LifeVantage Corporation (NASDAQ:LFVN)
F4Q08 Earnings Call
October 7, 2008 1:00 pm ET
David Brown – President and Chief Executive Officer
Bradford K. Amman – Chief Financial Officer
Jim Galloway – Galloway Enterprises
Alan [Evright] - MCS Corporation
Lynn Goldberg - Goldberg Capital Management
Welcome to the LifeVantage fourth quarter and fiscal year 2008 conference call. (Operator Instructions) I would now like to turn the conference over to David Brown, President and Chief Executive Officer of LifeVantage Corporation.
Today I am joined by Brad Amman, our CFO, and first he will provide a summary of our financial results for the fourth quarter and for the fiscal year 2008. I will then provide an update on the company’s other activities and afterward, time allowable, we will answer any questions anybody may have. But I would ask you all to hold your questions until the Question & Answer period at the end of the call.
So with that, Brad, would you please proceed with the financial summary.
Bradford K. Amman
I am pleased to be joining David this morning to discuss the financial results for LifeVantage Corporation.
First I would like to review the risk language. In this presentation statements that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable common law. These statements may be referred to by terms such as anticipates, believes, continues, intends, estimates, expects, plans, and other similar terms.
Such statements are based upon our current expectations regarding market and economic conditions, product plans, product pricing, and other factors. In particular, these forward-looking statements include, but are not limited to, the company’s future financial operating performance, statements regarding revenue, earnings, customer growth and retention, competition, technology, as well as trends in our business and market segments in general.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from those stated in the forward-looking statements. These risks and uncertainties are more completely described in our registration statement and reporting documents filed with the SEC, including the most recently filed Form 10-KSB filed on September 23, 2008.
In addition, our financial forecasts are inherently speculative and uncertain. It is our policy to provide no public guidance, however, should we do so we will update or reconfirm our public guidance only by issuing press releases or filing publicly-accessible documents with the SEC. Financial and operation guidance contained within the following presentation is as of June 30, 2008. We undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations.
And now for the financial results. In summary, fourth quarter and fiscal 2008 financial results for LifeVantage are contained on Form 10-KSB filed with the SEC on September 23, 2008. A link to this and other filings can be found on our LifeVantage website.
LifeVantage recorded net revenues of approximately $813,000 and a net loss of $749,000, or $0.03 per share, during the fourth quarter. During the same quarter a year ago the company recorded net revenues of $843,000 and a net loss of $526,000, or $0.02 per share. For the fiscal year ended June 30, 2008, LifeVantage recorded net revenues of approximately $3.2 million and a net loss of $2.1 million, or $0.09 per share. And during the fiscal year ended June 30, 2007, one year ago, the company recorded net revenues of $5.1 million and a net loss of $3.7 million, or $0.17 per share.
Total operating expenses for fiscal 2008 were $4.3 million compared with operating expenses of $7.8 million in fiscal 2007, which is nearly a 45% reduction in operating expense due to cost-containment measures initiated during fiscal 2007.
The company has realized a year-over-year reduction in net loss of $1.6 million, or $0.08 per share, which is nearly a 45% improvement.
And now cash flow from operations. During fiscal 2008 $748,000 of cash was used in operating activities with investments in marketing and advertising and the procurement of inventory for the new 60- and 90-cap bottles of Protandim and bottles of Omega 3. This compares to $2.9 million of cash used in operating activities during fiscal 2007, which is an improvement of almost $2.2 million, or 74%.
Now it is my privilege to turn the call back over to David.
Well, as we look at fiscal year 2008, which ended June 30, 2008, I think it is appropriate to borrow a line that’s being bandied about in the political arena these days, about bringing about real change. The fourth quarter of 2008 was the first full quarter that I was on board along with new members of the management team. In fact, 2008 is the first time the company has had a CEO and management team with a proven track record in this arena.
Some of the highlights that I will talk about today had initiatives that were begun in 2008 and are continuing now in fiscal year 2009, including the development of new sales channels, brand building and promotional programs, an aggressive public relations campaign, a negotiation 50% decrease in manufacturing costs, on-going scientific research, and then new product development. In particular I will talk about a revolutionary new skin-care product that is currently undergoing testing.
Now, in 2008 I think if you talk about what real changes truly occurred, I think as Brad indicated, expenditures were finally contained. Historically the company had, mostly due to inexperience, not always gotten as much benefit from its expenditures as it could have or should have.
And we have been able to contain those expenditures and for the first time, sales have been stabilized so the long history of eroding sales has ceased, and in fact, fourth quarter showed for the first time in a long time in the company’s history, a modest but real uptick over the previous quarter. In fact, the fourth quarter does show an increase in net sales and gross profit.
Now, that’s a trend that we intend to continue, as a management team and the strategy that we’ve talked about in the past, but want to clarify today, is built upon a few basic tenets. One of those is to build brand awareness and that has been an ongoing concern and hurdle for the company. Our efforts to do that have included, in the fourth quarter, specifically, for the first time developing new direct-to-consumer television ads, which were aired in a nation-wide campaign on a number of cable television networks, like the Fox news channel, the Hallmark channel, Fit TV, Food network, and many others.
It was not by any means a multi-million dollar media campaign but was intended to be a test marketing campaign and by utilizing our own experience and background, as well as calling in favors with those on the media side, we were able to get much better coverage for our money than would otherwise be expected.
The results of that campaign were positive. We increased the calls into our call center, we greatly and tremendously increased the number of unique visitors to our website, and we did increase our new customer acquisitions.
Now, we curtailed that initial television campaign at the end of August so that we could evaluate everything that had been accomplished, retool, and revise and we think that we are making a lot of progress in the messaging for consumers to get them interested in the compelling story of Protandim.
Now, in addition to the media side of brand building, we have also launched an aggressive public relations campaign by utilizing Jan Strode and Harris Sheppard. In fact, I recently completed a national media tour meeting with all the top women’s magazine publishers and editors in order to secure feature editorial coverage. Those meetings were very successful and by virtue, again, of the long-standing contacts of Jan and Harris, we were able to meet with the decision makers at magazine like Ladies Home Journal, Oprah’s magazine O!, Fitness, and other top magazines that squarely are aimed at our own primary demographic of women between the ages of 30 and 55.
That has been met with wide-spread interest. A number of those editors and publishers are actually taking the product and have already requested follow-up meetings with us, which will begin later this month.
We have been able to get articles featured in such things as the Nutrition Business Journal and many of you are already familiar with the frequent references to the product in Sanjay Gupta’s book, Chasing Life. We have had interviews with a number of on-line business sites including WallStreet.net and articles featuring the product and the company have appeared in hundreds of regional and large newspapers nationwide.
We have been scheduling stories for additional media coverage on television and the radio and Internet and print, also. We have recently retained celebrity doctor Carlon Colker, M.D. We have had a long-standing relationship with Dr. Colker, who is a world-renowned wellness and fitness expert, a frequent contributor on the Fox News Channel as a medical correspondent. He recently co-starred with his patient, Shaquille O’Neal, in the ABC series Shaq’s Big Challenge, as they took on childhood obesity, and he has published a number of books and articles in the wellness space.
There will be more information coming about that and Dr. Colker’s role as a member of our scientific advisory board and spokesperson in the next day.
We have also began discussions with other well-known celebrities regarding endorsements, utilizing again, contacts and previous experience.
The next part of the strategy, in addition to building brand awareness through advertising and the Internet and through public relations, is putting the product in multiple sales channels. And again, that’s already begun. As many of you are aware, the product has had some retail distribution for a couple of years, most notably in GNC and Vitamin Shoppe and some others.
The retail sector will continue to be a strong target market for us. Not the mass markets, not food, drug en masse. The current branding status of the product is not sufficient to give the turns on the mass market shelves that will be necessary to maintain distribution to those channels. But in the natural and specialty channel, which is an $8.5 billion channel in the U.S. alone, it can remain and become a strong competitor and contributor. I will talk more about that a little bit later.
We will continue in our efforts to sell the product and introduce the story direct to consumers. The direct-to-consumer channel for supplements overall is $2.4 billion in the U.S. A large percentage of our revenues are derived from our direct-to-consumer campaigns.
Now, in regard to that, we have, for the first time during our tenure and beginning in the fourth quarter, put together an affiliate marketing program with an affiliate network known as Commission Junction. We are also in the process of putting together other affiliate programs and affiliate management programs and utilizing other affiliate networks to drive sales through the Internet in a direct-to-consumer fashion.
In addition to that, we totally revised the website and that’s an ongoing effort as we seek to fine-tune the message, make it increasingly compelling, and increasingly make it easier for consumers as we try to update and refine our shopping cart and other things, to make it easier for consumers to order the product.
We have engaged in search-engine optimization and marketing campaigns. Those are also being fine-tuned on a weekly and monthly basis in order to find out what resonates with different consumers.
We are also going after the health-care market, which is health care professionals such as chiropractors, anti-aging clinics, and alternative health care practitioners, and increasingly, medical doctors. That is almost a $2.0 billion in annual sales market here in the United States. And while that program is in its infancy, and just began in the fourth quarter of 2008, we have already had some success in introducing the product to a number of doctors who are seeing good success in selling the product to their patients.
In fact, it’s quite an easy sell for them, really, because Protandim has such wide application to a variety of health conditions and is beneficial to everyone that, frankly, we’ve seen already in our physician sales, that the possibility of selling more product through that channel than even retail channels, is very huge, because of that one-on-one patient-to-doctor contact as well as the trust that the patient has in the doctor’s recommendation.
Another huge market that we’re looking at very strongly is the networking channel. That’s an almost $8.0 billion market in the United States, with almost $40.0 billion in global sales. Well, you’ve heard of Fitch Companies and Amway and Herbal Life who have revenues in the several billions of dollars.
You may not be familiar with a more recent company such as Mona Vie, which in only three years has obtained almost a billion dollars in sales, or Vango, which is about a $400.0 million company. Tahitian Noni, which is over $500.0 million. Nuwaves is also in the $500.0 million range.
A number of these companies are actually single-product companies and it’s interesting to note that the single products that they are promoting and having such great success in selling are largely juices that are highly touted for their anti-oxidant benefit. And the irony of it is that the products that they are selling, while hinting that the promise that Protandim can actually fulfill, are not capable of really providing the support in regards to oxidative stress and the anti-aging component that Protandim actually supplies.
So I feel that this is a very fertile market for us to explore. It’s actually the segment of the industry that has, by far, the fastest rate of growth and is also the segment of the industry that has the vastly larger percentage of international sales than any other channel has been able to attain.
Now speaking of international, that’s a $63.0 billion market in its various channels. Japan leads the way with over $10.0 billion in sales. I know that there’s a great deal of interest in the Japan initiative that we announced months ago, back in February. The process for selling product in Japan begins with getting government approval for the sale of the product within Japan.
Frankly, I thought that we would have that approval and registration by now. Based upon my experience with other companies in seeking and obtaining Japanese registration approval, it has typically not taken this long.
But there have been some things that are different this time around and primarily that arises with concern that has arisen in Japan with ingredients that are sourced in China due to a number of well-publicized deaths in Japan that have been attributed to products that contained, in the Japanese government’s opinion, tainted ingredients sourced from China, with particular concerns being raised over lead and other heavy metals, as well as pesticides.
And our product has been thoroughly tested. It does not have any problem with any of those tainted sources or ingredients, but nevertheless, because a couple of the ingredients are sourced in China, it is undergoing a more thorough review and it is taking a longer time than it ordinarily would, although I still expect that registration will issue and that sales in Japan will be able to start being obtained.
There still remains strong interest on behalf of potential customers in Japan in selling the product there.
And I talked about the retail channel. An example of what we’re doing there is to really optimize and expand our reach. I mentioned existing accounts like GNC and Vitamin Shoppe. The company was successful in obtaining that distribution before I arrived, over two years ago. Unfortunately, there has not been a concerted promotional and marketing campaign, merchandising campaign, put in those companies until now. We now, through Ben Sieman and the strong network of brokers that he has been put into place, for the first time have aggressive merchandising and promotional campaigns that are on-going at those retailers that will continue to not only increase brand awareness, but as importantly, increase sales in those distribution channels.
Now, also for the first time in over 18 months the company has been able to obtain new accounts, such as Swanson’s and Vitacost and Lassen’s and others, in addition to the new physicians’ accounts that I mentioned earlier.
And we have also got the company’s first-ever meetings with large regionals such as Fred Meyers, who owns QVC, the television shopping network, that we have a high degree of excitement about as well.
Now, I remain very optimistic about our ability to sell Protandim and other products in this channel and in all these multiple channels because of what I call the Protandim edge, which is that on the inside, at the cellular level, we are the only product, there is no pharmaceutical, there is no OTC, there is no nutritional supplement that can do what Protandim does in reducing free-radical damage by 40% and as you know, slowing the cell aging process to the level of a 20-year old.
Well, in addition to that tremendous promise of it working on the inside, we are also expanding that Protandim edge to the outside in the development in of our anti-aging skin care cream and cleanser. The cream will contain cutting-edge proprietary ingredients that incorporate the Protandim ingredients plus other patented and very unique ingredients that will not only utilize the proven benefits of Protandim in fighting free-radical damage to the skin, just like it does on the inside to the cell, but will also provide such benefits as reducing fine lines and deep-line wrinkles. It will improve skin smoothness and pigmentation and increase skin moisturization.
It is dermatologist-tested and those studies are being conducted right now in the Denver area. The preliminary results have been very positive and if everything falls into place exactly, and that doesn’t always happen, I’m cautiously optimistic that we’re going to be able to have product in the market in time for the holidays. And that is our goal and what we’re strongly trying to achieve. It’s a great product, I’m very excited about it and it’ll be a tremendous addition in the over $100.0 billion anti-aging category in the United States. And we have some real benefits that other competing products don’t have.
Now, other recent events that I would like to touch base on. I mentioned briefly the decrease in manufacturing costs that we’ve been able to negotiate, by virtue of entering into an agreement to manufacture the product with Cornerstone Lab in Utah. Now the full impact, we won’t start to realize the impact of that savings until later on the fiscal year 2009 as we’re working through inventory that we already had at our previous manufacture. But that’s a very exciting development and we’re looking forward to enhancing that relationship with Cornerstone.
We mentioned the press tour. I’m very excited about the fact that these editors and publishers are now reaching out to us for follow-up so that we can get editorial coverage. We want to be the preeminent source of information whenever these women’s magazines run articles about health, wealth, and anti-aging. And as you may be aware, they run such articles all the time and so it’s a tremendous opportunity for us to increase our awareness through that particular medium.
About two weeks ago I, along with Dr. Joe McCord, participated in the Edgewater Micro and Small Cap Conference in Coeur d’Alene, Idaho. We both participated in the presentation there. Dr. McCord, as usual, did a very good job and the company and the product was met with great enthusiasm.
David Levine, who is the publisher of the Edgewater Micro Monthly, and who put on the conference spoke of his own personal experience with the product and spoke very enthusiastically, as by the way, did his father, who was in attendance, in a very unsolicited fashion, and also gave a ringing endorsement of the product.
As I said, it was met with great enthusiasm. We had a number of people come up and talk to us more about the company and the product later and I think that that was manifest in much greater trading volume in the subsequent days following that conference.
We are going to continue in those types of investor relations and investor awareness activities. We realize that much like Protandim needs to increase its awareness as a brand and a product, the company needs to increase its awareness as a company and get in front of people, if they only knew about us, would be very interested in supporting the company. And so we have very strong efforts in that regard as well and an ongoing campaign in store.
I mentioned the retention of Dr. Colker. He is excited to be aboard with us. A press release will issue shortly following this call regarding his retention and that will also be key in our effort of increasing both brand and company awareness.
I want to spend a little bit of time talking about some scientific updates. Many of you know that there have been over 22 studies incorporating Protandim, studying everything from autism to diabetes to coronary heart bypass graphs and other things. Three of those studies are now complete and they have been written up for publication, submitted to prestigious journals, and we have every expectation that they will be accepted by those journals and published in the months to come.
Now, those journals, neither the journals nor the researchers, like us to steal their thunder and talk about those studies and the results prior to those results being published so I won’t do so in this call either. But suffice it to say that the results are very positive and we’re very excited and it will further increase scientific interest in the product for new studies and well as buttress the scientific support for the product that we have already been able to do.
There are new studies that we will be announcing shortly as well as an on-going expiration in talks with a particular company about easier to use tests for oxidative stress that we might be able to incorporate in our marketing campaigns as well.
So those are some of the very exciting things that we are doing. We are excited about the future and the things we have put in place. There will be additional things, and have been additional things, that have been put in place and will be an on-going effort. We don’t expect it to be easy but given the fact that this product is really a product that everyone should use, as David Levine of the conference said, if he only takes one product and Protandim is it, that becomes a rallying cry for us to put the product out to all people that can benefit from its tremendous potential. And that incorporates a very large potential audience.
So that is the end of my presentation. I appreciate your attention and at this point we will turn the time over for some questions.
(Operator Instructions) Your first question comes from Jim Galloway – Galloway Enterprises.
Jim Galloway – Galloway Enterprises
First question on cash flow. I’ve got some options and warrants that are out of the money so I’m not going to exercise them but how do you see your cash flow carrying you through this fiscal year?
That’s a good question, I appreciate that. Everything that we do is done with an eye to the existing resources that we have, including cash. I am very mindful of all of you existing shareholders and your concerns about dilution and other things. Other than the initial bump in expenditures during the fourth quarter for the development of the commercials and the television test marketing campaign, we have been keeping a very tight line on cash use. Our burn is down significantly and I do believe that the cash that we have is sufficient for our needs as we go forward.
We certainly aren’t flush and it does limit us in terms of some things we might otherwise consider if we had more cash in the bank, and so it does have an impact upon the rate of growth and the pace that we might otherwise be able to attain if we had $10.0 million or $20.0 million in the bank instead of just under $1.0 million.
But our cash, as we look forward to the future and pursuant to our budget and our projections, is sufficient to keep us going until we cross over into a cash-flow positive arena. Which we are projecting to be in the spring of the next calendar year.
Jim Galloway – Galloway Enterprises
Two sales questions. Number one is domestically. I am wondering if you could give us a breakdown of direct sales versus sales through these various avenues that you are utilizing. For example, have we exceeded 10,000 a month people that are buying on the standard re-order program. Or where are we in these programs?
I don’t have all those numbers at my fingertips but I know we don’t have 10,000 people a month on auto-ship. That number is growing but it’s not growing as quickly yet as we would like.
The breakdown, in terms of revenue, is, and Brad may need to jump in and correct me.
Bradford K. Amman
No, the direct sales have been about 80% of our revenue and retail 20%.
Yes, that’s what I was going to say so I’m glad we’re at least on the same page there. And, frankly, I don’t really see that changing drastically. I still believe that the greatest potential for increased sales is on more of a direct-to-consumer basis as opposed to retail. And that’s based not only upon the fact that we have a fairly small product line, the fact that retail has become increasingly difficult for any participant because it’s getting so hard, and them primarily because we have a product that requires a story to tell. And whenever you have a story that is required to sell a product, that becomes a product that is well situated for a direct campaign and less well situated for retail.
So while we will continue to expand through our programs the retail sales, I fully anticipate that the biggest gains will be had in the direct market place.
Jim Galloway – Galloway Enterprises
My last question regards Japan and Asia. I was on the NutraNomics website this morning and I had spoken to them back in June, just doing a little due diligence. And I’m wondering, are they still talking about a capsule reformulation? Because when I talked to them once, they thought that was best-suited for the Japanese market and I’m wondering if it’s still Tracy Gibbs and NutraNomics that you’re working through or are you working through other people? A little more enlightenment, please.
If you spoke to NutraNomics, they are, and Tracy Gibbs, we are still working with them. And they have great experience and I and Ben Sieman have used them with other companies, as many other companies have, particularly in the Utah area where I mentioned the multi-level companies and networking companies, many of which are based in Utah and many of which have 90% of their sales.
For example, Nuwaves, which is approximately a $500.0 million company, has about 95% of their sales in Japan and so that market has been very amenable to products like ours and Tracy has been very instrumental with almost all those companies in helping them obtain registration in Japan.
The Japanese consumer has different tastes than the American consumer does. Actually, that’s not, I was going to say they like capsules and powders better than tablets. Increasingly, American consumers are kind of the same.
I wouldn’t say the capsules will be the only delivery mechanism that will be utilized in Japan. Powders, in terms of individuals sachets and other things could potentially be used as well for certain customers that have expressed that interests. But tablets will probably not be the delivery system, again, because it’s not one that particularly meets the palate of the Japanese consumer, who doesn’t like to swallow those things, as well as some of the excipients, which are the binding agents necessary to keep the ingredients together in a tablet, it’s not easy to obtain registration for products that contain those in certain of the Asian countries, including Japan. So it probably will be a powder and encapsulated form.
Jim Galloway – Galloway Enterprises
And have you already developed that?
Yes. That’s what’s been submitted to the Japanese government. And let me add just one note. The only thing that really changes there, the formulation of the product doesn’t change in terms of the five ingredients and the ratio that those ingredients exist in the capsule, it’s just the additional fillers that are used as both binding agents and flow agents to help the ingredients flow on a tableting machine are taken out.
Your next question comes from Jim Sanran.
You made mention of the fact that various magazine are asking for updates on our product. I forget the name of the news magazine that covered us and drummed us into big fame years ago. Was it 20/20? But have we done anything to solicit their interest back in us? Or have they approached us yet?
Yes. ABC Prime Time, which is what the original piece that shot the company into the product of fame was, that producer, Carol [Forchuck], I think her name, actually has been contacted. Their main interest in the product, in fact, anecdotally, I haven’t been able to confirm this myself, but anecdotally I have heard that John Quinones, who was the ABC correspondent featured on that piece, continues to take the product to this day. He remains a real convert, an adherent of the product.
The basic response of ABC Prime Time, as well as some of the other ones, has been let’s not talk about the same study that we based our earlier piece on but we would like to be able to talk about new science and new studies that have come out. And so that’s why I am very excited about these new studies that I mentioned a little while ago, and in terms of being able to circle back around with those media outlets, including ABC, that have maintained a high level of interest.
I’m excited about the fact that we’re getting new products out there. One thing that wasn’t mentioned, I received an e-mail about us putting out a fish oil product, besides the hand creams. What’s going on with that fish oil?
Yes, the company actually, prior to my arrival, I think it was in late 2007 or early 2008. Actually it was right about the time I was getting there but they had a product in development, an Omega 3 fish oil product. A very good product, as a companion product.
You know the interesting thing about Protandim is that in and of itself it doesn’t provide nutritional support, while it does increase anti-oxidant enzyme production. And so there are other things we should consume in our diet to maintain proper health and nutrition.
And Omega 3 fish oil is one of those things that has been proven to help in a variety of ways, in terms of nuero transmitters, joint health, heart health. A whole number of things. And so the company formulated that product in connection with Kemmons, our current manufacturer, and it’s a very good product. And it’s priced very competively to other fish oils out there in the market place.
And it’s an example, I don’t anticipate following what I think is a mistake by other
companies, which is throwing a bunch of products against the wall and see what sticks, but to come up with real positive products that have a cutting edge differentiation to them and that will be our hallmark and goal as we go forward.
Your next question comes from Alan [Evright] - MCS Corporation.
Alan [Evright] - MCS Corporation
Did you disclose the amount of unit volumes you sold in the quarter and give any guidance for the out quota on what you expect to ship?
No and no. We did not discuss unit sales directly or give any guidance in that regard. And frankly, I don’t have those numbers. Typically it’s been our fashion not to provide guidance.
I will say, for the benefit of everyone, is that we have been having internal discussions about whether or not we would like to do that because I can say that we have been able to, our own internal budget projections, that we have not made public, have been something that we have been very pleased with our performance against. And so that is something that we will take into account as we consider what to disclose going forward. But we have not done that to date.
Alan [Evright] - MCS Corporation
Well, okay, forget the guidance. Give us some metrics to monitor on a go-forward basis, how you’re progressing, other than just looking at the revenue line.
Actually I think that’s a great question because some of the efforts that we undertake to do are what I would call in some respects a priming the pump type of effort. An example of that is when we do such things as have campaigns where we will give a particular promotion to a 6-pack of product at a very good rate in order to provide an incentive for people to really jump on board and pass it out to other people and do those types of things.
And so we believe that our greatest opportunities for unit sales going forward, as well as revenue overall, remains the direct-to-consumer category and so I think, I will talk about that with Brad after our call, but I think it’s something that, frankly, I don’t really have an aversion to talking about unit sales going forward and I think it is something that is a reasonable metric to be measured by, with sales overall as well as in specific channels, and I’ll take that into consideration because I think it is a decent metric to show growth because sometimes those unit sales are expanding even though the margin at each of those sales might not always be the same because of promotions that are going on.
So we certainly measure those things. And we will provide some additional information about going forward.
Your next question comes from Lynn Goldberg - Goldberg Capital Management.
Lynn Goldberg - Goldberg Capital Management
If you were to crank up sales would there be any problem on the manufacturing side?
No. In fact, Cornerstone, and this is true of NextGen as well. And I would like to say something about NextGen, formerly known as Kemmons, the manufacturer in the past for the company, they are a good manufacturer and they supported the company very well. And I’ve used them in the past myself, with other companies that I’ve been associated with. But the fact of the matter is that we were able to obtain a drastically lower cost of manufacturing with Cornerstone. And frankly, Cornerstone’s capabilities are even greater than the expertise that NextGen brings, even though that’s very good, also.
Cornerstone is a very large company owned by the Mitsui Corporation out of Japan. They are very much involved in manufacturing for other companies in this space, much larger than us. But they have tremendous capacity. And we have talked about that very issue.
So there’s really two questions, whether from a manufacturing standpoint and a fulfillment standpoint, because we fulfill orders out of a separate facility, again using another third party so that we don’t have to bear the cost of building that infrastructure ourselves, and on both sides of that equation I am very confident that those companies will be able to fulfill and meet the requirements that we have, even with a tremendous uptick in sales.
Bradford K. Amman
The contract manufacturing model really doesn’t allow for a quick ramp up. And that’s really why it was chosen in the first place, is to be able to ramp up quickly.
One final note, is going back to NextGen, is that they will remain a secondary manufacturer. So in case there was ever, for some unforeseeable reason an issue with Cornerstone, either in terms of capacity or catastrophic breakdown or something like that, so that we actually have two manufacturers that we feel comfortable can meet the needs of the company.
Lynn Goldberg - Goldberg Capital Management
Does GNC do anything to help you promote the product?
Not without urging. But they are willing to engage in programs that we participate and the one thing they have been able to do with us, through the involvement of Ben and Scott Intel, our broker there, is to help put in place promotional programs that are not always well-known or available to smaller companies, and as importantly, not rely upon the company solely for the funding of those promotional efforts.
As you probably know, many, many retailers use merchandising and promotional campaigns on an in-house basis as a real revenue source for themselves. And they can often charge exorbitant prices and fees for participation in those in-store promotional programs. And fortunately GNC is working well with us as we put those promotional programs in place that are already helping us to see an uptick there.
So I would say they have been a good partner in the past but because of the relative inexperience of the company and the people associated with that particular account, we haven’t always taken as good of advantage of those promotional vehicles that were available to us as we are not beginning to.
Lynn Goldberg - Goldberg Capital Management
If you were to take a wild guess at GNC, how many product would you say?
Well, that’s an interesting question, because you know, everybody likes to say about their product, well, there’s really nothing like us, when in fact there usually is. But the fact of the matter is that given the unique mechanism that Protandim works by, in terms of increasing the cells production, turning on the switch in the very mitochondria of the cell to increase the production of SOD and catalase, there simply is no other product that does that.
However, there are other products that try to attack the problem of oxidative stress in a different fashion, through consumable anti-oxidants, such as vitamin C, and vitamin E, or any of the plethora of berry products like bilberry, blueberry, you know, acai berry, all those types of things, which are exponentially less effective in reducing oxidative stress than Protandim.
Nevertheless, one of the challenges we have at retail is there’s not a category, I mean every spot on the shelf within the stores is viewed as real estate, if you’re on a particular plan-o-gram, they have to plug you in somewhere. And so we generally find ourselves put into the anti-oxidant section and so for people who are the uninitiated or the uninformed, we might simply appear to be an expensive anti-oxidant product when in essence what we are talking about is anti-oxidant therapy, it does something that nobody else can do.
And so that’s a challenge at retail, and particularly at GNC, as we find ourselves in that particular section. And our strategy to deal with that hurdle is the training of employees and particular promotions that allow us to put a placard right on the shelf, where the product is featured, what we call a shelf talker, which more succinctly and more accurately explains the benefits in terms of slowing down the cell aging process as well as promotions that involve the very clerks themselves in an effort to help push the product. And so that’s the strategy we’re utilizing at GNC.
Your next question is a follow-up question from Alan [Evright] - MCS Corporation.
Alan [Evright] - MCS Corporation
You talked about some of those other things out there, berries, the Acai berry and all the stuff that’s gotten a lot of attention. I’m just throwing this out there because I see countless corners around town with the whole Mona Vie thing and it seems like that even though the MLM channel isn’t the greatest thing for a lot of products, that might be the right channel for a product like yours. As a compliment to your direct and retail business. Have you guys thought about pursuing this angle?
The short answer is yes. And I know you said earlier in your first question that you were unable to hear all of the presentation but one of the things that I talked about was our intention, and our efforts right now, to put the product in multiple sales channels. And I spent a little bit of time talking about the networking marketing, or MLM, or direct-to-consumer through independent distributor channels, and specifically mentioned Mona Vie.
And further, you’re right on target. When you have a product like, well a good example of that is when we were at this Edgewater conference and about 70 people in attendance when I was presenting and Dr. McCord was presenting, a couple of weeks ago in Coeur d’Alene, Idaho, an audience with people primarily who, you know, were active in the micro cap space, investors, fund managers, individuals, most of whom didn’t have very much knowledge of the nutritional supplement space at all, let alone a product like Protandim. I think very few, if any, outside of David Levine and his family members who happened to be in attendance, had even heard of the product.
And yet, in that setting, in a 20 to 30 minute format of presenting the science, presenting the promise and the benefits of Protandim, it really elicited a great excitement such that afterwards both Dr. McCord and I were beset by a number of people asking for further information. Not just about the company, but about the product.
And another example of that is I had, on a table in the back of the room, had put out about 50 bottles of Protandim and then with another 50 or 60 in a box underneath the table. When I turned around at the end of the presentation, all 100+ bottles had been scammed by people, had been grabbed because they were so interested in the benefits.
And that underscored exactly what you’re saying, that when you have an opportunity to tell people directly, fact-to-face, about the benefits of this product, they, like all of you who got interested in joining this company as investors because of what you heard and what you thought and the excitement that you thought about in terms of where this product could go, that lends itself very much to that channel. And that remains something that you will hear more about in the days, weeks, and months ahead. It’s something that’s very much on our radar screen.
There are no further questions in the queue.
Again, I appreciate your attendance and the attention that you paid today, taking time out of what is always a busy day, particularly at this time of a lot of turmoil in the markets. We remain very, very optimistic and excited. I hope you can tell that when you hear me talk about this product, about the company, that while the growth and things that we’ve been able to obtain from the revenue standpoint have been fairly modest, I think that we stand poised to really accomplish some great things. And finally how Protandim achieved the promise and the potential that everyone has known it has had since they have been first introduced. I appreciate the questions that were asked. I don’t shy away from those.
We don’t claim to be perfect and don’t claim to always make the best and the brightest decisions, but what I do know is that my team and I have got a plan. We are sticking to that plan. It’s been a plan that’s been successful in the past with other companies we’ve been able to build and achieve significant sales and revenue growth and profitability growth. And I’m excited about the future and look forward to working more with you in the days and months ahead.
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