LifeVantage Q4 2024 Earnings Call Transcript

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August 28, 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 4th 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

Instructions will be provided at that time for you to queue up. Hosting today's conference will be Reed Anderson with ICR. As a reminder, today's conference is being recorded. I would now 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 Q4 of fiscal 2024. On the call today from LifeVantage with prepared remarks are Steve Fife, President and Chief Executive Officer and Karl Au Rey, 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 dot 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 Life Vantage'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 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 28, 2024.

Speaker 1

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

Speaker 2

Thanks, Reed, and good afternoon, everyone. Thank you for joining us today. Our 4th quarter results again demonstrated strong profitability despite challenging macro conditions that have continued to create top line headwinds. Our adjusted EBITDA margin was 9.8%, a 90 basis point improvement versus a year ago, reflecting continued progress on initiatives to optimize performance and drive profitability. Adjusted EBITDA for the quarter was flat versus last year, while total revenues were down nearly 10%.

Speaker 2

Currency adjusted revenue was down 8%. For the full fiscal year, adjusted EBITDA of $17,000,000 was up 45% versus fiscal 2023, while revenues were down 6%. Currency adjusted revenue was down 5%. While overall 4th quarter revenue was softer than we anticipated, we were encouraged by results in our largest geographies. In the Americas region, which accounts for over 3 quarters of our business, revenues were down 4% year over year, but increased sequentially 2.4% over fiscal Q3.

Speaker 2

In addition, productivity continued to improve as revenue per consultant rose over 2% compared to a year ago. We continue to focus on initiatives to drive consultant engagement, including our recent Global Activate 2024 virtual event held in July. This event was supported by consultant hosted watch parties and local gatherings in all of our markets around the world. It served as a platform to reaffirm our commitment to the direct selling industry as well as how we have adapted our business into modern direct selling. During the event, we continue to emphasize core behaviors of the RISE era, enrolling, retaining and advancing, highlighting impressive statistics supporting the positive impacts of these behaviors on consultant performance, including business growth, increased retention rates and recent leader rank advancements within the organization.

Speaker 2

Another highlight of the event was the announcement of the 2024 incentive trip destination, an extraordinary 8 day, 7 night cruise to Alaska. Consultants in our U. S, Canada, Mexico and European markets earned points towards this bucket list trip by following Arab behaviors. Activate 2024 also featured comprehensive sales training sessions led by LifeVantage top leaders. These sessions provided invaluable insights, strategies and tools to elevate consultants' businesses, emphasizing Rizera behaviors and equipping consultants with actionable steps to achieve their goals.

Speaker 2

Events like Activate 2024 reinforce the importance of community for direct sales companies and brands. Activation Nation has rallied around the vision for this company and is excited for what is to come. We continue to make huge strides in programs designed to sustain long term growth. An example of those efforts is the recently completed optimization of our Rewards Circle loyalty program in U. S, Australia and New Zealand markets.

Speaker 2

The update demonstrates our ongoing commitment to enhancing the experience for both our consultants and customers as well as our commitment to optimizing program design to meet consumer demands. In addition to providing greater value and optimize engagement for customers, Reward Circles now also offers subscription benefits for consultants. On the consultant side, rewards includes free shipping on enrollment orders when a subscription is scheduled for the future plus business building rewards every time a subscription ships. Customers benefit from the refresh with 1st subscription perk, including free shipping and a gift with subscriptions when over a price threshold. Customers will continue to earn reward credits with every subscription, but will now enjoy lower redemption thresholds.

Speaker 2

These simplifying enhancements to reward circles were driven from customer retention data and come 16 months after launching the program as part of LV360. Recall that our LV360 transformation initiatives enable us to better meet the needs of consumers looking for a better approach to wellness via our credible activation products as well as entrepreneurs looking to build and grow successful businesses. LV360 included the launch of the evolved compensation plan, a modern compensation system that offers independent consultants diverse income streams and opportunities to accelerate their paths to success. Evolv caters to the dynamic needs of modern entrepreneurs and affiliates who are driven to share and sell products as well as those who also want to build robust collaborative teams. Innovation has been another key area of focus over the past several years and we've been very pleased with the results, including the significant growth we've experienced with liquid collagen, a first of its kind product that not only replenishes lost collagen with 10 types of collagen peptides, but activates the body's own production of the collagen protein.

Speaker 2

That product continues to deliver for us, especially contributing to an increase in both customer and consultant ARPA. Finally, at ACTIVATE 2024, we announced the upcoming launch of a new product system we will be introducing in October that expands the LifeVantage activation story into the rapidly growing category of weight loss. As with our other activating products, you take this new system to make something your body needs for health, something that knows how to make, but as with other things in your body, age, genetics, poor diet and sedentary lifestyle leads to the levels of this essential hormone. Our innovative solution promises to disrupt the weight management space with 2 groundbreaking formulas designed to suppress food cravings and balance hunger hormones by activating GLP-one production. We are incredibly excited about this launch and believe it will be a game changer for our consultants and their businesses.

Speaker 2

There is no comparable product or product system like it on the market and we're delivering it in a way that stays true to our brand and approach to health. This new product system will be launched at our upcoming Market Connect event on October 11 12 in Kansas City. In summary, we are making meaningful progress on key initiatives, especially around innovation, optimization and profitability with adjusted EBITDA margins again around double digits despite a very challenging revenue environment. In addition, we continue to focus on driving shareholder value with share repurchases and dividend payments. Finally, before turning the call over to Carl, I want to share a few comments on the recent change we announced to our Board of Directors.

Speaker 2

After serving as a Director for over 5 years, Erin Brockovich has resigned from the Board to make room for a new Board member that the Board and Erin feel will bring exceptional value to the company. Erin has been an amazing partner and advocate for our brand and we were thankful for her many years of dedicated service. In her place, we are pleased to welcome Raj Abhilanga to the LifeVantage Board. Raj has over 20 years of experience managing and executing large technology and e commerce programs and he currently serves as the Chief Information and Product Transformation Officer at Caesars Entertainment. His experience in digital technologies will be invaluable in advancing our strategic growth initiatives.

Speaker 2

Now let me turn the call over to Carl Aury, our Chief Financial Officer to review our Q4 financial results. Carl?

Speaker 3

Thank you, Steve, and good afternoon, everyone. Let me walk you through our 4th quarter 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. 4th quarter revenue was $48,900,000 down 9.8 percent on a year over year basis and foreign currency negatively impacted revenue by $900,000 Excluding the negative impact of foreign currency fluctuations, 4th quarter revenue was down by $4,400,000 or approximately 8% as compared to the prior year period.

Speaker 3

Revenue in the Americas region decreased 4.1 percent to $38,100,000 in the quarter, primarily driven by a 7.8% decrease in total active accounts and 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 25.2 percent to $10,800,000 in the quarter, primarily driven by a 17.1% decrease in total active accounts and the negative impact from foreign currency exchange rate fluctuations. Excluding the negative impact from foreign currency fluctuations, which are primarily attributable to Japan, 4th quarter revenue in our Asia Pacific and Europe region was down 18.6% as compared to the prior year period. Gross margin was 79.5% for the 4th quarter compared to 79.6% in the prior year period. We are encouraged that we were able to maintain gross margin percentages despite the decrease in revenue.

Speaker 3

We continue to be focused on identifying savings opportunities across our supply chain to improve gross margins. Commissions and incentive expense in the 4th quarter decreased $1,500,000 year over year. As a percentage of revenue, commissions and incentive expense was 44.9 percent, up 160 basis points versus a year ago levels. The increase was primarily due to the timing and magnitude of our various promotional and incentive programs. Non GAAP adjusted SG and A expense was $13,700,000 compared with $16,700,000 in the prior year period and improved 280 basis points as a percentage of revenue to 28%.

Speaker 3

Adjusted non GAAP operating income was $3,200,000 compared with adjusted non GAAP operating income of $3,000,000 in the prior year period. Adjusted non GAAP net income was 1,800,000 or $0.14 per fully diluted share in the 4th quarter compared to adjusted non GAAP income of $2,200,000 or $0.17 per fully diluted share in the prior year period. We recorded income tax expense of $1,400,000 in the Q4 of 2024 compared to $600,000 in the prior year period. Excluding the $300,000 accrual related to uncertain tax positions, our effective tax rate for fiscal 2024 was 24.8%. Adjusted EBITDA for the 4th quarter was $4,800,000 or 9.8 percent of revenues compared to $4,800,000 8.9 percent in the same period a year ago.

Speaker 3

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. Our financial position remains strong with $16,900,000 of cash and no debt at the end of the Q4. Capital expenditures totaled $300,000 in the 4th quarter and $2,200,000 for fiscal year 2024. In addition to maintaining a strong balance sheet, we continue to focus on our capital allocation priorities to drive value for stockholders. During the Q4, we used approximately $1,800,000 in cash to repurchase approximately 253,000 shares of common stock under our stock repurchase authorization.

Speaker 3

During fiscal 2024, we used approximately $6,400,000 in cash to repurchase approximately 977,000 shares of common stock. As of June 30, 2024, there is still $20,400,000 remaining under our stock repurchase authorization. We also announced a quarterly cash dividend of $0.04 per common share of stock or approximately $500,000 in the aggregate. This dividend will be paid on September 17, 2024 to stockholders of record as of September 9. Since the beginning of fiscal 2024, we have returned $13,400,000 in total value to our stockholders through stock repurchases and dividends.

Speaker 3

Turning to our outlook for fiscal 2025, we anticipate our full year revenue will be in the range of $200,000,000 to 210,000,000 dollars We expect adjusted non GAAP EBITDA in the range of $18,000,000 to $21,000,000 with adjusted non GAAP earnings per share in the range of $0.70 to $0.80 per share. We are committed to continuing to improve our adjusted EBITDA margins and we 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'll now be conducting a question and answer Thank you. Our first question is from Doug Lane with Water Tower Research. Please proceed with your question.

Speaker 2

Yes. Hi. Good afternoon, everybody. To start off with the outlook for fiscal 2025 here, Carl. You're coming off a couple of quarters of sales pressures, challenges as you mentioned, and you are looking for full year growth or flat to up mid single digits for fiscal 2025.

Speaker 2

I know you don't give quarterly guidance, but can you give us a little help with the cadence? Is this something where you expect a consistent improvement quarter over quarter in 2025? Or is there going to be more of a back half load?

Speaker 3

Yes. Thanks, Doug, for the question. Yes, as we look forward to fiscal 2025, I mean, I do think that we expect moderate improvement in each quarter in FY 2025. Q1 likely will be a little bit lower in comparison to the other quarters, but we do expect the momentum to build towards the back half of the year, especially with we've got a lot that we're anticipating with in Q2 surrounded the product launch that we have and the product launch that we have and the following momentum that we expect to see in Q3 and Q4 following.

Speaker 2

Okay. That's helpful. I mean, I did notice one number that stood out to me that is reversing sort of a longer term trend was the total active accounts, which is the consultants and the customers that you released actually improved sequentially for the first time in years. And I just wondered what's really driving that number. I don't one point is not a trend, but it is just an interesting change in dynamic.

Speaker 2

And I just wondered if you could comment more about your sequential improvement in active accounts. Yes, Doug, this is Steve. I'm glad you noticed that. We are pleased with that. And the reality is, as you know, we've been working on this transformation within the company for about 18 months now when we launched a refresh to our compensation plan, first in the U.

Speaker 2

S. And Japan and Australia and then more recently this earlier this year in Canada, Mexico and Europe. And I really attribute that to both the attraction attraction of new people now that that plan is in place as well as our existing leaders working through and understanding how they can optimize the plan. So it's I think it's improved our well, it has improved our retention and what we are seeing now is growth from an enrollment standpoint. So this last quarter in Q4, we had both increased enrollments and improvement in retention, especially in the U.

Speaker 2

S. And as you said, one data point is not a trend, but I believe that we are we have bottomed out and are looking forward to growing now sequentially. Have you had any has there been any impact from some of these other concepts changing their business model away from traditional direct selling more to affiliate marketing? Is there an opportunity there for LifeVantage to pick up some leadership? Yes, absolutely.

Speaker 2

It's one of the things that as we look back, we anticipated this trend occurring coming out of COVID. There was more and more activity and noise about the affiliate model. And it was one of the key premises of when we changed our compensation plan to make it much more attractive for those individuals. But really, the beauty of our plan is that we kept all of the best attributes for those who want to build a very traditional consulting business. They're more kind of entrepreneurial minded and want to build teams, it's the plan is still very attractive to them as well as also providing an avenue for people that are more interested in just selling products.

Speaker 2

So rather than having to make really hard decisions around which path or which model we're going to follow or add a new element to a plan and forcing those individuals to kind of make a decision at the beginning when they're joining LifeVantage. Our plan allows people to join however they want and then to move freely between just selling products, like I said, or building teams. So and I think that the benefits of that, we're just beginning to see. Okay. That makes sense.

Speaker 2

And then for those of us that pay attention to what's going on at Medifast and Weight Watchers certainly might raise an eyebrow about the decision to get into the weight management space with such turbulence in that space currently with the whole GLP-one thing and how disruptive it's been to just about anybody that participates in weight management these days. So maybe if you could build down a little more on weight management, what's your offering, how does it differ from the competitors and what's going to be your approach to that segment? Yes. You're right. There is a lot of turbulence there.

Speaker 2

But we've adopted the approach that I think is just grounded in LifeVantage's legacy. And that's been true to it from a science standpoint and most recently over the last several years as we've built on our activation story. If you think about protandim NRF2 back in the very beginning, it activates certain pathways in our bodies to create or to have our body create, antioxidants that combat oxidative stress. And that was the foundation of LifeVantage. And since then, we've introduced a skincare line and other products, as you know, that all have activation as a core of their story.

Speaker 2

More recently, collagen is a product that we introduced, I guess, 2 years ago or so. And it is a product that helps activate proteins that generate collagen. And as we look at other products, both in our pipeline and what was happening in the marketplace, we thought that there's no reason why we can't create an activation story to help those with that need to focus on weight management. And so probably close to a year ago, we started the development of a product that we will be launching in the middle of October here that activates the GLP-one proteins. And the benefit of that, it's a 2 part system, a couple of tablets and then a powder.

Speaker 2

And the differentiation there is that it's 100% natural. It still has the benefits of reducing kind of the food noise, a hunger suppressant. And right now, we are through our in vitro testing, and the results are extremely promising. We're about 2 thirds of the way through human clinical testing and also those preliminary results are tracking to what we believe we can do. So it is entering a space that's noisy now, but we think we have an alternative to provide all of the benefits.

Speaker 2

And this isn't just to get out of these quick fad, the yo yo diets and all of those types of things. This is intended to be not just a 3 month product where you lose the targeted amount of weight and you go off of it, but it's something that you would continue to take to help manage your weight after the loss of weight that you are targeting. But it really helps the mental health, the stability of and confidence of individuals. And so we believe that what we have a very differentiated product, one that is healthy and still on mark with what the trends are in the market place. And we'll see in October, but we're very optimistic about what lies ahead of us.

Speaker 2

Okay. That's good color. Thanks, Steve.

Operator

Thank you. There are no further questions at this time. I would like to hand the call back over to Steve Fife for any closing comments.

Speaker 2

Well, thank you, everyone, for joining us today. And 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 dedicated 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 stockholders. We look forward to updating you on our next call, which will be after the launch of our new innovative GLP-one weight management system.

Speaker 2

Thank you.

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LifeVantage Q4 2024
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