Q3 2022 LifeVantage Corp Earnings Call
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Good day, ladies and gentlemen, thank you for standing by and welcome to today's conference call to discuss Lifevantage third 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.
Hosting today's conference will be read I understand with ICR.
As a reminder, today's conference is being recorded.
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 quarter of fiscal 2022.
On the call today from Lifevantage with prepared remarks are Steve <unk>, Chief Executive 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 to five P. M Eastern time.
You have not received the release, it's available on the Investor Relations portion of life vintages 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 forward looking statements and management may make additional forward looking.
Statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk 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 to 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 financial measures with today's release.
Call also contains time sensitive information that is accurate only as of the date of this live broadcast may three 2020 to Lifevantage 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 Steve Fife Chief.
Chief Executive officer of Lifevantage.
Thanks, Reed and good afternoon, everyone.
Thank you for joining us today with me as Karl already our Chief Financial Officer, who will join me with prepared remarks before we turn the call over for Q&A.
During the third quarter, the operating environment remains challenging, but we continue to take steps to strengthen our business and drive long term value for shareholders.
Our financial position remained strong with almost $18 million of cash and we are proud to announce the company's first quarterly dividend of three cents per common share.
This action underscores our commitment to enhancing shareholder value as well as confidence in our outlook for the future.
Revenue for our third fiscal quarter for $50 million down 3% year over year as the duration of Covid restrictions continues to weigh on distributors and customer engagement.
Excluding the negative impact of foreign currency fluctuation third quarter revenue declined less than 1%.
Internationally total active accounts grew by four 3%.
Revenue increased nine 3% or 17, 3% when adjusted for the negative impact of foreign currency.
But this was offset by declines in the Americas region.
Despite the challenges we made progress hosting some distributor events in the quarter in February we hosted an elite Academy in Orlando, which was a kickoff event for many of our leadership groups.
We offered both virtual and in person attendance was strong messages confirming our commitment to being the and company by supporting product sales through both business opportunities and customer growth.
At this elite Academy, we announced our newest D that activate 'twenty to 'twenty two.
Which continues our and company commitment and will be held in Salt Lake City in June .
The leaders left elite Academy in Orlando excited for the future.
In March we held a profile some that and welcome some of our newest leaders to our global headquarters with two full days of trading and inspiration our profile left with an energized commitment to their lifespan niche businesses.
The training continues with a 90 day support push with our pro 10 leaders, providing continuous insights and content that supports our profile are they.
As they build to their next rank.
In the Philippines, we continue to see consistent growth, which in turn is re engaging leaders in other markets. We saw new elite pro nine in Australia with a significant percent of growth coming from the Philippines.
We're also encouraged by the first meeting of our international General managers since the pandemic to align and create a roadmap for next fiscal year.
This is then inspired many strong global programs and incentives that we are excited to share with our leaders that activate 2022.
The 120 day post purchase program, we mentioned last quarter produced encouraging results relative to our customer journey campaign, including a 7.8% conversion rate for non subscribers moving to subscription a 1.85% conversion rate for tests.
Product offers to subscribers and a 20% improvement in attrition for distributors versus average enrollments.
As we discussed last quarter, the direct selling business has been evolving to a model that is more agile more inclusive and creates multiple pathways to entrepreneurial success. Accordingly, our business has also been evolving and our leadership team and board are fully aligned with our.
<unk> to this new paradigm.
We are focused on three primary areas to.
To position the company for accelerated growth and significant long term value creation people product and customer experience.
On our call in February I introduce the addition of two new members of our executive team Julie Boisterous as our Chief marketing Officer, and Rob Harris as our Chief Digital Officer, Julie Rob and the entire leadership team have been hard at work over the past quarter to ensure all cross function.
All teams are focused and working together to enhance these three key areas.
On the marketing front Julian her and her team have developed and introduced a new product strategy that establishes guardrails for future product line growth and sets a clear path for Lifevantage theme known worldwide for products that are activate healthy living the.
The strategy is.
Expands the revolutionary activation benefits found in our flagship product for tandem and our F. Two center Kaiser and will allow us to develop future products and product lines rooted in the science of Nutrigenomics.
While the science behind our products remains at the forefront of.
Other product elements like deemed demonstrable and delightful to consumers have been added to this strategy to better align with the products experiences consumers are demanding in today's world as.
As part of the new product strategy additional investments are being made within the product team.
And content teams are using a new marketing framework that ensures the consumers' wants and needs are addressed and all messaging and materials in an effort to increase consumer understanding of Lifevantage products, while also increasing customer wallet share.
This approach also allows for our products to be more easily shared on various digital channels, including social media.
More comprehensive social media strategy has been built to strengthen our digital presence I'll be sharing more on this in the future quarters.
The digital team is also committed to delivering on our three core areas Rob.
Rob's recent focus has been on our mobile app and implementing enhancements that improve our distributors' ability to share lifevantage branded content with their team and customers. We also added improved reporting capabilities to help distributors track and achieve incentive goals.
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In coming quarters digital efforts around shopping experience will intensify refocusing homepage and site navigation on shopping and the discovery of Lifevantage products as well as aligning the user experience across mobile platforms.
We're also working to simplify modal mobile responsive subscription management online to make it easier to customize subscriptions.
Consumer experience has also been enhanced through our sales organization and our ongoing distributor sales incentives you've heard me mention our MVP incentive. This long term incentive takes the simple approach of finding three distributors and helping them increase product sales.
Latest M. M. D. P iteration has started to gain a lot of traction and saw a 37% increase after one month.
We have doubled our training efforts enhance recognition at all levels in our releasing several enhancements to M. D. P. At our activate 2022 event.
Also on the incentive front the qualification of our annual incentive trip will wrap up in June with an increased number of people within striking distance of our triple the lifetime event in Croatia.
Leaders are currently driving towards the rank of pro for to help ensure they get to experience. This amazing trip.
As we expand on the and company strategy supporting entrepreneurs grow in businesses in a myriad of ways. We are getting clearer on the key behaviors that predict success and our field.
One of those critical activities.
So we are focused on this year is enrolling distributors that are excited about our products are.
Our data shows that if we can help a new person enroll a distributor in their first 60 days we will.
You'll see greater distributor enrollments and retention into our business to support this beginning in may distributor enrolment packs will contain three shareable quotes.
New distributors can share with our prospects and consumers.
I also want to go a little deeper into our new event activate 2022 and how it is contributing to our pillars are people product and consumer experience.
At this event in June Lifevantage distributors will meet in Salt Lake City for a weekend of vision alignment announcements incentive enhancements and the new product.
The event will consist of three general sessions activate your business activate your confidence and your activation plan, providing a new template for future gatherings with an increased focus on the line promotions and incentives social experiences and training enhancement.
Yes.
[noise] activate 2022 sets up fiscal year 'twenty 'twenty three for success and is designed to lead the organization to even more exciting alignment and growth at our global Convention in October.
In summary energy levels are high and we continue to make steady progress towards transforming our organization to drive accelerating growth in the future. We have a solid foundation with a large established base of loyal customers and distributors and our strong financial position insurers.
We have sufficient resources to execute our plan.
Now, let me turn the call over to Carl to review, our third quarter financial results Carl.
Thank you Steve. Please note that I'll be discussing our non-GAAP adjusted results you can refer to the GAAP to non-GAAP reconciliations in today's press release for additional details.
Third quarter revenue was $50 million down 3% on a year over year basis, and four 2% sequentially from the second quarter.
Foreign currency fluctuations negatively impacted revenue by $1 2 million in the third quarter.
Excluding the negative impact of foreign currency fluctuations third quarter revenue was down <unk> 3 million or less than 1%.
Revenue in the Americas declined eight 2% compared to the prior year period to $33 4 million, primarily driven by a 10, 7% decrease in total active accounts.
Revenue in our Asia Pacific and Europe region increased nine 3% to $16 6 million driven by a four 3% increase in total active accounts and initial revenues associated with the launch of the Philippines. We continue to be encouraged by the positive results. We are seeing in Australia, and New Zealand due to continue.
Distributor leadership development and advancement as well as continued momentum in Thailand and China.
This was partially offset by lower revenue in Japan, which was attributable to the negative impact of foreign currency.
On a constant currency basis revenues in Japan increased slightly by <unk>, 1%.
Gross margin was 87% in the third quarter compared to 82, 9% in the prior year period.
The decrease in gross margin was due to increased inventory obsolescence expenses elevated shipping expenses, along with shifts in geographic and product sales mix.
Commissions and incentive expense in the third quarter declined $1 9 million year over year.
As a percentage of revenue commissions and incentive expense declined 240 basis points to 46, 4% versus year ago levels, which was driven by changes in the timing and magnitude of promotional and incentive programs.
non-GAAP adjusted SG&A expense slightly increased by <unk> 3 million compared to the prior year quarter and was up 140 basis points as a percentage of revenue to 29, 3%.
Adjusted operating income was $2 5 million compared with $3 2 million in the prior year period.
Adjusted net income was $1 7 million or 12 cents per fully diluted share in the third quarter compared to adjusted net income of $2 8 million or <unk> 20 per fully diluted shares in the comparable period last year.
We recorded income tax expense of <unk> 6 million in the third quarter compared to tax expense of $1 1 million a year earlier.
For fiscal year 2022, we expect our effective tax rate will be approximately 23%.
Adjusted EBITDA for the third quarter was $3 4 million or six 8% of revenues compared to $4 8 million and nine 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.
Despite facing unexpected challenges, we maintained our strong financial position ending the quarter was $17 8 million of cash and no debt.
We also continued to maintain $5 million of availability under our revolving line of credit.
We used $1 7 million in cash during the third quarter to repurchase approximately 326000 common shares under our share repurchase authorization.
As of March 31, 2022, there remains $28 1 million available under the authorization.
Capital expenditures totaled <unk> 4 million in the third quarter, we anticipate total capital expenditures for fiscal 2022 to be approximately $2 million.
Revenues for fiscal 2022 are now expected to be in the range of $204 million to $207 million. Adjusted non-GAAP EBITDA is expected to be in the range of approximately $15 million and adjusted non-GAAP earnings are expected to be in the range of 52 to 56.
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And with that I'll turn the call back to Steve.
As we close we know the challenges of our current environment, but recognize the groundwork we are laying for the future.
We are focused on our unique portfolio of high quality innovative products supported by a large global base of distributors along with the right management team focused on the opportunities ahead. Additionally, we continue to focus on maintaining a strong financial position and increasing.
Value for our shareholders.
With that let me turn the call back over to the operator for questions operator.
At this time, we'll be conducting a question answer session if you'd 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 queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
One moment, please while we poll for questions.
Our first question comes from Doug Lane Lane Research. Please proceed with your question.
Yes, hi, good afternoon everybody.
Can we start with the gross margins here and there.
Obviously very healthy, but they are the lowest they've been in recent quarters. So I'm wondering a are you looking or have you done made any pricing initiatives are.
All your products just in general and then B can you talk a little bit more about the inventory obsolescence, specifically what was written off there.
Yeah sure Doug I'd be happy to address a couple of those regarding the inventory obsolescence. Yeah. It was primarily related to one of our product lines, just a personal care line and so that was a product line that we had entered into probably over the last year or so and the demand has it hasn't been to what we had originally.
Planned and so that was some additional exposure recorded in the quarter associated with that line, we're hoping that that's it for the for that particular line, but we'll continue to watch that as we move forward.
Regarding your other question is on cost of goods sold we are continuing to see pressure similar to a lot of other companies in the current environment and in particular, we're seeing pressure on especially on the shipping and fulfillment side of the business, but we are to counter that we are evaluating other alternatives.
To potentially increase prices or to re evaluate other areas that we can help offset that so there are discussions underway and we're currently evaluating options to address those issues.
Okay, great. Thanks, that's helpful.
And on the just.
Just to get a feel for the events, how they're how they're shaping up.
You remind me how many people typically go to the elite Academy and then how big will deactivate 2020, then be and then what are you expecting for the global convention in the fall.
Yeah, Doug this is Steve.
We at Elite Academy in all of these are going to be hybrid events.
So we had we had right around 2000 people at our elite Academy in February in Orlando, and Deactivate 2022 event in June .
I think it's going to be less than that probably in the 1500 to 1800 range part.
Part of that is driven by the value that we're utilizing.
And and just the timing of when we can pull that off.
And so slightly smaller.
But we expect a very large.
On online presence for that.
In part because we are announcing a new product.
That I think theres going to be a lot of excitement around so the people that.
Can't or aren't able to travel to salt Lake in June I believe theyre going to be participating online and then the global event, where it's actually going to be in Phoenix. This year kind of a slight departure from our normally we have it in salt Lake City.
And I think it's too early for us to tell just especially from the international participation. How many people will be traveling to do that in person.
In the past we've had five to 6000 people prepay.
Pre COVID-19.
I'd be surprised if we were at that same level, but.
I think it's too early to predict the participation now we haven't even opened it up for enrollments yet or registration so.
But we are for.
For the foreseeable future, we do anticipate doing hybrid approaches to all of these major meetings.
Okay, No I understand that makes sense.
Let's talk a little bit about distributor trends I mean, you held sequentially in the international.
Pretty good elevated level, but the Americas.
It was flat sequentially and is down from where it was a couple of years ago. So what can we look for as far as getting distributor growth back in the Americas is this.
Activate 2022 specifically for that purpose and can we can we look to see sequential improvement in fiscal 2023, or maybe just help me understand what we can do to get the distributor growth back in the Americas.
It's a great question and one that we we recognized it.
At the beginning of this fiscal year for us.
We really established two primary goals.
And both of which are supportive of increasing our active member base and that first goal was on distributor enrollments, increasing the number of distributor enrollments and the second was on increasing the number of second orders.
Placed so that obviously is tied to retention.
But with a focus specifically on second orders.
And.
As you know as as stated in our <unk>.
Press release year over year are our distributors in the U S or in the Americas is down but.
What's encouraging to me is is that it is flat from last quarter.
M I.
I want to believe we believe that we've kind of bottomed on that front.
And we're turning the corner we've seen.
Significant improvement.
Second goal that I had mentioned the second orders and that's true both for our distributors as well of our customers.
And so it's really kind of in.
And enrollment challenge that we've had and with with Q3, our distributor enrollments.
Turned to positive both over prior quarter and prior year.
So again, we're cautiously optimistic as we say around the fact that we've now bottomed and the the whole you know our I mentioned, our MVP incentive it is really geared to distributors too.
Bring in and enroll three distributors and then encourage them to enroll three distributors have kind of a three by three by three and that's the.
It's an incentive that we have right now, but it is not a short term.
Let's grab some revenue for the quarter. It is a longer term build around kind of the right principles and behaviors that we want our distributors to be focusing on and I mentioned just in the one month that we've had.
Sure.
We had a 37% growth in the in.
In the.
Our achievement of the goal associated with that and so again cautiously optimistic but that those behaviors that were now reinforcing around distributor enrollments and retention are helping to turn the tide in terms of both the distributor and then ultimately.
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The customers will come we know what that.
Okay. That's helpful. Thank you.
Alright, Thanks, Tim Thanks, Doug.
Yes.
Our next question comes from Anthony Insurance with key equity investors. Please proceed with your question.
Thanks, very much good afternoon.
My question is I'm, a new shareholder and obviously the fundamental issue here is the effectiveness of the product and the scientific data that youre able to demonstrate that the product works and it is helping customers. Obviously, there's one part that's a customer reaction and then there is another part that I I don't know if.
The clinical analysis of clinical data, but could you take us through what the scientific support for the product and I'm assuming it's the.
And RF to right now that's the main focus.
Yeah. Thanks, Anthony I appreciate your call. So so you are right. Our flagship product is protandim and are up to synergize or it's the product that really for the company was founded on.
And if you were to go to I'm, drawing a blank.
Uh Huh pub med dot or sorry.
And look at the research around pro tandem and oxidative stress.
There are over 30 clinical studies.
Peer reviewed studies that.
Associate.
Protandim with oxidative stress and it's probably the best science.
Scientific resources out there for you to look at them and that's what our distributors. We have a very highly educated distributor force with a lot of people.
From the medical profession, and that's what they rely on as they talk to potential distributors and customers.
Round, the science behind that and much of the technology that is built into protein and I'm also exist.
In other products that we provide.
Including our skin skincare line.
Many of the same ingredients exist in that so.
I'd encourage you to look at Pubmed Dot, Oregon type in a few key words.
To help you understand a little bit further okay.
Okay and now is this an ongoing process now at this point is that you continue to do studies or do you continue to customer satisfaction surveys are.
Because obviously.
To the point that you can demonstrate the more you can demonstrate that successful and people are happy that obviously is going to feed the distributors and everything else and the whole system.
That's right.
And we do it, especially when we introduce new products.
I am sure you picked up but I didn't do a word counts on the number of tons. We used the word activates right.
Our prepared remarks, but.
That is a differentiator for lifevantage and our products is that it activates what our body's naturally do and there is a synergistic benefit.
When you when you consume our pro tandem and RF to product with an R. F. One and with an M. D. So other products and we do have studies around the incremental benefit that comes bye bye.
By consumption of not just in RF to butt in.
And the more in parallel with other products.
And now that will be continued to be the case as we introduce new products. There will be continued kind of correlation between how our new product activates a pathway in the body, but but also the benefits of <unk>.
Utilizing it in tandem with protein and interest too.
Okay now.
I was going to ask.
And another question.
The competition, who do you consider your greatest competition in this product in the field right now.
Well.
We're in a unique situation where.
There is not another product out.
And the world that I'm aware of that has.
The patent and technology in the peer reviewed studies that.
The internet to have.
Not in terms of antioxidants or people selling vitamins or call it M antioxidants or things that.
<unk> reduced free radicals and so forth.
Wouldn't that piece out of competition for you.
It is but there is a big difference between activation and neutral genomics.
Enhancing what the body naturally does versus supplementing what the.
Bonnie does okay.
Thank you very much.
Best of luck.
Thank you.
Our next question is from Ron So la with Q Jr. Partnership. Please proceed with your question.
Hello, Hey, Steve Hey, Karl.
Also a shareholder.
And I have a question.
Relating to the dividend policy.
My understanding that that's now going to be quarterly.
Dividend and.
I kind of loved your capital allocation of buying back shares as a shareholder because.
I believe that the intrinsic value of your shares.
When you look at free cash flow and free cash flow potential.
Is <unk>.
Much lower than the current share price.
So as a shareholder I like the fact that youre using free cash flow to buy back shares because I think that does a better job of maximizing shareholder value.
Secondly.
I am concerned I. The reason I Love. This company is because of the potential for growth.
And if you can increase the productivity of the productive distributor pool and identify.
Those new distributors, where you guys need to put the energy on to get them into that productive pool the.
The revenues will grow.
And if you can protect your margins.
Good things will happen for this company and that will drive my confidence as a shareholder my concern about the dividend is that.
It's signaling it could be perceived as a negative signal for growth.
The company is now.
Going into a new phase.
And the new phase isn't all about growth it's about.
Our dividend payments and so sometimes what'll happen is shareholders little turnover and those seeking dividends will come in you are locking yourself into a quarterly dividend.
And I know your thought processes, it's the constant youre, giving the shareholders the confidence that the dividends will be there.
But.
I I I, just kind of wonder whether your existing strategy of buying back shares.
Focusing in on the growth.
And is the best strategy for shareholder maximization, So I'd like you guys that.
Talk to me about that.
Yes, Ron this is Steve and I. Appreciate your question I'm wondering if you want might want a job at Lifevantage.
Through the revenue growth strategy because.
We've spent a lot of time and I couldn't agree more with you that well first and foremost revenue growth is what's ultimately going to drive the best long term shareholder value.
To.
The initiatives that we have in place our focus.
Absolutely, 100% on those areas of growth and your comment around focusing.
And these are maybe my words not yours, but.
On those distributors earlier in their journey to.
Incentivize motivate and inspire them to understand the opportunities that.
They have to participate both from a product standpoint.
And a business opportunity.
<unk> is very high on our list of priorities accelerating and bringing people in earlier to understand.
Just the magnitude of this opportunity and getting them excited about that.
Is where a lot of our focus and attention is.
So I think I think you and I are very much aligned on that and I think there is there is also very definitive reasons why we introduced a dividend at this time I'm going to let Karl answer those and then follow up if there's any additional comments I have.
Yes, Thanks, Stephen I can add a couple of comments regarding the dividend I mean, it was a it was a careful consideration that we went through and really from our perspective as we evaluated it. It really is finding that right balance between the share repurchase program that historically, we followed as well as looking for other alternatives to maximize shareholder value and so.
I don't know that it shouldn't be interpreted as we're abandoning the share repurchase program. It's really we're finding that balance between the two and as we've evaluated other peers and gone through our analysis that we felt that that balance was appropriate for where we are in our current stage of our company.
So we are we are continue we still have.
Tens of million dollars of $28 million and 28 $28 million available under our share repurchase plan, we're not signaling that we're going to stop repurchasing shares, but we thought having a balanced approach.
Both re.
Repurchasing.
A dividend.
And.
We clearly are not signaling with this that with the introduction of a dividend.
We're resigning to values value stock because we know we know the opportunity that we have here to drive meaningful shareholder value through our revenue growth.
Thanks for your question.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Mr. Sias for closing remarks.
Thank you Maria and thank you everyone for joining us today 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 and loyal customers.
We remain confident in our business model and are focused on delivering the lifevantage products our customers depend on.
We hope you stay safe and are healthy and look forward to updating you on our next call have a great day. Thanks.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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