LifeVantage Corporation (LFVN) Q4 2012 Earnings Report, Transcript and Summary

Good day and welcome to today's LifeVantage Fourth Quarter Fiscal 2012 Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, it's my pleasure to turn the conference over to John Mills of ICR. You may begin.

Great. Thank you. Good afternoon, ladies and gentlemen, and welcome to LifeVantage Corporation's Fiscal Fourth Quarter 2012 Conference Call. On the call today from LifeVantage are Doug Robinson, President and Chief Executive Officer; Dave Colbert, Chief Financial Officer; Carrie McQueen, a current consultant to the company and former Chief Financial Officer; as well as David Brown, President of LifeVantage Network. By now, everyone should have access to the earnings release which went out this afternoon approximately 4:00 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of LifeVantage's website at www.lifevantage.com. This call is being webcast and a replay will be available on the company's website as well. Before we begin, we would 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 questions do not guarantee future performance and therefore undue reliance should not be placed upon them. These statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of LifeVantage's most recently filed 10-K. 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. 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 a total of 3 before getting back in the queue. And with that, I'd like to turn the call over to the company's CEO, Mr. Doug Robinson. Go ahead, Doug.

Thanks, John, and good afternoon, everyone. On today's call I will briefly review our record Q4 and full-year fiscal 2012 results, then I'll provide a general update in our business and growth initiatives and will discuss the strategic imperatives that will be our primary focus in fiscal 2013. After that, I'll turn the call over to Dave Colbert, our recently appointed Chief Financial Officer, for a more detailed discussion of fourth quarter results and to provide our guidance for fiscal year 2013. First, let me provide a quick review of our financials. We generated record revenue of $44.6 million during the fourth fiscal quarter of 2012, nearly a 200% increase compared to the fourth quarter of last fiscal year. Our operating income for the quarter increased to $7.3 million, which translates to an operating margin of 16.5%. We also generated net income of $4.8 million compared to a loss of $47.2 million in the previous year, due to strong operational results and eliminating all derivative liabilities from our balance sheet. For the full fiscal year 2012, we generated revenue of $126.2 million and operating income of $21.5 million, which translates into an operating margin of 17%. This exceeded our previously issued guidance on our third quarter earnings call. We also strengthened our balance sheet during the quarter, ending Q4 with approximately $25 million in cash and once again finished the quarter having no debt. Over the course of fiscal 2012, we took the necessary steps to improve our overall financial health and eliminated all derivative liabilities. Due to our strong operating results coupled with our improved financial health, I am extremely excited to announce that we have met all listing requirements and have received approval to list our stock on the NASDAQ Capital Market. As some of you may have seen, we issued a press release about this, just moments after we filed our earnings release this afternoon. We expect that our stock will begin trading on the NASDAQ Capital Markets effective at market opening on September 12 under the same symbol LFVN. This listing marks a major milestone in LifeVantage's history and is tantamount to the hard work and success of every member of our team as well as strong improvements in the overall strength of our company. We look forward to the increased visibility that listing on a national exchange will bring to our company, and believe this will help us maximize shareholder value. At the core of our success is the expanding awareness of our products, Protandim, the Nrf2 synergizer, and TrueScience Anti-Aging Cream, the increasing success of our current distributors and our ability to attract new distributors. In order to help you better understand our growth as it relates to our customer base, we will begin disclosing new metrics on this call. When we look at our customers, we classify the majority in one of 2 categories, independent distributors and preferred customers. We define an independent distributor as someone who has purchased a business pack containing product or products and sales aides who intends to sell product to and actively enroll other independent distributors and/or preferred customers. Our independent distributors are entrepreneurs who desire to earn income and build a business of their own and who see great opportunity in selling unique, scientifically-validated products without incurring significant startup costs. To be classified as an active distributor, one needs to have made a purchase of products from us in the prior 3 months. As of June 30, 2012, we had approximately 46,000 active independent distributors, a significant increase compared to approximately 16,000 active independent distributors as of June 30, 2011. Our other category, preferred customers, are defined as those customers who purchase our products at our wholesale price on a monthly auto-ship basis for personal consumption without the intent to resell. A preferred customer may enroll as an independent distributor at any time should they decide they are interested in reselling the product or participating in our compensation plan. As of June 30, 2012, we had approximately 119,000 active preferred customers compared to approximately 35,000 active preferred customers as of June 30, 2011. Approximately 7 out of 10 new customer enrollments in 2012 enrolled as preferred customers. Our strong base of preferred customers is a great source of word-of-mouth advertising for LifeVantage and our products. We also believe our large base of preferred customers provides tremendous credibility to our company by validating the attractiveness and belief in our products in addition to the very strong network marketing business opportunity. At the beginning of fiscal year 2012, we outlined a plan for significant investment in various areas of our business. With our rapid growth rates, it was imperative that we make the appropriate investments into our infrastructure to ensure that we are able to properly support our growing company and build a platform for the future. I'm pleased to say that we successfully made these investments and we're still able to improve our operating margins, highlighting our ability to leverage our infrastructure across higher volumes. In fiscal 2013, because of the rapid growth of our business, we will need to continue investing in our business in certain areas to support our anticipated growth and further establish LifeVantage as a global healthy living brand and enable our customers to enjoy a healthy living lifestyle. This will lead to more moderate profit margins during this very important investment period when compared to years past. But as Dave Colbert will discuss in further detail later in the call, we believe that we will continue to provide significant growth and return for our shareholders even as we ramp up for greater growth. I'm also pleased to report that LifeVantage's strong growth this past year led to our being recognized by Utah Business Magazine as the third fastest growing business in the state. We were named a Utah Business Fast 50 Company, the Fast 50 program highlights 50 of Utah's fastest-growing companies, determined by a combination of compound annual growth and revenue. We are proud of this accomplishment and determined to remain at the top of the list. Some of you listening to the call are maybe new to our story. So before I discuss our specific growth initiatives, I would like to briefly provide some high-level background on our company. At the core of our business is strong scientific backing for our flagship product Protandim. In clinical and laboratory studies, Protandim has been shown to activate the transcription factor, Nrf2, a signal to the cell's DNA to regulate a network of protective genes. A recently published study further investigates Protandim's ability to increase production of the body's Nrf2 regulated protective genes, sometimes referred to as survival genes, which include genes that encode anti-oxidants as well as anti-inflammatory and anti-fibrotic proteins. We continue to benefit from published studies from universities that outline the efficacy of Protandim and further bolster the science behind our products. The science community and the media have been increasingly aware of and interested in the Nrf2 molecule. There's a tremendous proliferation of general Nrf2 research. You can go to PubMed.gov to review this research. Protandim, our dietary supplement, and TrueScience, our skin cream, provide a strong product foundation for our business. In fiscal 2013, we intend to further invest in new healthy living product development whether through acquisition, license or bolstering our research and development efforts. As we have discussed with you in the past, one area in which we have already initiated scientific research relates to the effectiveness of reducing oxidative stress through Nrf2 activation in companion pets. For many of us, pets are an extension of our family, and we believe that LifeVantage products have the potential to enable pets to live healthier and more comfortable lives by reducing the oxidative stress in their bodies. We are in the early research and development phase for this product as we want to verify safety and efficacy prior to bringing a new pet product to the market. We will be providing additional information concerning the timing and specific details of our pet product development, but expect that we will complete clinical studies on this product by the end of this fiscal year. In addition to investing in and expanding our product portfolio, in fiscal 2013, we plan to continue to invest in further international expansion. In fiscal 2012 we generated approximately 29% of our sales outside of the U.S., with the vast majority of those sales being in Japan. In addition to the U.S. and Japan, we also sell our products through a network of independent distributors and the preferred and retail customers in Australia and Mexico. We also sell products from the United States to customers in Canada for personal consumption only. Growing interest in healthy living is a worldwide trend and we have been extremely pleased with the reception of our products in the international marketplace, and believe that international growth will be a key element of our long-term business strategy. As we evaluate entering new markets, we must always be aware of each country's specific regulations for ingredients and business operating models as well as the fact that these regulations may often change and present new hurdles for us. Before we enter a new market, we do considerable due diligence and evaluate whether or not a particular market will meet our internal return on investment requirements, but these requirements do sometimes change. As we mentioned in our third quarter earnings call, we have been selling into Japan using a not-for-resale model the last 2 years. We are now planning to expand our operations on the ground in Japan and anticipate opening our Tokyo office during our second fiscal quarter 2013. We are working now to expand our infrastructure to support expanded growth in that market. In addition, as we also mentioned in our last call, the Japanese government has issued a directive indicating that one of Protandim's ingredients, ashwagandha, may only be used in a product registered under the pharmaceutical regulations in Japan. As we expand globally, it is likely that we will be faced with similar circumstances that require us to either make changes to formulations or not sell a product in a given country. However, it is critical to point out here that all of the products we sell will provide high levels of efficacy and safety. We have in fact faced this type of situation in the past with respect to our operations in Mexico where we were not allowed to sell a Protandim formulation that contained ashwagandha under Mexican law. As such, as part of our ongoing efforts to optimize our Protandim formula, we made a slight alteration that our tests indicate did not alter the efficacy or safety of the product and have sold that formulation in Mexico. As we finalize plans for a grand opening of our Tokyo office, we are working with our R&D and several outside consultants and regulatory bodies to ensure that we will sell a Protandim product in Japan that will comply with Japanese law, and most importantly, be safe and efficacious in keeping with our ongoing commitment to our customers. Another key area of focus and investment has been and will continue to be our sales and marketing support to our distributors who are out on the field, educating new and existing customers on our products. As many of you are aware, Donny Osmond has been and will continue to be a spokesperson for our company. Donny, who takes Protandim daily, discusses our product on his website and other social media outlets as well as in certain public appearances. We expect to continue to benefit from his celebrity status and ability to connect with our existing and potential new customers. All of our distributor events in fiscal 2012 were extremely successful and had tremendous turnout, ranging from our annual convention to our lead academies, as well as our smaller and more regional events. The enthusiasm and passion of our distributors is something that we are extremely proud of. We will continue to invest in new ways to support our network of independent distributors such that they achieve the level of financial success they are striving for. As we have discussed previously, we are especially focused on training our midlevel distributors and providing them with the tools to succeed in building their businesses. We are working to develop a larger middle class, our pro level distributors, who are building large sales organizations, selling a significant amount of product, and thus receiving significant monthly commission checks. In fiscal 2013, we have identified specific markets that we believe have the highest potential for growth, and we will be concentrating on adding additional distributor events in these areas. We anticipate continuing our focus on training and ensuring that independent distributors who desire to succeed in this business are able to do so. Before I turn the call over to Dave Colbert to discuss our financial results in detail and provide our fiscal 2013 financial guidance, I would like to outline our 7 strategic imperatives that are guiding our everyday business and enabling us to properly position ourselves for the growth that's ahead of us. First, operational excellence. Excellence is a mindset and, for our purposes, it requires alignment throughout the organization. We strive for operational excellence at every level, with the highest degree of integrity and professionalism. For our management team, this includes ensuring that every individual throughout our organization understands our healthy living brand message, core values and goals. Second, responsible growth. We are operating in a rapid growth environment and expect to for quite some time, but we recognize that it is critical that we grow in a responsible manner, focusing on our margins and bottom line with an eye toward the long term. For every decision we make, whether it relates to a new product launch, new market, or another growth driver, we evaluate the long-term impact of our actions. Third, sustainability. We're building our fundamentals and demonstrating discipline in an effort to yield sustainability in the near and long term, marrying our scientifically-validated products with our disciplined, well-run company and growing network marketing sales organization. Dave will speak further about responsible growth and sustainability in the context of a discussion of our fiscal 2013 revenue and operating profit guidance. Fourth, innovation. Innovation is an internal mindset. LifeVantage will remain laser-focused on the fight against oxidative stress and to relentlessly advance our science and the evolution of our products in the healthy living space to help our customers improve their lifestyle. We have 2 strong and scientifically-validated products in the market. We are always striving for improvement. With sound science as our foundation, the LifeVantage team encourages and embraces innovation. Fifth, creativity. This applies to our team in our corporate office and to our distributors in the field. We believe in pushing ourselves to constantly advance what we do, how we do it, and what we stand for. Whether it relates to our marketing efforts, our new product research and development, or distributor training and education, we are committed to thinking outside the box to keep our team engaged and our business evolving. Sixth, profitability. Our goal of producing sustained profitability fuels everything we do and expect to achieve. We're a profitable company at our core, operating with discipline and attention, so our shareholders, our employees and our distributors can take comfort that their investment is being well-managed. And last, accountability. We hold ourselves accountable as we work to achieve the aggressive goals we have set as we work diligently to scale our company successfully. As LifeVantage's Chief Executive Officer, I am accountable for leading our team and ensuring that each individual understands his or her role and executes in a manner to maximize long-term shareholder value. By keeping these 7 strategic imperatives top of mind and abiding by them, our team will work together, build off our success, and grow into a true leader in the healthy living space worldwide. There are robust opportunities for us to capitalize on, including an aging population, obesity, the rising costs of healthcare, and a growing global interest in personal care. I believe we have the right team and right focus to reach our goals for many years to come. With that said, I'd like to now introduce Dave Colbert, our new Chief Financial Officer. We are extremely excited to have Dave onboard. He brings tremendous financial expertise, and we will benefit from his strategic planning and public company experience as we continue to build our infrastructure. Carrie McQueen, our former CFO and currently a consultant to our company, has been helpful to ensure that the CFO transition was smooth and I'd like to again thank her for her service to LifeVantage. With that, I'll turn it over to Dave.

Thank you, Doug. Good afternoon, everyone. I'm excited to be part of the LifeVantage team and look forward to meeting many of you, our shareholders, going forward. As Doug said, we are very pleased with our fourth quarter 2012 results and our ability to end the year on a strong note. This marks LifeVantage's eighth consecutive quarter of generating operating income. Let me review our results in more detail. In the fourth fiscal quarter 2012, we generated record net revenue of $44.6 million, which represented a 197% increase over the fourth fiscal quarter of 2011. On a sequential quarterly basis, our revenue increased 23% from $36.2 million in the third fiscal quarter. Gross profit in the fourth fiscal quarter of 2012 increased to $38.2 million, up from $12.9 million in the same period last year, reflecting our higher sales. Our gross margin in the fourth fiscal quarter of 2012 was 85.6%. In the fourth quarter, general and administrative expenses increased to $5.9 million from $2.4 million in the same period a year ago. The increase reflects higher personnel costs related to our expanding operations. While there will be periodic increases as we continue to build our infrastructure, we expect general and administrative expenses to grow at a slower rate versus our sales and marketing expenses. Our research and development costs increased to $435,000, up from $194,000 in the prior-year period and from $378,000 in the prior quarter. Continued investment in R&D is a priority for our company and we have committed up to 2% of total net sales to the R&D effort. The specific timing and recognition of these expenses will vary depending on the projects we undertake. Total operating expenses for the fourth fiscal quarter of 2012 were $30.8 million, which is 69.1% of revenue. This is a 380-basis-point improvement as a percent of revenue when compared to operating expenses of $11 million or 72.9% of revenue in the prior-year period. The increase in operating expenses on a dollar basis is primarily due to increased sales commissions which are a direct result of our increased revenue. The dollar increase also reflects continued investments in personnel and infrastructure to position the company for future growth. The decrease in operating expenses as a percent of revenue from the same period in the prior fiscal year is due to improved leverage of our fixed expenses. In the fourth fiscal quarter of 2012, we generated operating income of $7.3 million compared to $2 million in the fourth fiscal quarter of last year, compared to $6.4 million in the prior quarter. Operating income margin was 16.5% in the fourth fiscal quarter compared to 13% in the same period last year. In the fourth quarter of fiscal 2012, we generated net income of $4.8 million or $0.04 per fully diluted share compared to a loss of $47.2 million or a $0.56 loss per fully diluted share in the prior-year period. This is the first quarter where we had no income or expense related to our derivatives so our bottom line fully reflects our operating performance. We are pleased to present clean financial statements as we continue to move forward. Turning to our full-year results, in fiscal 2012 we generated revenue of $126.2 million, a 224% increase compared to revenue of $38.9 million last year. Our gross profit increased to $108.1 million compared to $33 million last year. Gross margin in fiscal 2012 was 85.7%. In fiscal 2012, operating income increased to $21.5 million compared to $3.7 million last year. Net income was $12.5 million or $0.11 fully diluted earnings per share compared to a net loss of $50.7 million last year or a $0.69 loss per share. Net income, especially as compared to prior periods, does not truly reflect our operating performance due to the changes in fair value from the derivative liabilities mentioned earlier. Again, in fiscal full year 2013, this impact will no longer be a factor. Looking at our balance sheet, as of June 30, 2012, we continued to make solid improvements in our overall financial position. At the end of fourth fiscal quarter of 2012, our cash and cash equivalents increased to $24.6 million, up from $6.4 million at the prior year end, reflecting the strong revenue growth and operating profits generated by our business. We generated $19.4 million of operating cash flow in fiscal 2012 compared to $4.7 million in fiscal 2011. Total stockholders' equity grew to $28.3 million compared to a deficit of $20.8 million as of June 30, 2011, due to strong revenue growth, operating profits and the elimination of $27.3 million of derivatives liabilities. As Doug previously discussed, we are committed to building a business that is sustainable, that generates strong top-line growth and is also very profitable. This will enable us to build a company that is well-positioned to deliver shareholder value. We want to add revenue that will be supported with a solid infrastructure and will be durable. As such, we have developed a plan that we believe will assist us in growing responsibly over the next several years but that will also generate strong operating cash flow and net income. This plan requires that we invest heavily in our infrastructure in the upcoming fiscal year in order to support the longer-term growth. For the full fiscal year ending June 30, 2013, we expect to generate revenue in the range of $250 million to $260 million. The high end of our range represents a $134 million increase over the prior year. We expect to generate operating income in the range of $34.5 million to $38.2 million, which equates to an operating margin between 13.8% and 14.7%. These margins are lower than last year primarily due to the need to invest heavily in our infrastructure so that we are in a position to support the substantial growth of the company moving forward. We anticipate generating some economies of scale and increasing these margins in the coming fiscal years after the infrastructure to support responsible growth is in place. Looking below operating income, as we have mentioned, we no longer have to account for income or expense related to our derivative liabilities. However, we do expect to see our effective tax rate increase in fiscal 2013. That said, we expect to generate earnings per diluted share in the range of $0.18 to $0.20 based on a weighted average 129 million shares outstanding. Now before we open the call for questions, I'd like to spend a moment to discuss our upcoming NASDAQ listing. To repeat what Doug said, this listing will be a significant step in our evolution as a company and, over the long term, will help us maximize shareholder value as there will be more trading interest and volume due to our listing on a national exchange. For those of you who are shareholders, our move to NASDAQ will be completely seamless from your perspective and your position will not change. In summary, we are very pleased with our fiscal 2012 results and even more excited about our strong outlook for fiscal 2013. So at this point, I'd like to turn the call back over to Doug before we start our question-and-answer session.

Thanks, Dave. And as we open the call for questions, I just want to reiterate what we said at the top of the call, we actually have 4 of us here to field your questions. In addition to Dave and myself, we also have David Brown, President of LifeVantage Network, as well as Carrie McQueen, our former CFO and now acting as consultant to the company throughout this CFO transition. So with that, we're more than happy to field some questions.

[Operator Instructions] We'll take our first question from David Rossman [ph] with Phoenix Capital Management.

A couple of questions. As a former institutional money manager, I'm always interested in enhancing shareholder value, as I'm sure you guys are. A couple of thoughts. Number one, I note that the current stock repurchase program, which was instituted about a year ago, expires in October. And that was not entirely successful because the stock went up too fast and the parameters under which you arranged to make purchases basically grew by you. Is there going to be an extension of that program in the future? Or what are your plans along those lines? That would be question number one. And if you'd be kind enough to come back to me after you've answered that, I'll have -- I have 1 or 2 other things real quick.

Sure, David. First of all, thanks very much for your comments and obviously thanks very much for your support. It was a pleasure meeting you finally, after speaking on a number of these conference calls. We had an opportunity to meet you at an investor conference in Denver not too long ago. So it's great to put a face with your voice, if you will. With respect to our stock repurchase plan, you're right in that it does -- it is set to expire next month, the month of October. We will, on a regular ongoing basis, evaluate and re-evaluate our best use of cash. And as we just said in our prepared remarks, you're seeing really an accumulated cash balance that's growing quite appreciably on a go-forward basis. For all those reasons, it's a very exciting time. Your point is well-taken, and I can't underscore it enough. We are constantly looking for ways to increase our shareholder value in this company, and we outlined at a very, very high level some of the things that we're looking at on a go-forward basis not only for fiscal '13 but beyond that. But be assured that our management team together with our board is regularly talking about the best ways to use our cash, which might include re-upping a stock buyback plan.

Okay. Second question is, possibility of a cash dividend being issued by the company at some point in 2013.

I guess I would answer exactly the same way --

In the same vein, yes, I got you.

Yes, exactly the same way. But importantly, and I don’t mean to just brush that aside, you're not the only one to have suggested that idea to us. We've socialized it, continue to socialize it amongst our management team, and as you know, we've just gone through a transition of our Chief Financial Officer, so we want to get Dave fully immersed in our business and certainly get his thoughts on this point. But this is something that we've been socializing not only here at the management team but also with our board, and we'll continue to do that on a go-forward basis as well.

Sure. Yes, the reason for the suggestion is that, again, as a former money manager, I can tell you that paying a dividend, even if it's modest, does all kinds of wonderful things for you and it attracts a lot of attention, particularly from institutional investors. My last question is, regarding the growth of the company, the growth seems to have slowed on a percentage basis slightly in Q4. How sustainable do you feel the growth of the company is? And is there any reason why you feel like you might have problems meeting your guidance? And I know that may sound like a stupid question, but is there anything you see on the horizon that might cause problems?

Well, thank you again for that question. We are absolutely bullish on our future. I hope you got that from our prepared remarks, not only how we reflect back on fiscal 2012 which in every way you look at it was a record year, but as we project forward into fiscal '13, that too will be yet another record year in every way you could define the term. So we are very, very bullish on our future. But that said, the reason why I wanted to go through those 7 strategic imperatives is that we are very, very focused in on responsible growth, sustainable growth, profitable growth, so that this company has long-term shareholder value for you and all of our other shareholders, current and future shareholders, so that they can count on LifeVantage being a very, very good investment for years to come. All that said, we have to sustain our operations and grow into this company because it is growing very, very fast. Just look at the last couple of years, where we've been and where we are today, and it's pretty phenomenal, and we're very, very bullish on our future.

Yes, Doug, I apologize if it came out the wrong way. Your guys' growth is phenomenal. I wish my other investments had your growth. They simply slowed slightly from the blistering pace that they were last quarter and you spoiled me. I'm looking for more and better every quarter from you guys, but I do understand the parameters under which you want to manage that growth and build the company in a proper way.

We'll go next to John Vazhar [ph], private investor.

Again, thank you very much for being so transparent, and I appreciate and share with you the excitement that the company is going through. I have 2 questions please, and I got interrupted during waiting for the call, so you may have talked about this but I couldn’t stop the interruption. As far as going from -- to the NASDAQ, did you say when you thought that might happen?

Yes. I'm sorry you missed that, John. Let me be clear, we will be listed on NASDAQ 2 days from now, on September 12, 2012. We will be trading on that day.

Well, I'm a retired stockbroker, so that's great news for yourselves, investors and everyone else. And then when I look at the historical data, I see that income from other periods, there was actually a loss, I don’t know what period I'm looking at, but it's $39.55 million negative, earnings per share minus $0.50. But I thought I heard today that you were positive on net income. Is that true?

Yes, that's correct. What you see on the historical financial statements are the re-evaluations of a derivative liability that was related to warrants on our previous funding raise, and the good news is, is as of the end of third fiscal quarter which ended March 30, the derivative liabilities were completely removed from the balance sheet and the very tail-end of re-evaluating or revaluing those expenses associated with those derivatives will run through the income statement. So when you look at our Q4 and going forward, you'll see no derivative liability impacts or the valuation of those liabilities going forward.

And we'll go next to Steven Martin with Slater Capital Management.

Yes. You talked about some of your initiatives. Can you talk a little more specifically about Japan and some of the foreign markets you're looking at?

Sure, Steve. As I mentioned in the call, we've been in Japan on a not-for-resale basis for the last 2 years. We are in the final stages of transferring to an on-the-ground approach and we expect to launch that officially in our third quarter -- excuse me, the third quarter of this year, calendar year, not fiscal year, just around the corner from now. It's a very exciting market for us, Japan. It's growing very, very fast, actually faster than the United States. It's a market that served well and done right which we're committed to, could in fact be an incredibly material market for us on a go-forward basis. So for all those reasons, we're paying a lot of attention to Japan and our operations there so that we get this right and are upholding all of our promises to our preferred customers and our distributors in that country. We've also recently entered Australia just a few months back. We continue to do business certainly here in the United States, and we're growing that significantly. We're currently in Mexico and have been for a number of years. And we're also in Canada, in certain provinces throughout Canada on a preferred customer basis, not yet as a distributor model up there, but we're also working on that as well. Those are the current markets that we're in. We're looking at future geographic expansion, as I said in my prepared remarks. We think that's one area that bodes very, very well for us as we move forward. We know the efficacy of our products, both Protandim and TrueScience, bode well in many, many markets. It's not germane just to the markets that we're in right now. But I can't say and underscore enough that the markets that we will enter, we're going to enter in a very concerted way. We're looking at regulatory issues, we're looking at the economies, we're looking at our ingredients, the raw ingredients and how those are viewed by those countries that we might consider. We're doing an in-depth market analysis of each market before we enter it. So that when we enter future markets, we know we can hit the ground running and be profitable from day one.

Can we expect then at some point in the future you'll give us a little more geographic breakdown in your press releases and earnings reports?

With respect to future markets?

Yes.

Absolutely.

No, I'm sorry, not with respect to future markets but maybe revenues and distributors, et cetera, within each of those markets.

Well, for the time being, the metrics that we've come out with in this call and in our 10-K, which was released earlier today, these are the metrics that we think are important to best understand our business today and going forward. Once we produce those metrics, we will commit to producing them on a go-forward basis. And to the degree that it makes sense to stretch those and talk about other things, absolutely, we'll make that decision. And our goal is to be transparent.

I'll add to that real quick. In our 10-K, we do have some segmentation analysis in there where it breaks out between the Americas and Asia Pacific and talk about a couple of the larger countries as far as revenues are considered. But our compensation plan is global in nature, so we won't be breaking the compensation plan down on a country-specific basis.

I haven't had a chance obviously to read the 10-K at the same time.

Yup, that's fine.

One last question, now that you're going to be NASDAQ-listed and you're obviously trading substantial volume, the price is up, would you anticipate attending more conferences and investor type events?

Absolutely, Steve. It's a commitment that we've made dating back probably a 1.5 years ago when I became CEO, was a commitment that we made then. It's certainly a commitment that we've kept. And on a go-forward-basis, to your very point, with more institutional funds following us, more of a visibility on NASDAQ, by all means we'll be out meeting with the investor community. As a matter of fact, I'll be at the Imperial Conference in New York City just next week. I believe we speak on the 20th of September. So maybe when we're there in that trip, I can swing in and we can get re-acquainted and touch bases like we did last time I was there.

Absolutely.

And we'll take our next question from Jeff Porter with Porter Capital Management.

Two questions for modeling purposes going forward. What effective tax rate are you expecting for next year? And then also on the operating margin press release guided to 13.8% to 14.7%, and that's sort of lower than we've experienced the last couple of quarters. So maybe you could just break out for me what kind of investments in infrastructure are going to be driving that. Are we moving offices, are we going to larger facilities and just things of that nature in general?

I'll take a stab at that. First off, on the effective tax rate, we're forecasting the effective tax rate in 2013 of around 31%. We ended last year at around 16%. So we will see quite a jump in our ETR. As far as operating margin and what we're projecting going forward in 2013, as we've mentioned a couple of times on the call on our prepared remarks, there's a lot of investment in infrastructure, and you're right, there are investments in office moves, office facilities. Now that's not going to hit the income statement immediately, but we'll see that through some increased depreciation. But we're also investing in IT systems and personnel as well. And it's in Japan, but it's also domestically here. There's a lot of investment really globally, if you want to think of it that way.

Yes, absolutely, Jeff. I would just add to what Dave said, we've made a lot of investments this past fiscal year, fiscal '12, to stay abreast of the growth. And even at that, I think it's incumbent upon us again to grow this company responsibly with sustained growth and profitability to attend to this growth now from an infrastructure standpoint. So largely the people throughout our research and development, throughout marketing, sales, operations, legal. Top to bottom, as I look around this company, we have an aggressive but appropriate strategic and tactical business plan in place for fiscal '13 so that we scale this company effectively so that it is -- it's a good, good strong company for many years to come.

And we'll go next to Barbara Connor [ph] with LifeVantage.

I'm really excited to be both an investor and an independent distributor. I wanted to thank Carrie for being on the executive staff and for all of her hard work, and I have both a comment and question about that. I noticed that the executive staff is very heavily weighted as a male and I'd love to see more females join your ranks. And then the next question I have actually is when we might hear something more about an actual release date for the pet product.

I'd just like to insert a thank you very much. It's been a fabulous time and a great transition to Dave. We do have some fabulous women in the company and in management ranks and hopefully they'll become more visible, maybe not on investor calls but in meetings and other events the company holds. For the pet product, I'll defer to Doug.

Yes. Thanks, Barbara. And I guess I'd reiterate before I move to the pet product our commitment to being a company that reflects who we serve, not only the geographies that we're in but our distributors, our preferred customers, et cetera. So diversity in our management team and in our executive ranks and I'll dare say, in our Board of Directors as well, is something that's near and dear to our hearts. And as we continue to grow this company, we're constantly looking for the best people in all these roles and are ever mindful of the make-up, if you will, the diversity of that. So again, I appreciate your comments, and you're certainly not alone in them. With respect to the pet product, as I said in our prepared remarks, we are in clinical trials and testing right now. It's our commitment for not only this product and on a go-forward basis, but any and all future products to make sure that they're safe and efficacious. And that's exactly what these clinical trials are designed to tell us right now. Only when we know the product is safe and efficacious will we release a product, pet product included. All that said, we do think it's in our near future that we'll be concluding these trials. We're optimistic about the results. But all I can say is stay tuned. We're not going so far as to give an approximate date, but suffice it to say we're feeling very good about the trajectory of that right now.

We appreciate going that extra length to really differentiate us from other products on the market. So that's wonderful.

And we'll take our last question from Ken Catlin [ph], private investor.

I got a question. You mentioned that -- well, Mexico has a version of Protandim without the ashwagandha, it sounds like Japan may have an ashwagandha-free version. And I was curious, a couple of things. If the product works just as well without the ashwagandha, will we see that in the U.S. market? I've seen some customers and distributors had known -- who have had sensitivity issues to Protandim, and it appears that some people may be sensitive to ashwagandha. So if it works just as well without the ashwagandha, will we see an ashwagandha-free or a purified ashwagandha version for the U.S. market?

Ken, this is David. I'll take a stab at that one. In regards to each of our markets, we're going to have a product that not only complies with the regulatory requirements of that market but also meets the demands of our distributors and customers there. And we're sensitive to those demands that are highlighted by the efficacy and safety of the products. So we are very confident that the products we introduced in both Mexico and Japan meet those standards. Going forward, if there is a demand that is -- that can be met with another product, we'll certainly consider that, although that's not currently on the drawing board right now.

All right. Thanks for your question, Ken. And thanks everyone for your participation in today's call. In summary, we're pleased with our strong results in fiscal 2012 and are very, very excited about our future. We look forward to officially listing on the NASDAQ Capital Market later this week, Wednesday, the 12th. Thank you for all your continued interest and support in LifeVantage. And as I said just a moment ago in response to Steve Martin's question, we'll be attending a number of investor events in the coming months, including the meeting just next week, the Imperial Capital Meeting in New York City, and we hope to see many of you there. Thanks very much.

This does conclude today's conference. Thank you for your participation.