LifeVantage's CEO Discusses F2Q2014 Results - Earnings Call Transcript

| About: LifeVantage Corporation (LFVN)

LifeVantage Corporation (NASDAQ:LFVN)

F2Q2014 Earnings Conference Call

February 06, 2014, 4:30 PM ET


John Mills – Senior Managing Director, ICR, LLC

Douglas C. Robinson – President, Chief Executive Officer, Director

David Colbert – Chief Financial Officer, Treasurer

Shawn Talbott Ph.D. – Global Chief Science Officer

David Phelps – Chief Sales Officer


Steven L. Martin – Slater Capital Management, LLC

Matt Schwarz – Maze Investments

Jim Gorman – Merus Capital Partners, LLC

William Ross – Private Investor


Please standby. Good day ladies and gentlemen, and welcome to the LifeVantage Second Quarter Fiscal Year 2014 Conference. Just to remind you that today’s call is being recorded. At this time, I would like to hand things over to Mr. John Mills of ICR. You may begin.

John Mills

Thank you. Good afternoon, ladies and gentlemen, and welcome to the LifeVantage Corporation’s fiscal second quarter 2014 conference call. On the call today from LifeVantage are Doug Robinson, President and Chief Executive Officer; and Dave Colbert, Chief Financial Officer. Also joining us are David Phelps, the Company’s new Chief Sales Officer and Dr. Shawn Talbott, the Company’s new Chief Science Officer.

By now, everyone should have access to the earnings release which went out this afternoon at approximately 4:00 P.M. Eastern Time. If you’ve not received the release, it is available on the Investor Relations portion of LifeVantage’s website at 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 the 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 management and involve inherent risk and uncertainties, including those identified in the Risk Factors section of LifeVantage’s most recently filed 10-K and 10-Q. These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements.

This call also contains time-sensitive information that is accurate only as of the date of this live broadcast, February 6, 2014. LifeVantage assumes no obligation to update any forward-looking projections that may be made in today’s release or call. Based on the number of participants on today’s call, during the Q&A session, we ask that you please limit the number of your questions to three.

And with that, I’d like to turn the call over to the Company’s President and CEO, Mr. Doug Robinson. Go ahead, Doug.

Douglas C. Robinson

Thanks John and good afternoon everyone. On our first quarter earnings call, I told you emphatically that I was unhappy with our top line growth. Let me be clear, I’m still not pleased with our top line results. Over the course of the last 12 months there have been a number of internal and external challenges. We own these challenges and are taking the necessary steps to confront each and every one of them.

In the first six months of this year, we generated $103 million in revenue and even though we have grown in the Americas and Hong Kong, these positive indicators are not enough to overcome the negative impacts of both the devaluation of the yen and the slower than expected improvements in Japan. We now expect to generate revenue in the range of $205 million to $220 million in fiscal year 2014. This compares to our previous revenue guidance of $225 million to $235 million. We are however, reiterating our full fiscal year 2014 operating margin and fully diluted EPS guidance. That said there is a lot to be encouraged by. For example, we are excited about the sales growth we experienced in a number of our regions, new additions to our management team and a heightened level of distributor engagement that we’ve not seen before.

I’m also very excited about a new product line that we will launch in April at our Global Convention. You will hear more about this later in the call. This is an emotionally charged business and we’ve experienced major distractions in the last year. Many of these have been resolved but we still have work to do. We are encouraged by certain signs in our business, but in network marketing, which relies on person-to-person interaction there is a lag before the results of newly launched initiatives become visible. To help you understand the strategies and initiatives we are implementing, joining me on the call are Dr. Shawn Talbott, our Chief Science Officer and David Phelps, our Chief Sales Officer.

Overall, we generated revenue of $51.5 million for the quarter, a decrease of 3.6% versus the same period last year. Our second quarter sales in the Americas increased 7% compared to the prior year period and our top line results also benefited from solid growth in Hong Kong. However, our growth and improvements in these regions were offset by the devaluation of the yen. When the devaluation began, it impacted approximately 40% of our consolidated revenue, excluding the devaluation impact we would have achieved year-over-year revenue growth of 3%.

We are generating solid cash flow, profitability is inline with our expectations and we return to top line growth in the Americas. However, we are not satisfied with overall revenue performance, and in particular our performance in the Japanese market. Even after removing the foreign currency impact, our underlying business is down year-over-year. The key area of focus for us is stabilizing our sales in this region. We’ve strengthened our distributor support in this market and have recently made important changes to the leadership overseeing the daily operations in Japan.

In addition, we have focused our efforts on removing the distractions that have affected our Japanese distributor confidence in the past year. We believe we’ve been successful in removing the majority of distractions facing this region thus for and are working hard to address all remaining distractions as we enter the second half of this fiscal year. As we begin with second half of fiscal year 2014, we expect to build on the momentum we have created in a number of regions and strive to return the Japan market to growth.

We have three key strategic initiatives we believe will enable us to continue our momentum in the regions that are achieving year-over-year growth and ensure we return our entire company to top line growth and improve profitability. These are: one, strengthening sales and marketing efforts for our distributor and preferred customer culture to promote growth, two, new product innovation, and three, expanding our reach geographically to new markets. I’ll touch on each of these focus areas.

First, we are continuing to strengthen our sales and marketing efforts. We recently announced the hiring of Dave Phelps as our chief sales officer. Dave brings over 20 years of domestic and international network marketing experience to LifeVantage through his extensive involvement in North America, Europe, Latin America and Asia. His senior executive assignments have included significant roles in sales, marketing, international expansion, business development, training and nearly every facet of distributor facing development work all in the network marketing space.

Additionally, on January 1 of 2014 we began LifeVantage’s first major branding sponsorship, our long-term jersey-front’s partnership with Real Salt Lake. Major League Soccer continues to grow in popularity and now the LifeVantage brand will benefit from high impact exposure in stadiums, on television, in advertising, soccer video games and through player appearances across the United States as well as around the world. Last year, 93 million people were engaged with Major League Soccer in this country.

The brand recognition gained as a result of this sponsorship, will aid our distributors as they identify new potential customers. Our affiliation with the respected professional sports team creates a sense of pride and excitement for everyone affiliated with LifeVantage. From our top distributors to our newest preferred customers, another facet of our recent investments is focused on distributor events, promotions and training, we will discuss these programs later in the call.

Our second key initiative is introducing new products, a very important step in this process was to recruit and hire a nationally recognized nutrition expert to lead this process, and in January we announce the hiring of our Chief Science Officer Dr. Shawn Talbott it fit every aspect our criteria.

Dr. Talbott is the recipient of a dozen competitive research awards and has published over 200 articles and 10 books on nutrition, health and fitness, he holds a Diploma in Sports Nutrition from the International Olympic Committee and has served as a Nutrition Consultant and Educator to elite level athletes, in a variety of sports and has been a frequent guest of Dr. Ross.

Shawn understands and shares in LifeVantage’s commitment to help people maximize their health. His background is especially relevant as we work to leverage our strong existing scientific research, intellectual property, and product portfolio, as we evaluate expanding our product offerings.

With Shawn’s arrival, we have crystallized our science and product category focus. Turning to our third initiative global expansion we continue to expand our geographic reach, during the quarter we begin selling our products for personal consumption to individuals and distributors in the Philippines, while it’s still early and we are facing logistical challenge of shipping product into the country due to the recent typhoon.

We are encouraged by early indictors of this markets long-term potential. Two additional markets launched recently and both are showing positive signs of growth through Hong Kong and Canada. We launched Hong Kong about a year ago, during the second quarter we realized $1.9 million of revenue up 12% on a sequential basis.

And we achieve 7% sequential growth in the Canadian market, which we launched in June, we continually evaluate new markets that fit well with our existing footprint and are receptive through our network marketing business. Today we are pleased with our global expansion and we’ll look forward to announcing new markets with the regular patents.

Further executing on these three key strategic initiatives, we’ll continue to improve the foundation of LifeVantage and we’ll enable us to regain the positive self momentum throughout our company and deliver the growth that we expect to achieve.

In addition to these three strategic initiatives, we work to eliminate many distractions that have affected our business during calendar year 2013. As a result we’ve seen many more unity, engagement and focus from our elite distributors in the last several months, even since the termination of one of our top distributors in November.

Our distributor family has enthusiastically embraced this message of change. And they know that all great companies must go through important transformations in order to become a legacy company, with the elimination of these negative distractions plus the unity within our distributor family, we now have the perfect platform for a significantly invention strategy which you will hear discussed in detail later in this call.

Now I like to turn the call over to Dave Colbert to discuss our financial results in more detail.

David Colbert

Thank you, Doug, and good afternoon, everyone. As Doug mentioned earlier, in the second fiscal quarter of 2014, the Company reported net revenue of $51.5 million, compared to $56.4 million for the same period in fiscal 2013. Revenue for the quarter was negatively impacted by foreign currency fluctuation of 6.7% or $3.6 million. Excluding this foreign exchange impact revenue growth was approximately 3%. Quarterly growth in the Americas versus the prior year was $2.3 million or 7%. This growth was offset by a year-over-year revenue decline in Japan of $6.1 million or 30% inclusive of the negative foreign exchange impact. Also of note, our auto-ship revenue or recurring revenue for the current quarter was 66% of overall revenue.

Gross profit in the second fiscal quarter of 2013 was $43.6 million, compared to $38.8 million in the same period last year. Our gross margin in the second fiscal quarter of 2014 was 84.6% compared to 72.5% in the same period last year and it’s important to note that gross profit and the remaining profit metrics in the second fiscal quarter of 2013 include the impact of approximately $5.9 million of one-time costs associated with a product recall in that period.

Operating income for the second fiscal quarter of 2014 was $5.2 million. This compares to $500,000 in the prior year quarter including the one-time cost. Additionally, operating margins in the second fiscal quarter of 2014 was 10%

Net income for the second quarter of fiscal year 2014 was $3.2 million or $0.03 per diluted share. This compares to net income in the second fiscal quarter of 2013 of $209,000, again including the one-time expenses.

Turning briefly to our results of the first half of fiscal year 2014, we reported revenue of $102.9 million compared to $106.3 million in the prior year period. Revenue for the first six months of fiscal 2014 was negatively impacted 7% or $7.5 million by currency fluctuation. Similar to the first quarter, strong growth in the Americas and Hong Kong was offset by sales in Japan.

Operating income for the first half of fiscal year 2014 was $10.2 million for an operating margin of 10%. Net income was $6.5 million or $0.06 per diluted share compared to net income of $4.3 million or $0.03 per diluted share including one-time costs.

During the second quarter, we completed one of our 2014 key initiatives by repurchasing $40 million in stock or 16.3 million shares in a self tender Dutch auction format. We believe that this along with our prior share repurchases totaling 21 million common shares repurchased will increase shareholder value over the long run.

And now, at this point, I’ll turn the call over to Dr. Shawn Talbott, our Chief Science Officer, to review our new product initiatives. Shawn?

Shawn Talbott Ph.D.

Good afternoon, everyone. I’m really excited to be part of this great at LifeVantage. A couple of years ago, I noticed LifeVantage and its growing network marketing presence, but I must admit as a scientist I was primarily interested in their science-based products. Then, when the opportunity came to consider being a Chief Science Officer, I knew this was an opportunity I couldn’t pass up. When decided to change organization it’s always a tough decision, but LifeVantage offers the opportunity to expand its product offerings by further delving into the science of oxidative stress, Nrf2 and how those can be applied to both internal and topical nutrition.

The leadership has taken this Company from a startup organization to a profitable competitor in just a few short years and this all adds up to a tremendous amount of potential for everyone associated with the Company. Much amount of research and writing over the past several years have been focused on the general concept of psychological vigor, which is defined as a sustained three tiered mood state; characterized by physical energy, mental acuity and emotional well being. In short a state of high vigor is how people want to feel and I think LifeVantage can be known as a company that helps people and prove their state of vigor which in psychology research is the opposite of burn out.

Stated in another way we intend to build LifeVantage and the product portfolio and business opportunity within three distinct categories aligning the three tiers of vigor, encompassing products that help you feel better, help you look better and help you perform better. Each of these categories represents multi-billion dollar opportunities that are growing annually at double-digit rates.

Importantly, they also share a commonality where the management of oxidative stress is a significant factor and LifeVantage is well positioned as a leader in the management of oxidative stress to expand its product offering in a newly defined category; feel better, look better, perform better. Underlying the importance of the execution of our key initiatives our strongest competitive advantage is our proven and effective science that addresses an area of growing concern specifically oxidative stress.

The continued growth in oxidative stress research has fine tuned our understanding of the possible negative outcome associated with high dose antioxidant nutrients such as Vitamin C, Vitamin E, beta-carotene and others. Recent scientific studies had emphasized the position that LifeVantage has advocated for many years that it’s both safer and more effective to encourage your body to make its own antioxidant enzyme in order to manage oxidative stress.

The idea that the traditional approach to antioxidant supplementation maybe wrong is a concept that we’ll be actively communicating to our distributors and the national media in the coming weeks and months. We believe the age of taking antioxidants is ending and the age of helping your body make its own antioxidants is the future that LifeVantage is leading. Remember that oxidative stress refers to a wide range of cellular and tissue damage caused by chemically reactive oxygen radicals formed as a natural consequence of cellular metabolism.

This type of damage is believed to be the root cause at the cellular level of aging and many age related challenges. Our flagship product Protandim consists of a specific combination of natural phytochemicals that induces Nrf2 activation. Nrf2 activates the survival genes produces internal antioxidant enzyme and reduces oxidative stress. And let me emphasize, this is a fundamentally different and effective approach to protecting the body. And LifeVantage is positioned as the market leader. This foundation will enable us to effectively move into the feel better, look better and perform better category in the very near future.

As Doug mentioned we won’t be the company with the most products, but we will strive to be the company with the best science backed and most efficacious products. We announced today that we will launch a new skin care regimen which builds on our new true science product platform.

This new offerings fits within our look better product category and expands the benefits of Nrf2 activation to our largest organ, the skin. I hope you can hear in my voice how excited I’m to be part of the LifeVantage team. I’m extremely motivated about the new science based product possibilities that we’re now researching at LifeVantage, and I hope you get excited about the new products as they are introduced.

At this point, I would like to now turn the call over to Dave Phelps to review our Company’s sales and marketing initiatives.

David Phelps

Thank you, Shawn. Many of the reasons that Shawn mentioned in his comments about the reputation, abundant possibilities and the multi-billion dollar new product categories at LifeVantage are also among the reasons I have decided to move back to the United States from Thailand to join this enthusiastic and well positioned company. The core of my network marketing for last three years comprised of two essential concepts; first the distributors are the most important asset of any company; and second continued distributor leadership development is critical. With these two core concepts in place, we believe sustainable top line growth will be realized. I have been charged with growing the distributor partnerships here along with solidifying the cohesiveness of the distributor force.

I want you to know that I understand the extreme urgency of these tasks, and I am already working with our marketing and sales teams to create a larger foundation of excitement and confidence with our distributors. I believe that my experience gives me the perspective to elevate the vision of our distributor leadership teams. Currently, we are working on building momentum in the distributor base in order to drive revenue growth.

In the past few weeks, I have traveled extensively to meet with our distributor teams across the United States in the Philippines as well in Japan. This past weekend, we had our most recent Elite Academy in Dallas, Texas where the enthusiasm of nearly 5,000 of our team members was tremendous.

We have received overwhelming feedback from our distributor family with strong statements of their refocus commitment created by the powerful messages of training and inspiration at this Dallas event. We have given our Elite distributors a call to action to start moving forward with new energy and motivation to build LifeVantage to a billion dollar company. With the vibrant and positive momentum coming out of our Dallas event, I will participate directly in our Elite Academy and a Board meeting with our key leaders in Tokyo, Japan next week.

The principal sales initiatives during the second quarter were focused on unifying the distributor field leadership in all of our major markets, continued reinforcement of our culture building initiative the My LifeVenture program and the launch of the activation rewards program, which capitalizes on the Real Salt Lake sponsorship. This significant professional sports sponsorship is a major long-term brand building initiative. We are already seeing a very public exposure of our brand, which will increase dramatically when the Major League Soccer season begins next month.

Additionally, many of our master Protandim leaders are engaged in a multi-city tour in the United States during the first three months of 2014 to build distributor momentum as we start this New Year. And that’s not all, coming out of our Dallas event this past weekend, the unanimous group of our Elite Pro 9 without a single exception will begin a unified campaign tour from coast-to-coast in a strong and proactive leadership strategy. Their primary focus will be to create and develop substantial numbers of new Premier Pro 5’s significantly strengthening the middle-class of the company. The activation rewards program was announced in October and there is an ongoing program designed to increase enrollments and sales during the distributors first 90 days of business and to mitigate attrition.

I would like to highlight three critical sales strategies which are likely to increase the top line sales growth of the company. Number one, building upon our very successful TrueScience Anti-Aging product, we enthusiastically announced the launch of a skincare regimen as discussed earlier on this call by Shawn. With the dynamic watch strategy we will introduce these new products at our Global Convention in April 2014.

Number two, within calendar year 2014, we expect to launch a perfectly positioned product which will appeal directly to the millennial that large group of nearly 80 million people in the United States between the ages of 18 to 30. This is a market demography we have never attracted up until now. We anticipate a very positive impact on sales growth with this brand new revenue stream.

Number three, one of the most important demographics in network marketing is women. This is also the case at LifeVantage. They represent the largest segment of our revenue. I’m working closely with the Master Pro 10 women to plan and execute the first ever empowering women event for our company. The interest in this strategy is very high and we believe will drive our business growth among this most important segment of our distributor family.

The management here at LifeVantage is a unique combination of experience that can focus the distributors on both the short and long-term revenue goals of the company like never before. For example under the leadership and direction of Doug Robinson, Shawn and I are already engaged in collaboration between the science based product basin of the company and dynamic and innovative new sales strategies.

In our network marketing space, every single legacy success company, those who have gone to $1 billion and more up annual sales revenue have had 4 or 5 specifically identifiable periods of reinvention in their march to success. This is the fortunate position we find ourselves in at LifeVantage today. I have identified four distinct elements which are critically important to this reinvention strategy.

Number one, we must simplify the messaging of our company. The message has been too confusing and too complex. There is great power in simplicity and no power in confusion.

Number two, we must dramatically increase the number of business building distributors coming to LifeVantage, while continuing to get great importance to strategic methods to retain our existing customer base. Number three, at its very core network marketing is 100% about leadership. Therefore we must transform LifeVantage in to a world class leadership development company. In our space it is very simple. Great leaders in increasing numbers means increasing revenue.

Number four, we must increase the sizzle, the sexiness, the core and the wild factors of LifeVantage. This refers to enhancing the total feel of the company to attract thousands of new people to our distributor family. It also refers to the dramatic expansion of the demographic base of our company. The leaders and distributor family of LifeVantage are committed, re-energized and motivated like never before.

They are ready to make calendar 2014 a breakaway year for their own business success and the overall achievement of LifeVantage. I am thrilled to be involved in the future of this company. I made a deliberate choice to join LifeVantage because every element is here to make this the biggest project of my professional career.

I will now turn the call back to you Doug.

Douglas C. Robinson

Thanks Dave. To emphasize what they have said, we are operating with a fierce sense of urgency. We’ve added very talented leaders in science, research and development, sales and marketing. Our distributor leadership is more united, focused and driven to succeed not only in their own business but for LifeVantage as a whole.

We are extremely excited about our new product launch and believe you will be too. We look forward to updating you on our progress and with that operator, I’d like to open the call up for questions.

Question-and-Answer Session


Thank you (Operator Instructions) We’ll go first to Steven Martin, Slater Capital Management.

Steven L. Martin – Slater Capital Management, LLC

Hi guys.

Douglas C. Robinson

Hey Steve.

Steven L. Martin – Slater Capital Management, LLC

I sent you just going aside, I think the length of the speaking part of the call could probably be shorten and probably aren’t that many people on it, but let me ask a couple of questions, Doug, I have asked this before, when do you expect the year-over-year positive on a revenue basis?

Douglas C. Robinson

That's a great question Steve. Obviously with our revised guidance we are looking very, very closely at the balance of this year, these next two quarters, but really with the renewed emphasis and leadership first from a sales and marketing standpoint with David Phelps here, I’ve not been as positive and as bullish on our prospects going forward as I have ever been.

And secondarily as you know you have been close to this company now for quite sometime, we’ve also had a buoyed in our leadership around science and similarly I can’t be more excited and enthusiastic about the rival of Shawn Talbott leading that charge.

We’ve got a tremendous foundation with respect to our science, Shawn is exactly the guy to take that foundation and move it forward and to feel better, look better, perform better areas.

And lastly and I’m saying this Steve, with a smile on my face with respect to our prepared remarks and linked up them I think we feel what was important, we felt given the recent arrival of both Dave and Shawn is to have them as a part of our prepared remarks, so that you and everyone else listening in can get a sense for these two leaders that just joined our company.

Steven L. Martin – Slater Capital Management, LLC

Doug, you didn’t answer my question. When do you expect to actually have a positive quarter on the top line?

Douglas C. Robinson

Steve I wish I had that crystal ball I could give you an exact time but as we try to get across in our prepared remarks, these strategies that we were putting in place in the nuances of network marketing it’s all about belief and I believe our network, our distributor leaders starting with our lead distributors are more united today, more united today, more focused on, on the future than I’ve ever seen them in my four plus years being associated with this company. I think the growth year-over-year growth is in our near future. I think 2014 calendar year, 2014 will be our best year ever in every way you can define that, top line revenue, profitability, strategy, new products et cetera.

This is our breakout year, and as you all know we are a July 1 through June 30 fiscal year, so when I talk about calendar year 2014 that transcends both fiscal 2014 and our next fiscal 2015. Hopefully that answered your question.

Steven L. Martin – Slater Capital Management, LLC

Let me ask you in another way, your active independent distributors in the Americas is up 22% year-over-year. And your revenues year-over-year were up 7%, what’s the disconnect there and when does the sales growth, when is the sales growth going to be reflective of the independent distributors?

David Colbert

Steve, Dave Colbert here. It’s a good leading indicator of what we expect to see in this calendar year of 2014. Again, we guide on an annual basis we are not going to guide on a year-over-year or a quarter-over-quarter basis. So, again I think you are looking at the right metrics as far as distributor growth is concerned. I think you’ve heard some exciting stuff on product development and country expansions again $205 million to $220 million is what we are saying for this fiscal year. And then of course we’ll come out with the fiscal 2015 guidance at the appropriate time.

Steven L. Martin – Slater Capital Management, LLC

All right, well let me try another one. You bought a lot of stock back at $2.5, you replenished the cash coffers a fair amount and your stock is at a $1.30, if it was a great buy at $2.5, how good a buy is it at a $1.30 if you think calendar 2014 is going to be your best year?

David Colbert

Steve, David Colbert again. As far as share repurchases are concerned, we look at this constantly, and I think we chatted about this just recently at the ICR Conference as well. Now we are constantly looking at share repurchases and other things other ways we can deploy our capital, certainly as it relates to our capital structure. But also our capital spending, our new product development and country expansion.

So, we are always looking for the best deployment of our cash. As far as the share repurchase through the Dutch tender, the $2.45 price was established we did, we went through extensive analysis with our advisor D.A. Davidson at the time. We looked at our 30, 90, and 120 day average close price and it was right in that $2.40 range and that’s how we set our base for the pricing at that time.

So, again at a $1.30 does it look like an attractive price we’ll have to evaluate that with our other investment options that we have certainly what Doug and the rest of the management team has discussed as far as new products and the country expansion and other initiatives.

Steven L. Martin – Slater Capital Management, LLC

Okay, thanks.

David Colbert

Thanks for your questions, Steve.


Next up we’ll hear from Matt Schwarz, Maze Investments.

Matt Schwarz – Maze Investments

Hey, guys how are you?

David Colbert

Hey, Matt.

Matt Schwarz – Maze Investments

I had a another question kind of piggybacking on that, but when you look at your new revenue guidance of the $205 million to $220 million, kind of the low end of first second half basically the same as the first. The high end of guidance employed in the second half about what 20% higher than your first half trend, so is there anyway you could rank the key variables or at least the swing factors in achieving the high end of guidance versus low end of guidance whether its sales, growth in Asia, U.S., exemption of growth, currency or what you are assuming from the new product launch?

Douglas C. Robinson

Sure. Matt, let me start first with products. As you heard in this call, we made an announcement that come April at our Global Convention we’ll be launching a skin care regimen that compliment the True Science product that’s been that main stay in that area for us for now a couple of years. Launching new products especially given the commitment we have to the scientific validation of our products is a huge deal for us.

Don’t misconstrue at all the arrival of our new Chief Science Officer, Shawn Talbott in driving that. We also pieced for lack of better expression other products that we’re teeing up again in this fell better, look better, perform better category or categories. So that’s first and foremost. Secondly, countries and country launches. Let’s talk about our incumbent countries already. Hong Kong, as we mentioned in our prepared remarks, is performing very good, very, very well for us right now and we expect that that will continue.

We just launched the Philippines almost co-incident with the typhoon hitting there and that was purely co-incidental. Obviously wasn’t planned. We’re marshaling through those challenges from a logistic standpoint. But the Philippines happens to be a country that is a very, very strong country with respected to network marketing. So no mistake that we camping that over the last 12 to 18 months really and positioning that.

And then early or actually mid last year calendar year, we launched into Canada we were expecting great things out of that as well. Clearly what we talked about in our prepared remarks also is the second largest network marketing market in the world is Japan and it’s also our largest second largest market, but it’s had pressure. It had some distractions and some pressures. We’re growing through a concerted effort with leadership changes there, all kind of concerted efforts to turn that market around and we expect that that will happen in this year as well.

So the combinations of products, new country launches in combine [ph], we expect the second half of this year and not only from a fiscal standpoint, but even from a calendar standpoint, as I’ve just mentioned in Steve’s prior question, we’re expecting it to be a best year ever in that regard. And them lastly, as we talked about in our prepared remarks we’re also dealing with the foreign exchange challenges, especially that relates to the yen. That’s contributed significantly in terms of the headwind over the last 12 months.

Matt Schwarz – Maze Investments

Okay. Thank you. And I’m sorry if I missed this early in the call. I got on a little bit late. But the top line was reduced by somewhere around $20 million at the midpoint, but you were able to maintain the earnings guidance, which is something that you changed on the cost side or whether it’s a function of the lower share count. Could you help me understand how you’re able to maintain bottom line with such amazing dramatic top line redemption?

Douglas C. Robinson

Right, yeah, Matt we’re maintaining the profitability in our fully diluted earnings per share really through a serious of really strict cost control measures throughout the organization. The impact on a lower share count really is almost offset exactly with the increase in the interest expense that we’re incurring on the debt. So that’s really a new point. Maintaining on the profitability is really what we’re doing to control cost until we start to see this lift in revenue that we fully expect during the calendar 2014.

Matt Schwarz – Maze Investments

Okay great. Thank you.

Douglas C. Robinson

Thanks, Matt.


(Operator Instructions) We’ll go to Jim Gorman, Merus Capital Partners.

Jim Gorman – Merus Capital Partners, LLC

Hey thanks for taking my call. Can you guys, I know you’ve alluded to new products a few times. Can you just provide just a more in-depth update and whether you think any of the new product lines will cannibalize your existing products and, I appreciate it. Thanks

Shawn Talbott Ph.D.

This is Shawn Talbott. That’s a great question. We certainly don’t want to be introducing products that will cannibalize our existing products. I think from the platform that we have right now, especially with Protandim as our flagship product, what we intend to do is build from that foundation into these different areas into the feel better category, into the look better category, into the perform better category. So these new products will be complementary to our existing product portfolio. So they’ll basically enhance or synergize with each other, so that people will be hopefully consuming additional products for additional benefits from LifeVantage

Jim Gorman – Merus Capital Partners, LLC

Okay, great thanks a lot

Shawn Talbott Ph.D.

Thanks Jim.


Next we’ll hear from Bill Ross.

Unidentified Analyst

Good afternoon I am an Investor, and I was – I have some questions regarding the stock buyback program. Could you just reiterate what was the original rationale behind doing a stock buyback?

David Colbert

Well we’ve stated the goal that well let me back up a little further, on a fully diluted basis we have a large number of shares and it’s just due to the historical fund raising that the company went through between 2005 and 2009. And if you don’t do any of the accounting methodology on the treasury stock method, you’re looking at about $134 million, $135 million shares and it’s – we feel completely out of line with other peers in our industry therefore to – how do we return money or long-term return to our shareholders. And as we continue to look at our options with our cash flow, we are able to self fund our new product developments, we are able to self fund our new country expansion. We still have and are generating a very strong cash on a quarter-to-quarter basis.

So the deployment of that capital, we felt at the time was best suited to go and reduce our share count and return those funds if you will back to the shareholders. And again we continue to evaluate this not only quarter-to-quarter, but we look at this even on a month-to-month basis too what’s the best use of our capital to property align our cap structure, but still have enough capital to fund our future growth.

Unidentified Analyst

It just seems that $40 million was spent, that stock is now worth about 21, and it just seems like obviously that wasn’t – it doesn’t look like as of today, a good decision for stockholders. And I was wondering why you would take on debt when most companies would buyback stock when they feel like their stock is undervalued and they have available cash, in this case you have to use debt to buyback stock and subsequently the stock is fallen, and so just what was the rationale of, do you think debt to buyback stock versus using debt to buyback stock, versus using net debt to invest in operational growth or expansion in the company?

Douglas C. Robinson

Sure, well first I’ll answer that in reverse, we don’t need debt to fund our operational growth and expansion of the company we can still fund that going forward. The first part of your question is, we had previously done two $5 million share repurchases in sequential quarters and we could have continue that process and program I use the term before, I know internally I’m not sure if I said it on a call before.

But I use the term debt by a 1000 cuts. We could have continue to do a $5 million here, and a $5 million there of buybacks. But we wanted to make a statement and we wanted to make a big statement, in reducing our overall share count and the prudent thing to do given the strength of our cash flow was to take down a $40 million credit facility to take a big bite at our share count, and it most likely won’t be the last share repurchase we do.

We’ve stated on our previous call that we want to target 70 million to 80 million shares outstanding.

Unidentified Analyst

Okay, I don’t have any other questions.

Douglas C. Robinson

Thanks for your questions Bill.


And at this time, I would like to hand things back to Mr. Robinson for any additional or closing remarks.

Douglas C. Robinson

Well, thank you very much. Thank you all for following our company closely, for your support stay tuned for great things to come with respect to the company, the leadership our united field and we hope to see many of you at Investor conferences in the coming weeks and months that’s something that we believe is very important that we are out there and meeting with you on a regular basis.

So again thank you again for participating in today’s call and we look forward to talking with you and seeing you in the future.


Once again ladies and gentlemen, that does conclude today’s program. Thank you all for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!