LFVN - NASDAQ

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's First Quarter of Fiscal 2024 Results. [Operator Instructions] Hosting today's conference will be Reed 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. Please go ahead, sir.

Thank you. Good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the first quarter of fiscal 2024. On the call today from LifeVantage with prepared remarks are Steve Fife, President and Chief Executive Officer; and Carl Aure, Chief Financial Officer. By now, everyone should have access to the earnings release, which went out this afternoon at approximately 4:05 p.m. 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 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 Factors section of LifeVantage's most recently filed Forms 10-K and 10-Q. Please note that during today's call, we will discuss non-GAAP financial measures, including results on an adjusted basis. Management believes these financial measures can facilitate a more complete analysis and greater transparency into LifeVantage's ongoing results of operations, particularly 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, November 9, 2023. LifeVantage assumes no obligation to update any forward-looking projection that maybe 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.

Thanks, Reed, and good afternoon, everyone. Thank you for joining us today. Our latest results once again demonstrate the effectiveness of LV360 coupled with our robust innovation portfolio to drive growth and improve profitability across the entire LifeVantage organization from consultants to customers, from corporate employees, to Board members, energy levels remain incredibly high as our key initiatives continue gaining traction. We delivered a 6.5% revenue increase in the US, while overall revenues were down fractionally year-over-year on a constant currency basis. TrueScience Liquid Collagen continues to be the key driver as demand has remained very strong. This product was introduced in the US in June 2022 and only recently began launching in international markets, which should set the stage for growth in those markets as fiscal 2024 unfolds. Profitability also continues to show solid improvement with adjusted EBITDA increasing over 41% to $4 million in the first quarter and an adjusted EBITDA margin, up 230 basis points to 7.8%.approximately $12 million or 23.5% of Q1 revenue was attributable to Liquid Collagen plus the Healthy Glow Essential Stack which bundles Liquid Collagen with Protandim Nrf2 Synergizer. In the US, customer penetration was 28.1% versus 26.9% in Q4 fiscal 2023 and compared to 24% at the end of calendar 2022. Reorder rates provide another strong indicator of the health of the product and strong demand as second month reorders were up recently at 77.8% versus 77% at the end of Q4 2023. Liquid Collagen sales are still predominantly driven by activity in the US but we are seeing our recent expansion of Liquid Collagen into the international markets ramp up steadily. As you may recall, Liquid Collagen entered Australia, New

Thank you, Steve, and good afternoon, everyone. Let me walk you through our first quarter financial results. Please note that I will be discussing our non-GAAP adjusted results. You can refer to the GAAP to non-GAAP reconciliations in today's press release for additional details. First quarter revenue was $51.4 million, down 0.8% on a year-over-year basis and was down 5.3% from the fourth quarter. Foreign currency fluctuations negatively impacted revenue by $0.3 million in the first quarter. Excluding the negative impact of foreign currency fluctuations, first quarter revenue was down slightly by $0.1 million or approximately 0.2%, as compared to the prior year period. Revenue in the Americas region increased 5.9% to $38.5 million in the quarter, including a 6.5% increase in the US as compared to the prior year period. This increase was primarily driven by a higher average revenue per account, resulting from the continued success of our Truescience Liquid Collagen product. Revenue in our Asia Pacific and Europe region decreased 16.6% to $12.9 million in the quarter, driven by a 17% decrease in total active accounts and the negative impact from foreign currency exchange rate fluctuations. Excluding the negative impact from foreign currency fluctuations, first quarter revenue in our Asia Pacific and Europe region was down 14.6% as compared to the prior year period. The foreign currency impact continues to be driven by fluctuations in Japan, accounting for $0.3 million of the impact. Adjusting for this impact, revenue in Japan declined 4% on a constant currency basis. Gross margin was 80.2% for the first quarter compared to 80.8% in the prior year period. The decrease in gross margin was primarily due to shifts in product sales mix, increased raw material and manufacturing-related costs and higher shipping expenses and warehouse fulfillment expenses during the quarter. Commissions and incentive expense in the first quarter decreased $1.3 million year-over-year. As a percentage of revenue, commissions and incentive expense decreased 220 basis points to 43.8% and versus year ago levels, which was primarily driven by changes in sales mix as well as the timing and magnitude of promotional and incentive programs. Non-GAAP adjusted SG&A expense was $16.6 million, which was consistent with the prior year quarter and was up 30 basis points as a percentage of revenue to 32.4%. Adjusted non-GAAP operating income was $2.1 million, compared with $1.4 million in the prior year period. Adjusted non-GAAP net income was $1.7 million or $0.13 per fully diluted share in the first quarter, compared to adjusted net income of $0.7 million or $0.06 per fully diluted share in the comparable period last year. We recorded tax expense of $0.2 million in the first quarter of 2024 and 2023, respectively. For the first quarter, our effective tax rate was 24.1%. Adjusted EBITDA for the first quarter was $4 million or 7.8% of revenues, compared to $2.8 million and 5.5% 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 first quarter in a strong financial position with $18.4 million of cash and no debt. We also continue to maintain $5 million of availability under our revolving line of credit. Capital expenditures totaled $1.1 million in the first quarter. We anticipate total capital expenditures for fiscal 2024 to be approximately $2.5 million. We will continue to focus on our capital allocation strategy in order to maximize shareholder value. During the first quarter, we used approximately $800,000 in cash to repurchase approximately 145,000 common shares under our share repurchase authorization. As of September 30, 2023, there was $26.1 million remaining under our stock repurchase authorization. We also announced a quarterly cash dividend of $0.035 per share of common stock or approximately $400,000 in the aggregate. This dividend will be paid on December 15, 2023, to shareholders of record on December 1. Turning to our fiscal 2024 outlook. We continue to anticipate our fiscal 2024 revenue will be in the range of $216 million to $226 million, adjusted non-GAAP EBITDA in the range of $16 million to $18 million with adjusted non-GAAP earnings per share in the range of $0.52 to $0.62 per share. For fiscal 2024, we expect our annual effective tax rate to be approximately 22% to 25%. Included in our fiscal 2024 guidance is over $2 million of non-recurring expenses related to an expiring sponsorship agreement and costs associated with the rollout of LV360 to our remaining mark, which will not be incurred in future years. 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 to the operator for Q&A.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Doug Lane from Water Tower Research. Please proceed with your question.

Yes. Thank you, and good afternoon, everybody. See, there's a lot of moving parts here. And I think the one that stands out to me is how successful and how quickly you've been successful in the U.S. with all these rollouts earlier in the year with the new comp plan and the new marketing program. Can you give us a sense for where the U.S. is vis-à-vis expectations six or nine months ago? And then how long do you think it will take to attain similar success in your international markets, which are still struggling a little bit?

Yes. Thanks, Doug. Good question. We are extremely pleased with just how quickly the U.S. market has adapted and adopted the evolved compensation plan. And I attribute it to a couple of things. One, just how solid the plan is itself. And when we set out to redesign a best-in-industry plan, we wanted to have a plan that would be appealing to individuals who were looking on to sell product and to earn income comparable to what social sellers or influencers can do, what part time people that are really looking for just a side hustle by selling products can do. But also a plan that continue to build on individuals that want to build an organization and have kind of long-term stability and are really entrepreneurs interested in building a long-term business. And I think we've achieved that with this plan. And I think the adoption in the US is indicative of that. I think we did a phenomenal job with individuals, both the employees and our consultant leadership group in terms of the rollout and the communication of the plan. And so we were very clear with expectations and how they could optimize the plan. Going on to now our second and third launches in the remaining markets that we have, I'm even more optimistic because people in these countries, let's just say, the Philippines as an example or Canada, they've been able to witness and see the benefits that have come to the plan in the US market. And many of the top leaders in the US also have organizations in those international markets. And so I think we have a jump start, if you will. We've also been putting in place promotions in those markets that have been running and will continue to run that will help kind of mimic some of the behavioral changes that will come through the comp plan changes in those markets. So people are already starting to build and see the benefit of some of those changes of the experience. So I -- we remain very optimistic that the adoption and benefits that we are seeing in the US will be accelerated in our international markets as we roll this out.

Okay. And talking about Evolve specifically, it's an iterative process, right? I mean it takes a while to have it fully implemented in any given market, and then it's not been rolled out to all your markets yet. So you can just basically give us an idea of what inning do you think the Evolve implementation is in? And how long do you expect before it's fully implemented globally?

Yes. So we launched Evolve in the US, Japan, Australia and New

Okay. Great. That's helpful. And then I think you mentioned in your comments that liquid collagen is up to a 28.1% penetration rate, and that goes up quarter after quarter here. Where do you think that can ultimately get to when you would consider it to be fully penetrated?

Yes. I mean -- and not to skip over that too quickly, but the 28% penetration rate is really high. So we're pleased with that. I think it's 30%, 35% is a very realistic -- it's -- it's our target to where we think that, that can come as again, it's launching in additional countries now. A few months ago, we announced a new study that we have that articulates the benefits of our liquid collagen when taken with our Protandim Nrf2 synergizers -- and that again has -- gave a boost to us and especially in this stack or a pack that we call it our healthy Glow stack, which combines those two products together. So we think that there's still legs to grow on the penetration front both as people get more and more used to it as well as our launch into new countries with it.

Okay. That's helpful in putting some perspective on that number. And just one more for me. And that is, Carl, I noticed that commissions and incentives were down as a percent of sales. Is this onetime in the quarter? Or is there going to be a step function down from the new comp plan going in?

Yes, that's a good question, Doug. As we -- one of the big pieces to that in the quarter is with respect to promotional spend. One of the things that we had and if you look prior to the implementation of Evolve is that we had much higher promotional related spend. And in particular, in the comparable quarter last year, we had a specific promotion running around collagen to help boost the success of collagen. And so that number really is heavily influenced by the level of promotional activities that we have during the course of the quarter. And then the other thing that's impacting just that as a percentage of revenue is we have some higher non-commissionable revenue in the quarter related to shipping related changes and some of the other price increases that we've taken are influencing that percentage. So overall, the base comp isn't significantly different, but it's really the timing and the overall sales mix that is influencing that percentage this quarter.

Got it. All right. Thank you.

All right. Thanks, Doug.

Thanks, Doug.

Thank you. And there are no further questions at this time. I would like to turn it back to Steve Fife for closing remarks.

Thanks, operator, and thank you for joining us today. To conclude, I would like to express my gratitude to the dedicated employees, exceptional independent consultants, shareholders and loyal customers. Our recent results underscore the strength of our platform and the competitive edge of our business model in enabling individuals to establish their businesses on their own terms. With our steadfast leadership team, an array of distinctive products and actively engaged consultant community and a robust financial position. We are primed to achieve substantial growth enhance profitability and create substantial value for our shareholders. Thank you.