Welcome to the today's LifeVantage Fiscal Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will conduct a question and answer session. 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 and good afternoon, ladies and gentlemen. Welcome to LifeVantage Corporation's fiscal third quarter 2016 conference call. On the call today from LifeVantage with prepared remarks are Darren Jensen, Chief Executive Officer and Mark Jaggi, 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'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 as Risk Factors in 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 statement. Please note that during today's call we'll discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into LifeVantage's ongoing results of operations, particularly when comparing underlying 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 4th, 2016. 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 limit the number of questions to three. Now I turn the call over to the Company's CEO, Darren Jensen.

Thank you, Scott and good afternoon, everyone. We're pleased to report the highest quarterly revenue in the company's history. This could not have been achieved without the combined efforts of our incredible distributors, enthusiastic field leaders and dedicated corporate employees. I want to personally thank them and congratulate them on a quarter well done. Now let's discuss the results. Our record revenue for the third quarter of 2016 was $56.2 million which represents a 24.4% increase compared to the prior-year period and an 8% increase sequentially. This also includes a 33.8% year-over-year increase in the Americas and sequential growth in both the Americas and the Asia Pacific and Europe regions. We're pleased with the continued favorable sales trends. During the quarter, we completed the PhysIQ rollout with the introduction of Cleanse. PhysIQ continues to build momentum and grow as a percentage of sales. However, we have been busy preparing for what very well may be the biggest product introduction in the company's history with the upcoming cyber launch of Protandim NRF1 Synergizer which is just two weeks away on the 17th of May. We'll discuss our product innovation and NRF1 in greater detail momentarily. We have spent time on these conference calls over the past quarters discussing our eight-point growth strategy. I'm pleased that our financial results clearly demonstrate the success of this strategy and I'm excited to report that we have accomplished this plan with all aspects of the strategy firmly in place and accelerating in many ways. We're now seeing the benefits of building a highly duplicatable business opportunity, further enabling our independent distributors to be successful. Our focus is on driving achievement across the fields. To this end, we're providing world-class training to our independent distributors with a focus on achievable goals and providing industry-leading product innovation…

Thanks, Darren. Good afternoon, everyone. For the third quarter ended March 31st, 2016, we reported record revenue of $56.2 million. Revenue increased 24.4% when compared to $45.2 million for the prior-year period and 8% on a sequential basis compared to $52 million for the second quarter of fiscal 2016. Revenue in the Americas increased 33.8% year over year and 9.9% on a sequential basis during the quarter. Revenue in the Asia Pacific and Europe region continues to improve, declining just 0.9% year over year and increased 1.7% on a sequential basis. Sales in Japan declined 2% sequentially. Given calendar Q1 is a seasonally softer quarter in Japan, we continue to believe that the market is stabilizing. Foreign currency did not have a material impact during the quarter. Looking at our customers, we ended the third quarter of fiscal 2016 with 71,000 total active distributors, up from 67,000 at the end of the second quarter of fiscal 2016 and 66,000 a year ago. The continued improvement reflects our success in improving distributor engagement and attracting and retaining new distributors as part of our growth strategy. The number of preferred customers at the end of third quarter of fiscal 2016 was 118,000, an increase when compared to 117,000 at the end of second quarter of 2016 and 114,000 a year ago. Our gross profit margin was 82.7% compared to 84.9% for the second fiscal quarter of 2016 and compared to 83.3% the prior-year period. The lower gross margin percentage in the current quarter largely reflects a changing product mix. Commission and incentive expenses for the third quarter were 50.2% of revenue compared to 52.5% of revenue in the second fiscal quarter of 2016 and compared to 47.9% of revenue in the same period last year. The increase year over year is due…

[Operator Instructions]. And we will take our first question from Will Hamilton of Manatuck Hill Partners.

Congrats on the quarter. Just a question on PhysIQ. I was wondering, Darren, maybe if you could provide a little extra color or how much it represented in the quarter?

Yes, we've been pleased with the adoption rate of the PhysIQ line. As I mentioned earlier, the third quarter is a wonderful time to launch or to have that type of product, since it is weight loss season. What we're seeing is that PhysIQ is beginning to approach about 10% in our product mix over that period of time. We expect it to continue to strengthen and be an important part of our product mix in the future.

And then wanted to ask about rank advancements. It's something, I don't know, you've talked about in the past and I understand there was a new Pro 10 that ranked advanced to that level. So maybe you could just update us on some of the key metrics there.

I'm not sure that I have all of the key metrics here for the rank advancements to advance on. But I would want to point out this, as a strategy within the company over the last quarter and this will be moving forward, what we're trying to do is to focus on ranks within the distributor base that we feel are achievable by the majority of new distributors. This is, we'll call it Pro 3. So a lot of our focus has been on people achieving that rank. We think that it's a duplicatable rank. With such, we've seen very good advancements at all ranks within the company. On the Pro 10, I'm not sure that we've made a public announcement on that, so I'll hold off on that till we make it official. But we have seen great increases at all levels within the company. But again, in all of our training, we've been focusing on helping new people achieve the rank of Pro 3 as quickly as possible.

My last question just regards to the Protandim NRF1. Don't want to steal your thunder on your cyber launch, but can you give us any color on pricing, whether you might bundle NRF1 and 2 in terms of a price point there? Any extra color, that would be helpful. Thanks.

We haven't officially announced the price points yet to the field. I don't want to pre-launch it here. It's part of the excitement of our launch in two weeks. However, obviously we would want to be focusing on selling them as a pack and we do have both Nrf2 as well as NRF1 combined together in a combined package that will be sold to the distributor force. Due to the complementary nature of the two products, they're designed to work together and to be synergistic when used together. So we're looking forward at really through our training as well as incentives at encouraging and helping the adoption rate of both products being used together as opposed to using one or the other. That's not what will be trained. They're designed to be used in conjunction with each other.

[Operator Instructions]. And we will take our next question from Steve Martin with Slater.

It was great to see progress at the top line for a change. Can you talk about your expenses and as we go through the next couple of quarters, I know you've had some elevated expense levels for product introductions and R&D and product development. Can you talk about how you expect these to shake out, not so much next quarter but as we go into next year?

You'll see that our SG&A expenses, if you look on a year-over-year basis, I think specifically SG&A last year we were at 32.1% of revenue and this year we're at 26.1%. Our focus right now is on that percent of revenue more so than it is on the absolute. You know truth is going into this fiscal year, you know nearly a year ago the company was on quite a expense reduction trip, right. So, you know everything that we invest in right now is going to have a future pay off. But you know on the near term we're focused on growth. So, as I look forward, we're going to manage our SG&A expense to a percentage of that revenue. Frankly, I'd like it to be continually leveraged and I say continually, but to a point obviously and without giving that specific guidance here, we like the 26.1% in the short term because it affords us the growth, affords us to continue to invest as we grow. Hopefully that helps you.

All right and R&D?

Yes.

Are you bundling that in there or can you talk about R&D as a separate issue?

We have it bundled in there. We're not talking about it separately. I will say with the launch of the NRF1 product, we're spending a good bit of time and effort and money on researching and supporting that product. As we come out with it, we've got a good bit of research and we're going to continue to support that product with research along with all of our other products, that's what we do. So, we're going to make sure that that is a very, very supported product as we go long term with that product and especially in combination with the NRF1 product and Protandim. So hopefully that helps you, but yes we're not laying off of the investment in R&D.

But I assume you would expect to leverage it against sales growth?

Yes, yes, definitely of course. We're not planning to increase that beyond our percentage availability let's call it.

Okay. Inventory was unusually high. I assume that had something to do with all the product launches, both in the quarter and coming up almost immediately. What would you say about inventory going forward?

Well, yes, that's a good point. Look, inventory in Q2, at the end of Q2, we had a few out-of-stocks and the distributor feedback on those out-of-stocks was not positive. So we grew it to ensure that those out-of-stocks were taken care of. Over time, I expect that to come down some. We have a target of inventory and we're working to improve our system so that our inventory is extremely well tracked and on a daily basis. Right now, it's not necessarily daily reporting on inventory. So we're making sure that our inventory is safe. You mentioned SKU count or expansion of products. Our SKU number has increased, right. I mean we launched five plus SKUs this year and as everybody knows those new products, when you expand your SKU count, you're going to expand your, at least in the short term, going to expand your inventory. Especially as we spread those products throughout the world, we've got to make sure that those different markets have enough inventory to get launched and get started with those products. So, you know, our days' supply will go up from that alone. But I expect it to settle down a little bit more over the next--

Well how about talking about absolute dollars. So you ended the quarter with $17 million of inventory. Would you expect that as a dollar matter it would go up, down or flat versus increasing sales? Or do you still not have enough inventory to support the growth?

No, we do. We expect in the near term we expect that to remain flat, right and we have enough to -- I mean part of that, you're right. I mean you're intimating that we've grown some inventory to ensure that we can cover future growth and we have. So I don't expect to have that rise measurably in the short term.

Okay, can you talk about auto replenishment and what the trends on that have been, because that had been deteriorating for a while.

What do you mean order to replenishment?

Auto replenishment, you know the regular monthly preferred customer--

Auto ship.

Auto ship, yes.

You know we haven't released numbers on that in quite some time. You know we've made some -- part of some changes that we made to our -- I would say comp plan, but part of some of the requirements we made, we released that distributors from their requirement let's say to have an auto ship, we strongly encourage that. They typically come in with auto ship's. That's strongly encouraged behavior. But, auto ship without giving you specific numbers outside of the auto ship, auto ship numbers we expect to grow as our distributor count and our PC count grows. You saw some growth in the distributor count, PC count and you'll see the auto ship and we see internally the auto ship typically follows that. But you know auto ship numbers fluctuate a little bit along with product launches, along with spot orders or product launches. There's spot orders for other promotions that we have, right. So, auto ship isn't the kind of the end all measurement, I'd say.

Okay and now that you fixed, I will use the word fixed, the capital structure and the debt structure, what's your expect -- you know and the principal payments are nominal going forward, what would be your expectation of use of cash over the next year or two?

Well, that's a really good question. I'd say at this point, Steve, I'd rather not jump into too much detail about our future plans, but the first things first. We're not really ready to report that, but outside of that we want to grow, right. So we're going to spend our time, efforts and money on growing this business into what it was meant to be. So, I know that's a little bit vague but I think I'll leave that one at that now.

That will conclude today's question and answer session. At this time, I will turn it back to Darren Jensen for any additional or closing remarks.

Thank you, everyone, for joining us today. As I mentioned before, we're thrilled to have reported the highest quarterly revenue in our company's history. We appreciate your continued interest and loyalty and look forward to speaking and meeting with many of you over the next few months. We wish all of you a great day. Goodbye, everyone.

This does conclude today's conference. We thank you for your participation. You may now disconnect.