Q3 2021 LifeVantage Corp Earnings Call
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Good day, ladies and gentlemen, thank you for standby and welcome to today's conference call to discuss Lifevantage third fiscal quarter of 2021 as the results at this time all participants are in a listen only mode. Following the formal remarks, we will conduct the question and answer session and instructions will be provided at that time free to Cuba.
Hosting today's conference will be Reid Anderson with ICR.
Today's conference is being recorded and now I would like to turn the conference over to Mr. Anderson. Please go ahead Sir.
Thank you good afternoon, and welcome to Lifevantage Corporation's conference call to discuss results for the third fiscal quarter of 2021 on the call today from my vantage with prepared remarks are Steve Fife, Chief Executive Officer, and Chief Financial Officer, and Justin Rose Chief sales and marketing Officer Bye.
Now everyone should have access to the earnings release, which went out this afternoon and approximately 405 PM eastern time.
If you have not received the release is available on the Investor Relations portion of Lifevantage. Its 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'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 involved and he.
Current risks and uncertainties, including those identified and 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 accurate only as.
As of the date of this live broadcast April 29, 2021, Lifevantage assumes no obligation to update any forward looking projections and may be made in today's release or call.
Now I will turn the call over to Steve Fife, Chief Executive Officer, and Chief Financial Officer of Lifevantage.
Thanks, Reed and good afternoon, everyone. Thank you for joining US today with me today is Justin Rose, our chief sales and marketing officer, who will join me with prepared remarks before we turn the call over for Q&A.
We generated third quarter adjusted earnings per share of 20.
Which is up 54% compared to the prior year period, but down sequentially, 20%. Despite the challenging environment. The resulted in an 8% decline and revenue year over year the.
The delayed timing of new product launches and country launches both due to COVID-19 had an adverse impact on revenue in the quarter. However from the.
Trend perspective March was the strongest month and the quarter and we feel good about our positioning and ability to return to top line growth over the.
Near term.
In addition, the lack of in person interaction through the COVID-19 has been a major factor adversely affecting our performance over the past year.
And it's still very early and we don't anticipate the return to old practices. The anytime soon.
<unk> seen a positive impact to our business as people are becoming more comfortable with in person meetings, even under controlled conditions.
The uptick and growth from February to March has continued into April and as mentioned, we feel good about our positioning and the ability to return to top line growth.
This growth is being driven by engagement excitement and the alignment between corporate and our top distributor leader.
The excitement within the distributor base.
As the result of and renewed and intentional focus on a simplified message centered on our flagship product Protandim and RF to synergize the.
Protandim and RF two is the result of the discovery made over 50 years ago at Duke University.
It is the combination of five natural ingredients and stimulate the body's natural production of two key anti oxidant enzymes and restores those enzymes to levels of of 15 year old resulting in reduction of oxidative stress by an average of 40% and 30 days.
Prepayment and RF II has been featured in the media because of the subjects and the ABC Primetime and investigative report.
And its benefits have been validated by over 25 independent studies from prestigious universities.
And institutions from around the world.
These studies can easily be found and reviewed on.
The pump net dot Gov.
This story is the message that is enthusiastically and.
Braced by our entire distributor base.
While the corporate staff is excited to move into our new headquarters. Our distributor leaders are equally excited to use the offense and our training facilities as part of their enrollment process.
Although we have yet to have an official grand opening distributors from as far as Mexico and throughout the United States and <unk>.
Travel to visit the new office, despite the and conveniences of pandemic travel.
The dedicated space for training education, and recruitment distributors have already begun book and the facility per weekend trade and with 50, plus yes to use as the backdrop during the recruitment process.
We recognize that the changed the seat fleet and the September and the lack of a permanent CEO created a sense of confusion and instability with the top distributor leaders.
As the new CEO over the past several months I've taken the opportunity to meet with and listen to each of these distributor leaders the.
The level of engagement by our top producers intensified as the quarter progressed, including a re energized focus around the strength of our core offerings as well as newly launched products.
We believe we've been able to increase on alignment significantly and are clearly and a better position than we were a few quarters ago across the entire organization.
And with everyone rowing in the same direction.
The tools, we've rolled out over the past several months are gaining traction of the field gets more comfortable with these solutions and has higher rates of success.
Just and will provide some additional details around that.
With this renewed alignment between corporate and distributor leadership going forward. We will have two primary areas of focus first increasing our distributor enrollments and second increasing the month two purchases from both distributors and customers.
I will share updates on the successes of these initiatives and future quarters.
Before I turn to a discussion on third quarter results, Let me turn the call over to Justin Rose, our chief sales and marketing officer.
Scuff, our recent activities.
Thank you, Steve and as the pleasure to speak with everyone. Today, while we're not satisfied with our third quarter results. There were several positives that should set us up for.
Of improving trends over the next several months, including the continual refocused and alignment with our existing distributor leadership group.
And March we launched our new daily wellness product and it was well received by our distributors and customers. This product is uniquely formulated provide daily support to keep the immune system healthy and strong we.
<unk> had originally planned to launch daily wellness and early February but encountered unexpected supply chain issues related to raw material shortages and stemming from COVID-19, which also impacted the initial quantities and we had available for sale.
We sold out of our initial quantities within the first few hours of launch and expect sales to continue building of consumer acceptance grows.
Another encouraging sign was the virtual elite Academy event held in March and.
Total there were several thousands of people who participated both virtually and and group gatherings, which is the first since the pandemic began.
The training and initiatives were well received and we already have over 2000 people signed up for the next elite Academy event in July which will be focused on a continual push of our sales process, which we call the ITC system.
And this will also include some new tools and activities designed to help increase enrollment and retention.
We will also be introducing a new package and building strategy that is designed to better meet the needs of our future distributors and customers.
Excitement is building and the field for highly anticipated TBD enhanced and RF to personal care line that we plan to launch June one 2021.
This product launch will be an introduction to the multibillion dollar body care category with four product <unk>.
The low skin body butter body wash and the natural deodorants and.
In addition, the launch will include two products the body Rod and soothing bomb to a category that we are referring to as targeted relief.
And finally, we are also and introducing a luxurious facial oil to our true science skincare line that we are calling beauty zero.
Each product is formulated the elevate everyday routines with and RF to active ingredients and combats visible signs of aging caused by oxidative stress.
Building on the current trend of CBD based optical products. We are excited about our ongoing clinical studies currently and process that are showing the synergistic and complementary nature of broad spectrum CBD with NR of two ingredients, which offers us the exclusive opportunity of positioning CBD.
And in RF to enhancing ingredients.
And this launch is the largest line and Lifevantage as history.
More than doubling the products offered from the true science brands and opening up a new space for our distributors and addition.
To this we are also bringing back several of the limited time offer axiom flavors from the LTE launch last year.
Robbery, splash and peripheral great, which were voted as favorites and our survey and.
We conducted after the LTE of launch we will now be permanent additions to our product offering as well as the limited time offering of a new seasonal summer flavor.
As Steve mentioned, our primary goal and this quarter and into next year is to increase the total number of active accounts, which we will achieve by first increasing the distributor enrollments and second by increasing the number of distributors and customers that place an order and the month following the enrollment.
We are inspired by the engagement, we're seeing around these initiatives with our top distributor leaders beginning this week. They are hosting 30 opportunity meetings on zoom and Facebook live over the next 30 days and training.
Training for these opportunity meetings took place earlier this week and it was capped out after the Cobra thousand distributors drive joining the call, suggesting fill excitement for the training and initiatives.
These presentations coincide with the launch of distributor led tools on social media that allow for distributors and customer and prospect to see and engage with reviews testimonials and third party validation.
The next month at the pandemic restrictions continue to loosen our top distributor leaders will begin hosting in person meetings around the country. They will begin with select cities and May and June and then expand in the other cities and future months.
And the month of June we will roll out a month long distributor incentive title month of action. This is the promotion that incentivizes and rewards key behaviors that lead to enrollment and is tracked individually and with the distributor of wide scoreboard and the Lifevantage app.
Finally, we are encouraged by the number of registrations. We received for the July Elite Academy, we incentivize registration by offering early access for the upcoming personal care launch and to date of receipt over 'twenty 100 registrations.
Has the effect of creating excitement for both personal care launch as well as the July of Elite Academy.
With this increased engagement and alignment with our distributors and returned to in person training and opportunity meetings and behavior based incentives. We believe these initiatives will allow us to return to top line growth now.
Now, let me turn the call back over to Steve to run through the third quarter financial results.
Thank you Justin let me walk you through our third 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 detail.
Third quarter revenue was $51 6 million down 8% on a year over year basis.
Revenue in the Americas declined nine 4% to $36 4 million, primarily reflecting a six 2% decrease and total active accounts.
The initial sales of our Lifevantage daily wellness product, we're encouraging despite the timing of the launch of occurring later than we expected and the third quarter and with limited quantities available at launch.
The virtual elite Academy event, we held in March with another event that we believe will have positive impact into Q4 and the next fiscal year.
And Asia Pacific and Europe third quarter revenue decreased four 7% year over year, the $15 $1 million the tone.
It'll act of accounts up two 2%.
Japan revenues were down three 6% versus last year.
Selecting continued restrictions due to COVID-19.
In Australia, and New Zealand were strong 34% compared to last year's third quarter.
Gross margin was 82, 9% and the third quarter compared to 83, 8% of your earlier.
The decrease in gross margin was driven primarily by increased shifting into customer expenses due to COVID-19, and shift and geographic and product sales mix.
Commissions and incentive expenses of the percentage of revenue increased to 120 basis points year over year to 48, 8%.
This change is due mainly to increased cost and accruals associated with the distributor recognition events and.
And the incentive trip promotion.
Adjusted SG&A as a percentage of revenue was 27, 9% compared to 32% for the prior year period.
This decrease primarily reflects lower event and travel expenses and as well as lower stock and incentive compensation expense.
Adjusted operating income was $3 2 million or six 2% of revenue compared with $3 4 million or 6% of revenue and the prior year period.
Adjusted net income was $2 eight plan of <unk> 20 per fully diluted share compared to $1 9 million or 13 cents per fully.
The diluted share and the prior year period.
The company's effective tax rate was five 8% and the third quarter of fiscal of 2021 compared to 37, 7% and the prior year period.
The decrease and the current quarter tax rate was attributable to favorable.
Book to tax adjustments during the current year period in relation to taxable income.
Positively impacted adjusted earnings per share by approximately 7%.
On a fiscal year to date basis, the company's non-GAAP effective tax rate was 25, 7% versus and effective tax rate of nine 9% and the prior year nine month period.
The increase and the current year tax rate on a year over year basis negatively impacted adjusted earnings per share by approximately 12%.
On a full year basis, we expect our non-GAAP effective tax rate.
The approximately 26% compared to a full year effective tax rate and the prior year of 22%.
Adjusted EBITDA for the third quarter decreased 300000 dollar range to $4 8 million compared to $5 1 million and 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 third quarter and a strong financial position with $19 million of cash no debt and we continue to maintain of $5 million.
On the availability under our revolving line of credit which was renewed for an additional three years on April one of 2021.
We used $2 million and cash during the third quarter of fiscal 2021 to repurchase of approximately 230000 common shares under our share repurchase authorization.
As of March 31, 2021, and the remaining $15 $5 million available under the authorization.
Expect to continue to be active with our share repurchase efforts and the future.
We've invested $3 3 million of capital expenditures during the first three quarters of fiscal 2020 one.
And anticipate Capex net of reimbursed the leasehold improvements of approximately $3 5 million during the full fiscal year.
Capital expenditures in fiscal 2021, our crowd of Merrily for building out our new office space and further development of our digital technologies.
Turning to our fiscal 2021 outlook, we now anticipate our fiscal 2021 revenue to be $228 million to $223 million primarily.
Reflecting the impact of COVID-19 on our consumer base.
Why chain challenges on new product launches and timing of geographic launches.
We anticipate adjusted non-GAAP, EBITDA and the range of 24% to $25 million and non-GAAP earnings per share and the range of 90% to 94%.
In summary, despite challenges from the third quarter, we remain very well positioned for growth.
<unk> interest and health and wellness the strong as ever and we have a broad portfolio of high quality innovative products proof and to help optimize health and improved performance at all stages of life.
Our corporate team and distributor leadership teams are aligned.
And our financial condition is solid and strong.
<unk> cash position and profitability and we remain committed to driving value for our stakeholders now let me on the call back to the operator to facilitate the pressure.
Operator.
And at this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone and Keith.
The confirmation tone will indicate your line is and the question Keith.
You may price starting to if you would like to remove the your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Okay.
And our first question is from Doug Lane with Lane Research. Please proceed with your question.
Yes, good afternoon everybody.
Steve I don't.
Correct me, if I'm wrong, but I don't remember you talking about developing as the CBD product.
On previous calls how long has this been in the works and what's been the initial reaction from your distributor force on having the CBD product.
Yeah, we've been we've been working on this tour.
Again, I guess over nine months now and and.
And the part of the drive behind and that is.
And some very preliminary research that we've been doing and around the synergistic benefits between and <unk> two and CVD. So these are it's a product line of.
Seven personal care products.
All of them and include <unk> technology, and there is four of them and that includes CVD.
And this as broad spectrum CBD.
CBD with no THC.
THC.
And so far and we officially announced debt to lower distributor leadership.
And our elite Academy in March.
And made available to them at that time and the ability to purchase.
2000.
Tax.
And also on products as well as.
Enrollment kit for our next EBITDA, which will be in July.
And we have sold out those 2000 units and actually today.
They are shifting out to our distributors and customers the third.
I guess, it's all distributors.
Purchase of those packs and.
And our official launch there won't be available to everyone.
As Darren will be on June 1st of this year, so far so far the.
The.
And the product there's been limited.
Use of the product with our some of our distributors, but they sold out of what we have available sold out very quickly and like I said, it's the shifting out of today.
And is it shipping out globally or will it be of carnival of market by market rollout.
It'll be a market by market.
Starting with the U S.
Starting in the U S correct.
Is it approved in Japan yet.
Not yet we're going through the regulatory.
And all of our international countries.
And as you know some of these things take a while the just to go through.
And that process.
And of course, it would be very careful when we were selected and the CVD.
The two.
To try and make it as.
Acceptable and the countries that we're in as we could.
Okay.
Sounds good.
Are you still employing our red carpet program per say or have you sort of pivoted from from that program now.
Hey, Doug this is Justin and yes.
The red.
And our Red carpet program is in place and it's actually gaining some great momentum.
And out of this first step out of this third quarter. So we have high expectations for that to continue and are starting to see some really really good leaders that joined us in the past few months.
Yes.
And we've highlighted a little bit of the growth that we foresee in Australia, and New Zealand and in particular and.
We have yes.
Very solid distributor base, there, but we've also added and the last six months or so.
Our gross via the Red carpet program.
And that is just killing it right now for us.
And you also mentioned the return to in person meetings or the small meetings or are you going to have a and looking to have a global convention. This year is this and all markets are just really starting up and the U S. Just a little bit more color on on the.
Resumption of in person meetings.
You bet Hey, this is just and again so the in person meetings are really starting here in the U S market.
There are a few and some of our other smaller markets Mexico's had a few in person meetings as well.
And we're seeing our distributors really start to branch out and.
And control the environment put together groups and smaller hotel meetings.
The corporate office, we have a few people that are utilizing our corporate office to host the meetings here.
Net.
We have a couple of them like trainings that are coming up we have a profile of summit that we will be able to hold in person and this time.
Up in September, but October will be probably our next biggest event and we're hoping to do a hybrid flash virtual events and Salt Lake City with about 2000 people in person and then virtually broadcasting to the rest of the field from there. So we're slowly starting to open up those doors.
And our distributors are actually kind of leading the way of getting getting smaller getting small get togethers assembled as early as last month.
Yes, we started the six months ago or so.
The nine months ago with total debt, having weekly trainings on Saturdays.
And and and they've been we kind of thought that it would be.
And lose some momentum because theyre all virtual.
But it's been amazing over the nine month period of time of compassion and might even be longer than that and all but but.
But.
On the numbers on those have held up through this whole period of time and one of the other things that we're doing is the.
The third okay.
The third Saturday of each month.
We're now going to have again the combination of.
And in person and three different locations and then one of those locations we will be broadcast the.
Virtually so three and person plus the everyone.
And eight two.
The.
Virtually so and.
That's what the distributor group really just pushing us because of just need desire that they have to get back together in person.
Great. Thank you.
Alright, Thanks John.
And our next question is from Ryan <unk> from a private Investor. Please proceed with your question.
And Ryan.
And I'm not sure if your line is muted.
Okay.
Okay.
Are you there.
Hello, Okay, and we hear you now I'm sorry about that.
The question about the investment with the gig economy group and how that.
Kind of playing out and it seems like it's been a couple of years.
And the valuation of the thing is just stayed the same and I was wondering now that.
That was going to be monetize where it's going from here and stuff.
And stuff like that.
Yeah, No I appreciate it thanks, Brian and so so.
We have a.
GAAP GAAP.
And.
So as our partner and the development of the App that we have and and we have a minority interest and so from a from an accounting standpoint, and that's accounted for on the cost basis.
And because of the size of the percentage of ownership that we have but.
We continue to to partner with gig and.
And.
And as well as we've we've.
We've built quite a bit of capability within lifevantage itself and.
And have the chance.
Surely significantly over the last couple of years.
On the features of the reliability.
And the capability of the App and we're seeing that.
And assessed itself bye bye.
And the uptick and the adoption of the outline of our distributors as one of the primary tools, they use especially and the upfronts.
Enrollment process.
We do still have a relationship with gag and.
And we monitor on a quarterly and annual basis.
On the investment that we have with them.
But a lot of the development and enhancements that are taking place with the app.
Like the antigen is doing more and more of those right now.
Okay.
Alright, thank you.
Thank you.
Yes.
Yeah.
And we have reached the end of the large question and answer session and I'll now turn the call back over to management for any closing remarks.
Thank you for joining us today and in closing I, just want to take an opportunity to thank all of our employees for their hard work and dedication as well as our outstanding team of distributors.
We remain confident and our business model and and and are focused on delivering the lifevantage products our customers depend on and we hope you are all safe and healthy and and look forward to updating you on our next call have a great day.
And this concludes today's conference and you may disconnect. Your lines of at this time. Thank you for your participation.
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Yes.
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Okay.