Q4 2022 NU Skin Enterprises Inc Earnings Call

February 15, 2023

The conference will begin shortly to raising Malawi Johan during Q&A, you can dial star one one.

[music].

Good day, and thank you for standing by walking through the fourth quarter 2022, Nu skin Enterprises earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on one.

My phone.

We'll then hear an automated message advising your hand is race to withdraw your question. Please press star one once again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Scott Pond VP of Investor Relations. Please go ahead.

Thanks, Victor and good afternoon, everyone today on the call with me are Ryan appear ski President and CEO , Connie Tang Chief Global growth to officer, and Mark Warren CFO .

On today's call comments will be made that include some forward looking statements. These statements involve risks and uncertainties and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release, and our SEC filings for a complete discussion of these risks also during the call certain.

<unk> numbers may be discussed 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 website for any required reconciliation of non-GAAP numbers and with that I'll turn it over to Ryan.

Thanks, Scott Hello, everybody. Thanks for joining us today, we have a lot to cover so let me just dive into this 2022 was a year filled with unanticipated macro environmental disruptions that impacted our business globally. We finished the year at $2 3 billion of revenue and EPS of $2 90, SaaS excluding one.

Time charges the majority of the year over year decline in our business was due to strict COVID-19 related factors in China, which accounted for approximately $208 million of the revenue shortfall as well as unfavorable FX, which negatively impacted us by about $150 million and overall global inflation.

Which impacted consumer sentiment and global supply chain.

Despite these headwinds we made meaningful progress on several of the key strategic imperatives is foundational to our new vision 2025 transformation, which helped us deliver annual revenue growth of 4% in the U S and 2% in Southeast Asia Pacific RJ.

Our Japan and Hong Kong, Taiwan segment also grew in constant currency in the year, while reported revenue was down due to FX headwinds, we remain well positioned to capitalize on enormous landscape shifts that are transforming the beauty and wellness industries around personalization, social commerce and the gig economy.

Let me quickly review, our fourth quarter results. Our revenue of 502020 $522 million was in line with the revised guidance, while non-GAAP EPS of <unk> 89 cents was well ahead of our projections, reflecting disciplined expense control along with a favorable tax related adjustment.

Like many companies, we are expecting macro conditions conditions to remain challenging over the near term with gradual improvements in the second half and so we're taking a conservative approach to setting expectations for 2023, which mark will address in just a minute.

Last year at this time, we introduced new vision 2025, our multi year strategic transformation from our historic direct selling routes to becoming the world's leading integrated beauty and wellness company that is powered by our dynamic affiliate opportunity platform, we defined three distinct strategic imperatives that IND.

Table, our vision to come to life, which are number one empower me, our personalized beauty and wellness strategy, including Smart Iot connected device systems number to the evolution of our go to market strategy from traditional direct selling to affiliate powered social commerce and number three the <unk>.

Build out of our integrated digital ecosystem, including the introduction of two apps are very consumer app and our stellar affiliate app. So let's dive deeper into each of these strategies and provide you with a roadmap of key milestones for measuring progress over the next several quarters.

Empower me this is a revolutionary approach to disrupting the beauty and wellness industry. It will focus on providing personalized product recommendations with our comprehensive personal care and nutrition product portfolio at <unk>.

Operating AI and ml technology in our apps and including consumer insights from our smart Iot connected device systems.

We've entered a new landscape of gathering insights from and engaging with our customers with the launch of <unk> in late 2022 in the past we gathered insights by a consumer surveys purchasing habits in general research, we will now be able to capture additional insights like usage patterns and habits.

To integrate with the customer's status skincare needs and goals and we will get all of that data real time.

This depth of consumer insight can only be captured through our Io connected devices, which we believe to be a significant advantage for new skin in the future moving forward as we more effectively understand our consumers, we will be able to offer personalized product regimen and content curation and drive greater overall consumer engagement and lifetime.

Value with Io device systems, we expect to strengthen our position as the world's leading beauty device systems brand as noted by Euro monitor.

In 2023 will introduce our next smart connected device system beginning in Q3.

This new body Io device is a breakthrough in holistic wellness and beauty inside and out is patent pending device provides multiple integrated beauty and wellness benefits that help consumers with body recovery arena revitalized appearance and their overall well being.

Io device systems are becoming an increasingly important part of our portfolio as we seek to meet the personalized needs of our consumers with.

With the introduction of <unk> in late 'twenty, two we generated around 5% of revenue from Io device systems.

And Thats now set a target for connected devices to provide at least 15% of total revenue in 2023 on our way to approximately one third of revenue by 2025 and.

Empower me will be a major disruptive force throughout the industry in the coming years as this strategy unfolds.

The power of social media and Influencer marketing will continue to disrupt the way consumers discover beauty and wellness products. Our affiliates powered social commerce model underscores our continued commitment to lead in lead out and evolve the power of word of mouth marketing with the scale and reach of social media.

Mantech affiliate promotion, we continue to see our global Salesforce, leveraging social media and unique ways to share products. They love with consumers seeking authentic product recommendations from people They trust in.

In 2022, we saw our sales channel contracts, primarily due to macroeconomic factors around the globe. Nevertheless, we continue to explore and test new initiatives around the world intended to unlock the scalable power of social media for our affiliates.

We tested several initiatives, including a new one price model unlimited products as well as product sharing bundles, which were responsible for a good portion of growth in the U S. Last year. We also introduced several new social selling products like new biome in college, and plus which enabled increasing social sharing.

Last year, we introduced paid affiliates as a new key performance indicators to provide greater insight into our emerging segment of early product shares who are critical to the social commerce business model in 2022 affiliates outpaced sales leaders by more than 30% and we're encouraged by this trend.

As we attract more early shares into the business with social commerce.

In 2023, we will be rolling out additional initiatives to unleash the power of our affiliates, including a new affiliate rewards and recognition program in North America and enhanced affiliate powered business model in Latin America and other programs around the globe, we will continue to evolve our social commerce business model to empower our globe.

<unk> army of authentic micro and nano influencers to scale their businesses.

Finally, the third power the third pillar of New vision 2025, our comprehensive digital ecosystem, which is integrating company affiliate and consumer engagement across the entire spectrum of our business from product discovery and purchase to affiliate engagement and productivity CRM and other customer lifetime.

Our value drivers.

Last April we introduced two new apps, Vera and Stella in English with limited functionality, we enhance these apps globally throughout the year with additional languages and features Vera helps identify consumers unique product needs coaches them on how to use the product and helps track their progress so that they can see how.

The products are working for that Steve.

<unk> is our one stop business management App that helps affiliates increased their productivity by efficiently managing their businesses and attracting and engaging new customers.

In 2023, we will continue to elevate the user experience of our Bella Terra in stellar apps by streamlining ease of use and adding new capabilities and features in fact this quarter together with our AWS partners, we will be applying new AI capabilities into our personal product recommendation and in.

An entirely new wellness consultation feature later this year.

We are also expanding our sharing an attribution features into seller app into the <unk> app itself. So that affiliates can easily share our Vera app with other users gain visibility into the products being recommended to their customers with permission and receive revenue attribution.

And lastly, we will begin a global deployment of our new E Commerce platform that we've been developing together with our Infosys partners beginning in North America in Q2, and extending globally throughout 2020 for this new E. Commerce platform will enable a more dynamic and seamless digital experience across our website and apps.

For Q4 2022, the ratio of average monthly active users up the werra app to our average monthly active customers was approximately 10% and we have set a target to grow this to approximately 30% by year's end for stellar the ratio of average monthly active users to to the average monthly paid up.

<unk> for Q4 was close to 10% and our year end goal for this is approximately 35% over the next two to three years, our integrated digital ecosystem, including Vera and stellar will be a key to our business as ubers driver and rider apps are to theirs.

So in summary, despite some very challenging conditions in 2022, we made considerable progress on the initial phase of new vision 2025, including the implementation of several foundational changes that will help propel our business into the future 2023 is going to be another important year for our strategic transformation.

And early results from key initiatives have galvanized our commitment to becoming the world's leading integrated beauty and wellness company powered by our dynamic affiliate opportunity platform, while the macro environment remains uncertain in the near term with challenging comparisons in Q1, specifically, we expect it to steadily improved throughout the year.

Here, we will continue to be prudent in our cost management with ongoing expense reduction efforts in order to invest in our future we will be conservative in our guidance given macro uncertainties, while being transparent with our progress to our plans and aggressive in our efforts to achieve new vision 2025, So with that let me turn to <unk>.

Jim over to Connie to take you through our market performance and speak further about the channel growth flat Connie.

While the macroeconomic factors volume mix that widespread impact on consumer acquisition and sales channel breadth across our reporting segments, we were able to grow annual revenue in constant currency and three of our segments as well as in our U S market.

Let me four months ago, all of our market.

We will continue to focus on.

We will also launch a personalized approach to weight management with Ti.

Several Michael followed by.

Mike connected device system in the second half of the year, Let me give a little more color on each of our reporting segments and.

In the America, our U S market grew 4% for the year on top of 32% revenue growth in 2021 attributed to continued social selling momentum and customer subscription enrollment the challenging macroeconomic environment in our Latin America markets offset the strength in the U S.

Which led to a decline in revenue and other key metrics for the segment.

This segment continues to lead the way for us in social commerce adoption and our activities. This year our focus on affiliate powered social commerce to drive customer acquisition, but 2023, we are projecting revenue to range from plus one to minus 6%. Please note that I thought I'd provide our.

<unk> for each segment the range may be larger than normal due to the uncertain macroeconomic environment as Bryan Knodel, our mainland China business continues to be challenged by Covid related factors that are negatively impacting our selling and promotional activity. This is reflected in our decline in revenue.

And the other kpis.

China has been lifting restrictions and opening up in recent weeks. It has also led to a large surge in COVID-19 infection.

As a result, we anticipate the first half of the year to remain difficult as we returned to more typical business activities in China, we need to rebuild our sales force, which will take time to revitalize momentum we remain confident in the potential of China and our future here and are projecting a return to growth by the end.

The year as we introduced our body Io connected device system overall, we project revenue in China will be down this year between 23 and 35%.

Okay.

Taiwan segment, our strong performance in Taiwan. This year was largely offset by the impact of Covid Lockdowns in Hong Kong, resulting in slight revenue growth in constant currency as a result of a preview of tiara in both markets at the end of last year gives us optimism heading into the consumer loans.

Just this month, we have discussed the growth of social selling and Taiwan in the past and we have also been gaining traction with our customer base development through our loyalty programs with increases in customer acquisition and order volume. We project. This segment to range from up to minus 5%.

In the past year, we have discussed the impact in EMEA of the ongoing conflict energy crisis, and inflationary pressures on consumer spending and our business activities throughout the region. We know that without these external disruptions, our social commerce model works.

And typically drive strong customer acquisition looking forward, we are focused on expanding our channels to drive customer attraction and rebuild momentum further promotion of <unk> IR.

And our social sharing neutral essentials pumps. This coming year, we anticipate annual revenue to range from up 3% to down 3%.

We faced several challenging headwinds in South Korea in 2022 with Covid related disruptions early in the year, followed by high inflation and associated pricing disruptions. We also faced a negative 9% FX impact for the year and a difficult comp with the successful.

Launch of <unk> in 2021 Korea has been a strong market for our key our 90 products and we are looking forward to building upon that with the sales leader preview and consumer launch.

In the first half of 2023, followed by the introduction of our newest Iot device in the back half of the year for the coming year, we are projecting revenue up 2% to down 5% in.

In Japan, we achieved growth in local currency, but faced a 16% FX headwind in reported currency or other key metrics also remained relatively steady with sales leader development activities, helping to build some channel momentum heading into 2023.

Japan has been a strong market for customer subscriptions, and we expect to expand that base at Japan launch its beauty focused college in plus in the first half of the year.

<unk> 2023, we are projecting Japan to grow between one and 2%.

And finally in Southeast Asia Pacific, we generated 7% revenue growth in constant currency for the year Southeast Asia is our strongest region for TR 90 sales and efforts to increase the customer base is this brand will continue in advance of a 2020 for launch of <unk>.

And these market sales.

Sales for <unk>, which is called <unk>.

Southeast Asia remained strong throughout the year in the first half of the year. This region will focus on the combined FX and benefits of <unk> and collagen plus ahead of the launch of our next connected body Io device system in the back half of the year, we anticipate 2023 revenues to range.

From up 1% to down 5%.

Overall, all online will continue to execute against new vision 2025, we're focused on accelerating social commerce adoption across semi and.

And expanding our channels with affiliate acquisition and productivity programs, which will also help us grow our customer base with the insights we are gaining from our smart connected device systems and avera and stellar apps. We will also focus on retaining our customers and engaging them.

With personalized experiences to drive greater lifetime value and now I will turn it over to Mark to go into more details on our financial performance, Mike. Thank you Connie and thanks to all of you for joining US today I will give Q4 and our high level 2022 financial review and then provide initial Q1.

<unk> and full year 2023 projections that include additional financial detail for more information. Please visit our Investor Relations web site for.

For 2022, we generated revenue of $2 billion to $3 billion with a negative foreign currency impact of 5% or $150 million earned.

Earnings per share for the year were $2 seven.

Or $2 90, excluding restructuring and impairment charges associated with the previously announced companies strategic resource reallocation incurred throughout the year and a tax method change.

For the fourth quarter, we generated revenue at the midpoint of our prior guidance at $522 $3 million with a negative foreign currency impact of 7% or $51 million.

The U S dollar continued to strengthen which negatively impacted our results.

Both reported and non-GAAP earnings per share for the quarter exceeded our previous guidance at $1 15.

Or <unk> 89, excluding restructuring and impairment charges and a recent IRS approved favorable tax method change, which allowed us to utilize foreign tax credits, which were previously offset by a valuation allowance.

Our fourth quarter 2022 earnings per share benefited from a reported negative 135% or a negative three 7% tax rate, excluding restructuring and impairment.

Our Q4 reported gross margin was 71, 7% and continued to be impacted by our geographic revenue mix foreign currency exchange rates and global inflationary pressure.

Gross margin for the core Nu skin business was 74, 9%.

Selling expense as a percent of revenue was 38, 5% 60 basis points below the prior year period.

For the core Nu skin business selling expense was 45%.

As part of our focus on operational efficiencies general and administrative expense declined $36 $5 million year over year to 24, 4% flat with the prior year.

By concentrating on strict cost management throughout the year, we saved over $105 million against our original 2022 G&A budget.

Operating margin for the quarter was five 3% or eight 8%, excluding previously mentioned charges.

This compares to 3% or 11, 7%, excluding restructuring and impairment charges in the fourth quarter of 2021.

The other income expense line reflects a $3 $1 million expense compared to a $1 9 million expense in the prior year period.

We continue to prioritize a strong balance sheet and returning value to shareholders even during uncertain times.

During the quarter, we paid $19 million in dividends and repurchased $10 million of our stock with $175 4 million remaining on the current authorization.

In a separate announcement today, our board of directors approved an annual dividend increase which marks the 22nd consecutive year of both paying and increasing our dividend.

Our <unk> segment, which includes our manufacturing partners was down 11, 8% when compared to the prior year quarter, primarily due to our customers rebalancing their inventory from higher levels in 2021.

Our manufacturing entities continue to significantly benefit our core nu skin business by helping firm up our supply chain.

Greece, our speed to market for new products and generate U S profit that lowers our overall tax rate.

We anticipate our rides segment to grow 6% to 13% in 2023.

Our restructuring efforts, which began last year remain on track in the fourth quarter, we incurred an $18 $4 million charge and expect an additional $5 million to $10 million in the first quarter as the original restructuring project wind down.

Also we recently finalized an outstanding legal matter pertaining to the exit of grow Tech, which was closed in 2021.

The implications of that resolution are reflected in our reported results.

We remain focused on aligning all of our resources toward new vision 2025.

Let me now provide Q1 and 2023 annual guidance ranges for revenue and EPS and give some additional detail regarding several key financial statement line items.

As Ryan mentioned, we're on a multiyear path to transform our business with new vision 2025, and we continue to operate in a very uncertain world, prompting us to give slightly wider guidance ranges.

For Q1, 2023, our seasonally softest quarter, our revenue guidance is $450 million to $490 million, including a negative foreign currency impact of approximately 5%.

Our projection reflects continued macro challenges while lapping a strong Q1 from last year and are largely in line with our historical average sequential decline from Q4.

Our Q1 EPS guidance is 17 to 27.

Or 25 to 35 X.

Excluding restructuring and impairment charges and a projected tax rate of 18% to 26%.

While we face a challenging first quarter I believe we will be able to demonstrate sequential progress towards our new vision 2025 initiatives throughout 2023.

For the full year 2023, we are projecting revenue of 2.032 to $1 8 billion.

Which includes a 1% to 2% unfavorable foreign currency impact.

We are expecting earnings per share of $2 27.

To $2 67.

Or $2 35 to $2 75, excluding restructuring and impairment charges.

We anticipate our operating margin to be eight 4% to nine 1% or eight 7% to nine 3%, excluding restructuring and impairment charges with a tax rate of 18% to 26%.

Our tax rate will fluctuate depending on where profit is generated geographically.

I will now walk you through several of our projected 2023 P&L line items, We project 2023 gross margin to be $73 five $2, 74%.

We have experienced gross margin erosion due primarily to a shift in our geographic footprint and a strong U S. Dollar. We anticipate this will stabilize to some extent and we should see sequential gross margin improvements over the course of the year.

We anticipate that selling expense will remain in the $39, 5% to 40% range.

We expect general and administrative expense to be 25% to 26%, but down on a dollar basis for the year as we continue to seek cost efficiencies, while strategically investing in product innovations technology and emerging markets.

Other income expense, which includes interest expense foreign currency gains and losses and gains and losses on investments can fluctuate significantly. Although we do anticipate that interest expense will increase this year as interest rates have risen significantly we are modeling 'twenty to 'twenty.

$2 million of expense for the year and approximate $10 million increase year over year.

We project cash from operations of $170 million to $180 million.

Depreciation and amortization will be approximately $70 million and capital spend will be between will be between 75 and $95 million.

As Ryan discussed earlier, New vision 2025 is all about how we will transform our business from a traditional direct selling business into an integrated beauty and wellness opportunity platform.

While the current macro environment remains volatile and therefore, our near term projections are impacted we believe that the future opportunities to accelerate our business will expand as we invest in our key strategic imperatives of empower me affiliate powered social commerce, and our enterprise services platform.

We are committed.

Committed to continuing our operational improvement along the way to our stated 13% operating income target or.

Our strong balance sheet and proven expense management discipline during turbulent times gives me further confidence in our ability to navigate this journey effectively and with that operator, we will now open up the call for questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Mark Astrachan from Stifel. Your line is open.

Yes, Thanks and afternoon everyone.

I guess just a few.

Sort of related questions. Maybe first if you could just walk us through you take a look at your revenue projections for the year, it seems pretty pretty interesting that outside of mainland China.

All the regions are anticipating some sort of.

Pretty decent improvement.

323, so how much of that is comparison commented that how much of that is sort of line of sight that you have about.

Each respective region, improving and I guess, what should be the things that investors.

Look for to get a sense of whether you're on track to do that.

Yes March and by the way good to hear from you.

So revenue projections as you as you noted mark we see opportunities for growth.

At each of the segments with the exception of China that maybe we can comment on because I am sure Thats that's of interest and it's probably a follow up question.

And to your point about what we're looking at the way we kind of see this playing out is really second half progress throughout the.

The year I think the macro factors inflation et cetera will now I'm talking rest of world.

Will will lessen over time FX impact lessen over time, and we see just from a core business perspective with our product launches.

Scheduled out, especially this upcoming body Io device that we're pretty excited about but also <unk> and some of our Asia businesses, where it does really well, we expect to see that that growth.

Continue to build throughout the remainder of the year. So we do see opportunities for growth.

Particularly in constant currency in each of those those regions.

Far as what to look for.

Just mentioned those three kpis and we're going to be talking more about those market. So as we go but truly watching our io device revenue.

As a percentage, which is very much leading out over the next few years, but the importance of that is going to be key.

The affiliate to growth in from a social commerce perspective affiliates versus sales leaders, which are more of the traditional kpis. We anticipate that to continue to improve and then the digital adoption of these apps, which will be really important. So I think those are the things we should watch.

May be related to China, specifically as I am sure Thats that's of interest in our guide on that Youll recall last year, we had anticipated an opening up of China.

In Q1 of last year, and we were seeing signs of that it was a fairly strong quarter and then the government went into strict lockdown with really unanticipated in Q2 mid Q2 and that carried through to Q3 most of Q4.

So we do have a tough comp in Q1.

We also know given global Covid, there's a lot of infection going on there and as we know our business really.

Flourishes, when when people can be out about.

So we see that that slowly alleviating and probably in pace with the way the government and the way the population kind of moderates its way into reactivation, there, but we do see China with a possibility of returning to growth by the end of the year.

But we need to be conservative in our guide because of the Q1 and.

It always must say, China could be unexpected and so we need to continue to watch that but thats kind of our outlook there.

And just related to the China piece, what are you embedding there in terms of.

Getting back to I don't know business as usual, probably unrealistic with large gatherings, but how do you think about this.

Specific sales model there you had talked on the last call about implementing the new flexible structure from a compensation standpoint, how is that impacting it and then.

Just just unrelated but affiliate market neglected so mark what's the what's the revenue that we should bake into our models for innovation for 'twenty three.

We'll come back to that second that third question, Marc I want to make sure. We're clear on revenue from innovation, maybe youre talking about new product revenue perhaps.

Exactly.

Okay. Okay. So a new product revenue, we can talk about that.

In general ranges of what we've done in the past, yes. So let me comment on China, and then Connie can fill in as well as she works more and more intimately with the team there locally, but but to your point Mark we continue to see it within kind of a traditional direct sales realm.

Companies kind of moving backwards or maybe to the past.

We absolutely do believe in the value of of <unk>.

To face interaction as human beings and certainly from the channel.

Meetings are important to our business, especially in terms of motivating our sales force encouraging recognizing theres no question that not having that ability and in China has been really severe for us and we anticipate that's going to alleviate over time as the government approves more meetings et cetera. Nevertheless, we are.

<unk> to lean into a digital first approach to market, we continue to invest in our digital there.

Portion to the business.

And so we'll continue to do that but our anticipation is as the market allows for more and more people to meet face to face and I.

Literally mean that to be out in coffee shops and walking around.

That's a good thing for our business and certainly larger meetings will be helpful. It from training and motivation and for US in particular re activating a sales force that has been dormant for three years and by the way has reduced as you see from the Kpis has reduced significantly.

Going all the way back to the 2019 observation period in China. So we anticipate some alleviation there Connie.

Anything you would add to that I would add.

What's most important business activities and promotional drivers and incentives that.

We know and then confident can rejuvenate and revitalize and re engage not only our sales channel, but also allow for them to have the motivation to attract customers has simply not been profitable and so it would be at.

The ability to execute on that and actually even communicate and bring those to market. We have strong confidence that those would be some key drivers that will reignite.

This business is as much emotional as it is practical as it is tactical and we think the combination of that and.

What we're seeing in the marketplace opening up we are optimistic in the second half of the year, we will be able to realize some of those results.

And Mark I'll give you a couple of numbers around innovation.

We've talked a lot internally about having a metric that we track, which would be new product revenue, what we need to do is better define that for you and actually make that part of our regular reporting package and so I'm just going to give you some general numbers and Thats something that we will expand upon in the future.

New product revenue so products that we talk about meta.

Collagen plus and our Io devices made up about 13% of our revenue in 2022.

What we're looking for as we think about next year, Brian mentioned that wed like our Io devices to be about 15% of our total and so thats going to be our big push this next year as Iot devices as we move it from roughly 5% of our business up to 15% of our business and then we'll have a number of.

New products that will also introduce it would be with augment beyond that number.

Got it great.

Mark maybe just a quick recap capex and G&A in the fourth quarter. Please.

Yes, so I'll give you a capex for the year I didn't break it out by quarter. So capex for the year will be about 75% to $90 million.

I mean for for 'twenty two.

Oh for the for 2022 Capex was I believe it was.

I've got it right here for the quarter was $13 7 million.

And for the year was about 60.

Great and DNA.

Depreciation and amortization was $18 five for the quarter and $75 70 to five for the year.

Awesome perfect. Thank you all.

You bet. Thanks Mark.

One moment for our next question.

Our next question will come from the line of Linda Bolton Weiser from D. A Davidson your line is open.

Hi, This is Christina on.

Portland up on them either so I guess my first question would be with the launch of the new one price model I'm curious to know what kind of what Steve.

Getting something done.

Maybe another question on what do you think is driving that growth.

Scott.

Yes Christine.

Sure.

Until Linda low as well.

The so your two questions are one on the one price model feedback and the growth in the U S and I'll comment maybe.

<unk> will have some additional thoughts.

As I mentioned, we're really still testing new models.

In order to improve the early earning potential of our affiliates one price. This one price concept that we applied to <unk> in a couple of other product promotions.

As a new concept and it's a relatively well, it's a very new concept, especially in many of our Asian markets. So we're still undecided as to whether or not we will continue to roll that out we're learning it as we go well we do know Thats important as early affiliate earnings is a key part of our future growth and so we'll continue.

To test new things, but we're not ready to really go go on the record and saying what and how exactly one price.

And our business.

As for growth in the U S and then turning to the Ekati, Yes, I mean, we continue to see Youll have to remember the U S has had three consecutive years of really solid growth.

What we've been really pleased with is that we've sustained the grow even as as some of the industry is kind of tapered a bit.

As it pulled out of the Covid kind of lockdown periods. So we've been pleased that we've been able to maintain that growth.

While the comps are much more difficult.

To sustain that has been a good thing and certainly social commerce as been the primary driver of that activity and the thing that we continue to lean into but any additional thoughts on either of those I think the U S market in particular has been able to not only test, but we're fine.

And find tactics and models that work.

A strong early affiliate, earning opportunity that drives the attraction of that affiliate Ace and leads to strong customer acquisition. We also found in particular last year with products that are socially.

Back development, meaning that they are.

<unk> to demonstrate and talos style amplified from a messaging standpoint on social media. They became products that were not on the simpler to understand but also extremely relevant and attractive for us to engage in improving and increasing our subscription enrollment so coupled with that with <unk>.

Customer development, along with a compelling affiliate opportunity that where they can realize early earnings later than we thought that that that continue to maintain the growth in the U S.

Thank you I'll pass it on.

Thanks Kristina.

One moment our next question.

Our next question comes from the line of Jason Bender from Citi. Your line is open.

Great. Good afternoon, everyone. Thanks for taking the question I just want to come back to this idea of how big the Io devices could be as a percentage of net.

Sales.

Can you give us a sense of how many customers already have devices and specifically how often do you see them upgrading devices I get that.

The Iot connectivity as a compelling compelling.

A reason to upgrade for those customers that had already had the places but is there anything else you can do to kind of drive adoption or whether that would be targeted promotions or something else.

Yes, great question, Jason So so in terms of Io devices and device systems and remember for us the importance of Io devices are the systems that are attached to that and the integration of those systems across our broader portfolio. For example, Loomis fire, we have clinical studies around alumina spot.

In college, and plus which is a lesser related product that.

Where a user benefit or customer benefit connectivity, so, but when we think about device systems in and the value of that.

We generally don't get into the level of detail, you're asking but approximately 25% to 30% of our global revenue is devices today and when we think maybe even a little more than that Mark a little lower it's about 20%, 20% and it fluctuates a lot changing.

On the other products, we put it as yes, youre right met it comes out.

But those so as we look to the future. Our goal as we said is we want we aspire to get Io device system revenue to 30% by 2025, and Thats, a really important indicator and balance because the system plus or the system plus portfolio in personalized product recommendation engines.

That needs to really lengthen the tail.

Out on that and so when we think about how to how to drive our business forward from a personalization perspective. The Io device systems are a big window into that connectivity and so kind of that one third two third balances, where we believe we need to get to but of course, it's very early I mentioned were less than 5% of.

Today, just because <unk> was Q4.

We have a lot of promotions as you asked about how do we drive adoption that's precisely what we're focused on.

In the first half of this year and then moving into body Io is how do we get more and more adoption and exactly what you said is the key piece, how do we get people to upgrade from one device to the next Mark made a comment from his past Amazon days.

126, how devices. They tend to have some devices have very short tail ours have very long tails, meaning alumina spot can operate for a couple of years a few years frankly.

Good performance, but because of the benefits of Io, we anticipate the adoption will be faster than just a device and wearing out over time. There is a lot greater user benefit with the Io. So we are very focused on and we'll be very focused on promotions and campaigns to drive.

Io adoption, because we know that the tail of that.

At <unk>.

<unk> type values, what we're after.

Anything else you would add I would add just a couple of things Lumi Io was a follow on to our original lumi Spa and so it has the great Io benefits, but if somebody had alumina spot <unk> benefits may not have been enough to get them to purchase Bonnie Io, which will have a different name when we launch it.

Is it completely different and new product and as a new category for us and it shouldnt have that same overhang someone who has an existing body product the new product will be so very different it wont have it wont look or feel like a follow on product and so we will have further adoption. The other thing I would say our digital tools and the devices.

Sales will get better.

As people use them as we collect data as we're able to add features and make the Io experience that much better as we add a second Io device and a third and a fourth and get smarter and smarter as we collect customer data. This will be our first set of products that will get better overtime.

So I think that's going to be another reason why I think they have very long tails, and we will be able to get to our 30% stated goal.

And just to dovetail on Mike's comments be increasingly fluid thing.

Our experience for that customer for us we have a strong level.

That will also lead to stronger not only engagement stickiness and relationship with the company and the brand, allowing us to further maximize on providing.

Providing customized integrated product recommendations and really incorporating more.

New skin products in various categories into the daily life of a customer and thereby increasing total lifetime value, that's really where when we say long tail areas. There was a longevity of attention as well, but certainly we believe an opportunity for us to increase how integrated we are in terms of their product.

And what we can provide solutions for their total health and beauty and Jason sorry, I don't mean, it take so much time on this but you could get us talking on.

I mean, if you think about from a roadmap perspective, and as Mark mentioned launching multiple devices. When we think about our device ecosystem and what we're what we're mapping out over time, you have alumina spot.

Which obviously addresses the facial dynamics of the personal care journey at a consumer with our App.

We're able to help preferentially steer people towards products for that as I mentioned, we're going to be launching a wellness consultation in second half of this year, which is more focused on body and on health nutrition with a body Io device to help gather insights when you.

Put together our multiyear road map you can really start to see a digital construction of basically a digital twin concept, where we're gathering data and insights on multiple layers of the consumer of course with all privacy driven.

And based on their own their own opt in opportunities, but you can see that this is why these io device systems are so important as we map the entire experience in the beauty and wellness space over time.

Gotcha.

Super Super helpful color. So I appreciate I appreciate all that commentary and then just to switch gears.

Like to hone in specifically on kind of promotions and those targeted towards the new affiliates.

You guys have been talking about for a couple of quarters now and I'm just kind of curious what are you seeing in terms of productivity of these new affiliates now that you guys have actually put that in place and I guess, specifically in the script you mentioned, some new reward programs going into North America and Latam.

Is there any more color you could give around those and what incrementally may be different than what you've already kind of put through and at what point would you start to consider to institutionalize. These types of.

Promotions and ultimately.

Any implications that may have for overall selling expense.

Yeah, absolutely. So so I mentioned previously and as you can see in the data.

Over the last year, our affiliates outpaced our sales leader activity by a fairly healthy margin.

30% or so a little more than 30% and part of that relates to Mark Astro <unk> question, which was around cell sales leadership in China, and then I recognize now I didn't fully answer that question.

The other part is that increasing effort to drive that early affiliated experience or you can think of that product share thats, a little bit more gig like.

And so we are definitely very focused on that we know we believe that to be very important for our future and we are testing a lot of things you asked about the rewards program in the U S or affiliate rewards, which is a it's a special incentive program that is directed towards that early affiliate and improving customer acquisition.

And our overall productivity and.

And so we are testing we use a model of test to refine and expand so when something we tested in one part of the World. We then refine it with further optimization and then and then we end up expanding that around the globe. So we'll use that same model with each of these tests just like we're doing with one price or affiliate rewards and <unk>.

We'll continue to drive that as far as that impact on selling expense were not predicting an increase in selling expense associated with this program. It's more about optimizing dollars that we pay our debt that we paid through the selling expense model. So we wouldn't expect that to drive up.

Got you I appreciate the color. Thanks, so much guys.

Thanks, Jason.

Okay. It looks like we're finished up and our apologies for a bit of a longer call today, we in lieu of an investor day, which we felt wasn't appropriate we wanted to give that context. So I. Thank you for being here and being a part of this as I reflected on the current landscape and our equity markets I have to ask myself, which is.

<unk> companies are going to pull out of this recessionary environment stronger than when they entered it and what is it going to take for us to do that I truly believe that the companies that have a clear vision for our future be focus our company's resources and assets towards building, it and see maintain a healthy and prudent.

Balance sheet that provides sustainable value to investors or those who will ultimately emerge stronger. This is our path at nu skin as we build towards a much brighter and more certain future as the world returns to a more normal state over time, New vision 2025 is our vision and it's our roadmap for the future. So thank you for joining us on the call.

We do look forward to updating you next quarter on progress to plan.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

The conference will begin shortly.

Lower Johan during Q&A, you can dial one one.

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The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one.

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Good day, and thank you for standing by welcome to the <unk>.

Quarter 2020 to Nu skin Enterprises earnings conference call.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hand is race to withdraw your question. Please press star one again, please be advised that today's conference is being record.

I would now like to hand, the conference over to your Speaker today, Scott Pond VP of Investor Relations. Please go ahead.

Thanks, Victor and good afternoon, everyone today on the call with me are Ryan appear ski President and CEO , Connie Tang Chief Global growth to officer, and Mark Warren CFO .

The annual numbers may be discussed 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 website for any required reconciliation of non-GAAP numbers and with that I'll turn it over to Ryan.

Thanks, Scott Hello, everybody. Thanks for joining us today, we have a lot to cover so let me just dive into this 2022 was a year filled with unanticipated macro environmental disruptions that impacted our business globally. We finished the year at two $3 billion of revenue and EPS of $2 90, excluding <unk>.

One time charges the majority of the year over year decline in our business was due to strict COVID-19 related factors in China, which accounted for approximately $208 million of the revenue shortfall as well as unfavorable FX, which negatively impacted us by about $150 million and overall global inflation.

<unk>, which impacted consumer sentiment and global supply chain.

Despite these headwinds we made meaningful progress on several of the key strategic imperatives foundational to our new vision 2025 transformation, which helped us deliver annual revenue growth of 4% in the U S and 2% in Southeast Asia Pacific.

Our Japan and Hong Kong, Taiwan segments also grew in constant currency in the year, while reported revenue was down due to FX headwinds, we remain well positioned to capitalize on enormous landscape shifts that are transforming the beauty and wellness industries around personalization, social commerce and the gig economy.

Let me quickly review, our fourth quarter results. Our revenue of 502020 $522 million was in line with the revised guidance, while non-GAAP EPS of <unk> 89 was well ahead of our projections, reflecting disciplined expense control along with a favorable tax related adjustment like many.

Companies were expecting macro conditions in conditions to remain challenging over the near term with gradual improvements in the second half and so we're taking a conservative approach to setting expectations for 2023, which mark will address in just a minute.

Last year at this time, we introduce new vision 2025, our multi year strategic transformation from our historic direct selling routes to becoming the world's leading integrated beauty and wellness company that is powered by our dynamic affiliate opportunity platform, we defined three distinct strategic imperatives that any.

<unk>, our vision to come to life, which are number one empower me, our personalized beauty and wellness strategy, including Smart Iot connected device systems number to the evolution of our go to market strategy from traditional direct selling to affiliate powered social commerce and number three the <unk>.

This is our revolutionary approach to disrupting the beauty and wellness industry. It will focus on providing personalized product recommendation with our comprehensive personal care and nutrition product portfolio, incorporating AI and ml technology in our apps and including consumer insights from our smart Iot connected.

Device systems.

Abbott to integrate with the customer's status skincare needs and goals and we will get all of that data real time.

This depth of consumer insight can only be captured through our Io connected devices, which we believe to be a significant advantage for new skin in the future.

Moving forward as we more effectively understand our consumers, we will be able to offer personalized product regimen and content curation and drive greater overall consumer engagement and lifetime value with Io device systems, we expect to strengthen our position as the world's leading beauty device systems brand as noted by Euro monitor.

In 2023 will introduce our next smart connected device system beginning in Q3.

I owe device systems are becoming an increasingly important part of our portfolio as we seek to meet the personalized needs of our consumers.

With the introduction of <unk> in late 'twenty, two we generated around 5% of revenue from Io device systems.

And Thats now set a target for connected devices to provide at least 15% of total revenue in 2023 on our way to approximately one third of revenue by 2025.

Empower me will be a major disruptive force throughout the industry in the coming years as this strategy unfolds.

Affiliate promotion, we continue to see our global Salesforce, leveraging social media and <unk>.

Deep way to share products, they love with consumers seeking authentic product recommendations from people They trust and.

We tested several initiatives, including a new one price model unlimited products as well as products sharing bundles, which were responsible for a good portion of growth in the U S. Last year. We also introduced several new social selling products like new biome in college, and plus which enabled increasing social sharing.

As we attract more early shares into the business with social commerce.

<unk> army of authentic micro and nano influencers to scale their businesses.

Our value drivers.

Last April we introduced two new apps, Vera and Stella in English with limited functionality, we enhance these apps globally throughout the year with additional languages and features Vera helps identify consumers unique product needs coaches them on how to use the products and helps track their progress so that they can see how.

The products are working for that Steve.

<unk> is our one stop business management App that helps affiliates increased their productivity by efficiently managing their businesses and attracting and engaging new customers.

In 2023, we will continue to elevate the user experience of our Bella Terra in stellar apps by streamlining ease of use and adding new capabilities and features in fact this quarter together with our AWS partners, we will be applying new AI capability into our personal product recommendation and Ian.

In an entirely new wellness consultations feature later this year.

We're also extending our sharing an attribution features into seller app into the <unk> app itself. So that affiliates can easily share are very app with other users gain visibility into the products being recommended to their customers with permission and receive revenue attribution.

And lastly, we will begin a global deployment of our new E Commerce platform that we've been developing together with our Infosys partners beginning in North America in Q2, and expanding globally throughout 2020 for this new E. Commerce platform will enable a more dynamic and seamless digital experience across our website and apps.

<unk> for Q4 was close to 10% and our year end goal for this is approximately 35%.

Over the next two to three years, our integrated digital ecosystem, including Vera and stellar will be a key to our business as ubers driver and rider apps are to theirs.

And early results for key initiatives have galvanized our commitment to becoming the world's leading integrated beauty and wellness company powered by our dynamic affiliate opportunity platform.

The macro environment remains uncertain in the near term with challenging comparisons in Q1, specifically, we expect it to steadily improved throughout the year, we will continue to be prudent in our cost management with ongoing expense reduction efforts in order to invest in our future we will be conservative in our guidance given macro uncertainty.

<unk>, while being transparent with our progress to our plans and aggressive in our efforts to achieve new vision 2025, So with that let me turn the time over to Connie to take you through our market performance and speak further about the channel growth flat Carney. Thank you Ryan while the macroeconomic factors Ryan discussed had a widespread impact on <unk>.

<unk> acquisition and sales channel both across our reporting segments, we were able to grow annual revenue in constant currency and three of our segments as well as in our U S market.

<unk> all of our markets.

We will continue to focus on and we will also launch a personalized approach to weight management with Ti.

First of all Michael followed by Mike.

Mike connected device system in the second half of the year, Let me give a little more color on each of our reporting segments in.

In the Americas or U S market grew 4% for the year on top of 32% revenue growth in 2021 attributed to continued social selling momentum and customer subscription enrollment the challenging macroeconomic environment in our Latin America markets offset the strength in the U S.

Which led to a decline in revenue and other key metrics for the segment.

This segment continues to lead the way for us in social commerce adoption and our activities. This year our focus on affiliate powered social commerce to drive customer acquisition. The 2023, we are projecting revenue to range from plus one to minus 6%. Please note that as I provide our.

<unk> for each segment the ranges maybe larger than normal due to the uncertain macroeconomic environment as Bryan Knodel, our mainland China business continues to be challenged by Covid related factors that are negatively impacting our selling and promotional activity. This is reflected in our decline in revenue.

And the other kpis.

China has been lifting restrictions and opening up in recent weeks. It has also led to a large surge in COVID-19 infection.

For the year as we introduced our body Io connected device system overall, we project revenue in China will be down this year between 23 and 35%.

In our Hong Kong, Taiwan segment, our strong performance from Taiwan. This year was largely offset by the impact of Covid Lockdowns in Hong Kong, resulting in slight revenue growth in constant currency as a result of a preview with tiara in both markets at the end of last year gives us optimism heading in.

The consumer launches. This month, we have discussed the growth of social selling and Taiwan in the past and we have also been gaining traction with our customer base development through our loyalty programs with increases in customer acquisition and order volume. We project. This segment to range from up to minus 5%.

For the past year, we have discussed the impact in EMEA at the ongoing conflict energy crisis, and inflationary pressures on consumer spending and our business activity throughout the region. We know that without these external disruptions, our social commerce model works.

And typically drive strong customer acquisition looking forward, we are focused on expanding our channels to drive customer attraction and rebuild momentum, but further promotion of roto <unk> IR and our social sharing neutral essentials pumps. This coming year, we anticipate annual.

Revenue to range from up 3% to down 3%.

We faced several challenges and headwinds in South Korea in 2022 with Covid related disruptions early in the year, followed by high inflation and associated pricing disruption. We also faced a negative 9% FX impact for the year and a difficult comp with the successful.

Launch of <unk> in 2021 Korea has been a strong market correct Pier 90 products and we are looking forward to building upon that with the sales leader preview and consumer launch.

In the first half of 2023, followed by the introduction of our newest Io device in the back half of the year for the coming year, we are projecting revenue up 2% to down 5%.

In Japan, we achieved growth in local currency, but faced a 16% FX headwind in reported currency.

Our other key metrics also remained relatively steady with sales leader development activities, helping to build some channel momentum heading into 2023, Japan has been a strong market for customer subscription and we expect to expand that base at Japan launches beauty focused college in plus in the first half of the year.

Yes.

For 2023, we are projecting Japan to grow between one and 2%.

And finally in Southeast Asia Pacific, we generated 7% revenue growth in constant currency for the year Southeast Asia is our strongest region for TR 90 sales and efforts to increase the customer base through this brand will continue in advance of a 2020 for launch of <unk>.

<unk> net sales.

Sales for <unk>, which is called H block reset.

From up 1% down 5%.

Overall, all online will continue to execute against new vision 2025, we are focused on accelerating social commerce adoption across all markets.

<unk> Chan with affiliate acquisition and productivity programs, which will also help us grow our customer base with the insights we are gaining from our smart connected device system, and thereby and stellar apps. We will also focus on retaining our customers and engaging them with <unk>.

<unk> life experiences to drive greater lifetime value and now I will turn it over to Mark to go into more details on our financial performance, Mike. Thank you Connie and thanks to all of you for joining US today I will give Q4 and our high level 2022 Financial review and then provide initial Q1 and.

Full year 2023 projections that include additional financial detail for more information. Please visit our Investor Relations web site for.

For 2022, we generated revenue of $2 two 3 billion.

With a negative foreign currency impact of 5% or $150 million earned.

Earnings per share for the year were $2 seven.

Or $2 90, excluding restructuring and impairment charges associated with the previously announced companies strategic resource reallocation incurred throughout the year and a tax method change.

For the fourth quarter, we generated revenue at the midpoint of our prior guidance at $522 $3 million with a negative foreign currency impact of 7% or $51 million.

The U S dollar continued to strengthen which negatively impacted our results.

Both reported and non-GAAP earnings per share for the quarter exceeded our previous guidance at $1 15.

Our fourth quarter 2022 earnings per share benefited from a reported negative 135% or a negative three 7% tax rate, excluding restructuring and impairment.

Our Q4 reported gross margin was 71, 7% and continued to be impacted by our geographic revenue mix foreign currency exchange rates and global inflationary pressure.

Gross margin for the core Nu skin business was 74, 9%.

Selling expense as a percent of revenue was 38, 5% 60 basis points below the prior year period for the core Nu skin business selling expense was 45%.

As part of our focus on operational efficiencies general and administrative expense declined $36 $5 million year over year to 24, 4% flat with the prior year.

By concentrating on strict cost management throughout the year, we saved over $105 million against our original 2022 G&A budget.

Operating margin for the quarter was five 3% or eight 8%, excluding previously mentioned charges.

This compares to 3% or 11, 7%, excluding restructuring and impairment charges in the fourth quarter of 2021.

The other income expense line reflects a $3 $1 million expense compared to a $1 $9 million of expense in the prior year period.

We continue to prioritize a strong balance sheet and returning value to shareholders even during uncertain times.

During the quarter, we paid $19 million in dividends and repurchased $10 million of our stock with $175 4 million remaining on the current authorization.

In a separate announcement today, our board of directors approved an annual dividend increase which marks the 22nd consecutive year of both paying and increasing our dividend.

Our manufacturing entities continue to significantly benefit our core nu skin business by helping firm up our supply chain increase our speed to market for new products and generate U S profit that lowers our overall tax rate.

We anticipate our rides segment to grow 6% to 13% in 2023.

Also we recently finalized an outstanding legal matter pertaining to the exit of grow Tech, which was closed in 2021.

The implications of that resolution are reflected in our reported results.

We remain focused on aligning all of our resources toward new vision 2025.

Let me now provide Q1 and 2023 annual guidance ranges for revenue and EPS and give some additional detail regarding several key financial statement line items.

As Brian mentioned, we are on a multi year path to transform our business with new vision 2025, and we continue to operate in a very uncertain world, prompting us to give slightly wider guidance ranges.

For Q1, 2023, our seasonally softest quarter, our revenue guidance is $450 million to $490 million, including a negative foreign currency impact of approximately 5%.

Our projection reflects continued macro challenges while lapping a strong Q1 from last year and are largely in line with our historical average sequential decline from Q4.

Our Q1 EPS guidance is 17 to 27.

Or 25 to 35.

Excluding restructuring and impairment charges and a projected tax rate of 18% to 26%.

While we face a challenging first quarter I believe we will be able to demonstrate sequential progress towards our new vision 2025 initiative throughout 2023.

For the full year 2023, we are projecting revenue of 2.032 to $1 8 billion.

Which includes a 1% to 2% unfavorable foreign currency impact.

We are expecting earnings per share of $2 27.

$2 67.

Or $2 35 to $2 75, excluding restructuring and impairment charges.

We anticipate our operating margin to be eight 4% to nine 1% or eight 7% to nine 3%, excluding restructuring and impairment charges with a tax rate of 18% to 26%.

Our tax rate will fluctuate depending on where profit is generated geographically.

I will now walk you through several of our projected 2023 P&L line items. We project 2023 gross margin to be 73, and a half 274%. We have experienced gross margin erosion due primarily to a shift in our geographic footprint and a strong U S. Dollar we anticipate this will stabilize the <unk>.

Some extent and we should see sequential gross margin improvements over the course of the year.

We anticipate that selling expense will remain in the $39, 5% to 40% range we.

We expect general and administrative expense to be 25% to 26%, but down on a dollar basis for the year as we continue to see cost efficiencies, while strategically investing in product innovations technology and emerging markets.

$2 million of expense for the year and approximate $10 million increase year over year.

We project cash from operations of $170 million to $180 million.

Depreciation and amortization will be approximately $70 million and capital spend will be between will be between 75 and $95 million.

As Brian discussed earlier, New vision 2025 is all about how we will transform our business from a traditional direct selling business into an integrated beauty and wellness opportunity platform.

We are committed.

Committed to continuing our operational improvement along the way to our stated 13% operating income target or.

Our strong balance sheet and prudent expense management discipline during turbulent times gives me further confidence in our ability to navigate this journey effectively and with that operator, we will now open up the call for questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Please standby, we compile the Q&A roster.

Our first question comes from the line of Mark.

Mark Astrachan from Stifel. Your line is open.

Yes, Thanks and afternoon everyone.

I guess just a.

If you sort.

Sort of related questions. Maybe first if you could just walk us through you take a look at your revenue projections for the year, it seems pretty pretty interesting that outside of mainland China.

All the regions are anticipating some sort of pretty decent improvement through 'twenty. Three so how much of that is comparison commented that how much of that is sort of line of sight that you have about.

Each respective region, improving and I guess, what should be the things that investors.

Look for to get a sense of whether you are on track to do that.

Yes March and by the way good to hear from you.

So revenue projections as you as you noted mark we see opportunities for growth at each of the segments with the exception of China that maybe we can comment on because I am sure Thats that's of interest and it's probably a follow up question.

And to your point about what we're looking at the way we kind of see this playing out is really second half progress throughout the.

The year I think the macro factors inflation et cetera will now I'm talking rest of world.

Will will lessen over time FX impact lessen over time, and we see just from a core business perspective with our product launches.

Scheduled out, especially this upcoming body Io device that we're pretty excited about but also <unk> and some of our Asia businesses, where it does really well, we expect to see that that growth.

Continue to build throughout the remainder of the year. So we do see opportunities for growth.

Particularly in constant currency in each of those those regions as far as what to look for.

Just mentioned those three kpis and we're going to be talking more about those markets. So as we go but truly watching our io device revenue.

As a percentage, which is very much leading out over the next few years, but the importance of that is going to be key.

Yes.

<unk> growth in from a social commerce perspective affiliates versus sales leaders, which are more of the traditional kpis. We anticipate that to continue to improve and then digital adoption of these apps, which will be really important. So I think those are the things we should watch.

May be related to China, specifically as I am sure Thats that's of interest in our guide on that Youll recall last year, we had anticipated an opening up of China.

In Q1 of last year, and we were seeing signs of that it was a fairly strong quarter and then the government went into strict lockdown, which really unanticipated in Q2 mid Q2 and that carried through to Q3 most of the Q4.

So we do have a tough comp in Q1.

We also know given global Covid, there's a lot of infection going on there and as we know our business really.

Flourishes, when when people can be out about.

But we need to be conservative in our guide because of the Q1 and.

Always must say, China could be unexpected and so we need to continue to watch that but thats kind of our outlook there.

And just related to the China piece, what are you embedding there in terms of.

Getting back to I don't know business as usual, probably unrealistic quick large gatherings, but how do you think about this.

Specific sales model there you had talked on the last call about implementing the new flexible structure from a compensation standpoint, how is that impacting it and then.

Just just unrelated but I feel like market is neglected so mark what's the what's the revenue that we should bake into our models for innovation for 'twenty three.

Sure.

We will come back to that second that third question, Marc I want to make sure. We're clear on revenue from innovation, maybe youre talking about new product revenue perhaps.

Exactly.

Okay. Okay. So a new product revenue, we can talk about that.

In general ranges of what we've done in the past, yes. So let me comment on China, and then Connie can fill in as well as she works more more intimately with the team there locally, but but to your point Mark we continue to see it within kind of a traditional direct sales realm.

Company is kind of moving backwards or maybe to the past.

We absolutely do believe in the value of of <unk>.

To face interaction as human beings and certainly from the channel.

Meetings are important to our business, especially in terms of motivating our sales force encouraging recognizing theres no question that not having that ability in China has been really severe for us and we anticipate that's going to alleviate over time as the government approves more meetings et cetera. Nevertheless, we are.

<unk> to lean into a digital first approach to market, we continue to invest in our digital there.

Proportion to the business and so we will continue to do that but our anticipation is as the market allows for more and more people to meet face to face.

Literally mean that to be out in coffee shops and walking around.

That's a good thing for our business.

And certainly larger meetings will be helpful. It from training and motivation and for US in particular reactivating a sales force that has been dormant for three years and by the way has reduced as you see from the Kpis has reduced significantly.

Going all the way back to the 2019 observation period in China. So we anticipate some alleviation there.

Anything you would add to that I would add.

Ed.

Eric.

Most important business activities and promotional drivers and incentives that we.

We know and that confidence can rejuvenate and revitalize and re engage not only our sales channel, but also allow for them to have the motivation to attract customers has simply not been possible and there will be at.

The ability to execute on that and actually even communicate and bring those to market. We have strong confidence that those would be some key drivers that will reignite.

This business is as much emotional as it is practical as it is tactical and then we think the combination of that and.

What we're seeing in the marketplace opening up we are optimistic in the second half of the year, we will be able to realize some of those results.

And Mark I'll give you a couple of numbers around innovation, we've talked a lot internally about having a metric that we track, which would be new product revenue, what we need to do is better define that for you and actually make that part of our regular reporting package and so I'm just going to give you some general numbers and Thats something.

We will expand upon in the future.

New product revenue so products that we talk about meta.

Collagen plus and our Io devices made up about 13% of our revenue in 2022.

Products that will also introduce it would be would augment beyond that number.

Got it great and Mark maybe just quick recap back Capex and G&A in the fourth quarter. Please.

Yes, so I'll give you a capex for the year I didn't break it out by quarter. So capex for the year will be about 75% to $90 million.

I mean for for 'twenty two.

Oh for the for 2022 Capex was I believe it was.

I've got it right here for the quarter was $13 7 million.

And for the year was about 60.

Great and DNA.

Depreciation and amortization was $18 five for the quarter and 70 72 five for the year.

Perfect. Thank you all.

You bet. Thanks Mark.

One moment for our next question.

Our next question will come from the line of Linda Bolton Weiser from D. A Davidson your line is open.

Hi, This is Christina on Portland, Oklahoma.

I guess my first question would be with the launch of the new one price model.

What kind of like Steve.

Getting something done.

Maybe another question on what do you think is driving the growth of the U S.

Yes Christine.

Until Linda low as well.

The so your two questions are one on the one price model feedback and that growth in the U S and I'll comment maybe.

<unk> will have some additional thoughts as I mentioned, we're really still testing new models.

In order to improve the early earning potential of our affiliates one price. This one price concept that we applied to <unk> in a couple of other product promotions.

To test new things, but we're not ready to really go go on the record and say what and how exactly one price will play in our business.

As for growth in the U S and then turning to the Ekati, Yes, I mean, we continue to see you have to remember the U. S is has had three consecutive years of really solid growth.

What we've been really pleased with is that we've sustained the growth even as as some of the industry is kind of tapered a bit.

As it pulled out of the Covid kind of lockdown periods. So we've been pleased that we've been able to maintain that growth.

While the comps are much more difficult.

To sustain that has been a good thing and certainly social commerce as being the primary driver.

That activity and the thing that we continue to lean into but any additional thoughts on either of those I think the U S market in particular has been able to not only test, but refine and find tactics and models that work.

A strong early affiliate, earning opportunity that drives the attraction of that affiliate base and lead to strong customer acquisition. We also found in particular last year with products that are socially.

<unk>, meaning that they are.

To demonstrate and Kilonzo amplified from a messaging standpoint on social media. They became products that were not on the simpler to understand but also extremely relevant and attractive for us to engage in improving and increasing our subscription enrollment so coupled with that with <unk>.

Customer development, along with a compelling affiliate opportunity that where they can realize earlier earnings we really thought that that that continue to maintain the growth in the U S.

Thank you I'll pass it along.

Thanks Kristina.

One moment our next question.

Our next question comes from the line of Jason Bender from Citi. Your line is open.

Great. Good afternoon, everyone. Thanks for taking the question I just wanted to come back to the site.

How big the Io devices could be as a percentage of net.

Sales.

Can you give us a sense of how many customers already have devices and specifically how often do you see them upgrading devices I get that.

The Iot connectivity as a compelling compelling.

<unk> upgrade for those customers that it already has the prices, but is there anything else you can do to kind of drive adoption, whether that be targeted promotions or something else.

In college, and plus which is a lesser related product that.

User benefit or customer benefit connectivity, so, but when we think about device systems and the value of that.

On the other products, we put it as yes, youre right <unk>.

But those so as we look to the future. Our goal as we said is we want we aspire to get Io device system revenue to 30% by 2025, and that's a really important indicator and balanced because the system plus or the system plus portfolio and personalized product recommendation engines.

That needs to really lengthen the tail.

Today, just because <unk> was Q4.

We have a lot of promotions as you asked about how do we drive adoption that's precisely what we're focused on.

126, how devices. They tend to have some devices have very short tail ours have very long tails, meaning alumina spot can operate for a couple of years a few years frankly.

<unk> adoption, because we know that the tail of that.

Lifetime value is what we're after.

Thing else you'd add I would add just a couple of things Lumi Io was a follow on to our original lumi Spa and so it has the great <unk> benefits, but if somebody had alumina spot <unk> benefits may not have been enough to get them to purchase Bonnie Io, which will have a different name when we launch it.

Is a completely different and new product and as a new category for us and it shouldnt have that same overhang someone who has an existing body product the new product will be so very different it wont have it wont look or feel like a follow on product and so we will have further adoption. The other thing I would say, our digital tools and the devices themselves.

We'll get better.

And so I think that's going to be another reason why I think that very long tails, and we will be able to get to our 30% stated goal.

And just to dovetail on Mike's comments the increasingly improving.

Our experience for that customer for us we have strong.

That will also lead to stronger not only engagement stickiness and relationship with the company and the brand, allowing us to further maximize on <unk>.

Providing customized integrated product recommendations and really incorporating more.

New skin products in various categories into the daily life of a customer and thereby increasing total lifetime value, that's really where when we say long tail areas that there is a longevity of retention as well, but certainly we believe an opportunity for us to increase how integrated we are in terms of their product use.

And what we can provide solutions for their total health and beauty and Jason sorry, I don't mean, it take so much time on this but you could get us talking on.

I mean, if you think about from a roadmap perspective, and as Mark mentioned launching multiple devices.

When we think about our device ecosystem and what we're what we're mapping out over time, you have alumina spot.

Which obviously addresses the facial dynamics of the personal care journey and a consumer with our app.

We are able to help preferentially steer people towards products for that as I mentioned, we're going to be launching a wellness consultation in second half of this year, which is more focused on body and on health nutrition with a body Io device to help gather insight when you.

Put together our multiyear roadmap you can really start to see a digital construction of basically a digital twin concept, where we're gathering data and insights on multiple layers of the consumer of course with all privacy driven.

And based on their own their own often opportunities, but you can see that this is why these io device systems are so important as we map the entire experience in the beauty and wellness space over time.

Gotcha.

Super Super helpful color. So I appreciate I appreciate all that commentary and then just to switch gears I'd like to hone in specifically on kind of promotions and those targeted towards the new affiliates.

You guys have been talking about for a couple of quarters now and I'm just kind of curious what are you seeing in terms of productivity of these new affiliates.

Now that you guys have actually put that in place and I guess, specifically in the script you mentioned, some new reward programs going into North America, and Latam is there any more color you could give around those and what incrementally may be different than what you've already kind of put through and at what point would you start to consider to institute.

Annualized these types of <unk>.

Our motions and ultimately.

Any implications that may have for overall selling expense.

Yes, absolutely. So so I mentioned previously and as you can see in the data.

Over the last year, our affiliates outpaced our sales leader activity by a fairly healthy margin.

30% or so a little more than 30% and part of that relates to Mark gastric cancer question, which was around cell sales leadership in China, and then I recognize now I didn't fully answer that question.

The other part is that increasing effort to drive that early affiliated experience or you can think of that product share thats, a little bit more gig like.

So we are definitely very focused on that we know we believe that to be very important for our future and we are testing a lot of things you asked about the rewards program in the U S. Our affiliate rewards, which is a it's a special incentive program that is directed towards that early affiliate and improving customer acquisition.

<unk> overall productivity.

And so we are testing we use a model a task to refine and expand so when something we tested in one part of the World. We then refine it with further optimization and then and then we end up expanding that around the globe. So we'll use that same model with each of these tests just like we're doing with one price or affiliate rewards.

We will continue to drive that as far as that impact on selling expense were not predicting an increase in selling expense associated with this program. It's more about optimizing dollars that we pay our debt that we paid three the selling expense model. So we wouldn't expect that to drive up.

Got you I appreciate the color. Thanks, so much guys.

Thanks, Jason.

Today's companies are going to pull out of this recessionary environment stronger than when they entered it and what is it going to take for us to do that I truly believe that the companies that have a clear vision for our future be focus our company's resources and assets towards building it and see maintain a healthy and crude.

We do look forward to updating you next quarter on progress to plan.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q4 2022 NU Skin Enterprises Inc Earnings Call

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