Q2 2021 LifeVantage Corp Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss the lifetime for the second fiscal quarter of 'twenty and 'twenty one financial adult.
At this time all participants are in a listen only mode. Following the formal remarks, we will conduct the question and answer session.
Instructions will be provided at that time for you the queue up.
Hosting today's conference will be Reed Anderson with ICR.
A reminder, today's conference is being reported I would now like to turn the conference over to Mr. Anderson.
Thank you good afternoon, and welcome to Lifevantage Corporation's conference call to discuss results for the second fiscal quarter of 2021 on the call today from Lifevantage with prepared remarks of Garry Mauro Chairman of the company's board of Directors, Steve Fife, Chief Executive Officer and Chief.
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 I would also call your attention to a separate press released the followed the earnings release and announced the appointment of Steve five of C. E O.
If you've not received the releases are available on the Investor relations portion of Lifevantage as website at Www Dot Lifevantage dotcom.
All of us being webcast and a replay will be available on the company's website as well.
Before we begin I would 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 of future performance and therefore undue reliance should not be placed upon them. These.
These statements are based on current expectations.
Of the company's management and involve inherent risks and uncertainties, including those identified in the risk factors section of Lifevantage as 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 lifevantage as 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 act.
But only as of the date of this live broadcast every second of 2021.
<unk> assumes no obligation to update any forward looking projections that may be made in today's release or call.
Now I will turn the call over to Garry Mauro the chairman of the company's board of directors.
Thanks Reed good afternoon, everyone and thank you for joining us today.
I'm thrilled to be able to introduce the buy is our newly appointed Chief Executive Officer. He will also be assuming the position of president who will join the board of directors.
As many of you know Steve took on the interim CEO role it's true.
Timber in addition to his responsibilities as Chief Financial Officer, He's done an outstanding job guiding the company through this period of transition Steve.
Steve joined Lifevantage, the CFO in 2017, and his leadership has been a critical factor in our success.
He has a wealth of experience and is passionate about our business and driving value for all our stakeholders.
<unk> join me in wishing him the best now I'll turn the call over to Steve.
Thanks, Gary and good afternoon, everyone. Thank.
Thank you for joining us today, I am honored and humbled by this appointment I appreciate the support the distributors customers and employees have provided over the past five months and I look forward to leading the lifevantage team and the opportunities that lie ahead for this great company.
With me today is Justin Rose, our chief sales and marketing officer.
Who will join me with the prepared remarks before we turn the call over for Q&A.
During the second quarter, we saw 31, 6% growth of adjusted operating net income and 12, 6% growth of adjusted EBITDA, both on the year over year basis, the operating income and adjusted EBITDA growth was generated on the result of leveraging the past investments.
And the reduction of stock and incentive compensation.
And travel expenses.
Additionally, we delivered seven 6% sequential revenue growth and a modest three six per cent decline over the second quarter of fiscal 2020, which was the highest revenue quarter in the company's history.
Sequential growth was largely the result of our virtual convention in October coupled with an L. P O. The teacher six new flavors of our axial drink Nexus as well as several seasonal promotions.
Before I turn to a discussion of the second quarter results, Let me turn the call over to Justin Rose, our chief sales and marketing officer to discuss on recent activities.
Thanks, Steve and by the way congratulations so super excited for you and even more excited for Lifevantage.
As Steve mentioned, we held the successful convention in October of reaching an estimated 20000 participants from over 18 countries.
Convention, we saw strong response to the launch of limited time expand the labor offerings of the axial product line and the new platinum enrollment back as well as strong adoption of our new ITT distributor Cisco, which stands for in bi tool team. It's a digital tool aimed at standardizing.
The educating and training of new customers and distributors.
During the quarter. We also saw a positive result of promotions blocks, including the operation twenty-five ITT in which we challenge participants the tests the I T T system.
Contacting a minimum of 25 people using the new digital tool during the month of November as well as our friends and family share Tien Gifting program. It's a program with the allows customers to earn per share in the lifetime experience without necessarily having to become a distributor.
Additionally, we lost on your roadmap pool, which has been met with a lot of it but the pool of pays out of an additional 5% of all new enrollment volumes of people, who earn a share of the pool.
On a share the distributor must've been all of at least five people customers or distributors in the month with a combined 500 point of new volume or approximately $550.
They can earn of multiple shares if they double or triple that requirement.
As we look forward to the second half of the fiscal year, we remain steadfast on our focus on key drivers for gross enrollment retention and average revenue per account or ARPA.
Our new ITT the distributor system should provide a tailwind for enrollment the.
Program was launched in October with Great energy and strength in the alignment throughout our field leadership organization building on this momentum we created a virtual training program called success Master the participants in this new programming each Saturday virtually allowing our top leaders the opportunity to teach and train our.
Build on key topics that foster education and Brad.
Our efforts to improve retention should benefit from these new technology tool. We have partnered with an AI company that specializes in retention, creating a program that has just started leaders in identifying and intervening before customer or distributor might churn.
We are currently in the testing phase running different initiatives that will help target. The key factors aimed at retaining these accounts.
And finally, our slate of innovation of new product introductions bodes well for increasing the ARPA based on past the introduction, we've seen great success in helping our distributors and customers increased their purchases on a monthly basis, we have an aggressive launch schedule for new products as well as market only on expansion of the crop.
All of our international markets overall, the build is energized and we are encouraged by the recent adoption of the ITT program the <unk>.
Strong response to recent promotion and are confident in the outlook for the remainder of the year now let me turn the time and the call back over to our new CEO, Steve <unk> to run through the second quarter financial results.
Thank you Justin.
Before I review of the financials I want to share a few thoughts articulated lifevantage is strong competitive position and my optimism for the future.
Our business is firmly in line with consumers increase emphasis on taking better care of themselves kind of living healthier lives.
We have a broad portfolio of high quality innovative products proven to help optimize health and improved performance at all stages of life.
As Justin Justin just discussed our field is energized and we are well positioned with approximately 70% of our sales generated on subscription.
Providing stability and revenue during times of volatility we continue to weather the current storm of this pandemic.
With all of you.
We remain focused on educating on delivering products for a healthier life to a population that has never been more aware of the importance of their health.
We move into the second half of fiscal 2021 with the continued focus on the key metrics that drive our business as well of innovation to further enhance our product offering.
And expand our reach to that end, we are very excited to announce the pending launch of a new daily wellness supplement formulated to provide daily support to keep the immune system healthy and strong.
This new product is designed with Disney inactive people in mind.
To give the extra immune support needed to address daily stressors and physical wear and tear on the body. In addition to the seasonal challenges we face.
With that let me walk you through our second quarter results.
Please note that I will be discussing our non-GAAP adjusted results you can refer to the GAAP to non-GAAP reconciliation in today's press release for additional details.
Second quarter revenue was $59 million down three 6% on a year over year basis.
Revenue in the Americas declined five 4% to $41 $9 million largely due to comparing it to a pre COVID-19 quarter, which was also the highest revenue quarter in the company's history at the <unk>.
Result of an in person global convention as well as the launch of Protandim NAD <unk> sanitizer in the prior year period.
These decreases were partially offset by the launch of limited time flavors on where axial drink mixes.
Which led to an increased average revenue per account and increased sales of associated.
With the various seasonal product promotions during our second fiscal quarter 2021.
In Asia Pacific and Europe revenue increased 1% to $17 $1 million year over year.
Gross margin was 82 seven per cent compared to 83 three per cent for the prior year period.
The decrease in gross margin was driven primarily by increased shipping to customer expenses and shifts in geographic and product sales mix.
Commissions and incentive expenses as a percentage of revenue decreased to 170 basis points year over year to 46%.
Distributor commissions as a percent of commission revenue.
Until you to hold constant on a year over year basis.
As a reminder of the commissions and incentive expense rate will fluctuate quarter to quarter based on the timing of magnitude of promotions and incentive programs as well as the inherent fluctuation red carpet expenditures.
Adjusted SG&A as a percentage of revenue was $28 one per cent compared to $29 three per cent for the prior year period.
The decrease in adjusted SG&A expense as a percentage of revenue primarily reflects lower events and travel expenses.
As well as lower stock and incentive compensation expense.
Adjusted operating income was $5 $1 million or eight six per cent of revenue compared to $3 $9 million.
Or six 3% of revenue on the part of your period.
Adjusted net income of $3 6 million of 25 cents per fully diluted share compared to $4 6 million on.
31 cents per fully diluted share for the prior year period.
The company's effective tax rate increased to 31, 6% in the second quarter of fiscal 'twenty 'twenty one.
Impaired to an effective tax benefit of 24, 5% in the prior year period the.
The increase in the current your tax rate negatively impacted.
Adjusted earnings per share by approximately 20 cents.
On a year over year basis, but not the company's non-GAAP effective tax rate increased to 29, 3% in the first half of fiscal 'twenty 'twenty, one compared to an effective tax benefit of two 3% in the prior year period.
The increase in the current your tax rate on the year over year basis negatively impacted adjusted earnings per share by approximately 20 tusa.
Adjusted EBITDA for the second quarter increased 12, 6% to $6 $7 billion compared to $6 million per the prior year period debt.
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 second quarter in a strong financial position with $19 $7 million of cash and no debt, having repaid the balance of our term loans during the third quarter of fiscal 2020.
In addition, we continued to maintain $5 million of availability under our revolving line of credit.
We used $4 million.
In cash during the second quarter of fiscal 2021 to repurchase approximately 365000 common shares under our share repurchase authorization.
As of December 31st 2020, there remains $17 4 million available under the authorization.
We expect to continue to be active with our share repurchase efforts in the future.
We've invested $1 5 million in capital expenditure during the first half of fiscal 'twenty 'twenty, one and anticipate Capex net net of leasehold reimbursements of approximately $3 5 million during the full fiscal year.
Capital expenditures in fiscal 'twenty 'twenty, one are primarily for building out on a new office space and further development of our digital tools.
Turning to our fiscal 'twenty 'twenty one outlook, we are reiterating our guidance for both adjusted net income and adjusted EBITDA and now anticipate our fiscal 'twenty 'twenty one revenue to be at the low end of our prior guidance range of $240 million.
To $251 million, reflecting the timing of our product and geographic launches.
We continue to anticipate adjusted non-GAAP EBITDA.
And the range of $25 million to $27 million and non-GAAP earnings per share in the range of 87 to 91 cents.
Now, let me turn the call back to the operator to facilitate questions.
Operator.
Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue. So of participants using speaker equipment it may be necessary to.
Pick up your handset before pressing the star one.
One moment, please while we poll for questions.
Thank you. Our first question comes from Doug Lane with Lane Research. Please proceed with your question.
Alright, thank you.
Good afternoon, everybody and congratulations Steve on the new possession of where I guess the.
Permanent new positions as you've already been interim CEO.
Can you talk on.
Yeah, you're welcome.
Can you talk a little bit about the virtual convention this year and how that played out versus the expectations and what your learnings are from October and how they might apply to your 2021 convention.
Yes.
It just didn't take the first stab of that.
Thanks, Doug.
We actually were pleasantly surprised.
Especially with the with the turn out the number of registered attendees and the number of events that took place for viewership.
However, we did see a decrease in the product launch that that was associated with the the convention that was virtual this year compared to last fiscal year of difference of about $2 million we.
We were about $2 million less in revenue and I would assume a little bit of that had the view of not having people in.
In actual seats and and being present, so but overall very pleased with the number of attendees and the the number of eyeballs that we were able to the track.
Yes.
On to that.
We recorded all of that and not only did we do we think we add over 20000 net debt listened lives, but it was also available for the.
It was 30 days or 45 days afterwards, so that they could jump back on and say missed anything.
And still have access to that so I thought our reach was much greater than we've had in other Jim person conventions.
So how does that change or impact your outlook for what you're going to do I know, it's early days and the environment is still fluid, but from where we sit today, how does that impact what youre going to do in October of this year.
Yeah I think in October we have the we Havent elite Academy that is scheduled in May.
March so just a couple of months or.
And and we.
That will be a virtual events.
And we're still kind of evaluating what happens in October but I.
We learn that.
We can be really effective.
With our reach on on virtually.
But but it's really difficult at least after our first one to replicate.
The elements of recognition and just the camaraderie the.
My standard community.
When we're doing it.
The remotely the.
The power of being together.
Is is really tangible and so.
I think going forward.
Whenever whenever whenever the new normal is out there I could see that we'll have.
The virtual events and we will have in person of you balance.
Just to be able to kind of leverage, especially that tower of being together.
That makes sense and then.
Putting your CFO hat back on for a minute.
What is the the priorities of free cash flow I guess from your commentary I would assume the stock buyback is moving to the top and then you have a certain level of capex, but no real capex bubble, if you will coming down the pike.
The about acquisitions and dividends.
Yeah, Youre right, we had a we had a healthy buyback during the quarter.
Purchased the $4 million during Q2, and I think that will continue to be a priority for us, especially.
Where are our stock is right now we think we think that it's undervalued.
The capex will be a little higher this year because of cost associated with moving into <unk>.
Our new office space, right, and and and I think as we've talked about before we are being.
More acquisitive and looking at opportunities, we havent found anything yet that the is the right fit for us.
If the right opportunity were to come along.
Clearly use our cash and then as you know we have the shelf in place as well as for $75 million that we would.
Utilize on there for the right opportunity.
Okay fair enough. Thank you.
Alright, Thanks John.
Uh huh.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Yeah.
Okay.
Yeah.
Okay.
Thank you. Our next question comes from Jim Galloway private Investor.
Please proceed with your question.
Steve Congratulations on becoming the CEO and good luck.
Right.
A couple of different questions first one is.
I think youre doing a great job.
Virtually but we're still losing customers and distributors do you see any forecast as to the.
<unk> of that and maybe some growth.
Yeah, Hey, Jim. This is just the gross so yes, we actually we saw an increase in the second quarter.
And the enrollment almost 20%.
Kris there and we expect that to continue throughout Q3 and Q4.
And we're really basing that list off of the new ITT system. That's been put in place where I think people are are very much now learning the system training on the system each Saturday on the success mastery calls and really putting it into the practice so.
We do expect that to continue to increase.
Good my other question relates to R&D and studies on our products I remember the good old days, where we had a number of universities.
Analyzing the other RF too in the pro tandem I don't know if we have any studies going on right now that you can relate to and I am concerned that the new wellness product.
The has some independent research behind it.
Because there are just so many wellness products out there we want to make sure that this really is one that the distributors can backup scientifically.
Yeah. So so just touching on the wellness product for it is.
There is a hero agreement.
Sorry ingredient in the product that is very well researched.
I think you and others will find.
On a very compelling product.
When it when it's launched.
It will be available to distributors here in a few weeks and then.
Customers.
Out of months after that.
So.
Having the science based products is it's kind of core to ice damage and we continue to.
Look at ingredients as well of the combination of our products together, if you recall when we when we launched.
Protandim NAD <unk> synergize or.
Just over a year ago now.
We had done studies of.
As well as in combination with our interest to it and in our S. One.
Ex.
The combination of those free is really what led us to to the position.
Brand the price energizer to bring.
<unk> bring bring all of that benefit together from a science standpoint.
And I also believe that over the last year or two there has been additional studies and research on on R&R and RF two products. So I think we are sitting now.
Over 30, I think it's 32.
On separate independent studies on on NR of to itself.
Any way of getting some publicity of that out into the general population.
Yeah, we all of those are published on pump Mad.
And we do our part.
Try to get that out into the public domain.
Okay, well keep up the good work.
Alright, Thanks, Jim.
Yeah.
Thank you there are no more questions at this time I would like to turn the call back over to CEO, Steve Farr for any closing comments.
Thank you and thank you everyone for joining our call day.
Closing I just want to take the opportunity to thank all of our employees for their hard work and.
Dedication every day as well as our outstanding team of distributors.
We remain confident in our business model and are focused on delivering the lifevantage products our customers depend on.
We hope you all stay safe and healthy and look forward to updating you on our next call kind of a great day.
Thank you for your participation. This concludes today's call you may disconnect. Your lines at this time and have a great day.