Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<ul><li>2QFY24 (December) ongoing EPS was $0.10 versus ($0.07) in 2QFY23 and ahead of our $0.04 estimate.</li><li>Ongoing EBITDA was $3.1MM in the quarter, well above the $0.8MM in 2QFY23 and ahead of our $2.5MM estimate.</li><li>EBITDA margins of 6.0% exceeded our 4.6% estimate.</li></ul>

2QFY24 (December) ongoing EPS was $0.10 versus ($0.07) in 2QFY23 and ahead of our $0.04 estimate.Ongoing EBITDA was $3.1MM in the quarter, well above the $0.8MM in 2QFY23 and ahead of our $2.5MM estimate.EBITDA margins of 6.0% exceeded our 4.6% estimate.

<ul><li>Growth resumed for both sales and EPS in 4QFY23, the first time in 16 quarters that both grew simultaneously.</li><li>While sales growth flattened out a bit in the 1QFY24 (September), top-line momentum continued in the US, driven by the success of the LV360 initiatives, and company-wide EBITDA grew 41.1%, driven by a 230- basis-point improvement in margins.</li><li>The resumption of growth could be sustainable, driven by a wide range of company-specific initiatives, most importantly its LV360 initiatives, including a sweeping overhaul of its consultant compensation plan, and robust new product activity.</li></ul>

Growth resumed for both sales and EPS in 4QFY23, the first time in 16 quarters that both grew simultaneously.While sales growth flattened out a bit in the 1QFY24 (September), top-line momentum continued in the US, driven by the success of the LV360 initiatives, and company-wide EBITDA grew 41.1%, driven by a 230- basis-point improvement in margins.The resumption of growth could be sustainable, driven by a wide range of company-specific initiatives, most importantly its LV360 initiatives, including a sweeping overhaul of its consultant compensation plan, and robust new product activity.

LifeVantage Corporation - Believe Recent Return to Growth to Be Sustainable

Thematic (Sector/Industry)

<ul><li>While our potential universe includes a broad range of branded consumer companies across the market capitalization, one corner of that universe that we have done a lot of work on over the years involves those companies utilizing a direct selling business model, which deploys a sales force of independent contractors to get their products in the hands of consumers.</li><li>The top trend we are monitoring for 2025 is the impact that the burgeoning market for GLP-1 drugs has on the weight loss stocks.</li><li>Two pure-play weight- loss names we monitor, MED and WW, have already been severely affected by the disruption caused by the GLP-1 drugs and have been on the defensive in recent years.</li></ul>

While our potential universe includes a broad range of branded consumer companies across the market capitalization, one corner of that universe that we have done a lot of work on over the years involves those companies utilizing a direct selling business model, which deploys a sales force of independent contractors to get their products in the hands of consumers.The top trend we are monitoring for 2025 is the impact that the burgeoning market for GLP-1 drugs has on the weight loss stocks.Two pure-play weight- loss names we monitor, MED and WW, have already been severely affected by the disruption caused by the GLP-1 drugs and have been on the defensive in recent years.

2025 Outlook: Focus Is on Top Line - November 13, 2024

<ul><li>Many of the companies that participated in our recent Consumer Products Virtual Investor Conference have been working hard in righting the ship following the post- pandemic hangover that a lot of consumer names have suffered through.</li><li>There were several new management teams with new strategies, and a lot of talk about inflection points.</li><li>Vera Bradley’s CEO, CFO, and CMO have each been there for less than two years, and the company is about to roll out its Project Restoration strategic initiatives next month, which management believes will take the company into the third <span style="font-size: var(--content-font-size);">major stage of its lifecycle.</span></li></ul>

Many of the companies that participated in our recent Consumer Products Virtual Investor Conference have been working hard in righting the ship following the post- pandemic hangover that a lot of consumer names have suffered through.There were several new management teams with new strategies, and a lot of talk about inflection points.Vera Bradley’s CEO, CFO, and CMO have each been there for less than two years, and the company is about to roll out its Project Restoration strategic initiatives next month, which management believes will take the company into the third major stage of its lifecycle.

Consumer Products Conference Recap - June 20, 2024

<ul><li>Direct selling as a business model has a large global presence.</li><li>According to the World Federation of Direct Selling Associations (WFDSA), approximately 77% of global direct sales were conducted outside the US in 2022.</li><li>Therefore, foreign currency exchange rates can have a significant impact on reported earnings and cash flows for the dollar-based direct selling platforms, such as NUS, HLF, USNA, and LFVN.</li></ul>

Direct selling as a business model has a large global presence.According to the World Federation of Direct Selling Associations (WFDSA), approximately 77% of global direct sales were conducted outside the US in 2022.Therefore, foreign currency exchange rates can have a significant impact on reported earnings and cash flows for the dollar-based direct selling platforms, such as NUS, HLF, USNA, and LFVN.

Direct Sellers - Currency Outlook Remains Mixed

United States

Lifevantage Corporation is a health and nutrition company that develops dietary supplements. The Company produces nutritional products that are intended to combat oxidative stress to support brain, eye, and joint function, as well as skin canine products.

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Lifevantage (LFVN US)

UPDATE NOTE - LifeVantage Corporation

Ongoing EBITDA was $3.1MM in the quarter, well above the $0.8MM in 2QFY23 and ahead of our $2.5MM estimate. EBITDA margins of 6.0% exceeded our...

Water Tower Research

LifeVantage Corporation - Believe Recent Return to Growth to Be Sustainable

The resumption of growth could be sustainable, driven by a wide range of company-specific initiatives, most importantly its LV360 initiatives

Water Tower Research

2025 Outlook: Focus Is on Top Line - November 13, 2024

The top trend we are monitoring for 2025 is the impact that the burgeoning market for GLP-1 drugs has on the weight loss stocks.

Water Tower Research

Consumer Products Conference Recap - June 20, 2024

Many of the companies that participated in our recent Consumer Products Virtual Investor Conference have been working hard in righting the ship...

Water Tower Research

Direct Sellers - Currency Outlook Remains Mixed

According to the World Federation of Direct Selling Associations (WFDSA), approximately 77% of global direct sales were conducted outside the US in...

Water Tower Research

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