LifeVantage Corporation (LFVN) Q1 2013 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Lifevantage First Quarter Fiscal 2013 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to John Mills of ICR. You may begin.

Thank you. Good afternoon, ladies and gentlemen, and welcome to Lifevantage Corporation’s Fiscal First Quarter 2013 Conference Call. On the call today from Lifevantage are Doug Robinson, President and Chief Executive Officer; and Dave Colbert, Chief Financial Officer. By now everyone should have access to the earnings releases which we announced afternoon at approximately 4 PM Eastern Time. If you have not received a release, it is available in the investor relations portion of Lifevantage’s website at Lifevantage.com. This call is being webcast and a replay will be available on the company’s website as well. Before we begin, we’d like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. These statements are based on current expectations of management and involve inherent risk and uncertainties including those identified in the risk factor 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. This call also contains time-sensitive information that is accurate only as of the date of this live broadcast, November 8, 2012. Lifevantage assumes no obligation to update any forward-looking projection 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 you please limit the number of your questions to 3. And with that I’ll turn the call over to the Company’s President and Chief Executive Officer, Mr. Doug Robinson. Go ahead Doug.

Thanks, John. Good afternoon everyone. On today’s call, I will briefly review our strong Q1 2013 results and will provide a general update on our business and growth initiatives. After that, I’ll turn the call over to Dave Colbert, our Chief Financial Officer, for a more detailed discussion of our first quarter results. First, let me provide a quick review of our financials. We build off on our momentum from last fiscal year, and once again delivered strong top and bottom line results. We generated record revenue of $52.9 million during the first fiscal quarter, a 163% increase compared to the first quarter of last fiscal year. Our operating income for the quarter increased to $6.9 million. We also generated net income of $4.2 million or $0.03 per diluted share. We ended the quarter with a strong balance sheet, with $25.2 million in cash and once again, no debt. As a result of our strong first quarter performance and our outlook for the remainder of the year, we are reiterating our previously issued guidance range, which Dave will review again during his remarks. The most important factors driving our strong financial results are the expanding awareness of our products, Protandim, the Nrf2 Synergizer and TrueScience anti-aging cream together with 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 have begun disclosing certain metrics relating to the size of our distributor and preferred customer base. When we look at our customers, we classify the majority in one of two categories: independent distributors and preferred customers. We define an independent distributor as someone who has purchased a business pack containing product-to-products and/or sales aids and 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 start up costs. To be classified as an active independent distributor, one needs to have made a purchase of products from us in the prior 3 months. As of September 30, 2012, we had approximately 54,000 active independent distributors, a significant increase compared to approximately 22,000 active independent distributors as of September 30, 2011. Our other customer 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 September 30, 2012, we had approximately 137,000 active preferred customers, compared to approximately 50,000 active preferred customers as of September 30, 2011. Approximately 8 out of 10 new customer enrollments in the first quarter of fiscal 2013 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. Now, to discuss some of our recent operational highlights. As many of you are aware, on September 12, we listed our common stock in the NASDAQ capital market. This had been a goal of ours, and we are very proud to have completed this important step in the evolution of our company. This accomplishment reflects the hard work and success of our team in improving the overall position and financial health of our company, particularly as it relates to our progress last fiscal year in cleaning up our balance sheet and eliminating all derivative liabilities. We believe that listing on NASDAQ is an important step towards maximizing long-term shareholder value as it provides the company with increased visibility. With the growing global demand for, and interest in healthy living products such as Protandim, the potential for LifeVantage is extremely robust. We continue to make strategic investments into our business in an effort to ensure that we have the resources in place and are able to capitalize on the opportunities ahead, both in the United States as well as internationally. These necessary investments will create temporary fluctuations in our operating margins on a quarterly basis, but we remain confident that we will achieve our annual operating margin target and deliver healthy profit margins for our business. One area I would like to highlight is our international expansion efforts. In addition to our core U.S. market, we also sell our products through a network of independent distributors and to preferred and retail customers in Australia and Mexico. We also sell product from the United States to customers in Canada for personal consumption only. Our biggest international market is Japan, which represented approximately 37% of our sales in the first quarter of fiscal 2013. Just last month on October 14, we celebrated the grand opening of our new Tokyo office, which will enable us to further expand our presence in the Japanese market. For the past 2.5 years, we have been selling Protandim and TrueScience in Japan using a not-for-resale model, and this grand opening marks an important transition point for our move to a complete on-the-ground presence in Japan. The grand opening was extremely successful as it was well attended by independent distributors, vendors and other friends of LifeVantage and further gave us confidence of our tremendous potential in this market. In addition, we are exploring the opportunity to sell our products in Hong Kong. We are in the late stages of regulatory and legal reviews of the opportunity and believe that we should be able to begin selling product into Hong Kong through a network of independent distributors within the next 2 months. We believe that Hong Kong has great potential for loyal, longstanding customers and independent distributors of LifeVantage products. To ensure that our international growth is smooth, successful and profitable, we are bolstering our team in the Asia-Pacific region. We recently announced the appointment of David Toda as President and Managing Director, Asia-Pacific. David will be based in our Tokyo office and oversee all operations in Japan and Asia Pacific. David is a great addition to our management team. He has prior experience in Asia with leading consumer brands including Amway, QuickSilver, Adidas, Nike and Visa. His background in strategic planning and knowledge of the Asian market will be extremely valuable as we seek continued growth in our international operations. As we have also mentioned on pervious calls, 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 are working on a formulation specific to the Japanese market that we believe will meet this standard. We know the international growth will be an important element in the long-term growth and success of our business. We believe we've only scratched the surface of our global potential reach. That said, we perform extensive due diligence before we enter a new market to ensure that it meets our return on investment requirements. There are unique rules and regulations within each country, and our international success is dependent on our thorough understanding of each markets' operating environment before we enter. Thus far, we have done a great job of this, and I am fully confident that we will continue to do so. In addition to expanding our international presence, we are also investing in our core United States operations in areas such as personnel and expanding our research and development efforts with the goal of developing or acquiring new scientifically-validated research-backed products that complement our current product portfolio. To lead our efforts in this area, we recently announced the appointment of Darlene Walley as our new Chief Science Officer. Dr. Walley will oversee our research and development efforts as we look to expand our offering of scientifically-validated research-backed products. Dr. Walley brings valuable experience to our company, which combined with our leading position in Nrf2 Science, will help as we seek to bring additional products to market. To give you a quick snapshot of Dr. Walley's background, she was founder and president of DRW Consulting, a firm specializing in assisting large and small companies in bringing new products to market. Her clients span the nutraceutical, pharmaceutical and biotechnology industries. In addition, Dr. Walley has led research and development teams at Procter & Gamble, as senior director of research and development at Church & Dwight and as vice president of research and development at Gillette. Dr. McCord, who had been serving as our Chief Science Officer, will continue to champion Protandim in the scientific community as well as with our independent distributors on our behalf. On behalf of all LifeVantage team members, distributors and customers, I want to thank Dr. McCord for his leadership as our Chief Science Officer and his enduring legacy with Protandim. We look forward to working with him going forward. 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. 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. Another key area of focus and investment has been, and will continue to be, our sales and marketing support to our independent distributors, educating new and existing customers on our products. We have a strong slate of distributor events on the calendar for fiscal 2013, ranging from smaller regional events to our lead academies, and ultimately to our annual convention. Educating and rewarding our distributors is an extremely important part of our business model, and we will continue to evaluate and invest in new ways to support our distributors to help them achieve a level of financial success that they are striving for. 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. On the legal front, in October, one of our shareholders filed a purported class action complaint against our company and our current Board of Directors. The complaint alleged that the proposal on our proxy statement seeking a nonbinding advisory vote on executive compensation was misleading and incomplete. We believe this lawsuit is without merit and are defending it vigorously. Let me repeat, we believe this lawsuit is without merit and are defending it vigorously. As most of you are aware, we will be holding our Annual Shareholders meeting next week on November 14, 2012. At that meeting, our shareholders will vote to elect 7 members of our Board of Directors. This will represent a board of all independent directors with the exception of me. We anticipate that Richard Okamoto, a former public company CFO, will join as one of the 7 and expect that he will bolster our financial expertise on the board. To conclude my remarks, we believe there are robust opportunities for us to capitalize on including an aging population, obesity, the rising cost of health care and a growing global interest in personal care. I believe we have the right team and the right focus to reach our goals for many years to come and become a true leader in the healthy living space. With that, I’d like to now turn the call over to Dave Colbert to review our financial results in more detail and discuss our outlook for the balance of fiscal 2013. Dave, please go ahead.

Thank you, Doug, and good afternoon, everyone. As Doug has said, we are very pleased with our start to fiscal 2013. Let me review our results and then we will open the call for questions. In the first fiscal quarter of 2013, we generated record net revenue of $52.9 million, which is 153% increase over the first fiscal quarter of 2012. On a sequential quarterly basis, our revenue increased 19% from $44.6 million in the fourth fiscal quarter of last year. Gross profit in the first fiscal quarter of 2013 increased to $45.1 million from $17.1 million in the same period last year resulting from higher sales. Our gross margin in the first fiscal quarter of 2013 was 85.2%. In the first quarter, sales and marketing expenses increased to $29.5 million from $10.5 million in the same period a year ago. The increase is primarily due to higher sales commissions, a direct result of revenue growth, increases in personnel cost stemming from our commitment to invest in our infrastructure build out and higher event and marketing costs related to our growing distributor base. In the first quarter, general and administrative expenses increased to $7.9 million from $2.8 million in the same period a year ago. The increase reflects higher personnel costs related to our expanding operations as well as an increase in leased cost associated with our U.S. and Japan operations. While there will be periodic increases as we continue to build out our infrastructure, we expect general and administrative expenses to grow at a slower rate relative to our sales and marketing expenses. Our research and development cost increased to $514,000 from $234,000 in the prior year period and from $435,000 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 first fiscal quarter of 2013 were $38.1 million, which is 72.2% of revenue. This compares the $13.7 million or 68.2% of revenue in the prior year period. The increase in operating expenses is primarily due to increased sales commissions which are a direct results of our increased revenue. The increase also reflects our commitment to invest responsibly in infrastructure and resources in order to prepare for healthy future growth. With our rapid growth rates, it’s imperative that we make these investments into areas such as personal and office space in Japan and Salt Lake City to assist and maximizing the opportunity of our expanding business in coming quarters. In addition, for modeling purposes, please note that our depreciation expense increased to $238,000 in the first fiscal quarter of 2013 compared to $80,000 in the prior year period. In the first fiscal quarter of 2013, we generate operating income of $6.9 million compared to $3.4 million in the first fiscal quarter of last year and compared to $7.3 million in the prior sequential quarter. Operating income margin was 13.1% in the first fiscal quarter compared to 17.1% in the same period last year. We expect that operating income margin will increase in the coming quarters as revenue continues to grow at a rate faster than our underlined infrastructure expenses. In the first quarter of fiscal 2013, we generated net income of $4.2 million or $0.03 per fully diluted share, compared to $3.7 million or $0.02 per fully diluted share in the prior year period. We now have no short- or long-term derivatives, so our bottom line fully reflects our operating performance. Looking to our balance sheet, we remain in a very healthy financial position. At the end of the first fiscal quarter of 2013, our cash and cash equivalents increased to $25.2 million, up from $24.6 million as of June 30. Our cash balance in the first quarter of fiscal 2013 was impacted by increased spending in infrastructure-related initiatives including lease expenses associated with our new office space in Japan, higher inventory levels to support our sales growth, larger-than-normal end of quarter payments affecting accounts payable and capital assets purchases to support our organizational expansion. Additionally, we made approximately $2 million in income tax payments during the first fiscal quarter. Total stockholders' equity increased approximately $6 million to $34.1 million compared to $28.3 million as of June 30, 2012. As Dough said in this remarks, we are reaffirming our previously-issued guidance for fiscal year 2013. For the full fiscal year ending June 30, 2013, we expect to generate revenue in the range of $250 million to $260 million. At the high end of our range, this represents a $134 million increase over the prior year, more than a 100% increase. We expect to generate operating income in the range of $34.5 million to $38.2 million, which equates to an operating margin of between 13.8% and 14.7%. These margins are lower than last year, primarily due to the need for significant investment in our infrastructure so that we are in a position support what we believe will be substantial growth for the company going forward. Looking below operating income, we expect to generate earnings per diluted share in the range of $0.18 to $0.20 per share based on a weighted average of 129 million shares outstanding. For modeling purposes, recall that we no longer have to account for the derivative liabilities related to outstanding warrants, but this did impact our results in fiscal 2012 for comparative purposes. In addition, we do expect to see our effective tax rate increase in fiscal 2013 to approximately 37% for the full fiscal year. In summary, we are very pleased with this great start of fiscal 2013 and we are excited about the year ahead. So at this point, operator, we are ready to open up the call for questions.

[Operator Instructions] And we will take our first question from Matt Swartz [ph] with Maze Investments [ph].

You guys have reported, I guess, a 39% tax rate in the first quarter and you’re guiding to 37%. So I guess, we’re going to have tax rate coming down for the reminder of the year?

Yes. We’re expecting a full year effective tax rate of around 37%. We have a full, few initiatives that we are taking a look at, one of them is some domestic manufacturing tax credits that we get to take. So when you start to apply those things and a number of some other initiatives, we expect 37% for the full year.

Okay. And when I look at the cost structure, I know you had the deleverage in the quarter from the growth internationally and from infrastructure spending and your SG&A was up somewhere a little over 400 basis points. It looks like the guidance that you’ve given for the year at the midpoint definitely implies that, that deleverage starts to dissipate. I don’t -- will that start in Q2? Or is it going to just to save more and more as we move throughout the yea?, How should we think about that?

I think you need to think of it as a fiscal year as opposed to sequential quarters. We approached the -- our business and when we look at guidance and provide guidance and how we are managing, we are managing to the full-year. So we do have some seasonality built into the business. So when you look at it, you are going to have to look at it from a full-year prospective. So of course, as revenue does increase, you will see some of that deleveraging take place, but I would really look at it and encourage you to look at it from a full year prospective.

Okay. So would that indicate that a lot of the spending that you’ve do on the infrastructure and international growth, was a lot of that front-loaded and is already in the numbers now as we look at that $37 million of SG&A in Q1?

Most of it is. Not all of it, but a big chuck of it has already taken place in Q1. Remember, in Doug’s comments, we did have a large grand opening event take place in Tokyo, so we will have a number of those residual expenses come through. Plus, with David Toda starting up, I’m sure he is going to want to take a look at our organization and really shape it to his liking. So we will take a look at it there and we have a good guidance going forward with what we want to do with Japan, but again, just to say, most of those expenses were already in Q1 and there will be some hitting in Q2.

Okay, very good. And I think in the 10-K, if I remember, you guys talked about your sales and marketing expense as a percentage of sales staying about the same as last year. Do you still expect that? I think it was around that 54% level.

Yes, I do expect that. As I mentioned, we expect the total operating margin is going to go ahead and increase as revenue grows as a faster rate as our overall expenses. Again, that’s going to apply to all of our operating expense line items from G&A to sales and marketing to R&D.

Right, okay. And obviously it’s early in the year in your fiscal year ’13, but as we move beyond this year, would you expect what you are guiding to in terms of EBIT margins for this year, would you expect that to be the low point and then as we move through next year, we’ll resume leverage and climb back up to the type of African [ph] margins that you had last year?

Well, personally, I don’t want to get too far out in front ourselves and provide guidance beyond what we’ve done with this fiscal 2013. So it probably would be premature for me to go ahead and start guiding and giving direction for fiscal 2014.

This is Doug Robinson. I would reiterate all of what Dave has said. We’ve been upgrading, if you will, companies' infrastructure pretty significantly for the last 12 to 18 months and taking a relatively small company to a company that’s scaling itself and prepared for not only continued rapid growth, but a much larger company, so back office, accounting, finance systems, what have you. And we have been doing that, as I said, over the course of last 1 year, 1.5 years and we continue to do that into the early parts of fiscal 2013. All of those initiatives are centered around long-term, sustainable, profitable growth. So, like Dave, I'm not going to get in front of ourselves and talk beyond fiscal 2013 guidance, but we believe we're setting the infrastructure very appropriately for the long-term sustainable growth going forward.

[Operator Instructions] And next we will go to Darryl Hershey [ph], he is a private investor.

Would you provide more detail on the revenue mix between the tablets and the TrueScience cream, their respective growth rate and any margin implications those growth rates in the product areas might represent?

Well, what we have said of late is that Protandim, our dietary supplement, accounts for about 77% of revenue; and the balance, the other 23%, is coming from our TrueScience skin product. The other parts of your questions were around the margins related to those products?

Well, I was just wondering if -- I have a theory that the margins are higher in the cream and the growth rate might be higher in the cream. Maybe that’s not correct, but I was just wondering if that is true and if -- for example, if the cream is growing at a much faster rate and it had higher margins, might that improve the overall margins for the company?

Right. We haven’t disclosed specifically margins per product necessarily, but what we have talked about in the previous quarter was the product mix. In the prior quarter, Protandim -- it was about an 85% to 15% split Protandim, TrueScience. And as Doug mentioned, it’s about 77%-23% split now between Protandim and TrueScience. So you can see the mix is starting to shift a little bit towards the Anti-Aging skin cream.

And one other question is it relates -- it’s my understanding -- or I don’t know, it was in my notes somewhere that in the U.S., for example, it’s about a 50%-50% split -- excuse me, 80%-20%. And in Japan, it’s about a 50%-50% split. Is that still a reasonable assumption, 50%-50% split in Japan for the tablets versus the cream?

Yes, that's fair.

And 80%-20% in the U.S.?

That’s fair, Darryl. I think what’s important to understand is also how we launched these products. In the U.S., we launched initially with just Protandim, and subsequent to that we launched TrueScience. Whereas in Japan, we launched both products simultaneously. So from an adoption standpoint, a market readiness standpoint, a distributor training and acceptance standpoint, 2 very different launch styles, if you will, and really both initially was that of what was available to us. When we launched in the U.S., we didn’t have TrueScience. So it was natural to launch with just Protandim, whereas when we entered the market initially 2.5 years ago in Japan, we had both products. So there is a bit of a difference that’s necessary to understand on how that the markets adopted the products and basically took off from there.

Okay. I just had one other question about Ashwagandha in Japan. Am I reading between lines or am I hearing correctly? It sounds like the formula that you’re working on for Japan excludes Ashwagandha, and is there -- I am a little concerned about that, that maybe there is a transition where Ashwagandha has terrific properties for addressing inflammation and infection and boosting the immune system, that sort of thing. And so in other words, the product has been popular in Japan with Ashwagandha and then if it’s taken out, is there a concern for transition there? Can you help me out on that?

Sure. Keep in mind a couple of things, first of all quite some time ago, one of the regulatory bodies in Japan brought forth the concern that you’re talking about with respect to one of our 5 ingredients in Protandim being Ashwagandha. And if we wanted to continue selling that formulary, that original product in Japan, we'd have to sell it differently. And since we are committed to our network marketing distribution channel and its growth and how much it’s caught on in the last 2.5 years, we, our science team from a research and development standpoint, are looking at alternatives to that fifth ingredient, if you will, to Ashwagandha. Our goal certainly is and always has been, as I said in my prepared remarks and I say often, our products will be safe and efficacious. Safe I think goes without any further explanation; efficacious is along the lines of what we intend our products to do in this space. And so that’s what we’re working on, that’s what we’re testing. We’ve had an international product for quite some time now, actually in Mexico, we launched a product that for similar reasons, regulatory reasons and challenges did not include Ashwagandha. And so we’re really refining and owning that formulary for the market of Japan. And we likely will face, as I said in my prepared remarks, Darryl, we’ll likely face other challenges throughout the world for other similar ingredients or what have you. And we are just prepared, we have to prepare ourselves proactively for that reality in the future and make sure that we’re delivering only safe and efficacious products to every market that we do business in.

Is the real issue that Japan and Mexico have with Ashwagandha regarding safety? Is that the whole issue? Or why did they have that hang up on Ashwagandha, I guess, that’s what I am trying to understand?

Well, that’s a very good question and something that we’re still trying to get our arms around as well. But suffice it to say, I think, yes, I think they -- generally speaking, and I will not speak for the regulatory body, an agency in Japan, but our understanding is that that was their concern. Now we, frankly, don’t share that concern. We think we have in our original formula a very safe and very efficacious product even though it includes Ashwagandha. So it really doesn’t come down to an educated standoff, if you will, between us as a company and a regulatory body like the one we’re dealing with in Japan. We’re just going about complying with their new regulatory environment and making sure that we’re, again, providing safe and efficacious products in the market place.

And moving on, we’ll hear from Steven Martin with Slater Capital Management.

Would -- is it time to start giving us some statistics by country or region or something like that?

It may, Steve. As you well know, having followed our company quite closely for quite some time now, we are and have now introduced metrics and we fully expect a couple of things, and I have shared this with you in one-on-one meetings. The metric that we put forth, we will follow, we will stand behind, you can be assured they are accurate and they are going to be consistent quarter-over-quarter going forward. Said another way, we’re not going to put metrics out only to pull them back at some subsequent quarter. Your question around more specificity around product mix, country mix, profitability, what have you, there are all areas that we know are of interest to you and others that want to follow our company closely and put forth your models. And so we are behind the scenes gathering that data, making sure that its accurate, it will be timely and when, probably not if, we put out more metrics along the lines of what you are asking for, we will stand behind it quarter after quarter after quarter. So long-winded way, and I apologize for that, of saying we know that the very few metrics that we’re putting out thus far will grow, will only become more meaningful to you and other sophisticated investors as you build your models on what you can expect for growth going forward for Lifevantage.

All right, well in light of that, can I ask, if you were ranking the growth rates of your major markets and/or your major products, could you give us some idea of what country is growing faster or slower than the average and what product is growing -- what the relatively growth rates are?

Yes. Let me put it this way to you. We are watching that very, very closely, obviously. Our 2 biggest markets are the United States and Japan. And I think it’s safe to say that Japan is growing at a faster clip than the United States. Clearly, of our 2 products that we have today, Protandim and TrueScience, Protandim, and I’ve said this many, many times publicly. I often use the term our flagship product, it is. It is growing, again, in both markets at a very good clip, profitable clip and means a lot to our company’s top and bottom line. As we said in the earlier question, 77% of our revenue mix today comes from Protandim, 23% from TrueScience. That’s changing over time from an 85%-15% split not too long ago, but we still rely significantly on all things related to Protandim.

Okay. In your guidance for full-year revenue, can you comment on when -- and I think you made some comment about Hong Kong, so when does Hong Kong enter into that mix and at what level of materiality do you expect it to have in the 250 to 260 revenue?

Yes. So, Steve, we’re saying, and in my prepared remarks earlier in this call, we’re saying sometime over the course of the next 2 months we fully expect to be in a position to launch into Hong Kong. Now what that means is we’ve been working for quite some time now and continue to work on making sure every I is dotted and T is crossed from a regulatory standpoint, a legal standpoint, a compliance standpoint, a distribution model readiness standpoint, et cetera, et cetera, et cetera, marketing materials, supply chain, everything. So within the next 2 months or there about, we fully expect to be in a position to launch in to Hong Kong. That would put us nearly halfway through our fiscal year. We are not expecting Hong Kong for the balance of this fiscal year to necessarily become a material contributor, if you will, towards our top and bottom line. More importantly, we’re looking longer-term, that we believe this market place, the Hong Kong market place, is a market place that could provide tremendous growth and profitability for us. It’s a market place that is incredibly accepting of network marketing, culturally and otherwise. Our products today are products that will have tremendous traction in that market place. So for all those reasons, we think it’s highly appropriate to be going through the due diligence that we are to make sure that we enter that market place appropriately and successfully, but at the core of your question, it’s much more and will be much more material for fiscal 2014 and going forward than it will be for the balance of this year.

From those comments, should I assume that you expect Hong Kong to be an independent distributor, more of an independent distributor market as opposed to a preferred customer market?

We really don’t know. At the core of that question, and clearly our commitment is that we will be launching with our network marketing channel, just like we have in other markets. We fully expect that it will be profitable and an attractive marketplace for independent distributors. But that mix, really at the core of your question that we now know 8 out of 10 people that are coming to our company today are currently coming as preferred customers. What that mix will be in Hong Kong we just don’t know at this point in time. But we’re going to be watching it very closely to see if there are idiosyncrasies materially different from our market to the Hong Kong market.

Okay 2 other questions. With respect to the potential of new product, again, referencing your $250 million to $260 million guidance revenue, when and how meaningful do you expect a new product to be in that number?

We expect a new product or products to be in that number, but importantly, we don’t expect it to be necessarily material. Said another way, our guidance is largely driven half of Protandim and TrueScience, organic growth as opposed to inorganic growth.

And moving on, we will hear from Eric Wisenberger [ph] with -- he is also a private investor.

In this environment of virtually 0% interest rates, investors don’t particularly reward companies that have a lot of cash on the balance sheet. And I’m wondering if the $25 million or so that we have now is a number you are comfortable with or what plans you may have for net cash in the future including possible dividend?

Right. One, we’re really pleased with the financial health of the company and the way that balance sheet has shaped up this quarter and how we expect it to shape up going forward. The cash that we’re generating and the cash balance that we have on hand now, we’re using that and what we said is, we have a lot of plans for growth going forward and a big part of that is going to be, obviously, funding our growth internally. And also using that cash on hand for what we want to call strategic investments or opportunities out there for possible new products or other strategic investments that may be out there and available to us. So we want the cash on hand, we want what you call dry powder, if you will, to go ahead and make those types of investments.

[Operator Instructions] Next we’ll hear from Brian Siroli [ph] with BC Enterprises [ph].

I’ve been an investor since 2009 and the stock's performed very well since then, so we appreciate your continued effort. I know here you guys were budgeting for further infrastructure. I am just curious, is there money in the budget to expand the commissions and compliance department with the company in the budget?

Yes. Without commenting specifically on individual departments or particular line items within a department, I think it’s safe to say as our distributor base grows, our customer base grows and overall just the company in general grows, compliance is a big part of that, legal compliance is big part of that. So we will see some step changes, but I am not going to go into specific detail as to what that percent increase will be or specifically what those line items will be, but again, it’s going to be scaling across the board within our organization.

And at this time, there are no further questions. I’d like to turn the conference back over to Doug Robinson, CEO.

Well, thank you. And thank you, all, for your participation on today’s call and even more importantly, your continued interest in and support of Lifevantage. Several of our questions came from investors who have been with the company for quite some time. Again, can’t thank you enough for your continued support and to Brian’s last question, investor since 2009, this has been a really, really rewarding ride thus far in growing and maturing this company. But our best days are clearly still in front of us. We’re very excited about where the company is today and where it’s headed. As a reminder, and I did say this in my prepared remarks, our annual shareholder meeting is next week. We encourage each of you to vote your shares. We’ll be attending a number of investor events in the coming months and hope to see many of you there. So again, thank you all for your participation and your interest in all things Lifevantage. Have a great day.

And ladies and gentlemen that does conclude today’s presentation. We do thank everyone for your participation.