Reliv' International, Inc.
Q3 2009 Earnings Call Transcript

Published: 29 Oct 2009

[Operator:]

Good day, ladies and gentlemen and welcome to the third quarter, 2009 Reliv International earnings conference call. My name is Erica and I’ll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) I’d now like to turn the presentation over to the host for today’s call, Mr. Robert Montgomery, Chairman, President and CEO; please proceed sir.

[Robert Montgomery:]

Hello, everyone and welcome to Reliv International’s conference call and which we will report on our results for the third quarter of 2009. I’ll be joined on the call today by Chief Financial Officer, Steve Albright. Before we begin Martin Burks will read our Safe Harbor statement. Go ahead, please Martin.

[Martin Burks:]

Thanks Bob. Statements made in this conference call that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to statements containing words such as may, should, could, would, expect, plan, anticipate, believe, estimate, predict, potential, continue or similar expressions. Factors that can cause actual results to differ are identified in the public filings made by Reliv with the Securities and Exchange Commission. More information on factors that could affect Reliv’s business and financial results are included in its public filings made with the Securities and Exchange Commission, including its Annual Report of Form 10-K and Quarterly Reports on Form 10-Q. Copies of which are available on the company’s website www.reliv.com. With that said, I’ll turn the call back over to Mr. Montgomery.

[Robert Montgomery:]

Thank you, Martin. It may well be that by now you know that our third quarter performance was down compared to last year. Steve will give you the financial results in detail in just a few minutes, but I’d like to tell you that we have seen some glimmers of light, during the last quarter that we hope are going to shine brighter as we move into 2010. For example, the number of new distributors entering the business rose by 5% compared to the same quarter of last year it’s attribute to our distributor base. The total number of orders increased compared to last year as well. Another positive development is that for the first time since 2006, we reported a sequential increase in net sales from the second quarter to the third quarter. Over the past six months, August and September represent our two highest sales months. We think these are positive developments to be sure, but we still face challenges and we know that. Now I’ll turn the call over to Steve Albright who will cover our financial results in detail. Steve.

[Steve Albright:]

Thank you, Bob. Today we reported net sales of $20.9 million for the third quarter of 2009, down from net sales of $23.9 million in the same quarter last year and the United States net sales totaled $18.3 million compared to net sales of $20.8 million in the third quarter of 2008. Net sales outside the United States equaled $2.6 million compared to the $3.0 million in the year ago quarter, a decline of approximately 14%. Excluding foreign currency fluctuations, however, international net sales would have been down about 5%. We reported net income for the quarter of $324,000 or $0.03 per diluted share that compares to net income in the third quarter of last year of $536,000 or $0.04 per diluted share. Sponsoring rose about 5% in the quarter compared to the third quarter of 2008 and the number of orders also increased in this year’s quarter. In comparisons with last year, we continued to see economic conditions hampering our performance. Also, the number of distributors reaching master affiliate in the United States during the third quarter of 2009 was down about 23% from the prior year quarter. As Bob mentioned, we reported several areas of sequential improvement in the third quarter over second quarter of 2009 results. Net sales, for example, rose approximately 4%, that’s the first time we’ve seen sequential increases between those quarters since 2006. Traditionally our first quarter has always been our strongest quarter of the year and we have usually reported sequential increases from the fourth quarter of one year to the first quarter of next. Still, the mid year sequential increase this year is positive. The number of orders in the third quarter is our best order level in the last five quarters. Order’s of the new Relivables line which was introduced in the third quarter was the catalyst that boost of the number of orders in the quarter. In addition, the size of our average order rose slightly in the third quarter over the second quarter of 2009. However, our average order size remains below last year’s levels. Worldwide, our distributor count at the end of the third quarter was 68,300, a small decline of about 230 distributors compared to the number as of September 30, 2008. Our gross margin for the third quarter was 78.7% compared to the third quarter 2008 gross margin of 81.3%. Gross margin for the first nine months of 2009 was 80.2% down from 82.4% for the same period in 2008. Lower plant utilization was one of the key factors in this decline along with slightly higher ingredient costs and revenue mix. Distributor royalties and commissions as a percentage of net sales in the third quarter equaled 37.9% compared to 39.1% in the same quarter of last year. This is a result of changes made in the commission payouts on the higher priced products in our line along with the new Relivables line. SG&A expenses were almost $900,000 less than SG&A expenses in the third quarter of 2008. As a percentage of net sales, however that figure increased 1.1 percentage points to 38.6% of net sales in the third quarter of 2009. Our operating margin was 2.2% from the third quarter down from 4.7% in the third quarter of 2008. The decline in net sales and the increase in cost of goods sold were the main factors in the operating margin decline. For the first three quarters of 2009, net sales totaled $64.7 million compared to $76.1 million in the first three quarters of 2008. Net U.S. sales were off about 13% for the first nine months this year compared to the same period last year. Net sales outside the United States decreased approximately 27%. The foreign net sales would have dropped 13.5% if we were to exclude foreign currency fluctuations. Net income meanwhile equaled $1.7 million in the first nine months of 2009 compared to $2.6 million in the same period last year. Diluted earnings per share in this period were $0.13 cents in 2009 compared to $0.17 in 2008. In the first nine months of 2009, we generated net cash from operations of $4.8 million a rise of approximately 34% over net cash from operations in the first nine months of 2008. We achieved this gain largely by reducing inventories by more than 18% through the first nine months of the year. As of September 30, 2009, we had cash and cash equivalents of $6.4 million. I’ll mention our long term debt before turning the call back to Bob. As previously disclosed, on August 31, we agreed to purchase the distributorship for Michael and Julie Williams for approximately $2 million of which $1.34 million will be paid to the Williams in monthly installments over the next seven years. Combined with the debt taken on in the first quarter to buy out shares, that had previously been held by the Paul and Jane Meyer Family Foundation, our long term debt and outstanding balance on our line of credit as of September 30 totaled approximately $6.4 million. Finally, we announced a reduction in our dividend today from $0.05 to$0.02 per share. We will invest the cost savings from the dividend reduction to strength in our business overall. It’s a tough decision, but we’re confident it’s the right decision. For the year our dividend will be $0.07 rather than the $0.10 per share. Now I’ll turn the call back to Bob.

[Robert Montgomery:]

Thank you, Steve. We held our international conference here in St. Louis in August and it was a great success. We introduced a new line of products that we call Relivables that includes a broader improved skincare line with both men’s and women’s offerings, a new soymilk product, a sunscreen and an all natural sweetener that can replace Sweet’N Low or equal. The Relivables products are healthier and more beneficial alternatives to other similar products that distributors and customers are already using. For distributors, the Relivables products can provide additional compensation and we believe these products may also help Reliv increase the size of the average order. We expect to increase the number of Relivables products in the next four months to six months. At the conference, we also announced an expansion of our direct advantage autoship program to include distributors, along with direct advantage for customers, these autoship programs we think will help boost sales. A number of our senior executives, including myself, now are in the middle of a third Leg of our Financial Freedom Tour. As a part of this tour, we’re holding special events in 15 cities where Reliv distributors are successfully expanding their businesses. At these events we focus on the advantages of the Reliv business opportunity during times when many families are looking for ways to earn additional money or to replace income from lost jobs. Earlier this quarter we announced the opening of business in Indonesia which will be our 15 country. This expands our footprint in Asia where we already are doing business in Malaysia and Philippines, Singapore and Brunei. There are many strong cross-border ties among our distributors and their friends and families and business associates and we’re looking forward to seeing growth in that part of the world. Now we’ll open the call for questions. Operator, may we have your assistance, please?

[Operator:]

We have no questions at this time. I’d now like to turn the call back over to Mr. Montgomery for closing remarks.

[Robert Montgomery:]

Thank you very much for your support of Reliv. We appreciate your interest and we thank you very much. Good day.

[Operator:]

Thank you for your participation in today’s conference and this concludes the presentation. Everyone have a great day.