Earnings Transcript for LFVN - Q2 Fiscal Year 2023

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to today’s Conference Call to discuss LifeVantage’s Second Quarter Fiscal 2023 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.

Reed Anderson: Thank you. Good afternoon and welcome to LifeVantage Corporation’s conference call to discuss results for the second quarter of fiscal 2023. 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

Steve Fife: Thanks, Reed and good afternoon, everyone. Thank you for joining us today. It’s an incredibly exciting time at LifeVantage. Our Rock the Rhythm event held earlier this month on January 18 and simultaneously broadcast to our U.S., Japan, Australia, New Zealand markets served as the public announcement for major transformation initiatives designed to forge a new, more modern chapter in our company. Over a year ago, myself, along with the executive team, took a hard look at where we were as an organization and what was needed to propel sustainable growth. LifeVantage has always had a reputation for having superior products, which delivered years of stability, but it was time to get back to being the company to watch. Our team dug deep into consumer trends. We met with top industry advisors. We evaluated the options we had to support growth opportunities and multiple paths to earn for our consultants, previously known as our distributors. The strategic plan that emerged from this comprehensive analysis was called LV360, because to really deliver the outcomes we were looking for, we needed to take a holistic approach with innovations happening across all the major touch points of our consultant and customer experience. One of the biggest components of LV360 is Evolve, our new industry-leading modern compensation plan. Evolve focuses on driving key consultant behaviors, including product sales with commissions possible through new three-tier pricing structure and graduated bonus incentives. Evolve outlines three progressive stages of the consulting paths

Carl Aure: Thank you, Steve and good afternoon everyone. Let me walk you through our second 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. Second quarter revenue was $53.7 million, up 2.8% on a year-over-year basis and up 3.6% sequentially from the first quarter. Foreign currency fluctuations negatively impacted revenue by $2.4 million in the second quarter. Excluding the negative impact of foreign currency fluctuations, second quarter revenue was up $3.9 million or approximately 7.4% compared to the prior year period. Revenue in the Americas region increased 14.4%, including a 15.4% increase in the United States, compared to the prior year period to $39.7 million, driven primarily by the launch of our TrueScience Liquid Collagen product and partially offset by a 7.1% decline in total active accounts in the region. Revenue in our Asia-Pacific and Europe region decreased 20.2% to $14 million, driven by a 12% decrease in total active accounts and negative impacts from foreign currency exchange rate fluctuations. Excluding the negative impact from foreign currency fluctuations, second quarter revenue in our Asia Pacific and Europe region was down 7%. The foreign currency impact was primarily related to currency fluctuations in Japan, which drove lower revenue in the country. Despite the foreign currency headwinds, we continue to be encouraged by the results we are seeing from our launch of the Philippines due to continued distributor leadership, development and advancement. Gross margin was 78.1% for the second quarter, compared to 81.5% in the prior year period. The decrease in gross margin was primarily due to elevated shipping expenses, the negative impacts of foreign currency fluctuations as well as shifts in geographic and product sales mix. We are actively pursuing cost savings initiatives across our entire supply chain to help offset the recent cost increases that have negatively impacted our gross margins. Commissions and incentive expense in the second quarter decreased $1.9 million year-over-year. As a percentage of revenue, commissions and incentive expense decreased 490 basis points to 43.9% versus 1 year ago levels, which was primarily driven by the timing and magnitude of various promotional and incentive programs. Non-GAAP adjusted SG&A expense was $19.4 million versus $16.7 million in the prior year quarter and was up 400 basis points as a percentage of revenue to 36.1%. This increase was primarily a result of higher event-related costs, increased travel expenses, higher employee compensation-related expenses and outside professional service fees related to the upcoming initiatives launching in the second half of fiscal 2023, all as compared to the prior year period. Adjusted operating loss was $0.9 million, compared with adjusted operating income of $0.3 million in the prior year period. Adjusted net loss was $0.8 million, or $0.07 per fully diluted share, in the second quarter, compared to adjusted net income of $0.6 million, or $0.05 per fully diluted share, in the comparable period last year. We recorded a tax benefit of $17,000 in the second quarter, compared to a tax benefit of $0.6 million a year earlier. The decrease in tax benefit was primarily due to the favorable impact of discrete tax adjustments relating to taxes on foreign income recorded in the comparable period last year. For fiscal year 2023, we expect our effective tax rate will be approximately 31%. Adjusted EBITDA for the second quarter was $0.8 million, or 1.5% of revenues, compared to $1.9 million and 3.6% in the same period a year ago. Please note that all of the adjustments from GAAP to non-GAAP I discussed today are reconciled in our earnings press release issued this afternoon. We ended the second quarter in a strong financial position with $17.4 million of cash and no debt. We also continue to maintain $5 million of availability under our revolving line of credit. Capital expenditures totaled $0.8 million in the second quarter. We anticipate total capital expenditures for fiscal 2023 to be approximately $3 million. Now turning to our fiscal 2023 outlook, we anticipate our fiscal 2023 revenue will be in the range of $202 million to $212 million, and adjusted non-GAAP EBITDA in the range of $11 million to $13 million with adjusted non-GAAP earnings per share in the range of $0.22 to $0.28 per share. And with that, let me turn the call back over to the operator for questions. Operator?

Operator: [Operator Instructions] Our first question is from Dustin Rikert, LifeVantage [ph]. Please proceed with your question.

Unidentified Analyst: Yes. I just was interested to hear how – with the new comp plan, how you feel that this is going to be better than the old one?

Steve Fife: Yes. Thanks. We feel like this is going to address some of the gaps that we have had in our plan and especially become much more appealing for people that want to sell products. We are proud of our history of products that we have and the innovation that comes with those. But frankly, our new plan does a much better job of incentivizing and paying people that are interested in selling products along with those that want to also build the business.

Unidentified Analyst: Is it those that are in the middle of the company or at the top?

Steve Fife: It’s throughout the organization.

Unidentified Analyst: Okay.

Steve Fife: Thanks.

Operator: It appears that there are no further questions at this time. I would now like to turn the floor back over to Steve Fife for closing comments.

Steve Fife: Alright. Well, thank you for joining us today. In closing, I want to take the opportunity to thank all of our employees for their hard work and dedication as well as our outstanding team of independent consultants and loyal customers. We are very excited about this modernization of our company and remain focused on the opportunities that lie ahead. We hope you all stay safe and healthy and look forward to updating you on our next call. Have a great day.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.