Good day, ladies and gentlemen. And thank you for standing by. Welcome to today’s Conferece Call to discuss LifeVantage's Third Quarter 2017 Financial Results. At this time, all participants are in a listen only mode. Following the formal remarks, we will conduct a question- and- answer session, and instructions will be provided at that time for you to queue up. Hosting today’s conference will be Scott Van Winkle with ICR. As a remainder, today’s conference is being recorded. And now, I would like to turn the conference over to Mr. Van Winkle. Please go ahead, sir.

Thank you, Kamel. So good afternoon, ladies and gentlemen. Welcome to LifeVantage Corporation’s conference call to discuss results for the third quarter of fiscal 2017. On the call today from LifeVantage with prepared remarks are Darren Jensen, Chief Executive Officer; and Steve Fife, Chief Financial Officer. By now, everyone should have access to the earnings release which went out this afternoon at approximately 4:05 PM Eastern Time. If you have not received the release, it’s available on 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 our 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 the management and involve inherent risks and uncertainties, including those identified in the Risk Factors sections of LifeVantage’s most recently filed Form 10-Q and 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. Please note that on today’s call, we will discuss non-GAAP financial measures, including results on an adjusted basis. Management believes these financial measures can facilitate a more complete analysis and greater transparency into LifeVantage’s ongoing results of operations, particularly when comparing underlying operating results from period-to-period. We’ve included a reconciliation of these non-GAAP measures with today’s release. This call also contains time-sensitive information that is accurate only as of the date of this live broadcast, May 10, 2017. LifeVantage assumes no obligation to update any forward-looking projections that may be made in today’s release or call. Now, I'd like to turn the call over to the Company’s CEO, Darren Jensen.

Thank you, Scott. And good afternoon, everyone. It's a privilege to speak with you today. During the third quarter we generated $45 million of revenue and recorded adjusted non-GAAP earnings per share of $0.02. While these results did not meet expectations, I am pleased with how we ended the quarter and how we begun the fourth quarter. As you know, our growth was interrupted earlier this fiscal year and we needed to implement new international policies and procedures before the trajectory of sales could really change. As you recall last quarter, I stated that Q3 would be our recovery period .We saw the leading indicators of this recovery materialize in February, and the revenue improvement began in March. We've now substantially completed implementing the new international policies and procedures. Although we would have preferred to see the recovery materialize earlier in the quarter than it did, we are pleased that month -over-month sales growth has begun. In simple terms, we believe that we are on the upward side of the trough and are returning to a growth phase in our business. We further enhanced our executive team during the quarter with the addition of Chuck Wach, Chief Operating Officer and Steve Fife, Chief Financial Officer. Chuck is an accomplished leader with operations experience in nutritional supplement, direct selling, online retail and global food and beverage industries. We've already put his experience to use to improve efficiency and implement more effective practices. One of Chuck's first projects has been inventory management, building the system and processes to enhance demand planning to better manage inventory. We made progress in reducing the amount of our inventory during the third quarter, which declined $2.2 million from the second quarter level and continue to expect further reductions during the fourth quarter. I am also pleased…

Thank you, Darren. And good afternoon, everyone. I am excited to join the team. And I am enjoying the vibrant culture here at LifeVantage. I also enjoyed the opportunity to meet many of our distributors at the global convention a few weeks ago. As Darren mentioned, we reported $45 million of revenue for the third quarter of fiscal 2017, a 19.9% decrease when compared to the prior year period. Revenues in the Americas decreased 21.9% to $34.4 million and revenues in Asia Pacific and Europe decreased 12.5% to $10.6 million. Currency had a de minimus positive impact of 0.2% on a quarter. The gross margin during the quarter was 81.7% versus 82.7% in the prior year period. This change was primarily the result of sales mix and higher inventory carrying cost. Commissions and incentive expenses as a percentage of sales were 50.8% compared to 50.2% in the prior year period. As we've indicated in the past, our target range for commissions and incentive is 48%. Fluctuations from this target are driven by the timing of incentives and where they fall on the promotion calendar. SG&A as a percentage of sales rose to 30.5% from 26.1% a year ago. On an adjusted basis, excluding $0.6 million of executive severance, recruiting and transition costs and $0.1 million of class action litigation expenses, SG&A as a percentage of sales rose to 28.8% from 25.8% a year ago. The prior year adjusted SG&A excluded $0.1 million of executive severance, recruiting and transition costs. Operating income for the third quarter of fiscal 2017 was down year-over-year to $0.2 million, versus $3.6 million in the prior year period. Given the lower revenue and the fact that we have an expense infrastructure built to drive a higher level of revenue, we encountered significant deleveraging in our SG&A…

Thank you, Steve. I want to again highlight that we had a successful global convention in April that allowed us to reengage our distributors, rollout significant new products and technology solutions and update our distributors on our latest initiative. John Maxwell, the highly regarded author, speaker and leadership trainer joined us and was met by a very positive response to its leadership training. Finally, as noted previously we believe the third quarter was the start of our recovery period and we are further encouraged by the start of the fourth quarter. We will continue to focus our efforts on driving distributor and customer engagement. We will remain vigilant on executing our strategic growth plan and are optimistic about the significant opportunities that lie ahead. Thank you for your continued support and interest in LifeVantage. I'd now like to open up the call to questions.

[Operator Instructions] Our first question is from Jim Galloway of Private Investor.

Thank you for taking my call. I was at the convention and was very impressed the way it was conducted and the information provided. For about the last four years, I've asked about retention programs. And I've not been satisfied and I am very disappointed in the continuing reduction in active distributors and preferred customers. I saw that there is a loyalty program started but I am not sure that that's enough. You really think that's sufficient for retention.

Thank you, Jim. I mean is sufficient for retention. What are the main drivers in retention that we see? Basically we look at what I call first dollar principle is getting money into people's pant as quickly as possible. And that drives retention, as well as getting them to specific ranks. If they are at pro 3, the retention with the company is for very long period of time. So in addition to that loyalty program which I think will be very effective. We've also combined that with several other programs including the promotion where we extended the rank for the rank advancement for the pro 3s and pro 5. This has been one of the best promotions that we've run. And the ranks at pro 3 and pro 5 we get some of our best retentions. So I think combining multiple areas into driving retention that it does become very effective. So --

I am thinking a lot on the preferred customers too because there is not even good communications with preferred customer.

Well, the preferred customer is what we see is from a retention standpoint the majority of the drop off occurs between their first order and the next order. That drop off is what we are trying to address with the loyalty program. So typically if once they cross between zero and one, the drop off is single digit. But it's a larger drop off, a quite large drop off in that time between zero and one. And that's where this loyalty program is specifically targeted for. And that's why we are hoping that it will be very effective.

Okay. One more question. Again, I compliment you on the tools that you have provided to distributors. It's -- there is never been a better time to be a distributor.

I agree.

But we are missing the secret sauce. There is got to be something that really motivates people forward. And I am not putting my finger on that. What are you thinking is the secret sauce that you are going to add?

Well, the secret sauce, I am not sure if they are big secrets that are out there. One of the things that I think will have one of the major effects on the overall business will be -- and I said earlier in my prepared remarks that although seemingly small this bundling strategy that we have, I think will become a powerful force to moving the company forward. Also retention as well as for product usage. Being able -- one of the biggest request that we receive at the company has been for free shipping. So by combining some of our top products into groupings or bundles and offering free shipping with those, we were averaging more or less around $85 per order ship. And now the smaller bundle begins at a $120. If we can get people onto -- as people begin to adopt these bundling strategies or product, I think that will drive the business forward quite a bit.

Thank you. One last question. When you came on board, you had a program where you were bringing potential heavy hitter new distributor into the office and trying to recruit teams. Is that program still underway and are we successful in bringing over large groups of individuals as a distributor?

Thank you for that question, Jim. The program that you are referring to is what we call red carpet program. And we ran a test -- we had a test market on that or test strategy on that last year and it seems to have performed very well. Our goal is never to bring over large groupings of distributors. What we target is leadership. People who are out there actively looking for the next opportunity that need certain requirement that has been in a leadership position with other company. And that program is now in effect and is operating so it's functioning. We restarted that a couple of months ago. And we did make some modifications to it. I think too based of our test market we refined it to make it more efficient and I believe that can have an impact on us in the future. So thank you Jim for your questions.

Our next question comes from Steven Martin with Slater.

Hi, there. So when you look out to your guidance for next quarter, your sales are sort of comparable to last year and but the earnings are significantly less. And I understand you have the added expense of the convention. What else accounts that can be the entire difference?

Yes. Steve, this is Steve Fife. It really is. The convention that we put on they are not cheap. They cost us a lot of money. We believe that the kind of ROI on done is very beneficial to the company both in the short term and the long term. And what we do with these events is we do accumulate the cost during the months prior to the build up of that. And then in the quarter that the event takes place, all of those costs and also the associated revenue that we generate both from ticket sales, product sales, flag sales that are realized during the time at convention is also realized all in the month of that convention. So we get a revenue pot in that month but there is also the cost associated with putting it on to get in that quarter or in that month. And they are significant costs. So that really the driver for the increase in the cost year-over-year when you look at Q4 versus the prior year period.

Okay. When you look out beyond that when should we expect that sales and profitability are going to be positive on a year-over-year basis? So your sales are close in Q4, when you get out -- I know last year Q1 was a monster quarter. So when do you expect that we are going to see year-over-year improvement.

Well, it's not to be difficult here but to some degree that the timing of these events because of the cost associated with and again there is kind of lumpiness to our SG&A because of that. And so depending on the sequence of when the last event took place, I don't know that we'll always see year-over-year improvement because of the timing of when those events might occur.

We know when those events are going to occur going forward. So my question was when do you expect that we are going to be year-over-year positive in revenues and year-over-year positive in earnings even if it's separate quarters? Because if you have a mismatch in one quarter where you have more expense likewise you should have a reversal of that in the preceding or subsequent quarter.

That's right. That's right. And I totally understand your question and we are not -- we haven't and we'll not provide guidance for 2018 until our next call. But I fully expect that we will see profitability on a quarterly basis in 2018. And the timing of the year-over-year improvement will be driven largely by events in 2018 as well as the events that we had in 2017.

Okay. Let's go back to inventory. It is coming down but it's not really coming down as fast as I'd have expected. Can you comment on the trajectory and when did -- what do you think is the optimal level of inventory and when do you think you are going to get that?

Yes. So I mean there are a lot of things that have gone in the last five weeks since Chuck and I have been here. We spent a fair amount of time looking at our inventory. And the reality is when you look at our total inventory level versus our cost, we have about $8 million in cost. And a majority of that is product related cost but then we also have warehousing and distribution cost. So our monthly material cost is something that much lower than even an $8 million. And to push through a lot of inventory when that is our quarterly material cost, it's a challenge. Now we looked at the inventory that we have on hand about half of it is raw material. It is virtually all material that is tied to our flagship products. So the risk have also lessens is frankly is nil and we've also -- I commented that the risk of spoilage is very, very small. So on a long term basis we know that we are going to work through that inventory. We've also explored the opportunity or the ability to sell this inventory into a secondary market. And right now the responses that we are getting on that, these financially don't make sense for us to do that. The discount associated with it is too great. So our inventory turn for the last several years actually had been hovering around 2x. We got a relatively short-term target to get to 3 and longer term we think our churns can get to the 4x level but that's going to require some changes in our current logistic and supply chain factors. Chuck identified a lot of opportunities here and we are starting to kick those off but you just can't throw those things within a week or a month. It takes time to work with our suppliers and changing that supply chain model.

All right. Turning to SG&A. I recognized that in the fourth quarter it's going to go up significantly because of the convention. You reduced it modestly in the third quarter and I recognized that you guys haven't been there very long. Can you give us an idea of 37 that you spend this year and it has some extraordinary one time items? What do you guestimate is the run rate axing out one time items in the convention of SG&A going forward?

As -- we will probably provide -- not probably, we will provide more guidance around that in 2018. One of the things that we are doing is developing what we think a target model is. And we stated that from a commissions and incentives standpoint, our target is 48% of revenue. We are also kind of pruning in on what our margins and SG&A should be. And I'd plan on communicating that more fully as we announce our thoughts better in 2018 guidance.

Our next question comes from Eric Wisenberg of Private Investor.

Yes, hi. I'd like to have a little more color or information about the class action lawsuit. You indicated expenses so far roughly a $100,000. I'd like to find out more about what those suits are asserting and obviously a year ago roughly the stock was trading over $15 a share, today it is hitting new lows almost everyday new 52 week lows, I think including today and obviously a little over $4 a share. So is that the bulk of what the lawsuit are about or is there more you can tell us?

The bulk of the lawsuits in first -- on this I am not an attorney so I'll try to explain the best that I can. Basically there are two different lawsuits that are out there. There is a class action and then there is a shareholder derivative suit. Basically they are kind of tied together with each other. Where we are at in the process is that thus far as a company LifeVantage is filed the motion to dismiss and to reply. If the motion is granted then the shareholder derivative action will likely be dismissed as claims are substantially based on the claims on the class action suit. So really basically these suits originated within -- it seems like within minutes or hours of us filing late on one of our previous quarter. So when we filed our 10-K late. So basically lot from a boiler plate as far as I can tell again I am not an attorney. These are very common that come out when you file late and right now we are in the process as I said to filing motions to have them dismissed.

Okay. And can you give us any hope that the decline in the stock from $15 to $4 and change can reverse any time soon? I know you are not an analyst but you are in-charge of a company which has had horrible stock price performance. Can you give us any hope of improvement?

Well, Eric, as I am a shareholder also. I am also equally is disappointed with the share price performance. And we are looking to drive the business to drive the stock. I mean ultimately the revenue is what's going to drive the price of stock. And the last couple of quarters for us have been kind of rough with some of the challenges that we've experienced. And as I said in my prepared remarks we are on the backside of that trough. As you can see with the numbers that we are indicating for Q4 that we are going to be between $51 million and $54 million which puts us back into the pre-disruption range and we see us moving back into growth. And I think as we move back into growth that's naturally going to drive the top line of the stock.

Our next question comes from Brian Brothers of Private Investor.

Well, gentlemen. So I appreciate the information on the call here. My question as I understand how the profession in this industry works, everything is all going to hinge on recruitment of new sales reps, so is there anyway to get a little transparency of visibility I should say on the trending of -- I understand year-over-year quarters that are being asked about right now but more important to me is the quarter-over-quarter so just in the last quarter or two, how is the recruiting numbers looking?

Well, obviously with -- over the last couple of quarters there was a disruption in the business. And within the business a distracted distributor is a paralyzed distributor. And it makes its effort to recruit. Now over the last several months continuing into this quarter, we've seen some pretty strong recruitment levels coming back. As a matter of fact when you look at our total coming in where we combined both retail people coming in, PCs as well as distributors. They have been doing better than what I have seen on the previous months going back as far as might Chuck can go. So where I am looking at is not necessarily on previous quarters. I am looking at what's occurring today. And I am saying what's occurred beginning and those were some of the leading indicators that I talked about in February that we began to see. That was one of the leading indicators where we thought shift in the business and there began to be more recruitment. That really began to materialize a lot more in March and then further materializing going into this quarter. So it's moving on a very positive trend right now.

Right. I truly believe that obviously sales follows recruitment and as those numbers are in a positive trajectory right now as you said in recent history, that's very promising to me. I appreciate your insights guys.

Okay. That does conclude our question-and-answer session. I'd like to turn the call back over to Darren Jensen for closing remarks.

Thank you everyone for joining us today. We appreciate your interest and your continued support. And we wish you all wonderful day. Thank you.

Once again that does conclude today's call. We appreciate your participation.