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Executives

Robert Montgomery – President & CEO

Steven Albright – CFO

Martin Burks – Investor Relations

Analysts

Scott Van Winkle – Canaccord Adams

Reliv International Inc. (RELV) Q4 2007 Earnings Call February 27, 2008 1:00 PM ET

Operator

Good day ladies and gentlemen and welcome to the quarter four 2007 Reliv International earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference Mr. Robert Montgomery, President, Chairman and Chief Executive Officer, please proceed.

Robert Montgomery

Hello everyone and welcome to Reliv International’s conference call in which we will report on our results for the fourth quarter of 2007 as well as the fiscal year of 2007. I’ll be joined on the call today by Steven Albright, Chief Financial Officer at Reliv. But before we begin Martin Burks will read our Safe Harbor Statement, go ahead please Martin.

Martin Burks

Thanks Bob. Statements made in this conference call that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include but are not limited to statements containing words such as “may”, “should”, “could”, “would”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “continue” or similar expressions. Factors that could cause actual results to differ are identified in the public filings made by Reliv with the Securities and Exchange Commission. More information on factors that could affect Reliv’s business and financial results are included in its public filings made with the Securities and Exchange Commission including it’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on the company’s website www.reliv.com. With that said, I’ll turn the call back over to Mr. Montgomery.

Robert Montgomery

Thanks Martin. We were not satisfied with our fourth quarter or our full year financial performance for 2007. Net sales and net income declined for both periods compared to the same periods of 2006. We were very happy that our distributor base as of December 31, 2007 increased compared to the year earlier. We also maintained our distributor retention rate at about twice the industry average. We also felt very good about the fact that sales in Asia and the Australia-New Zealand region increased compared to 2006 sales. In Asia in particular, the pace of sales growth picked up significantly in the last half of the year, which is a promising sign.

We certainly intend to return to top and bottom line growth in 2008 and I’ll talk about the strategies that we have in place to achieve that goal later in this call. But now I’ll hand the call over to Steven Albright who will cover our financial results in more detail, Steve?

Steven Albright

Thank you Bob. Reliv’s net sales for the fourth quarter totaled $24.6 million compared to sales of $28.6 million in the fourth quarter of 2006. Fourth quarter United States sales of $21.1 million were down from sales of $25.4 million for the same quarter of 2006. Outside of the United States, net sales for the fourth quarter totaled $3.5 million up from $3.2 million in the fourth quarter of 2006.

Net income for the quarter was $697,000 or $0.04 per share on a diluted basis compared to net income of $2.0 million or $0.12 per share diluted in the fourth quarter of 2006.

Now for the full year results. Net sales for 2007 were $111.1 million down 5.5% from 2006 sales. US sales were off about 7% for the year at $98.3 million. Our sales outside the US equaled $12.7 million compared to international sales of $11.7 million in 2006. International sales increased primarily from the weakening US dollar. When measured using the same exchange rates for both years international sales would have been up 0.6%.

As Bob mentioned our distributor base rose during 2007. We ended the year with 69,970 distributors versus 64,960 at the end of 2006. The number of distributors at the Master Affiliate level and above however declined for the year. That decline in turn has reflected in a drop in the size of our average order which had a negative impact on sales.

Our gross margin for the fourth quarter was 82.5% compared to 83.4% in the year ago quarter. Operating margins in the fourth quarter of 2007 were 4.4% versus 10.1% in the fourth quarter of 2006. For full year 2007 the operating margin was 6.6% compared to 10.3% for 2006.

We generate cash flow from operations in 2007 of $4.8 million. As of December 31, 2007 we had $12.1 million in cash, cash equivalents and short term investments. As you know we have no long term debt on our books. We did not repurchase any additional stock during the fourth quarter. During 2007 we bought back 752,491 shares at a cost of $7.7 million in our stock repurchase program.

Bob will discuss strategies to return Reliv to sales and profit growth in 2008. Before he begins however I should point out that the first quarter of 2007 was a record quarter for us and we do not foresee our turnaround beginning in this current quarter. Bob?

Robert Montgomery

Thank you Steve. As Steve just mentioned we’re very sound financially but we need to get our growth back on track and I will talk about those strategies that we’re pursuing to increase our sales and profits.

Our news release highlighted the new grassroots effort by our entire management team to go into the field more often and in doing this, we’re significantly increasing corporate sponsored special events around the country throughout this year. For these events we will fly in Ambassadors from other parts of the country to conduct meetings and training. But we’re also sending a member of the corporate executive team to attend the event. This gives our executives time to reach more distributors on a more personal basis. We’re getting much more one-on-one time with individual distributors or very small groups of distributors. We’re strengthening relationships in the field and learning much more about the distributors’ businesses.

We believe these events are affectively motivating our distributors. We are also focusing a lot of our attention on encouraging our distributors to increase their use of sales tools to grow their business. The February issue of Success From Home magazine featuring Reliv, came out in January and we believe that our field is using it much more affectively than they used it in the initial issue. And in Europe we have introduced a newspaper-style sales tool and we intend to expand the use of a similar tool in other Reliv markets this year.

In 2008 we’re marking our 20th Anniversary and we’re celebrating with a promotion called “Live the Dream.” Under this promotion our top monthly sales and sponsoring distributors through May will earn bonuses as well as a luxury vacation that is scheduled for later this year. We expect to continue updating our Reliv University online course offerings throughout this year. Reliv University supplements our extensive existing training program and we believe distributors like the convenience and the availability of online training. It’s particularly useful to distributors who don’t live in areas where there is a business opportunity meeting and a training meeting every week.

Earlier this quarter we simplified our product line by reducing our essential nutrition offerings to one version of our classic formula. By eliminating this one version, we’ve eliminated some confusion in the field.

Finally we’re watching for opportunities that may arise in the current economic climate. During economic downturns many people look for ways to earn additional income or start their own business. And a direct selling business can meet those needs. We are still very optimistic about our future. We are on a solid financial footing. We have achieved 20 years of success by focusing on the basics. We offer superb proprietary nutritional products along with an outstanding business opportunity. Our corporate staff members dedicate all of their time to supporting our distributors’ efforts to succeed and with that in mind we will continue to invest in initiatives to increase retail sales and expand our distributor ranks.

Thank you for joining us on this call today. We’ll now open the call for questions.

Question-and-Answer Session

Operator

Your first question comes from Scott Van Winkle - Canaccord Adams

Scott Van Winkle – Canaccord Adams

Good afternoon everyone, or morning your time. Happy New Year. So you know, I guess the question I had is when you sat down and tried to formulate some strategies or tactics to reinvigorate growth, how did you go about it? What led you to the conclusions to use a promotion here, a little more aggressiveness and some regional marketing events, how did you kind of build that strategy? As you look through the last nine months, 12 months, and said, here’s what we need to do. How did you come to that conclusion?

Robert Montgomery

Well I think Scott, I think the main thing that we look at is what worked for us in the past and I think that we all agree that the regional conferences were a good productive thing for us. I don’t think anyone was against that idea. I think what was happening was we were seeing lots of good things happening with some of the special events we were having in the field in various parts of the United States especially. And I think our whole strategy now is to do more of that, duplicate those, I wouldn’t call them smaller events, but in affect I guess they are with their fewer prospects and fewer people there, but we’re excited about that tactic I guess Scott I’d say.

Scott Van Winkle – Canaccord Adams

Is that, and I certainly understand what you said about kind of what you’re going to do there, would you call it more training or motivation?

Robert Montgomery

Well I think it’s a little bit of both. What we do typically is we’ll have, many of these meetings are held on a Friday night with lots of guests there. And then the next morning we have a training session on, typically on Saturday, that will go either to noon or sometimes three or four o’clock in the afternoon depending on the group and the area and all that. So it’s a little bit of both really I think.

Scott Van Winkle – Canaccord Adams

You know Bob if you look back to 2004 where you had just a bang up year with growth, what were the defining characteristics of that great year. You had some good momentum on distributors and sales were strong, was there anything in particular that drove those results?

Robert Montgomery

No I don’t believe that Scott. I don’t think it was anything especially different about ’04. This business is, and you know it, I know you well enough to know that you’re aware of this, that it’s a momentum business and momentum is one of those things that you have to maintain it all the time and you have your ups and downs and we went through a little bit of a down period there for awhile in ’07. It’s just one of those things you look back and you try to go back to the basics and do the things that you’ve always done and that’s really what we’re doing now.

Scott Van Winkle – Canaccord Adams

And I apologize, I missed a little bit of what you said about the average order size, I think you said it was down a little bit? Can you give a little more detail there?

Steven Albright

In earlier quarters, second and third quarter of ’07, that’s when this drop in the number of people reaching the Master Affiliate level and then the, concurrently the drop in average order size was really becoming apparent. The trend has improved a bit here in the fourth quarter. For instance, if you look at the decline in the average order size, in the second quarter it was down 12%, in the third quarter it was down 13%, in the fourth quarter we were, it was down 8.8%. So the gap is closing a little bit. Still not where we want it to be and we’re just trying to maintain that emphasis on that Master Affiliate level still.

Scott Van Winkle – Canaccord Adams

Okay, I think I miss heard it earlier. So in the past you had talked about you thought maybe it was more people becoming product-purchasers then really get involved in the business opportunity, that’s still your conclusion?

Steven Albright

There’s still a little bit of that trend. I mean we’re just trying to still emphasis the balance between the business opportunity and the product.

Scott Van Winkle – Canaccord Adams

Okay and Steve I apologize I also must have missed it on the gross margin, did you give a little detail about the gross margin?

Steven Albright

We just mentioned the raw numbers being down a percent or so and basically it’s a function of just leveraging the plant. I mean the sales were down, therefore productions down and leveraging of the fixed components of the plant operations over a smaller production basis. Also just freight costs tend, we’re getting squeezed on our margin, our freight income versus the actual cost of the outgoing freight. Affective January 1 we restructured our freight charges a little bit to appropriately charge the smaller orders and how we charge for freight so trying a little bit of whatever helps and having to do in terms of the fuel surcharge issues and cost of freight.

Scott Van Winkle – Canaccord Adams

Would that also potentially aid your average order size by charging a little more on the smaller orders?

Steven Albright

It might, we haven’t had it in place long enough to get some real good numbers yet. It might push someone to instead of ordering, it’s basically we changed everything. If its $500.00 or below they’re paying a little bit more on the freight side, maybe anywhere from $5 to $10 more in freight and might push someone to buying a $600 or $700 order versus a smaller one. We’ll see how the numbers pan out here in the next couple of months.

Scott Van Winkle – Canaccord Adams

And the promotion you talked about through the end of May, does that have any material impact on the commissions of the percentage of sales?

Steven Albright

No it’s similar to the mega bonus. We’re not reflecting that in the SG&A section. This will be, you know we’ve talked about that we didn’t get the bang for the buck out of the mega bonus. This one’s spaced out over the entire contest, quarterly over the contest period, actually monthly, some components of the bonus. So if you become a distributor say in February or March or April, you still have a crack at the bonus versus the Mega Bonus where you were kind of left out of the game for the big bucks so to speak.

Scott Van Winkle – Canaccord Adams

Great, thank you very much.

Operator

That concludes the question and session. I’ll now turn it back to management for closing remarks.

Robert Montgomery

Thank you everyone for joining us today. We appreciate your support and your interest in Reliv. I want to say one more time we’re very positive going forward. We’re positive about what our future we think is going to look like. We’ve got a big job ahead of us, we know that but we think we’re up for the challenge and we think that good things are going to happen with Reliv in the future. So we appreciate you and thanks again for joining us today. Good day everybody.

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Source: Reliv International Inc., Q4 2007 Earnings Call Transcript
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