Q3 2020 NU Skin Enterprises Inc Earnings Call
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[noise], ladies and gentlemen, thank you for standing by welcome to the Nu skin Enterprises third quarter 2020 earnings conference call.
At this time all participant lines are in listen only mode. After.
And speakers presentation, there will be a question answer session, who asked the question during the session you need to press star one of your telephone.
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I'd now like to hand, the consequent your speaker today, Scott Pond head of Investor Relations. Thank you. Please go ahead Sir.
Thanks, Shannon and good afternoon, everyone today on the call with me or Rich, what Chief Executive Officer, Ryan appear ski President and Mark Schwartz Chief Financial Officer on today's call comments will be made that include forward looking statements. These statements involve risks and uncertainties and actual results may differ materially from those discussed.
Anticipated.
Please refer to today's earnings release, and our SEC filings for a complete discussion of these risks also during the call certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP financial numbers assisting comparing period to period results. Please refer to our investor.
Page at IR Dot Nu skin dot com for any required reconciliation of non-GAAP numbers and I'll now turn the time over to rich. Thank you Scott and good afternoon, everyone. Thank you very much for joining us today amid the global uncertainty at this pandemic. We're so pleased with the stability and the strength of our business driven by our global sales.
For some customer base.
Our thoughts and appreciation continued to turn to first responders and all those who are giving their all to help us through these challenging times and we recognize our own first responders those in our supply chain, our manufacturing and support groups, who are working around the clock to ensure our customers have product and our sales leaders have the support they need.
The third quarter was truly a remarkable quarter for our business generally we see a seasonal decline due to vacation during summer months in many of our markets.
Rather this year, we improved sequentially, resulting in 19% year over year revenue growth and 37% EPS growth in the quarter. These results were driven by customer growth of 28% and sales leader improvement of 12% both enhanced by our socially enabled business model and the investments we have made and becoming a.
Digital focused company apart.
A particular note is the sequential improvement in sales leaders as we prepare for our new product introductions here in this fourth quarter.
Our results are benefiting from an environment, where individuals around the world are working from home and shopping more online.
These results are also being driven by our focus to grow customers through our investments in three key areas, which we refer to as our threepi strategy platforms products and programs.
First our platform as our digital technologies that empower our sales leaders in affiliates to accelerate customer acquisition and to increase their productivity SEC.
Second is our healthy pipeline of innovative products and we are encouraged with early results and the new products. We are launching this year and third we continue to provide an unrivaled opportunity for aspiring entrepreneurs to build that business with our unique and flexible compensation programs, Brian will speak to each of these priorities.
Ladies in more detail.
The effective execution of our strategy is spurring significant growth in our west region, consisting of the Americas, EMEA and Asia Pacific markets, where social selling has been more widely adopted by our salesforce.
Mainland China continues to stabilize with sequentially improving revenue customers and sales leaders and we remain on track for a return to year over year growth in China in the fourth quarter.
Each of our other regions reported modest growth I'm very encouraged with the improving geographic balance of our global business.
Our manufacturing businesses also performed well reporting 34% revenue growth in the quarter and we're continuing to see strong demand from many customers.
Our manufacturers are also providing significant benefits to the new skin business as we continue to work through the supply challenges associated with COVID-19.
We see tremendous potential in this segment moving forward.
We continue to lean and also on our sustainability efforts. This year, we've been particularly focused on our top 20 product analyzing their environmental impact and making sustainable changes that are measurable for example, our newly introduced neutral Centrals line was awarded several global Green Beauty awards for its.
Cleaner formulas and more eco friendly packaging.
And this is just the beginning of some exciting news and new ways. We are improving the impact we have on the planet.
We generated very strong cash from operations in the quarter and continued to strengthen our balance sheet, putting us in a strong position to create shareholder value going forward give.
Given the trends in customer and sales leader growth ahead of our product introductions in Q4.
We are again, raising our 2020 revenue and EPS guidance.
Overall, we are optimistic that our products will continue to be in strong demand as well the opportunity we provide for supplemental income to pump entrepreneurs all over the world.
We are confident in our strategy, we're optimistic about the future and we believe the momentum we are generating now will help set us up for an exciting 2021.
With that overview I'll turn the call over to Ryan Thanks, Rich good afternoon, everyone.
Over the past three years, we've been executing our strategy to transform nu skin to become the world's leading opportunity platform direct selling which has traditionally relied heavily on face to face word of mouth marketing is currently being impacted by the convergence of social commerce, Influencer and affiliate marketing and the growing gig.
Economy. These macroeconomic shifts to also disrupted traditional advertising and retail business practices in favor of socially enabled and direct to consumer models. Most recently due to Covance Knight team the migration to remote work and online shopping has further accelerated disruption across all industries.
These shifts in the way people live and work present us with a unique opportunity to amplify the strength of our person to person sales model as we evolve to become a digital first socially enabled affiliate opportunity platform. The power of word of mouth marketing has always been at the backbone of our business and together with.
These converging macro trends, we are seeing a new horizon of growth for new skin as our affiliates grow their businesses online at that at an accelerated pace.
To enable this transformation and empower our leaders affiliate and customers. We continue to make significant strategic investments in our digital platform, our innovative product portfolio and our empowerment programs. These investments are crucial to ensuring the long term growth of new skin and I'd like to provide you with a key.
Quick update on each of them.
First regarding our digital platform as we transition to the cloud we have expanded our ability to access a host of micro services that are now enabling us to provide an enhanced online customer experience and digital tools to empower our affiliate some customers. These tools are designed to enable affiliates to focus on attracting.
New customers and developing their teams we're in the process of rolling out Vera our personal recommendation App and my site, our personal offer app, which empower our affiliates to build their businesses socially today approximately 90% of our revenue flows through these did through our digital properties.
Second we continue to refine our approach to product innovation as we seek to provide customers with products that help them look and feel their best we're excited about our latest beauty device system, ageloc boost which generated $30 million during the third quarter as we accelerated some early top leader previews. It a few of our markets.
Yes.
The us and the FDA are leading out with Nutra Central's bio adaptive which is targeted towards the millennial and GNC customer segments, we anticipate $70 million to $80 million of sales from these new product previews in Q4 ahead of the full launch in 2021.
Third we continue to expand and refine our programs that provide an opportunity for people everywhere. The gig economy is disrupted traditional industries as people seek new or additional ways to supplement their personal or family incomes with greater flexibility to work at their own pace and in their own environments. This approach is new and.
On familiar for many companies, but it's not new to us our velocity sales compensation plan and enjoy rewards programs that were rolled out over the past two years continue to perform well supporting the accelerated growth in both customers and sales leaders that rich mentioned.
Our long term strategy has contributed to our strong global results over the past few quarters as we build on our track record of improving performance around the world, which is evidenced in the result of each of our major geographies.
Over the past three quarters, we've seen improving geographic balance with accelerated growth from our west markets, which now make up 30% of our business as our affiliates have embraced the socially enabled business model.
The Americans skew.
Excuse me the Americas in Pacific grew by 90% in constant currency with customer growth of 92% and sales leader growth of 86%.
Key contributing factor this growth has been their strategic relaunch of our us business that we spoke about a year ago and have referred to as discover the best use.
We also generated significant growth in Latin America, particularly in Chile, where sales leader in customer growth is driving strong revenue trends in these emerging markets, which now account for more than 5% of global cells, We see great potential for continued growth in this region.
EMEA also reported high double digit growth of 67% in constant currency. This is supported by 59% growth in customers and 53% growth in sales leaders, we are seeing growth throughout the region led by the UK, Poland and South Africa attributing to further adoption of this so.
Actually enabled business.
We also experienced improvements in Japan, and Korea, where both markets grew modestly and are trending in the right direction.
South Korea showed encouraging progress reporting local currency revenue growth of 5% driven by an increase in sales leaders due to the anticipation of the boost launch.
Japan continued to show favorable local currency growth of 4% and sales leader growth of 9% driven by an increasingly younger salesforce.
In greater China were pleased with continued stabilization as the business has been on a long term recovery following last year's setbacks in mainland China.
Mainland China reported a moderate local currency decline of 4%, but continued to show sequential improvements across the business as we transform to a digital first approach and reduce our reliance on in person meetings.
With two consecutive quarters of sequential growth in our sales leaders and customers combined with an upcoming product preview, we anticipate a return to revenue growth in the fourth quarter.
Hong Kong and Taiwan were even with the prior year and had an encouraging leader preview of Ageloc boost giving us optimism that these markets are moving in the right direction.
Southeast Asia also reported constant currency revenue growth of 8% due in part to a successful virtual convention, which generated excitement in anticipation of the upcoming boost previews customers were up 12% and sales leaders grew 5% over the prior year.
We are encouraged by the adoption of our socially enabled business model in key markets like Indonesia, and the Philippines and are looking forward to a successful boost preview throughout southeast Asia in the fourth quarter.
So in summary, we're pleased with how the business continues to perform amidst the uncertainty in the broader global marketplace. Our ongoing investments are enabling us to transform our business from a traditional direct sales company into a socially enabled digital first affiliate opportunity platform. We believe that the world needs, what we have to offer.
And we're committed to our mission of scaling this business to a power as many people as possible as we work to become the world's leading business opportunity platform and with that I will turn the time over to Mark.
Thanks, Ryan I will provide some additional color regarding our financial results give Q4 guidance and update our full year 2020 outlook. As a reminder, you can find additional financial information in our release and the supplemental slides and tables on the investors section of our website.
Third quarter revenue and earnings per share came in above the top end of our prior guidance Q3 revenue was $703.3 million with a negative foreign currency impact of less than 1%.
Earnings per share for the quarter were one dollar an eight cents.
Gross margin for the quarter was 73.9% compared to 76.2% in the prior year quarter with.
With new skin gross margin moving from 78.6% in the prior year to 76.3% this year.
Gross margin was lower largely due to two factors first freight.
A significant sales increase in some of our markets required us to expedite product to keep in stock.
Expedited freight coupled with incremental shipping costs associated with COVID-19 amounted to approximately $9.5 million and impacted gross margin by more than 1%.
Second.
Our geographic mix is shifting due to the strong growth in the west region.
The West has lower average gross margins than the east due to its product mix and pricing dynamics in the emerging markets there.
While the growth in the west weighs on gross margin.
That impact to the PML is largely offset by the lower tax rate generated by the increased profit from those markets specifically to us.
Selling expense as a percent of revenue was 39.9% compared to 39.3% in the prior year.
Selling expense for the new skin business was 42.4% compared to 41.5%.
As we've referenced in the past selling expense increases as the number of qualifiers for incentive increases due to strong revenue growth.
This is also reflected in our sales leader count which increased significantly.
General and administrative expense as a percent of revenue was 23.5% compared to the prior year of 25.1%.
Our operating margin for the quarter was 10.6%.
The other income expense line reflects a $500000 gain compared to a 5 million dollar expense in the prior year.
During the quarter, we generated $118.4 million in cash from operations.
Paid $19.2 million in dividends and repurchased $20 million of our stock with 342.8 million remaining in authorization.
We also reduced our debt by $72.5 million.
Our financial position remains strong and we are confident in our ability to maintain adequate liquidity and flexibility to successfully navigate this current crisis.
Pursue our strategic plan and return value to our shareholders.
Our tax rate for the quarter was 24.7% benefited significantly by increased US profitability has mentioned earlier in my comments.
Ryan spoke earlier about our digital transformation and it is worth noting that we are applying this in all aspects of our business. For example, we have deployed AI powered predictive analytics to rapidly adjust product forecast around the world and even enabling us to better allocate our supply.
This key ability has helped us respond to surges in product demand and also become more efficient with our inventory levels in which our turns continued to improve.
Due to our strong third quarter results strengthening trends and the upcoming product introductions, we are increasing our annual revenue guidance by approximately $150 million.
Our fourth quarter revenue guidance is $720 million to $750 million, including $70 million to $80 million of anticipated sales from new product introductions.
Earnings per share guidance is one dollar and 10 cents to one dollar and 20 cents.
This assumes a positive foreign currency impact of approximately 1% and a tax rate of 26% to 31%.
Our Twentytwenty annual revenue guidance is $2.55 billion to $2.58 billion with earnings per share up $3.35 to $3.45.
This guidance assumes a negative foreign currency impact of approximately 1% and a tax rate of 27% to 30%.
With that we will now turn the call back to the operator for questions and answers.
Thank you as a reminder to ask a question you need to press star one on your telephone to withdraw your question. Please pelkey leased and now own compiled kewaunee rosters.
Our first question comes from Steph Wissink with Jefferies. Your line is open.
Thanks, Good afternoon, everyone I had two questions for you if we could the first is just on the significant growth in your customer counts as.
As you prepare for the launch of business can you talk a little bit about your marketing agenda. How you expect maybe can approach the end market slightly differently than you did with the mid cycle the comparison.
And then the second question Mark really for you and just any increase in guidance as anything over and above the increase in the launch that's embedded in the guidance are you seeing a lift to your underlying business as well so a bit of a tethering effect on in anticipation of the launch but also in the underlying business.
Thank you.
Yes staff maybe for the first question. This Ryan I'll take I'll take that yes, the customer growth that we're seeing right now we're particularly pleased.
The customer growth is coming largely through this socially enabled business now applying the boost global previews in Q4 and into the main.
Global launches in first half of 2021, I will deploy a very similar model to how we deployed loomis spot in that those local launches will happen in the first half I.
I think social look that socially enabled model will we anticipate we'll continue to.
Foster that customer growth.
Yes, and in fact to follow onto your question around the guidance for the fourth quarter our.
Number is really driven by a.
Assuming that the trends that we saw in Q3 would continue into Q4 and as you noted in our in our comments, we did $30 million a boost in the third quarter and were anticipating an additional $70 million to $80 million in the fourth quarter and so you can add that incremental number of 40 to 50.
Boost versus what we did in the third quarter to get to our number of our guidance.
Okay. Thank you.
Thanks, Jeff.
Okay.
Our next question comes from Wendy Nicholson with Citi. Your line is open.
How the study's long.
I had a couple of questions.
Yes with regard kill on.
The evolution of the business to take advantage of the gig economy, which on the one who make total sense and it's an asset.
But my question is what Youre Con and then on the people who are coming in now need skin product now are definitely.
Yes, I mean, the whole idea of again I guess.
And then you go off.
And so.
The rating.
Because we're seeing this elevated.
At several printer will accelerate.
Right now and how are you.
They were sitting from now.
And.
And crash your Salesforce.
Yes. Thank you very much Wendy for that question I'll I'll speak to it and Ryan can add on.
It's an exciting opportunity really to participate and expand the potential of our sales later, they have an opportunity to reach to a lot more customers. The key I think really is allowing them to progress through our through our.
Sales leader pipeline, so, allowing them to begin to earn commission build an organization and start to.
Really really be successful and that way, we keep them through our recognition programs through our an ability to continue to compensate them and have them.
Continue to feel like Theres upside in building their business a steady flow of new products that are launching as well as customer rewards program. So it's a fairly broad approach that we take in terms of helping.
Somebody start as a customer and then progress all the way to a successful sales leader, but clearly with a lot more people coming in is that the scenario that we have to focus on and continue to get better at the.
This idea of retaining and motivating our salesforce, yes, and I would just add Wendy that from.
What's unique about our type of model is that it isn't a traditional gig.
In that to Rich's point, our model enables those those additional opportunities opportunities and sold through our sales compensation program velocity, we do provide that gig like opportunity of of sharing of our selling products, but their abilities to build teams of shares as well as.
As lead organizations and so it does provide a more sticky framework than a traditional gig market model does and I think just based upon our historical context. This this is really where new skin as excelled over 35 years and so in a way I feel like the gig economy as he is a foray or an entry into what we buy.
Always known but I think to Rich's point, our focus is to ensure that that that leader pipeline or the shares come in and those gig that come in are able to find more opportunity through these advanced programs that traditional gigs do not offer.
Thanks, do you send spread that the people who are coming in now on do you have any sense for the demographics in terms of I assume they're probably young.
For whether they are maybe full merger nu skin sale sort of flat or are they just all nude.
And.
On that Mark.
Yeah with this acceleration, we're seeing we're definitely seeing an acceleration of.
From a demographic side of predominantly female younger.
Yes under demographics than we've traditionally seen but I would say if we were to track back over 2016 17 18, there's just been a progressive.
A progressive trend towards this direction and so it's it's not something that's happened in the last quarter or two quarters, it's been three or four years of progressive progression to our younger sales force again skewing more to the female.
Demographic.
Fair enough and then just one quick question if I can thank you so much on the gross margin I totally get the headwind from net which is offset by tax so thats fine.
Free issue that you called out I mean, it looks like.
Headwinds from a freight expense perspective might be with us for sometime to come so should.
Should we just expect there to be gross margin pressure from freight for a while or do you think you can raise prices or is this really just a co bed.
Saying that that but regardless of the freight environment as we get into small corner as as a buyer you won't have to do it as much expedite and step back yes.
Yes, it's a really good question and one that we've looked at a lot. We're always going to look for ways to improve our freight we're putting more products on ocean versus air and.
And so we will get some benefit there I do think the fourth quarter is going to be particularly challenging with freight as we entered into the holidays and we've all seen the news on what's going to happen with freight and the challenges that will be there. So we'll certainly experienced some.
Rate pressure in the fourth quarter I do think it will extend into next year, but we'll do what we count on our part to get more product.
Two our sales leaders through less expensive method.
Terrific. Thanks, so much Oh, sorry, yes, I was just going to add when the that Theres a portion of that freight is just trying to keep the product in stock that issue, we've really for getting our arms around that and we've been able to catch up with the supply chain and the cove it issues related to the supply chain in terms of actually building.
Product and having packaging and so forth into it those are starting to loosen up a little bit. So we're getting our arms around the expediting issue. It's really the other freight that we will continue to lag into next year and it will be something we'll just have to continue to work through and figure out the best way to.
To to figure out how to get our margins back to where they need to be Fortunately there are other things that we can do we can leverage our overhead and so far so while we're still shooting for a 13% operating margin over the coming couple of years and believe that Thats right in our right in our sites.
Thanks.
Thank you. Our next question comes from James that Alley.
Thank you Bank your line is open.
Yes, hi, thank you.
So a few questions from me first.
Just wanted to talk about this extraordinary growth that you're seeing in the west region.
And why Youre not seeing the similar type of growth.
Across Asia, and I know in China, you have a different model, but I'm wondering if you can sort of maybe philosophically talk about what the differences are and why there is this growth in the mid west and that you are not seeing that in the eastern markets.
Yes, Pfizer out maybe I'll, just I'll answer it and rich can that can add on if you'd like yeso and you've followed the company for quite some time and you know historically the company has done very well in Asia through that more traditional direct sales model and it has been lagging a bit in prior years.
As in the West what we're really seeing it from the social side is that there is a new and emerging leadership group.
Throughout the west that are really socially inclined as I mentioned earlier, a younger demographics coming in we're starting to see that those same elements appearing in Japan for instance, in some of our southeast Asia markets, and we're seeing pockets as well in greater China, and so from our point of view, it's more of a transitory or transitional.
A process, where whereas the traditional model is a little more strongly rooted in Asia than the social model, but but we are seeing the migration happened in as a company we're fairly over in identifying best practices and sharing best practice practices across our market segments and so we are seeing that migrate.
Should evolve also on our digital platform, we're ensuring that those tools that we're building are being deployed out.
Out so that that those those leaders socially emerging leaders in Asia are able to.
Take advantage of the model as well and so it's it's more of a transitional process.
To answer the question.
Okay, Great and then if I could just ask about the manufacturing business I mean, Canada, we've seen very strong growth.
How should we think about the growth in that business going forward.
Is there like where are you in terms of capacity in that business.
Like is there a ceiling and do you expect to maybe invest more in manufacturing going forward.
Just a little bit in terms of how you're thinking about that that's now.
Great. Thanks, guys of the manufacturing business was an initiative, we leaned into about three years ago with the real desire that we felt like we could secure our supply chain better for our own business that we could speed up our go to market opportunities with different products and innovations and then at the same time, we could really parting.
The pace in a in an opportunity where there are a lot of companies growing and taking advantage of manufacturing. So we would benefit from sales of our manufacturers to other customers that is really playing out very well as we continue to lean in give the right investment behind these manufacturers to expand.
So they do have.
And capacity to grow both in terms of equipment as while space and it's working very well that demand continues to come in both.
I think somewhat from coal that has some of their customers are benefiting from covance, but then a lot of new customers as well. So we see the demand continuing to go.
There are areas, we can lean and there are certain areas that are.
Our manufacturers don't provide for new scan for example.
Powders and stick packs things like that is not a capability that we have today in our current manufacturing partner. So we'll continue to look for opportunities, where we can really gain synergistic benefits and the new skin business Thats really the first and foremost decision, we make and then with an opportunity to continue to expand the manufacturing segment.
So really two fold in terms of our expansion philosophy. The first is to drive more success into the new skin business and then secondly to look at expanding the segment.
Okay, and then if I may just ask I might have missed this in your comments, but did the 30 million and boot sales.
We'll then a particular region where those in.
I don't know if you broke that out by region.
He actually Didnt break it out on the com on the comments about half of it was in the greater China region, a little bit more than half and then spread around really the rest of the world.
Okay, and then the incremental that you're expecting for Q that that global or is there is that a particular region, where that's at least I would expect that to be in.
It's generally global however, we're not launching boost in EMEA or in North America. So those boost sales will generally come next year and those markets. So it's more Asia focused in the fourth quarter than inclusive of the EMEA and North American markets.
Dear you are launching the nutraceutical bio adapt debride and EMEA and North America. So thats included in that incremental.
50 million, yes, that's correct, yes, thats under active be as big of a launch it's a re launch so it won't be the same sort of pop that we get from boost but we do anticipate that it will be.
Nice.
Nice new product that the sales leaders will be excited about here as well.
Alright, great. Thank you so much you bet. Thank you bye.
Thank you. Our next question comes from Olivia Tong with Bank of America. Your line is open.
Great. Thanks, good afternoon.
So what's the new sales leaders and customers, particularly in the us much in Europe, and that's obviously accelerated pretty nicely this year. So.
A few questions there.
First.
Well.
All these new people, we have people who are new to the brand I am a little surprised that you don't see more acceleration in growth from Q3 to Q4 like obviously Q3 was very very strong but.
Sequential acceleration was a little bit lighter than I would have anticipated given the strength of Q3. So.
Can you just update us a little bit on your expectations there.
And and within that.
Why are you waiting to launch.
And.
In Europe, and North America. Thanks.
Yes, good questions and we are really really encouraged with whats happening in our west West market a lot of sense with our business, we'll see a real strong push as there is a lot of excitement and then it will consolidate to some extent and get another push.
The growth into Q3.
Q2 was content continues to be really strong, but obviously not the same acceleration. We saw in Q2 Q4, we'll probably see a good strong quarter as we continue to have new products, we have black Friday promotions in those markets and so forth that have been successful. So we'll continue to push there.
Great opportunity to because were relatively small I would say in these large direct selling markets in the west we think there's great potential as we continue to go forward and as the sales leaders continue to learn the business and the better ways to be effective and how they take our products to customers so exciting opportunities.
There and we think that growth.
It is something that we can continue to sustain as we move forward.
And then on the boost you had asked about Olivia the boost timing for North American the FDA Thats really a product registration timeline and so we supplemented the bio adaptive neuter central file adaptive launch in place of the boost this year and then the those.
Those as those products are registered next year, though rollout there.
I think what makes total sense.
And then just following up on my next question about how to hold on to all these new.
Sales in years when traditional work opportunities come back are you, making any technology investments are compensation enhancements that will help them stay for longer.
Yes, yes, I think thats really been at the heart of our of our digital strategy. Olivia. So yes, absolutely focus is all around providing these these new leaders with the tools the capabilities to run their businesses.
Our our goal of course is to empower them with a flexible opportunity and we feel like these changes we've made over the last two years with the velocity model coupled with these digital tools, we're able to provide a home for them to add a flexible hold for them to build their businesses on on there too.
Firms here and so that's a major focus behind what's driving our digital strategy.
Got it and then just lastly of.
A question on selling expense.
I'm a bit surprised that the expense relative to sales increased less than it did in Q2. Despite the fact that you clearly accelerate more dramatically. So usually I mean, we see this ratio increased as sales growth and gross and some sellers are hitting in Tampa. So is this just.
A function of you just have a lot of new sellers right. So.
So they're just.
They're not necessarily increasing their basket size is just a lot more people who are buying and if that's the case.
Can you just talk a little bit about what drives more sustainable growth and we'll get more about adding more metered customers implied that sales or increasing the basket size across the board.
Yes from our perspective, the sustainability of growth really is driven by a customer and sales layer growth that match each other sometimes we'll see and particularly what we've seen.
So selling has picked up as we'll see a fast increasing customers followed by a sales leader growth that supports that customer growth, but in order to be successful for example, as we look at a Q4 launch of new products here, we have to be able to drive a bigger customer base and a larger.
Sales organization and Thats, what sustains the growth going into 2021, so as we execute our plans and everything that Ryan talked about as we build up to this launch it's allowing sales leaders to qualify and then participate in the launches and continue to build our customer organization. So that we can keep them.
For a longer period of time, so thats really the strategy through the product launch.
Process that we follow and then I would just say is that as the sales expense. It will fluctuate sometimes as a lot of new sales leaders come in we'll see that expense push up just a little bit as people qualify for different.
Rewards incentives and so forth and then it'll settle down is that a sales leader number settles down as well so it fluctuates as much as 100 basis points here from quarter to quarter, but generally will settle right back down around the 42% range.
Great. Thank you.
Thank you.
Our next question comes from Doug Lane with Lane Research Your line is open.
Yes, hi, good afternoon, everybody rich.
Rich staying on that I know that you worked a lot over the last few years to shift your marketing focus.
From a sales leaders right direct consumer to your end user can you explain that dynamic because this is a little unusual or where you're doing if I understood. Your last answer you're actually looking to build the customer base that will then drive increase in sales leaders, which is kind of counter intuitive valve. It used to be so just can you clarify that just a little bit on what to say.
And as you shift is there.
Yes, I think three and a half years ago, or so as Ryan and I put put together our strategy to build the business, we really felt like social.
The power of social on the gig economy allowed us to reach out to a lot more customers than we have ever done in the past through.
Through week through word of mouth marketing and so we really built a strategy around these three pieces.
The program the product and the platform in terms of opening that funnel to be able to talk to new customers and so we really shifted in terms of how we present our products our pricing strategy to some extent the compensation structure through velocity to reach more and more customers and and to be.
Able to allow more and more people to benefit to a sharing program very.
Very similar to what an affiliate received so yes, we really focused on the customer we continue to be very focused on the customer in fact, it's one of our three tenants to be customer obsessed and we'll continue to focus on that going forward.
We see today, a broader number of customers per sales leader, we're doing more and more to capture data around our customers and levered that help our sales leaders be more effective and that really is key to our success going forward.
So the the customer number that you give each one of those customers has a sales leader.
They are not independent sort of channels, it's not like a.
Ecommerce business in a direct selling business here they are interacting but the point is with the customer growth that we've seen in the last two quarters and the upper 20%. If things go well then we should see sales leaders come up not the customer number come back down to where the sales leaders are do I understand that right. Yes, that's exactly right. They are all.
Purchasing from the company generally, but they all are connected somehow to a sales leader who is the one who introduced them to the business. So thats correct and those two numbers come together generally the.
We have seen some increased number of customers per sales layer, which would tend to drive the same customer number a little bit higher than the sales leader growth, but generally those will come back in line with each other okay.
Okay. Thank you.
Yep.
Our next question comes from Mark Marcon with Stifel. Your line is open.
Thanks and afternoon everyone.
Amit Kumar.
Wanted to ask about the.
Boxer yes.
The thing about the ability to sustain this momentum that you have in that business.
When lapping some moves you look the lockdown in P code impact no.
Next year.
Just in terms of how we should all be trying to model. This next year and I guess related to that.
Any read on how China has performed at block down ended in light sort of normalize to whatever the new normal is and I see that hardly any context too.
Understanding the China should get back to growth in Fourq, you, but but the growth has been a bit sluggish.
Hey, could you even coming out of that period, I guess is there anything to read into that for the rest of the world next year.
Yes, great questions Mark Thanks for those.
The cobot impacts have sort of been staggered all around the world. It's interesting that for example in southeast Asia, right now and Malaysia, there's quite a lockdown.
It just has seemed to sort of ebb and flow market to market around the world. What we've really really focused on is getting better and better at working remotely at providing digital tools that allow our sales leaders to do their training to hold their meetings to contact their customers and be more effective because we built.
Thats the way the world needs to shift any way and specifically to China, where it was always that our business was always driven through meetings, we've had and for whatever reason.
Those meetings would be restricted from time to time, so our focus over the last two years has really been to develop additional technology, which would make us less dependent on in person meetings and more and more effective leveraging technology. So as we start to lap. These numbers I really really like our product lineup for.
Next year.
You know the west will be launching the boost product in the first half the other markets in the first half will be introducing the neutral essential line and then we have a strong product lineup for the back half of the year, which will roll out at the beginning of the year, we haven't laid that out in front of our sales leaders, yet, but we've got a good product types.
Line will continue to focus on driving customer growth, which we think will continue to drive sales leader growth as we go forward. This.
This year's growth has all been done without like you mentioned without China, We do anticipate China will have a nice fourth quarter with the launch of boost and that should generate energy, which will help the business next year in China and allow China to hopefully participate in this growth.
Growth excitement that we're seeing around the world. So we think we got very good plans to continue to execute continue to drive growth in the business.
And.
To see great potential yet I would just add mark that that.
For us Cogut has really given us an opportunity to really lean into the digital first approach and so as we talked about last lapping some of these.
These year on year comps from a business model perspective, we're just leaning in full into digital first and while there is going to continue to be uncertainty in various forms around the globe. Our focus will be very very directly on.
On this digital first approach and so we feel while the world around US is somewhat tumultuous from a strategy perspective is very very clear what we have to do I mean, we have to go digital first in China will continue to go digital first.
Thats really the focus and so I think as we continue to lean in we continue to align our investments there we will have a greater ability to sustained growth and to proliferate and some of these markets that that have been lagging like China, where that was more reliant on that person to person approach are faced a phased approach I would say.
Great. Thank you.
Thank you Mark it looks like Thats all of our questions today. Thanks to all of you for joining us and for your interest in our company. We look forward to speaking with you soon and wish you all good evening.
Ladies and.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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