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3QFY24 Profit Upside on Modest Sales Shortfall; Raising FY24 EBITDA but Reducing Out-Years

3QFY24 EPS was $0.21 versus a depressed $0.08 in 3QFY23 and above our $0.16 estimate. 3QFY24 EBITDA of $5.1 million beat our $4.6 million estimate and was up sharply from $3.3 million a year ago. EBITDA margin of 10.5% exceeded our 8.7% estimate, driven primarily by lower commissions and incentives as a percentage of sales than we expected (210 bps), as well as lower SG&A (70 bps). This was partially offset by gross margin of 78.9%, which was below our 80.0% estimate and 80.2% in the year-ago quarter. As has been the case in recent quarters, the margin upside was accomplished despite sales falling short of expectations. Sales of $48.2 million, down 10.2% Q/Q, were below our estimate of $52.2 million, down 2.9% Q/Q. Sales in the Americas of $37.2 million, down 5.9% Q/Q, were within $1 million of our $38.1 million estimate. However, Asia-Pacific & Europe sales declined 22.4% Q/Q, which was much more than our expectations for a flat quarter. Some of it was a greater currency hit than expected, particularly in Japan, as well as broad weakness in the Philippines and Australia & New Zealand. While Greater China was a bright spot, returning to sales growth for the first time since 4QFY22, it is now a much smaller factor than it had been before following the closure of its e-commerce business there. For 4QFY24, we are maintaining our EPS estimate of $0.21 versus $0.17 in 4QFY23, up 23.5%. However, we are reducing our sales estimate to $51.0 million, down 6.0% from $54.2 million in 4QFY23. The main change is in our Asia-Pacific & Europe estimate, which we now estimate to be -15.9% in 4QFY24 from +3.4% previously. However, we note that the -15.9% for Asia-Pacific & Europe and -6.0% company-wide estimate for 4QFY24 is a sequential improvement from the -22.4% and -10.2%, respectively, in 3QFY24. The implementation of Phase II of the company’s LV360 initiatives, coupled with the recent Momentum Academies held around the world, are beginning to gain traction. Our 4QFY24 EBITDA estimate is unchanged at $5.6 million versus $4.8 million in 4QFY23, up 15.7%, on a 200-bp expansion in EBITDA margin to 10.9%. Therefore, we are increasing our FY24 EPS estimate to $0.65 from $0.60, essentially flowing the 3QFY24 upside to the full year. We are increasing our EBITDA estimate to $17.7 million from $17.2 million, with the increase coming from the 3QFY24 upside. This is toward the upper end of management’s $16-18 million range. We are reducing our sales estimate to $202.2 million from $209.3 million, with about $4 million coming from the lower reported 3QFY24 and $3 million from our reduced 4QFY24 estimate. This is at the lower end of management’s recently reduced $202-205 million range. For FY25 and FY26, we are maintaining our EPS estimates of $0.70 and $0.80, respectively, but are modestly reducing our EBITDA estimates to $19.3 million and $21.6 million, respectively, from $19.9 million and $22.2 million, respectively. We are also reducing our FY25 sales estimate to +1.8% from +5.3%. For FY26, we estimate sales growth of +5.0% versus +4.8% previously.