Synergy CHC Q3 2024 Earnings Call Transcript

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Provided by Quartr
December 6, 2024

Key Takeaways

  • Positive Sentiment: Synergy completed its IPO in October, raising $6.2 million in net proceeds, began trading on NASDAQ under SNYR, and used part of the proceeds to pay down $3.1 million of debt, strengthening its financial flexibility.
  • Negative Sentiment: Third quarter revenue declined 34% year-over-year to $7.1 million and EBITDA fell 38% to $1.3 million, driven by a one-time Focus Factor rebranding and retailer de-inventorying.
  • Positive Sentiment: Synergy achieved its seventh straight quarter of profitability, reporting net income of $784,000 ($0.10 per share) and demonstrating operational resilience despite lower revenue.
  • Positive Sentiment: The company expanded its retail footprint—adding Focus Factor to all 267 BJ’s Wholesale Club locations and 1,200 Publix stores—and plans to launch its ready-to-drink beverages in early 2025.
  • Neutral Sentiment: Longtime CFO Stacey Bieber is departing today, with SVP of Finance Jamie Fickett stepping in as interim CFO, leveraging her decade of tenure and prior CFO experience at Focus Factor.
AI Generated. May Contain Errors.
Earnings Conference Call
Synergy CHC Q3 2024
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good morning, everyone, and thank you for participating in today's conference call to discuss Synergy CHC Corporation's Financial Results for the Third Quarter Ended 09/30/2024. Joining us today are Synergy's CEO, Jack Ross CFO, Stacey Bieber and Greg Robles with Investor Relations. Following their remarks, we'll open the call for analyst questions. Before we go further, I'd like to turn the call over to Mr. Robles as he reads the company's safe harbor statement.

Operator

Greg, please go ahead.

Speaker 1

Thank you, operator. Good afternoon, and thanks for joining our conference call to discuss our third quarter twenty twenty four financial results. I'd like to remind everyone that this call is available for replay and via a live webcast that will be posted on our Investor Relations website at investors.synergychc.com. The information on this call contains forward looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will and other similar expressions.

Speaker 1

Forward looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's SEC filings under the caption Risk Factors. The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Synergy, Jack Ross. Jack?

Speaker 2

Thank you, Greg. Thank you, and good morning, everyone. Thank you for joining us for the Synergy's first published earnings call. I'm excited to discuss the quarter and how Synergy is poised for future growth and success. As you know, we completed our IPO in late October, raising approximately $6,200,000 in net proceeds and began trading on the NASDAQ under the symbol SNYR.

Speaker 2

This is a significant milestone for our team, and we are excited about the opportunity to further enhance our strategy and accelerate our growth. Before I cover the results, I'd like to address the eight ks filing we made in conjunction with our earnings release this morning. We announced that Stacy Beaver, who served as our Chief Financial Officer since April 2024, is moving on to pursue a new opportunity. On behalf of the entire Synergy team, I want to extend our sincere gratitude to Stacy for her leadership, particularly throughout the IPO process, and we are deeply appreciative of her contributions and wish her the very best in her future endeavors. To ensure a seamless transition, I am pleased to announce that Jamie Fickett, our current Senior Vice President of Finance and Operations, will step into the role of Interim CFO.

Speaker 2

Jamie has been with Synergy for nearly ten years and has previously been the CFO of Focus Factor since 02/2006, which we acquired in 2015. With her extensive financial expertise and deep knowledge of our business, we are confident that Jamie will provide strong leadership and contribute immediately as an interim CFO. I will now cover the quarter, and then Stacy will take us through the financials in greater detail. Although I am pleased to share Synergy enjoyed its seventh straight quarter of profitable results. For those of you that are new to the story, Synergy began in 2014 with a vision to build a portfolio of consumer focused consumer brands focused on providing innovative consumer health care and lifestyle products.

Speaker 2

Today, our portfolio includes two brands and distribution: Focus Factor, a clinically tested brain health supplement and Flat Tummy, a lifestyle brand offering suite of nutritional products designed to support women's weight management goals. Let me take a moment to dive deeper into each of these brands, starting with FocusActor. FocusActor is our flagship product or as we call it our hero brand, with twenty four years of history in the brain health space and comprises the majority of our revenue. Since we acquired the brand in 2015, we have seen impressive growth, achieving CAGR of 17.2% from '15 to '23. The brand is backed by a solid clinical study and a full portfolio of products with a strong reputation in the category.

Speaker 2

FocusFactor is strategically positioned for robust growth, both domestically and internationally. The brand is already established in key markets such as The U. S, The UK and Canada. We are excited to further expand in the key international markets, including Australia, Taiwan and Mexico in mid to late twenty twenty five. Importantly, we have registered 22 Focus Factor trademarks globally, paving the way for future growth and sustained global market leadership.

Speaker 2

In terms of the retail presence, Focus Factor has a long term strategic relationships with retailers, including Costco, Walmart, CVS, Amazon, Walgreens, Publix, BJ's, just to name a few. These partnerships provide us with robust distribution channels, significant long term growth potential. FocusFactor is a leader in the brain health category. Some of the supplements include vitamins, gummies, nootropics and ready to drinks, which we'll talk about later. We intentionally designed a differentiated product portfolio to reach a broad customer base from children to older adults in order to capture the growing number of consumers looking to enhance their brain health.

Speaker 2

As we look to the future, the functional beverage market, which is projected to grow at $276,000,000,000 with a CAGR of 8.6 over the next seven years, represents an exciting opportunity for FocusVactor. In late twenty twenty three and early twenty twenty four, we piloted and tested our ready to drink beverages across various retailers, and the results from the pilot were extremely robust. We are excited to be entering that market in early twenty twenty five. We're seeing growth demand for better reaches that offer dual benefits such as hydration or cognitive function alongside the energy. We're well positioned to capitalize on these trends as we expand our ready to drink offerings in 2025.

Speaker 2

Next, let's talk about our Flat Tummy brand. We acquired Flat Tummy in 2015 as an online only brand. Since then, we focused on growing its presence in the digital space and believe now it is prime for retail expansion. The brand has strong recognition with significant social media following. With 1,600,000 Instagram followers and 500,000 Facebook followers.

Speaker 2

Additionally, we've built a network of 75,000 bloggers that we have worked with and social media influencers ranging from the entire Kardashian family to microbloggers to promote the brand. We spent the majority of our resources to date growing our Focus Actor brand, but Flat Tummy also offers a tremendous potential for growth, both online and now in physical stores. As we look ahead, we are excited to leverage our growing awareness of the brand and the strength of its social media community and our long standing relationships with retail partners to drive further expansion for the brand. Now on to the results. During the third quarter, we delivered revenue of $7,100,000 down from $10,800,000 in the '3.

Speaker 2

The EBITDA was 1,300,000.0 down from $2,200,000 in the 2023. As mentioned to many investors on our IPO roadshow, we were in the middle of a rebranding of our Focus Factor brand. Our third quarter results were impacted by that rebranding and retailer de inventorying related to the rollout of their new packaging from the Focus Factor products. We worked closely with our retail partners to redesign the packaging to better appeal to our target customers while ensuring our product offerings had a cohesive new look new brand look, including our ready to drinks, which hasn't been updated since 2015. There is rarely a good time to initiate a brand refresh, but we felt it was the right thing to do as we position ourselves for the next phase of our growth, both domestically and internationally.

Speaker 2

The re branding did impact our third quarter as many of the retailers' partners chose to sell through their older inventory to ensure that sold through before accepting the new inventory of new packaging, which drove quarter over quarter sales decline during the quarter. It's a normal course of business for retailers to sell down their old inventory prior to ordering new products with the new packaging. This impacted our third quarter by approximately $3,000,000 in sales. Although this was painful in the quarter, it is largely onetime in nature and the right thing to do for the business at the right time. Most importantly, we have not lost any customers or any SKUs during the transition and are receiving positive feedback on our rebranding.

Speaker 2

As we move through the fourth quarter, we have seen some continuation of this dynamic, but to a much lesser extent. We remain confident that we'll return to year over year growth in the 2025. During the quarter, we've experienced several notable wins as well, and that will help us scale in 2025. Specifically, we continue to build new partnerships with blue chip retailers, resulting in increased distribution points across key markets. Notably, we expanded our retail relationship with BG Wholesale Clubs, now offering our products in all two sixty seven locations with two new SKUs of focus factor.

Speaker 2

The partnership significantly enhances our visibility and reach into an important retail channel, positioning us well for future growth. Additionally, we are thrilled to announce our launch in Publix grocery stores, which our products are now available in all 1,200 Publix grocery stores with two SKUs as well. This expansion provides synergy with access to a highly loyal customer base and further solidifies our presence in the grocery sector. Before passing the call over to Stacy, I'd like to briefly discuss our near term initiatives. First, we are focused on organic growth of our current product lines by developing and launching new products as well as expanding into new geographical markets.

Speaker 2

Since the IPO, we strategically utilized a portion of the $10,300,000 in gross proceeds to reduce our debt further by 3,100,000.0 This not only strengthens our financial position, but it also increases our financial flexibility, enabling us to make targeted investments that will support our execution for these growth initiatives. Specifically for Focus Factor, we are working on increasing our distribution of our recently launched ready to drink beverages and shots and rolling them out to our vast retailer network. We purchased during the quarter and printed over 2,000,000 cans and are in the process of filling them for shipment in early twenty twenty five. Additionally, next year, we plan to introduce Flat County brand with seven new SKUs products that we developed for our network of retail partners, capitalizing on the growing attention surrounding GLP-one medications and other weight loss support products. With that, I would like to turn the call over to our Chief Financial Officer, Stacy Beaver.

Speaker 2

Stacy?

Speaker 3

Thank you, Jack. Moving to our third quarter results. Revenue in the third quarter was $7,100,000 compared to $10,800,000 in the year ago quarter, a decrease of 34% versus the prior quarter or prior year, excuse me. As Jack discussed, the approximately $3,000,000 decline was driven by new packaging for our focused factor products that led to a de inventorying dynamic at our retail partners, causing them to pause ordering while they sell through their existing inventory to acceptable reorder levels. Gross margin in the third quarter decreased four seventy six basis points to 67.2% compared to 72% a year ago.

Speaker 3

The decrease was primarily driven by the product mix sold within the quarter. Margins fluctuate from time to time due to the product mix being sold. Operating expenses during the third quarter were $3,700,000 compared to $5,600,000 in the year ago quarter. The lower operating expenses were a result of the improved management of our operating costs and the decrease in our net revenue. Income from operations decreased to $1,100,000 compared to $2,100,000 in the year ago quarter.

Speaker 3

Net income for the quarter was $784,000 or $0.10 per diluted share compared to $1,300,000 or $0.17 per diluted share in the year ago quarter. EBITDA was $1,300,000 compared to $2,200,000 in the year ago quarter, representing a decline of 38%. Moving to our balance sheet. As of 09/30/2024, we had cash and cash equivalents of $259,400 compared to $632,500 as of 12/31/2023. Inventory was $1,900,000 at the end of the third quarter compared to $3,700,000 at the 2023.

Speaker 3

As of 09/30/2024, we had $37,300,000 in total liabilities, which compares to $39,500,000 in total liabilities as of 12/31/2023, a decrease of $2,200,000 Subsequent to the IPO, we paid down $3,100,000 of debt and increased our cash position by $6,200,000 Our cash used in operating activities decreased from $2,800,000 as of 09/30/2023 to $1,400,000 as of 09/30/2024. The decrease of $1,400,000 was primarily attributable to reductions in our accounts payable and accrued expenses. In summary, while our third quarter results were impacted by the de inventorying dynamic at our retail partners, we firmly believe there are significant near term growth opportunities ahead. With our expanded retail partnerships and strength of our brands, we are confident that we are well positioned for sustained growth in 2025 and beyond. Finally, as Jack mentioned, I will be departing Synergy today to pursue a new opportunity.

Speaker 3

I want to thank Jack and the entire team for a great experience leading the company's financial strategy over the past year. And I believe they are well positioned for growth and future success. Now I will turn the call back over to the operator.

Operator

Thank you. Our first question comes from Sean McGowan with ROTH Capital Partners.

Speaker 4

Good morning. Sorry to hear you going, Stacy. Would have been nice to have actually met in person. But I have a couple of questions about the results here. Can you talk a little bit about what ready to drink sales were recognized in the quarter?

Speaker 3

Yes. They were very minimal in the quarter. We did all the pilots were done that we had previously discussed in Texas and in Costco. So we just had small ready to drink RTD sales in the quarter to some of the convenience stores. You know, I would say they were, we'll say, less than $5,000,000

Speaker 4

Okay. That's helpful. And you talked about the rebranding on Focus Factor. But was the were the revenues from Flat Tummy up year over year?

Speaker 3

The revenue for flat tummy was not up. We did sell through a lot of products that we had previously had. And then that was prior to the launch of the seven new products that Jack had mentioned on the call.

Speaker 4

Okay. My last question then is, this G and A level of spending in the quarter, I would imagine there might be some stuff in there that's maybe not recurring related to the IPO. So would you call this level of spending indicative of what we should expect ongoing?

Speaker 3

I would, Sean. A lot of the IPO related costs don't go through the income statement. They go through equity. And I would say this is indicative because we're also now picking up public company costs that we didn't have previously, you know, when it comes to Boards, counsel, NASDAQ costs, all those things that we did not previously have in prior years.

Speaker 4

Okay. All right. Thank you very much.

Speaker 3

Thanks, John.

Operator

At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Ross for closing remarks.

Speaker 2

Thank you, Liz. We'd like to thank everybody for joining our first earnings call, and we look forward to speaking with you when we report our fourth quarter and full year 2024 results in 2025. Thank you for being a shareholder and your interest in Synergy, and I want all shareholders to know that the complete Synergy team is committed to growing the top line and the bottom line in 2025. We'll talk to you next year, and happy holidays.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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