
Other debt obligations   21   46
Total current liabilities 67,450 42,830
Other long-term liabilities   342   146
TOTAL LIABILITIES   67,792   42,976
 
Commitments and contingencies
Stockholders’ (deficit) equity:
Common stock, par value of $0.001 per share; 100,000,000 shares authorized as of September 30, 2015 and December 31, 2014; 14,607,550 and 13,996,007 shares issued as of September 30, 2015 and December 31, 2014; 13,731,929 and 13,120,386 shares outstanding as of September 30, 2015 and December 31, 2014 14 14
Additional paid-in capital 142,458 129,130
Treasury stock, at cost; 875,621 shares as of September 30, 2015 and December 31, 2014 (10,039 ) (10,039 )
Accumulated other comprehensive loss (171 ) (66 )
Accumulated deficit   (137,811 )   (95,659 )
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY   (5,549 )   23,380
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY $ 62,243 $ 66,356
 
     
MusclePharm Corporation
Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 
Three Months Ended September 30, Nine Months Ended September 30,
2015   2014 2015   2014
Revenue, net $ 33,982 $ 47,768 $ 125,780 $ 144,718
Cost of revenue (including restructuring charges of $1,262 related to write-down of inventory for the three and nine months ended September 30, 2015)   23,512   32,812   83,428   96,242
Gross profit   10,470   14,956   42,352   48,476
 
Operating expenses:
Advertising and promotion 7,093 7,749 22,603 19,997
Salaries and benefits 5,681 6,041 20,505 17,185
Selling, general and administrative 4,647 3,652 14,730 7,881
Research and development 1,437 735 3,323 2,996
Professional fees 1,980 1,316 5,499 3,393
Restructuring and other charges   16,650   —   16,650   —
Total operating expenses   37,488   19,493   83,310   51,452
Loss from operations (27,018 ) (4,537 ) (40,958 ) (2,976 )
Other (expense) income, net   (559 )   5,234   (1,090 )   5,551
(Loss) income before provision for income taxes (27,577 ) 697 (42,048 ) 2,575
Provision for income taxes   71   94   104   171
Net (loss) income $ (27,648 ) $ 603 $ (42,152 ) $ 2,404
Net (loss) income per share, basic $ (2.01 ) $ 0.05 $ (3.12 ) $ 0.23
Net (loss) income per share, diluted $ (2.01 ) $ 0.05 $ (3.12 ) $ 0.20
Weighted-average shares used in computing net (loss) income per share, basic   13,723,213   11,032,996   13,504,455   10,652,781
Weighted-average shares used in computing net (loss) income per share, diluted   13,723,213   12,612,896   13,504,455   12,112,017
 
     
MusclePharm Corporation
Reconciliation to Non-GAAP Income (Loss) to GAAP Income

In Thousands

(Unaudited)

 
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2015   2014 2015   2014
(in thousands)
Adjusted EBITDA:
Net (loss) income $ (27,648 ) $ 603 $ (42,152 ) $ 2,404
Non-GAAP adjustments:
Provision for income taxes 71 94 104 171
Depreciation and amortization of property and equipment 492 303 1,330 950
Amortization of intangible assets 278 (156 ) 776 422
Provision for doubtful accounts 70 24 168 164
Amortization of prepaid stock compensation 962 1,004 3,198 2,582
Amortization of prepaid sponsorship fees 2,111 1,548 5,363 5,016
Stock-based compensation 2,154 2,405 8,690 6,872
Issuance of common stock warrants to third-parties for services 12 69 62 69
Other expense (income), net 559 (5,234 ) 1,090 (5,551 )
Restructuring and other charges   17,912   —   17,912   —
 
Adjusted EBITDA $ (3,027 ) $ 660 $ (3,459 ) $ 13,099


Contacts

Sitrick and Company
Seth Lubove, (310) 788-2850
slubove@sitrick.com