LifeVantage Corporation — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2021. Financial statements are unaudited; amounts below are in U.S. dollars. LifeVantage sells nutrition, wellness, personal-care and related products primarily through independent distributors and customers across the Americas and Asia/Pacific & Europe.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Prior year | Six months ended Dec. 31, 2021 | Prior year |
|---|---|---|---|---|
| Revenue | $52.2 million | $59.0 million | $105.4 million | $113.8 million |
| Gross profit / margin | $42.5 million / 81.5% | $48.8 million / 82.7% | $86.3 million / 81.9% | $94.2 million / 82.8% |
| Operating income (loss) | $(0.4) million | $5.4 million | $4.3 million | $8.9 million |
| Net income | $0.1 million | $3.8 million | $3.4 million | $6.3 million |
| Diluted earnings per share | $0.01 | $0.26 | $0.25 | $0.43 |
For the quarter, commissions and incentives were $25.4 million (48.8% of revenue), and selling, general and administrative expenses were $17.4 million (33.4%). For the six months, those expenses were $49.6 million (47.0%) and $32.5 million (30.8%), respectively. Management attributed lower gross margin to inventory obsolescence, shipping costs and sales mix; higher expense ratios reflected lower revenue, promotional-program timing, and increased event, travel and legal costs.
Liquidity, cash flow and capital
- Cash and cash equivalents were $20.2 million at December 31, 2021, down $3.0 million from June 30, 2021. Working capital was $20.6 million, versus $22.9 million.
- For the six months, operating cash flow was $4.5 million, capital expenditures were $0.9 million, and financing cash outflow was $6.5 million. The latter included $6.6 million of share repurchases.
- Total liabilities were $37.5 million, including $17.3 million of operating lease liabilities. The term loan had been repaid in full; the filing describes a revolving facility of up to $5.0 million but does not clearly state whether any amount was drawn at period end.
- The company reported compliance with its credit-facility covenants. Management said cash and expected operating cash flow should cover requirements for at least the next 12 months.
Changes versus prior comparable periods
- Quarterly revenue declined 11.6% and six-month revenue declined 7.4% year over year. Americas revenue fell 17.1% for the quarter and 11.7% for six months; Asia/Pacific & Europe revenue increased 2.1% and 2.9%, respectively.
- Active accounts fell 6.3% to 163,000 year over year, including 7.5% fewer active distributors and 5.6% fewer active customers. The Americas declined while Asia/Pacific & Europe grew.
- Quarterly operating results moved from $5.4 million operating income to a $0.4 million loss, while six-month operating income was down to $4.3 million from $8.9 million. Management cited revenue declines and higher expense ratios.
- Cash from operations was $4.5 million versus $4.8 million in the prior six-month period. Share repurchases were $6.6 million versus $6.0 million.
Outlook, risks and unusual items
- Management expected SG&A as a percentage of revenue to remain steady through the rest of fiscal 2022. It cited plans for further product and market expansion, including the October 2021 launch of IC Bright, and anticipated that initiatives could support revenue growth; no numerical revenue or earnings guidance was provided.
- COVID-19 continued to affect in-person recruiting, events and distributor activity, particularly in Japan; supply chain, delivery and customer purchasing disruptions remained possible. Management was adapting through digital and hybrid distributor support.
- Foreign exchange was a headwind. Management reported that a hypothetical 10% strengthening of the U.S. dollar would have reduced six-month revenue by 3.3%, or $3.4 million. Foreign currency transaction losses and forward-contract losses contributed to other expense; no derivatives were held at December 31.
- A putative class action, Smith v. LifeVantage, remained pending, with plaintiffs’ class-certification motion unresolved. The company recorded no loss accrual because it considered liability neither probable nor estimable, but said an unfavorable outcome could materially affect results or financial condition.
- Inventory-obsolescence expense increased to approximately $0.3 million for the quarter and $0.5 million for six months. The company also held a $2.2 million equity investment in startup Gig Economy Group that could be subject to future impairment.
Important facts for investors to verify
- Whether the decline in Americas revenue and active accounts continues, and whether growth in Asia/Pacific & Europe offsets it.
- Whether margins and operating profitability recover as inventory, shipping, promotional, event and legal costs evolve.
- The amount, if any, drawn on the $5.0 million revolving credit facility and continued compliance with its financial covenants.
- Developments in the class-action lawsuit, including the court’s decision on class certification and any change in the company’s loss assessment.
- Whether cash generation remains sufficient to fund operations and repurchases, given declining cash and $4.9 million remaining under the repurchase authorization at quarter-end.