Lifevantage Corp (LFVN) Q1 2026 Earnings Call Transcript

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's first quarter fiscal year 2027 results. At this time, all participants are in a listen-only mode. Following the formal remarks, we will conduct a question and answer session. 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. And now I would like to turn the conference over to Mr. Anderson. Please go ahead.

Thank you, and good afternoon, everyone, and welcome to LifeVantage Corporation's conference call to discuss results for the quarter ended September 30, 2026. On the call today from LifeVantage are Terrence Moorhead, 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 or 5 p.m. Eastern Time. If you have not received this 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'd like to remind everyone that our prepared remarks contain forward-looking statements, and the 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 the 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 LightVantage'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 9th.

Thank you, Reed, and good afternoon, everyone. Today, I'm going to walk you through some of the initial progress we've made and provide a brief outline of our plans moving forward. Carl's going to walk you through our first quarter performance and financials in a few minutes. But I want to use my time today to focus primarily on where we go from here. I've been with LifeVantage for just over 90 days, and during that time, I've taken the opportunity to listen, learn, and work with our consultants, consumers, employees, and board. I joined the company believing LifeVantage had far greater potential than its current scale reflects. And after a comprehensive review of the business, I believe that even more strongly today. But we have a lot of work to do. In the first quarter, our sales saw revenue decline 22% to $37.1 million. An adjusted EBITDA was $1.9 million. The decline was driven by a decrease in both orders and average order, which reinforces our belief that we need to pursue meaningful change. the type of change that we're committed to delivering. Fortunately, we're moving forward from a position of financial stability. We ended the first quarter with $13.7 million in cash, no debt, and positive operating cash flow. We also benefit from strong gross margins, a unique and highly differentiated product line, and a foundation of subscription-based accounts. On our last call, I outlined three priorities needing attention, the brand, our consumer proposition, and operational excellence and productivity. Over the past 90 days, we've dug deeper and have concluded that we need a comprehensive strategy that reimagines our go-to-market approach, our marketing engine, our competitive proposition, and our cost structure if we want to maximize our potential and be prepared to capture the opportunities that lie ahead. The goal is to transform LifeVantage into a brand-driven, consumer-focused company that leverages digital capabilities to create an expanding community of consumers and brand advocates. Our brand lies at the heart of the transformation. Today, there are thousands of supplement companies essentially selling the same products with the same ingredients and the same benefits to the same consumers. Some offer different forms and features, but beyond their marketing campaigns, many are virtually indistinguishable. Life Vantage, on the other hand, can occupy a much more distinctive space. That's because Life Vantage is built around a fundamentally different proposition. Rather than simply giving the body more ingredients, more products, and more things to take, we develop products designed to work with the body's own biology, and activate natural processes that are clinically proven to improve people's health. That distinction lies at the heart of what differentiates life vantage, and it positions the company in a new, growing, and ownable white space as the next generation of health and science. Of course, The challenge is to take our differentiated approach to health and science and turn it into a differentiated consumer proposition and, ultimately, a differentiated brand. That's the starting point of our strategic roadmap, which has three major components. The first strategic building block focuses on repositioning the company to change the way people think about life vantage and to give consumers a reason to care about the brand. That means repositioning LifeVantage as a next-generation nutraceutical company. That positioning builds on our product's unique ability to activate the body's powerful biological systems to improve people's health. To get started, we're launching a new campaign based on groundbreaking new research that shows how our lead product, Protandem NRF2, Activates the body's natural defense system to protect the body from environmental toxins like microplastics, pesticides, pollution, and more. For the first time, the new campaign uses before and after images that show the positive impact protandim has on cells affected by specific environmental toxins. It's an exciting new approach designed to create emotional connection with the brand. We start with an important consumer outcome, which, in this case, is to protect the body from environmental toxins, and we follow up with simple-to-understand visuals that provide scientific proof. Our second strategic building block focuses on reimagining the business proposition to make it easier to discover, engage with, and share life advantage. Our approach is to modernize the business. Build new capabilities, and align with the way consumers shop and buy today. To be clear, we're focusing on rethinking the selling proposition to make it simpler, more digital, and more attractive, while at the same time reimagining the consumer journey to strengthen acquisition, retention, referrals, and social engagement. In the second quarter of calendar year 2027, We'll launch our new website and a more modern digital platform in North America, followed by a third quarter, 2020-27 launch of a new consumer-driven business suite for sellers. Our goal is to combine the reach and convenience of an integrated digital ecosystem with the affinity that comes from a community capable of driving engagement around the brand. Our third strategic building block focuses on expanding beyond our current scale and scope to more aggressively penetrate key markets, expand share in high-potential categories, and identify new growth platforms. I'm not going to discuss details here to preserve our strategic interests. However, the overriding principle is focus. We need to become more selective about where we compete and where we invest. Now, I want to be thoughtful about expectations. It's still early, but we realize we need to reset the economics of the business by creating a more focused, tighter organization with improved efficiency. That work is progressing, so I'm not going to get ahead of myself, and we're not providing formal guidance today. But shareholders should understand that our transformation agenda addresses both sides of the value creation equation. Finally, before turning the call over to Carl to cover Q1 financials, I want to touch on an additional item that will help our ability to build momentum and strength as we execute our strategy. Starting January 1st, 2027, our fiscal year will align with the calendar year. That means we'll have one calendar for strategy, planning, budgeting, incentives, innovation, commercial activation, and performance management. It's a relatively simple change with significant implications for how we run the company, and the timing is appropriate as January 1st marks the beginning of the next generation of the company that we're building. With that, I'd like to turn the call over to Carl so he can walk you through our financial results in more detail. Carl?

Thank you, Terrence, and good afternoon, everyone. Let me walk you through our financial results for the quarter ended September 30, 2026. Please note that I will be discussing our non-GAAP adjusted results where applicable. You can refer to the GAAP to non-GAAP reconciliation in today's press release for additional details. We delivered net revenue of $37.1 million in the current quarter, which was down 22% compared to $47.6 million in the same period a year ago. The decrease was primarily driven by continued downward pressure in the number of orders from our active consumer base and lower average order size, reflecting impacts from the broader macroeconomic environment, as well as lower sales from our mind-body GLP-1 system. These declines were partially offset by sales of the Love Biome product line, which we acquired in October of 2025. Foreign currency also negatively impacted revenue by $400,000 in the quarter, or approximately 80 basis points in the quarter. Revenue in the Americas region decreased 22.2% to $29 million, and revenue in the Asia-Pacific and Europe region decreased 21.2% to $8.2 million, including 0.4 million, or 3.9% of the negative impact from foreign currency rate fluctuations. Subscription-based revenue continues to provide a substantial portion of our revenue in the quarter, representing more than 75% of total revenue. We also recognize another quarter of improvement in our retention metrics for both consultants and customers in comparison to the prior year period. We will continue to focus on improving our retention metrics as we work on strengthening the brand and improving the consumer proposition during calendar year 2027. Our gross profit percentage for the quarter was 75.4 percent, compared to 79.5 percent in the prior year period, reflecting higher inventory obsolescence expenses, along with higher shipping and warehouse expenses. Excluding the additional inventory allowance related to our mine body product line, adjusted non-GAAP gross profit percentage was 78.2 percent. Commissions and incentive expense was 41.4% of revenue compared to 43.5% a year ago, primarily due to the timing and magnitude of promotional and incentive programs, changes in revenue mix, and changes in the mix of customers and independent consultants. Selling general and administrative expenses were 34.3% of revenue, compared to 31.2% in the prior year period, reflecting the overall decrease in net revenue. As Terrence mentioned earlier, we understand the need to reset the economics of the business and are in the process of carefully reviewing all SG&A spend to become more focused and efficient. GAAP operating loss was $0.1 million compared to operating income of $2.3 million in the prior year period. Adjusted non-GAAP operating income was $0.9 million compared to $2.5 million a year ago. GAAP net loss was $0.2 million, or $0.02 per diluted share, compared to net income of $2.2 million, or $0.17 per diluted share in the prior year period. Adjusted non-GAAP net income was $0.6 million, or $0.05 per diluted share, compared to $2.3 million and $0.18 in the prior year period. We recorded income tax expense of $12,000 for the quarter. We anticipate that our effective tax rate for the six-month transition period ending December 31, 2026 will be approximately 20 to 25 percent. Adjusted EBIT offer the quarter was $1.9 million, or 5.2% of revenue, compared to $3.9 million, or 8.2% of revenue, in the same period a year ago. Our financial position remains strong, with $13.7 million of cash and no debt as of September 30th, compared to $14.9 million of cash as of June 30, 2026. We had generated $0.5 million of cash from operations during the quarter compared to $2.3 million used in operations in the prior year period, primarily reflecting decreases in accounts receivable in inventory and the timing of payments of accrued expenses. We also maintain access to a $5 million revolving line of credit with no balance outstanding as of the end of the quarter. Capital expenditures were $1.2 million during the quarter, compared to $0.4 million in the prior year period, primarily reflecting our continued investment in technology infrastructure, including investment in our new e-commerce platform. Turning to capital allocation, we did not repurchase any shares during the quarter, and $58.5 million remains under our $60 million share repurchase authorization. We also recently announced a quarterly cash dividend of $0.05 per share of common stock that will be paid on December 15, 2026 to shareholders of record as of December 1, 2026. We remain committed to our balanced capital allocation strategy in order to maximize shareholder value. From a reporting standpoint, as Terrence noted, we are changing our fiscal year to align with the calendar year. For the six-month transition period ending December 31, 2026, in addition to reporting quarterly results, we will also file a Form 10-K-T, including audited financial statements in the first quarter of calendar year 2027. Our new 2027 fiscal year will begin on January 1, 2027. Given the recent transition and our chief executive officer role and our change in fiscal year, we are not issuing formal guidance on today's call. And with that, let me turn the call back over to Terrence. Terrence? Thanks, Carl.

Before we open the call for questions, I'd like to leave you with some final thoughts. First, we recognize the need to address the current performance. Our top priority is to stabilize the business and create new opportunities for growth. We have a lot of work to do, but we have much greater clarity around where those opportunities lie and where we're working to capture them. Second, we're taking action. In less than 90 days, we've completed a deep dive on the business, outlined a powerful strategic roadmap, and have already started implementing the plan, starting with a more compelling story around our lead product, Rotandem. We've also started the work required to create a more focused and more efficient operating model. So, we're making progress. Third, and finally, we have a solid foundation from which to move forward. We have differentiated products, a solid base of subscription buyers, attractive underlying economics, cash on the balance sheet, and no debt. The work ahead is substantial, and the results won't change overnight. But we have greater clarity about what needs to change, how we can compete, and how we intend to create value. We'll enter 2027 with a new calendar, a new strategic roadmap, and a clear mandate to build a stronger, more relevant, and more disciplined company.

With that, let's open the line for questions.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to answer questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Linda Bolton-Wiser with Water Tower Research. Please proceed with your question.

Yes, hi. So, first of all, Terrence, you alluded to the new campaign that you're starting here. Can you talk about what methods you use? I assume this is digital communication to convey the advertising message and that you want to reach new potential customers. So, can you talk about how you're communicating that message out to the world, out to consumers? Thanks.

Yeah, hi, Linda. Good to hear from you, and thanks for the question. Yeah, we're going to start with our distributor base, and so that'll be our first kind of line of attack. We also have a pretty extensive email marketing campaign that we're going to be using, so that will include Got more than a half million names that we'll be tracking down and going after. We'll build out the rest of our digital campaign as the new year begins. So our first starting point will be more economically focused, high potential, hot leads, and then we'll take it from there.

Okay. And then you alluded to third quarter calendar 27, a new business suite for sellers. So can you elaborate on that just a tiny bit? I mean, do you mean like a new suite of product offerings, like products that are bundled together? Or are you more talking about a different kind of commission structure? Thanks.

Now, this will be more along the lines of a toolkit for them, and so it will be really a next-generation toolkit that will allow them to manage their businesses more effectively, do CRM marketing, so email outreach, text kind of outreach. It will allow them to populate their social media more effectively. So they will have a whole series of marketing tools on this platform, training tools, recognition, etc. So it really is trying to pull together a, I call it a business environment for that next generation entrepreneur, kind of what they're looking for and what they need, not only to kind of manage their business, but also to expand it, So it really is about their toolkit. And then ultimately, that will include things like AI support, AI coaching, and AI decision-making tools as well for them. But that's kind of 12 to 18 months out.

Got it. So in terms of the cost to develop all of these things you're talking about, you talked about changing the economics or adjusting the economics of the business. So am I to understand that you're kind of going to find some cost reductions and then some of that will be reinvested back in the business? Is that kind of the way to think about it?

It is, exactly. But as far as, you know, kind of creating the new tools, you know, that's all going to be capital. And then, to your point, when it comes to rethinking and reimagining our SG&A and the expenses driving the business today, that's where we'll be kind of looking at and making resource reallocation decisions that will allow us to be more efficient, more productive, But then also having funds to reinvest for growth.

Okay. And then if I could ask about just your commissions and incentives line, they're race.

Linda, you dropped out on us. Can you repeat your question?

That will make that ratio kind of go down again in FY27. Maybe you could just help us understand the dynamics of that expense item.

You know, I think you went out for a minute, Linda. Could you repeat your question? Couldn't quite hear, couldn't hear the most of it.

Oh, yeah, sorry, sorry. I was asking about the commissions and incentives expense line and how that ratio had gone down quite a bit in FY26. And that I'm wondering what, I know there's mixed issues that affect that ratio, but is that something that's kind of, there's reasons that it'll go down again in FY27, or just help us understand better how that expense line works.

I'll let Carl take that one.

Yeah, no, I'm happy to take that, Linda. Yeah, the biggest piece that's influencing that rate here in the quarter is definitely mix issues. So it's revenue mix, and also just the way the payout between customers and consultants at the end of the day. But when I look forward to the future quarters and the rest of the year, I don't anticipate that that percentage is going to go down much further. I think from an expectation standpoint, in between that 41% to 42% is where we're going to settle. There's always a little bit of variability when we throw, when we have the incentives, outside incentive trips and other things that influence that, but on a full-year basis, that 41 to 42 percent is where I expect commissions to be going forward.

Okay, thank you. And then you mentioned that free cash flow in the quarter or operating cash flow was positive, but then you mentioned timing of some items. So are some items going to reverse and, you know, you might end up with worse cash flow in FY27? I'm just trying to understand if there's an inflection point in cash flow or if it's just timing going on here.

Yeah, no, I think the timing that I was referring to in my portion of the script is really in comparison to the prior year. So if you were looking at the changes compared to last year versus this year, we had some very large accrued expenses at the end of the prior year period that were influencing the cash flow there. If I'm isolating just the current quarter where we generated free cash flow from operations and then looking forward, we do expect that trend to continue, and I wouldn't think there'd be as large of these unusual timing-based items. It should be more predictable going forward.

Okay, thank you. And then, did I catch it correctly that you paid a stock dividend? I thought the dividends up until now were cash dividends, or did I misunderstand that? Is it a cash dividend?

Yeah, no, they're just, yeah, sorry, yeah, they're all just cash dividends. So, all of the dividends that we've paid historically and the dividend that we just announced in connection with today's call, they're all cash-related dividends.

Okay, great. And then just my last question is about capital spending. So it was a little higher. I think it was $1 million or something in the quarter. You know, there's some investments to make in IT and everything. So going forward, is this like $4 million a year, $3 million a year? What would you say CapEx in the next 12 months or so is going to be roughly?

Yeah, it's going to be pretty close to that, Linda. If you look at the current quarter, we are about $1.2 million in CapEx, which was a little elevated over where we've been previously. In the majority of that relates to our e-commerce platform. I would anticipate similar levels, probably in that around $1 million a quarter for the next couple of quarters, and then things will start to tail off a little bit, but it's still going to be on an annualized spend until we get through the e-commerce platform and the new business suite. that we talked about, the annualized spend there is going to be three to three and a half million dollars.

And even those will continue to invest to augment the, you know, the services and the capabilities that we can provide.

Okay. Thank you very much. Thank you for taking my questions.

Thanks, Linda.

We have reached the end of the question and answer session. I would like to turn the floor back over to Terrence Moorhead for closing comments.

Okay, well, thank you, everybody, for joining us today and for your continued support, and I look forward to speaking with you again next quarter. All right, take care. Bye now.

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