Lifevantage Corporation

call to discuss LifeVantage's second quarter fiscal 2023 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, sir.

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 Fyfe, President and Chief Executive Officer, and Carl Alray, 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, February 2, 2023. LifeVantage assumes no obligation to update any forward-looking projections that may be made in today's release or call. Now I will turn the call over to Steve Fife, the President and Chief Executive Officer of LifeVantage.

Thanks, Reid, 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 18th, and simultaneously broadcast to our U.S. Japan, Australia, and 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 path, share, build and grow, and lead, and clearly defines the earning opportunities at each stage. Evolve meets consultants where they are on their respective journeys, rewarding them for working in the way that works for their personalities and lifestyles. It is a simple path that is attractive to both direct sales professionals and those who simply want to earn by sharing products they love. A new customer loyalty program called Reward Circle is another key element of LD360. Like our updated compensation plan, Reward Circles is structured in a simple and efficient manner, which enhances its value proposition. With each subscription order, life-vantage customers earn towards reward credits, which, once earned, can be applied as a discount on future orders. Insider status is unlocked once a certain subscription spend threshold is met. Once insider status is earned, reward credits double in value. Other program benefits include a free full-size product on a customer's second consecutive qualifying subscription order, as well as a product gift on their anniversary. Existing customers on subscription as of March 1st will automatically have insider status in the loyalty program. Both Evolve and Reward Circle are scheduled to launch in the U.S., Australia, New Zealand, and Japan on March 1st. These initiatives are planned to roll out to our other markets where licensed products are sold and distributed over the next 12 months. Another important element of LV360, our product innovation initiative, kicked off last calendar year with strong activation positionings across the portfolio. The product initiative includes last year's launch of liquid collagen. And in October, at Global Convention, we launched our activation path, optimize health, achieve more, look radiant, and evolve possibilities that make it easier for consultants to guide customers through their wellness journey. At Rock the Rhythm, three new products were launched in the US, Japan, Australia, and New Zealand markets. The Rise AM and Reset PM system is a multi-nutrient blend of vitamins, minerals, and adaptogens intelligently designed with time-wise nutrient delivery, a system that aligns with the natural circadian rhythms of your body to deliver the right nutrients in the right amounts at the right time. The formulas support cell signaling and gene activation to help maximize the effectiveness of the protandim line. To demonstrate the important role of micronutrients in cellular communication and activation, we performed a clinical study targeting key genetic markers, such as catalase, glutathione, and sirtuins, The combination of RISE-AM and RESET-PM with protandim Nrf2 synergizer increased gene expression in glutathione peroxidase by 67% over protandim Nrf2 synergizer alone. The combination of RISE-AM and RESET-PM with trisenergizer increased the total sirtuin activity by 68% over trisenergizer alone. These and other results from the study combined with data from Mintel showing that 76% of Americans rely on dietary supplementation to fill nutritional gaps positions this product well with our current ProTandem users, as well as opens the door to new market share as we reach new customers currently purchasing a multivitamin elsewhere. Also added to the product line, LifeVantage D3 Plus does more than simply supplement you with vitamin D. It is also an excellent source of vitamin K2, magnesium, and calcium to support strong bones, immune and cardiovascular health, muscle and nerve health, as well as improved mood. LB360 includes major enhancements to our digital experience as well. Starting on March 1 and continuing over the next couple of months, we will be introducing a revamped e-commerce experience, as well as major enhancements to account and subscription management, which will continue to elevate our overall user experience and drive engagement. We are thrilled to unveil LV360 and the initiatives designed to drive growth for our company. Several new promotions and incentives have already kicked off in advance of the March 1st launch to help consultants prepare for the exciting new opportunities that lie ahead. We are executing on a well thought out training plan, which includes over 50 roadshows and virtual training sessions worldwide. These trainings hosted by a corporate team and partnered with our top leaders are aimed at developing confident consultants excited to share their best-in-class opportunity with others. Current LV360 trainings will culminate at regional EVOLVE events, which will be held in March in the U.S., Australia, and Japan to continue field support and kick off the next phase of field training and development, as well as a new recognition program. It was important for us to work towards the public announcement of LV360 while laying a strong foundation for the initiatives to build on. Second quarter revenue of $53.7 million was up 2.8%, our first year-over-year increase in 10 quarters. And on a constant currency basis, revenue was up 7.4%. The US was the key driver with second quarter revenue up 15.4%. Internationally, our Philippines launch continues to show progress, and we are encouraged by recent trends in several other key markets. Liquid collagen remains the top performer and contributor to the U.S. revenue gains. Supply chain challenges surrounding the product were able to be resolved in Q2. Recall that We first launched this product in June, and in the first full quarter of sales, which would have been our fiscal year ending in September, orders sharply exceeded forecasts, resulting in a significant backlog. The breadth of the demand for our unique collagen product bodes well for future quarters, as well as our overall product strategy. Customer penetration was 24.1% in Q2, up from 18.2% in Q1. And consultant penetration reached 27.2% compared to 25.3% in Q1. On a blended basis, penetration was 24.8% in Q2 compared to 20.3% in Q1. Customer acquisition similarly benefited from our liquid collagen product, which accounted for approximately $9.1 million, or approximately 17% of Q2 revenues. We will be launching liquid collagen in Japan, Australia, and New Zealand in March in a fashion similar to the U.S. launch in June. We look forward to sharing results from those launches with you in future quarters. The launch of Protandim NAD in Japan, Australia, and Mexico enabled us to introduce the Protandim TriSynergizer stack in these markets. Consisting of Protandim Nrf2, Protandim Nrf1, and Protandim NAD, the TriSynergizer stack has been a top performer in the U.S., and initial results in these markets show similar potential. Our blended penetration rate in Japan was 13.4%. In Australia, it was 4.8%. And in Mexico, it was 12.5%, showing strong early adoption. Energy levels in the field remain high as we continue to elevate and sharpen our brand messaging. Trends have remained very favorable across our social media channels. With November's total user engagement with brand content up 178% and December up 226% compared to those months in 2021. The MVP builder incentive and college in cash have continued to drive key behaviors for consultants as well as set them up for success with our new evolved compensation plans. In Q2, we also introduced the sharing bonus for NAD and Axio that is structured similar to collagen cash for new products in Australia, New Zealand, and Japan. Our newest incentive, Run to Pro4, is also designed to help consultants earn with Evolve. Finally, the upward advancement of consultants provides further proof of our strong momentum and as eight individuals recently qualified for their first elite retreat. In summary, the evolution of our business model and culture solidifies our leadership as the activation company and positions us for growth and improved profitability. We've invested over $2 million during calendar 2022, which further demonstrates our commitment to the LV360 initiatives and strategic plan. We are very pleased with our latest results, including a return to top-line growth in the second quarter, but recognize it is still early in our transformation journey. Organizationally, the alignment between corporate and the field is more unified than ever, giving us a high degree of confidence in our future trajectory. Top leaders within this field are driving implementation within their teams as well, which is creating so much energy and excitement. There has never been a better time to be part of this company. Now, let me turn the call over to Carl Alry, our Chief Financial Officer, to review our second quarter financial results.