Q4 2020 LifeVantage Corp Earnings Call
Okay, just restarted in listen only mode.
Following the formal remarks, we'll conduct a question answer session.
Actually we provided.
For you the queue up.
Hosting today's conference call will be Scott Van Winkle with.
As a reminder, today's call is being recorded no I would like to turn the conference over to Mr. Ben. Please go ahead Sir.
Thank you good afternoon, and walk into Lifevantage Corporation's conference call to discuss results for the fourth quarter in fiscal year 2020, [laughter] on the call today from my vantage with prepared remarks are Darren Jensen, Chief Executive Officer, Steve Fyfe, Chief Financial Officer.
By 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 the release it is available on the Investor Relations portion of Lifevantages website at Www Dot Lifevantage Dot com.
This call is being webcast a replay will be available on the company's website as well.
Before we begin we'd like to remind everyone that our 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 Lifevantages. Most recently filed forms 10-K and 10-Q.
Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis management believes these financial measures can facilitate a more complete analysis and greater transparency into lifevantages 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. This live broadcast August 18th 2020, Lifevantage assumes no obligation to update any forward looking projections that may be made in today's release recall [laughter] now I will turn the call over to the company CEO Darren Jensen.
I think he's got to and good afternoon, everyone. I Hope you are all doing well and are staying safe and healthy during this unprecedented times.
During fiscal 2020, we faced ever changing challenges resolving the cobot 19 global pandemic <unk>.
We're very pleased with how we remain nimble and have adapted quickly, finishing the year with record full year revenue.
We generated healthy growth for both the fourth quarter and a full fiscal year growing revenue and EBITDA of 5.7% and 6.7% respectively on a year over year basis, and 3.1% and 31.3% respectively for the full fiscal year.
We ended fiscal 2020 with robust growth in the number of active independent distributors in both the Americas and Asia Pacific in Europe regions, and new enrollments have consistently improved throughout the calendar year. The increase in distributors is a testament to the strength of our entrepreneurial business model.
Our proprietary product offerings and the investments we've been making in technology and digital tools more people are turning to alternative ways to make or supplement their their income. During this time of financial uncertainty and our business model is ideally suited for this environment.
Our focus on Nutrigenomics is also resonating in a time when consumers around the world are increasingly focused on their health.
Our distributors are leading with these messages through their social media and leveraging technology and digital tools, which is driving rising consumer interest.
Very pleased with our entire organizations ability to quickly adapt to the environment presented by the code 90 pandemic, while the effects of the pen doesn't make initially dragged our results during the third quarter and early in the fourth quarter growth recovered as the quarter progress and we finished strong our employees continue to work effectively yeah.
Work from home model or distributors are successfully utilizing technology in social media to grow their businesses, our supply chain remain secure and our third party suppliers are ensuring a steady supply of products.
During the fourth quarter, we proactively invested in promotions and incentives to drive distributor girls in part by redirecting some of our expense savings from travel and local events, which has to be put on hold our utilization number three start keep promotion a 50 dollar value for new distributors was the driver during the month of the April support.
In enhanced enrollment activities and grow.
This promotion was then followed by our flip the switch program in May and June, which further accelerated our enrollments and revenue through the quarter.
We were also successful with our Red carpet program, which is focused on attracting experienced direct selling professionals to build with life cabbage.
In addition to supporting our supply chain and our valued customers and distributors our focus quickly turned to the importance of the tools and the technology that connect them.
Before the pandemic, we had recruited and created a new digital technology development team to continue the growth of our mobile app and advanced or digital infrastructure.
As soon as dependent makes yet that team started rethinking how we use this technology and their efforts along with the efforts of our entire digital marketing team have accelerated adoption. He created new ways of thinking about our strategic technology roadmap that will be transformational for our business long after the current pandemic.
Our business model, where 70% of ourselves are on subscription provides recurring revenue and limits volatility during times of external disruption as we've seen over the past several months. We saw continued revenue growth in both of our geographical regions during the fourth quarter in fiscal year with particular strength in Taiwan.
Not really a new Zealand and continued growth in Japan. Despite the external challenges in this market to direct selling given social doesn't seem requirements and the limitations on site of recruiting.
As we look forward towards fiscal Twentytwenty, one while the current environment provides uncertainty we're confident in our ability to adapt and drive the business forward, we're effectively operating virtually and remain focused on the key metrics that drive our business, including enrollments attrition.
Average revenue per account and net promoter score.
We're anticipating further investments in our technology tools and promotions that were built upon our digital foundation to support these key metrics as we propel the company into the future.
We plan to continue to drive for a long term growth through the expansion of our global footprint and further new product innovation, we anticipate new marketing entrances and new product launches during fiscal 2021, we expect to launch in Singapore, and Malaysia, This coming year and to make additional new market announcements as the year progresses.
Finally, I want to thank each and every one of her life and each team members for their continued focus and commitment to our company. During these difficult times delivering the products that our customers depend on we're confident in our business model the adaptability of our employees and the passion and commitment of our distributor base to come.
Continue to not only survive, but thrive during these uncertain times.
With that let me turn it over just Steve to run through the financial results steep.
Thank you Darren good afternoon, everyone.
Let me walk you through our fourth quarter results. We are proud to report another solid quarter, achieving our second highest quarterly revenue with record EBIT dog during the period.
Darren discussed, we're well position than it's ever changing environment.
Which is highlighting the strength of our business model. Please note that I won't be discussion discussing our non-GAAP. Adjusted results you can refer to the GAAP to non-GAAP reconciliation.
In today's press release for additional details.
Fourth quarter revenue was $59.4 million.
5.7% on a year over year basis.
Revenue in the Americas grew 5.9% to 41.7 million on revenue in Asia Pacific in Europe increased 5.1 person to 17.7 million both year over year.
Growth in the Asia Pacific and Europe region reflected a 2.2% increase the number of active accounts with strong performance in Taiwan, Australia and see what.
We were encouraged by continued positive growth in Japan, despite local regulation, which prohibits fiber and social media recruit thoughts.
Additionally, it is worth noting that while growth in Europe was flat, it's holding its own.
Their market shut down very quickly.
In response to cope with 19.
The growth in the Americans reflected strong performance in the U.S. and the continued positive response to the launch of our core tandem and I'd say energizer and protest them price on the chart you bundle.
Launches along with our price change completed during the third quarter contributed to increased average revenue per account.
Gross margin was 84.1% compared to 82.7% for the prior year period.
The increase in gross margin was driven by the benefits more price change and lower inventory obsolescence in handling costs.
Partially offset by changes to our geographic and product sales.
Gross margin continue to be in line with our long term target.
Commissions and incentive expenses as a percent of revenue increased 335 basis points year over year to 48.7%.
The year over year increases due to the investments and promotional program and then Sundance Darren discussed.
Well as increased investments in our Red carpet program.
As a reminder, that commissions and incentive expense rate.
We will fluctuate quarter to quarter based upon the timing and magnitude.
Emotions and sounds programs as well as the inherent fluctuation and red carpet expenditure.
Well just have gionee.
As a percent of revenue was 24.1% compared to 27.1 person for the prior year period, the decrease in a skinny.
<unk> expense as a percent of revenue primarily reflects decreases in employee compensation related expenses.
Including both cash and stock incentive compensation as well a decrease you done extensive that's a result of changes and cancellations.
Due to cope with 19.
This was partially offset by increased depreciation expense associated with our investment in new technology assets would have been place can sort of us an increased credit card processing fees due to increased revenue.
Yeah.
Adjusted operating income was $6.7 million were 11.3% of revenue compared with 5.8.
Or 10.3% rather than the prior year period.
Adjusted net income was 4.1 billion or 28 cents per fully diluted share compared to 4 million or 26 cents per.
Fully diluted share in the prior year.
The increase in adjusted net income.
Negatively impacted by a higher tax rate during the current period.
Increased to 37.2% from 28.9% from the prior year period.
We expect that our tax rate will be approximately 30% for the full fiscal year 2021.
And our quarter to quarter fluctuations should moderate relative to the prior years, although there will still be some quarterly fluctuation.
Our anticipated 30% tax rate for fiscal 2021 represents an eight point increase from our fiscal 2020 tax rate due to increased pre tax income and reduced benefits from equity that thing.
During 2021.
Adjusted EBITDA for the fourth quarter increased 6.7% to a record $8.2 million compared to $7.7 million in the prior year period.
Please note that all of the adjustments from GAAP to non-GAAP I discussed today are reconciled in our earnings press release issued this afternoon.
We ended the fourth quarter, and a strong financial position with $22.1 million with cash and no debt.
We repaid the balance of our term loan during the third quarter.
In addition, we continued to maintain $5 million of availability under our revolving line of credit.
We use $5.4 million the cash during fiscal 2020 to repurchase approximately 387000 shares of common stock.
Under our share repurchase authorization.
As of June Thirtyth, there remains 3.4 million available under the company's $15 million share repurchase authorization plan.
I anticipate to be active with our share repurchase effort.
We invested $2.7 million and capital expenditure during fiscal 2020, and anticipate Capex approximately 3 million in fiscal 2021.
Which will be primarily stunt on building.
Our new office space in Lehigh, Utah.
We anticipate Oct occupying our new offsets in January of 2021.
Which we have configured to better support our employees and distributors incorporating our work from home learning from over the last six months and providing meeting space to support our business development and branding effort.
In addition, we are investing and further development of technology and digital tools.
Turning to our fiscal 2021 outlook, we expect to generate revenue in the range of 240 $251 million.
On an adjusted non-GAAP EBITDA in the range of 25 $27 million.
With adjusted non-GAAP earnings per share in the range of 87 to 91 cents.
On a year over year basis, the anticipated increase in our effective tax rate from 22% to 30% as an 11 cents negative impact on our year over year earnings per share growth.
Given the fluctuation in the company's tax rate, we continued to bleed adjusted non-GAAP EBITDA.
It better indicator of the company's results from operations.
Now, let me turn the call back to the offer here to facilitate question.
Operator.
At this time will be conducted a question answer session. If you will like to ask question. Please press star one on your telephone keypad accomplishments I want indicate your line is and the question Q you make for starts if you will let your moved your question in the queue for participants using speaker equipment. It may be necessary to pick up your head said before person to Sarkies one moment. Please we both.
Since.
Our first question comes a lot of Boggling woodland research showed your question.
Yes, hi, good afternoon, everybody, Steve on the on the tax rate or the big jumps in 22% to 30% is that going to be an increase in your cash tax rate or is that a noncash increase.
It will be an increase in pashtun.
Okay. Thank you and bear in could you talk about or the cadence with the sales growth in the second quarter seems to me you know that started out weak in April and ended up stronger, but can you give us some sort of magnitude is oh, how the quarter progressed from April through June.
Thank you Doug for the question, it's good to hear from me.
Each month, when you look at it in terms of enrollments or in even in terms of revenue.
Each month was progressively stronger so.
Even starting from January so the full calendar year that we're looking out from January on it.
Almost as if each month strengthened as we went so a june was an exceptionally good month for US which is the last month of both fiscal year, so increasing each month.
And as I carried over into the third quarter. So for you know about getting in the two specifics was just directionally is that strength that you've seen in June continued ended the third <unk> the.
First quarter fiscal 21.
I don't know that were particularly commenting on.
Our first quarter beds.
We you know with us going into July if you know it's a summer month. It's typically you know one of our seasonally softer months for us. So I don't know that I would based anything, particularly just on a a july much Oh, there's a lot of what I meant within our field.
No. It's fair enough there I'm just it's just that it's such an unusual environment and just looking at the sales number which was a good number in the June quarter, you're really projecting more the same for 2021.
But my sense is you're coming out of the June quarter with more strengthen that and then I also factor in your distributor growth, which was the biggest distributed number that I have in my model for awhile. So you seem to be getting pretty good traction on your leadership as well. So I just want to see if there's something a little bit more.
Going on here and how sustainable you think these positive trends are.
Well I think from the guidance that we just gave.
It would indicate that we're you know as you mentioned it seems fairly consistent with what we just reported so.
You know, we're we're pretty confident in our ability to deliver the the guidance can you just gave and so you don't barring major.
Curve balls tilted may throw at us we feel confident in Oklahoma.
Yeah, but of course, okay. Sorry go ahead Steve.
Yes, no ice is going to add that you know at at the beginning of this whole pandemic thing you know, we clearly kind of thought a shift where people became much more interested in the business opportunities than they were not in our in our products per se.
What was attracted to that once the model and so you know I think that's really we took advantage of that interest we had a few very successful promotions during Q4.
Yeah.
You know we saw the growth in the distributor base, which.
Candidly, we think it's going to bode well for efforts, we look to the future those distributors that start to get up to speed and start bringing them new customer.
Yeah, Dan So we're excited about the enrollment so you know that that we saw from that distributor grow and.
You know I'm cautiously optimistic that will convert to customer growth picture.
No. That's good that's good color I was that was anticipated. My next question on the income opportunity versus your product portfolio. You know offer in your nutrition products hardware Global Health crisis, and then you also have the income opportunity as well so all in it sounds like Youre approaches is.
A balance between the two is that is that fair.
So with that Doug This is Karen.
It really depends on how our on on what the customers are looking for when they're being approached by or distributors.
Additionally are historically, we've always led with a product message I think is a company. We are you know what we've always been at very strong products company. What we didn't notice in late in the third quarter ended the fourth quarter shifting between the mess is shifting in the messaging within our still just based on.
Customer demand and you saw more of a skew in people being interested in the the business side of it and I think thats, just because of the economy and the challenges that are having their and you know recently, we're starting to see that moderate more back towards a product so I I.
He just depending on the circumstances or the day in where People's minds are it's shifting between business and product that but historically, we've always been product and I would imagine that that will probably move back over to that here over time.
Okay. Thanks there.
Thank you [noise].
[laughter].
Once again, if you would like to ask questions. Please press star one on your telephone keypad. Once again, if you like to ask question. Please press star one on your telephone keypad. Our next question comes a lot of Jim Kelly I'm, especially pleased with your question.
Congratulations on your results.
Impressed.
With how you handle that pandemic so far.
Thanks, I had hoped to see 100000 customers in the Americas is now.
But we've lost 12000 and I appreciate listening to your last discussion on product versus income and and Oh.
Is there a change in the demographics of the makeup of our.
Customers and distributors age wise.
And is that one of the things that's affecting how people are using the app and and all.
Just curious yeah, well thanks, Jim it's good to its good to hear from you.
I think you know as I look over the last year when it comes to the mix.
People, joining our company either as distributors or as customers.
You know its third quarter actually in our second quarter, we had a short term decline due to some of our social media driven activities as we were focusing on managing the consistency of the content.
Has been used online and I'm glad that we took that time at the beginning just focus on that because we didnt realize it moving into that third and fourth quarter is going to become so important. So we use it there would be a minor declines in our recruitment efforts during that time just due to.
Q2 dose efforts to make it consistent in the message that was was being given and really we saw that bottom out or we.
That does finished in January and then since that time, we've seen all the numbers begin to come up when it comes to recruitment so in.
Third and fourth quarter for us.
Duty coping my key.
I believe that Theres been an impact on the mix of customers are the new customers and distributors that are coming in.
Typically we've seen much more of an interest for product and so we tend to bring in more customers, but I believe that due to sharply increasing unemployment rate.
As I mentioned before with Doug we saw a shift in the messaging just because the consumer demand people. We're more interested in the business aspect of it now I think short term that has an impact on the number of customers. Because people are are focusing on kind of more of the business aspect of it but as you know distributors, bringing a lot more customer.
So as Steven mentioned, but Doug we expect to see more of that expansion further on or the impact of more distributors coming in which will drive our customer members, including we're going to be announcing in our October cyber convention, we moved that our global conventional for to cyber convention I, we're going to.
Be introducing a customer referral program and we believe that that will further supports additional customers coming into our business.
That's wonderful I've been talking to you guys about it cuts referral program and and retention program for years. So that's great. But there are so many youngsters out there right now that are out of college and and hope to have a career and they're not able to get one and so are we.
Focusing anything more on the youth.
Or is there a better opportunity or a way to attract them into our business.
I believe there's always ways of the tracking and and I think that much of it is being driven by like you were saying they buy the bench the day, they're coming out of college looking for jobs and it's it's a much tougher environment right now so I think naturally you'll begin to see.
More younger people join our business.
When I look it at who is coming and I really look at it from a product category.
What we've seen is more of a shift towards our wellness products, where are our pro tend to more of the ingestible products and to move away from our topically applied once and as you know it's it's it's not a huge the number but we're seeing that movement in that direction.
I believe that that's just on people be I'm, a little bit more interesting interested in wellness from a from a demographic standpoint, I think overall BREP selling and this would hold true for.
Like damaged has been getting younger I think the younger generations are more open to to.
Kind of the gig economy to things like Hooper, Grubhub and and picking up cycle. So I think just the nature of the of the change in the economy, which has been accelerated I think by Cobot now you have a lot of people at home.
Looking from home cyber late and the concept of Ronnie aside business or you know a business online is not a foreign concept anymore. So I think will naturally see industry wide and I believe that that will quite lifevantage, a skew to younger people also.
Keep up the good work thank you.
Thanks, Jim.
Thanks, Jim.
This concludes our question and answer session I know well, let's just call back over to Mr. Jensen for any closing remarks.
I want to thank you for joining US today, we are pleased with our results in fiscal 2020 of the hard work of our employees our distributors in supply chain. During these unprecedented times to ensure we're able to continue to deliver light banished products to our customers who depend upon them. We hope you all stay safe and healthy.
And look forward to updating you on our next call have a great day everyone.
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation have a wonderful day.
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