FitLife Brands, Inc. (FTLF) provides nutritional supplements primarily through GNC. Their products by category include sports nutrition (69%), weight loss (28%), and general health (3%). Their brands include NDS, PMD, SirenLabs, and Core Active.
Investment Thesis - Core revenue had a 39% CAGR from 2010-2012. They anticipate a double digit CAGR over the next 3 to 5 years.
- They have an attractive valuation of 11 times trailing earnings ignoring one-time items and 10 times trailing earnings including one-time items.
- They are the #1 vendor in the GNC franchise system. They have 80% penetration in domestic GNC franchises (800 of 984 stores) and only 13% penetration in international franchises (250 of 1,955 stores). They are focusing on international expansion which is one of the factors that will grow top line revenue. YTD international revenue represented 6.0% of total revenue vs. 1.6% for the first nine months of 2012. Also, GNC is expanding their international presence which increases the potential revenue internationally.
- Currently they are not selling in any of the 3,299 corporate owned GNC stores. However, they are coming out with a new brand, ZYRI Labs, that is solely for GNC corporate stores and will be launched in late 2014. The corporate stores are 53% of the total GNC stores.
- GNC has been growing rapidly and that is expected to continue. GNC growth expands the potential FTLF revenue going forward. They are also targeting expansion into gyms and other facilities.
- Management has a nice pedigree. John Wilson, the CEO, previously worked at Coca-Cola. Michal Abrams, the CFO, has an investment banking background.
- I believe they have the potential to be a multi-bagger over the next several years assuming they are successful with their growth plan.
Key Financial Metrics - Revenue grew 26.6% YTD if you ignore a non-recurring formula change and 8.7% including the formula change. Revenue grew 49.6% in 2012 including the formula change.
- Over the trailing 12 months they made $0.23/share. Ignoring an income tax benefit in Q4'12 and a non-cash charge related stock issuance, I calculate that they made $0.20/share for the trailing 12 months.
- They have a very healthy balance sheet with a book value of $0.65/share, a tangible book value of $0.51/share, and cash of $0.78/share as of September 30, 2013.
- They recently cleaned up their capital structure and implemented a 1-for-10 reverse split. They eliminated all preferred stock. They have 8.1M shares outstanding and a fully diluted shares of 8.6M shares. Over 40% of the shares are held by insiders and 5%+ holders.
Major Risk The vast majority of their revenue is through GNC franchisees which is a risk. They are selling directly to franchisees so it is really 300 customers instead of one. I met with them at LD Micro and I believe they indicated that GNC corporate is pushing their international expansion. While I believe that their relationship with GNC is quite good, there is a risk if that relationship should change or if something negative happened to GNC as a whole.
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