Q2 2024 LifeVantage Corp Earnings Call

Good day, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss the Lifevantage as second quarter of fiscal 'twenty 'twenty four 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 Reid Anderson with ICR.

As a reminder, today's conference is being recorded.

And now I'd like to turn the conference over to Mr. Anderson.

Please go ahead Sir.

Good afternoon, and welcome to Lifevantage Corporation's conference call to discuss results for the second quarter of fiscal 2024 on the call today from Lifevantage with prepared remarks are Steve Fife, President and Chief Executive Officer, and Carl Alright, Chief Financial Officer.

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

You have not received the release it is.

Available on the Investor Relations portion of Lifevantage its website at Www Dot Lifevantage dotcom, let's.

This call is 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.

Statements do not guarantee future performance and therefore undue reliance should not be placed upon them each.

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. Its 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 the lifevantage as ongoing results of operations, particularly when comparing underlying operating metrics from period to period.

<unk> 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 with live broadcast January 30th 2024.

Lifevantage assumes no obligation to update any forward looking projection that may be made in today's release or call.

Now I'll turn the call over to Steve <unk>, Vice President and Chief Executive Officer of Lifevantage.

Thanks, Ryan and good afternoon, everyone. Thank you for joining us today.

During our second quarter, we continued to advance our strategic transformation and execute well against the core elements of Lv 360.

Significantly improving profitability was a key takeaway from our latest results.

Adjusted EBITDA increased 289% year over year to $3 $1 million in the second quarter and our adjusted EBITDA margin was up 450 basis points to 6%, reflecting ongoing efforts to strengthen our core business and drive productivity.

We were very pleased with the trends youre seen in revenue per consultant.

In each of the last four quarters, which coincides with the introduction of an implementation of several key I'll be at $3 60 in Michigan or revenue per consultant has grown at a solid double digit rate for example in the second quarter revenue per consultant increased over 13% year over year.

Revenue in the second quarter were down slightly versus last year robust demand for truth science liquid collagen coupled with the positive trends, we are seeing in consultant productivity.

Our performance in markets like Japan, where Q2 revenues were up three 9% on a currency neutral basis.

So high degree of confidence in our long term growth outlook.

Revenue attributable to liquid collagen, including the healthy glow with central stack, which bundled liquid college and would go tandem interact to sanitizer exceeded $13 million in the second quarter, an increase of over 44% versus a year ago.

In the Americas region, where the product was first introduced in June 2022, we continue to experience strong growth with sales up approximately 13% on a year over year basis.

In the U S consulting penetration of liquid collagen rose to 31, 6% in the quarter up from 27, 2% in Q1.

With a continued focus on healthy glow with central stacks.

Customer penetration was 27 point too in the U S. During Q2 compared to $28 one in Q1 and $26 nine in Q4 of fiscal 'twenty three.

International sales of liquid collagen accounted for approximately 22% of Q2 liquid college in revenue, mostly reflecting results from Australia, and New Zealand and Japan, where the product was first introduced in March 2023.

September 2023 we expanded the international launch of liquid collagen with the initial rollout into Mexico and this was followed by the introduction to.

To the Philippines and Canadian markets in November.

We were also pleased with the recent progress on other new innovative products. For example, early in the second quarter, we introduced true science true renewed daily firming complex and clean cosmetic retinal alternatives.

Proven to tackle a loving the visible signs of aging.

Importantly, this unique product is a perfect complement to protect them and our attitude sent a Chinese there Andrew science look with collagen.

Further building on the power of our core positioning around being the activation company, along with creating momentum for our troops science activated skin care line.

A couple of weeks ago, we held our annual global kickoff event, where we unveiled the launch date for the next phase of Lv 360, along with new sales incentives and additional consultant tools.

Rise era was announced as the theme for the year with a strong call to action to consultants to rise and build on the strong Foundation L. B 360.

Wait for the future.

We streamlined and simplified the message for consultants to drive growth and success by focusing on three basic behaviors of network marketing enrolling retaining and rank advancements.

Or E R E era.

This focus and supported by a new ride or incentive that enables consultants to earn enticing lifestyle and business prices, including shareable items like luggage and travel vouchers.

Just on achievement in enrolling retaining and advancing.

Cape Town, South Africa, including an African Safari was it revealed as the first ever executive destination trapped under the new <unk> compensation plan.

Vacation criteria for this once in a lifetime trip is based on Arab behavior and achievements through the year with travel scheduled for February 2025.

You consultant tools were also launched at our global kickoff event, including the new evolve possibilities pathway, which emphasizes for pivotal.

Bolton ranks within an evolved compensation plan and one is unlocked at each stage to inspire and motivate rank advancements.

Our major events continue to be an important element driving consulting behavior and capitalizing on the strength of our broader lifevantage community.

Mobile kick off in.

In January and set the tone for calendar 2024, and we will build on this excitement with our upcoming in person momentum academies in March.

The next phase of our L. D 360 transformation will commence in a few days after.

At the start of February evolve, our contemporary compensation plan and reward circle, our unique customer loyalty program will be launching in Mexico, Canada and Europe.

Recall, we first launch these programs in the U S, Japan, Australia, New Zealand in March 2023, as part of that'll be 360.

And they have been key elements of our success over the past year.

In addition to our rise there are initiatives in our phase two launch we've established an optimization team to lead the ongoing strategic effort to build our active account base.

The team is focused on three areas first ensuring our N rollers group of consultants actively enrolling consultants and customers each month.

Leasing.

Arming, our enroll or with a strong dollar per hour earnings potential message to the business, we see as an enticing business opportunity for those looking for inside hustle.

Second there is a clear replicable path to enrolling someone in your first 30 days as a consultant.

And finally, we are making it easy for our radar products fans to share their incredible resolve and our unique product story and new innovative and compelling way.

We will be updating you on the progress of these optimization efforts in coming quarters.

In summary, we are pleased with progress on our strategic transformation L. D 360.

Our improved outlook for profitability in fiscal 2024, despite its still challenging topline environment underscores our confidence in the trajectory of key initiatives as well as the strength of our competitive position.

Engagement levels remained high across our entire organization and.

And we look forward to our business momentum continuing to build as we expand our efforts across all our international markets over the next several quarters.

We remain focused on executing our plan while remaining agile to ensure we are optimizing the key elements and there'll be $3 60 to drive sustainable profitable growth and value for shareholders capital allocation continues to be a key area of focus and during the second quarter we remain.

Steadfast in our balanced approach of returning excess capital to shareholders through dividends and share repurchase.

Arnold will cover this in more detail in his section.

Now, let me turn the call over to Carla I'll read our Chief Financial Officer to review, our second quarter financial results.

Carl.

Thank you, Steve and good afternoon, everyone. Let me walk you through our second quarter financial results. Please note that I will 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.

Second quarter revenue was $51 $6 million down three 8% on a year over year basis.

Foreign currency negatively impacted revenue by <unk> 2 million excluding.

Excluding the negative impact of foreign currency fluctuations second quarter revenue was down by $1 8 million or three 4% as compared to the prior year period.

Revenue in the Americas region decreased 1.6% to $39 1 million in the quarter, primarily driven by a nine 5% decrease in total active accounts.

Really offset by higher average revenue per account, resulting from changes in product mix due to continued penetration of our true science liquid collagen product.

Revenue in our Asia Pacific and Europe region decreased 10% to $12 6 million in the quarter driven by an 18, 2% decrease in total active accounts the closure of our e-commerce business in China, and the negative impacts from foreign currency exchange rate fluctuations.

Excluding the negative impact from foreign currency fluctuations second quarter revenue in our Asia Pacific and Europe region was down 8% as compared to the prior year period.

The foreign currency impact continues to be driven by fluctuations in Japan accounting for $300000 of the impact.

Adjusting for this impact revenue in Japan increased three 9% on a constant currency basis in the quarter as compared to the prior year period.

Gross margin was 78, 6% for the second quarter compared to 78, 1% in the prior year period. The increase in gross margin was primarily due to changes in sales mix, along with lower shipping related expenses in the quarter, resulting from changes in shipping methods.

Commissions and incentive expense in the second quarter decreased $1 8 million year over year.

As a percentage of revenue commissions and incentive expense decreased 180 basis points to 42, 1% versus one year ago levels, which was primarily driven by changes in sales mix impacts from our evolved compensation plan as well as the timing and magnitude of promotional and incentive programs.

non-GAAP adjusted SG&A expense was $17 4 million compared with $19 4 million in the prior year quarter and was down 230 basis points as a percentage of revenue to 33, 8%.

Adjusted non-GAAP operating income was $1 4 million compared with a loss of <unk> 9 million in the prior year period.

Adjusted non-GAAP net income was $1 4 million or 10 cents per fully diluted share in the second quarter compared to adjusted net loss of <unk> 8 million or seven cents per fully diluted share in the comparable period last year.

We recorded a tax benefit of <unk> 5 million in the second quarter of 2024 compared to $17000 in the prior year period.

The increase in tax benefit was primarily due to changes in taxable income and the favorable impact of discrete items, we expect that our effective tax rate will fluctuate slightly during the remainder of fiscal 2024 as the impact of discrete items and other permanent differences are recognized.

Adjusted EBITDA for the second quarter was $3 $1 million or 6% of revenues compared to point $8 million and one 5% in the same period a year ago.

Please note that all of the adjustments from GAAP to non-GAAP that I discussed today are reconciled in our earnings press release issued this afternoon.

We ended the second quarter in a strong financial position was $17 $3 million of cash and no debt. We also continue to maintain $5 million up availability under our revolving line of credit.

Capital expenditures totaled <unk> 5 million in the second quarter, we anticipate total capital expenditures for fiscal 2024 to be approximately $2 $5 million.

In addition to maintaining a strong balance sheet, we continue to focus on our capital allocation priorities to drive value for stockholders. During the second quarter, we used approximately $1 9 million in cash to repurchase approximately 288000 common shares under our share repurchase authorization and through the first six months.

Fiscal 2024, we have used approximately $2 $7 million to repurchase approximately 433000 shares.

As of December 31, 2023, there is $24 2 million remaining under our stock repurchase authorization.

We also announced a quarterly cash dividend of three and a half cents per common share of stock or approximately $450000 in the aggregate.

This dividend will be paid on March 15th 2024 to stockholders of record on March 1st since.

Since the beginning of fiscal 2024, including this latest dividend announcement, we will have paid cash dividends of 50, and a half cents per share or approximately $6 $4 million in the aggregate. So.

So far this fiscal year, we will have returned over $9 million in total value to our stockholders through share repurchases and dividends.

Turning to our fiscal 'twenty 'twenty four outlook, we anticipate our fiscal 2020 for revenue will be in the range of $207 million to $213 million from the previous range of $216 million to $226 million.

Additionally, we continue to anticipate adjusted non-GAAP EBITDA in the range of $16 million to 18 million with adjusted non-GAAP earnings per share in the range of 57 to 67 per share increasing from the previous range of 52 to 62 per share for fiscal year.

2024, we expect our annual effective tax rate to be approximately 22% to 24% included in our fiscal 2024 guidance is over $2 million of nonrecurring expenses related to an expiring sponsorship agreement and costs associated with the rollout of it'll be $3 62, our remaining markets.

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's second quarter of fiscal 2024. This time, all participants are in a listen-only mode.

Operator: 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 Reed Anderson with ICO. As a reminder, today's conference is being recorded. Now, I'd like to turn the conference over to Mr.

We remain committed to improving our adjusted EBITDA margins and we believe we are on track to reach our long term target of low double digits and with that let me turn the call back over to the operator for questions operator.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.

If you'd like to ask a question you May press star one on your telephone keypad.

Speaker: Thank you. Good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the second quarter of fiscal 2024. On the call today from LifeVantage with prepared remarks are Steve Feif, President and Chief Executive Officer, and Carl Alray, Chief Financial Officer. By now, everyone should have access to the earnings release, which went out this afternoon at approximately 4 or 5 p.m. Eastern Time.

A confirmation tone will indicate your line is in the question queue.

You May press star two if you'd 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 star key.

Our first question comes from the line of Doug Lane with water Tower Research. Please proceed with your question.

Speaker: If you have not received the release, it is available on the Investor Relations portion of LifeVantage's website at www.lifevantage.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.

Yes. Thank you good afternoon everybody.

Looking at the focusing on the top line here.

Are we at some sort of inflection point between growth coming from most of the Americas.

You'll have the anniversary the launches last year and now really maybe we see a shift towards international being a bigger driver going forward.

Yeah.

We.

Speaker: These statements are based on current expectations of the company's management and involve inherent risks and uncertainties, including those identified in the risk factor section of life advantages' 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's ongoing results of operations, particularly in comparing underlying operating metrics from period to period. We've included the 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, January 30, 2024. LifeVantage assumes no obligation to update any phone booking projection that may be made in today's release or call. Now I'll turn the call over to Steve Feif, the President and Chief Executive Officer of LifeVantage. Thanks for listening.

We had a very successful launch a year and a half ago or so in the Philippines and and that market has has stabilized and more recently it actually has had some challenges to retain some of it.

Some of its leadership, but as we.

Look back on Lv 360, we really slowed down our international expansion to focus on you know the compensation plan, our product strategy and other aspects of it will be $3 60 I anticipate.

That here in the future whirlpool.

Pick up again with.

Our focus on opportunities internationally, we think that remains a growth opportunity for us.

Right now we're seeing.

Strain primarily in in the U S and our Japan, then it really our phase one markets.

Steve Feif: Good afternoon, everyone. Thank you for joining us today. During our second quarter, we continued to advance our strategic transformation and execute well against the core elements of LV360. Significantly improving profitability was a key takeaway from our latest results; adjusted EBITDA increased 289% year over year to $3.1 million. In the second quarter, our adjusted EBITDA margin was up 450 basis points to 6%, reflecting ongoing efforts to strengthen our core business and drive productivity. We are very pleased with the trends we are seeing in revenue per consultant. In each of the last four quarters, which coincides with the introduction and implementation of several key LV360 initiatives, revenue per consultant has grown at a solid double-digit rate. For example, in the second quarter, revenue per consultant increased by over 13% year over year.

As those markets adopt phase.

Phase one pit.

Adopt our R. A L V 360, and the evolved compensation plan.

Right right. So there really is two stories international you've got the Philippines, and whats going on in China kind of working as a headwind versus.

Versus the launches in China, and Japan, and Australia, New Zealand, which Oh, that's right you would expect to get some traction.

That's exactly right.

Okay, and how is it how do we try to small I get it but how do we see that playing out or are we now.

How far into that discontinuation of the business there are we.

And in China, the Philippines, which I know China.

Where we're through that you know it's it's.

Yeah, we had relatively close to zero in this current quarter.

Steve Feif: Well, total revenue in the second quarter was down slightly versus last year, but robust demand for true science, liquid collagen, coupled with the positive trends we are seeing in consultant productivity, and our performance in markets like Japan, where Q2 revenues were up 3.9% on a currency-neutral basis, give us a high degree of confidence in our long-term growth outlook. Revenue attributable to liquid collagen, including the Healthy Glow Essential Stack, which bundles liquid collagen with ProTandem NRF2 Synergizer, exceeded $13 million in the second quarter, an increase of over 44% versus a year ago. In the Americas region, where the product was first introduced in June 2022, we continue to experience strong growth, with sales up approximately 13% on a year over year basis. In the US, consultant penetration of liquid collagen rose to 31.6% in the quarter, up from 27.2% in Q1, with a continued focus on healthy glow essential stuff.

Okay, but okay, well, that's one one issue that's sort of resolved itself and.

Hum.

Okay, and what about the Philippines is there still more still more volatility there.

No I I think that we have stabilized the leadership group there.

We're starting to see.

Some positive signs.

And we've got some new.

Corporate team members in place as well as we've we're attracting some new consultant leaders that are I think we have upside in calendar 'twenty four.

That market is.

Uh huh.

This business model.

Can be it is very attractive within the Philippines market.

And like we had some success we lost a couple of leaders.

I'm cautiously optimistic that we're in the process of rebuilding that right now.

Okay. That's helpful. Another another trend here that.

Steve Feif: Customer penetration was 27.2 in the US during Q2, compared to 28.1 in Q1 and 26.9 in Q4 of fiscal 23. International sales of liquid collagen accounted for approximately 22% of Q2 liquid collagen revenue, mostly reflecting results from Australia, New Zealand, and Japan, where the product was first introduced in March 2023. In late September 2023, we expanded the international launch of liquid collagen with the initial rollout into Mexico, and this was followed by introductions to the Philippines and Canadian markets in November. We are also pleased with the recent progress on other new innovative products. For example, early in the second quarter, we introduced TrueScience TrueRenew daily firming complex. A clean cosmetic retinal alternative that has proven to tackle 11 visible signs of aging

Has been fairly persistent is.

Sort of a steady decline in your active customers, but.

Pretty nice increase in your revenue per active customer.

So or I guess, you say accounts because you include everybody that number. So it is a deliberate I mean is this gonna be the the model in the foreseeable future or are there plans in the works to focus on the active accounts and getting those numbers heading north again.

Yeah first I'd say that you know focusing on active revenue per account was was a key element to the very beginning of Lv 360, what we knew.

And anticipated that the launch of our liquid collagen product that has been a huge success would help drive.

That average revenue per account that's been continued as as we have.

Found additional synergies and and bundling our pro tandem and RF to synergize with liquid collagen and so that focus on increasing the revenue per customer.

Steve Feif: Importantly, this unique product is a perfect complement to Plutanum NRF2 Synergizer and TruScience Liquid Collagen, further building on the power of our core positioning around being the activation company, along with creating momentum for our TruScience activated skincare line. A couple of weeks ago, we held our annual global kickoff event, where we unveiled the launch date for the next phase of LV360. Along with new sales incentives and additional consultant tools, the rise era was announced as a theme for the year with a strong call to action to consultants to rise and build on the strong foundation LV360 has laid for the future. We've streamlined and simplified the message for consultants to drive growth and success by focusing on three basic behaviors of network marketing: enrolling, retaining, and rank advancing, or e r a era. This focus is supported by a new RISE-era incentive that enables consultants to earn enticing lifestyle and business prizes, including shareable items like luggage and travel vouchers based on achievement in enrolling, retaining, and advancing. Cape Town, South Africa, including an African safari, was revealed as the first ever executive destination trip under the new EVOL compensation plan.

Was it was a very early and conscious decision now having said that I think there you know the drop off in our customer accounts.

There's a real strong macro economic play in place here, we've seen it correlate pretty strongly with.

What's going on in the broader economy and you.

You know.

That.

Period, but we're also seeing kind of a stabilization within our consultant base as we now kind of come through the initial transition of our evolved compensation plan, we're seeing that base stabilize.

And are really focusing our attention right now and supporting that consultant base and providing them with the tools to those.

These tools are you know video's there's there's.

Other trainings and end products is an important element of that is a to enable them to go out and to attract new customers as well.

We are at an inflection point with that consulting base, having stabilized and now being equipped with some new tools to go out and attracting new customers as well as obviously other consultants.

Steve Feif: Qualification criteria for this once-in-a-lifetime trip is based on error behavior and achievement through the year, with travel scheduled for February 2025. New consultant tools were also launched at our global kickoff event, including the new Evolved Possibilities Pathway, which emphasizes four pivotal consultant ranks within the Evolved Compensation Plan and what is unlocked at each stage to inspire and motivate rank advancement. Our major events continue to be an important element driving consultant behavior and capitalizing on the strength of our broader life vantage community. The global kickoff in January set the tone for calendar 2024, and we will build on this excitement with our upcoming in-person Momentum Academies in March. The next phase of our LV360 transformation will commence in a few days. At the start of February, EVOLVE, our Contemporary Compensation Plan, and Rewards Circle, our unique Customer Loyalty Program, will be launched in Mexico, Canada, and Europe.

Okay. No. That's good color and then certainly the margin story came through nicely.

I I guess versus what I put together the big upside was in commissions and incentives are still running a little bit behind what I sort of see as of mid forty's kind of longer term trend. Karl do you think this is but.

Or are we going to get back to that mid forty's soon or are we going to have or we still at the sort of low forty's run rate for a few more quarters.

Yeah, I mean part of it is kind of I mean, it's likely to increase a little bit over time here, but one of the impacts here in Q2 as you look at it in comparison to the prior year quarter, we're still seeing a larger I'm not essentially bucket of noncommissioned revenue that that's influencing that percentage as a percentage of total revenue.

So that definitely was an impact here in Q2, but looking forward as we rollout as evolve gets rolled out to the other international markets and the plan starts to mature.

In the existing markets, it's likely that we'll see.

A bit of an up a bit of an uptick there, but I think that that range of the low mid low forty's, there is probably where it's going to settle.

Steve Feif: Recall, we first launched these programs in the U.S., Japan, Australia, and New Zealand in March of 2023 as part of LB360, and they have been key elements of our success over the past year. In addition to our Rise Era initiatives and our Phase 2 launch, we've established an optimization team to lead ongoing strategic efforts to build our active account base. The team is focused on three areas. First, ensuring our enrollers, the group of consultants actively enrolling consultants and customers each month, is increasing, arming our enrollers with a strong dollar per hour earnings potential message for businesses as an enticing business opportunity for those looking for a side hustle. Second, that there is a clear, replicable path to enrolling someone in your first 30 days as a consultant.

And just just at the there's noncommissioned revenue, that's that's primarily coming in from convention related.

Revenue in shipping related revenue those types of of of revenue items that as they grow or become a greater percentage of our overall revenue.

From a percentage standpoint, it makes it look like the commission payout.

Or but it's really just comparing when you compare it to total revenue. There is included in that some non commission revenue.

But that non commission revenue was unusually high these days and she should normalize going forward.

Yeah in the quarter, we had a higher percentage than in previous quarters.

I don't know that there is enough to say that there's a trend or anything going on that are just in the quarter.

Okay.

Steve Feif: And finally, that we are making it easy for our raving product fans to share their incredible results and our unique product story in new, innovative, and compelling ways. We will be updating you on the progress of these optimization efforts in the coming quarters. In summary, we are pleased with progress on our strategic transformation, LB 360. Our improved outlook for profitability in fiscal 2024, despite a still challenging top line environment, underscores our confidence in the trajectory of key initiatives, as well as the strength of our competitive position. Engagement levels remain high across the entire organization, and we look forward to our business momentum continuing to build as we expand our efforts across all our international markets over the next several quarters. We remain focused on executing our plan while remaining agile to ensure we are optimizing the key elements of LV360 to drive sustainable, profitable growth and value for shareholders.

Okay Fair enough and then on the outlook.

I get the sales change in the EBITDA is the same and then you moved E. P. S up so I assume that's mostly the tax rate there.

Yeah, that's mostly there's probably two things in the EPS component the stock based comp was down slightly in our in our forecast for the rest of the year and then it's it's it's primarily tax and then just the impact of interest income in the other income section. So that those three items are really what's driving the change in EPS.

Okay. That's helpful. Thanks, and then just looking out the next several quarters what are the key new product drivers that you guys are working on that just just try to get a feel for timing of product launches.

If they haven't announced them you're not going to announce them now, but just to get a feel for timing of new product launches over the next three or four quarters.

Yeah, you know are we.

We have a I'd say, a very robust pipeline and I mentioned.

In March we will be having in person momentum academies.

And those are.

Steve Feif: Capital allocation continues to be a key area of focus, and during the second quarter, we remain steadfast in our balanced approach of returning excess capital to shareholders through dividends and share repurchase. Carl will cover this in more detail in his section. Now, I turn the call over to Carl Owery, our Chief Financial Officer, to review our second quarter financial results.

Country events or every one of our countries will be holding an event and we will be announcing a new product.

And those momentum Academy, So next product will be coming in in March.

Oh that soon okay.

Alright, that's very helpful. Thank you.

Thanks, Doug.

There are no further questions I'd like to hand, it back to Mr fight for closing remarks.

Carl Alray: Thank you, Steve, and good afternoon, everyone. Let me walk you through our second quarter financial results. Please note that I will 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. Second quarter revenue was $51.6 million, down 3.8% on a year-over-year basis, and foreign currency negatively impacted revenue by $0.2 million. Excluding the negative impact of foreign currency fluctuations, second quarter revenue was down by $1.8 million, or 3.4%, as compared to the prior year period. Revenue in the Americas region decreased 1.6% to $39.1 million in the quarter, primarily driven by a 9.5% decrease in total active accounts, partially offset by higher average revenue per account resulting from changes in product mix due to continued penetration of our TruScience liquid collagen product.

Thank you for joining us as we conclude I want to express my appreciation to our committed employees.

Outstanding independent consultants shareholders in phase.

Tasteful customer base.

The strength of our distinctive platform coupled with the competitive edge of our business model that empowers individuals who established businesses on their own terms is.

Is complemented by a steadfast leadership team a diverse range of unique products and engage consultant community and a robust financial position.

This collectively emphasizes our strategic positioning for the future.

Enabling us to pursue long term goals, while we consistently build substantial value for our shareholders. Thanks for participating today.

Yeah.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Carl Alray: Revenue in our Asia-Pacific and Europe region decreased 10% to $12.6 million in the quarter, driven by an 18.2% decrease in total active accounts, the closure of our e-commerce business in China, and the negative impact from foreign currency exchange rate fluctuations. Excluding the negative impact from foreign currency fluctuations, second quarter revenue in our Asia-Pacific and Europe region was down 8% as compared to the prior year period. The foreign currency impact continues to be driven by fluctuations in Japan, accounting for $300,000 of the impact.

Carl Alray: Adjusting for this impact, revenue in Japan increased 3.9% on a constant currency basis in the quarter as compared to the prior year period. Gross margin was 78.6% for the second quarter, compared to 78.1% in the prior year period. The increase in gross margin was primarily due to changes in sales mix, along with lower shipping-related expenses in the quarter resulting from changes in shipping methods. Commissions and incentive expense in the second quarter decreased $1.8 million year over year.

Carl Alray: As a percentage of revenue, commissions and incentive expense decreased 180 basis points to 42.1% versus one-year-ago levels, which was primarily driven by changes in sales mix, impacts from our evolved compensation plan, as well as the timing and magnitude of promotional and incentive programs. Non-GAAP adjusted SG&A expense was $17.4 million compared with $19.4 million in the prior year quarter and was down 230 basis points as a percentage Adjusted non-GAAP net income was $1.4 million, or $0.10 per fully diluted share, in the second quarter, compared to an adjusted net loss of $0.8 million, or $0.07 per fully diluted share, in the comparable period last year. We recorded a tax benefit of $0.5 million in the second quarter of 2024 compared to $17,000 in the prior year period. The increase in tax benefits was primarily due to changes in taxable income and the favorable impact of discrete items.

Carl Alray: We expect that our effective tax rate will fluctuate slightly during the remainder of fiscal 2024 as the impact of discrete items and other permanent differences is recognized. Adjusted EBIT off for the second quarter was $3.1 million, or 6% of revenues, compared to $0.8 million and 1.5% in the same period a year ago. Please note that all of the adjustments from GAAP to non-GAAP that I discussed today are reconciled in our earnings press release issued this afternoon. We ended the second quarter in a strong financial position with $17.3 million of cash and no debt. We also continue to maintain $5 million of availability under our revolving line of credit. Capital expenditures totaled $0.5 million in the second quarter.

Carl Alray: We anticipate total capital expenditures for fiscal 2024 to be approximately $2.5 million. In addition to maintaining a strong balance sheet, we continue to focus on our capital allocation priorities to drive value for stockholders. During the second quarter, we used approximately $1.9 million in cash to repurchase approximately 288,000 common shares under our share repurchase authorization.

Carl Alray: And through the first six months of fiscal 2024, we have used approximately $2.7 million to repurchase approximately 433,000 shares. As of December 31st, 2023, there is $24.2 million remaining under our stock repurchase authorization. We also announced a quarterly cash dividend of 3.5 cents per common share of stock, or approximately $450,000 in the aggregate. This dividend will be paid on March 15th, 2024 to stockholders of record on March 1s

Carl Alray: Since the beginning of fiscal 2024, including this latest dividend announcement, we will have paid cash dividends of $0.505 per share, or approximately $6.4 million in the aggregate. Thus, so far this fiscal year, we will have returned over $9 million in total value to our stockholders through share repurchases and dividends. Turning to our fiscal 2024 outlook, we anticipate our fiscal 2024 revenue will be in the range of $207 million to $213 million from the previous range of $216 to $226 million. Additionally, we continue to anticipate adjusted non-gap EBITDA in the range of $16 million to $18 million, with adjusted non-gap earnings per share in the range of $0.57 to $0.67 per share, increasing from the previous range of $0.52 to $0. For fiscal year 2024, we expect our annual effective tax rate to be approximately 22 to 24 percent.

Operator: Included in our fiscal 2024 guidance is over $2 million of non-recurring expenses related to an expiring sponsorship agreement and costs associated with the rollout of LB360 to our remaining market. We remain committed to improving our adjusted EBITDA margins, and we believe we are on track to reach our long-term target of low double digits. And with that, let me turn the call back over to the operator for questions. Operator. Ladies and gentlemen, at this time, we will be conducting a question... If you'd like to ask a question, you may press star 1 in the Confirmation Tunnel to indicate your line is. You may press star 2 if you'd like to remove your line for. It may be necessary to pick up your hand before pressing the start button. The first question comes from the line of Doug Lane with Watertower.

Douglas Matthai Lane: Please proceed with your question. Yes, thank you. Good afternoon, everybody.

Steve Feif: Focusing on the top line here, are we at some sort of inflection point between growth coming from mostly America, uh, you know, the anniversary of the launches last year, and now, really, maybe we see a shift towards international being a bigger driver going forward? Yeah, you know, we had a very successful launch a year and a half ago or so in the Philippines, and that market has stabilized and, more recently, actually had some challenges to retain some of its leadership. But as we look back on LV360, you know, we really slowed down our international expansion to focus on, you know, the compensation plan, our product strategy, and other aspects of LV360.

Steve Feif: I anticipate that here in the future, we'll, you know, pick up again a focus on opportunities internationally. We think that remains a growth opportunity for us, but right now, we're seeing strength primarily in the U.S. and Japan and really our phase one markets as those markets adopt, you know, phase one and adopt our LV360 and the evolved compensation plan. Right, right. So there really are two stories internationally. You've got the Philippines and what's going on in China kind of working as a headwind versus the launches in China. I mean, Japan and Australia, New Zealand, which... That's right.

Steve Feif: That's exactly right. Okay. And how, how do we, I mean, China's small, I get it, but how do we see that playing out? How far into that discontinuation of the business are we? In China or the Philippines? China. No, China.

Steve Feif: We're we're through that, you know, it's it's. Yeah, we had relatively close to zero. OK, OK, well, that's one issue that sort of resolved itself and. Okay. And what about the Philippines?

Steve Feif: Is there still more volatility there? No, I think that we have stabilized the leadership group there, and we're starting to see, you know, some positive signs. And we've got some new corporate team members in place, as well as we're attracting some new consultant leaders that I think we have upside in calendar 24 in that market. It's a, it's a, you know, this business model can be very attractive within the Philippine market. And, like we had some success, we lost a couple of leaders, but I'm cautiously optimistic that we're in the process of rebuilding that. Okay, that's helpful. Another trend here that has been fairly persistent is a sort of steady decline in your active customers.

Steve Feif: Put a nice increase in your revenue per active customer. So, or I guess you say accounts, because you include everybody in that number. So, is this deliberate? I mean, is this going to be the model in the foreseeable future, or are there plans in the works to focus on active accounts and get those numbers heading north? Yeah. First, I'd say that focusing on that active revenue per account was a key element of the very beginning of LV360. We knew and anticipated that the launch of our liquid collagen product, which has been a huge success, would help drive that average revenue per account. That's been continued as we have found additional synergies and are bundling our ProTandem NRF2 Synergizer with liquid collagen.

Steve Feif: And so, that focus on increasing revenue per customer was a very early and conscious decision. Now, having said that, I think the drop-off in our customer accounts is, I think there's a real strong macroeconomic play in place here. We've seen it correlate pretty strongly with what's going on in the broader economy and that, I guess, period, but we're also seeing kind of a stabilization within our consultant base. As we now kind of come through the initial transition of our evolved compensation plan, we're seeing that base stabilize, and we are really focusing our attentions right now on supporting that consultant base and providing them with the tools to, and those tools are, you know, there's other training and products are an important element of that as they, you know, enable them to go out and attract new customers as well. So we are, you know, at an inflection point Okay, no, that's a good color.

Douglas Matthai Lane: And then certainly the margin story came through nicely. I guess versus what I put together, the big upside was in commissions and incentives. You're still running a little bit behind what I sort of see as a mid 40s kind of longer term trend. Carl, do you think this is are we going to get back to the mid 40s soon? Or are we going to have to stay at this sort of low 40s run rate for a few more quarters?

Carl Alray: Yeah, I mean, it's likely to increase a little bit over time here, but one of the impacts here in Q2, as you look at in comparison to the prior year quarter, we're still seeing a larger, essentially, bucket of non-commissionable revenue that's influencing that percentage as a percentage of total revenue. So that definitely had an impact here in Q2. But looking forward, as we roll out, as EVOLVE gets rolled out to other international markets, and the plan starts to mature in the existing markets, it's likely that we'll see a bit of an uptick there, but I think that, you know, that range of the low, you know, mid-low 40s there is probably where it's going to settle. And just to add, the non-commissionable revenue, that's primarily coming in from convention-related revenue and shipping-related revenue, those types of revenue items that, as they grow or become a greater percentage of our overall revenue, from a percentage standpoint, it makes it look like the commission payout is a little bit lower.

Carl Alray: But it's really just when you compare it to total revenue; there is included in that some non-commissionable revenue. But that non-commissionable revenue is unusually high these days and should normalize going forward. Yeah, in the quarter, we had a higher percentage than in previous quarters. Okay. But, you know, I don't know that there's enough to say that there's a trend or anything going on with that. It's just in the.

Douglas Matthai Lane: OK. Okay, fair enough. And then in the Outlook, I get the sales change, and the EBITDA is the same, and then you move EPS up, so I assume that's mostly the tax rate there? Yeah, that's mostly. There are probably two things in the EPS component.

Carl Alray: The stock-based comp is down slightly in our forecast for the rest of the year, and then it's primarily tax, and then just the impact of interest income in the other income section. So those three items are really what's driving the change in EPS. Okay, that's helpful. Thanks. And then, looking out the next several quarters, what are the key new product drivers that you guys are working on that just try to get a feel for the timing of product launches? You know, obviously, if they haven't announced them, you're not going to announce them now, but just to get a feel for the timing of new product launches over the next three or four quarters. Yeah, you know, we have a, I'd say, a very robust pipeline. And I mentioned in March, we will be having in-person Momentum Academies. And those are country events.

Steve Feif: So every one of our countries will be holding an event, and we will be announcing a new product at those Momentum Academies. So the next product will be coming in March. Oh, that soon.

Douglas Matthai Lane: Okay. All right, that's very helpful. Thank you. Thanks, Doug. If there are no further questions, I'd like to hand it back to Mr. Pfeiffer for closing remarks.

Steve Feif: Thank you for joining us. As we conclude, I want to express my appreciation to our committed employees, outstanding independent consultants, shareholders, and faithful customer base. The strength of our distinctive platform coupled with the competitive edge of our business model that empowers individuals to establish businesses on their own terms is complemented by a steadfast leadership team, a diverse range of unique products, an engaged consultant community, and a robust financial position. This collectively emphasizes our strategic positioning for the future, enabling us to pursue long-term goals while we consistently build substantial value for our shareholders. Thanks for participating today. Ladies and gentlemen, this does it. Disconnect your line, and have a wonderful day.