Thank you for standing by. Welcome to today's conference call to discuss LifeVantage's fourth quarter and full year fiscal 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 and good afternoon, ladies and gentlemen. Welcome to LifeVantage Corporation's conference call to discuss results for the fourth quarter and full year 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've not received the release, it is available on the Investor Relations portion of LifeVantage's Web-site at lifevantage.com. The call is being Webcast and a replay will be available on the Company's Web-site 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 Form 10-K and 10-Q. 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 during today's conference call, we'll 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, September 7, 2017. LifeVantage assumes no obligation to update any forward-looking projections that may be made in today's call. I would now like to turn the call over to the Company's CEO, Darren Jensen.

Thank you, Scott, and good afternoon everyone. I'm pleased to share our fourth quarter results with you today and discuss many of the exciting initiatives underway at LifeVantage. 2018 will be a transformative year for us. Over the coming year we expect to see the initiatives we've been investing in to support our four key focus areas and strategic priorities take shape and begin to realize the impact of these initiatives and investments. But first, let me review the fourth quarter, where we generated strong 12.5% sequential revenue growth versus the third quarter and ended fiscal 2017 on a positive note. For the fourth quarter, we generated $50.6 million of revenue and reported adjusted non-GAAP earnings per share of $0.04. As I noted, the key metric is the sequential revenue growth and we once again exceeded $50 million of quarterly revenue. As I mentioned in our third quarter earnings call, I felt that Q4 would clearly show, and it did, that we are on the upside of the disruption in our business that occurred earlier in the year. While we feel good about the trajectory, we are not planning to take our foot off the gas pedal. In fact, we are pushing harder in 2018. I began the call by saying that LifeVantage is entering a transformation period. Let me explain what I mean. There are several very powerful consumer trends taking shape here in the United States and globally. We have entered a new economy powered by technology, e-commerce and social entrepreneurship. As a result, the historical sales channels are converging, all while consumers are more educated and focused on health. The opportunity is significant and we are transforming our business in an effort to capture this opportunity. Let me discuss the three major trends that are driving our…

Thank you, Darren, and good afternoon everyone. Fourth quarter revenue was $50.6 million, representing a 12.5% increase over the third quarter of fiscal 2017. Revenue in the Americas increased 12.6% sequentially to $38.7 million, and revenue in the Asia/Pacific & European region increased 12.2% sequentially to $11.9 million. On a year-over-year basis, we are pleased with the 6.7% growth we generated in Japan, which helped to offset partially lost sales in Hong Kong. The gross margin during the fourth quarter was 82.4% versus 81.7% in the third quarter and 82.3% in the prior year period. Commissions and incentives expenses as a percentage of sales were 47.4% compared to 50.8% in the third quarter and 48.3% in the prior year period. As we have indicated in the past, our target range for commissions and incentives 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 were 32% compared to 30.5% in the third quarter and 26.3% a year ago. On a non-GAAP adjusted basis, excluding $0.2 million of executive team recruiting and transition cost, $0.1 million of class-action litigation expenses, and $0.2 million of other nonrecurring legal expenses, SG&A as a percentage of sales was 31.2%. Operating income for the fourth quarter of fiscal 2017 was $1.5 million, up from $0.2 million in the third quarter and down from $1.4 million in the prior year period. On an adjusted basis, taking into account the aforementioned adjustments, non-GAAP operating income was $2 million. As anticipated, SG&A as a percentage of revenue remained elevated given the lower revenue versus the prior year, resulting in deleveraging of our SG&A expenses. Additionally, the timing of our Global Convention during the fourth quarter this year increased our year-over-year expenses.…

[Operator Instructions] Our first question will come from [Jim Galloway] [ph], a private investor.

Good afternoon, and it looks like things are moving forward. One quick question, what impact did you make on the estimates for the coming year based upon the hurricanes in Texas and in Florida and in Puerto Rico that must be impacting it somewhat? Thank you.

When it comes to the Hurricane Harvey specifically in the Texas area, Houston – first, our prayers go out to all the people in the Houston area – that is not a heavily populated area for our distributor force. Our distributor force is more in the Louisiana area which was not as affected. So we're not seeing a ton of disruption. Now, we do have a higher concentration of distributors within the Florida area, and right now – I mean, we don't know exactly where the storm is going, so I mean that remains to be seen what Hurricane Irma could do. It has already passed through Puerto Rico. I don't believe we'll see a lot of disruptions there for our business. But any time if it takes – I mean, if Florida takes a direct hit, it will – I mean, yes, that could have an impact. But at this point, we haven't factored in much of an impact for it just due to the fact that right now everything is up in the air with Florida. But we did take into account Texas and that had a nominal impact on us.

Thank you. That's all I have.

[Operator Instructions] We will take our next question from Steven Martin of Slater.

Congratulations on restoring order. I also wanted to congratulate you on getting the inventory down substantially. Can you give us an idea of the EBITDA that will relate to your $0.40 to $0.50 guidance? There's just so many moving pieces and adjustments in these prior years, so it's hard to relate.

I think one of the things you can do, Steve, is 2016 was the Company delivered about $206 million in revenue and the EBITDA was just under $20 million as-adjusted in that year. I would expect that we'll come in lower than that from an EBITDA standpoint because we've got, as Darren outlined, a number of initiatives that are going to require some investment during 2018. But I think 2016 would be a good benchmark for you to look out.

That's what I was trying to do. In 2016, you had diluted earnings per share of $0.42 and you had EBITDA of roughly $20 million. So, if I sort of take your $0.40 to $0.50 guidance and pick a midpoint there, why wouldn't I be more or less around $0.42 or around $20 million of EBITDA? What am I missing in that comparison?

We do have lower interest, significantly lower interest in 2017 than we did in 2016. We have refinanced our debt, so that's a big portion of it. And then I think the other piece of that, like I said, is our SG&A. It is going to be higher than it was in 2016.

Okay. Inventories down to $16 million and change, what do you – now that you've had some time, I've asked you this before, what do you think the sort of run rate of inventory should be to support a $205 million business?

I think we'll continue to make progress in our inventory throughout 2018. If you look back historically, I don't see any reason why we can't be at historical levels, which was down in the $12 million to $14 million range. I think over the next several quarters we're going to see some ups and downs as we continue to ratchet down existing inventory, but we will need to build at times in advance of some of our new product launches. So, it's going to be a little lumpy during the year, but I would expect by the end of the year to be down in the $14 million range.

Okay. You've given guidance to this low $200 million sales level. You've gone into more countries, you've added a whole bunch of products, and you've added some major events. Why is it that we're only getting back to – A, we're only going to be up $5 million to $6 million versus 2017, and B, only get back to where you were in 2016, with all the incremental product, countries and expenditures?

I'll answer that one. Part of it is to establish just prudent expectations and also to give us flexibility. I mean basically if you look at what I said earlier, you can break it down into about eight projects or eight strategic initiatives that we're working on right now, and some of those are unique and new and not tried out in network marketing. I mentioned that, yes, we did expand into Quebec. We just opened Germany. We have happily extended our flagship Protandim product into Mexico and Thailand, which will be great. But the China opportunity that we have and using this new cross-border e-commerce method is something new. So we're trying to be prudent about it and not create too exuberant of expectation about it at this point. Also we have – we're also working on bringing in a second wave of leadership that is more tech-savvy and focused on social commerce. And really to bring in this next wave of leadership to help us in this transformation towards this social entrepreneurship that's building within the industry, that takes a little bit of time also. Now, we will get some – we could get some immediate good lift out of the bio-hacking protocol that we're coming out with and combining the four products together, which this should drive basket size for us. The technology that we're releasing and coming out with, I mean we will be as far as we know one of the first and only in network marketing to integrate artificial intelligence into the way that we're doing business. And then the global PC program that we talked to, or the global preferred customer program, that could have an immediate effect. So, here we're very confident, but we're also cautious. I mean we want to rebuild confidence with the investment community. So we're being prudent about setting expectations. Thank you.

All right, thank you very much.

We will take our next question from [Dan Borges of Midwell Services] [ph].

Congratulations on doing some wonderful things with respect to the operations division of this Company, that was well done, and the inventories, et cetera. However, if we take a look at our sales model and we look at gross margin, that's basically 50%. And I've been a shareholder for years with this Company and I've watched it basically not perform from a shareholder perspective but perform wonderfully for those that are in the top tier of the compensation package in the network marketing aspect. You look at $96.7 million being spent at roughly the same percentages over the last several years, and yet from a shareholder perspective you're back down to levels you were when the Company first went into a network marketing scenario. I have several individuals who have looked at this, who are very, very good at operations and companies and how they should be performed and conducted. Is anyone in the executive level, in the Board of Directors, that is looking at the shareholder and going to your shareholder and saying, we're going to take a harder look at the compensation schedules and incentives on this expense that's running roughly 50% of the Company, and has been forever, which has suppressed the value to us, shareholders, immensely?

I mean the quick question to this, one, absolutely we value the shareholders, as well as I myself am a shareholder as well as the Board are shareholders. So, it's something that we will sacred that trust. Now, what drives the stock price? It's revenue. And LifeVantage does have a powerful compensation plan and we're very aggressive in that compensation plan, and that is what can drive revenue. So, I think one of the worst things you could do is get in and begin ratcheting down the incentives for people to go out and drive revenue. So that's just not in the cards of what we do. We're not going to [indiscernible].

Sure, sure, and that's not what I am suggesting. What I'm suggesting is that you look at the compensation that's in the top tier who have not been performing with respect to the bottom line and the revenue per share that has been generated, and [indiscernible] to do a much better job of demonstrating that to the shareholders, and it's quite simple to do in fact. And if you look again at that high compensation at the top end and if you look at preferred customers – I am a distributor and most of if not all of my customers are preferred customers – the preferred customer base is very, very high in percentage and is actually being grown and becomes greater in percentage than those who are distributors. And so my question again is, you are rewarding at the top tier, the Pro 8s, 9s and 10s are taking a lion's share of the wealth out of this Company and I think are being overcompensated when you look relative to the growth of the Company, and something has to give there. This has been 7 to 10 years of a static situation and actually the stock in the last year was up 66%, and I know there are other reasons for that, but the bottom line is, you need to start generating earnings per share. And I'm asking you because I see no scenario here even with the growth that's going to generate a higher percentage of earnings per share.

Okay. Let me answer some of that. First, I agree with you that preferred customers are a powerful force within the Company and are absolutely critical. I think to the long-term stability, both from a customer base as well as from to protect the Company against regulators, so we are absolutely trying to grow the customer base. But I disagree with your premise that the people at the top are not doing work. Let me explain something very – let me explain a concept that most people that don't deal in network marketing day-to-day misunderstand. Most companies work off of a bell-curve. They are trying to address the majority of people in a market or as leadership. In network marketing, it is based upon power law distribution, it's not based upon a bell curve. So, a disproportionately small percentage of people drive a vast majority of our business. As a matter of fact, between 2% to 3% of our entire distributor base has driven nearly 65% of every customer and every distributor that has ever come into our business. So, you can see this power law distribution model take effect. And so from this standpoint, those people that are at the top are some of the hyper – let's say they are hyper business generators that have really, they followed the plan that was laid out to them. So, Dan, I mean we're going to have to agree to disagree on this. I don't agree to your premise that we have to come back and punish people at the top of the compensation plan. That would be one [thing that would] [ph] destroy the Company.

I'm not saying that you should do that. What I'm saying is, where is all of this compensation ending up demonstrating improvements in the bottom line and earnings per share for your shareholders? That's the question in essence. Are you running a company for the shareholders or are you running a company for your distributors, and if you are, it's two separate scenarios?

Both. It's both, because most of our shareholders are distributors too. Like you just said, you are a distributor and you are a shareholder, Dan.

Dan, this is Steve Fife…

I am smart enough to look at the model and look at the lion's share of who are basically distributors that are doing direct order versus those that are not direct order and are trying to grow the Company, and you would think that someone would take a look at this Company over the last several years, just look at the shareholder return which has been abysmal if you are a long-term investor. If you are someone short term and you want to play it, obviously there is a lot of manipulation that happens, and it has happened. I've seen four different managements come through this Company, all under that same marketing strategy who have spoke about nothing but how we're going to grow this Company and have shareholder value, yet the shareholder value remains abysmal. Someone needs to be accountable for that at the Director's level and the Board of Directors level or there will be individuals like myself who will elect to do whatever it is necessary to turn this Company into something that is going to grow shareholder value, and it can grow distributor value as well, but shouldn't put shareholder value at the expense of your growth in marketing strategies that frankly are not working for the shareholder.

Dan, this is Steve Fife. Let me make a comment or try to address your question. I think the shareholder value obviously comes through increased financial performance, driven first by revenue growth and second by profitability. And investing in our growth engines, which from a compensation standpoint is primarily our distributor base – but included in that number that you are referring to isn't just the base compensation that gets paid out, it also include incentives and other activities to promote the growth of the Company that do not fall directly to the distributors. But as we grow through our investments and the initiatives that Darren has outlined, as we grow that top line, we as a company have tremendous leverage over our other SG&A expenses. We will not be growing our SG&A as a percentage of revenue as our revenue grows, and that leverage is how we increase our overall profitability. And that's what we as a company are committed to doing, is to leverage that revenue growth through the investments that we've made operationally in the Company so that more dollars, more revenue dollars fall to the bottom line, and you as a shareholder and the other shareholders can benefit from that.

And this concludes our question-and-answer session. For any additional or closing remarks, I would like to turn the call back over to Darren Jensen.

Thank you and thank you everyone for joining us today. I hope you all share excitement about the direction of LifeVantage. We have a significant opportunity ahead of us and we are transforming the Company to capitalize on the trends affecting how consumers accomplish healthy lifestyle, how and where they go to work every day and how products are fulfilled. We are sitting at the crossroads of a highway of opportunities and all of us at LifeVantage are focused on capitalizing on these megatrends. Thank you again for joining us and have a wonderful day.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.