00:02 Good day, ladies and gentlemen. Thank you for standing by. Welcome to today’s conference call to discuss LifeVantage’s Second Quarter Fiscal 2022 Results. At this time, all participants are in a listen-only mode. Following the formal remarks, we will conduct a question-and-answer session. [Operator Instructions] 00:23 Hosting today’s conference will be Reed Anderson with ICR. As a reminder, today’s conference is being recorded. 00:30 And now, I would like to turn the conference over to Mr. Anderson. Please go ahead, sir.

00:36 Thank you. Good afternoon, and welcome to LifeVantage Corporation’s conference call to discuss results for the second quarter of fiscal 2022. On the call today from LifeVantage with prepared remarks are Steve Fife, Chief Executive Officer; and Carl Aure, Chief Financial Officer. 00:53 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. 01:14 Before we begin, we would 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. 01:30 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-K and 10-Q. 01:43 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. 02:03 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, February 1, 2022. LifeVantage assumes no obligation to update any forward-looking projection that may be made in today’s release or call. 02:22 Now, I will turn the call over to Steve Fife, the Chief Executive Officer of LifeVantage.

02:28 Thanks, Reed and good afternoon, everyone. Thank you for joining us today. With me is Carl Aure, our Chief Financial Officer, who will join me with prepared remarks before we turn the call over for Q&A. 02:43 On our last earnings call, we were more optimistic about the expansion of in-person activities, news about the Omicron variant has significantly and unexpected slowed down our activities this past quarter. We expect to see improvements throughout fiscal and calendar 2022 from this point on. However, our initial expectations have been dampened somewhat. Carl will update you on our full-year outlook. 03:17 Second quarter results were lower than our expectations, largely attributable to the extended impact of COVID-related factors. Our recent Philippines launch, for example, encountered unexpected delays, which effectively pushed initial revenue into January. 03:36 While disappointing, we made further progress on several key strategic initiatives, which I'll outline in more detail. Revenues of $52.2 million were down 11.6% year-over-year and 1.9% on a sequential basis. Despite this decline, we still delivered $1.9 million of adjusted EBITDA and maintained our strong balance sheet with over $20 million of cash. 04:09 Over the past several quarters, we've been focused on three primary areas to start positioning the company for accelerating growth and significant long-term value creation. People, products, and customer experience. One of my primary focuses since becoming the CEO has been to build an executive team with the skills, passion, and vision to accelerate growth at LifeVantage. 04:36 We recently hired Julie Boyster as Chief Marketing Officer along with a new Chief Digital Officer. Both individuals bring an incredible depth of expertise that will be instrumental in driving the transformation of our business and taking it to the next level. 04:57 Julie is a strategic marketer and brand champion with a…

13:06 Thank you, Steve. Please note that I will be discussing our non-GAAP adjusted results. You can refer to the GAAP to non-GAAP reconciliations in today's press release for additional details. Second quarter revenue was 52.2 million, down 11.6% on a year-over-year basis and 1.9% sequentially from the first quarter. Foreign currency fluctuations negatively impacted revenue by $1 million in the second quarter. 13:34 Revenue in the Americas declined 17.1%, compared to the prior year period to 34.7 million, driven by an 11% decrease in total active accounts, reflecting ongoing challenges to hosting in-person meetings. 13:50 Revenue in our Asia Pacific and Europe region increased 2.1% to 17.5 million, aided by a 6.4% increase in total active accounts. We experienced strong double-digit growth rates in Australia, Thailand, and China. However, this was partially offset by lower revenue in Japan, which was attributable to the negative impact of foreign currency. 14:14 On a constant currency basis, revenues in Japan increased slightly by 0.1%. Gross margin was 81.5% in the second quarter, compared to 82.7% in the prior year period. The decrease in gross margin was due to increased inventory obsolescence expenses, increases in shipping and warehouse expense, along with shifts in geographic and product sales mix. 14:41 Commissions and incentive expenses in the second quarter declined 1.7 million year-over-year. As a percentage of revenue, commissions and incentive expenses rose 280 basis points versus year ago levels to 48.8%, primarily attributable to changes in the timing and magnitude of promotional and incentive programs. 15:05 Non-GAAP adjusted SG&A expense was relatively flat, up approximately 0.1 million compared to the prior year quarter. However, due to lower revenues, the adjusted SG&A expense ratio increased to 32% from 28.1%. Adjusted operating income was 0.3 million compared with 5.1 million in the prior year period. 15:29…

18:17 In summary, despite unexpected challenges recently, our team remains highly energized and committed to executing on the key strategies to transform our business and reaccelerate growth. Our foundation is strong, including the unique portfolio of high quality innovative products supported by a large global base of distributors. All of which are firmly aligned with helping consumers achieve their health and wellness goals. 18:50 Finally, our financial condition is solid with a significant cash position and profitable scalable model. 19:00 So with that, we'll turn the call over to the operator to facilitate Q&A. Operator?

19:09 Thank you. [Operator Instructions] Thank you. Our first question comes from Doug Lane of Lane Research. Please proceed with your question.

19:44 Yes, hi. Excuse me. Good afternoon everybody. Couple of numbers that stand out to me was, well the first one was the Americas region where the sales were down 17% and I know it has been weak, but that's a deceleration from recent trends, and actually I would have thought it might start heading in the other way since you're starting to have in-person interventions again. So, can you maybe put a little bit more color on what you saw during the quarter in the U.S. specifically?

20:15 Yes, Doug, this is Steve. So, I mean on a year-over-year basis, you're right, the U.S. was down. There were a few contributing factors to that. First was, just the events that we had were not nearly as effective in this most recent quarter, participation, as well as the energy coming out was down, I think the timing of Omicron and the picking up of that adversely affected us. 20:54 We also had an impact of prior year event or prior year quarter, we had fairly significant promotions that occurred during that. And it drove a much higher average revenue per account, about half of the decrease that we experienced year-over-year was because of the benefit of those promotions last year. 21:25 And then as you are aware, we've had a modest decrease in our distributor base over the last year, but a bigger decrease in our customer base. It's in part consistent with what we're seeing with others in the industry where we think the industry is trending and why we've taken some of the actions that I discuss in terms of exploring and developed bringing in some people to help us as we focus additional energy as a company on the customer acquisition and retention.

22:14 Was there any change in patterns between October, November, and December that you could notice or was it, just sort of a quarter-wide phenomenon?

22:25 It was quarter-wide, I'd say a little bit of pickup in December versus October. So, a little bit of positive movement, but it was fairly flat. The other thing is that we were – not that we strive to be flat, but relatively flat our Q1. So, there wasn't continued erosion really from Q1 to Q2.

22:58 Okay. And moving to SG&A, Carl, the good jump in the percent of sales, as you mentioned there is a decline in sales, you have a lower sales base, but I mean, is it really because there's a lot of fixed costs in SG&A or is there some component of cost inflation hitting that line at this point?

23:22 Yes, Doug. There's a couple of items that are contributing to that increase in SG&A. One of them is just relating to the increased cost of the in-person event or the hybrid component of the global convention we had in October. 23:37 Comparing that to the prior year period where it was solely an online-only or digital-only event. This one here was a hybrid event and it was an added incremental cost here in the second quarter. And then also there was some additional just other SG&A expenses, primarily in the legal area that were really a little bit higher here in this particular quarter. So, overall, those are really the two contributing factors that increase that SG&A side.

24:08 Okay. That makes sense. And then you mentioned the delaying of the opening of the Philippines, is there any way to quantify what amount of sales, kind of moved out of the December quarter and into the March quarter because of that?

24:21 Yes, there is. As far as the total sales that were deferred, it's approximately $700,000. So, there was $700,000 approximately of revenue that are – of orders that we received, that were deferred until January when the product was ultimately shipped.

24:38 Got it. Okay. That's helpful. And then help us understand with the quarter coming in, margins were lower than expected and sales were lower than expected, but really your outlook doesn't seem to have changed that much. What is your confidence that the March and June quarters can continue to perform as you thought they would, maybe three to six months ago?

25:06 Well, I think what it is Doug is, we've been putting things in place for several quarters now. Our forecast clearly anticipates some return to in-person meetings and us building off of the activities that are taking place by distributor-led activities. 25:35 We also have put in place a new promotion that actually kicks off today that is focused on business building activities, and it's been received well by many of our distributors. And so, we're cautiously optimistic that that's going to drive return. 26:03 We also believe that the reception that we've had in the Philippines has been very positive and despite some hiccups in getting less clearance for our ability to import products, those distributors have stayed with us, they've now all received products and I anticipate that we'll see fairly significant growth in Philippines during the second half of our year.

26:41 Okay, that's helpful. Thank you.

26:44 Thanks, Doug.

26:48 Thank you. Our next question is from Jim Galloway, Private Investor. Please proceed with your question.

26:54 Thank you. It seems like the corporate staff is well organized and qualified. What used to happen in the past, to generate good sales and momentum with a charismatic group of [Pro 10 leaders] [ph], can you give me a recap of how many Pro 10 in the United States we have that are actively working the business and some of the different events that they're doing please?

27:23 Yes. Jim thanks. We do have a group of our top leaders, distributor leaders in the company. I would say that they are all engaged and being engaged as a Pro 10 is different than someone who is new to the business. They are active in mentoring people in their – not only in their organization, but also across the company, many of these individuals are leading trainings on a monthly basis. We call them LifeVantage Academies. They're out on the road with groups of individuals, training them. 28:19 They have – they are very active, [coaching calls] [ph] throughout the week. So, we've got a cohesive group of leaders that care deeply and are passionate about LifeVantage and our products. And what we have to offer the billions of people that haven’t heard about LifeVantage yet.

28:45 Can you quantify that number of Pro 10’s that's beating the bushes out there and [drumming up] [ph] business, please?

28:53 Yes. We have not disclosed that. That's not something that we disclose in on our public records.

28:59 We used to list that all the time.

29:03 Well, we haven't since I have been here. I don't know what happened before, but that's not disclosed in our public records.

29:14 Okay. Well, thank you.

29:15 All right. Thanks Jim.

29:16 Yes. Thank you.

29:19 Thank you. There are no further questions at this time. I would like to turn the floor back over to Steven Fife for any closing comments.

29:27 Thanks Paul, and thanks for joining us today. In closing, I want to take the opportunity to thank all of our employees for their hard work, and dedication, as well as our outstanding team of distributors and loyal customers. We remain confident in our business model and are focused on delivering the LifeVantage products our customers depend on. We hope you are all safe and healthy and look forward to updating you on our next call. Have a great day.

29:59 This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.