Q1 2021 LifeVantage Corp Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss Lifevantages first first fiscal quarter of 2021 financial results. At this time all participants are in a listen only mode. Following the formal remarks, we will conduct a question and answer session.
Sure actions will be provided at that time for you to queue up.
During today's call, which will be Scott van Winkle with Chrysler as.
As a reminder, today's conference is being recorded.
I would like to turn the conference over to Mr. Van Winkle. Please go ahead Sir.
Thank you good afternoon, and welcome to Lifevantage Corporation's conference call to discuss results for the first fiscal quarter of 2021.
On the call today from Lifevantage with prepared remarks are Steve Fyfe interim Chief Executive Officer, and Chief Financial Officer.
And Justin Rose Chief sales and marketing officer.
By now everyone should have access to the earnings release, which went out this afternoon at approximately four or five P.M. eastern time.
If you did not if you have 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 and a replay will be available on the company's website as well.
Before we begin we would like to remind everyone that our prepared remarks contain certain 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 risk and uncertainties, including those identified in the risk factor section of Lightbridges. 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 date of this live broadcast November Threerd 2020.
Lifevantage assumes no obligation to update any forward looking projection that may be made in todays release or call now.
Now, let me turn the call over to the Companys interim CEO.
Steve Fife.
Thanks, Scott and good afternoon, everyone.
I hope Youre, all doing well be continuing to stay safe and healthy it.
It is my pleasure to join you today and I'm equally pleased to introduce our investors to Justine Roberts, our chief sales and marketing officer.
It's been with the company for over five years and has over 30 years of experience in the industry.
Justin is joining me today with prepared comments and we will participate in the Q and a.
We have been busy during the first quarter with some leadership changes and are continuing to adapt to the ongoing COVID-19 pandemic.
Our business continues to perform well with year over year growth and distributors and driving increased engagement across our member base.
We delivered $54.8 million of revenue a modest decline of 2.5% compared to the prior year period, primarily reflecting the fact that we did not hold an elite Academy event. During this year's first quarter as we did in the prior year. However, we generated.
42.5% growth in adjusted EBITDA.
Nearly doubled adjusted earnings per share.
These gains reflect the leverage on past investments and reduced <unk> expenses.
We believe we are in a strong position to drive continued earnings growth.
And of course, we continue to focus on driving revenue growth.
During the first quarter, we opened for business in Singapore, and expanded our enough our offering into Malaysia.
Although the timing of the launch or did not contribute significantly to the Q1 results.
We recently expanded our axio product laboring offering.
At our virtual convention and our team is working diligently on expanding our online video tools too.
To accelerate our efforts to grow our active account base.
Justin will speak about our new deliverables momentarily.
I remain incredibly proud of our entire organization employees and distributors.
At adapting to the challenging environment. We all continue to work remotely and are seeing strong levels of productivity and success.
In January we will move into our new corporate offices, providing further capacity to support our growth and enhance our distributor and customer support capabilities.
Our entire team is energized as evident by the reaction to our recent virtual convention. Additionally, I've had the privilege should spend countless hours on the phone with our field leadership I'm.
Hi, I'm overwhelmed by their passion for Lifevantage and their desire to grow the business and broadcast our story.
I'm excited for the opportunity that lies ahead.
Before I turn to a discussion of the first quarter results, Let me turn the call over to Justin Rose, our chief sales and marketing officer to discuss our recent activities and successes of our first ever virtual Global convention.
Justin.
Thank you, Steve It's an honor to join you today and a pleasure to speak to all of our valued shareholders and stakeholders as Steve Just mentioned, we just completed our global convention in which we had 13000 unique visitors who tuned in and participating in our events and with multiple household viewers in small gathering.
We estimate the expanded participation at around 20000 individuals from over 18 different countries.
The overall excitement and optimism about the future of likely in inches is high right now at any time since I've been here in the last five plus years.
The highlight of the event was launching a unified global system to the field with App integration for I T T cell system, which stands for invite tool in team.
This includes the first touch video as of the end by an overview video that is recommended for the first two that they share and then followed up with third party validation from a team member which is usually in a three way call format. This.
This is the first time that we've had full alignment on how to do and how to teach customer and distributor acquisition.
We gained full support from our top leadership with the I.T.T. system. We spoke clearly an often about the importance of following the system and how being fully aligned now enables the company to better support the field with complementary programs and promotions. The videos can be shared both directly through the app or through an individual.
Is replicated websites.
Providing the ability to connect the viewer to the person who actually shared the video videos can be watched at www dot like banished dot com forward Slash split for the first touch and Www Dot Lifevantage Dotcom Board slashed work for the overview.
To drive these efforts, we introduced operation 25, I T T as our call to action for the about allowing participants to start putting the system in the action by contacting a minimum of 25 people in the month of November.
We launched the operation 25, I T T program and challenge during the convention with a goal of achieving our biggest monthly enrollment in company history. During the month of November.
This combined goal what's the company in the field will be tracked on our distributor tools throughout the month.
We also introduced our friends and family share 10 get 10 program. This global program now gives our customers the ability to receive a 10 dollar credit each time they share the products with someone new places an order the new customer will also get a $10 discount on their first order. The program goes like November 4th our enough.
Actual results and feedback have exceeded our expectations during a pilot test in Australia, and New Zealand done earlier this fiscal year.
The program is designed to engage our large customer base and incentivize them to share the products. They have come to love for the first time, we now have provided an opportunity for a 104000 plus active customers to share their life manage experience with others without having to become a distributor.
At Convention, we launched the new platinum enrollment pack, which also provides both a beautiful display opportunity and a great consumer experience as the packaging is unfolded weve also enhanced the sustainability of our kit with reusable and recycled packaging addressing a key focus of our distributors and aligned with our corporate value.
The new Kid officially organizers and displays our key product categories and the launch at convention sold out to existing distributors within the first hour it.
It is also available to branded distributors, who enroll with our top platinum pack. We have introduced six new limited time, axiall flavors, including Black Licorice tropical twist Strawberry Splash Candide, Apple purple grape and Orange cream, we saw great response from our field and we believe we have many opportunities.
Moody's to provide several types of product experiences throughout this particular court category.
Our distributors and customers often respond positively to our axio innovations, including having twice knocked out our internet provider offline as a result of overwhelming interest in this new product launch.
We have worked diligently on these programs for over a year and I could not be more excited about now having that integrated into our fill our programs are focused on driving both distributor and customer enrollments. We're seeing many leaders step up and Reengage at this time actively taking part in helping teach and train our new I T T system to the map.
We are very encouraged by the initial results, which we believe can and will have a dramatic positive effect on our moments and our overall revenue now let me turn the call back over to Steve to run through the first quarter financial results.
Thank you Justin before I review the financials, let me reiterate the strong positioning of Lifevantage and not only today's environment, but in any environment.
Our business model, where 70% of sales.
We're on a subscription provides recurring revenue and limits volatility during times of external disruption as we have seen over this year.
We are positioned to be highly attack now working remotely and are leveraging technology across our organization of course, most important we provide healthy solutions to a global population that is increasingly focused on health.
We believe we have the team the products business model and a healthy financial position to achieve our goals.
We proceed through fiscal 2021, we will continue to be focused on the key metrics that drive our business.
Including one enrollment.
To attrition three average revenue per account and for net promoter score.
We will also continue to drive innovation to further supplement our leading product offering and open new markets to expand our reach.
I want to thank each and every one of our life vantage team members for their continued focus and commitment.
And I reiterate my confidence in our future.
Now, let me walk you through our first quarter results in more detail. Please note that I will be discussing our non-GAAP adjusted result.
You can refer to the GAAP to non-GAAP reconciliation.
In today's press release for additional details.
First quarter revenue was 54.8 million.
Around 2.5% on a year over year basis.
Revenue in the Americas declined 3.7% to 38.7 million largely due to not conducting our elite Academy event. This year.
While revenue in Asia Pacific and Europe increased 8.7% to $16.2 million both year over year.
Growth in the Asia Pacific and Europe region reflected a 4.8% increase in the number of active independent distributor accounts with strong performance in Taiwan, Thailand, Australia, and New Zealand.
Additionally, it is worth noting that we saw growth returned to Europe.
Markets began to reopen during the quarter from earlier calls that 19 to closures.
Gross margin was 82.9% compared to 83.7% for the prior year period the.
The decrease in gross margin was driven primarily by lower event related revenue.
Gross margin continues to be in line with our longer term targets.
[noise] commissions and incentive expenses as a percent of revenue decreased 90 basis points year over year to 46.8%.
Distributor commissions as a percentage of Commissionable revenue continues to hold constant on a year over year basis.
As a reminder, the commissions and incentive expense rates 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.
Adjusted EPS F G and H <unk> as a percent of revenue was 26.8% compared to 31% for the prior year period. The decrease in adjusted EPS Tonight expenses as a percent of revenue primarily reflects lower event expenses.
No major event was held during the quarter as well as lower stock compensation and reduced travel expenditures.
Adjusted operating income was $5.1 million or 9.3% of revenue compared with 2.8 million or 5% of revenue in the prior year period.
Adjusted net income was $3.6 million or 25 cents per fully diluted share compared to 1.9 million or 13 cents per fully diluted share for the prior year period.
Adjusted EBITDA for the first quarter increased 42.5% to $6.7 million compared to $4.7 million in the prior year period.
Please note that all of the adjustments from GAAP to non-GAAP I discuss today are reconciled in our earnings press release issued this afternoon.
We ended the first quarter with a strong financial position.
With $18 million that cash and no debt, having repaid the balance of our term loan during the third quarter of fiscal 2020 in.
In addition, we continue to maintain $5 million of availability under our revolving line of credit.
We used $2 million of cash during the quarter.
Fiscal 2021 to repurchase approximately 136000 common shares.
Under our share repurchase authorization there.
During the quarter, our board of directors approved an increase of $20 million in our share repurchase authorization.
As of September Thirtyth, there remains at $21.4 million available under the expanded authorization.
We expect to continue to be active with our share repurchase efforts in the future.
We invested $1 million in capital expenditures during the first quarter of fiscal 2021 and continue to anticipate capex of approximately 3 million during the current fiscal year.
Which will be primarily spent on building out our new office space.
We anticipated a occupying our new space in.
In January 2021.
Which we've configured to better support our employees and distributors. In addition, we are investing in further development of our technology.
Turning to our fiscal 2021 outlook, we are reiterating our guidance previously provided on our fourth quarter call. We expect to generate revenue in the range of two of them $40 million to $251 million in.
On an adjusted non-GAAP EBITDA in the range of $25 million to $27 million.
Adjusted non-GAAP earnings per share in the range of 87 to 91 so.
On a year over year basis, we expect that an increase in our expected tax rate will have an 11 cents negative impact on our year over year earnings per share growth.
Now, let me turn the call back to the operator to facilitate questions operator.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q.
Participants using speaker equipment, it may be necessary to pick up your handset before freshness donkeys.
One moment, please while we pull for questions.
And our first question is from Doug Lane would lean research. Please proceed with your question.
Hi, Good afternoon, everybody first question, Steve and the adjustments you have leasehold abandonment and some lease items is that did transition from your corporate headquarters or what exactly are those items.
Sorry about that I was on I was on mute [laughter], Doug Yeah. That's that's exactly what it shows is that we've made the decision that were.
Not going back into our current office space. So we accelerated.
The depreciation and ER and leasehold improvements of those things that as we start to build out our new office will take occupancy.
Hi, Andy Murray.
Okay, and [noise] shifting gears to you mentioned not having the elite Academy, where there other events in fiscal 2020 in the second third and fourth quarter, we should know about that won't likely be repeated this year that might impact the sales line.
Yeah. So so we had regional events in Q1 of last year as well that wasn't just an elite academy. So so the overall that you've done to impact was.
Was about.
Two thirds of that revenue shortfall.
So again, primarily the elite Academy, but some other regional events you know we had a very successful virtual convention in October.
And as of right now we are planning I'm kind of a normal cadence.
For the remainder of our fiscal Q3 and Q4. We're currently planning on nodes be lives, but are also you know having contingencies in place for them to be virtual.
Depending on what the circumstances are you know that at the time, but both need them. So.
So no significant change from our normal cadence, but you know that will be determined based on what the local requirement for at the time right and where are they geographically just so we can have an idea what regions, you're how you're holding these events and all of them are on just expenses marketed it.
Did it is we plan on having an elite Academy.
In Salt Lake City and in March.
And then there are series of a regional events throughout most most of our international markets.
Okay that makes sense.
And then looking at the distributor number where you ended the June quarter and last fiscal year with a really nice boost in that number and then it kind of decelerated over the summer and I wondered what.
You're seeing as far as the tail off in the distributor grown I would have thought that it would have continued it seems like a lot of direct seller nutrition companies have seen a little Ah tailwind here are coming out of the spring and I was just wondering.
With white advantage, what was going on in the September quarter there.
Yeah. So we you know there there is you know some definite seasonality to our business with our fiscal Q1 being a lower overall enrollment.
Quarter for us.
Our distributor count was actually up about almost 5% year over year, so that growth trend.
We were pleased with that.
Yeah, and I think then you know going into our convention, we we've put in place even prior to that some some incentives and promotions, but you know coming out of what was announced at our convention. We're we're really excited about.
Both our opportunity to take to get onto a standard system.
As well as the US friends and family referral program that Justin talked about we think that that's really going to be a catalyst for us to leverage our distributor growth that we experienced that this quarter and translate that into new enrolled.
Spoke of distributors in its customer, but then really create a higher sense of loyalty with our customer base.
Okay. Thanks, Steve.
Great. Thank you Doug.
And again as a reminder, if anyone has any questions you May press star one on your telephone keypad.
[noise].
Our next question is from Jim Galloway <unk> private Investor. Please proceed with your question.
Gentlemen, congratulations on your convention, that's outstanding to have that quantity of people there. So.
So that sounds really good and so Dizzy I T T system.
Can you give me some sort of breakdown as to the 11000 customers that we lost in the Americas as to if there was a certain product that.
Was related to most of them or is it not product specific.
You know I don't think Jim that it's it's product specific what what we've actually seen over the last.
Year, or so it is and especially with co bad is internationally and an increase in.
And our overall product mix.
Tilted towards our core tandem family of products and and and candidly we attribute that you.
You know to two people be more are well aware of health <unk> wellness needs driven by cold dead.
And but we also think that there you know, placing a higher priority or making a choice of of our pro tandem product over maybe some of our other product lines that might be a little bit more discretionary like car are true science skin care line. So I don't know that we attribute that to.
Customer declined two to our products I think it's more a matter of.
No we wouldn't like I said, we have seen growth in our year over your distributor base as people think more around around the business opportunity.
HM.
Rather than just being you know consumers of our products.
Okay and one last question is.
How much is being spent on R&D on new for tandem products.
Specifically on new Port Tandems products, we you know, we introduced and a d. last year at our convention and it was a big success. When we launched it on it does not have the same level of UBS.
Science behind it as well as our NRF too. So we continue to conduction studies and and are working with.
Institutions of providing kind of a more science based background to that product you know for for those that are kind of in the know they understand what the benefits of of any D.R., but we're we continue to do research in that area. So that.
We can help to educate the more general population.
Okay. Thank you have a great quarter.
Thanks, Joe.
And then at the end of our question and answer session I'll now turn the call back over to Steve for closing remarks.
Thank you for joining us today, Yeah, we remain confident in our business model.
And are working hard to ensure we're able to continue to deliver the lifevantage products to our customers.
We hope that you all stay safe and healthy and look forward to updating you on our next call. Thanks and have a great day.
[noise] [noise] and this concludes our conference you may disconnect. Your lines at this time, thank you and have a great day.
Well.