LFVN - NASDAQ

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's Conference Call to discuss LifeVantage's Third Quarter of Fiscal 2025 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]. 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 third quarter of fiscal 2025. 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, May 6, 2025. LifeVantage assumes no obligation to update any forward-looking projections that may be made in today’s release or call. Now I would like to 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. Third quarter results were strong with revenues of $58.4 million, up 21% year-over-year. Demand for our mindbody GLP1 system served as the primary growth driver in Q3. Revenues in the U.S. grew 31% offset by a decline of 7% in our international markets year-over-year. Our declines internationally remain a significant area of focus for us. We expect the international launch of our MB system will help turn the declines, but there are also other opportunities we are focused on to reverse this trend. I'm also pleased to report stability in our supply chain of line body, and the disruption of our out-of-stock and logistic issues has been resolved and is now behind us. In mid-March, we began the international expansion of MindBody, starting in Japan to both consultants and customers and to consultants in Australia, New

Thank you, Steve, and good afternoon, everyone. Let me walk you through our third 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. Third quarter revenue was $58.4 million, up 21.1% on a year-over-year basis. Foreign currency negatively impacted revenue by $500,000 in the third quarter. Excluding the negative impact of foreign currency fluctuations, third quarter revenue was up approximately 22.1%, compared to the prior year period. Revenue in the Americas region increased 29.5% to $48.2 million in the quarter, primarily driven by the continued success of our MindBody GLP-1 system, which launched in the U.S. market in October of 2024. Total active accounts increased 17.2% in the Americas in comparison to the prior year period. Total average revenue per consultant was also up approximately 15% in the Americas in the current quarter. Revenue in our Asia Pacific and Europe region decreased 7.2% to $10.2 million in the quarter, primarily driven by an 8.8% 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. Third Quarter revenue in our Asia Pacific and Europe region was down approximately 4.7%, as compared to the prior year period. On a constant currency basis, revenue in Japan increased 2.7% in the third quarter, reflecting the launch of our MindBody GLP-1 system in that market, starting in March of 2025. Gross margin was 81% for the third quarter, a 210-basis point improvement, compared to 78.9% in the prior year period. The increase in gross margin was primarily due to product mix factors, including strong sales of MindBody, as well as lower inventory obsolescence and lower inventory-related variance expenses, as well as lower shipping and warehouse expenses. Commissions and incentive expense as a percentage of revenue was 44.8%, up from 40.9% in the prior year period, but was down 320 basis points sequentially from Q2. The year-over-year increase was due to higher qualifications within existing promotional incentive programs and changes in sales mix within our active accounts between our independent consultants and customers. Non-GAAP adjusted SG&A expense was $17 million, compared with $15 million in the prior year period. The year-over-year increase was primarily due to the higher variable portion of employee compensation and stock-based compensation expenses. Adjusted non-GAAP operating income was $4.1 million, compared with adjusted non-GAAP operating income of $3.4 million in the prior year period. Adjusted non-GAAP net income was $3.5 million or $0.26 per fully diluted share in the third quarter, compared to adjusted non-GAAP income of $2.8 million or $0.21 per fully diluted share in the prior year period. We recorded income tax expense of $700,000 in the third quarter, which translates to an effective tax rate of approximately 17%, compared to income tax expense of $300,000 in the prior year period and an effective rate of 14%. The increase in our effective rate was primarily due to the impact of discrete items. We continue to expect our full year FY 2025 income tax rate to be approximately 22% to 24%. Adjusted EBITDA for the third quarter was 6.4 million or 11% of revenues compared to 5.1 million and 10.5% in the same period a year ago. 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 $22.5 million of cash and no debt at the end of the third quarter. We also have access to a $5 million revolving line of credit. Capital expenditures totaled $300,000 in the third quarter compared to 300,000 in the same period a year ago. We anticipate total capital expenditures to be approximately 1.5 million in fiscal 2025. Turning to capital allocation, we did not repurchase any shares during the third quarter ended March 31st, 2025. Through the first nine months of fiscal 2025, we've repurchased 140,000 common shares for an aggregate purchase price of 1.1 million. As of March 31st, 2025, there is still 19.3 million remaining under our existing share repurchase authorization. We also announced a quarterly cash dividend of $4.50 per share of common stock or approximately $600,000 in the aggregate. This dividend will be paid on June 13th, 2025 to stockholders of record as of May 30th, 2025. Since the beginning of fiscal 2024, we have returned over $16 million in total value to our stockholders through stock repurchases and dividends. We will continue to focus on our balanced capital allocation strategy in order to drive value for our stockholders. Turning to our outlook for fiscal 2025, we anticipate our fiscal 2025 revenue will be 228 million to 235 million, representing a 16% increase year-over-year at the midpoint of the range versus fiscal 2024. We are reiterating our profitability guidance despite lower revenues and expect adjusted EBITDA to be $21 million to $24 million and adjusted non-GAAP earnings per share of $0.72 to $0.88. We are pleased with the continued improvement in our profitability metrics and remain committed to continuing to improve our adjusted EBITDA margins, and we believe we are well on track to reach our long-term goals of low double digits in the near future. And with that, let me turn the call back over to the operator for questions. Operator?

[Operator Instructions]. The first question is from Brooks O'Neil from Lake Street Capital Markets. Please go ahead.

This is Aaron on the line for Brooks. Thanks for taking our questions. So as far as new customers, do you have a rough percentage of people coming on via subscription? We noticed a slight downdraft in total active accounts quarter-over-quarter. Although granted, there was some nice growth on an annual basis, I'm assuming you like to see that subscription percentage higher over time. Just curious on some of those recent trends, if and if that had any sort of weight into your top-line assumptions.

Yes, thanks Aaron. This is Steve. And we did see a slight decline in active accounts sequentially, but actually, the subscription rate increased and which was encouraging to us. Historically, about 70% of our revenue has been fulfilled on a subscription. And what we're seeing, and specifically around MindBody, that during the quarter, about 85% of the people coming in on MindBody during the quarter were on a subscription. So, I think that lends itself to the nature of the product, how we've positioned it, that it's not a magic pill that you take once or for a month or period of time, but it is a lifestyle thing that really to get the full benefits, you need to be on it for multiple months. And so far, the data is supporting that that's how the new customers are coming in.

Got it. Got it. Appreciate that color, Steve. And then, are you guys seeing more purchases in Stacks versus standalone maybe compared to last quarter? I'm just curious how that dynamic has sort of played out over the last few months as well. Yes.

Yes. I think that that's also positive and true. When we look specifically at MindBody, about 55% or so of the revenue during the quarter was MindBody standalone, and the remaining 45% on the purchases were occurring with another product. And the most common additional product would be either our Protandim Nrf2 or our liquid collagen. And in part, again, it's the positioning that we have as a company and our consultants sharing kind of the synergistic benefits of taking those three products together. So, again, we're encouraged with the amount of Stack revenue. Obviously, that helps our ARPA, and it helps our stickiness, as new consumers aren't just coming in and learning about MindBody, but they're also being exposed to other products in our product portfolio.

Absolutely. I agree, Steve. Appreciate the color. I'll hop back in the queue. Thanks, guys.

Awesome. Thanks, Aaron.

The next question is from Doug Lane from Water Tower Research. Please go ahead.

Yes, good afternoon, everybody. Speaking on the top-line, the change in the outlook there, brought it down by maybe $7 million or $8 million at the midpoint. And the third quarter revenue number wasn't that far off of what I had in my model. So, I know you don't give quarterly guidance, but I guess my question is, is the revenue reduction mostly due to results in the March quarter or anticipated results in the June quarter?

Yes. I would say, there's a little of both there, Doug. We, I think in our last call and in a number of subsequent follow-up calls, we talked about the challenges after our launch. In October, when we launched the product, it was a massive success to the point where we were out of inventory after a couple of weeks. So, virtually, for six weeks, we were in an out-of-stock position. We got inventory back in the December, and we were able to fulfill all of those back orders, which left a lot of our customers and consultants with, in certain cases, multiple sets of MB product. And that progressed into our fiscal Q3. I think what’s really positive right now is that, one, we’ve resolved all of the supply chain issues, the logistic issues around that out-of-stock. And we were able to do that in the January, February time frame. And what we saw during the quarter was kind of a leveling of new orders coming in. So, our bookings, if you will, during the quarter really stabilized. And so, I really believe that all of the noise around the initial launch is behind us. And the change to our range then is to really take into account, we still have a lot of chop and uncertainty within our international markets. Now we launched the product towards the very end of the quarter, and really to customers fully just a few weeks ago. So, how much upside and growth comes out of our international markets with MB is a bit of an unknown right now, obviously. And so, we’re hedging a little bit on that. But we do believe that the noise from our fiscal Q2 is behind us and are looking forward now to build going forward.

Another number, the active accounts in The Americas, was 115 in the December and dropped to 109 in March, which I might not have anticipated. I think I had it at least holding steady. So, I wonder is that fallout from the stock out or is there something else going on?

Yes, I think it is primarily attributable to the stock out there, Doug. It really is if you look at the lines there in more detail, it’s really coming from our customer base in The Americas. If you were to look at the total active accounts or the consultant portion of those active accounts, we were really flat sequentially. We’re still up significantly year over year, but sequentially on the consultant side, we’re flat. But we feel that the elevated attrition associated with customers there was just due to a lot of the noise that we experienced with MB in the quarter. And we think the majority of that is behind us now. So, we’re looking to build from this point going forward.

I get that. And then now you launched MB in October, here we are in May. What have you learned about the MB product, because it is a novel idea, the idea of using Nutrigenomics to generate your own GLP-1 is not like taking a shot that you see on TV. So, what have you learned about educating your sales force on the GLP-1 product?

Yes. It has been a learning experience. And I’ll just tell you, during this last quarter in the January, February, March, I guess all throughout the quarter really, we looked at just how our consultant base was positioning the product, how they were selling it, the messaging they were creating around it. And I'd say, there were two different camps. One was taking, I'd say, a much more long-term sustainable approach, where this is a highly differentiated product, 100% natural, that is focused on long-term weight management, as well as other health benefits and not a magic pill. And another camp of consultants were much more focused on the weight loss story. And I think as we sit here now, six months post-launch, that first group has had much more, although maybe slower, but more sustainable month over month over month growth. Their retention is higher. Their enrollments are more consistent than the group that really launched hard and leading with the weight loss and comparisons to the synthetic alternatives out there. So, as I've thought about it, it's a little bit of the rabbit and the tortoise, I think, that we're experiencing. And we really invested quite significantly during the quarter. We held what we referred to as a Town Hall meeting. And really, we had almost 1,000 consultants on that call to reiterate really the message around A, the benefits of this product. Now, we've got an updated study that both for the U.S. formula and our international formula, this independent study supports a claim around 200% increase in average of the GLP-1 production and what that really means. And it doesn't necessarily just equal weight loss. It does over a period of time, but at the end of the day, it's still a caloric story. And if you're eating more than you're, you can still out-eat GLP-1, either synthetics or our products. And so, we added to our story just mindful activation, lifestyle changes, things that are very common sense around exercise, sleep, reducing sugar intake, increasing water consumption, taking the product with protein, some very, very common-sense types of things that reiterates that, again, this isn't a quick magic pill. This is a lifestyle. This is a long-term health alternative. And one of the benefits can be losing weight in inches. And that really, again, I think resonated with our consultant group, and we’ve seen kind of a pivot in terms of how people are talking about it, which I think bodes very well for long-term growth with this product for LifeVantage. It is still a highly innovative, natural alternative to the drugs that are out there. We’re pleased as can be with our positioning as that alternative. And really, it’s on us, it’s on our consultant base to continue to evangelize, to get the word out about the benefits of having this alternative solution. The market has created a massive awareness for us, and it’s up for us now to take advantage of it.

This concludes the question-and-answer session. I will now turn the floor back over to Steve Fife for closing remarks.

Thanks, operator. And thank you, everyone, for joining us on the call today. As we conclude, I really want to extend my appreciation to all of our employees who do so much, of course, our outstanding independent consultants who sell our products, our stockholders and our very committed customer base. We’re excited about where we are as a company and our future, and we look forward to updating you in our next quarter. Thanks a lot.