Interview with Dick Huebner on MSLP:
TLSR: Could you talk about some companies, please?
DH: Sure. We have not had a banking relationship with MusclePharm Corp. (OTCQB:MSLP) since the offering we discussed in our last interview, but I've kept current with the company. The stock price has moved up substantially since we did an offering in February 2013 at $4/share. The stock is now trading at just under $11/share. The company's public announcements have been good, and the revenues have continued to grow, with about $105M on the top line last year. MusclePharm has made progress toward profitability.
This year, the company's top-line guidance is in the neighborhood of $175M. Personally, I had some concerns about that, because MusclePharm started with a really good Q1/14 of about $50M, and had some marginal profitability associated with that. However, the company didn't change its guidance of $175M after Q1. It said it may have down-quarters going forward from that level, because it had experienced extraordinary new order growth for a new product line which had Arnold Schwarzenegger's name on it. It didn't think that this would carry through in subsequent quarters. I was concerned about quarter-to-quarter profitability, and I'm not sure everybody appreciated whether that profitability would be sustainable.
The company has not uplisted from the bulletin board and Pink Sheets, but I suspect it would like to move to a larger market so it has greater investor awareness and acceptability.
MusclePharm has definitely proven itself a very capable marketing machine. It is very good at anticipating what products the market will be looking for, and it has been able to grow its sales. I know the company has done a substantial amount of work on corporate governance, and processes and procedures. I'm hopeful that MusclePharm will be able to attain sustained profitability in the near future.
TLSR: MusclePharm shares are up 91% over the past six months. Is that because of insider buying?
DH: When investors see that the people within management of a company believe in the opportunity and are willing to invest in the company, it's always a reassurance to the marketplace. But in this case, it's more that the company has been able to deliver on its quarter-over-quarter and year-over-year top-line growth guidance. Again, delivering on what you say you're going to do is something that investors look at favorably, and it gets reflected in your stock price. MusclePharm does need to get sustained profitability, and I think any down-quarter could bring a loss. The company, in my opinion, still needs better cost controls.
TLSR: It seems the nutritional supplement business is very dependent on endorsements by famous people, athletes in particular. You mentioned Arnold Schwarzenegger. MusclePharm also has the deal with Colin Kaepernick, quarterback of the San Francisco 49ers. Is this business, in fact, dependent on these names?
DH: I think endorsements can have a substantial impact. Arnold Schwarzenegger's endorsement and the product developed in his name have been a substantial boon to the company. I'm not sure that Colin Kaepernick has had near the impact. The company has also announced a deal with Tiger Woods. Should Tiger be able to return to his prominence in golf, that might have a significant impact on sales. Additionally, the Ultimate Fighting Championship sponsorship has been of great value to the company in driving sales.
TLSR: Dick, how is MusclePharm differentiated from so many other nutritional products companies? Can you put your finger on something that stands out?
DH: CEO Brad Pyatt has always expressed a commitment to staying with those ingredients that are legal. This is where so many of these companies seem to trip up. A lot of companies have run into issues where they utilize a banned substance to keep one step ahead of the competition as far as the performance. Pyatt has made representations that the company will stay within the guidelines and use only those ingredients that are recognized as permissible by the U.S. Food and Drug Administration (FDA). I think that if the company does that, it can avoid a pitfall. The company has also devoted a fair amount of resources to the science behind the performance of its products. Pyatt is doing an excellent job of marketing.
