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NewMex, thanks for the substantive analysis. It's nice to see something other than the blind MP goobers cheering "Rah, rah, rah" and codie shouting "Nuh-uh, MP sucks!".
The Arnold loss leaves a big question mark moving forward. It still seems to be selling through online and probably in store, but once the current product is done, how will the company make up for that revenue stream? The other question is, how profitable was the Arnold line. In addition to the standard costs, it seems they were paying Arnie about $2.7 million a year for image rights. It's possible this could dash revenue, but not actually hit profit all that hard. As we all know, MP has had trouble selling products for more than it costs to produce them.
Though dwarfed by the Capstone claims, the BodyBuilding.com decline is pretty concerning. They did seem to struggle to stay relevant in the Top 50 last year (though they seem to be doing much better this year). I'm wondering if that had something to do with the $13 million MP says they lost due to Capstone's failure to deliver product on-time. I seem to remember MP products frequently being out-of-stock on BB.com last year.
Anyway, I hope you had more positive to say about the numbers, but thanks for bringing this thread back to something resembling a meaningful conversation about the company's performance.
2015 GNC sports nutrition sales = $779 million (Source: 2015 GNC 10K; you can probably add on another $150-$200 million through franchise stores, but approximately 50% of GNC's retail sales are through its own private label products)
2015 VSI sports nutrition sales = $432 million (Source: 2015 VSI 10K; VSI's private label is substantially lower than GNC's)
2015 US sports nutrition market size (per Euromonitor) = $6.7 billion
Hard to breakout BB.com revenues, but INC Magazine suggests its about $500 million.
So, no, GNC is not "by far" the largest sports nutrition seller. Even if they are the largest - and they may very well not be - they are not a substantial part of the overall market for non-
GNC brands. MusclePharm may take a slight hit, but its wagon isn't hitched solely to GNC.
GNC is not the largest seller by far. Though they have tons of franchises, their actual sales are not much higher than Vitamin Shoppe. Also, the specialty supplement retailer channel is only about 1/3 of sports nutrition sales in the US (with a steadily declining share of total distribution).
GNC accounted for 11% of MSLP sales in 2015. However, as GNC stated, the driver of its revenue decline were the sale of Discount Supplements in Q4 2015 and heavy Q1 2016 discounting of vitamins that were near expiration.
Sales might not be great this quarter, but GNC's performance is likely a bad bellwether for MusclePharm or any other sports nutrition company.
Good thing they all but never used him in any of their advertising.
Good news on the Combat Crunch front. I just found three facings in a 7/11 in Chicago. Haven't checked more stores, but if they're getting 7/11 distribution in big cities, that's got a lot of potential. While I've voiced skepticism of the total sales volume potential of Combat Crunch before, it seems like a product they should be able to consistently sell for a profit (it retailed for $3.29 at the Chicago 7/11).
Obviously neither dumped the other. The deal came to an end and MusclePharm decided it wasn't worth it to re-up. It will be interesting to see who becomes the new "official supplement provider". I wonder if Nutrabolt/Glanbia/etc. will find the value compelling enough to pay what I imagine will be a very hefty premium.
In general, the letter is a pleasant surprise. It finally seems like an adult is in charge of the company. The change from stock grants to stock option is particularly compelling, but it remains to be seen just how much supply chain efficiency they can ring out - and, of course, how quickly. There's no reason they couldn't be fully contract-manufacturing-dependent and still profitable, especially if they quickly roll down the endorsements and gratuitous executive compensation. Time will tell. I don't think this explanation is enough to make MSLP a compelling buy, but the company certainly seems to be in a better position than it was yesterday.
GNC revenues were actually up, just not as much as expected. They also had a fairly large increase in inventory, which could actually bode well for MSLP. The huge drop in GNC's share price had more to do with their reorganization than their ability to move product.
BCAA drinks like Amino 1 aren't really analogous to standard carb/electrolyte sports drinks. While Muscle Pharm and others make hydration claims on the product and the similar looks may convince some Gatorade users to experiment, amino acids are intra-workout ingredients that promote muscle growth. There are a lot of sports nutrition users who mistakenly think they have an energy-boosting or weight loss effect, but the real benefits are buffering muscle breakdown during a workout, thus allowing faster recovery after the workout.
The interesting things about these products is that, until recently, BCAA's were fairly niche products used only by the most sophisticated sports nutrition users (body builders, elite athletes, etc.). They've gained more notoriety among gym rats, but it's hard to imagine a lot of people becoming consistent users of these products. If you were drinking Amino 1 every time you worked out, why would you opt for a $3 bottle, instead of a $0.75 scoop from a tub? Could they sell a couple hundred thousand dollars a year to curious Vitamin Shoppe/GNC customers and chronic users who buy the odd 12-pack for when they don't have time to mix it from the concentrate? Probably. But I don't see this becoming a mainstream thing, and it's certainly not going to be challenging Gatorade/Powerade for shelf space in a 7-11. Bigger, better companies (ON and Muscle Milk) have launched amino RTD's before, and you still don't see them outside supplement retailers.
Hopefully the company can cite those incidents as "cause for termination" should Pyatt stand in the way of any any eventual bid for the company.
I appreciate the analysis you've done on their actual financials, but I think you're off-base on the Brad golden parachute theory. They likely won't fire him, and even if they did, they could make a strong argument for having cause. His actions led them into an SEC investigation that hurt the company, and he publicly stated something to the extent of "I was an inexperienced executive and should have known better... blah, blah, blah" in a quarterly call last year. I imagine that would be enough "cause" to fire him, if they wanted to deal with the legal challenge. The poison pill is concerning, but I imagine if a company were to buy MusclePharm (which I think is less likely than many others on this board), they would do it on the condition that he not exercise that option.
I have to imagine, all of his terrible business acumen aside, that if the choice is watch the company go bankrupt and his remaining shares become worthless, or take $7.50 per share (sale price of about $100 million), that he would forgo the 300% bonus option.
For what it's worth, Brad mentioned in a webinar on sports nutrition trends today that the company is moving away from its reliance on high-profile sponsorships, claiming the company has built up its profile enough that they don't need to spend on that front anymore.
I'm not sure how you reconcile that with the Cavs and Man City deals, but it could give some insight into their planning for the next few years.
The facts actually don't differ at all. A single SKU from a single retailer was cited for containing DNP. MusclePharm claims that SKU was counterfeited and has presented evidence supporting that claim. The Dutch health authorities tested products from MusclePharm's official distributor and found no DNP. All of these are facts.
The fact that they haven't filed a lawsuit is not telling. Who would they sue? A minuscule online supplement seller in Poland and the fly-by-night counterfeiting operation that supplied them? What would the RoI be there?
The Stoppani lawsuit, which I agree is a waste of time and money, is not completely unreasonable. Stoppani is a big name and has significant cachet among hardcore bodybuilders. The fact that he has called into question the credibility of MSLP products represents a much more significant threat to their business than the counterfeiting of minor SKUs in markets that account for 1% of global sports nutrition sales.
I appreciate your financial analysis, Goldbergstein, but this is base fearmongering. A product (they claim to be counterfeit, and which originated from a distributor they don't work with) was found to have DNP. However, the company has essentially exonerated by the Dutch government, which said the official products they tested did not contain DNP. The evidence overwhelmingly suggests that the DNP-positive product was counterfeit.
Though this company has been run extremely poorly from a financial standpoint, from a formulation standpoint, they've been one of the best in the industry. They use third-party testing (used to use NSF, now use Informed Choice) for banned substances and pre-test all their raw ingredients through Eurofins and Chromadex to ensure label accuracy.
Also, the product in question was a miniscule SKU that sold so little they didn't even bother to put it back on the market after the allegations. This company's fortunes are not going to be determined by the success of Arnold Iron Sleep.
That's a good point about Kroger. I don't think the Combat Crunch bars are doing nearly as well as people are suggesting on this board. Frankly, I don't think the company ever saw them as a game-changing product. I spoke with one of their senior retail executives, who mentioned the bars are doing better than they thought and have gained a much bigger footprint in GNC in the last quarter or two. However, if you look at revenues, they don't really seem to be moving the needle. They were launched in September 2014, but H1 2015 revenue is down $5 million, despite supposedly huge gains in distribution. If they're even bigger than they thought, and they thought they would be a major event, why no mention in the 10Q or conference calls?
Their retailer distribution is also consolidating around channels that don't carry (Costco) or have only recently begun carrying them (GNC). Maybe the GNC consolidation is being driven by Combat Crunch, but I think it's more likely driven by the new cooperation centered on the Core, Arnold and Fitmiss brands (getting their own little display area in a bunch of stores) announced in mid-2014. GNC also has the exclusive for the much-higher priced Black Series.
Finally, protein bars are also not a particularly high-margin product. According to NACS, producers only net about 40% of the retail price, which means MusclePharm is taking home about $1 on every bar (maybe the margins are higher online, but probably not more than 50%). That compares to 50%-ish on single-ingredient products, and up to 75% for pre-workouts and protein powders. I'd be surprised if they generated more than $4-$5 million off the bars in 2015. The category is also pretty consolidated in the US, and there are many more familiar brands in the mainstream channels they seem to be targeting (Cliff Builder, Muscle Milk, etc.), so I don't agree that the growth prospects are off the charts.
Iron Whey doesn't come in a 2.4 pound tub. It comes in 2 pounds, 5 pounds and the (seemingly Walmart exclusive) 1.5 pounds. The price of a 1.5 pound tub on Walmart.com (incidentally, the only Iron Whey product on the site actually sold and shipped directly by Walmart) is... you guessed it... $21.97. If this was a 2.4 pound tub (let's assume you meant the 2 pound tub that actually exists), and it was marked down over 50% as you suggest, why is there no sale sign?
You'll note I didn't say MusclePharm is making money on this. I said a sports nutrition company should be able to make money on this. With their bloated cost structure, I wouldn't be surprised if the margin MusclePharm is making is being swallowed whole by their insane SG&A costs.
In case you're worried I'm a blind fan-boy, I don't actually own any MSLP. It's a company I'm keeping an eye on, because, as I believe even you would agree, the value of the company's assets is not reflected in the current share price.
In regard to the wash rule, it's odd that they would buy back shares right away, but it's plausible they were doing it for voting reasons. They would only lose the ability to claim a loss on those 50,000 shares they bought back within a month, meaning they would still have plenty of losses to write off.
Those appear to be the 1.5-pound tubs. If they're selling for $22, that should be plenty to be be margin positive. Or rather, for every other sports nutrition company, that would be plenty to be margin positive. It also means they're selling for a significant price-per-pound premium over other mass-facing sports nutrition protein powder brands (Six Star, Body Fortress, Walgreens/CVS private label, etc.).
Also, the big run-up was less than 10 days ago (8/13/2015), so technically the Form 4's could still be coming. If they're not out by the deadline early next week, that would be concerning. If insiders weren't driving the gains, it calls into question their belief that the stock is truly underpriced and certainly calls into question their FY revenue and margin estimates. It would mean the run-up was just a rehash of what happened after Q1 numbers came out. Nothing in the 10Q to be excited about except for vague notions of future profitability that causes fan boys to drive the PPS up 20%, only to cede back the entire gain in three months.
Just a counter-theory:
Wynnefield publicly announced that they were taking a loss on MSLP to offset other gains. That would explain why they sold, while a desire to have the shares remain in the hands of another strong activist investor would explain why they sold to Consac, in particular.
You'll note that transaction took place more than one month ago, meaning that the run-up last week could well have been Wynnefield buying back in after the wash-sale time period ended. As Form 4's don't need to be filed for 10 days, we might have to wait another week or so to find out if any insiders or Wynnefield were buying.
As for your claim that they are switching to an MLM model, I have it on the authority of one of their senior retailing executives that that is not the plan. If they do go with an alternative selling plan, it would be more akin to practitioner sales (think Douglas Labs).
This is what happened after the Q1 results were published. There wasn't really anything to be excited about in the numbers or conference call, but the stock still went up 20% the next day. Of course, it gave it all back in next month or so...
I imagine a good bit of this is insider buying with maybe some new interest from the investor presentation yesterday.
The Capstone deal is behind schedule, too. Apparently, they've only paid $1.7 million of the $2.5 million. That can't be good for future supply chain, if they were supposedly funding expansion of Capstone's production capacity.
Oh, come on now, Codie. The stock might be a dog, but their products are actually well formulated.
I'm not lashing out. I don't own any MSLP, and if you've read my previous posts, I am not very hot on this company's prospects, especially not the $100M+ buyout people seem to be banking on.
However, I do find your cloak-and-dagger posting annoying. I also don't quite follow your reasoning (pardon me, your source's reasoning). Bill Phillips is so rich that he doesn't need to work for MusclePharm (and would also have no interest in launching a product targeting his own demographic), but he's not rich enough to turn down an offer to become a stand-in for a CEO who is apparently getting carted off to prison soon (according to your source)?
"Not my theory, just a theory that I alone have expounded on!" Your Deepthroat shtick is getting a little tiresome. Also, happenstance, by its very definition can be dismissed.
Your Bill Phillips angle, while I suppose technically possible, is absolutely ludicrous. Do you really think that a company that has no interest in cost-containment launching a new line targeting an older, higher-income demographic is less plausible than a highly respected industry figure conspiring to serve as the proxy for the soon-to-be-arrested CEO of a company that he has no previous connection to?
That seems like a pretty rosy worst-case scenario at this point. I see the worst-case scenario as something closer to: continued supply issues push revenue down again and combine with $2 million payment to Capstone to cause loan default. That leads to the banks selling their 800,000 shares, and the company is in a situation where the stock price has just taken a big hit AND it needs to dilute to keep the doors open. Maybe Drexler buys up all 800,000 shares and gives them some sort of bridge loan until they can sell the company, but how much is anyone going to pay for a de facto bankrupt brand that never made any money? Certainly not $150M.
They would still be able to book a loss on the 26K they didn't buy back, though.
In general, I agree that it's very odd.
Wynnfield had mentioned in the sale announcement that the sale allowed them to realize a capital loss, which they needed because of the success of several other sales. It looks like the majority of the 400,000 shares they sold were through different funds than the one they bought the 50,000 with a week later. So, maybe this was just a tax-rigging measure to some extent.
It'll be interesting to see if Consac files a form 4 in the next few days showing they essentially bought all of Wynnfield's 400,000 shares.
The Tiger deal was a bad one, because of the cost. If they could have lured him in at a lower cost, the exposure he's generated might have justifiable.
The Manziel deal is not bad at all. Not only has it cost the company effectively nothing, Manziel is not nearly as "caustic" as you claim. While his on-field performance certainly leaves much to be desired, he's still appreciated as celeb-lete by MusclePharm's core user base (young, American men). His star is fading and he'll likely be forgotten soon, if he doesn't establish his spot on the Browns this year, but given the price, the deal will be net neutral at worst. Even if you consider him to be too caustic to use an endorser, you shouldn't be too upset with the deal, seeing as it hasn't materialized in any significant marketing (other than the announcement tweet and one or two pictures on the MP website).
If the company was selling standard consumer packaged goods, I'd agree that the celebrity/athlete endorsements would provide questionable return on investment, but sports nutrition isn't a standard CPG category. Outside of the most hardcore users, the consumer enthusiasm for the category vastly outstrips the consumer understanding of the products. Less sophisticated users (who vastly outnumber the hardcore physique athletes and bodybuilders) gravitate toward endorsers, whose athletic ability translates into an endorsement of the product's efficacy.
I think you're overstating the variance in MusclePharm's branding. They have separate lines, but those lines all target different demographics (except the Black and Hardcore lines, which both target the most sophisticated sports nutrition users, but are also both retailer exclusives). The Combat Crunch bar is branded along the lines of Assault, Combat Powder and Amino 1 - their most popular products.
It's not as bright and cheerful as Quest bar, but I don't think that's as big a hurdle to adoption as you're portraying it. The bigger hurdle to mass adoption is the product's overall "hardcore" positioning. I believe a big part of Quest's success is due to the fact that it isn't overtly positioned as a sports nutrition product, so much as a better-for-you/active nutrition bar. That said, I think Combat Crunch can find success in mass channels and will appeal to the types of young, price conscious males who buy Six Star or Body Fortress at the grocery store or hypermarket.
Combat Crunch will never be as big as Clif Bar. People making that comparison have no understanding of the nutrition bar or sports nutrition categories. Clif Bar appeals to vastly more consumer types than Crunch Bar ever will.
To be clear, I'm not as negative about the company's long-term prospects as you are, codie. I just wanted to point out that I think people are grossly over-estimating the likelihood of MSLP being acquired at a huge premium. With the issues still up in the air, I think it's unlikely they get acquired at all before the SEC closes its investigation, and MSLP strings together three or four quarters of solid bottom-line growth.
You're comparing apples and biotech stocks.
Vega has some product overlap, but it's not really an apples-to-apples comparison with MSLP. It's not a sports nutrition company, it's a premium dietary supplement/weight management/fortified-functional foods company. Vega was also profitable and not under investigation by the SEC (though most of the downside risk of this seems to have mitigated). The huge premium was probably based on the idea that this is a brand that could be rolled out into every grocery store in America and Canada tomorrow. Even so, the premium still seems really high.
A lot of the people on this forum don't seem to have a strong grasp of the sports nutrition or dietary supplements markets. They are not the same. Sales of dietary supplements and weight management are significantly higher in every major market than sports nutrition (confirmed by every major market research company: Euromonitor, Packaged Facts, Mintel, etc.). The consumer base is much larger for better-for-you, food-like products than for performance-boosting products. To put it simply, soccer moms and 20-something yogis don't buy 5 pound tubs of "muscle builing" protein powders, pre-workouts or creatine. The Vega Sport line is a very small part of Vega's overall portfolio, which, as a whole, is far more mass-consumer friendly than MusclePharm's.
The best recent comparisons for any takeover conjecture are Cytosport, Dymatize and Isopure. Cytosport sold at a suprisingly low premium, while Dymatize and Isopure came in about 2x sales. However, Dymatize is profitable and had recently acquired the mass-facing brand Supreme Protein. Dymatize also has best-in-class, in-house manufacturing.
TL;DR: Vega caught a shockingly high premium, and isn't a great comparison to MusclePharm. Anyone who sees the WWAV acquisition as positive confirmation of a US$1 billion market cap for MSLP is delusional.
Form 3 is just a registration form. Form 4 is for changes in ownership, i.e. you have to file a form 3, before you can file a form 4.
Exactly, and that was my main point. There's no way Man City gives them any exposure for simply supplying supplements. Frankly, they were probably already getting free supplements from another company before. Top-flight programs all have nutritionists that monitor everything going into their athletes, and other Premier League teams like Liverpool and Arsenal have done tie-ups with British sports nutrition producers. Given MusclePharm's frankly terrible history of actually exploiting their marketing tie-ups (other than Arnold), I find it hard to believe much will come of this.
Given that the photo was taken in Yankee Stadium, the deal is most likely only for New York FC (the MLS team owned by City Football Group). I don't seem them having the cash to afford the rights to "official sports supplement" or something similar of Man City, one of the highest profile soccer teams in the world.
The resignations are pretty puzzling. Not only does it seemingly not increase the number of independent directors, but the departure of Andrew Lupo, in particular, is concerning. He was the head of the compensation committee, but given his background in corporate compliance, I got the impression he was brought in at least in part to help clear up the SEC investigation. I'm struggling to determine if his departure is a good thing (the SEC investigation is more of a done deal than the company is letting on) or a bad thing (he pushed for more responsible compensation and was told to take a hike). I would be interested to hear other people's ideas on the move.
Weird drop
I'm wondering if this isn't one of their newly departed board members selling off. Seems like a sharp drop for fairly low volume.
It appears he bought them on the open market. The 13D states Drexler owns 1,000,000 of the 13,468,876 shares outstanding, as of May 8, 2015. Oddly enough, that shares outstanding figure is actually 23,315 shares lower than MusclePharm's 10Q stated were outstanding as of May 1, 2015 (in addition to the 875,261 held in treasury for the bank loan).
Given the volume over the period, I'm guessing he started buying after the Q4 earnings crash and stayed right under 5% until early may, when he bought up another 2.75% shares right before the Q1 earnings call.
Who are these manufacturers?
The brand is made by Iovate (MuscleTech, Six Star, etc.), but sold exclusively through BB.com, for now at least.
The backlog was a product of poor inventory planning and, if you believe management, a massive shift of buying schedules from international buyers due to currency headwinds, not inherent demand.
The comparisons to Monster, Red Bull, and particularly 5 Hour Energy are off-base. Those companies were effective first-movers in a category that exploded. Sports nutrition's trajectory is nothing compared to energy drinks in the early to mid-2000's or energy shots in the late 2000's. I think with better planning MSLP could consistently grow top-line sales at a 10-15% CAGR for the next few years, but turning the energy drink into a real revenue driver will be difficult, given the category's consolidation.