LifeVantage (LFVN) Q4 2011 earnings summary

Executive summary

• FY2011 revenue reached $38.9M, up 238% YoY; operating income was $3.7M after a $7.3M operating loss in FY2010.

• Net loss widened to $50.8M, primarily reflecting $48.5M of expense from changes in derivative fair values; cash from operations turned positive.

• Growth was driven by network marketing and Protandim; plans emphasize measured expansion, infrastructure investment, and continued product research.

Financial highlights

• Net sales were $38.919M vs. $11.478M in FY2010; sales increased $27.441M, mainly from U.S. growth and Japan sales.

• Gross profit was $33.002M and gross margin 85%, vs. $9.572M and 83% in FY2010; the FY2011 return-reserve estimate adjustment increased revenue by ~$300K.

• Operating expenses were $29.300M vs. $16.894M, primarily due to higher distributor commissions; operating income was $3.702M vs. a $7.322M loss.

• Net loss was $50.792M vs. $11.048M; diluted loss per share was $0.69 vs. $0.19.

• Q4 FY2011 sales were $15.041M; net loss was $47.186M, including $0.56 loss per share.

Outlook and guidance

• FY2012 sales growth was expected to continue as new customers are added and international markets expand.

• Gross margin was expected to remain in the 83–85% range; sales and marketing costs were expected to rise with sales and remain stable as a percentage of revenue.

• G&A was expected to increase with growth but decline slightly as a percentage of sales; R&D spending was expected to increase with product development.

• Strategic FY2012 infrastructure investments and focus on talent were planned to support expected growth; forecast cash was considered sufficient through June 30, 2012 and the foreseeable future.