Q1 2020 Earnings Call
Good day, ladies and gentlemen, thank you for standing by.
Welcome to todays conference call to discuss lifespan to just first fiscal quarter 2020 financial results.
At this time all participants are in listen only mode. Following the formal remarks, we will conduct a question and answer session.
Trucks as well field provided at the time for you to Cuba.
So today's conference will be Scott Van Winkle with RCR as a reminder, today's conference is being recorded.
Now I would like to turn the conference over to Mr. around Michael. Please go ahead Sir.
[noise] Nikita good afternoon to walk into like banners Corporation's conference call to discuss results for the first fiscal quarter 2020 on the call from my parents with prepared remarks are Darren Jensen.
CEO and Steve <unk>, Chief Financial Officer.
Now everyone should have access to the earnings release, which went out this afternoon at approximately four or five PM eastern time.
If you've not received their release, it's available on the Investor Relations portion of like manages website.
Www Dot life managed dot com.
This call is being webcast a replay will be available on the company's website as well.
Ford began we would like to remind everyone. Their prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve inherent risks and uncertainties.
Including those identified in the risk factor section of like manages most recently filed forms 10-Q and can chat.
Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis.
We believe these financial measures can facilitate a more complete analysis and greater transparency into like bandages ongoing results of operations, particularly when comparing underlying operating results from period to period.
We've included a reconciliation of these non-GAAP measures with today's release.
This call also contains time sensitive information that is accurate only as of the data dislike broadcast October 32019.
Like many interesting no obligation to update any forward looking projections that may be made in today's release or call now I would turn the call over the company CEO Darren Jensen.
Thank you Scott and good afternoon, everyone, it's a pleasure to be with you.
Again today to discuss our first quarter fiscal 2020 results.
During the quarter, we're intensely focused on preparing for the launch of our most significant new product in recent years pro tandem any de Synergizer. This revolutionary product is the first edition to our flagship protein line since 2016, and we're very pleased with initial sales in keystrokes.
Spots, which is meeting our robust expectations and to date is shaping up as one of the strongest product launches.
Weird the early days up the launch, but anticipate that October could be among the best sales month in our history and we'll continue to focus on building this product across our global footprint.
Before I discuss our progress with pro tandem any de Synergizer, let me recap the first quarter activities, which again were largely focused on preparation for this important watch.
Our year over your revenue growth continued during the quarter as we generated 1% increase which with significant margin improvement in margins adjusted EBITDA and net income the revenue growth reflected strong year over year gains in Asia Pacific in Europe , which increased 10.4%.
Including 10% growth in Japan.
In September we held a highly successful Japan convention, where we saw strong activity ahead of the event as well as increased sales and improve distributor engagement and customer demand.
Revenue in the Americas decreased 2.2% on a year over year basis as a result of the timing of activities in our Red carpet program as well as our focus on previewing and training our field I protested them any de Synergizer ahead of the October lunch.
We made good progress under 2020 initiatives during the first quarter with a primary focus on our initiative to become Masters bio hacking subscriptions. This initiative is intended to drive the percentage of our customers that process.
Subscription order within their first 90 days increased average order sizes and drive retention a key component to this initiative is the launch of pro tandem any de Synergizer.
As I noted throughout the first quarter [noise].
We were focused on preparing for and building consumer excitement for the product launch while these activities did not have an impact on first quarter revenue generation. Each was designed to drive the success of our formal launch at the beginning of the second quarter, our preparation for launch was comprehensive and intense and these efforts.
Paid off with strong initial cells.
During the first quarter, we worked closely with our field leaders in preparation, including cheesy the product at our July Elite Academy in Kansas City, providing training product to our field leaders. So they could test it and bill personal experience of head to head of initial shipments in October .
As a result, our field leadership was better prepare to educate our broader consumer base at the time of launch driving a stronger initial response, we also invested heavily in clinical studies building marketing materials presentations and promotional campaigns to drive consumer demand each of these efforts Rick.
Flex our confidence that protein is there any de Synergizer [noise].
We'll be a strong contributor to our growth and a key addition to our flagship Protandim line.
Protandim in AG Synergizer has been.
Typically formulated to target the nicotine am I mean, I knew she did cite molecule more commonly known as any D by increasing any de levels. We also now we are positively affecting any de depended pathways, specifically activating a family of proteins called SER two ones.
Sure to an activity, which declines as we age has been linked to a host of health benefits, including supporting healthy longevity improved mental focusing concentration positive mood and motivation boosting mental and physical energy supporting a healthy inflammatory response and supporting a healthy cardio.
Vascular system.
We also know Protandim in AG Synergizer is more effective than the competition.
Our studies have shown a kid significant significantly increase both energy levels answer to an activity exponentially higher rate than that of others in the marketplace and do it in much more quickly and do it much more quickly.
Further our studies show significant synergies when Protandim energy Synergizer is combined with our pro tandem interest one and internet to synergize ears to further improve outcomes.
As a result of the synergy and the since some real effects of protein and them in a de synergizer, we have thus far seen a lower level of cannibalization and higher incremental sales than we would have than we would typically anticipate with a new product launch in an effort to further capitalize on this synergy we've also launched the Protandim trice.
Energizer the Trice Energizer combines all three protein Adam offerings into a single stack, which is being very well received across our consumer base.
Pro tandem in AG synergizer into Protandim try Synergizer stack should be an important contributor to our initiative to drive subscriptions increased every word increased average order sizes improved the distributor sponsoring story and grow consumer demand and retention.
We also continue to evaluate implementing a free shipping program sure further support our subscription model and adapting our product offering to support consumer demands in regional markets with the initial effort to offer a more consumer friendly tablet size of our approach and entering two in Japan.
Which is slated for the second half of fiscal 2020.
Our second initiative is to continue to work to attract and create bio hacking influencers.
This includes our efforts to support our Red carpet program expands our geographic footprint further during fiscal 2020 drive growth in synergy in our greater China region refined the cadence in volume of our distributor events.
Introduce a new series of meetings for Influencers.
We began to execute the newer event cadence in the first quarter, we'll continue to drive red carpet sales as the year progresses, and we're on pace with our plan November launch.
New Zealand and for one additional new market in Asia Pacific during fiscal 2020.
Third we plan to further simplify business building at Lifevantage with the goal of making it is easy to build it lifevantage as it is to call the nuber.
This includes a plan to introduce daily pay into our compensation plan, which is expected to rollout later this year updating and enhancing our international compensation plan to further focuses on driving customer demand.
And driving further penetration of the Lv app.
Finally, we will continue we will continue to focus on building in enhancing our foundation for future growth, including new programs to develop internal talent enhancer cyber security and upgrade our consumer facing systems to improve convenience remove friction and improve efficiencies.
To close we had a productive first quarter and are off to a good start in fiscal 2020.
We're very pleased with the launch of Protandim energy Synergizer Amphitrite Synergizer you believe we're on track to achieve our fiscal 2020 guidance.
Now before I turn the call over to Steve I want to let our investors know that I have entered into a tenbfive one program to sell a small portion up my life energy holdings, roughly 10% over the next year.
This decision reflects my personal and need to develop.
To diversify and I've said the amount at a modest percentage of my total holdings and if thread plant sales transactions.
Across the next year, so that it that it's only a modest amount is so each month I continue to maintain a high percentage of my personal assets in the form of Lifevantage stock and thus remain aligned with my fellow shareholders. I felt it was important to be transparent and announced this prior to the first sale with that let me.
We turn it over to Steve to run through the financial results safe.
Thank you Darren.
Good afternoon, everyone I'm pleased to report our first quarter results.
We generated another quarter of positive year over year revenue growth, while delivering significant improvements in profitability. We remain confident in the momentum we've built and we plan to build upon this further us fiscal 2020 progressive.
Please note that I will be discussing our non-GAAP adjusted results you can refer to the GAAP to non-GAAP reconciliations in today's press release for additional details.
First quarter revenue was $56.2 million, representing a 1.1% increase year over year.
Revenue in the Americas decreased 2.2% to $40.2 million, while revenue in Asia Pacific and Europe increased 10.4% to $16 million all year over year.
Growth in the Asia Pacific in Europe region reflected continued strong performance across Asia Asia Pacific.
Including strong growth in Japan, 10%.
The modest decline in the Americas reflected our level of activity in preparation for the launch of pretend I know you de synergizer as well as lower red carpet activity.
Which can fluctuate quarter to quarter. This also impacted the number of active distributors and customer accounts during the course.
The impact of this change was partially offset by an increase in both our distributor and customer average order sizes. In addition, our year over year retention rates were consistent.
Gross margin was 83.7% compared to 83.5% in the prior year period. The modest increase in gross margin was driven by lower up inventory obsolescence and handling costs as well as changes to our geographic and product sales mix.
Commissions and incentive expenses as a percent of revenue decreased 235 basis points year over year to 47.6%.
A year over year decrease is due to the timing of accruals for incentive and promotional programs as well as the current quarter level of activity in our Red carpet program.
Just as a reminder of the commission and incentive expense.
They will fluctuate quarter to quarter based on the timing and magnitude of promotions and incentive programs as well as the inherent fluctuations in red carpet expenditures, we continue to target commissions and incentive expenses to be around 48%.
Adjusted EPS, the SDMA as a percent of revenue was 31% compared to 30.8% than the prior year period.
The modest increase in adjusted US today as a percent of revenue primarily reflects an increase in employee head count and related compensation costs and increased depreciation expenses associated with our investment in new technology assets that have been placed into service.
Adjusted operating income was $2.8 million were 5% of revenue compared to 1.5 million or 2.7% of revenue in the prior year period.
Adjusted net income increased 85.6% to 1.9 million or 13 cents per fully diluted share up from 1 million or seven cents per fully diluted share in the prior year period.
Adjusted EBITDA for the first quarter increased 44.7% to $4.7 million compared to $3.3 million in the prior year period.
Please note as well.
But we continue to expect fluctuations in our tax rate over the coming quarters as the first quarter effective tax rate of approximately 28% was above our full year expectation of 19% to 22% specifically our tax rate can fluctuate significantly base.
On the timing and magnitude of stock awards vesting from quarter to quarter due to differences in the book versus tax expense deductions.
These SDN events are treated as discrete items and accounting for fully within that period that occur rather than adjusting for the differences on an anticipated annualized basis.
As I noted all of the adjusted funds from GAAP to non-GAAP are reconciled in our earnings press release.
We ended the first quarter in a strong financial position with $13 million of cash compared to $1 million of debt.
During the first quarter fiscal 2020, we use $3.5 million of cash from operations and invested $800000 in capital expenditures.
The operating cash flow reflected investments in working capital, including a 1 million dollar increase in inventory in preparation of the launch of book tandem any descendants.
Sure.
The payment of fiscal 2019 bonuses and increases in prepaid expenses associated with future distributor events.
During fiscal 2020, we continue to anticipate a lower level of capital expenditure matures compared to fiscal 19, as our incremental investment and the Lv.
Our moderating.
Finally, we used $1.4 million in cash to repurchase approximately a 111000 common shares under our share repurchase authorization.
And we paid down $500000 on our term loan which will be paid in full by the end of our third quarter as noted last quarter, we have a tenbfive one program in place to facilitate our share repurchases.
As of September 30, us there remain.
$1.5 million available under the company's 15 million dollar share repurchase authorization.
Turning to our fiscal 2020 outlook, we are reiterating the guidance we provided when we reported fourth quarter 2019 earnings for fiscal 2020, we'd expect to generate revenue in the range of $235 million to $245 million.
And adjusted non-GAAP EBITDA in the range of $20 million to $22 million.
Adjusted non-GAAP earnings per share in the range of 62 to 71 cents.
Our non-GAAP , our adjusted non-GAAP EPS guidance assumes a full year tax rate in the range of 19% to 22% compared to our effective non-GAAP tax rate, 13% in fiscal 2019.
Now, let me turn the call back to the operator to sell to facilitate questions operator.
At this time, we will be conducting a question and answer session.
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One moment, please while we pull for questions.
Our first question comes from the line of Doug Lane from Lane Research.
Please proceed with your question.
Hi, good afternoon everybody.
Hi, just.
Looking at the first quarter really came in at least right in line with what I was expecting in your tone is very positive on the early days of the Newport tandem products. So.
Just wondering what.
What we're looking for here going forward as is.
These new products sold in monthly supplies, so we waiting to see what what sort of what the reorder pieces here I'm. Just wondering why you wouldn't raise guidance or whether you think it's too early.
Well, Doug Thank you.
Actually very good question.
We launched the the NTD products right at the beginning of October So we're still within our first month of selling the product initially it appears to be very well doing actually very well.
And.
Part of what we had explained in our in our earlier statements. What has been good about it is that we invested quite a bit in testing and in other programs and part of the adjusting that came back showed a tremendous synergistic effect between the protandim any d. the protests era shoe and enter if one.
Product when used in conjunction with each other and that's why we are seeing what we believed a lower cannibalization rate because now there is a powerful story to show that all three should be used at the same time. So we've we've created packages of those threed products together called try synergizer.
And the initial outlook seems to be very positive on those and is we.
Continue to watch the development of this line and these packages obviously just like what we did last year will begin to adjust our guidance if needed throughout the year.
So I mean.
You sold a lot in early October which was when you launched yet so I guess you won't really begin to see the reorder pace for a couple of weeks now so.
Hey, any okay. So so that makes sense.
At that.
Yes.
And did I hear your right that this new these three new products are going to be launched in Japan in the second half of the year.
What I, what I mentioned about Japan was what our efforts on our on right. Now is is taking our entering two products.
Yeah, and adjusting the size a lot of our consumer testing out there has indicated that Japan prefers a smaller tablets side.
So we're adjusting the size of that product. So they will have greater appeal to the consumer that will be the first thing that goes out into India, Japan, We're right now evaluating the formulation of our in AG product and.
Beginning and developing the rollout for global so we'll be announcing at in future calls.
Okay got it thanks.
Steve I'm looking at at the the margins.
Actually came in better than I was looking for well over 200 basis.
Thanks, Rob operating margin expansion.
On 1% growth in sales so I'm wondering if.
We start to see the impact of the new products drive.
Accelerating sales growth then shouldn't we get Italy's that kind of margin expansion going forward. I mean, there is some built in leverage here isn't there.
There is and we fully expect that utilize I think our guidance.
If you just take the midpoint of our annual guidance.
We'll be at 240 million and the EBITDA associated with that at 21 million. We're now would be roughly a 6% revenue growth and 15% EBITDA growth.
We we fully anticipate.
Leverage coming from our revenue growth and not having the growth will be driven through the adoption of then I'd add as well as well as you know continued success in our in our Red carpet program.
Right of course.
Now you mentioned free shipping I think this is I don't know if I heard this before.
Is that what's becoming the impact on margins do you think with the the move to free shipping here.
We believe the how were structuring this there actually be at minimal impact to margins.
Okay. Okay.
Okay. Good.
Last week.
And again I don't want to go on the tax rate is you've got so much going on operationally, but with with the 28% tax rate in the first quarter Im little surprise. It just sticking with your 19% to 22% for the full year.
I guess, you're telling you can help me on the quarters, but what's the logic behind that why wouldn't you just eat the 28 and say 19 to 22 for the remaining three quarters.
Well.
You know if we're only that simple.
I'd say I Didnt I'd ask you to look at our last year quarterly tax rate given when last year in our Q1, we reported roughly a 22%.
Q2 was a negative 103% tax rate.
And then Q3 was 17% in Q4 was 29% and so that's what I mean, that's the magnitude of fluctuation that we're talking about and I think at the ended the year we're still.
Fairly confident around that range of 19 to 22, but it will fluctuate.
Rather dramatically in in Q2, and then again back in Q3.
As we look forward kind of some similar magnitude maybe not quite as big but to what we saw last year.
Okay fair enough thanks, guys.
Thanks, Doug Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Please one moment, while we pull for questions.
[noise].
Okay.
Okay.
Yes.
Our next question comes from European Hoffman Robeco. Please proceed with your question.
All right elaborate a little bit told the.
Yes, I mean, there China region.
Yes sure. Thank you.
You know.
When you're trying to reach its been very interesting area I'm sure for those of you that are watching the channel. Initially there was a 100 day review the Chinese government was making in mainland which.
Affected many of our members' within our channel, but due to our E Commerce model going and there was there was very little effect on us where we're seeing some effect at least within Hong Kong and mainland China has been with the riots that are occurring in Hong Kong and I think that has been widespread across.
All businesses within Hong Kong in that area.
But with with Taiwan, So I want to its been a has been a bright star for us out there.
It is still in the earlier days of growth that that market and as we develop more leaders there.
The way that the Taiwanese leaders work are more in spreads and so as we bring on more and more leaders I think we'll get.
More of a stabilization in the revenue from a month to month basis within within Taiwan. So.
Hey, what we're seeing within greater China is very positive when it comes Taiwan right now as with most businesses most of the world. We're just watching the events that are occurring in Hong Kong and you know our prayers route to everyone that hopefully there is a resolution at some point.
The near future. So thank you.
Thank you.
We have reached the end of the question and answer session I will now turn the call back over to Darren for any closing remarks.
All right well. Thank you everyone for joining us today, we're excited about the launch of Protandim in AG Synergizer and our early results. Following the launch we look forward to what fiscal 2020 hasn't store and updating you on our next call have a great day. Thank you.
This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.