Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q1, Twentytwenty Nu skin Enterprises earnings Conference call.
This time all participants are in listen only mode. After the speakers presentation don't be question and answer session to I say question. During this session. You wouldn't you press Star went on your telephone. Please be advised that today's conference is being recorded if your cry any further assistance. Please press star Zero I would now like Dan a conference over to your Speaker today Scott Pond.
Vice President Investor Relations. Thank you. Please go ahead Sir.
Thanks, Christine good afternoon, everyone today on the call me or rich weren't Chief Executive Officer, right Pure ski President Mark warns Chief Financial Officer, and Dr., Joe change <unk>, Chief Scientific officer on todays call comments will be made did include some forward looking statements. These statements involve risks.
And uncertainties and actual results may differ materially from those discussed were anticipated. Please refer to todays earnings release, and our SEC filings for a complete discussion of these risks also during the call certain financial numbers, maybe discuss that differ from comparable numbers obtained in our financial statements.
We believe these non-GAAP financial numbers assist in comparing period to period results in a more consistent manner.
Please refer to our Investor page at IR Dot Nu skin dotcom for any required reconciliation of non-GAAP numbers and with that I'll turn the time Warner Rich.
Thank you Scott and good afternoon, everyone. Thank you for taking some time to join with us today.
Last time, we spoke about our rebuilt in early February we mentioned the difficulty of predicting the impact of Corona virus on our business.
Since then what began as a regional outbreak has grown into a global pandemic.
On behalf of the entire team at Nu skin, our Hearts go out to all those impacted and we are grateful for the efforts of healthcare workers first responders and essential workers around the world.
Our part we are diligently working to protect the health and safety of our employees our sales leaders in communities around the world, including significant donations to support Cobot 19 relief efforts.
While nu skin is not immune to a disruption of this magnitude. We are fortunate to have a flexible business model built on empowering people to work remotely.
For example, more than 80% of our revenue globally is already processed online.
We also learned valuable lessons in 2019, when government action significantly restricted meetings and gathering for much of the year in mainland China.
This experience has helped prepare our business and sales representatives to operate in today's reality.
This is demonstrated by the fact that we produce first quarter results above our guidance with revenue of $518 million and earnings per share 36 cents, including a 2% foreign currency headwind.
Our dedicated and resilient sales leaders remained focused on building their businesses and providing top notch service to their customers our customer numbers held steady on a sequential basis, which is notable given the sequential nature and the cyclical nature of our business, where the first quarter typically chose a sequential decline.
While our sales leader numbers were down year over year, primarily due to the decline. During 2019, we're pleased that the seasonal decline in the first quarter was slightly better than typical we also experienced stronger than anticipated demand for our nutrition supplement.
And have seen strong customer activity in the first quarter, giving us optimism for the remainder of this year.
As expected our mainland China business was down for the quarter, we have a deep understanding of the Chinese market and throughout 2019, we implemented creative strategies to improve customer sentiment and provide digital tools to assist in training and developing the sales network.
On the strength of our institutional knowledge the power of our product from the easing of that pandemic related restrictions in China. We are seeing gradual signs of improvement in the second quarter and expect us to continue throughout the balance of the year.
In other markets were proud of the way our sales leaders have stepped up to the challenge.
While cobot 19 had more impact in the Americas, and the Mam markets and anticipated from the time, we gave our previous guidance.
Sequentially, the global business held stable with improving customer and sales leader activity.
Additionally, with strong product launches slated for the back half of 2020, we expect these markets to also returned to growth by the fourth quarter.
Our manufacturing segment performed well given the circumstances.
The segment declined modestly largely due to supply chain disruptions on certain ingredients and packaging materials from third party suppliers caused by pandemic related shutdowns.
Our strategic investment in these businesses has enabled our nu skin products supply chain to be stable at a time when others are being significantly disrupted.
During the quarter, we invested in additional equipment and capacity, which will add to our manufacturing capabilities and growth opportunities later in this year.
Finally, our business generated solid cash from operations in Q1, and the strength of our balance sheet enabled us to return value to our shareholders by increasing our dividend for the 19th straight here and repurchasing shares.
While no one can be certain of the severity or duration of this global Koeppen 19 impact we have a strong financial position and the business model that benefits our customers sales leaders and employees, while prioritizing their health and safety.
Overall based on the trends we are seeing in Q1 and through April we continue to feel confident about the future of our business and are executing on our plans, which we believe will generate growth in the second half of this year.
We will continue to invest in customer and sales leader initiative as well as our strategic manufacturing capabilities and see a great future ahead.
I will now turn the call over to Ryan to provide more detail around our global business and our product launch plan Ryan. Thanks, Rich good afternoon, everyone.
The World is certainly a different place since our last earnings call.
But I'm so proud of how our leaders and employees around the world of responded in this crisis to serve the needs of our new skin family in the broader community.
While this global pandemic is impacted business everywhere, what hasn't changed as a commitment to our mission and vision, our long term strategy and our optimism about the future we're committed to empowering our leaders around the world with tools they need to serve their customers with innovative products, while building their digitally and socially enabled businesses.
We've built a resilient business at Nu skin, which has historically performed well in times of economic uncertainty and people are actively looking for ways to supplement their income.
Our visit our digital first transformation that began a few years ago is proving beneficial, particularly as Kirk as current circumstances limit face to face interactions, we feel fortunate the leaders and many of our markets are already accustomed to conducting business remotely. It's what they have done for many years and that's an area, where we've continued to invest.
Heavily what we learn from our experiences in 2019 led to the implementation of better technologies and tools to educate train and empower our Salesforce for instance in China, Our leadership education and training is now operating fully online through broadcast with tens of thousands of use each month in the Americas southeast.
Asia and other geographies leaders conduct virtual seminars to promote our products to customers and train their teams.
As we look to our Q1 results globally I want to call out a few specific markets.
While our mainland China business was down over previous year. It performed slightly better than anticipated. We're encouraged to see the environment in China is beginning to normalize as business opens back up and people return to work over the past year, our leaders have been leaning learning how to conduct business digitally and adapting to a new reality.
We're in person meetings are restricted we continue to invest the digital tools to enable this migration with the new online training platform alert released in the first quarter. We've also implemented more digital product expose add promotions with these additional digital capabilities, we are reducing our reliance on in person meetings.
In general the rest of our markets performed largely inline with expectations following the cobot outbreak.
As rich mentioned, our Americas in EMEA markets were hit harder than expected by Copel 19, However, we're seeing improving trends benefiting from increasing levels of social sharing activities.
While South Korea performed mostly in line with our expectations in Q1, we anticipate the effects of cobot 19 could potentially be more impactful in the second quarter Southeast Asia performed inline with expectations with improvements in Indonesia, Malaysia and Vietnam.
While this region performed relatively well in the first quarter, we anticipate the significant closures from Koeppen 19 will impact our second quarter, which is reflected in our guidance.
We continue to see stabilizing in Japan, where revenue remained relatively flat. Despite government mandated virus restrictions that are expected to remain in place a bit longer and in Hong Kong and Taiwan. They performed inline with expectations and we're optimistic that these markets will improve as the world stabilizes.
All factors considered we remain optimistic that our business while improved throughout the year and returned to growth in the fourth quarter in line with forecast.
Regarding our long term strategy strategy and plans for 2020, we remain focused on executing our priorities as we operate our business in this evolving environment, Let me provide some updates since our last call.
From a technology perspective, we were focused on enhancing customer experiences across all of our digital touch points as rich mentioned with more than 80% of our global revenue now coming through online transactions. It's imperative that we continue to build on the progress we've made with our digital business transformation next we plan to launch a new deal.
Digital tool called Vera, which leverages artificial intelligence and machine learning to provide personalized product recommendations together with our upcoming product previews in Q4 speaking of products, while the pad them. It for precluded us from holding our annual seemingly trip we help we held a global broadcast instead.
To introduce our new product innovations and align our leadership around our global launch plan, we share the details of upcoming product introductions, including Ageloc boost which will be our latest addition to our number one at home beauty device systems brand.
This proprietary micro current device system provides customers with an on the go treatment that promotes youthful looking skin. We also announced a new innovative bio adaptive skincare line under the neutral Central's Brad These products made with worry free clean ingredients will help skin adapt to everyday environmental stuff.
Messrs like UBI, and Blue light raise and pollution.
These two products will follow our proven launch process similar to how luma Spa was introduced with a global previewed Q4 and local market launches throughout the first half of 2021.
Finally, with our empowering programs, we've introduced new leadership incentives to spur growth as we build towards the launch of our new products. We believe that we'll see increased interest in our opportunity as people around the world are looking for supplemental income opportunities that they could do from Paul using digital tools and social media.
Net with others. We also believe this increased interest in our opportunity and new product launches will help our business, but if economic issues continue to worsen our salesforce may have some difficulty selling products and finding new customers.
So in summary, we remain confident in our long term strategy and are optimistic that our business will continue to improve as we move forward.
Towards our 2020 product previews and as the broader landscape evolves, our business strategy and experienced global team give us confidence that we can expand our business and drive innovation to help us returned to growth towards the end of this year and with that I'll turn the call over to Mark. Thanks, Ryan I will walk through our financial results for the quarter and Pratt.
Provide Q2 and full year 2020 guidance.
As a reminder, you can find additional financial information in our release and on our supplemental slides and tables on the Investor section of our website.
First quarter revenue and earnings per share came in above the top end of our guidance range Q1 revenue was $518 million and was negatively impacted 2% or approximately $14 million by unfavorable foreign currency fluctuations earn.
As per share with 36 cents.
Gross margin for the quarter was 75.7% compared to 76.5% in the prior year quarter. The difference comes from our manufacturing segment, making up a larger percentage of revenue.
Fixed cost overhead on lower revenue and negative FX impact.
The new skin gross margin was 78.1% compared to 78.7% in the prior year.
Selling expense as a percent of revenue was 39.8% compared to 40% in the prior year selling expense for the new skin business was flat at 42%.
Our efforts to actively manage our expenses resulted in a 9 million dollar reduction in general and administrative expenses versus the prior year quarter.
As a percent of revenue it was 28.9% compared to 25.4% in the prior year due to the lower revenue base.
To ensure the safety of out of our employees and sales leaders, we incurred some additional assets DNA expenses related to cancellation of sales trip the meetings security protective equipment workplace cleaning and modifications and online tools. These additional costs were largely offset by.
Our proactive expense management efforts.
The other income expense line reflects a 6.2 million dollar expense compared to 2.8 million in the prior year.
The increase is largely attributable to higher foreign currency losses.
During the quarter, we paid $20.7 million in dividends and repurchased $60.9 million of our stock with 409 million remaining under authorization.
Our tax rate for the quarter was 35.1%.
During the quarter, we generated $69 million and cash from operations increased our cash position on our balance sheet and have $285 million available on the revolver.
We also continue to actively manage our inventory and further reduced it by $18 million in the quarter.
Our financial position is strong and we are confident in our ability to maintain adequate liquidity and flexibility to successfully navigate the current prices pursue our strategic plans and return value to our shareholders.
As rich noted we anticipate our results will be impacted due to the ongoing outbreak of the Corona virus.
We also continue to see the effect the effects of a strengthening us dollar with FX impact more than 1% higher than we had originally estimated.
In our original Twentytwenty annual guidance.
Due to that larger estimated impact of FX, we are making a slight adjustment to the high end of our annual revenue range and our projected revenue is now 2.17 to 2.26 billion with earnings per share of $2.05 to $2.35.
Our guidance assumes a negative foreign currency impact of approximately 2% to 3% and a tax rate of 31% to 37%.
Our second quarter revenue guidance is 522 $550 million with earnings per share of 42 to 52 cents. This.
This assumes a negative foreign currency impact of 3% to 4% and a tax rate of 33% to 37%.
With that we will now turn the call back to the operator for Q in May.
Christy are you there.
Yes, ladies and gentlemen at this time, if you would like to ask an audio question. Please press Star then the number one.
Our first question comes from Stephanie Mrs King with Jefferies.
Hi, Thank you good afternoon, everyone I wanted to unpack a couple of things first just with respect to your product launch in the fourth quarter can you just give us some insight everything on track with that launch slips been communicated so far to your partners in the field and how should we think through that launch in relative maybe.
Prior launches that you've done.
Yes, Thats, great first first and foremost yes, everything is on track for our Ageloc boost and our neutral central's launches for the fourth quarter. The launches will be staggered. So that so the global preview will take place in the fourth quarter for Ageloc boost for most of our market.
There are a couple of markets, including the us that will lead with neutral essential and then the follow up product launches will happen in the first half of of 2021.
As far as how to think about those we are utilizing our global launch process is very similar to how we launched luma Spa for instance, which was around a 100 million dollar loss of course, the businesses in a bit of a different state, but we are kind of looking towards that direction as well. So we will follow that global process.
Yes, and and both products will will launch at that point.
Okay, that's great and I think as I recall, Mark you would limit the number of units or the volume.
In the launch process should we think again similar to that Loomis box grants will approach it in a similar way.
Yes, I think that that's a great memory instead of when we launched limit spots, we were careful to make sure that inventory wasnt stacked up and our distributors around the world into they had the ability to sell through that product very quickly. So that it could be generally available shortly after the in the quarters. Following that initial launch we will will follow that same process with the ageloc.
Boost product.
Okay, Great and then another question on just the changing conditions.
And what you're learning about the Digitization of your experiences, particularly your large scale experiences like your conferences can you just extrapolate a little bit on some of the learning by April to widen out the net participation how should we think about the balance of the year and then maybe.
Implied into that for years in terms of opportunities to really rethink our reimagine at conferences and events structure.
Yeah. This has been a really good learning for us Def and.
It's started really last year I came because we were not allowed to have in person meetings in China. So we began putting in place digital tools to help do trainings and allow our sales leaders to carry on their business has been helpful. As we rolled into the beginning of this year clearly our event structure on how we motivated.
Incentivized sales leaders will need to adjust a little bit going forward, depending on how this continues to transpire, but our salesforce has responded very well, we probably had as much or better communication I would say today than we have in the past as we've employed technology to to communicate more frequently.
And regularly with our sales force around the World and Ryan what would you add to that yes, no no I think to that extent all of our all of our live events that we hold you'll recall that every other year, we do a global live abandoned than on the off years, we do market live events.
At the individual market level, so all of those meetings.
Have been Rechannel.
Digital first and so they're digitally broadcast so to riches point, we've really double down on digital based communication incentive trip wide. Many have been have really been postponed.
And so thats how were operating in the upfront.
Okay, Great and then let Lance if you could just talk a little bit about the two major division the Buda division versus the.
The next question and Wellness Division can you talk about some of the patterns that you saw throughout the quarter, maybe what you're seeing quarter to date.
Separating the two and maybe also share a little bit about your customer acquisition, if you're seeing new customers to the brand platform in the.
Environment that we're in right now.
Yes, I actually debated today, putting that in the script last minute, but I thought that might throw everything up yeah personal care and nutrition divisions continue to perform generally in line with the historic pattern, we've seen a minor uptick in our nutritional.
Product sales.
More recently related to the body shaping predominantly our TR 90 system has done really well.
And so thats kind of the shape. The shift there were also seeing some movements in social sharing products that were that we're seeing kind of in higher volume sunless Tanners, R. Loomis spas doing well as well.
On that front, so, but thats the kind of a brief product overview as far as customer acquisition goes we've been very focused for the last really three years on.
Ensuring that we're taking a customer obsessed approach to how we manage our business. We've been very focused on improving our relationship management capability very focused on improving our digital experiences across our nu skin dot com and our China platform and very focused on product promotion efforts relate.
Good to providing greater value to customers and those those efforts continue around the world China continues to do very well as you saw.
And the customer numbers generally and so.
That will remain a focus of ours moving forward.
Okay, great. Thanks, guys for that sort of color appreciate it.
Thanks.
Your next question is from the line assays that Ellingwood Deutsche Bank.
Yes, hi.
So I wanted to talk a little bit just about what you're seeing regionally across the different markets in.
In the month April and sort of what you're embedding as you look ahead to the rest of the are so I think when we had previously talk to you were anticipating.
I think a 20% to 25% decline in in China.
So I'm curious is that how are you thinking about China, because it seems like maybe China has come back a little bit earlier are better than your expectations.
So just some of what are some of the puts and takes by region. As you look out to the rest of they are.
Thank you for that question Pfizer just from a high level.
We saw a really good customer acquisition as Ryan mentioned in first quarter, specifically, so and actual uptick in the number of new customers coming into the business in Q1 versus Q4, which is rare usually we see that decline a little bit and then we've seen that strength continue into April which is very encouraging to us we havent.
Adjusted our annual modeling for China, we continue to look at that as the down 20% to 25%, although it strengthened throughout the year as we go throughout the year driven by a cost as strong customer base, which add to it towards the end of the year with the new product launch, but anticipate the sales leaders to bill and I would say thats fairly consistent region.
To region.
We will see fairly strong customer count I think here in the first half of the year with sales leader starting to grow in the second half and ready for a strong product launch in the fourth quarter of this year.
Okay. Thank you so much.
Your next question comes line of deadline with line research.
Yes, hi, good afternoon everybody.
Im interested in how you're thinking has changed over these last you know for eight weeks, you've got the two product lines and you've been teasing the PD device for some time, sorry, I understand following through with that.
But it seems like any environment that we're heading into a high ticket beauty I may not be quite as attractive as nutritional supplement item. So how quickly can you pivot from this focus on beauty to focusing on nutrition for new products.
Well, we have actually really good products in both lines in the idea that you attack health and wellness Invuity from the inside in the outside harmonize is really good together, we have good momentum around our personal care line, which is why we want to take advantage of that with this new device.
That we think we'll play really really well.
Together with that we have a line of Nutra Sentinels, which again, we think is strong.
We continue to put focus behind the nutritional product line. So we don't have a big launch this year, our focus next year will actually be on the discussion.
Line and we have some good strong initiatives there. So naturally we've seen some uptick in our nutritional product sales as Ryan mentioned with.
Interest in TR 90, and other supplements that we're selling we anticipate that to continue to be strong, but our big product launches. This year, we'll focus on the momentum we've been gaining in that in the personal care area and Doug I would maybe just add.
When you talked about are asked about the pivoting one thing rich mentioned previously is with the us manufacturing capability that we now have we have been able to pivot.
Very quickly in terms of.
Supplying the increased demand across this portfolio of products. So so thats has something to highlight that I think it's been a real strength over the course of this four to eight week period that you were asking about.
Okay. Thank you.
And conduct.
Next question comes from Olivia Tong with Bank of America.
Great. Thanks, good afternoon.
I was hoping you could give a little bit more detail on the guidance first.
It's a little bit different since a lot of companies have pulled their guide.
To see that to me anticipate that you kept it so just talk a little bit about your decision, making there and then in terms of whats underlying bear.
Can you talk about asking topics first what you're assuming in terms of the macro environment.
When various lockdowns lift across.
Various regions.
Wedding, you're assuming anything in terms of potential second wave in the winter and then just broadly.
What typically happens during recessionary periods.
And with your portfolio. Thank you.
All good questions I hope I can hit on all of them and Mark can add to death.
Thank you Olivia.
It's interesting because I've been here and there is the CFO or CEO for a number of these ups and downs and generally.
We've been able to lean in on time, where.
There's been an economic slowdown and generally we've had really strong product launches during those periods of time. So as I look at this year, specifically I believe we have a very very strong product launch in the back half of the year, which gives us confidence in our ability to work through.
Some of the headwinds that we find from an economic standpoint, what do we built into the guidance and why did we continued to provided this was a good discussion that we've we've had internally.
We believe that our modeling has held very consistent as we've come into this year, which gives us confidence and then obviously, we see April come in which was solid.
Gives us confidence to be able to go out and continue to give confidence to shareholders that business is performing well that our cash flows coming in strong and that we feel like we can continue to give some level of guidance. We obviously have given a larger range. We did tighten that up just a little bit here as we came into this.
As we turn it into the second quarter, but overall, we see the business trending well and we also see the strength of product launch in the fourth quarter, which has.
Important that we give that guidance we fill so.
We anticipate a second wave that's hard to no, but I mean, what we do know is that a world probably won't be the same as it and in the past. So we have to continue to lean in our digital efforts. After do everything we can to make sure we're customer focused and obsessed and providing tools, which make it very easy from.
For our sales leaders and customers to be able to get our product.
Regardless of the exterior situation that we find ourselves and so we'll work towards that and hopefully be able to absorb some of the shock that come along the path. They don't the only thing I would add at least is rich mentioned the performance of Q1 performed right in line with how we had modeled in our forecast for Q2 came in right inline with our mom.
As it did the rest of the year with only one exception and I would just be the continued strengthening of the U.S. dollar on we continued to see FX headwind and that really put pressure on the high end of our annual guidance. Since we made a slight adjustment there for the slightly more than one it 1% increase in FX headwind that we'll see throughout the rest of the year.
That's helpful. Thank you.
I guess.
Two things first.
Just in terms of the way that you guys and typically run campaigns and so lot of events.
You talked about the trip says promotional trips and things like that.
Going forward, how are you thinking about how you intend to buys.
Leaders.
Has there been any change in terms of leader commissions.
And then on China.
Similar question to previous.
Analysts, but.
No the numbers were a little bit better than we had anticipated and.
Usually your sales force by and large using the March quarter.
Around Chinese new year Grace month anyway, So does that in any way help shield you from some of that over 19 related downturn or were there other factors and actually played into your China performance in Q1.
Yes, yes, no both great question. So first on the incentives and leader commissions, Yeah, you're absolutely right at key part of our our business is focused on incentivizing through private providing those experiences we've actually been exploring for quite some time in the experience economy.
Alternative mediums to motivate our salesforce trips certainly as it has been a key focus as you know the tourist industries.
Really struggling at this time, but but we do continue to explore opportunities for all providing alternative types of experiences we're doing some things in a in our EMEA region that explore smaller trips that are still motivating and incentivizing. So we're looking at that as well as combining some experiences with with.
Beds and so we'll continue to explore their there hasn't really been a change in terms of leader commissions as Mark reported were really paying out at the same level. We are really focused on ensuring that every dollars value is maximizing the commissioning. So so no changes to the overall pay.
Levels as far as China goes in and she'll, whether or not Q1 was shielded in part because of the general slowness from a seasonal perspective, and and and the like I mean, I do think that what we saw certainly over the Chinese new year, we see our business traditionally slow.
Down and Thats and that's is.
Thats, probably had maybe so some effect I think the bigger issue or the bigger benefit for US is really again leaning in on these digital platforms.
Our leaders are adjusting to how to build digital first and they're really getting used to more of the new normal where in person meetings or not.
As heavily relied upon for trading motivating educating and so thats to me that would be maybe the bigger benefit that we saw.
Got it thanks, so much.
And Kevin.
Your next question is from the line of Mark actually Chen with Stifel.
Yes, thanks, and good afternoon, everyone.
Mark.
I guess.
A few questions. One just building on the last question maybe talk about.
The progression of sales trends in China through the quarter and into April I guess did you.
See any.
Benefited as people stayed at home and the economy Chardan has.
How about trends progressed as the economy has gradually reopen through.
April and then too.
May and then.
Not really related but related to China.
Sales leaders declines continue customers are better, but I guess, which should we be focused on at this point in terms of what you think we should be paying attention to drive for would be correlated to growth.
Yes, thanks, Mark as it relates to our China numbers, specifically, we did see in the first quarter strong customer intake, which is important but we really felt throughout last year the impact of not being able to have meetings and that the training impact that lack of training really hit our sales leader numbers.
So were down substantially from where we were a year ago and that really is the primary focus as we come into our product launch. This end of this year is to build that sales leader number back it always starts with a customer we start by increasing the number of customers coming in and then having them start to proceed through the.
Channel to become sales leaders for those who choose to so and I think that basically applies to the rest of the world. We see strong customer numbers coming that needs to then start to translate into sales leader numbers, which we believe will really start to hit later, probably Q3, when we see real growth in.
Sales leader numbers coming into the product launch so no doubt in order to have a real successful product launch later on in the year, we've got to see those numbers Bill that's where our focus is we'd like to for signs we're seeing a strong customer numbers and then we've got to build from that to motivate and incentive salesforce to continue to develop.
So was there any change as far as progression of trends in China in April in early may versus what you saw through the quarter.
I wouldn't say anything significant change, we just continued strength.
You know as we came into April as well, particularly we saw a nice uptick with China was steady I would say with the trends we saw through the first quarter, we thought fairly strong uptick in a manner and they use the Americas market.
They continue to lean in on social selling so those trends were strong I think we'll see southeast Asia and.
Possibly Japan being impacted a little bit more by Covance 19, as we came through April on the shutdowns for more significant there it's interesting because it's kind of.
The global business started with shutdowns and in China, and Korea adult enrolled into in May and into the us as those markets are now coming out of it we see the shutdowns in southeast Asia in Japan, and everybody. Following a fairly similar trend of about Q2 to two and a half months of shutdown and.
You start getting people back to work. So the key thing for US I think has to continue to lean into our digital tools and allow people to continue to do the business.
Whether they're doing it from home or whether they're able to get out more and we like what we sign April that gave us confidence that continue to give numbers throughout the balance of the year.
Okay, Great just lastly.
What is subscription revenue as a percentage of sales and then maybe for mark on.
Accrued expenses, so how does the ability to pay out or what Ryan was talking about in terms of thinking about different.
Potential payouts affect the timing of that meeting does that potentially go it's more of a longer term so from a balance sheet pay our cash outflow do does that change at any point.
Yes. Thanks for that question to subscription continues to be around 60% of total sales and in terms of the balance sheet Theres nothing.
Out of the ordinary there the one thing that with a little different sometimes we'll have a real strong December so there's a high commission payment that happens in Q1, which sometimes causes our cash from operations to dip in the first quarter because December was not.
Real strong or out of the ordinary it allowed our Q1 to look more like a regular quarter and $69 million of cash from operations was a real strong number in the first quarter.
There's nothing that are concerned with our are accrued expenses in any way they haven't fluctuated.
Either up or down significantly over the last several quarters.
Got it okay. Thank you.
Thank you Mark.
Your next question comes on Wendy Nicholson with Citi.
Hi.
A couple of questions.
First is on the $9 million park and the going to spend then.
How much flexibility you have to conclude or card. If there are increased expenses.
I'm going to covert 19 structurally from higher expenses in terms of cleaning and things like that in your Picardy, how much more flexibility you have to offset that from cost cutting.
Yes, when you that's a great question.
The nice thing is that 9 million dollar reduction in Gionee spend.
Year over year, and $10 million quarter over quarter.
Is sustainable because that did include increased expenses as we mentioned for security cleaning our facilities our manufacturing plants.
And also covering increased cost from canceled success trips and travel and such and.
I believe this is an area where the company. We're looking at very seriously how can we continue to reduce our overhead and manage our expenses well and theres a lot of commitment to continue to be careful with spend.
And I think Thats a process, we started several years ago and we're starting to see we're seeing the benefits of it now and when the I'd just add it may be consistent with other companies that you follow but it's a we've learned a lot by being forced to learn a lot for example call centers that operate remotely now.
Deals working for their homes less travel some of those things we believe can be sustainable going forward longer term as wells, we've learned new way to operate it can increase some of the efficiencies that we see.
Got it terrific on on the topline forecast on can you clarify I don't know.
Your practice to to get as granular, but can you clarify how much you're embedding in that part of your forecast from the fourth quarter launch I know most of it will come in 2021, but I'm just trying to get sort of.
Order of magnitude for how meaningful those launches are how important it is for those to get off to a great start in the fourth quarter in order for you to hit the full year number.
A scenario, where if the economic environment remains really pressured and challenging for a while you might say in a lot better for us to push this whole thing into 2021 or is there the risk of upsetting.
Some of your distributors that that's just wouldn't be worth it and you're going to go ahead in the fourth quarter no matter what.
Yeah. That's a great question, so I'll start with the fourth quarter. So we don't give our guidance out by quarter, but we'll give you some proxy numbers the best proxy to understand how we're thinking of the launch of Ageloc boost would be how duma spot launched and we're starting from a lower basin sales leaders then we.
Were when we launched luma spots that we have to couch that to some effect, we generated a net $100 million incremental with the preview and introduction of lumen spot and so you would model something within that range again understanding that we're starting from a little bit lower base from sales leaders.
I think generally I mean, just add one thing there also the product launch slated for the fourth quarter is something we start to build towards well in advance of that so as Ryan mentioned, we've done trainings were.
Already working with the sales force.
Qualify to be able to participate in pre launch activity and so there's a lot of momentum that we build towards and frankly, it would be critical for us to keep that in order to keep the momentum going I go back to 2008 nine when we launched some ageloc product in it in a difficult environment and it.
It was really the strength of those launches that kept the salesforce really engaged in moving forward. So yes, we will hold onto those dates that we have no plans of pushing it back or or delaying and we see that is.
Real opportunity I would say to work our way through tough economic times.
Terrific and then my very last question. It was great to see you buy back stock in the quarter, because not that many companies having the flexibility to do that right now so good for you for that.
But in terms of the guidance for the full year on the earnings front.
Can you quantify how much more buyback youre expecting to do.
Maybe in totality for the year. Thanks.
Thank you Wendy typically we don't forecast any of the planned repurchases into our numbers. So we havent felt anything of additional purchases into those numbers, but continue to see our priority around cash from operations being first driving the business second making sure we're paying our debt.
And our dividend and then thirdly looking for opportunities to drive shareholder value and we felt like if it's a great opportunity for us to be in the market and use our cash to generate some hopeful good shareholder value later on thank you for that question.
Great. Thanks for all the color.
You bet.
Yeah.
Your next question comes from the Linda Bolton Weiser with D.A. Davidson.
Hi, I'm I was wondering if you could talk a little bit more about about China in the sense of I believe last year, when you were having difficulties.
There was so discussion of the media coverage of our media articles about the direct selling industry in China that was that you felt was impacting demand for your products could you could you talk about if that has sort of cleared away and what the tone is like there now and then can you also just clarify.
Apart from co bid what is the situation there with meetings are are the our meetings of size I'm still constrained by the government or what is what exactly is the situation apart apart from covert impacts. Thanks.
Yes, sure no great great questions on China, So so first and foremost on the media coverage, yes, I mean, the the environment is stabilizing around.
Direct selling the government issued their outcomes.
In the fall of last year and continue to pursue their their actions according to.
The industry efforts, so we have not seen.
A resurgence of any of that.
But at this point of time regarding meetings and specific to co bid or meeting restrictions from last year you know, it's certainly the government.
Continues to be.
Somewhat leary or hesitant to open up meetings too much there are small relatively small meetings being being approved in China. Our view is a company is is that we really continue to lean into this digital first approach.
The decrease continuously on and on a go forward basis that the need for in person meeting. So that we are not as reliable as we were in the past and so that effort continues we anticipate that because of Covidien and ER and just the general apprehensive over large meetings in China that we shouldn't.
Rely on that and so we'll continue to lean in on digital.
Thanks, Dan So I think that when you had talked on the last call about the outlook for for this year that you were talking about a gross margin in the 75% to 76% range is that is that still kind of what what you would say.
Yes, I think Q1 plate inside of that range and from what we're seeing that for Q2 model on the rest of the here, we expect to be still in that range.
Okay, and then finally I think you had mentioned some shortage of certain input our supplies or something related to your manufacturing operations can you just give a little more color on what that was.
It has that been resolved thanks.
Yes. Thank you are manufacturers have actually performed really well trying to work through a number of disruptions that came from not being able to get.
An ingredient here or a packaging item, there, which didnt permit them to get some orders shipped out to some of their customers during the quarter.
That is coming back in fact in April we saw things improve there as the supply chain sort of came back obviously, there's products and packaging, particularly that comes out of China and that was the primary impact I would think Q1, but we are seeing that improve and wouldn't anticipate that it really impact Q2 or go.
Going forward it seems like things really stabilized there.
Okay. Thank you very much.
Thank you and it looks like Thats all of our questions. We really do appreciate all of you joining us on the call today and as you can sense. We really are optimistic about returning to growth. This year based on the plans that we have in place.
So while the world faces a great deal a fair and uncertainty it is gratifying to see so many people pulling together in the United effort to help one another and we're hopeful that the lessons. We're learning now we'll make each of us a little bit better a little more thoughtful little more grateful stay healthy everyone and we look forward to connecting with you again on our next call.
Ladies and gentlemen, thank you for participating you may now disconnect.
[music].
[music].
[music].
[music].