Good day, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's Second Fiscal Quarter of 2020 Financial Results. [Operator Instructions]. Hosting today's conference will be Scott Van Winkle with ICR. As a reminder, 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, Doug, and good afternoon, and welcome to LifeVantage Corporation's conference call to discuss results for the second fiscal quarter of 2020. 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 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'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 company's management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of LifeVantage's most recently filed Forms 10-Q and 10-K. Please note that during 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, January 28, 2020. LifeVantage assumes no obligation to update any forward-looking projections that may be made in today's release or call. Now I will turn the call over to the company's CEO, Darren Jensen.

Thank you, Scott, and good afternoon, everyone. It's my pleasure to discuss our second quarter fiscal 2020 results with you today. We are very pleased with our second quarter growth and profit performance, on track with our 2020 guidance for both revenue and adjusted EBITDA, and are increasing our fiscal 2020 guidance for adjusted earnings per share, which Steve will discuss in a moment. Our second quarter growth was driven by gains in both the Americas and our Asia/Pacific and Europe regions. In the Americas, our launch of Protandim NAD Synergizer in the United States and Canada, along with the continued execution of our strategic initiatives, were the key contributors to growth. As we discussed last quarter, we have put considerable emphasis, preparation and focus on our launch of Protandim NAD Synergizer, and the results of our efforts are apparent in both our financial results for the second quarter and the trends we're seeing in the brand. Our customers have responded positively to the expansion of our flagship brand, and we believe we have assembled an unparalleled lineup of Protandim product solutions. You'll recall that Protandim NAD Synergizer is the first addition to our flagship Protandim line since 2016. And in combination with Protandim Nrf1 and Nrf2, we have developed a powerful combination of nutrigenomic products that have demonstrated significant synergy and are further solidifying LifeVantage's leadership with science-based efficacious products, each designed to support our biohacking culture. Let me begin with a quick overview of our second quarter and then discuss our recent launch and business activities in greater detail. Our year-over-year revenue increased approximately 5% during the second quarter compared to our previous record quarterly sales results in the second quarter of last year where we launched our very successful hair care offering. Further, on a sequential basis,…

Thank you, Darren, and good afternoon, everyone. I am pleased to report our second quarter results. We generated a record quarter of positive year-over-year revenue growth while continuing our improvement in profitability. We are excited with the trajectory we have attained through the first half of fiscal year and are on track to meet our revenue and EBITDA guidance and now anticipate higher adjusted earnings per share. Please note that I will be discussing our non-GAAP adjusted results. You may refer to the GAAP to non-GAAP reconciliation in today's press release for additional details. Second quarter revenue was $61.2 million, representing a 5.3% increase year-over-year. Revenue in the Americas increased 4.3% to $44.3 million, while revenue in Asia/Pacific and Europe increased 7.8% to $17 million, all year-over-year. Growth in the Asia/Pacific and Europe region reflected continued robust performance in Asia/Pacific, including significant gains in Australia and New Zealand, including a very favorable reception to the introduction of our business opportunity in New Zealand during the quarter as well as strong 4.7% growth in Japan. The growth in the Americas reflected the launch of Protandim NAD Synergizer and Protandim Tri-Synergizer bundle, which drove considerable growth across the brand. Gross margin was 83.3% compared to 83.2% in the prior year period. The modest increase in gross margin was driven by lower inventory obsolescence and handling costs as well as changes to our geographic and product sales mix, with gross margin in line with our long-term target. Commissions and incentive expenses as a percent of revenue decreased 70 basis points year-over-year to 47.7%. The year-over-year decrease is due to timing of accruals for incentive and promotional programs as well as the current quarter level of activity in our Red carpet program. Just as a reminder, the commissions and incentive expense rate will fluctuate…

[Operator Instructions]. Our first question comes from the line of Doug Lane with Lane Research.

A question on statement on the tax rate here, Steve, the 17% this year. Is this -- can we look at this as a new normal? Or is the 19% to 22% really more the center of gravity and the 17% is just unusually low this year?

Yes. I'd say, Doug, that the 17% is lower this year because of the high amount of equity that vested during this period that has translated to a much lower tax rate. I think going forward, I would expect our rate to be in the 25% range, plus or minus.

Okay. That's helpful. And then getting in the business here, Darren, I have to say that international business seems to be doing very well with the 8% growth on a pretty difficult comparison, and there's a lot of moving puts here. So I'd just like to drill down on that if I could because the Greater China had been a big part of the growth story before. And now I see that it was down 35% in the first quarter, and I'm sure, pretty sure probably wasn't much better in the second quarter. But meanwhile, we have Australia and New Zealand in the equation in a fairly big way that maybe wasn't there a year or two ago, at least not as far as being the growth contributors that they are. And then thirdly, the return to growth in Japan, how sustainable do you think that is. Just if you could give us some color on the moving parts in international.

Yes, I'd love to. Thanks, Doug, for the question. Let me start out with Japan. As we mentioned before, we saw a 4.7% increase in Japan. And is that sustainable? Over the years, we have completely changed management. We've been going through a lot of efforts to align ourselves and our field leaders together. And I think that's translated out very well into a growth in business. One of the main drivers that we have through the remainder of this year for Japan is the -- a resizing or a reduction in size of our Protandim Nrf2. And this is based on local market feedback that we're receiving that the size of pills in Japan is traditionally a lot smaller, so we're adjusting to that. And we think that, that will be very positively received. So is it sustainable? We have high hopes on that. And with the management in place and the field leadership that we have in place, very positive on that. Now looking at Australia and New Zealand. As a matter of fact, I traveled to Australia later this evening. We just have some great groups down there that are growing. They're working very well with our management. And the systems that they have in place, it seems like each month, they just continue to grow and grow. As a matter of fact, it was based on that growth and the demand that was coming from that area that we made the determination to expand into New Zealand. Originally, that was based on our customer acquisition model. We moved that over to full business in -- our full business model, and we've seen a very positive reception of that business model. Hong Kong, well, let's talk about Greater China. Still, we're working with Taiwan. It's a great contributor, still very strong for us. They're still more on a sprint, I would call it, in that they surge and then rest and then surge and rest. And we're trying to bring in more leadership so that we get more of a consistent monthly and quarterly output from them, and we've made great strides over the last quarter or 2 to do that. Right now, the political unrest that's going on in Hong Kong, I would say that, that is probably one of the greatest headwinds that we have. I mean most businesses in Hong Kong have been affected with it. So as all people, we pray and hope for a resolution in the situation there. And that's kind of the color that I have for those areas. Very pleased with the growth, Doug.

No, that's very helpful. And on the New Zealand rollout, is that -- was that a onetime event in December? Or is it sort of a rolling rollout, if you will, through the next few months?

Well, it was an introduction. Keep in mind that, that market, we had been doing -- that we had customers in before for at least, I think, at least a year in that it was part of our global customer acquisition model. And so when we converted that over to a full business model to allow people to look at it from a business opportunity standpoint, that even accelerated the sales and the growth that we're seeing there as more people joined and they were able to engage and bring in more customers. So it's been very positive.

And that launch occurred in the middle of November. So we have about 6 or 7 weeks in the quarter when it was officially launched on a business standpoint.

Very well received by both people in the U.S. -- by both people in Australia and New Zealand.

Yes.

Okay. Got it. And then turning to the U.S. where the growth was 4%, but it seemed like the product introduction was fairly major. And so I mean from the outside, it seems like I would have expected a bigger number. Is 4% about what you're looking for? Or is there something going on with the timing of that I should know about? Just what you're feeling on the new product launches.

Well, the new product launch was well received. And especially when -- right before the event when some of our clinical research was made available and we saw the synergies that were occurring between the various product lines, I mean between the various Protandim products, I would say -- so overall, the launch went well. I think that there were other factors that contributed to maybe numbers that might have been higher but would have reduced that number from where it could have been.

And just keep in mind that, that 4%, the prior year quarter was also our previously -- previous record high. We did over $58 million in that quarter when we launched our hair care system. So we were coming off a high comparable year-over-year. Sequentially, the U.S. actually grew over 10% from Q1 to Q2.

Okay. That's good color. And then with the bundling -- with the new products and the bundle that you're offering, how do you think that'll impact the percentage of your product that will be sold via bundles and also maybe how it might impact your percentage of product sold via subscription?

Well, looking at the various percentages, let's start the bundling. I mean looking at the product category itself, Protandim, we saw a 10% year-over-year increase in our Protandim line during the quarter and a 16% sequential increase in the use of Protandim, the family of products. So the bundling strategy has been successful. Typically, it ranges 18% to 20%, the bundling products of our revenue. When it comes to subscription, I think the driver behind that, more so than the Tri-Synergizer packets that we released or the bundling, I think a factor that will affect -- that will be the free shipping model that we're -- the free shipping that we just rolled out as well as the daily pay as we begin to transition into -- more into the gig economy and begin to reflect some of our other competitors outside of our channel. But what is commonly held -- I mean kind of the Amazonification of products, they expect free shipping along with that. So I think some of these changes that we've made will help make our subscription model even more attractive.

Okay. That's helpful. Just one last thing. You mentioned the Global Convention in the fourth quarter of 2018. Do you have any conventions of that size planned over the next 4 to 6 quarters?

Well, we do have -- over the last couple of quarters, we've been talking about a change to our event cadence. And part of that is a shift -- as we see younger people coming into the business, they're a little more focused on more experientialism, a little more -- having it be more of an experience than just sitting in an event. And so you see a change in our cadence coming up next month as we take our next Elite Academy and we've moved it to more of a location. We're going to be down in Cancun. And we see -- I see that as being one of the premier events that we have. So we're gathering everybody in Cancun in February. And then another thing that we've seen is that as younger people come in, they don't like to travel quite as much. So we've taken one of our Elite Academies this year, and we're shifting it and breaking it down into over 20 regional events where we take the meetings closer to our distributors. And we believe that the aggregate amount of the people attending those will even be higher than if we did one event itself. Then we've moved our Global Conventions over to an annual basis. And that -- so our Global Convention will be held each year and typically in the month of October. So this year, in October -- I should say, in this calendar year October, our Global Convention will be in Las Vegas.

[Operator Instructions]. Our next question comes from the line of Bill Sutherland with The Benchmark company.

Darren and Steve, the Tri-Synergizer bundle, it was available all quarter in the U.S.?

We rolled it out towards the beginning of October at one of our Elite Academies. So for the vast majority of the quarter, yes.

Yes.

So I'm just thinking about the incremental impact. I mean do you feel it was hot out of the gate? Or is this something that's going to be building as we get into the back half of the fiscal year?

Well, when I look at the introduction of any, I call it, a macro moving product, one of our flagship products that we released, initially, there's always a product sale where people are wanting to experience it, get it into their hands. So there's an initial interest. The part that we're on right now is translating that and moving our customer bases over to our subscription model. So right now, we're just driving awareness of it, promoting it. And so most of our marketing efforts as well as our event efforts are all focused on this pack. So that's just the stage we're in. It's been out for a quarter. That was more of the introduction phase. Now we're driving it into our subscription system.

And then we'll also see the expansion impact of Canada and the other markets in the coming quarters?

Yes. Canada is receiving it on a not-for-resale basis, so people would order from the United States there for their own personal consumption. And so it is limited to an extent where it's not -- it's mostly people just wanting to consume the product. I think as product is officially on the ground, then there will be an expansion of the demand for it obviously. And then as we roll it out throughout the world, again, and we mentioned that we're in the process of localization, reviewing the formulation by regions of the world, typically, as you move a product around the world, some countries don't allow the oddest things. Something that maybe seemed very normal, they may not allow. So we have to look at, how do we adjust it for that given market, keeping the number of formulations that we have available to the smallest number doing the appropriate testing. So it is a process. And over the coming quarters, as we have markets come online to receive the product, we'll make additional announcements and bring you up to speed on where the product will be available.

And Bill, one other thing that we did just a week or two ago was the introduction of the Tri-Synergizer packets. So when we launched the product in October, and I think we've talked about the science behind the benefits of taking all three of our Protandim products together, the individuals purchased three bottles of 30-day supplies. And we, just a week ago, announced kind of daily packets that contain 1-day dosage of each of the 3 Protandim products in one packet that is kind of an ease of use, but also, we anticipate that our distributors will be utilizing that as really a sampling tool for people that they come in contact with and talk to about the new product. So it's still very early to determine the success from that, but we see that as a growth opportunity in the second half of the year as well.

Okay. When you're looking at the launches in your pipeline, planned launches, are you thinking about across categories? Or is it more in the core as you've done with Protandim this year?

Well, I think as we look at new products, throughout the remainder of this year, our primary focus is on the Protandim NAD Synergizer as well as the bundling strategy and the Tri-Synergizer grouping or stack that we came out with. And when you launch something within your flagship, I think you'd do it a disservice if you immediately change course and begin focusing on something else. You really have to focus on getting that new product story out into that subscription model where people are consuming it on a daily basis. And that is really our focus right now. Now when it comes to other products, obviously, we do look at each category individually, from skin care to weight loss to pet products, and determine where there is the greatest demand and where we have the greatest upside on any type of expansion. Recently, we've been looking at -- we've released some limited-time offerings, so while supplies last. In the fall, we used that as part of our Black Friday and Cyber Monday promotions where we released a product within our TrueScience line, and it was very successful. So I think we'll -- we're always looking at what might be coming up in the future. But right now, our focus is on the NAD Synergizer.

And then last one for me. I just wanted to understand better the dynamic of the distributor and customer growth, the variance in the growth. And I guess it's been that way for some number of periods. I don't have that much history. But is that how we should think about it going forward? The distributors growing at a faster pace, I guess that's helped by your Red Carpet program. But how should we think about the customer attrition going forward?

I think sometimes it varies depending on the focus and the different group dynamics of people in the business. Last year, there was a greater focus on customers, and that shifted a little bit more to distributors. And that continues to kind of rotate back and forth depending on the various distributor groups. When you look at the most recent quarter, you're comparing -- as you look back into, I guess, '19, fiscal '19 for us, we were getting significant surges in customer enrollment through some of our Chinese groups that are based here in the United States, and that necessarily didn't replicate into this year. Additionally, we saw some short-term reductions in our social media-driven enrollment, which have been -- which were offset by higher average volume per customer. So as part of our ongoing efforts, we're expanding our education and training for our distributors to really more effectively market through social media. So it's just a process as we go back and forth and what groups are surging or growing at different points as to if it's more customers or distributors.

Okay. So it's not a steady state. Got it.

There are no further questions in the queue. I'd like to hand the call back to Mr. Jensen for closing remarks.

Thank you, everyone, for joining us today. We're very pleased about our results so far this year and are excited to see what the rest of fiscal 2020 has in store. We look forward to updating you on our next call and wish you all a wonderful day. Goodbye.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.