Q1 2022 LifeVantage Corp Earnings Call

Good day, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss life Vantages first quarter fiscal 2022 results.

At this time all participants are in a listen only mode.

Following the formal remarks, we will conduct a question and answer session instructions will be provided at that time for you to queue up.

We'll be Reid Anderson with ICR as a reminder, 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 first quarter of fiscal 2022 on the call today from Lifevantage with prepared remarks are Steve Fife, Chief Executive Officer, Justin Rose, Chief sales, and marketing officer, and Carl <unk> Chief Financial Officer.

By now everyone should have access to the earnings release, which went out this afternoon at approximately four O five P M Eastern time.

You have not received the release it is available on the Investor Relations portion of life vintages website at Www Dot Lifevantage dotcom.

This call is being webcast a replay will be available on the company's website as well before.

Before we begin we 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 future performance and therefore undue reliance should not be placed upon them.

Once 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 life and just 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 life vantages 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.

For 2021, Lifevantage assumes no obligation to update any forward looking projection that may be made in today's release or call now I will turn the call over to Steve Fife, Chief Executive Officer of Lifevantage.

Thanks, Reed and good afternoon, everyone. Thank you for joining US today with me is Justin Rose, our chief sales and marketing officer, and Karl I'll read our newly appointed Chief Financial Officer, who will join me with prepared remarks before we turn the call over for Q&A.

First quarter results were in line with our expectations and we made further progress on key initiatives around core products engagement and activation.

Revenues of $53 2 million were down two 9% year over year and on a sequential basis.

We maintained high levels of profitability with adjusted EBITDA of $5 8 million or 10, 9% of revenue Mauro.

Moreover, adjusted earnings per share or 23 cents.

Putting us firmly on track with the annual guidance, we introduced coming out of the fourth quarter.

We continue to believe that the steps we've been taking to reaccelerate growth through focusing on our core protandim and RF to synergize or stronger alignment between corporate and our distributors.

Leveraging digital tools and new product innovation will start to drive increases in the number of total active accounts over the next several quarters.

While the level of in person activities is nowhere near what it was pre COVID-19.

Which has continued to impact our results trends are definitely moving in the right direction, which should bode well for our results as we move into calendar 2022.

Our recent global convention was a huge success with in person attendance exceeding 1500 participants plus we estimate another 10000 participated virtually from approximately 15 different countries.

This was our first major event in over 18 months with large in person attendance something we believe is critical to our focus on reaccelerate in growth over the next year. Moreover, leading up to the convention there were multiple smaller meetings, where distributors customers and prospects.

Typically in groups of 50 to 150 gathered to learn more about lifevantage products as well as how to effectively develop and grow their businesses.

Consistent with our comments over the past few calls our entire organization is highly energized and firmly aligned around our renewed focus on protandim and are off to synergize or as our core foundational product and key point of differentiation.

Leveraging digital tools and technologies to drive growth by helping distributors be more efficient and targeting and servicing customers remains a key area of focus usage rates for our distributor App continue trending favorably and we are seeing solid progress with our most productive.

Cohorts, who are using the tool to manage and grow their businesses engage with prospects and team members and easily access important information around corporate announcements and promotions.

We've also continued to expand our senior leadership team with the addition of Carl I'll read who joined US as Chief Financial Officer last week.

Karl is a highly experienced proven leader with a strategic mindset factors that will be instrumental as we start to reaccelerate growth.

Over the next year.

Karl has deep financial expertise along with it.

Extensive experience in direct selling and international operations, providing the background and fit to lead all aspects of finance accounting tax and treasury at Lifevantage.

Over the past couple of quarters, So you've heard us talk about our renewed focus around our core products, which are backed by over 30 Independent research studies and our proven effective at mitigating the impact of oxidative stress on the body.

We've also been expanding our efforts to partner with other established leaders in health and wellness and recently announced a five year donation commitment to the Linus Pauling Institute at Oregon State University to support the Institute's mission of promoting optimal health through cutting edge neutral.

Research and trusted public outreach.

This partnership offers the potential to collaborate with their micro nutrient information center and leverage the power of third party research as well as engaging with researchers at the institute, allowing us to be uniquely positioned around the latest innovations in the area of nutria.

Once phytochemicals in human health.

In conjunction with that donation Dr. Brian Dixon, our senior Vice President of research and development will join the directors circle at L. P. I, an advisory board that provide strategic advice to the director of the Institute and a director of development.

Now, let me turn the call over to Justin Rose, our chief sales and marketing officer to discuss our recent activities.

Thank you, Steve and it's a pleasure to speak with everyone. Today, we continue to focus on leveraging digital tools and technology to help our distributors drive growth and manage their businesses more efficiently. Let me start with comments on the proprietary Lifevantage App, which is designed to promote and reward key behaviors proven.

To drive engagement and has continued to gain traction with our distributors.

<unk> was recently updated to support prospecting through popular social media channels, including Facebook, Instagram and Tic Toc the number of distributors, who use the app daily has more than doubled in the last 12 months and when the distributors shares a cart with a potential consumer through the App, an average of 27% of those.

Consumers ended up purchasing our product and of these new consumers, 80% of the orders result in subscriptions, which is approximately 10% higher than our historical average our data analysis rebuilds that distributors, who frequently put in the time and effort into their business and use the app.

Lee earn two to three times more in commissions and have two to three times more consumer enrollment than those distributors not using the app.

At our global Convention last month, we introduced an innovative product called icy bright.

A unique softgel supplement with looting via Xanthein Omega threes and other nutrients designed to support I had brain health. It provides essential nutrients for healthy eyes envision that maybe missing from a person's normal diet.

These nutrients support healthy rent does by storing macular pigment, which is important for filtering out the high energy Blue light that frequently is associated with eye fatigue and dry eyes.

Growing body of research is also finding that these nutrients can help support brain health to one study found that taking supplements with looting xanthan for six months reduced the feeling of ICT and those with high levels of exposure to digital devices and research has also shown that these nutrients supplements may also help people see.

More clearly and low light after being exposed to glare. So it can also help vision when driving at night.

For most of US worked now involves daily almost non-stop interaction on our computer and while we're not on a computer where scrolling through our phones or some other type of digital device. According to some estimates adult spent about half of their waking hours looking at screens, whether it's in the sun or the globe, our digital devices all the life that we take.

In everyday can lead People's eyes, feeling fatigued and strained during the day over time too much exposure can wear them down.

It's easy to focus on heart health muscle health, and even brain health, but it's easy to lose sight of IHOP. Our eyes are how we focus and perceived the world Theres a gateway to our memories I help support not just vision, but also brain and sleep patterns.

N Downtick has increased what has already been a high exposure to screens and excess blue light. We are excited about the solution IC bright provides for our customers for this over exposure and the benefit it provides to their IL. We believe that the demand for proper eye health and supplementation will continue to increase.

As the use of screens and digital devices also continue to rise.

As Steve mentioned earlier and consistent with our comments on the past few calls we are firmly aligned around our renewed focus on pro tandem in RF to synergize.

As part of that effort and in conjunction with our new solution focused product categorization, We recently announced a series of new activation stacks, we define an activation stack as a bundle of products that are grouped together to provide a targeted solution to the end consumer at the center of each stack is pro tandem and are too.

Synergize them, because a CRO tandem is the heart of an activated lifevantage lifestyle.

All of these new stack just to take the guesswork out of which products are distributor would recommend to a customer or prospect.

Stack empowers the distributor asks the following question.

Could get a little extra support for your health and one or two areas what would make the biggest difference in your life at this time after listening to the answer the distributor will make a recommendation based on their health needs and interests stacks are positioned to address a specific need or concern of the consumer such as heart health gut health.

<unk> energy immune support focus weight management more we're confident that this renewed focus on pro tandem and RF to synergize or.

With the added value of solution minded stacks will both energize, our distributor base and give them the added tools to provide a more customized and targeted solution to their consumers.

At our global Convention, we announced a new consumer Onboarding retention program that we're rolling out to all new customers and distributors. We are started in the U S and will quickly moved the program to additional markets. The focus of the program is long term consumer retention by building relationships. We do this in three phases first.

We reinforce and validate the consumer's decision to say, yes to lifevantage products.

We strive for the second month product order with incentives and reminders to the consumer on the benefits of subscription.

And finally, we nurture a relationship with a new consumer with a welcoming experience right from the enrolment with Lifevantage.

Primary touch points for the program or email that physical package, we shipped to the consumer and over time, we will expand our consumer touch points through text messaging through SMS messenger and other digital channels. The program was very well received by the distributors who attended our global Convention and we are confident that it is.

The right level of engagement and aligns our work better with distributor base, allowing them to focus on consumer acquisition, while we support them with a stronger presence on consumer retention.

Finally, the planned launch for the Philippines, which we highlighted on the fourth quarter call has pre launched earlier this week and its plan to officially launch by the end of November we've continued to see great energy and excitement from not only our leadership in that region, but from our leaders around the world that want to participate in this.

New market opening and we believe this is another important milestone on our path to Reaccelerate growth now, let me turn the call over to Carl to run you through the first quarter financial results.

Thank you Justin before I go over the financials in more detail. Let me first say how excited I am to join Lifevantage I've spent much of my career in the direct selling industry focused on health and wellness Lifevantage is truly recognized for having one of the most unique product on the market and has an outstanding platform to support future <unk>.

<unk> growth.

Now onto the first 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.

First quarter revenue was $53 2 million down two 9% on a year over year basis revenue in the Americas declined five 8% compared to the prior year period to $36 4 million driven by a 9.4 decreased in total active accounts, partially offset by higher revenues per account.

From new product launches and L. T OS.

Revenue in our Asia Pacific and Europe region was $16 8 million, representing an increase of three 9% compared to the prior year period, and reflecting an eight 9% increase in total active accounts, we experienced strong double digit growth in Australia, and New Zealand as well as greater China, while revenue.

In Japan decreased five 6% in each case as compared to the prior year period.

Japan revenues were negatively impacted by four 5% during the quarter due to foreign currency exchange rate fluctuations and on a constant currency basis revenues in Japan decreased by one 1% Rev.

Revenues in Japan continued to be negatively impacted by restrictions around in person meetings due to the pandemic.

Gross margin was 82, 3% in the first quarter compared to 82, 9% as compared to the prior year period the.

The 60 basis point decrease in gross margin was due to increased inventory obsolescence expenses higher costs for shipping and shifts in geographic and product sales mix.

Emissions and incentive expenses as a percentage of revenue decreased by 150 basis points year over year to 45, 3%, reflecting changes in the timing and magnitude of promotional activities.

<unk> SG&A expenses increased <unk> 6 million year over year to $15 3 million as a percentage of revenue. The adjusted SG&A expense ratio was 28, 8% or 200 basis points higher than a year earlier due to increases in marketing travel and event expenses, reflecting.

Investments in future growth.

Adjusted operating income was $4 4 million or eight 2% of revenue compared with $5 1 million or nine 3% of revenue from the prior year period.

Adjusted net income was $3 1 million or <unk> 23 cents per fully diluted share compared to $3 6 million or 25 per fully diluted share for the prior year period.

The company's effective tax rate was 25, 2% in the first quarter of fiscal 2022 compared to 26, 8% in the prior year period.

For fiscal year 2022, we expect our effective tax rate will be approximately 26%.

Adjusted EBITDA for the first quarter was $5 8 million a decrease of <unk> 9 million from the prior year period. Adjusted EBITDA margin was 10, 9% in the first quarter of fiscal 2022 compared to 12, 3% in the same period a year ago.

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 first quarter in a strong financial position with $19 9 million of cash and no debt and we continue to maintain $5 million of availability under our revolving line of credit.

We used $3 5 million in cash during the first quarter to repurchase approximately 460000 common shares under our share repurchase authorization.

As of September 32021, there remains 8 million available under the authorization, we expect to continue to be active with our share repurchase efforts in the future.

Capital expenditures totaled <unk> 4 million in the first quarter and we anticipate total capital expenditures for fiscal 2022 to be approximately $2 5 million.

Turning to our fiscal 2020 to outlook, we continue to anticipate our fiscal 2022 revenue to be in the range of 225 million to $235 million and adjusted non-GAAP EBITDA in the range of 22 million to 24 million with adjusted non-GAAP earnings in the range of.

<unk> 83 to 87 cents per share.

And with that I'll turn the call back over to Steve.

Thanks, Carl and Justin.

Summary, we continue to make progress on key initiatives and are encouraged by recent trends and activity and engagement with our top distributors.

Consumers interest in health and wellness is as strong as ever and we have a broad portfolio of high quality innovative products proven to help optimize health and improved performance at all stages of life. In addition, we offer an incredible opportunity for individuals to earn.

Supplemental income through their business building efforts, our corporate team and distributor leadership are aligned our financial condition is solid with a strong cash position and profitability and we remain committed to driving value for all stakeholders.

Lastly, I want to reiterate our enthusiasm for the upcoming launch in the Philippines as the favorable dynamics in this market are creating tremendous excitement with our global leaders who want to participate in this new compelling opportunity now let me turn the call back to the ARPA.

Later to facilitate questions operator.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Again to ask any question you May Press Star then one.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Doug Lane with Lane Research. Please go ahead.

Yes, hi, good afternoon, everybody I'm.

Just trying to think through the remaining three quarters of the fiscal year here.

And.

Trying to get a feel for what would impact any given quarter and so first thing obviously is Philippines. This quarter from a geographic expansion standpoint are there any other new geographies that you are planning to enter this fiscal year.

Doug This is Steve How're you doing.

Yes, the Philippines for sure.

Launched we're looking at one other country that might come in towards the very end of the year, but I would doubt that it would have a material impact on our fiscal 'twenty two results.

Yeah.

Okay. That's helpful. And then I would move then to live events now that they're back.

On the table here.

You mentioned, your global converge and or any other sizable wide events.

The remainder of this fiscal year.

Yeah, Hey, Doug. This is just in our next big event will be in the U S. In February we'll be doing an elite Academy, which we are expected to do probably pretty similar to what we did in our global convention, maybe a little bit less since it's a north America specific but each market also has <unk>.

Individual events going on as the world starts to opening up a little bit. So we will see smaller gatherings and some of our international markets as well.

Now as the elite Academy going to be 1500 people as well as a.

Less than that.

We're actually.

Building it out because it will be a hybrid of that so we're building that out to be about 2000 in person and then we're hoping to get anywhere from two to 3000 online as well.

Got it.

And.

The new stacks that you're launching is there any particular, one that's going to generate outsized excitement that I should think about and which quarter might that be if there is.

Oh, Yeah, Yeah, Doug I, I'd say, we launched a new product at convention called icy bright.

And that's that stack, we've created a stack around it I think you'll start to see momentum, where we're really excited about the reception that we've had with that product launch.

And.

As Justin said, we've got a lot of the T. I fatigue, right now and society with everything that we're doing.

Online.

And so so we expect that that stack will.

Will will be a driver for us.

Hi.

Oh, Okay. So that's already.

Been rolled out so the okay that makes sense.

And then.

<unk>.

Turning to the I mean, you have very high gross margins and even though they were down their mark down that much.

So you know in an inflationary world as positioned as well as probably anybody but can you give us a little update on what you think about pricing taking pricing have you taken pricing.

What do you think about.

Using pricing to offset some of these pressures.

Yeah, we've talked a little bit internally about that.

We're fortunate I'd say back.

At the very beginning of Covid to.

Sure up our supply chain, we probably purchased probably I mean at the time, maybe even well ahead of where we thought we should be but we wanted to be conservative. So we we locked in prices on a lot of our major raw materials, you know 18 months two years ago and so we're not we're not feeling the squeeze.

He is from a raw standpoint, but obviously like everyone else.

The supply chain around the delivery and logistics piece, we're getting hit with and we'll continue to monitor that to see if we have to to do some price modifications, but right now we're comfortable with where we are.

In the United States.

Yeah, we have a couple of things that we're really focused on we've really been focused on our promotional calendar.

With the consumer with the and consumer the customer and you're going to see a little bit more engagement with encouraging are filled to bring in distributors as well. So we've been working on focusing on distributor enrollments now for.

Quite a while but the last I guess six to nine months and we feel like that is going to be key to getting things reaccelerated from a growth standpoint. So we will continue to put gas.

Guests on that part.

I have to say I mean.

We talked a little bit also just about.

Pivotal an important our global convention was.

And I mean, not not just symbolically, but the feeling of people finally getting back together, we did a number of we call them road to convention in person meetings and those were really powerful.

In that it just started to.

Hard work.

And dedication and as well as our outstanding team of distributors and loyal customers.

We remain confident in our business model and are focused on delivering the lifevantage products our customers depend on Wheeler.

We look forward to updating you on our next call have a great day. Thanks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.