Q4 2019 Earnings Call
Good day, ladies and gentlemen, thank you for standing by.
Welcome to today's conference call to discuss Lifevantages fourth quarter and full year fiscal 2019 financial results.
At this time, all participants are in 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 Scott Van Winkle with IC All as a reminder, today's conference is being recorded and I would now like to turn the conference over to Mr. Van Winkle. Please go ahead Sir.
Thank you good afternoon, and welcome to Lifevantage Corporation's conference call to discuss results for the fourth quarter and full year fiscal 2019 on the call today from Lifevantage with prepared remarks are guaranteed Jensen, Chief Executive Officer, and Steve buying Chief Financial Officer by now everyone should have access to the earnings release, which went out this afternoon at approximately four or five PM. Eastern time, you have not received the release. It is available on the Investor Relations portion of Lifevantages website at Www Dot Lifevantage Dotcom. This call is being webcast and a replay will be available on the company's website 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 factor section of Lifevantages. Most recently filed forms 10-Q and 10-K. 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 lifevantages 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 August 14th 2019, Lifevantage assumes no obligation to update any forward looking projection that may be made in today's release or call now I'll return the call over to the company's CEO Darren Jensen.
Thank you Scott and good afternoon, everyone.
It's a pleasure to be with you today to discuss our fourth quarter and full year fiscal 2019 results.
We're proud to have finished the year with another quarter of positive revenue growth driving 11.2% growth for the full year of fiscal 2019, and delivering the highest annual revenue in our company's history.
226 million.
This growth was driven driven by a 3.4% growth of our active members, including 4.8% growth in active independent distributors and 2.6% growth in active customers and to 6.5% increase in our average order size, we generated year over year growth of our active member count in all four quarters during fiscal 2019 to put this in perspective during fiscal 2018, our member count declined in three of the four quarters.
This improvement reflects the efficacy of our distributor and customer initiatives during the past year.
This momentum supported our revenue growth and contributed to our strong year over year adjusted EBITDA growth of 48.6% during the fourth quarter and 22.4% growth for the full fiscal year, we exceeded our adjusted diluted earnings per share guidance for the year and are forecasting continued growth in fiscal 2020.
Each of our fiscal 2019 strategic initiatives contributed to our strong performance, including driving distributor and customer acquisition.
Geographic expansion product innovation and increased average order size, we will continue to focus our organization on our key initiatives to drive growth and improved profits and shareholder value.
Before I discuss our fiscal 20 detailed plans in detail, let me highlight some of our fiscal 19 successes.
In fiscal 19, we had a successful launch of our true science hair care system at our global Convention early in the second quarter. The response to our hair care launch led to the strongest quarter in our company's history.
During the third quarter, we relaunched our enhanced Physiq smart weight management system, including the addition of disease pre biotic as part of a refresh as we recently announced we have new innovation planned for the second quarter of fiscal 20, where we will be adding to our flagship Protandim line at our October Elite Academy event in long Beach, California. We believe this launch could be a major north American driver towards accelerated revenue and active member growth beginning in the second quarter.
During the year, we continued our global expansion opening operations in Austria, and Spain, and during the fourth quarter, Ireland, and Belgium, We will continue to evaluate additional markets and plan to launch operations in two additional countries during fiscal 20 with a focus on the Asia Pacific region.
We successfully launched our Lv app, our App simplifies business operations for our independent distributors and supports enhance member acquisition, all while advancing our bioactive culture, which has become the underlying message with our distributors.
The App includes machine learning that is designed to turn a distributor smartphone into a powerful productivity tool.
Our App is now currently available in the United States, Canada, Japan, and Australia with plans for further global expansion.
We strengthened our current markets and continue to promote our bio hacking culture through enhanced distributor facing technologies.
Finally during fiscal 2019, the Red carpet program continued to produce very strong results and return on investment further enhancing our experienced distributor team.
The program is designed to search for seasoned leaders in transition and aid in making life managed their new home of choice. We're very excited by the success of this program, which we expect will continue to support growth of our distributor leadership in fiscal 2020 and beyond.
As you can see we worked hard this year to build great momentum and are looking forward to continuing it into fiscal 20.
As we enter the new fiscal year, we're focused on four key initiatives to support our continued near term and long term growth. Let me walk you through each of the initiatives.
Our first initiative is to become masters of bio hacking subscriptions today, 60% of our members processes subscription order within their first 90 days driving strong average order sizes and retention.
To support further growth we plan to launch an innovative New addition to our flagship Protandim line that we expect will aid further growth in subscriptions and that is on trend with our biotech and culture.
We're also evaluating a free shipping program to further support our subscription model, we will share more on this free shipping program as the plan details are finalized.
We're also focused on adapting our product offering to support consumer demands in regional markets with an initial effort to enhance the form factor of our pro tandem offering to better cater to our Japanese members.
Second we're continuing to work to attract and create bio hacking influencers.
This includes continued focus on our efforts with the with the Red carpet program, which proved to be incremental with favorable returns on investment during fiscal 2019.
We expect to expand our geographic footprint further during fiscal 2020 with the planned launch of two additional markets with a focus on Asia Pacific.
We will also continue our focus on driving growth in synergy in our greater China region.
Beginning in fiscal 20, we're refining the cadence and volume of our member events, introducing a new series of meetings for Influencers, we're shifting from three elite academies per year and wouldn't global Convention every 18 months by transitioning one elite Academy to a series of regional events and changing the cycle of our global convention to annual and by turning one of our lead academies into a destination events.
Our new series of meetings will place our events closer to our members, which we expect to increase attendance and the number of Influencer meetings. This cadence is intended to be more effectively reach to more effectively reach a larger portion of our member base.
Third our pledge to further simplify business building at Lifevantage with the goal of making it as easy to build at Lifevantage as it is to call in Guber. This includes a plan to introduce daily pay into our compensation plan, providing and.
A more rapid incentive for our independent distributors.
We're also working to update and enhance our international compensation plan, which is slated to begin in Thailand. Later this year with a broader rollout to additional international markets also expected this year.
Further penetration of the Lps will continue to be a focus which will reduce complexity and increase success rates for users.
As development of the Lvs App continues its functionality and effectiveness continues to improve.
Finally, we are building a solid foundation for future growth. This focus includes two new programs to develop internal talent enhancing our cyber security and upgrading our member facing systems to improve convenience remove friction and improved efficiencies.
Our annual our annual focus on key initiatives on key strategic initiatives over the last couple of years has been a key driver of our growth and we are confident of our fiscal 2020 initiatives will support our momentum. We're excited to continue to write our bio hacking story and deliver innovative products tools and strategies to support our long term growth with that let me turn it over to Steve to run through the financial results Steve.
Thank you Darren and good afternoon, everyone I am pleased to report our fourth quarter results.
We generated another quarter of positive year over year revenue growth.
With consistent quarterly revenue on a sequential basis. Despite the lack of a major event during the fourth quarter.
We remain confident in the momentum we have built and we expect to build upon this further as fiscal 2020 progresses.
Please note 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.
Fourth quarter revenue was $56.2 million, representing a 4% increase year over year.
Revenue in the Americas decreased 2.9% to 39.4 million, while revenue in Asia Pacific and Europe increased 24.4% to 16.8 million all year over year.
Growth in Asia Pacific and Europe Europe .
Region reflected continued strong performance in greater China, as well as across our Asia Pacific markets.
And the opening of several new markets in Europe during the last fiscal year.
The modest decline in the Americas was primarily driven by higher levels of new enrollments in the prior year, which generated higher average purchases.
This primarily reflects the inherent fluctuations.
In new enrollments associated with our Red carpet program.
Gross margin was 82.7% compared to 85.1% in the prior year period. The decrease in gross margin was largely driven by an approximate $900000 benefit that was recorded in the fourth quarter of 2018 due to a change in the crude import estimates normalized for this change adjusted non-GAAP gross margin for the fourth quarter of fiscal 2018 was 83.5%.
Commissions and incentive expenses as a percent of revenue decreased 480 basis points year over year to 45.3%.
The year over year decrease is due to timing of accruals for incentive and promotional programs just as a reminder, the commissions and incentive expense rate will fluctuate based on the timing and magnitude of promotions and incentive programs as well as the inherent fluctuation in red carpet expenditures, we continue to target commission and incentive expenses to be around 48%.
Adjusted EPS DNA as a percent of revenue was 27.1% compared to 26.6% in the prior year period.
The increase in Sq in expense as a percent of revenue primarily reflects an increase in expenses associated with stock and other employee incentive compensation programs, reflecting this year's positive revenue adjusted EBITDA and share price performance.
Adjusted operating income was $5.8 million compared to $3.7 million in the prior year period.
Adjusted EBITDA for the fourth quarter increased 48.6% to $7.7 million compared to $5.2 million in the prior year period.
Given the higher noncash stock based compensation as well as an increase in our fully diluted shares both resulting from our increased share price. We continue to believe non-GAAP adjusted EBITDA is a better reflection of our cash crop profitability growth.
Adjusted net income increased 41.6% to $4 million or 26 cents per fully diluted share up from $2.8 million or 20 cents per fully diluted share in the prior year.
We continue to expect fluctuations in our tax rate over the coming quarters, specifically our tax rate can fluctuate significantly based on the timing and magnitude of stock Award vesting.
From quarter to quarter due to differences in the book versus tax expense deductions.
These vesting events are treated as discrete items and accounted for fully within the period that they occur rather than adjusting for the differences on an anticipated annualized basis.
As I noted all the adjustments from GAAP to non-GAAP are reconciled in our earnings press release.
We ended the fiscal year in a strong financial position with $18.8 million of cash compared to $1.5 million of debt.
During fiscal 2019, we generated $17.8 million of cash from operations and invested 2.5 million in capital expenditures during fiscal 2020, we anticipate a lower level of capital expenditures as our incremental investment in the Lv App will moderate finally, we used $4.7 million in cash to repurchase approximately 400000 common shares under our share repurchase authorization.
We have a rule tenbfive one plan in place to facilitate further share repurchases in fiscal 2020.
As of June the remains $8.8 million available under the Companys $15 million share repurchase authorization.
Turning to our fiscal 2020 outlook, we expect to generate revenue in the range of 235 to 245.
A million dollars and adjusted non-GAAP .
EBITDA in the range of $20 million to $22 million with adjusted non-GAAP earnings per share in the range of 62 to 71 cents. Our adjusted non-GAAP EPS guidance assumes a full year tax rate in the range of 19% to 22% compared to our effective non-GAAP tax rate of 13% in fiscal 2019.
Now, let me turn the call back to the operator to facilitate questions.
Operator.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question. We will now take our first question from Doug Lane of Lean Research. Please go ahead Sir.
Hi, Thank you good afternoon everybody.
Can we stay Steve on the commission incentives here, just because I'm trying to understand that quarterly fluctuation that you are talking about.
The 45.3% this year is below as well as any quarter I have going back several years and Meanwhile, the fourth quarter of last year at 50.1% was the highest of that year over three to four quarters. So what is it just in the fourth quarter of this year, that's different than the fourth quarter of last year on commission incentives.
Yes, so our art that's a combination of two expense categories. Doug one is the commissions and then the incentives in our commission rate as a percent of our Commissionable revenue has stayed very consistent year end year out quarter over quarter et cetera.
Really fluctuate on a quarterly basis is the incentive piece.
And the reason that fluctuate is.
Thats, where we include the costs and in certain cases accrual in estimates of costs for our incentive programs and other promotions that we might have underway.
As well as.
The costs associated with our Red carpet program.
Red carpet as we said, it's kind of inherently lumpy.
Depending on how many people are in transition and how many we can attract in any one quarter. So there's just a higher level of.
I can't say seasonality, but inconsistency in that spend and we've seen that as in prior quarters. It's just that in Q4 of this year, we're probably all on the incentive piece, we just didnt have as many expenses and cash outlays associated with our current incentive programs.
So really I shared earlier.
Purely a timing issue.
That's helpful and just as we as we look at 2020, just bigger picture or is there any change in the timing of any particular programs. We should know about to try to gauge some of that fluctuation as we model out 2020.
Yes, I'd say no significant change from a commission and incentive standpoint, the one where you know darin touched on kind of the change in our event cadence and we will see our in total we anticipate spending around the same amount for our events and that includes.
Convention and all the lead academies that we have but because of the chain sequence of things I would expect that Q2.
Gionee, which is where we are.
Events are captured event costs are captured will be down and Q1, Q2, and Q3 will be up.
Kind of offsetting that spend so just in comparison to Q2 fiscal 2019, I would expect that kind of shift on a quarterly basis, but driven again by events and the cadence we've laid out as not not having to do with commissions and incentives.
Okay. So on the DNA just to clarify which quarter do you think the DNA will be down in 2020 versus this year.
Fiscal <unk> our Q2.
Okay, and then well so one three and four will be.
Up.
Yes, Thats right.
Okay, and then shifting to the momentum of the business here.
Looking at Asia Pacific in Europe , where.
Last year I am looking at distributor count and the 18000 range pretty much all year and then you really started to get some good traction this year.
20000 in the first quarter 21 in the second 23 in the third and then in the fourth quarter. It flipped back to 22000, so I wondered in the Asia Pacific and Europe region, where a lot of your new new markets are and a lot of your activity is is there something in the fourth quarter, the kind of stalled that momentum or is that sort of an expected pause in the business and we should see a re accelerate next year.
Doug I would say with that a lot of it is just due to the natural cycle that we had half both with the Red carpet program that is kind of using the same churn is as Steve it's rather lumpy. When we have groups that are joining the company. So that number fluctuates from time to time. It also was driven driven by the event cycle.
So I don't know that it's something that you can predict on any particular quarter.
Right now we're seeing an uptake in in the Red carpet program for this quarter, which is very good and yes. So I think it's just due to some of the national fluctuations.
Yeah. So.
Just to talk about the geopolitics and the global macro pressures in the Asia Pacific region is that having any impact on your business are you just not seeing that.
Doug There is no impact on our business that we're seeing right now specifically I'm sure. Most of you have been watching the.
The news coming out of China, particularly as well as Hong Kong.
There's been a number of geopolitical things happening there from the riots in Hong Kong or the protests.
Built effect too to a small amount in the number of people that actually walk into our into our showroom in Hong Kong, we probably expect this to be more of a limited basis.
There has been that 100 day review within mainland China that was focusing on the selling and marketing practices of health supplements.
Most of that focus was on a couple of local direct selling companies and I know many of our peers have been hampered by the restrictions on meetings and such.
But our model is ecommerce there in that market and as a matter of as matter of fact, the government is further reducing restrictions on that model and is encouraging the model in the country. So we havent been experiencing anything at what our competitors have been doing as well as the the really the area of strength that we've had within the greater China.
Region has been Taiwan, and Taiwan has remained unaffected by some of these issues that are occurring within mainland and Hong Kong, So with US it's been not not much of an advantage at all.
Fair enough. Thanks Darren.
Thanks, Steve.
You're welcome thanks.
Thank you.
Ladies and gentlemen, if you find that your questions have been answered you may remove your cell phone the Q.
Thanks to.
As a reminder to ask a question. It is one our next question comes from Julian Hoffman.
We will be cool. Please go ahead.
Hi, gentlemen, thanks for taking my questions and congratulations on good results.
The first question.
Maybe can you give a little bit of color out.
Yes fourth quarter results came in versus your expectations.
And secondly.
Maybe maybe might be secondly on the share based compensation, obviously that was a bit elevated this year. Good can you provide some insights on.
Yes on your outlook for next year.
And.
Lastly.
Yes, good could you provide some comments do you adjust going youre, yes.
Outlook on the longer term product pipeline and product introduction.
Yes outlook and perhaps how did the recent appointment of a new SVP of R&D facing here.
Yes, sure let me I'll take the first couple and then and then Darren will take the last one on the product pipeline. So in terms of the fourth quarter you know our our guidance that we we came in right at the midpoint of our previously.
Disclosed annual guidance from a revenue standpoint, but it was right at the midpoint at 226 and our guidance was 2004 to 228. So it came in around where we thought it was our EPS.
Our guidance range was was 50% to 54 cents.
And we are on an adjusted basis, and we reported 59 cents and so I'd say from a profitability in the fourth quarter, we were present pleasantly surprised.
With a few things that are that occurred.
But and part part of which related to.
An annual non-GAAP tax rate that was lower than what we had anticipated.
So.
And then the second question related to that are there so the stock based comp.
This year, you're right. We did see an increase from fiscal 18 fiscal 20, we anticipate no additional increase but our stock based comp being relatively flat with our fiscal 19 stock based comp expense.
And then with regards to the final part of your question dealing with products.
First.
As you mentioned, we've had the addition of Dr. Brian Dickson.
Two our team here as a senior vice President of product development and welcome addition to US he has broad experience within the direct selling industry as well as in the nutritional.
Environment I believe that part of his doctoral dissertation was on oxidative stress and NRF too. So he is an expert in the bio hacking nutrigenomics.
Oxidative stress.
Areas of technology that are really central to the stories that retail so I think he will be.
And increasingly central person in helping us with the direction of where our product line is going now with regards to the direction of the product line I did mention in my remarks that we have announced that we're going to be making the addition.
In addition to our pro tandem line of products and that will occur we anticipate on October 5th.
Which is at our long Beach Elite Academy. This will be one of the first additions to our protests in line, which is our our.
Our premier line of products that we've made in the last couple of years.
And we are really looking at that as being a major driver to especially North America, the United States. It will be available in the United States immediately following the meeting well, we'll launch it at the meeting and we'll make it very quickly right after available to all of our our people in the United States as well as we're going to make it available in Canada, Canada for not for resale, we Havent announced.
I have not announced a global rollout plan for this product.
But.
Obviously, we see that as what we call. It tier one are our largest type of launch that we have and we're really excited for it is we do think it will be a major driver for us.
Okay, great to hear thank you very much.
Thank you. Thank you.
Thank you, we'll now take our next question Steven Martin from Slater. Please go ahead.
Hi, guys.
Hi, Steve Hi, you said stock based comp would be comparable when 2020. So you were talking in the $5 million range.
That's correct.
And that's regardless of where the stock price goes because I understand.
In this year your stock went up a lot so stock comp went up a lot, but if the stock sort of hangs out here.
So we still get a $5 million hit for stock comp.
We do this year.
The nature of some of the the prior awards.
There's there's a.
A fair amount of equity that that will vest.
In at the end of Q2 that was performance based.
So it does tied to where the stock price and at that point in time.
But we are based on what we anticipate the price to be we would expect that the total overall stock based expense will be comparable to this year.
And what does that mean for share count.
Well I think our share count is going to remain relatively flat year over year.
We will have an issuance like I said at the end of the second quarter, but we would also expect that the buyback program that we have in place will moderate any dilution.
Would occur so so won't be expand all the cash thats being expended for buyback is merely to offset.
The share issuance from compensation.
So we're really not seeing a share count decrease.
In in fiscal 20.
I think that that's a fair assumption.
All right when do you guys. What do you guys expect for the U.S sales growth this coming year.
Do you expect that to re accelerate with all the new products or are we going to have a relatively flat year in the U.S.
Yes, So we grew 7.7% on a for North America, we don't disclose the U.S. separately, but for North America, We grew 7.7% and we continued or expect to continue to grow.
In North America during fiscal 20.
A lot of that growth will be triggered.
On the introduction of our new Protandim product that they are in has talked about as well as continued momentum in our red carpet program. Those are really the two biggest primary drivers of our growth in fiscal 20.
Okay. Thank you.
You're welcome Thank you Steve.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question. It is.
One on your telephone keypad, we'll now take our next question from Jim Galloway. Please go ahead Sir.
Thank you for continuing to grow have two major questions. One is it used to be that we would get.
Some outside University, giving.
A scientific paper.
On a pro tandem or one of our products what's in the works, where we might be able to get some support scientifically from institutions.
Jim This is Darren.
I believe that.
With the addition of Dr., Brian Dick's into our team I know that we have budget set aside.
For doing scientific research and doing more papers it seems like I sit and watch are the news feed it seems like new studies are popping up all the time on the protein and in that.
That are being done independent, but obviously, we are assigned to the company. We continue to be focused on that and part of what Dr. Dixons specialty. It in is the scientific research and doing.
And getting papers done just like what you're explaining so.
I would believe that we would we would continue with that same philosophy.
Okay, but we're not seeing in.
Other magazines I may I don't see anything in in Forbes or I don't see anything in Bloomberg, you're right I don't see anything in.
In support of our sales effort.
How are we placing results.
So with that.
As I look at it personally I mentioned I think if you take just for example, our pro tandem entering two product.
Boy at last Count I think we're up to 28 clinical studies that have been conducted on it or so and you know right now a lot of our efforts are focused on some of our newer products as I've looked at the number of clinical studies coming out on let's just say one or two if we continue to focus on that one product alone to do clinical studies. It seems like to me that there's kind of an exhaust exhaustion with a number of studies that are done in that we had the one from the National Institute of aging that finished just couple of years ago that had some pretty fantastic.
Discoveries about what product it I mean, it increase the life span of the mail test animals by 8%. It was the first nutritional substance that ever tested during this this testing protocol that that had running for about 20 years it ever seen that happen and so.
And and it didnt have as massive impact as what we thought we'd have on it. So obviously right now a lot of our efforts are focused on on substantiating and getting more information out on our existing product line that may not have as much scientific.
Evidence that's been published on it.
Especially right now obviously an area of a lot of interest would be to do studies and get them conducted on the new pro tandem extension that we have that's going to be released on October 5th So that's where a lot of our effort is right now.
Okay. My last question is I am concerned that this new pro tandem product I take them all is going to.
Expect to generate more revenue from our existing distributors and I think we may be asking a lot of them on a monthly basis I think for us to really grow we've got to have a product that will give us a lot of new memberships and new customers is that the way. This new product is designed.
Yes.
No I would agree with you any anytime that we release something to our flagship line. It should really be designed to drive.
Membership growth drive a story, we would expect what we call. It tier one launch to actually be incorporated into the prospecting story, where we where our distributors are approaching their customers with that story and what I really liked about this new.
Pro Centum expansion that we have is that with our current protested as the results are a little more clinical you might or might not fill them or if you do you typically filled the difference when you stop using that this product is very different I know that with my with with my usage of it my own experience as well as with the experience of a lot of our test groups that have been tried it the effect has been within the day of taking it within the first day, if not within the first few hours. So when it really comes to that that that emotional connection debt that since re connection with the product that is really big with this new proteins and extension in that people can can immediately see the effect of it or begin filling it which then makes it a lot easier to sample into share with friends and family.
And have been noticed the impact very quickly too. So we believe that this will be a very large driver for us in North America. When it does come to looking at overall membership counts both customers and distributors. So I agree with what your assessment.
Well, Kevin good work.
Yeah, I was just going to add on that I, we believe that.
This this new product.
Well it will enable us to attract new distributors and customers.
We hope and expect that most of our existing will distributors and customers will be interested in taking this product, but we also believe that its unique enough.
That it will attract a new base of business for us.
No like I said, thank you and keep up the good work.
Thanks, Jim as Jim.
Thank you.
Doesn't appeal, we have any further questions at this time I would like to turn the conference back over to Mr. Jensen for any additional or closing remarks. Thank you.
Well. Thank you everyone for joining us today, we are pleased with the strong closed fiscal 2019 and look forward to continuing our business momentum into fiscal 20, we look forward to updating you on our next call and have great day, everyone Goodbye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.