Lifevantage Corporation

Good day, ladies and gentlemen, and thank you for standing by. Welcome to today's conference call to discuss LifeVantage's second quarter of fiscal 2025 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 call 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.

Thank you. Good afternoon and welcome to LifeVantage Corporation's conference call to discuss results for the second quarter of fiscal 2025. 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, under-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 5th, 2025. LifeVantage assumes no obligation to update any forward-looking projection that may be made in today's release or call. Now, I would like to turn the call over to Steve Fipe, the President and Chief Executive Officer of LifeVantage.

Thanks, Reid, and good afternoon, everyone. Thank you for joining us today. We are thrilled to share our second quarter results, which demonstrate the transformational impact our new MindBody GLP-1 system is having on our business. Our performance in Q2 significantly exceeded initial expectations, with revenue of 67.8 million, representing sequential growth of nearly 44% from our first quarter, and year over year growth of 31%. Profitability metrics also remain strong with gross margins up 190 basis points versus prior year and adjusted EBITDA more than doubling to 6.5 million or 9.6% of revenue. The success of our patent pending MindBody GLP-1 system since its October launch in the US has been remarkable. While our initial inventory sold out in just 13 days, we continued to take orders throughout the quarter, and I'm pleased to report that by mid-December, we had received additional inventory and cleared our backlog by the end of December. This rapid sellout occurred despite ordering significantly more initial inventory compared to our successful liquid collagen launch. More importantly, We have now secured sufficient manufacturing capacity and strengthened our supply chain to meet the continued strong demand we're seeing, with our current capacity significantly higher than our initial launch volumes. Our active accounts metrics are particularly encouraging, including the highest number of enrollments in a quarter since 2019. During Q2, active accounts increased by 23,000, or 25%, in the Americas region compared to Q1, including a 13% increase in the number of our independent consultants and a 31% increase in the number of customers. And while the MindBody system has been a catalyst for active accounts growth, we are also seeing very positive early indications of strong cross-selling opportunities across our broader portfolio of activation products. Subscription metrics are also trending up. and are currently above 70% reflecting the initial impact of MindBody, which is positioned as a long-term lifestyle product to aid in sustainable weight management among other health benefits. The MindBody GLP-1 system exemplifies our ownership and innovation in cellular activation and longevity. The US mind-body clinical results have shown 140% increase in natural GLP-1 production on average, leading to reduction of visceral fat by up to 27% and total body fat by up to 5.5%. All those who lost weight in the clinical also notably maintained their muscle mass. These compelling results combined with the fact that we are using naturally derived ingredients delivered in a format that fits a typical daily routine are resonating strongly with consumers looking for a sustainable approach to weight management. Consumers are discovering the numerous benefits of this approach, including reduced cravings, feeling fuller longer after meals, and reduced food noise. I'm also excited to share the results of our recent third-party in vitro cell study on the synergistic benefits of combining our mind-body GLP-1 system with protandim NRF2 synergizer in what we call the healthy weight stack. The findings are remarkable. When used together, these products not only amplify each other's individual benefits, but activate 22 new genes. This new genetic activity targets key aspects of cellular health, and an aging impact that many of us don't see, the aging of our internal organs. Speaking to the amplified results, the study showed enhanced antioxidant defense through the activation of four additional antioxidant pathways, while nine additional fat and fatty acid metabolisms pathways were activated to optimize the body's ability to use and distribute fat effectively. This product combination supports our customer's wellness journey by not just addressing weight management, but also promoting cellular resilience, metabolic health, and healthy aging. These findings reinforce our scientific leadership in cellular activation and demonstrate how our products can work together to deliver enhanced benefits for our customers. Looking ahead, we're preparing for the international rollout of the MindBody system beginning in March. Given that the U.S. currently represents more than 80% of our revenue, we see significant growth opportunities as we expand into our other markets. We're following the same strategic measured launch approach that proved so successful in the U.S., including comprehensive consultant training and education about the GLP-1 hormone, its role in the body, and how it is activated. Our modernized, evolved compensation plan has been crucial to our success. The plan's flexibility in supporting traditional business builders, the bedrock of LifeVantage, and product-focused sellers have enabled us to retain our core consultant base while expanding into new channels, helping us reach new audiences. For example we're seeing increasing interest from influencers with substantial followings who are attracted by our demonstrable science backed products and compelling earning opportunity. The latest enhancements to our evolved compensation plan including the new sharing bonus launched on November 1st in our current evolved markets are further simplifying the path to success for our consultants. This new bonus on top of other compensation elements, along with accelerators for new consultants, is helping drive the strong enrollment numbers we're seeing. Our commitment to sustainable, profitable growth remains unchanged. Despite the rapid growth we're experiencing, we maintain strong profitability metrics in the quarter. We're continuing to make strategic investments and growth initiatives while maintaining our disciplined approach to costs. Looking to the second half of fiscal 2025, we're focused on several key initiatives. One, ensuring consistent supply to meet the high demand for our mind-body system. Two, successfully launching the MB system in international markets starting in March. Three, launching our evolved compensation plan to our remaining Asian markets in March. Four, continuing to enhance our digital capabilities and consultant tools. Five, building greater brand awareness as we reach new customer segments. And six, maintaining our strong profitability metrics while funding growth initiatives. We believe we're still in the early stages of realizing the full potential of our mind-body system and its ability to transform our business. The product significantly expands our total addressable market brings new customers to our activation platform, and strengthens our position as a leader in cellular health activation. Additionally, we're excited about our upcoming global convention in April in Salt Lake City, where we'll celebrate the international launch of MindBody, consultant business successes, and our vibrant, energetic community that only direct selling and a brand centered on activation can deliver. This event will bring together our global field for training, announcements, and launches that will further build momentum for our growth initiatives. I'm also pleased to announce that we recently welcomed Todd Thompson as our Chief Information and Innovation Officer. Todd brings decades of experience driving transformative technology solutions and business growth for prominent global organizations including JetBlue Airlines, Starwood Hotels, and doTERRA. His proven track record in scaling operations, improving backend systems, and delivering exceptional customer-facing technologies will be invaluable as we enhance the digital experience for our consultants and customers. Todd's experience will be particularly critical as we scale our infrastructure to support our accelerating growth in international plans. In summary, we are very pleased with our latest results. Our business has incredible momentum reflecting the exceptional growth of MindBody in recent months. 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 position us well for continued success. We remain focused on executing our strategy to deliver strong financial performance and long-term value for our shareholders. Now, let me turn the call over to Carl to review our second quarter financial results in detail. Carl?

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 $67.8 million, up 31.3% on a year-over-year basis, and up 43.5% sequentially from the first quarter. Foreign currency negatively impacted revenue by $300,000 in the second quarter. Excluding the negative impact of foreign currency fluctuations, second quarter revenue was up approximately 31.9% as compared to the prior year period. Revenue in the Americas region increased 46.3% to $57.2 million in the quarter, reflecting exceptionally strong results from the October launch of our MindBody GOP-1 system in the United States. Total active accounts increased 21.1% in the Americas in comparison to the prior year period, and was up 25% sequentially from the first quarter. Total average revenue per consultant was also up 33.7% in the Americas in the current quarter. Revenue in our Asia Pacific and Europe region decreased 15.5% to 10.6 million in the quarter, primarily driven by a 13.9% 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, second quarter revenue in our Asia Pacific and Europe region was down 13.7% as compared to the prior year period. Gross margin was 80.5% in the second quarter, 190 basis point improvement compared to 78.6% in the prior year period. The increase in gross margin was primarily due to product mix factors, including strong sales of our mine body, as well as lower inventory obsolescence and lower inventory related variance expenses. Commissions and incentive expense as a percentage of revenue was 48%, up from 42.1% in the prior year period. The increase was due to higher incentive related expense from additional qualifications within our existing promotional programs, higher commissions due to the rapid growth and change in sales mix, within our active accounts between independent consultants and customers and impacts and changes in overall revenue mix between commissionable and non-commissionable revenue. Non-GAAP adjusted SG&A expense was $18.1 million compared with $17.4 million in the prior year period and was 710 basis points lower as a percentage of revenue to 26.7%. Adjusted non-GAAP operating income was $3.9 million compared with adjusted non-GAAP operating income of $1.4 million in the prior year period. Adjusted non-GAAP net income was $3 million, or 22 cents per fully diluted share in the second quarter, compared to adjusted non-GAAP income of $1.4 million, or 10 cents per fully diluted share in the prior year period. We recorded income tax expense of $500,000 in the second quarter, which translates to an effective tax rate of approximately 17%, compared to a tax benefit of $500,000 in the prior year period and an effective rate of 41%. The decrease in our effective tax rate was due to the impact of discrete items. We now expect our full year FY25 tax rate to be approximately 22% to 24%. Adjusted EBITDA for the second quarter was $6.5 million, or 9.6% of revenues, compared to $3.1 million and 6% 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 $21.6 million of cash and no debt at the end of the second quarter. Capital expenditures total $500,000 in the second quarter compared to $600,000 in the same period a year ago. We anticipate total capital expenditures to be approximately $1.5 million in fiscal 2025. Turning to capital allocation, we did not repurchase any shares during the second quarter ended December 31, 2024. Through the first six months of fiscal 2025, we've repurchased 140,000 shares for an aggregate purchase price of $1.1 million. As of December 31, 2024, there was still $19.3 million remaining under existing share repurchase authorization. We also announced a quarterly cash dividend of $0.04 per share of common stock, or approximately $500,000 in the aggregate. This dividend will be paid on March 17, 2025, to stockholders of record as of March 3, 2025. Since the beginning of fiscal 2024, we have returned approximately $15.5 million in total value to our stockholders through stock repurchases and dividends. We continue to focus on our balanced capital allocation strategy in order to drive value for our stockholders. Turning to our outlook for fiscal 2025, on January 8th, we announced preliminary Q2 revenue and raised our fiscal 2025 outlook to $235 million to $245 million, a 17% increase at the midpoint from our previous guidance. We are now reiterating this revenue range and now expect adjusted EBITDA to be $21 million to $24 million, up from the prior guidance of $18 million to $21 million, and adjusted non-GAAP earnings per share of $0.72 to $0.88 versus $0.70 to $0.80 previously. We remain committed to continuing to improve our adjusted EBITDA margins and believe we are well on track to reach our long-term target of low double digits in the very near future. And with that, let me turn the call back over to the operator for questions. Operator?

Thank you. 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 remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Brooks O'Neill with Lake Street Capital Markets. Please proceed.

Hey, good afternoon, guys. This is Aaron on the line for Brooks. Are you able to hear me okay?

Yeah.

Cool. So congrats on the strong quarter. I guess to start, so with the recent focus on sort of attracting more social sellers and micro-influencers, How do you plan to continue to scale and sort of build off the solid growth at the back of the accounts we saw this quarter? And I guess a second-parter to that question, you know, in conjunction, what do the efforts look like around brand awareness?

Yeah, thanks. You know, we are, I think we talked earlier a little bit in my script, but we are looking to expand, you know, I'd say not just brand awareness, but, you know, our product offerings. To date, in the company, we've relied largely on our independent consultants to be that voice. And they've done a phenomenal job. But we know that our current base of consultants you know, don't necessarily participate as broadly in the weight management area as, you know, our new product would support. And so we are going to be initiating some very proactive advertising outreach to drive a higher awareness around LifeVantage. And, you know, LifeVantage the company and who we are as the activation company But also targeting some of our key products with mind body and collagen and pro tandem in particular. And and you know I think that success that we're seeing with you know call it social sellers is is just continuing to build it's amazing how you know they a lot of these people follow one another and. We've had circumstances or situations where, you know, we have a social seller join us and there are people that are following that individual who then have signed up to join us because, you know, they see the benefits of MindBody is really the attraction. But as they get in and we start talking to them a little bit more, and they get educated on our other product offerings, they see that this is, you know, much bigger than just kind of a one trip pony. So we see that opportunity for sure. We also, you know, are excited about what our existing consultant base is doing as well to drive this message through their channels.

Absolutely. No, that's super helpful. And then this question may be tailored a little bit more towards Carl. You know, are there any material expenses we should be looking for post this initial launch phase here in the next quarter or two? You know, understandably, there were some higher expenses this quarter associated with the launch and higher top line number, but maybe just some additional color on potential lumpiness there would be great.

Yeah, sure, Aaron. I can share a few more details. You know, as we look forward here to Q3, we still expect to see some elevated costs, particularly on the incentive line. One of the big increases we had in Q2, we had some existing incentive programs that I talked a little bit about in the script. And the qualification for that pre-existing incentive actually runs through March of this year. And so there will be some continued elevated costs on that incentive line here in Q3, but not to the same extent that we saw in Q2. It will be gradually decreasing a bit. And then ultimately in Q4, we expect that to normalize back down in that, you know, say 44% range. And so that's the expectation. So outside of the commission and incentive expense, I think the majority of the launch-related costs are really behind us.

Awesome. No, that's super helpful. That's it for me. Congrats again, guys. Great. Thanks, Aaron. Thanks a lot.

Our next question is from Alex Furman with Craig Hallam Capital Group. Please proceed.

Hey, guys. Thanks very much for taking my question, and congratulations on a really successful launch of the MindBody system. You know, I wanted to ask a little bit about the margins. You called out a couple of headwinds to the margins in the second quarter, like some incremental shipping costs and the incentive comp and, you know, incentive program related to the GLP-1 market. program, it seems like despite those headwinds, the flow through to EBITDA on the extra revenue in Q2 was still pretty strong. But the guidance implies that the flow through over the next couple of quarters in the back half of the fiscal year is going to be lower than that. Can you help us understand why that is and what are kind of the puts and takes as you think about incremental margins for the rest of the year?

Yeah, I can take a first crack at that, Alex, and then Steve, you can add any comments if you'd like. But as we look at the flow-through, you know, I think that the flow-through actually will be consistent or maybe even slightly better in the back half of the year. As I mentioned in the, you know, the previous question, we still are anticipating some higher incentive-related expenses and elevated just normal commission payout in Q3 and Q4. You know, we'll also see some elevated, you know, related to the variable comp that we have in the SG&A structure, but I think, you know, going forward, I think that the flow-through should be similar here in Q3 and Q4. And looking forward, you know, beyond into FY26, that's where we really expect to see the incremental leverage of that additional flow-through running through benefiting adjusted EBITDA and EPS.

Okay, that's really helpful. And then if I could ask also just on kind of the timing of the launch and how it's progressed, obviously a pretty huge impact on revenue just in the first quarter it was launched. Can you give us a sense of how revenues for the total company or for MindBody trended month to month throughout the quarter? I imagine you only had a partial month. of selling the new product in October. You had a lot of stock outs to contend with in November. Can you give us a little bit of a sense of kind of how demand played out month to month throughout the quarter and into January?

Yeah, I can talk about that, Alex. October was frankly massive for us. It was the biggest month in the company's history from a revenue standpoint. I don't know, you know, I'd like to think of what would have happened if had we not run out of inventory before the end of the month, but we did. And so all of November and about half of December, we weren't able to ship product. And our consultants, I think, did all they could to continue to enroll, and we took orders during that period of time. But, you know, it's hard, you know, keeping that same energy around selling a product and then telling people, but, you know, you're going to have to wait four, six, eight weeks before you get it. And I think especially around the holidays where people are maybe thinking about spending their money on other things as well. And so, you know, I'm super, you know, proud of our operations team and accelerating kind of orders that had been in transit and supply chain fixes to get inventory back in stock by the middle of December and happy that we were able to fulfill all of that, all of our back order by the end of December. So we ended the quarter with virtually zero backlog, which is fantastic. Now, I think as it relates And so there was, to answer your question, there was a slight decrease month to month to month in the quarter. And January is kind of in line with where we were in December. I think one of the headwinds in January was because of this backorder situation, we had people that could have received and did receive three sets of MindBody in December. Because they placed an order in October, they placed an order in November and December, they joined on a subscription, and then they received all three of those systems towards the end of December. And so when we provided our updated guidance at the beginning of January and reiterated it, You know, we took that into account that we anticipated January being a little softer because of that inventory, how the inventory was shipped out to our customers.

Okay, that makes a lot of sense. Thank you, Steve. Thanks, Carl.

Yeah, thanks, Alex. Our next question is from Doug Lane with Water Tower Research. Please proceed.

Yes, hi. Thank you. Just on the MindBody subscriptions, how has that come in vis-a-vis expectations? Is it mostly subscription now or is it mostly just one-off orders?

Yeah, you know, our average subscriptions, Doug, are about 80% of our revenue on a month-to-month basis. And MindBody, you know, is tracking, you know, low double digits above that. So there's more people coming in on subscriptions and it has a higher subscription rate. I think that's largely due because of our positioning around the product and we've been really careful not to refer to it as a magic pill that you come in and take it for a month and move back to your normal habits. But this is a lifestyle and weight management products. So we strongly encourage people to come in on subscription. And one of the other things that I've looked at and I'm pleased with is just the people that are new people that are joining LifeVantage and are signing up with MindBody over 50% of them are joining with a subscription. And keep in mind that is also during a period of time where for about eight weeks we didn't have product to ship in the quarter. But in the quarter over 50% of the people came in on a subscription and are new to the company on a subscription. And that's compared to, I guess it was kind of low 30s when we launched Collagen. As you know, it was a very successful launch for us as well. But most of the people that we're buying were existing customers and consultants of our customer base back two years ago. So we've seen a much higher purchase rate

of of new people coming from the outside with mind body than we did with uh with collagen and you know with the science coming out um earlier this quarter how much of uh the how much of the mind body is now being sold in in the stacks versus standalone

Yeah, so I think in the first quarter, we did see a high proportion of standalone units, but it was probably, you know, out of the total MB related revenue in Q2, 80%, 80 to 85% would be standalone. But I think the more recent trends that we're seeing, if you look in the later, especially in the launch month, but if you look in the later months and where our expectations are going forward, we believe that we're going to see a higher proportion of

mb purchases in in the stacks and pack strategy that would include nerf 2 or collagen or some other of our products right that would that would yeah yeah as you and as you pointed out that in vitro result that we we talked about at the beginning of the of the month you know it's pretty staggering that the amplification story about taking mind body with protandum And that's really something that Protandim is really the anchor of our product strategy. Every time we look at new products, and this is going back five, six years ago when we introduced Protandim NRF1 and Protandim NAD, we did a study with those products and saw that an amplification when taken with Nrf2. We see the same thing with collagen and now that in vitro result, you know, reaffirms the same kind of findings with MindBody. So, you know, and that our consultants are used to selling that, you know, going back again to our TriSynergizer and then the collagen. So as Carl said, as time passes, I think we'll see that percentage increasingly grow to more of a system or a stack approach than rather than just an individual product sale of MindBody.

No, that makes sense. You have the same thing, right, with NRF2 and liquid collagen. I think there's even a pending one. Exactly. I assume there's science coming out shortly about the three of them, the synergistic benefits of all three of them taken together. Is that fair?

That's fair. That's fair. And, you know, the other thing that I don't know if you saw that release from yesterday, but we did, you know, release the results of our international mind-body formula. And we've started off rolling that out. We expect to have sales internationally starting in Japan towards the end of March and then all of our other international markets in April. But the in vitro results from that product are very consistent, similar to our US formula. It's exciting to have that information corroborating our international formula as well.

Yeah, no question. And just one last thing I noticed in the balance sheet, you're now back to $21.6 million in cash, which is where you were when you declared a special dividend a couple of years ago. So how should we think about the opportunity for a special dividend coming up here?

Yeah, I think that option, Doug, is always on the table. And I think we found that to be a pretty good lever for us in the past. But we're also balancing that against some of the other internal investments that we feel we want to make in the business as well. As Steve talked earlier in the call, we were talking about investments in brand awareness and maybe other areas in IT related where we can get some real benefits internally. And so we are balancing that. And the other thing we want to make sure we do is we need to sure up and make sure that we've got enough inventory worldwide to support the growth that we're expecting in MB and the successful launches we're expecting internationally. So we do have some. We want to make sure we're ahead of the inventory situation and we don't run into the same issue we had with the U.S. launch. But overall, though, you know, I think that's a fair point, and it's certainly a special dividend is something that is an option for us going forward.

Okay. Thanks, Steve. Thanks, Carl. Okay.

Thanks, Doug.

Thanks for the question.

We have reached the end of our question and answer session. I would like to turn the conference back over to Steve for closing remarks.

Yeah, thanks. And I just want to thank you all for joining us today as we wrap this up. I wanted to extend my appreciation to our employees, our independent consultants, all of you stockholders, and our very loyal and passionate customer base. And we look forward to updating you with our next results. Thanks a lot.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.