Earnings Call Transcript - LFVN Q4 2024

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's Fourth Quarter of Fiscal 2024 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. I would now like to turn the conference over to Mr. Anderson. Please go ahead, sir.

Reed Anderson, Host

Thank you. Good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the fourth quarter of fiscal 2024. On the call today from LifeVantage with prepared remarks are Steven 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 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, August 28, 2024. LifeVantage assumes no obligation to update any forward-looking projection that may be made in today's release or call. Now, I will turn the call over to Steven Fife, the President and Chief Executive Officer of LifeVantage.

Steve Fife, CEO

Thanks, Reed, and good afternoon, everyone. Thank you for joining us today. Our fourth quarter results again demonstrated strong profitability despite challenging macro conditions that have continued to create top line headwinds. Our adjusted EBITDA margin was 9.8%, a 90 basis point improvement versus a year ago, reflecting continued progress on initiatives to optimize performance and drive profitability. Adjusted EBITDA for the quarter was flat versus last year, while total revenues were down nearly 10%. Currency-adjusted revenue was down 8%. For the full fiscal year, adjusted EBITDA of $17 million was up 45% versus fiscal '23, while revenues were down 6%. Currency-adjusted revenue was down 5%. While overall fourth-quarter revenue was softer than we anticipated, we were encouraged by results in our largest geographies. In the Americas region, which accounts for over three-quarters of our business, revenues were down 4% year-over-year but increased sequentially 2.4% over fiscal Q3. In addition, productivity continued to improve as revenue per consultant rose over 2% compared to a year ago. We continue to focus on initiatives to drive consultant engagement, including our recent Global Activate 2024 Virtual Event held in July. This event was supported by consultant-hosted watch parties and local gatherings in all of our markets around the world. It served as a platform to reaffirm our commitment to the direct selling industry, as well as how we have adapted our business into modern direct selling. During the event, we continued to emphasize core behaviors of the Rise ERA, enrolling, retaining, and advancing, highlighting impressive statistics supporting the positive impacts of these behaviors on consultant performance, including business growth, increased retention rates, and recent leader rank advancements within the organization. Another highlight of the event was the announcement of the 2024 Incentive Trip Destination, an extraordinary eight-day, seven-night cruise to Alaska; consultants in our U.S., Canada, Mexico, and European markets earn points towards this bucket list trip by following ERA behaviors. Activate 2024 also featured comprehensive sales training sessions led by LifeVantage top leaders. These sessions provided invaluable insights, strategies, and tools to elevate consultants' businesses, emphasizing Rise ERA behaviors and equipping consultants with actionable steps to achieve their goals. Events like Activate 2024 reinforce the importance of the community for direct sales companies and brands. Activation Nation has rallied around the vision for this company and is excited for what is to come. We continue to make huge strides in programs designed to sustain long-term growth. An example of those efforts is the recently completed optimization of our Rewards Circle loyalty program in the U.S., Australia, and New Zealand markets. The update demonstrates our ongoing commitment to enhancing the experience for both our consultants and customers, as well as our commitment to optimizing program design to meet consumer demands. In addition to providing greater value and optimizing engagement for customers, Rewards Circles now also offer subscription benefits for consultants. On the consultant side, rewards include free shipping on enrollment orders when a subscription is scheduled for the future, plus business-building rewards every time a subscription ships. Customers benefit from the refresh with first subscription perks, including free shipping and a gift with subscriptions when over a price threshold. Customers will continue to earn reward credits with every subscription that will now enjoy lower redemption thresholds. These simplifying enhancements to Rewards Circle were driven from customer retention data and come 16 months after launching the program as part of LV360. Recall that our LV360 transformation initiatives enable us to better meet the needs of consumers looking for a better approach to wellness via our incredible activation products, as well as entrepreneurs looking to build and grow successful businesses. LV360 included the launch of the Evolve compensation plan, a modern compensation system that offers independent consultants diverse income streams and opportunities to accelerate their path to success. Evolves caters to the dynamic needs of modern entrepreneurs and affiliates who are driven to share and sell products, as well as those who also want to build robust collaborative teams. Innovation has been another key area of focus over the past several years, and we've been very pleased with the results, including the significant growth we've experienced with Liquid Collagen, a first-of-its-kind product that not only replenishes lost collagen with 10 types of collagen peptides, but activates the body's own production of collagen protein. That product continues to deliver for us, especially contributing to an increase in both customer and consultant ARPA. Finally, at Activate 2024, we announced the upcoming launch of a new product system we will be introducing in October that expands the LifeVantage activation story into the rapidly growing category of weight loss. As with our other activating products, you take this new system to make something your body needs for health; something that knows how to make, but as with other things in your body, age, genetics, poor diet, and sedentary lifestyle lead to the levels of this essential hormone. Our innovative solution promises to disrupt the weight management space with two groundbreaking formulas designed to suppress food cravings and balance hunger hormones by activating GLP-1 production. We are incredibly excited about this launch and believe it will be a game changer for our consultants and their businesses. There is no comparable product or product system like it on the market, and we're delivering it in a way that stays true to our brand and approach to health. This new product system will be launched at our upcoming Market Connect event on October 11 and 12 in Kansas City. In summary, we are making meaningful progress on key initiatives, especially around innovation, optimization, and profitability, with adjusted EBITDA margins again around double digits, despite a very challenging revenue environment. In addition, we continue to focus on driving shareholder value with share repurchases and dividend payments. Finally, before turning the call over to Carl, I want to share a few comments on the recent change we announced to our Board of Directors. After serving as a director for over five years, Erin Brockovich has resigned from the Board to make room for a new board member that the Board and Erin feel will bring exceptional value to the company. Erin has been an amazing partner and advocate for our brand, and we are thankful for her many years of dedicated service. In her place, we are pleased to welcome Raj Anbalagan to the LifeVantage Board. Raj has over 20 years of experience managing and executing large technology and e-commerce programs, and he currently serves as the Chief Information and Product Transformation Officer at Caesars Entertainment. His experience in digital technologies will be invaluable in advancing our strategic growth initiatives. Now let me turn the call over to Carl Aure, our Chief Financial Officer, to review our fourth quarter financial results. Carl?

Carl Aure, CFO

Thank you, Steve, and good afternoon, everyone. Let me walk you through our fourth quarter 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. Fourth quarter revenue was $48.9 million, down 9.8% on a year-over-year basis, and foreign currency negatively impacted revenue by $0.9 million. Excluding the negative impact of foreign currency fluctuations, fourth quarter revenue was down by $4.4 million or approximately 8% as compared to the prior year period. Revenue in the Americas region decreased 4.1% to $38.1 million in the quarter, primarily driven by a 7.8% decrease in total active accounts and partially offset by higher average revenue per account, resulting from changes in product mix and the continued penetration of our TrueScience Liquid Collagen product. Revenue in our Asia/Pacific and Europe region decreased 25.2% to $10.8 million in the quarter, primarily driven by a 17.1% 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, fourth quarter revenue in our Asia/Pacific and Europe region was down 18.6% as compared to the prior year period. Gross margin was 79.5% for the fourth quarter compared to 79.6% in the prior year period. We are encouraged that we were able to maintain gross margin percentages despite the decrease in revenue. We continue to be focused on identifying cost savings opportunities across our supply chain to improve gross margins. Commissions and incentive expense in the fourth quarter decreased $1.5 million year-over-year. As a percentage of revenue, commissions and incentive expense was 44.9%, up 160 basis points versus a year ago levels. The increase was primarily due to the timing and magnitude of our various promotional and incentive programs. Non-GAAP adjusted SG&A expense was $13.7 million compared with $16.7 million in the prior year period and improved 280 basis points as a percentage of revenue to 28%. Adjusted non-GAAP operating income was $3.2 million compared with adjusted non-GAAP operating income of $3 million in the prior year period. Adjusted non-GAAP net income was $1.8 million or $0.14 per fully diluted share in the fourth quarter, compared to adjusted non-GAAP income of $2.2 million or $0.17 per fully diluted share in the prior year period. We recorded income tax expense of $1.4 million in the fourth quarter of 2024 compared to $600,000 in the prior year period. Excluding the $300,000 accrual related to uncertain tax positions, our effective tax rate for fiscal 2024 was 24.8%. Adjusted EBITDA for the fourth quarter was $4.8 million or 9.8% of revenues compared to $4.8 million and 8.9% 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 $16.9 million of cash and no debt at the end of the fourth quarter. Capital expenditures totaled $0.3 million in the fourth quarter and $2.2 million for fiscal year 2024. In addition to maintaining a strong balance sheet, we continue to focus on our capital allocation priorities to drive value for stockholders. During the fourth quarter, we used approximately $1.8 million in cash to repurchase approximately 253,000 shares of common stock under our stock repurchase authorization. During fiscal 2024, we used approximately $6.4 million in cash to repurchase approximately 977,000 shares of common stock. As of June 30, 2024, there is still $20.4 million remaining under our stock repurchase authorization. We also announced a quarterly cash dividend of $0.04 per common share of stock or approximately $500,000 in the aggregate. This dividend will be paid on September 17, 2024, to stockholders of record as of September 9. Since the beginning of fiscal 2024, we have returned $13.4 million in total value to our stockholders through stock repurchases and dividends. Turning to our outlook for fiscal 2025, we anticipate our full year revenue will be in the range of $200 million to $210 million. We expect adjusted non-GAAP EBITDA in the range of $18 million to $21 million, with adjusted non-GAAP earnings per share in the range of $0.70 to $0.80 per share. We are committed to continuing to improve our adjusted EBITDA margins, and we believe we are well on track to reach our long-term target of low double digits. And with that, let me turn the call back over to the operator for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question is from Doug Lane with Water Tower Research. Please go ahead with your question.

Douglas Lane, Analyst

Yes. Hi. Good afternoon, everybody. Just starting off on the outlook for fiscal 2025 here, Carl. You're coming off a couple of quarters sales pressures, challenges you mentioned, and you are looking for full year growth or flat to up mid-single digits for fiscal 2025. And I know, you don't give quarterly guidance, but can you give us a little help with cadence? Is this something where you expect a consistent improvement quarter-over-quarter in 2025 or is there going to be more of a back half load?

Carl Aure, CFO

Thank you, Doug, for the question. Looking ahead to fiscal 2025, we anticipate a moderate improvement in each quarter. The first quarter may be slightly lower compared to the others, but we expect momentum to build in the latter part of the year, particularly with our product launch in the second quarter and the expected growth in the third and fourth quarters.

Douglas Lane, Analyst

That's helpful. I noticed that the total active accounts, which include both consultants and customers, improved sequentially for the first time in years, reversing a longer-term trend. I'm curious about what is driving this change. One data point doesn’t establish a trend, but it is an interesting shift. Could you provide more insights on the sequential improvement in active accounts?

Steve Fife, CEO

Yeah, Doug. This is Steve. I'm glad you noticed that. We are pleased with it. As you know, we've been working on the transformation within the company for about 18 months now, starting with a refresh to our compensation plan in the U.S., Japan, and Australia. More recently, earlier this year, we made changes in Canada, Mexico, and Europe. I attribute the positive changes to both attracting new talent with the new plan and helping our existing leaders understand how to optimize it. This has improved our retention, and we've seen growth in enrollment. In the last quarter, Q4, we experienced both increased enrollments and improved retention, particularly in the U.S. While one data point isn't a trend, I believe we have reached the bottom and are looking forward to sequential growth.

Douglas Lane, Analyst

Have you noticed any impact from other companies shifting their business models from traditional direct selling to affiliate marketing? Is there a chance for LifeVantage to take on a leadership role in this area?

Steve Fife, CEO

Yes, absolutely. It's one of the things that as we look back, we anticipated this trend occurring coming out of COVID there is more and more activity and noise about the affiliate model, and it was one of the key premises of when we changed our compensation plan to make it much more attractive for those individuals. But really, the beauty of our plan is that we kept all of the best attributes for those who want to build a very traditional consulting business. They're more kind of entrepreneurial-minded and want to build teams. The plan is still very attractive to them, as well as providing an avenue for people that are more interested in just selling products. So rather than having to make really hard decisions around which path or which model we're going to follow or add a new element to a plan and forcing those individuals to kind of make a decision at the beginning when they're joining LifeVantage, our plan allows people to join however they want and then to move freely between just selling products and, like I said, or building teams. And I think that the benefits of that we're just beginning to see.

Douglas Lane, Analyst

Okay. That makes sense. And then for those of us that pay attention to what's going on at Medifast and WeightWatchers, certainly might raise an eyebrow about the decision to get into the weight management space with such turbulence in that space currently with the whole GLP-1 thing and how disruptive it's been to just about anybody that participates in weight management these days. So maybe if you could help build down a little bit more on the weight management, what's your offering? How does it differ from the competitors? And what's going to be your approach to that segment?

Steve Fife, CEO

There is a lot of turbulence in the weight management space, but we've adopted an approach rooted in LifeVantage's legacy, which has been consistent from a scientific perspective and especially over recent years as we developed our activation narrative. Our foundation started with Protandim Nrf2, which activates certain pathways in our bodies to produce antioxidants that fight oxidative stress. We've since launched a skincare line and other products that center around activation. Recently, we introduced a collagen product that activates proteins to boost collagen production. As we explored our pipeline and observed market trends, we realized we could create an activation story focused on weight management. Almost a year ago, we began developing a product set to launch in mid-October that activates GLP-1 proteins. This product consists of a two-part system—tablets and a powder—that is entirely natural. It offers benefits like reducing food cravings and acting as a hunger suppressant. Currently, we have completed our in vitro testing with very promising results and are about two-thirds through our human clinical testing, where preliminary results align with our expectations. While the market is crowded, we believe our offering provides a valuable alternative, moving away from quick fixes and yo-yo diets. Our product is designed for long-term use, assisting in weight management even after achieving target weight loss, while also supporting mental health and confidence. We feel confident that we have a differentiated, healthy product that aligns with current market trends, and we are optimistic about what October will bring.

Douglas Lane, Analyst

Okay. That’s good color. Thanks, Steve.

Operator, Operator

Thank you. There are no further questions at this time. I would like to hand the call back over to Steve Fife for any closing comments.

Steve Fife, CEO

Well, thank you, everyone, for joining us today. And as we conclude, I want to extend my appreciation to our committed employees, outstanding independent consultants, stockholders, and faithful customers. The strength of our distinctive platform, coupled with the competitive edge of our business model that empowers individuals to establish businesses on their own terms, is complemented by a dedicated leadership team, a diverse range of unique products, an engaged consultant community, and a robust financial position. This collectively emphasizes our strategic positioning for the future, enabling us to pursue long-term goals while we consistently build substantial value for our stockholders. We look forward to updating you on our next call, which will be after the launch of our new innovative GLP-1 weight management system. Thank you.

Operator, Operator

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