LifeVantage Corporation (NASDAQ:LFVN) Q4 2023 Earnings Conference Call August 28, 2023 4:30 PM ET
Reed Anderson – ICR
Steve Fife – President and CEO
Carl Aure – CFO
Conference Call Participants
Good day, ladies and gentlemen. Thank you for standing by. Welcome to today’s conference call to discuss LifeVantage’s Fourth Quarter and Full Fiscal Year 2023 Results. [Operator Instructions]
I would like to inform you that LifeVantage intends to file a proxy statement and related proxy materials with the SEC in connection with its fiscal year 2024 Annual Meeting of Stockholders and in connection therewith its directors and certain of its executive officers are participants in the solicitation of proxies from our stockholders in connection with such annual meetings. Stockholders of LifeVantage are strongly encouraged to read such proxy statement and all other related materials filed with the SEC carefully and in their entirety when they become available as they will contain important information about the fiscal year 2024 Annual Meeting of Stockholders, including the identity of the participants in the solicitation and their direct or indirect interest by security holdings or otherwise. At this time, we would like to make no further comments on our upcoming annual meeting or any matters or circumstances related to it.
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. Good afternoon, and welcome to LifeVantage Corporation’s conference call to discuss results for the fourth quarter and full fiscal year 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 4:05 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.
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, August 28, 2023. LifeVantage assumes no obligation to update any forward-looking projection that is 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, Reed, and good afternoon, everyone. Thank you for joining us today.
We are very pleased with our fourth quarter results, reflecting strong momentum across our business as the key initiatives that underpin our LV360 transformation continued to gain traction. Total revenue in the fourth quarter increased 6.4% year-over-year to $54.2 million, exceeding our guidance and was up 7.8% on a currency-neutral basis, driven by 17.9% growth in the Americas regions and continues to reflect higher average revenue per account due to strong demand for our TrueScience Liquid Collagen product.
We also delivered a sharp improvement in profitability in the fourth quarter reflecting our disciplined approach to cost management alongside progress with our strategic LV360 initiatives. Fourth quarter adjusted EBITDA increased 179% year-over-year to $4.8 million, and our adjusted EBITDA margin was 8.9%, up 550 basis points versus our year earlier.
And finally, concurrent with our earnings release, and reflecting our excellent marketplace momentum, strong balance sheet and free cash flow in addition to our quarterly cash dividend of $0.035 per common share, we also announced a special onetime cash dividend of $0.40 per share, which will be in the aggregate amount approximately $5 million. Both of these dividends will be paid on September 22 to shareholders of record on September 8. This underscores our long-standing commitment to driving value for shareholders. We will cover this in more detail later in our prepared remarks.
As a reminder, just under two years ago, we set out to change the trajectory of LifeVantage. Starting with a complete refreshment of our senior executive team, we dove deep into our people, business model, programs and tools and concluded several elements of our business were ripe for enhancement in line with our efforts to realize our vision for the company and maximize value creation for our shareholders. LV360 is the result of that work. It is the holistic comprehensive strategic plan that is stimulating sustainable growth, enhancing profitability and improving shareholder returns.
The strong results we delivered in Q4 are a function of success in transforming and connecting experiences for both consultants and customers from the products we offer to the way we compensate entrepreneurs to the senior leadership team to enhancing the Board of Directors and everything in between. We are excited about the benefits we are already seeing from the work done to-date and we believe the results to come for the remainder of this fiscal year and beyond will further confirm that we are building a stronger, more sustainable business that will deliver superior returns to our shareholders.
In addition to the people, program and product improvements, LV360 included getting clearer on our brand and what makes us unique. Our position on that, we are the activation company. Our products go beyond supplementation and simply bridging nutritional gaps to restoring processes you are born with and enjoyed in your youth. Activation has been part of LifeVantage from the very beginning. Protandim Nrf2 activates your body’s antioxygen production, keeping oxidative stress in balance. And if we could activate that pathway, what else could we help your body do?
It is a question we asked ourselves when formulating our award-winning wildly successful TrueScience Liquid Collagen, which amongst its other benefits, helps activate your body’s own production of this all-important protein. Liquid Collagen continues to be the top-performing product and a key factor in driving revenue growth in the U.S. Customer penetration was 26.9% in Q4, up from 26% in Q3 and 24% in Q2. Approximately $12.9 million or 24% of our global Q4 revenue was attributable to Liquid Collagen plus the Healthy Glow Essentials Stack, which bundles Liquid Collagen and Protandim Nrf2 Synergizer. Reorder rates have also remained very high with second month levels tracking at 77% compared to 70% in Q3.
The initial international launch of Liquid Collagen, which began in March in Australia, New Zealand and Japan has continued to ramp steadily. Q4 revenue for the product in these markets came in at $2.9 million, significantly outperforming forecast in those markets. Given the continued strength of Liquid Collagen in the U.S., we remain very optimistic for the longer-term potential in the international markets.
Overhauls to our consultant and customer experience were also at the core of LV360. Key initiatives in this area include our new Evolve compensation plan as well as our unique customer loyalty program, Rewards Circle, both of which have been designed to grow our active base of consultants and customers while driving enrollment and retention. We also launched digital enhancement initiatives as part of LV360 to provide consultants with the insights and understanding they need to take their business to the next height.
Also on the customer side, finding the right products, understanding what makes them different and feeling connected with our growing community through touch points like social media is more seamless than ever before. Phase 1 of LV360, including Evolve and Rewards Circle, went into effect on March 1 in the U.S., Japan, Australia and New Zealand. These markets are already benefiting from the program as evidenced by our improving revenue and profitability and will continue to benefit from a robust optimization plan throughout fiscal 2024.
Our Q4 results reflect early progress with consultant engagement, a new product launch as well as incentives and promotions. But most importantly is the fundamental change in our compensation plan designed to put more focus on consultant and customer enrollments, retention, repeat purchase and product company loyalties, coupled with expanded tools, programs and opportunities for our consultants to build a more sustainable business.
Q4 was also spent prepping for our virtual international Activate 2023 event held in July. This kicked off to our fiscal year featured a 75-minute global package that included the launch of many optimization initiatives designed to support consultant businesses, including the launch of Evolve Perks our new consultant recognition program, a new consultant communication hub, a new enrollment pack, and are all in to San Antonio run with opportunity events and trainings designed to build momentum to our global convention in October. Markets with both Liquid Collagen and Protandim Nrf2 also receive information on a new patent pending study showing the positive synergistic benefits of these two activators.
In summary, we had another very solid quarter and have significant momentum across our business with numerous tailwinds that should continue to positively impact our results. In fiscal 2024, we expect overall top line growth with the America regions continuing to lead with trends in international markets starting to benefit from the recent expansion of key growth initiatives. Profitability should also continue to show improvement, and adjusted EBITDA margins are firmly on track to reach our stated long-term target of low double digits within the next 12 to 24 months.
From a capital allocation standpoint, we remain steadfast in our long-standing commitment to balance internal growth investments with returning excess capital to shareholders in the form of stock buybacks and dividends. The LV360 transformation we initiated at approximately 24 months ago, required a temporary shift in prioritization of internal investments versus buybacks to ensure we have the right people, processes and platforms to support significant future growth. Since its inception, we have invested over $3.8 million on this transformational initiative.
Now as our results are improving in large part due to these strategic investments, we are well positioned to return additional capital to shareholders and we have taken significant action in this regard with the approval of a special dividend and resumption of our buyback in Q4.
When it comes to returning capital to our shareholders, our record has been decisively pro shareholder. Over the past three years, we have used $21.6 million, approximately 70% of our operating cash flow to repurchase our stock, reducing shares outstanding by 17.7% net of additions.
In addition, we have instituted a quarterly dividend in the fourth quarter of fiscal 2022, which was subsequently increased by 16.7% to $0.035 per share in the third quarter of fiscal ’23. Since the dividend was first implemented through the end of fiscal year 2023, we have returned another $1.9 million to shareholders.
Our latest results demonstrate the success of LV360, a 24-month endeavor to transform LifeVantage and we are confident in the direction, trajectory and future of our business. With a talented leadership team that is closely aligned, a deep pipeline of unique products as well as a highly engaged base of consultants and customers, we are well positioned to deliver significant future growth in revenues and profits, while driving incremental value for shareholders.
Now let me turn the call over to Carl to review our fourth quarter financial results. Carl?
Thank you, Steve, and good afternoon, everyone. Let me walk you through our fourth 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.
Fourth quarter revenue was $54.2 million, up 6.4% on a year-over-year basis and up 0.9% from the third quarter. This represents our fifth consecutive quarter of sequential quarter-over-quarter revenue growth. Foreign currency fluctuations negatively impacted revenue by $0.6 million in the fourth quarter. Excluding the negative impact of foreign currency fluctuations, fourth quarter revenue was up $3.9 million or approximately 7.8% compared to the prior year period.
Revenue in the Americas region increased 17.9% to $39.8 million in the quarter, including an 18.6% increase in the United States as compared to the prior year period. This increase was primarily driven by the early success of the LV360 initiatives and higher average revenue per account from the continued success of our TrueScience Liquid Collagen product.
Revenue in our Asia Pacific and Europe region decreased 16% to $14.5 million, driven by an 18% decrease in total active accounts and the negative impacts from foreign currency exchange rate fluctuations. Excluding the negative impact from currency fluctuations, fourth quarter revenue in our Asia Pacific and Europe region was down 3.9%. The foreign currency impact continues to be driven by fluctuations in Japan, accounting for $0.5 million of the impact. Adjusting for this impact, Japan delivered 7.7% growth on a constant currency basis in the quarter driven by the successful launch of NAD earlier this year in TrueScience Liquid Collagen in March.
Gross margin was 79.6% in the fourth quarter compared to 81.7% in the prior year period. The decrease in gross margin was primarily due to increased shipping expenses, higher inventory obsolescence as well as shifts in geographic and product sales mix. We are continuing to look for cost savings opportunities across our supply chain to offset the negative impact of inflationary pressures we have experienced over this past year.
Commissions and incentive expense in the fourth quarter decreased $1 million year-over-year. As a percentage of revenue, commissions and incentive expense decreased 480 basis points to 43.3% versus one year ago levels, which was a result of the timing and magnitude of various promotional and incentive programs.
Non-GAAP adjusted SG&A expense was essentially flat at $16.7 million versus $16.6 million in the prior year quarter, and was down 180 basis points as a percentage of revenue to 30.8%. Adjusted non-GAAP operating income was $3 million compared with adjusted operating income of $0.5 million in the prior year period. Adjusted non-GAAP net income was $2.2 million or $0.17 per fully diluted share in the fourth quarter compared to adjusted net income of $0.2 million or $0.01 per fully diluted share in the comparable period last year. We recorded tax expense of $0.6 million in the fourth quarter of 2023 and $0.4 million in the prior year period.
For fiscal year 2023, our annual effective tax rate was 36.5%. Adjusted EBITDA for the fourth quarter was $4.8 million or 8.9% of revenues compared to $1.7 million and 3.4% 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 fourth quarter in a strong financial position with $21.6 million of cash and no debt. We also continue to maintain $5 million of availability under our revolving line of credit. Capital expenditures totaled $0.5 million in the fourth quarter. Total capital expenditures for fiscal 2023 was $3.1 million. We will continue to focus on our capital allocation strategy in order to maximize shareholder value.
During the fourth quarter, we used $0.8 million in cash to repurchase approximately 173,000 common shares under our share repurchase authorization. As of June 30, 2023, there is $26.9 million remaining under our stock repurchase authorization. As previously announced on June 13, the company’s Board of Directors approved an extension to the previously authorized stock repurchase program, extending it until December 31, 2026.
Additionally, the company announced that it authorized a prearranged stock trading plan for purposes of repurchasing a limited number of shares of the company’s common stock in FY 2024 in accordance with the guidelines specified under Rule 10b5-1 of the Securities and Exchange Act of 1934. We also announced a quarterly cash dividend of $0.035 per share of common stock or approximately $0.4 million in the aggregate.
Finally, as Steve mentioned, today, we also announced a special onetime cash dividend of $0.40 per common share or approximately $5 million in the aggregate. Both of these dividends will be paid on September 22 to shareholders of record on September 8.
Turning to our fiscal 2024 outlook. We anticipate our fiscal 2024 revenue will be in the range of $216 million to $226 million, adjusted non-GAAP EBITDA in the range of $16 million to $18 million, with adjusted non-GAAP earnings per share in the range of $0.52 to $0.62 per share. For fiscal 2024, we expect our annual effective tax rate to be approximately 28%.
Included in our fiscal 2024 guidance is over $2 million of nonrecurring expenses relating to an expiring sponsorship agreement and costs associated with the rollout of LV360 to our remaining markets which will not be incurred in future years. As Steve mentioned earlier, we are committed to improving our adjusted EBITDA margin and believe we are on track to reach our long-term targets of low double digits.
And with that, let me turn the call back to Steve for closing remarks.
Thanks, Carl, and thank you for joining us today.
In closing, I want to take this opportunity to thank all of our employees for their hard work and dedication as well as our outstanding independent consultants and loyal customers. Our latest results demonstrate the power of our platform and competitive advantage of our model to help individuals build businesses on their own terms with a proven committed leadership team, amazing lineup of unique products, highly engaged consultant base and strong balance sheet, we are very well positioned to deliver significant growth, improved profitability and drive meaningful value for shareholders. Thank you.
Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.