John Mills – Investor Relations Garry Mauro – Chairman Dave Manovich – Executive Vice Chairman and Director Dave Colbert – Chief Financial Officer Dave Phelps – Chief Sales Officer.

Mitch Pinheiro – Imperial Capital.

Good day and welcome to the LifeVantage Second Quarter Fiscal Year 2015 Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir..

Thank you. Good afternoon ladies and gentlemen and welcome to LifeVantage Corporation’s fiscal second quarter 2015 conference call. On the call today from LifeVantage with prepared remarks are Garry Mauro, company’s Chairman of the Board; Dave Manovich, Executive Vice Chairman; and Dave Colbert, Chief Financial Officer.

In addition, we will have members of the office of the President on the call as well, which includes Dave Phelps, Chief Sales Officer; Bob Urban, Chief Operating Officer; and Shawn Talbott, Chief Science Officer. By now everyone should have access to the earnings release which went out this afternoon at approximately 4 p.m. Eastern Time.

If you have not received the release, it is available on the Investor Relations portion of LifeVantage’s website at 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 the 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 management and involve inherent risks and uncertainties including those identified in the Risk Factors section of LifeVantage’s most recently filed 10-K.

These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. This call also contains time-sensitive information that is accurate only as of the date of this live broadcast, February 04, 2015.

LifeVantage assumes no obligation to update any forward-looking projection that may be made in today’s release or call. And based on the number of participants on today’s call, during the Q&A session, we ask that you please limit the number of your questions to three. Now, I will turn the call over to the company’s Chairman, Mr. Garry Mauro.

Please go ahead Gary..

one, deliver consistent predictable growth; two, to better insure the success of our outstanding distributor sales force; three, successfully manage the complexities of international product distribution and finance; four, further the validation of our science-based products; and finally, address the needs of our customers.

Now before I turn this call over to our Executive Vice Chairman, Dave Manovich, I want to thank our loyal shareholders, our distributors, our customers, and our employees for their dedication to LifeVantage.

Dave?.

Thank you, Garry, and good afternoon to everyone. The board has taken these necessary steps in an effort to re-ignite LifeVantage’s revenue growth. While, we have accomplished a tremendous amount over the last few years, there are many untapped opportunities ahead that we believe will drive long-term profitable growth.

In addition, the board asked me to manage the strategic and tactical direction of the company until we hire a new CEO. The board has also created the Office of the President that will report directly to me.

The Office of the President is comprised of the senior executives responsible for the operations of the company and we’ll work collaboratedly to ensure seamless leadership, continuity, and continued execution of LifeVantage’s day-to-day operations and our strategic initiatives.

In addition to the Office of the President, the other members of the senior executive team, who will report to me are Rob Cutler, our General Counsel and Corporate Secretary; Michelle Oborn, Vice President-Human Resources; John Genna, Vice President of Corporate Communication. Now, I would like to discuss how we get back to re-igniting growth.

Our company has portfolio scientifically-validated products along with the strong distributor network. Recently, our financial results including our second quarter performance have not reflected the strength of our business model. Growth has reached the plateau. Simply put we are not progressing in line with our expectations.

We need to improve upon our results and return to a consistent top-line growth while increasing the enthusiasm felt by our employees, our distributors, and our customers. We’re confident that we have the talent and leadership in place to lead LifeVantage through this transitional phase.

In the second quarter, revenue outside of Japan increased by 1.6%. However, when including Japan, we generated revenue of $48 million, a decrease of approximately 6% compared to the prior year period. This decline was driven by significant softness in the Japanese market. We’re extremely disappointed.

The pressures in the Japan market continue to impact our overall financial performance in a significant manner and we believe that we can do better. Historically, Japan has been a stronger market for us and network marketing. We believe the Japan will be a stronger market for us in the future.

We will continue to implement actions aimed at stabilizing Japan. Rest assured, fixing Japan is a critical area of our focus. In the Americas, our revenue increased by 2% compared to the prior year period. Well, we’re pleased to report top line growth here, we believe that with our expanded product line we should achieve higher growth rates.

We believe the contributing factor to the slower than anticipated revenue growth is a transition of our distributors’ business from a core product to multiple product offerings. As our distributors become better accustomed to selling multiple product lines we fully expect that our market penetration for all of our products will improve.

While, we’re extremely disappointed by the recent financial performance of LifeVantage, the foundation of the business is strong and we generated approximately $13 million in adjusted EBITDA over the past six months.

Also within the past calendar year, we have successfully launched two new products, Axio health energy drinks and TrueScience skin care regimen.

Both distributors and customers continue to respond positively to these products, but we need to do a better job engaging with our distributors and providing them with the right tools to maximize sales of our new products.

We’re in the process of developing and testing a new distributor virtual office within enhanced enrollment and ordering functionality. We plan to demonstrate these enhancements at our Orlando, Elite Academy this April. Employee, distributor, and customer energy and enthusiasm for LifeVantage’s business opportunity and products, remains high.

As evidence we had a very well attended academy last week in San Antonio. We also have a healthy and efficient operating structure. Under the leadership of our operating team we have an appropriate instrument our business model enables us to deliver positive cash flow.

We have a strong balance sheet, and over the past few years we have consistently returned value to shareholders through a number of share repurchase programs. Looking ahead, we will continue to execute on our three key strategic growth initiatives.

As we have outlined in prior investor communications, these include enhancing our sales and marketing efforts, innovation of our new product line and line extensions and last, expanding our geographic presence. I now would take a few moments to provide an update on each of these initiatives. I’d like to begin with sales and marketing.

We recently reorganized our marketing department to better align with our look, feel and perform better product lines. In order to facilitate distributor duplication and business growth, we are laser-focused on providing the product tools and brand management. The capital lies on the science and efficacy of our world-class products.

In addition, our expanded product suite is more relevant to broader demographics and enables us to better penetrate existing markets. Next, I would like to talk about product innovation.

Our second key long-term growth strategy, under Shawn Talbott’s leadership our development team is conducting research with the goal of expanding awareness of the benefits of our product offering and leveraging our research to develop new scientifically backed products. We recently announced that Dr.

Talbott presented a poster abstract summarizing research being conducted at LifeVantage that shows how phytonutrients, plant components such as herbal extracts, found in LifeVantage products, can activate the Nrf2 pathway and improve health and balance metabolism.

We have multiple studies in process and we’ll share those with you as they are presented.

Following the launch of TrueScience skin care regimen products in April, and Axio energy drink products in October, we are not currently planning any new product category launches until we can assure ourselves that our distributor network is prepared to absorb the new product line.

LifeVantage has a very strong portfolio of scientifically validated products and continues to develop additional product categories. But right now our focus has to be on taking the steps to maximize the full potential of each of our existing products. Our third key growth strategy is expanding our geographic presence.

I’ll start with our efforts to reverse the trends in Japan. Improving our business in this important market is a top priority.

We are disappointed that the corrective actions we’ve previously defined were not fully implemented as soon as we expected, but we’d like to outline the progress we have made and the steps we continue to take to stabilize and return to growth in this market.

Our commitment to Japan is unwavering, but we believe the turnaround efforts underway in Japan will take additional time.

In the last several months, we have hired a Managing Director and a new Vice President of Sales and Marketing in Japan, which we believe greatly strengthens our leadership team in that market and they are working to rollout the new marketing and sales tools we have previously discussed.

In addition, we believe they are making progress towards our goal better unify the distributor leadership and the field. Beside from Japan, we are encouraged by the direction of our business in the Asia Pacific region.

In the second quarter, we opened a small corporate office in the Hong Kong market, to assist our distributors in their sales activities. This new facility was designed to provide a central location, where distributors can host business building meetings and conduct trending events.

We anticipate the office will also allow for a more expedited process for purchasing and receiving LifeVantage products in the Hong Kong market. As we announced in our last earnings release, we anticipate commencing sales in Thailand by the end of this fiscal year.

We strongly believe that Thailand represents a quality market opportunity for LifeVantage. In summary, as we begin the second half of fiscal 2015, and this new phase of our company, we have a lot of hard work ahead of us.

We are confident that we’re moving in the right direction to return to our core mission of being a growth-oriented, science-based network sales and marketing company.

I look forward to working closely with the tremendous group of employees and distributors at LifeVantage as we build upon prior successes and bring our organization to new heights in the future. With that, I’ll turn the call over to Dave Colbert..

Thank you, Dave, and good afternoon everyone. For the second quarter ended December 31, we’ve reported revenue of approximately $48 million, compared to $52 million in the same period in the prior year. Revenue in the Americas increased 1.8%, while revenue in the Asia Pacific region declined 22.9%.

Also revenue for the quarter was negatively impacted $1.6 million or 3% by foreign currency fluctuation. Gross profit margin for both the current and prior year was 85% or $41 million for the current quarter versus $44 million for the prior year quarter.

Commission and incentives for the second quarter was 48% of revenue, compared to 49% of revenue in the same period last year. We expect our commission and incentive expenses do increase slightly to approximately 49% for the full year as we continue to focus on distributors, preferred customers and promotions.

SG&A expenses for the second quarter was 30% of revenue compared to 25% of revenue in the same period last year.

The increase in SG&A expenses as a percent of revenue during the quarter were due to lower revenue and our continuing investment in sales, marketing and product development initiatives, as well as our investment in the October 2014 Axio product launch. Of this increase, approximately $750,000 are one time expenses in the current quarter.

Net income for the second quarter was $1.5 million or $0.01 per diluted share calculated on 101 million fully diluted shares. This compares to $3.3 million or $0.03 per diluted share calculated on 112 million fully diluted shares in the same period last year.

Turning briefly to our year-to-date results, for the first six months of fiscal 2015, revenue was approximately $100 million, compared to $103 million in the prior year period. Revenue in the Americas increased 3.7%, while revenue in Asia Pacific decreased 16.4% due primarily to the challenges in Japan.

Foreign currency fluctuation negatively impacted our first six months revenue by $2.3 million or 4%. Net income for the first six months of fiscal 2015 was $6.2 million or $0.06 per diluted share, compared to $6.5 million or $0.06 per diluted share in the prior year period.

Current year net income includes the pre-tax benefit of approximately $2 million from proceeds recovered and related to the December 2012 product recall. Turning to our balance sheet; our cash and cash equivalents, as of December 31, were $18.6 million.

Our inventory at the end of the second quarter was $12 million, up from $8.8 million at the end of fiscal year 2014. The buildup of inventory was related to our two recent product launches as well as the recent decline in revenue. Also, we repaid $2.3 million of debt during the first six months of fiscal 2015.

In addition, during the first half of fiscal 2015, we returned $6.6 million to shareholders by repurchasing a total of 4.9 million shares. We entered the third quarter with $4.4 million remaining on our current $7 million share repurchase program announced on November 6, 2014.

As of today, we have approximately $2 million remaining in this authorized program. And now, I would like to review our guidance. Due to the downward pressures related to Japan revenue and a softening in our other markets, we expect to generate full year revenue in the range of $185 million to $195 million in fiscal year 2015.

We’re modeling Japan to decline by approximately 40% with the remaining countries collectively impacting revenue from a negative 3% at the bottom end of our range to a positive 4% at the top end of our range, on a year-over-year basis.

We are expecting our operating margin to be in the range of 7% to 9% and earnings per diluted share in the range of $0.06 to $0.08, based on an estimated 101 million diluted shares and a 33% effective tax rate. At this point, I’ll open the call up for questions..

Thank you. [Operator Instruction] And our first question comes from Mitch Pinheiro with Imperial Capital..

Good afternoon. I guess one thing, first thing I want to ask is looking at the Americas business, your independent distributors were up slightly year-over-year, but the preferred customers are down.

So what is that telling you? What is that telling us?.

We are - This is Dave Phelps..

This is Dave Manovich we have the entire group officer, the president here, and I think that question is probably most appropriately answered by Dave Phelps, our Chief Sales and Marketing Officer. So with that I’ll let Dave to continue on that..

We are in a position today that our product strategy is a deeper, broader, more diversified business existing than we’ve had before. One other challenges that comes as we have extended beyond our flagship product offering of Protandim and now we are in the TrueScience category and the AXIO category, our skin care and energy product category.

The transition that we are seeing has been challenging for us as we focus our energy away from a single product category into a multiple product offering. That has had an impact with respect to our distributor increase, as well as our preferred customers.

We’re doing all that we can now to increase the education with our distributors with respect to the value of those additional product offerings, the reality is we’re in a much stronger, more diversified business positioning because of these additional products and we expect to see improvements with respect to both distributor and customer numbers..

But you’d think of that with the increased portfolio as much as it might, how much or exactly why would it be confusing, but you’d think that there’d be an energized distributor base which gives a lot more to sell lot more on their plates, some new stuff to talk about to hit the existing base.

So I’m just not sure why you’d really - the initiation of all these nice new products would actually take business the wrong way?.

That’s an excellent question and I’ll answer it by suggesting this. For a period of five years, virtually 100% of the time and the energy has been focused on the single product of Protandim.

Now that we have transitioned into a multiple product strategy getting our mindset changed with our volunteer and our independent distributor network is important that we give some additional time to that transition to take place. So that they will be fully prepared and as passionate about our other products as they have been about Protandim..

Okay, so I mean net-net was - in the Americas, I’ll just focus there, was Protandim, core Protandim that had to be down year-over-year? What was that?.

Hey, Mitch, Dave Colbert here. Product mix wise, yes. It’s down. We ended the second quarter Protandim was about 69% of revenue, a year ago it was just about 70%, 71% of our revenue. So it is down slightly from a mix perspective..

Okay. And just one other question and I will yield the floor here, but is it pertains to margins.

I guess we will see stable gross margins, but we will get a little less G&A leverage, is that how sort of the back half is going to look?.

Yes, the gross margins we’re forecasting is remaining consistent..

Okay..

What we see on SG&A and how we model it out, we’re expecting the sales and marketing spend on a year-over-year basis to be up almost 16%, offsetting that almost to the dollar with a decrease in our G&A spend. So what we have is an increase until the marketing of about $4 million - $3.5 million, $4 million and a subsequent decrease in G&A..

Okay. All right, thank you..

And ladies and gentlemen, this does conclude today’s question-and-answer session. I would like to turn the conference back over to Mr. Manovich for closing remarks..

Thank you. Thank you to everyone for joining us today. We should want to appreciate you’re loyal to us during this transition and I look forward to meeting and speaking with our shareholders over the coming months. Again, thank you very much..

Ladies and gentlemen that does conclude today’s conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day..