LifeVantage Q2 2024 Earnings Call Transcript

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Provided by Quartr
January 30, 2024

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's 2nd Quarter of Fiscal 20 24 Results. At this time, all participants are in a listen only mode. Following the formal remarks, we will conduct a question and answer session.

Operator

Hosting today's conference will be Reed 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.

Speaker 1

Thank you. Good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the Q2 of fiscal 2024. On the call today from LifeVantage with prepared remarks are Steve Fife, 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 4:0:5 p. M.

Speaker 1

Eastern Time. 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 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.

Speaker 1

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's most recently filed Forms 10 ks 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 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 the slide broadcast, January 30, 2024.

Speaker 1

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

Speaker 2

Now I will turn the call over

Speaker 1

to Steve Fife, President and Chief Executive Officer of LifeVantage.

Speaker 2

Thanks, Reed, and good afternoon, everyone. Thank you for joining us today. During our Q2, 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 $3,100,000 in the 2nd quarter and our adjusted EBITDA margin was up 4 50 basis points to 6%, reflecting ongoing efforts to strengthen our core business and drive productivity.

Speaker 2

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, our revenue per consultant has grown at a solid double digit rate. For example, in the Q2, revenue per consultant increased over 13% year over year. While total revenue in the Q2 were down slightly versus last year, 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 Protandim NRF2 synergizer exceeded $13,000,000 in the 2nd quarter, an increase of over 44% versus a year ago.

Speaker 2

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, 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 Stacks. Customer penetration was 27.2 in the U. S.

Speaker 2

During Q2 compared 28.1% in Q1 and 26.9% in Q4 of fiscal 2023. 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 introduction 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 True Science True Renew Daily Firming Complex, a clean cosmetic retinal alternative that is proven to tackle 11 visible signs of aging.

Speaker 2

Importantly, this unique product is a perfect complement to Plutonium, NRF2 synergizer and TrueScience Liquid Collagen, Further building on the power of our core positioning around the deactivation company along with creating momentum for our true science 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. 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 streamlined and simplified the message for consultants to drive growth and success by focusing on 3 basic behaviors of network marketing, Enrolling, retaining and rank advancing or ERA 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.

Speaker 2

Cape Town, South Africa, including an African safari was revealed as the first ever executive destination trip under the new Evol compensation plan. Qualification criteria for this once in a lifetime trip is based on Arab behavior an achievement through the year with travel scheduled for February 2025. New consultant tools were also launched at our global kickoff event, including the new Evolv Possibilities Pathway, which emphasizes 4 pivotal consultant ranks within the evolved compensation plan and what is unlocked at each stage to inspire and motivate rank advancements. Our major events continue to be an important element driving consultant behavior and capitalizing on the strength of our broader LifeVantage 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.

Speaker 2

The next phase of our LV360 transformation will commence in a few days. At the start of February, evolve our contemporary compensation plan and reward circle, our unique customer loyalty program We'll be launching in Mexico, Canada and Europe. Recall, we first launched these programs the U. S, Japan, Australia, New Zealand in March of 2023 as part of LV360 and they have been key elements of our success over the past year. In addition to our RYZARA initiatives and our Phase 2 launch, We've established an optimization team to lead ongoing strategic efforts to build our active account base.

Speaker 2

The team is focused on 3 areas. 1st, 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 the businesses seen as an enticing business opportunity for those looking for a side hustle. 2nd, that there is a clear replicable path to enrolling someone in your 1st 30 days as a consultant. And finally that we are making it easy for our rating product fans to share their incredible results and our unique product story in new innovative and compelling ways.

Speaker 2

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, LB360. 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 our plan while remaining agile to ensure we are optimizing the key elements of LV360 to drive sustainable profitable growth and value for shareholders.

Speaker 2

Capital allocation continues to be a key area of focus And during the Q2, we remained 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, let me turn the call over to Carl Aury, our Chief Financial Officer to review our 2nd quarter financial results. Carl? Thank you, Steve, and good afternoon, everyone.

Speaker 2

Let me walk you through our Q2 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. 2nd quarter revenue was $51,600,000 down 3.8% on a year over year basis and foreign currency negatively impacted revenue by $200,000 Excluding the negative impact of foreign currency fluctuations, 2nd quarter revenue was down by $1,800,000 or 3.4% as compared to the prior year period. Revenue in the Americas region decreased 1.6 percent to $39,100,000 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 TrueScience liquid collagen product.

Speaker 2

Revenue in our Asia Pacific and Europe region decreased 10% to $12,600,000 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, 2nd 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. 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 2nd quarter compared to 78.1% in the prior year period.

Speaker 2

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 2nd quarter decreased $1,800,000 year over year. As percentage of revenue, commissions and incentive expense decreased 180 basis points to 42.1% versus 1 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 and A expense was $17,400,000 compared with $19,400,000 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 $1,400,000 compared with a loss of $900,000 in the prior year period.

Speaker 2

Adjusted non GAAP net income was $1,400,000 or $0.10 per fully diluted share in the 2nd quarter compared to adjusted net loss of $800,000 or $0.07 per fully diluted share in the comparable period last year. We recorded a tax benefit of $500,000 in the Q2 of 2024 compared to $17,000 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 2nd quarter was $3,100,000 or 6% of revenues compared to $800,000 and 1.5% in the same period a year ago.

Speaker 2

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 2nd quarter in a strong financial position With $17,300,000 of cash and no debt, we also continue to maintain $5,000,000 of availability under our revolving line of credit. Capital expenditures totaled $500,000 in the 2nd quarter. We anticipate total capital expenditures for fiscal 2024 to be approximately 2 point $5,000,000 In addition to maintaining a strong balance sheet, we continue to focus on our capital allocation priorities to drive value for stockholders. During the Q2, we used approximately $1,900,000 in cash to repurchase approximately 288,000 common shares under our share repurchase authorization.

Speaker 2

And through the 1st 6 months of fiscal 2024, we have used approximately $2,700,000 to repurchase approximately 433,000 shares. As of December 31, 2023, there is $24,200,000 remaining under our stock repurchase authorization. We also announced a quarterly cash dividend of $0.035 per common share of stock for approximately $450,000 in the aggregate. This dividend will be paid on March 15, 2024 to stockholders of record on March 1. Since the beginning of fiscal 2024, including this latest dividend announcement, We will have paid cash dividends of $0.55 per share or approximately $6,400,000 in the aggregate.

Speaker 2

So far this fiscal year, we will have returned over $9,000,000 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 $207,000,000 to $213,000,000 from the previous range of $216,000,000 to $226,000,000 Additionally, we continue to anticipate adjusted non GAAP EBITDA in the range of $16,000,000 to $18,000,000 with adjusted non GAAP earnings per share in the range of $0.57 to $0.67 per share, increasing from the previous range of $0.52 to $0.62 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 $2,000,000 of non recurring expenses related to an hiring sponsorship agreement and costs associated with the rollout of LV360 to our remaining markets.

Speaker 2

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?

Operator

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Doug Lane with Water Tower Research. Please proceed with your question.

Speaker 3

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 mostly Americas? You have the anniversaried launches last year and now really maybe we see a shift towards international being

Speaker 2

a bigger driver going forward? Yes. 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 has had some challenges to retain some of its leadership. But as we look back on LV360, we really slowed down our international expansion to focus on the compensation plan, our product strategy and other aspects of LV360. I anticipate that here in the future, we'll Pickup again, a focus on opportunities internationally.

Speaker 2

We think that remains a growth opportunity for us. Right now, we're seeing strength primarily in the U. S. And Our Japan and really our Phase 1 markets as those markets adopt Phase 1 and adopt our LV360 and the EVOLVE compensation plan.

Speaker 3

Right, right. So there really is 2 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.

Speaker 2

You would expect to get some traction.

Speaker 3

That's exactly right. Okay. And How do we I mean, China is small, I get it, but how do we see that playing out? Are we how far into that discontinuation of the business there are we? In China or the Philippines?

Speaker 3

Go ahead. No, China.

Speaker 2

We're through that. It's yes, we are relatively close to 0 in this

Speaker 3

Okay. Well, that's one issue that sort of resolved itself then. Okay. And what about the Philippines? Is there still more volatility there?

Speaker 2

No. I think that we have Stabilize 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 I think we have upside in calendar 2024 in that market. It's a this business model can be is very attractive within the Philippine market.

Speaker 2

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 right now.

Speaker 3

Okay, that's helpful. Another trend here that has been fairly persistent is A sort of 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 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 the active accounts and getting those numbers heading north again?

Speaker 2

Yes. 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 That has been a huge success would help drive that average revenue per account. That's been continued as we have found additional synergies and bundling our Protandim NRF2 synergizer with liquid collagen. And so that focus on increasing the revenue per customer was a very early and conscious decision.

Speaker 2

Now having said that, I think the drop off in our customer accounts, 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 are really focusing our attention Right now, we're supporting that consultant base and providing them with the tools to and those tools are Videos, there's other trainings and products is an an element of that as they to enable them to go out and to attract new customers as well. So we are at an inflection point with that consultant base having stabilized and now being equipped with some new tools to go out and attracting new customers as well as obviously other consultants.

Speaker 3

Okay. No, that's good color. 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.

Speaker 3

Carl, do you think this is Are we going to get back to that mid-40s soon or are we going to have are we still at this sort of low-40s run rate for

Speaker 2

a few more quarters? Yes, I mean part of it's going 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 not essentially bucket of non commissionable revenue that's influencing as a percentage of total revenue. So that definitely was an impact here in Q2. But looking forward, as we roll out, 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 uptick there, but I think that range of the low, 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, but it's really just comparing when you compare it to total revenue, There is included in that some non commissionable revenue.

Speaker 3

But that non commissionable revenue is unusually high these days and should normalize going forward?

Speaker 2

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

Speaker 3

Okay.

Speaker 2

But I don't know that there's enough to say that there's a trend or anything going on

Speaker 3

with that, it's just in the quarter. Okay. Okay, fair enough. And then on 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?

Speaker 2

Yes, that's mostly there's probably 2 things in the component. 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.

Speaker 3

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 try to get a feel for timing of product launches. Obviously, 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 3 or 4 quarters?

Speaker 2

Yes. 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. So every one of our countries will be holding an event.

Speaker 2

And we will be announcing a new product in those Momentum Academies. So next product will be coming in March.

Speaker 3

That's soon. Okay. All right. That's very helpful. Thank you.

Speaker 2

Thanks, Doug.

Operator

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

Speaker 2

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.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.

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