Lifevantage Q3 2024 Earnings Call Transcript

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May 2, 2024

Key Takeaways

  • Adjusted EBITDA reached $5.1 million in Q3, up 55% year-over-year, lifting the margin to 10.5% through LV360 productivity improvements despite revenue headwinds.
  • Q3 revenue of $48.2 million was down 10.2% YoY (8.7% ex-FX), with Americas down 5.9% and Asia-Pacific/Europe down 22.4%, though March and April showed sequential improvement after new incentive programs.
  • Revenue per consultant rose over 6% YoY (fifth consecutive quarter) as LV360 optimizations—new onboarding journey, RISE ERA incentives and targeted discount codes—boosted enroller counts and retention.
  • Product innovation accelerated with the global launch of the reimagined TrueScience skin care collection and TrueProtect, while liquid collagen sales topped $11 million (23% of Q3 revenue) driven by strong international adoption.
  • The company ended Q3 with $17.4 million of cash, no debt, repurchased $1.9 million of shares, increased its dividend by 14.3%, and reaffirmed fiscal 2024 guidance of $202–205 million in revenue and $16–18 million in adjusted EBITDA.
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Earnings Conference Call
Lifevantage Q3 2024
00:00 / 00:00

There are 5 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 3rd 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.

Operator

Instructions will be provided at the 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 would like to turn the conference over to Mr. Anderson.

Operator

Please go ahead, sir.

Speaker 1

Thank you. Good afternoon and welcome to LifeVantage Corporation's conference call to discuss results for the Q3 of fiscal 2024. On the call today from LifeVantage with prepared remarks are Steve Fife, President and Chief Executive Officer and Karl Auurey, 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 this 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.

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 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, May 2, 2024.

Speaker 1

LifeVantage assumes no obligation to update any forward looking projections that may be made in today's release or call. Now, I will turn the call over to Steve Fife, President and Chief Executive Officer of LifeVantage.

Speaker 2

Thanks, Reade, and good afternoon, everyone. Thank you for joining us today. Profitability trends remain very positive in Q3 as we again delivered significant year over year improvement in adjusted EBITDA. For the quarter, our adjusted EBITDA was $5,100,000 an increase of 55% from the prior year period our adjusted EBITDA margin was up 4.40 basis points to 10.5% as we continue to optimize our LB360 initiatives and improve productivity despite the persistence of top line headwinds. While 3rd quarter revenue levels were below our expectations, January February were negatively impacted by the timing of certain incentive and promotional activities.

Speaker 2

For example, we did not repeat an incentive trip that ran last year and Japan was coming off elevated incentive activities in fiscal Q2 that likely pulled forward from demand. However, we did see trends reverse the last month of the quarter and the promising performance in March carried over into April. March results along with continued successes in April have been driven by a focus on increasing our enrollers, which we define as the number consultants who sign up or enroll another customer or consultant. We have optimized our LV360 initiatives with the focus on this group, specifically working to ensure new consultants see meaningful income in their 1st days with LifeVantage, ultimately leading to their retention and enrollment activities. As we've discussed previously, our evolved compensation plan is a modern forward looking compensation system that rewards independent consultants generously for their efforts, offering diverse income streams and opportunities to accelerate their path to success.

Speaker 2

Evolve caters to the dynamic needs of modern entrepreneurs and affiliates who are driven to share and sell products to their networks as well as those who also want to build robust collaborative teams. Consultants who earn income in their 1st week by sharing our differentiated activating products are 5 times more likely to achieve our 1st milestone rank than those who do not earn within their 1st week. Working from these data trends, in Q3, our team optimized the experience for new consultants to help them become enrollers quicker. In addition to a new onboarding journey that guides new consultants through next steps, the optimization also includes renewed emphasis on 3 10% off consultant discount codes for new consultants to share with the first three consultants who joined with an enrollment pack. And on March 18, we added 3 customer discount codes enrollment packs as well, giving new consultants 3 10% off codes to share with their first three customers.

Speaker 2

Consultant discount codes expire in 30 days and the customer codes expire in 1 week, driving urgency to act while also building confidence in sharing LifeVantage and our exceptional products. Our drive to increase the number of enrollers is also supported by our continued focus on simple messaging around 3 basic behaviors of network marketing enrolling, retaining and rank advancing or ERA. As you may recall, we announced the RISE ERA theme and RISE ERA incentive in January, which enables consultants to earn enticing In

Speaker 3

March

Speaker 2

In March, we simplified qualifications for our enrolled track to make the riser incentive even more appealing to all types of enrollers. We also added to the RISE AIR incentive a localized incentive trip, RISE Retreat. From February through June, the end of our fiscal year, consultants who earn 10 enrollment tracks through the RISE ERA incentive will qualify to travel to their market's destination location, where they will receive exclusive training as well as enjoy on-site activities. This addition puts even greater emphasis on enrollments and the drive to increase active accounts. Many of these Q3 optimizations were announced at Momentum Academy events held throughout March in all of our markets except Japan, which held its Momentum Academy just last week.

Speaker 2

Our U. S. Event was held March 14 through 16 in Nashville, Tennessee. Momentum Academy 2024 offered attendees an extraordinary chance to advance their business through innovative workshops, seminars and keynotes encompassing enrollment, retention and advancement strategies, laying a robust foundation for entrepreneurial growth consistent with our year long rise theme. Momentum Academy also showcased the global launch of our revamped TrueScience Activated Skin Care collection.

Speaker 2

The launch of this enhanced collection firmly positions LifeVantage as a leader in innovative skin care, delivering on the promise of activating skin health. This latest offering builds on the successful October 2023 launch of Tru Renew daily firming complex. The reimagine TruScience lineup features Tru Renew plus 3 refreshed reimagined clean product formulas: TruClean Refining Cleanser, TruLift Illuminating Eye Cream and TruHydrate brightening moisturizer. Each is designed with cutting edge science, including a patented NRF2 ingredient blend plus additional premium planet friendly ingredients proven to support skin health and deliver visible anti aging results, including brighter skin in as little as 7 days. The collection offers advanced solutions for the smart skin care enthusiasts, underscoring our commitment to ensuring LifeVantage consultants have the very best results driven products to share with customers and grow their businesses.

Speaker 2

Also, our new TrueScience TrueProtect Daily In addition to new products, the U. S. Event saw the launch of new consultant enrollment packs and subscription stacks, highlighting the best of inside activation, which is protandem NRF2, outside activation, which is the new true science line and the best of both liquid collagen. In addition, new activation videos and social media content strategy were introduced along with targeted enrollment pack promotions to help drive growth of customer and consultant enrollments. Momentum Academy was a resounding affirmation of our Rise Up ethos.

Speaker 2

It was exciting to witness the LifeVantage community come together fueled by inspiration and armed with actionable insights to propel these entrepreneurs to new levels of success. This event is a pivotal part of our journey upward as we continue to advance our innovation agenda and product activation messaging to empower our consultants. And consultant productivity is trending favorably, helping to offset the overall decline in active accounts during Q3. Revenue per consultant was up over 6% on a year over year basis for the quarter and this was on top of a 15% increase a year earlier. Revenue per consultant has now shown a year over year increase in each of the last five quarters.

Speaker 2

Liquid Collagen continues to be a significant contributor to our overall results. And as expected, most of the growth in this product is now being driven by international markets as we cycle the strong early adoption from the initial launch in the U. S. In the Q3, revenue attributable to liquid collagen, including the Healthy Glow Essential Stack, which bundles liquid collagen with Protandim NRF2 Synergizer, exceeded $11,000,000 and was up percent of our Q3 revenue was attributable to liquid collagen compared with 20% a year earlier. In the U.

Speaker 2

S, consultant penetration of liquid collagen is strong at 27.8% in the quarter, down from 31.6% during a strong promotional period focused on the Healthy Glow Essential Stack in Q2, but up from 27.2% in Q1. Customer penetration remained flat at 27.2% in the U. S. In Q2 and Q3. At the beginning of February, we launched the next phase of our LV360 transformation with the expansion of our EVOLVE compensation plan and reward circle customer loyalty program into Canada, Mexico and our European markets.

Speaker 2

EVOLVE and reward circles were first introduced in the U. S, Japan, Australia and New Zealand as part of our LV360 initiatives roughly a year ago and have been critical in driving engagement with consultants and customers. In summary, we are making significant progress on our profitability improvement initiatives and are very pleased to have returned adjusted EBITDA margins to double digit in a period where revenue growth remained challenging. Our broader LV360 initiatives continue to gain traction and we are excited by the level of engagement we are seeing across the organization. Finally, capital allocation and driving stockholder value remains a key area of focus.

Speaker 2

In the last quarter, we continued to repurchase shares and again raised the quarterly dividend. Now let me turn the call over to Carl Aury, our Chief Financial Officer to review our Q3 financial results. Carl?

Speaker 3

Thank you, Steve, and good afternoon, everyone. Let me walk you through our Q3 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. 3rd quarter revenue was $48,200,000 down 10.2 percent on a year over year basis and foreign currency negatively impacted revenue by 8 $800,000 Excluding the negative impact of foreign currency fluctuations, 3rd quarter revenue was down by $4,700,000 or approximately 8.7% as compared to the prior year period.

Speaker 3

Revenue in the Americas region decreased 5.9 percent to $37,200,000 in the quarter, primarily driven by a 13.9% decrease in total active accounts, partially offset by higher average revenue per account, resulting from changes in product mix and the continued penetration of our TrueScience liquid collagen product. Revenue in our Asia Pacific and Europe region decreased 22.4% to $11,000,000 in the quarter, driven by a 17.1% 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, which were primarily being driven by Japan, 3rd quarter revenue in our Asia Pacific and Europe region was down 16.1% compared to the prior year period. Gross margin was 78.9% for the 3rd quarter compared to 80.2% in the prior year period. The decrease in gross margin was primarily driven by a shift in product mix, higher inventory obsolescence and manufacturing related costs and higher shipping and warehouse fulfillment expenses during the current period.

Speaker 3

Commissions and incentive expense in the 3rd quarter decreased by $4,100,000 year over year. As a percentage of revenue, commissions and incentive expense decreased 340 basis points to 40.9 percent versus 1 year ago levels, which was primarily driven by changes in sales mix, the timing and magnitude of our various promotional incentive programs and changes related to our evolved compensation plan. Non GAAP adjusted SG and A expense was $15,000,000 compared with $17,700,000 in the prior year quarter and was down 190 basis points as a percentage of revenue to 31%. Adjusted non GAAP operating income was $3,400,000 compared with adjusted non GAAP operating income of $1,600,000 in the prior year period. Adjusted non GAAP net income was $2,800,000 dollars or $0.21 per fully diluted share in the 3rd quarter compared to adjusted non GAAP net income of $1,000,000 or 0 point 0 $8 per fully diluted share in the prior year period.

Speaker 3

The 3rd quarter tax rate was 13.6% compared to 38.6% a year ago, reflecting the favorable impact of discrete items recognized in the quarter. For fiscal year 2024, we expect our annual effective tax rate will be approximately 22% to 24%. Adjusted EBITDA for the 3rd quarter was $5,100,000 or 10.5 percent of revenues compared to $3,300,000 6.1 percent in the same period a year ago. Please note that all of the adjustments from GAAP to non GAAP that I discuss today are reconciled in our earnings press release issued this afternoon. We ended the Q3 in a strong financial position with $17,400,000 of cash and no debt.

Speaker 3

We also recently entered into a new $5,000,000 revolving line of credit on April 12, 2024. Capital expenditures totaled $300,000 in the quarter and we continue to anticipate total capital expenditures for fiscal year 2024 to be approximately $2,500,000 In addition to maintaining a strong balance sheet, we continue to focus on our capital allocation priorities to drive value for stockholders. During the Q3, we used approximately $1,900,000 in cash to repurchase 292,000 common shares under our share repurchase authorization. And through the 1st 9 months of fiscal 2024, we have used approximately $4,600,000 to repurchase 725,000 shares. As of March 31, 2024, there is $22,300,000 remaining under our stock repurchase authorization.

Speaker 3

We also announced a quarterly cash dividend of $0.04 per common share of stock, a 14.3% increase versus the previous quarterly rate or approximately $500,000 in the aggregate. The dividend will be paid on June 14, 2024 to stockholders of record on May 31. Since the beginning of fiscal 2024, including the latest dividend announcement, we will have paid cash dividends of $0.545 per share or approximately $6,900,000 in the aggregate. So far this fiscal year, we will have returned over $11,500,000 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 $202,000,000 to $205,000,000 dollars a change from the previous range of $207,000,000 to $213,000,000 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.

Speaker 3

Included in our FY 'twenty four guidance is over $2,000,000 of non recurring expenses related to an expiring sponsorship agreement and costs associated with the rollout of LV360 to our remaining markets, which will not be incurred in future years. We remain committed to improving our adjusted EBITDA margins and believe we are well 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. We will now be conducting a question and answer The first question we have is from Doug Lane of Water Tower Research. Please go ahead.

Speaker 4

Yes. Hi. Good afternoon, everybody. Just looking at the numbers versus my expectations here, I know the top line came in a little bit below your expectations companywide, but think particularly the non U. S.

Speaker 4

Markets came in weaker than I expected, sort of reversing a trend there where it looks like they were getting better sequentially. So can you go through the international markets, where we are and where the disconnect is between at least my expectations and what the results were?

Speaker 3

Sure. Yes, Doug, thanks for the question. Yes, regarding the international markets, Q3 was definitely a little softer for us and in particular in Japan is where we saw some weakness, especially sequentially quarter over quarter. And then we're also continuing to see just with some of the other Asia Pacific markets with Philippines. We've talked about Philippines previously.

Speaker 3

We're still trying to find the right balance of momentum there in the Philippines side. And so that one also continues to be at least underperforming to our expectations. However, I mean, I think we're still I think we're optimistic about where Japan is headed ultimately. We just recently had a Momentum Academy there at the end of March that Steve attended. And I still think we were very optimistic about where things are headed in the future.

Speaker 4

And looking at the 4th quarter sales guidance, you're looking for sequential improvement from being down double digits to being down maybe only low to mid single digits. So what have you seen so far here in the Q2 that gives you optimism that things I mean in the Q4 that gives you optimism that trends will while still down will improve sequentially from the Q3?

Speaker 2

Yes. Doug, this is Steve. In our prepared remarks, we talked a little bit about the slow start in the quarter. January February were really tough for us. And part of it was the timing of some incentives and everything that we had going on last year during the quarter that we didn't start until later in the quarter or announcing here shortly.

Speaker 2

So there's some of it that is clearly incentive driven. But as I mentioned, again, in the prepared remarks at our Momentum Academies, we introduced a number of things. We've talked about the RISE era and the focus on enrolling, retaining and advancing. But we also introduced some coupon codes, The lift we saw a lift with the introduction of the refresh of our TrueScience line and the announcement of an incentive trip, all of which occurred kind of middle of March, let's say. Those events were staggered throughout March, but we could say the middle of March.

Speaker 2

And so we saw a tremendous response to that to each of those things in March and actually saw a continuation of that with increasing active accounts and activity in April. We don't have final revenue numbers yet. But in terms of our active growth or active accounts, we saw growth both in March and in April. And I guess at the end of the day, that's what's giving us encouragement is how well these initiatives have been received. And also, although much smaller markets for us, we talked about the announcement and the rollout of our evolved compensation plan in Canada, Europe and Mexico in February.

Speaker 2

And we are seeing growth in all three of those markets in February, March April, as they get up to speed and adopt the new compensation plan. They're embracing it. And so there is some encouragement in our international markets. And again most recently in those markets where we launched the evolved compensation plan.

Speaker 4

No, that makes sense. Thanks, Steve. I get that. And then Carl, I know we talked about the commission and incentive line before coming in, in the quarter at 41 percent. It's the lowest I've seen for any quarter that I've at least printed out on my sheet in front of me.

Speaker 4

Why is it continuing to go down? And when do you think it will go back to a more normal, maybe mid-forty percent number?

Speaker 3

Yes. As far as Q3 goes, a lot of that low number in Q3 was really that's really related to timing of the way that some of the incentives and the incentive trip fell for us. As Steve mentioned, we didn't have a similar incentive trip for the 1st part of Q3 here. And so that's really what's driving it down. So I think it's a temporary decline.

Speaker 3

We're expecting that to get back above that 43% level in Q4. Q4 will have much heavier promotional activity associated with a few events and promotions that we have running. And for the full year, we're expecting it to be back up closer to that 43% level. So that's I do think it's definitely a temporary decline. We anticipate it to normalize closer to that 30% 43% range.

Speaker 3

Yes.

Speaker 4

Okay. Thank you.

Speaker 2

All right. Thanks, Doug.

Operator

There are no further questions at this time. And I would like to turn the floor back over Steve Fye for closing comments.

Speaker 2

Well, thank you for joining us today. As we conclude, I want to extend my appreciation to our committed employees, outstanding independent consultants, stockholders and faithful customers. 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 sustainable value for our stockholders. Thanks so much for joining us, and we'll talk to you next quarter.

Operator

And that concludes today's conference. Thank you for joining us. You may now disconnect your lines.

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