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LifeVantage's sales plummet amid accounting reforms

By Hank Schultz

11-May-2017

LifeVantage's sales plummet amid accounting reforms

Network marketing company LifeVantage has been staggered by consecutive quarters of sequential and year-over-year sales declines as it struggles to reform its sales and accounting practices. In its most recent earnings statement sales slid by almost 20%.

LifeVantage sells a variety of dietary supplements, skin care and pet supplements in a number of markets including Asia/Pacific, North America and Europe. The company’s flagship product is called ProTandim, a multi-herb formula based on milk thistle, bacopa, ashwagandha, green tea extract and turmeric extract. In late 2016 an internal issue was raised with how the company was accounting for sales in certain markets that led to the filing of a formal Sarbanes-Oxley whistleblower complaint by an employee. This in turn led to a long delay in the filing of its 2016 full year results that put the company in danger of being delisted from the NASDAQ stock exchange for not complying with financial disclosure rules.

As the company strived to put new accounting procedures in place, the day-to-day business suffered. Third quarter revenue for fiscal 2017 was $45 million, down from $56.2 million in the same period a year previously, which was the best quarter ever for the company. Second quarter revenue was down as well coming in at $48.9 million, a decrease of 5.9% compared to the same period a year prior. Revenue in the Americas decreased 6.1% to $37.6 million in the second quarter. And revenue in Asia Pacific and Europe decreased 5.1% to $11.3 million.

Herbalife hangover

In addition to the accounting failures, which had to do with how sales were documented between distributors and end users, the company also instituted other changes that were apparently motivated by the high-profile problems of MLM giant Herbalife, which last year agreed to pay a $200 million fine to FTC to settle a case.

“We implemented some changes to stay ahead of the evolving regulatory environment that have negatively impacted our sales,said CEO Darren Jensen in an earnings call with analysts.  The call was posted in transcript form on the site seekingalpha.com .

Cancer claims

LifeVantage was also the subject of a recent warning letter from FDA on illegal cancer treatment claims that the company was making on the ProTandim products.  Jensen addressed this issue in the earnings call, alluding to confusion about the proximity of science information on the product’s purported metabolic pathways to the product pages on the website.

“We were obviously surprised to receive this letter and believe we should not have been included in the sweep by the FDA. . . This website does not once mention a product by name or lead to our product or corporate website. We pride ourselves on our science based approach to product development. LifeVantage does not claim that any of our products prevent diagnose, treat or cure cancer or any other disease in any of our marketing materials or labeling. We proactively and consistently engage distinguished FDA experts to ensure our promotional materials and website adheres to FDA regulation. We responded promptly to the FDA and will continue the dialogue,he said.