Q4 2023 Nu Skin Enterprises Inc Earnings Call

February 14, 2024

Okay.

Operator: Thank you for standing by. And we'll see you next time.

Speaker Change: Thank you for standing by and welcome to the Nu skin Enterprises Q4, 'twenty to 'twenty three earnings conference call.

Operator: NU Skin Enterprises, At this time, all... After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star 1-1 on your telephone. Please be advised that today's call is, I would now like to turn the conference... Scott Pond, Vice President of Investor Relations. Please go ahead.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the Speakers' presentation, there'll be a question and answer session.

Speaker Change: It's a question at that time, Please press star one on your telephone.

Speaker Change: Please be advised today's call is being recorded.

I would like to turn the conference or to your host Mr. Scott Pond, Vice President of Investor Relations. Please go ahead.

Scott Pond: Thanks, Valerie, and good afternoon, everyone. Today on the call with me are Ryan Napierski, President and CEO, and James Thomas, 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.

Scott Pond: Thanks, Valerie and good afternoon, everyone today on the call with me are Ryan appear ski President and CEO and James Thomas 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 anticipate.

Scott Pond: Anticipated.

Scott Pond: Please refer to today's earnings release and our SEC filings for a complete discussion of these. 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 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 the call over to Ryan. Thanks, Scott. Hello everyone.

Scott Pond: Please refer to today's earnings release, and our SEC filings for 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 numbers assist in comparing period to period results in a more consistent manner.

Scott Pond: You should refer to our investor website for any required reconciliation of non-GAAP numbers and with that I'll turn the call over to Ryan.

Ryan S. Napierski: Thanks for joining our call today. We have a lot to cover in today's call. So let's jump into business performance, and then on to expanded enterprise vision and strategy. We are pleased to deliver fourth-quarter revenue above our latest guidance range driven by the continued rollout of Agelok WellSpa IO in many markets, seasonal promotion in China, and the continued strong performance of our RISE businesses. This quarter further demonstrated that while we continue to make progress towards our long-term vision, much of our headway is concealed by the persistent macroeconomic pressures impacting consumer spending and customer acquisition around the globe, as well as disruptions associated with the ongoing transformation of our core business. This was particularly evident in the fourth-quarter results, which were down in our Americas, South Korea, and Europe and Africa segments.

Ryan S. Napierski: Thanks, Scott and Hello, everyone. Thanks for joining our call today, we have a lot to cover in today's call. So let's jump into business performance and then onto expanded enterprise vision and strategy. We are pleased to deliver fourth.

Quarter revenue above our latest guidance range driven by the continued rollout of <unk> in many markets seasonal promotion in China and the continued strong performance of our rise businesses.

Ryan S. Napierski: This quarter further demonstrated that while we continue to make progress towards our long term vision much of our headway was concealed by the persistent macroeconomic pressures impacting consumer spending and customer acquisition around the globe.

As well as disruptions associated with the ongoing transformation of our core business. This was particularly evident in the fourth quarter results, which were down in our Americas, South Korea, and Europe and Africa segments.

Ryan S. Napierski: This was offset by seasonal promotions in mainland China, stabilization in Japan, and modest growth in our Hong Kong-Taiwan segment. In addition, we achieved over 100% growth in our RISE businesses, which accounted for 13% of our revenue in the fourth quarter and continues to become a more meaningful part of our, and users are achieving their desired results with this more personalized approach. WellSpa I.O.

Ryan S. Napierski: This was offset by seasonal promotions in mainland China stabilization in Japan, and modest growth in our Hong Kong, Taiwan segment in.

Ryan S. Napierski: In addition, we achieved over 100% growth in our rice businesses, which accounted for 13% of our revenue in the fourth quarter and continues to become a more meaningful part of our.

Ryan S. Napierski: And end users are achieving their desired results with this more personalized approach <unk> has been a strong addition to our number one beauty device systems brand and is generating consumer interest with the demonstrable results wells.

Ryan S. Napierski: has been a strong addition to our number one beauty device systems brand and is generating consumer interest with demonstrable results. WellSpa.io is scheduled to launch in mainland China in Q2, and we'll be launching a similar device, RenewSpa.io, in the U.S. later this quarter. Moving into 2024, we are preparing to enter the rapidly growing $10 billion brain health market. Stress, sleep, and mental acuity are all growing concerns for consumers around the world.

Ryan S. Napierski: Wells for Io is scheduled to launch in mainland China in Q2 and will be launching a similar device renew spa Io in the U S. Later this quarter.

Ryan S. Napierski: Moving into 2024, we are preparing to enter entered the rapidly growing $10 billion brain health market stress sleep and mental acuity are all growing concerns for consumers around the world and our unique approach to holistic wellness positions us to provide integrated solutions to help our consumers by better balance in their lives.

Ryan S. Napierski: And our unique approach to holistic wellness positions us to provide integrated solutions to help our consumers find a better balance in their lives. We will be introducing this new division and brand at our live events in Q3. We also continue to focus on deepening connectivity with customers and affiliates through enhanced capabilities and feature sets in the Vera and Stella apps, which we believe will enable deeper connections with our customers to meet their personalized needs. Geographically, we continue to see near-term pressures on consumer spending related to extended hyperinflationary conditions around the globe. The Americas, South Korea, Europe, and Southeast Asia all experienced a more difficult year as consumers shifted purchasing habits toward lower-priced goods and services.

Ryan S. Napierski: I'll be introducing this new division and brand at our live events in Q3.

Ryan S. Napierski: We also continue to focus on deepening connectivity with customers and affiliates through enhanced capabilities and feature sets in the werra and stellar apps, which we believe will enable deeper connections with our customers to meet their personalized needs.

Ryan S. Napierski: Geographically, we continue to see near term pressures on consumer spending related to extended hyperinflationary conditions around the globe, The Americas, South Korea, Europe, and southeast Asia, all experienced a more difficult year as consumers shifted purchasing habits towards lower priced goods and services in the meantime, we will be introducing new affordable.

Ryan S. Napierski: <unk> products targeting the masstige customer segments, including a series of new product regimens being rolled out in the U S and South Korea this quarter too.

Ryan S. Napierski: Together with well spa renew spa and our TRA Teague. The line, we anticipate leveling trends in the business moving into the second half of 2024.

Ryan S. Napierski: In the meantime, we will be introducing new affordable luxury products targeting the Mastige customer segments, including a series of new product regimens being rolled out in the U.S. and South Korea this quarter. Together with WellSpa, RenewSpa, and our TRTME line, we anticipate leveling trends in the business moving into the second half of 2024. Mainland China experienced stabilization in our business in the fourth quarter, which was associated with seasonal promotion.

Ryan S. Napierski: Mainland China experienced stabilization in our business in the fourth quarter, which was associated with seasonal promotions.

Ryan S. Napierski: We continue to believe in the potential of this great market, we anticipate ongoing challenges as the economy works to recover over the coming year.

Ryan S. Napierski: We are introducing a new go to market model partnering with Dalian, a sister, Apple Tictoc, which will begin being tested and refined in the first half of 'twenty for Japan.

Ryan S. Napierski: Japan, Hong Kong and Taiwan, each showed favorable outcomes in 2023, and we anticipate these trends to continue moving into 2024.

Ryan S. Napierski: Next let me discuss our expanded enterprise ecosystem vision and strategy, including rise, which is becoming a more substantial part of our business as.

Ryan S. Napierski: As consumers' discovery and purchasing behavior shift further from traditional media into social media Influencer and affiliate marketing continues to grow at an accelerating pace.

Ryan S. Napierski: While we continue to believe in the potential of this great market, we anticipate ongoing challenges as the economy works to recover over the coming year. We're introducing a new go-to-market model, partnering with Douyin, a sister app of TikTok, which will begin being tested and refined in the first half of 2024. Japan, Hong Kong, and Taiwan each showed favorable outcomes in 2023, and we anticipate these trends to continue moving into 2024. Next, let me discuss our expanded enterprise ecosystem vision and strategy, including RISE, which is becoming a more substantial part of our business. As consumer discovery and purchasing behaviors shift further from traditional media into social media, influencer and affiliate marketing continues to grow at an accelerating pace.

Ryan S. Napierski: A recent statistics study estimates influencer marketing in the U S to grow from 6 billion to around $69 billion by 2029.

Ryan S. Napierski: We believe that we are well positioned to capitalize upon this shift as we expand our enterprise vision towards becoming the world's leading integrated beauty wellness and lifestyle ecosystem. This implies an even broader opportunity in the mid to long term as we further build out our rides business segments and seek synergistic opportunities across our business.

Units.

Ryan S. Napierski: By applying our nearly 40 years of learnings and affiliate marketing from our core business with new capabilities and learnings from our rise businesses, we see greater potential for driving enterprise value over time via this expansive beauty wellness and lifestyle ecosystem.

Ryan S. Napierski: In order to further enable this expanded vision, we have been reviewing all aspects of our business and reassessing our approach to capital allocation to invest in long term growth and business evolution. This includes rebalancing our dividend payout ratio to be more in line with or better than our industry peers. This move will.

Ryan S. Napierski: Increased financial flexibility, enabling us to effectively seize forthcoming opportunities.

Ryan S. Napierski: This was a difficult decision for our management team and the board and one that we don't take lightly. However, after extensive analysis and careful deliberation. We believe this move is in the best interest of all stakeholders as we pursue our long term enterprise eco system vision for growth.

Ryan S. Napierski: A recent study estimates influencer marketing in the U.S. to grow from $6 billion to around $69 billion by 2029. We believe that we are well-positioned to capitalize upon this shift as we expand our enterprise vision towards becoming the world's leading integrated beauty, wellness, and lifestyle ecosystem. This implies an even broader opportunity in the mid to long term as we further build out our RISE business segments and seek synergistic opportunities across our business units. By applying our nearly 40 years of learnings in affiliate marketing from our core business with new capabilities and learnings from our RISE businesses, we see greater potential for driving enterprise value over time via this expansive beauty, wellness, and lifestyle ecosystem. In order to further enable this expanded vision, we have been reviewing all aspects of our business and reassessing our approach to capital allocation to invest in long-term growth and business evolution. This includes rebalancing our dividend payout ratio to be more in line with or better than our industry peers. This move will provide increased financial flexibility, enabling us to effectively seize forthcoming opportunities. This was a difficult decision for our management team and the board, and one that we don't take lightly.

Ryan S. Napierski: This capital reallocation will free up approximately $65 million annually that will be directed towards high potential growth investments, which in the near term will be relatively evenly spread across the following three areas.

Ryan S. Napierski: Number one accelerated accelerating the growth opportunities in our rise ecosystem, which grew 41% last year and is becoming a more substantial portion of the overall enterprise number to facilitating a progressive new market expansion model for our core Nu skin business, beginning with India anticipates.

Ryan S. Napierski: In 2025 and number three furthering the buildout of our digital first affiliate opportunity platform with an extended technology partnership with Infosys.

Ryan S. Napierski: Given the importance of the of our update the strategy and capital allocation I want to spend a few minutes diving deeper into the areas. We are now targeting for stepping up investment I'll start with rise, which was established back in 2018 as part of our enterprise diversification strategy.

Ryan S. Napierski: <unk> is a synergistic ecosystem of consumer technology and manufacturing companies focused on innovation within the beauty wellness and lifestyle space. These.

Ryan S. Napierski: These companies Synergistically support our core business and are have capabilities that provide greater growth potential to our expanding ecosystem vision.

Ryan S. Napierski: Rise is experienced healthy organic and acquisition led growth and most of the businesses are still very early in their life cycles.

Ryan S. Napierski: In the fourth quarter <unk> revenues were up over 100% or 87%, excluding last year's beauty bio acquisition.

Ryan S. Napierski: <unk> segments accounted for 13% of total enterprise revenue in the fourth quarter and we anticipate this growing to 20% to 25% by 2025.

Ryan S. Napierski: However, after extensive analysis and careful deliberation, we believe this move is in the best interest of all stakeholders as we pursue our long-term enterprise ecosystem vision for growth. This capital reallocation will free up approximately $65 million annually that will be directed towards high potential growth investments, which in the near term will be relatively evenly spread across the following three areas. Number one, accelerating the growth opportunities in our RISE ecosystem, which grew 41 percent last year and is becoming a more substantial portion of the overall enterprise. Number two, facilitating a progressive new market expansion model for our core NU Skin business, beginning with India, anticipated in 2025. And number three, furthering the build out of our digital first affiliate opportunity platform with an extended technology partnership with Infosys.

Ryan S. Napierski: With an increased investment in rise, we plan to increase manufacturing capabilities and capacity to service, new skus as well as additional consumer goods and indie brands.

Expand technology capabilities for <unk>, which is rapidly becoming a leading affiliate brand marketplace and technology provider for our other businesses.

Ryan S. Napierski: And develop a creator Ladd indie beauty brand incubator, including new and acquired brands for the incubator, we will be able to leverage the beauty bio integration and acceleration framework that we developed last year.

Ryan S. Napierski: For the past several years, we've been building the infrastructure necessary to incubate launch and support creator brands with an array of services, including product R&D manufacturing and packaging technology logistics and internationalization. These additional rise investments will enable us to delve further into the influencer or creator.

Ryan S. Napierski: <unk> and as far reaching opportunities in the beauty wellness and lifestyle space, where.

Ryan S. Napierski: We are well positioned to service the creator economy, an indie brand markets by leveraging our vast array of resources on our way to becoming the world's leading integrated beauty wellness and lifestyle ecosystem.

Ryan S. Napierski: Next new market expansion, beginning with India.

Ryan S. Napierski: This vibrant country is rapidly becoming the worlds fastest growing economy with one 4 billion people a growing middle class and the highest per capita digital and mobile adoption, we see India as a market holding great potential for us new skin has a rich history of international expansion that has fueled our growth into nearly 50 markets around the globe.

Ryan S. Napierski: Given the importance of our updates to strategy and capital allocation, I want to spend a few minutes diving deeper into the areas we are now targeting for stepping up investment. I'll start with RISE, which was established in 2018 as part of our enterprise diversification strategy. RISE is a synergistic ecosystem of consumer, technology, and manufacturing companies focused on innovation within the beauty, wellness, and lifestyle space.

Ryan S. Napierski: We plan to reinvent the way we go to market with a progressive digital first model, which will enable us to expand our global footprint more quickly and cost effectively accelerating our ability to bring new skin to people around the world who are seeking to look feel and live better.

Ryan S. Napierski: We will be aligning with our global sales leaders around an anticipated 2025 entry into this strategically important market at our annual team elite trip. This April.

Ryan S. Napierski: These companies synergistically support our core business and or have capabilities that provide greater growth potential for our expanding ecosystem vision. RISE has experienced healthy, organic, and acquisition-led growth, and most of the businesses are still very early in their life cycles. In the fourth quarter, RISE revenues were up over 100 percent, or 87 percent, excluding last year's Beauty Bio acquisition. RISE segments accounted for 13% of total enterprise revenue in the fourth quarter, and we anticipate this growing to 20 to 25% by 2025. With an increased investment and growth, we plan to increase manufacturing capabilities and capacity to service NU Skin as well as additional consumer goods and indie brands, expand technology capabilities for Maverly, which is rapidly becoming a leading affiliate brand marketplace and technology provider for our other businesses, and develop a creator-led indie beauty brand incubator, including new and acquired brands. For the incubator, we will be able to leverage the Beauty Bio integration and acceleration framework that we developed last year.

Ryan S. Napierski: And third.

Ryan S. Napierski: Our third area of focus is further investment in our digital first affiliate opportunity platform. We aim to provide our brand affiliates with a simpler faster and easier way to engage in our businesses around the globe through our expanded partnership with Infosys, we plan to enhance our digital ecosystem accelerate our global equinox rollout.

Ryan S. Napierski: And streamline the affiliate journey to minimize friction and accelerate growth.

Ryan S. Napierski: So in summary, 2024 will be another year filled with transformation of our core new skin business to win in the future and further our buildout of the rise ecosystem. Our initial outlook for 2024 reflects further macro challenges in the core lessening throughout the year, partially offset by continued double digit.

Ryan S. Napierski: Both from the rise segments.

Ryan S. Napierski: Throughout these challenging times, we remain optimistic in our future growth potential as we continue to reposition the enterprise towards becoming the world's leading integrated beauty wellness and lifestyle in our ecosystem and.

And with that I'll turn the call over to James to dive deeper into our guidance and the financials James Thank.

James Thomas: Thank you Ryan and thanks to all of you for joining today I'll provide a brief Q4 and 2023 full year financial review and then give Q1 in 2024 projections for additional details. Please visit our Investor Relations Web site for 2023, we generated revenue of $1 97 billion.

James Thomas: With a negative foreign currency impact of 3% or $60 million earnings per share for the year were 17.

James Thomas: Our $1 85.

James Thomas: Excluding restructuring and other charges compared to $2 seven.

James Thomas: We're $2 90, excluding restructuring and impairment charges for the fourth quarter, we posted revenue of $488 $6 million.

James Thomas: Which was ahead of our previous guidance range and included a negative foreign currency impact of 1% or $7 2 million.

James Thomas: Reported earnings, which also came in slightly ahead of previous guidance were <unk> 15 or.

Ryan S. Napierski: For the past several years, we've been building the infrastructure necessary to incubate, launch, and support creator brands with an array of services, including product R&D, manufacturing, and packaging, technology, logistics, and internationalization. These additional RISE investments will enable us to delve further into the influencer or creator economy and its far-reaching opportunities in the beauty, wellness, and lifestyle space. We're well positioned to service the creator economy and indie brand markets by leveraging our vast array of resources on our way to becoming the world's leading integrated beauty, wellness, and lifestyle ecosystem. Next, we will launch new market expansion beginning with India. This vibrant country is rapidly becoming the world's fastest-growing economy.

James Thomas: Or <unk> 37 <unk>.

James Thomas: Excluding restructuring and other charges compared to $1 15, or <unk> 89, excluding restructuring impairment charges and a favorable favorable tax rate in Q4 of 2022.

James Thomas: Our gross margin was 72, 1% compared to 71, 7%.

James Thomas: Fourth quarter gross margin for the core <unk> business was 77, 4% compared to 74, 9% in the prior year quarter. The 250 basis point improvement in our core business was primarily driven by the strategic decision to rebalance our product portfolio reduce product promotions and the intentional.

James Thomas: Focus on higher margin products.

James Thomas: Selling expense as a percentage of revenue decreased to 37, 1% compared to 38, 5% in the prior year quarter, the lower selling expenses due enlarge part to growth in our rides manufacturing segment, which carries a lower selling expense for the new core new skin business selling expense was 48%.

James Thomas: Third with 45% in line with expectations.

James Thomas: General and administrative expenses as a percentage of revenue were 29, 7% compared to 24, 4%. The increase percentage can largely be attributed to lower quarterly revenue levels and increased promotional campaign spend in the quarter as previously discussed during the fourth quarter. We made the decision to street strategically re.

James Thomas: Evaluate our new skin core business and align our operating costs to be in line with revenue.

James Thomas: In the fourth quarter, we incurred an initial $10 million charge and severance and made the determination to extend our restructuring and cost efficiency program through Q2 of 2024 with an anticipated additional $15 million of restructuring charges.

James Thomas: We expect the cost efficiency program to deliver annual savings of between $40 million.

Ryan S. Napierski: With 1.4 billion people, a growing middle class, and the highest per capita digital and mobile adoption, we see India as a market holding great potential for us. NU Skin has a rich history of international expansion that has fueled our growth into nearly 50 markets around the globe. We plan to reinvent the way we go to market with a progressive, digital-first model that will enable us to expand our global footprint quickly and cost-effectively, accelerating our ability to bring NU Skin to people around the world who are seeking to look, feel, and live better. We will be aligning with our global sales leaders around an anticipated 2025 entry into this strategically important market at our annual Team Elite trip this April. And third... Our third area of focus is further investment in our digital-first affiliate opportunity platform. We aim to provide our brand affiliates with a simpler, faster, and easier way to engage in our businesses around the globe.

James Thomas: And $65 million before taxes in the core new skin operating plan excluding investments in rise we will continue to seek business efficiencies in all areas and believe these actions will help us maximize cash flows target improved margins and enhance earnings per share going forward operating margin for the quarter was three.

James Thomas: <unk>, 3% or six 4%, excluding restructuring and other charges compared to five 3% or eight 8%, excluding restructuring and impairment charges in the prior year. The other income expense line reflects a $6 7 million compared to a $3 1 million in the prior year quarter.

James Thomas: We generated strong cash from operations for the fourth quarter of $54 million <unk>.

James Thomas: Compared to $26 million in the prior year period. This was mainly driven by focused efforts and improving existing inventory levels and tightening our supply chain.

James Thomas: We paid $19 3 million in dividends and did not repurchase any stock we have $162 $4 million remaining on the current authorization.

James Thomas: Our tax rate for the quarter was 21, 9% or 24, 9%, excluding restructuring and impairment charges compared to negative 134, 9% or negative three 7% excluding restructuring impairment charges in the prior year period for the first quarter, we anticipate an elevated tax rate.

Ryan S. Napierski: Through our expanded partnership with Infosys, we plan to enhance our digital ecosystem, accelerate our global Equinox rollout, and streamline the affiliate journey to minimize friction and accelerate growth. So, in summary, 2024 will be another year filled with transformation of our core NU Skin business to win in the future and further our build-out of the Rise ecosystem. Our initial outlook for 2024 reflects further macro challenges in the core lessening throughout the year, partially offset by continued double-digit growth from the Rise segment. Throughout these challenging times, we remain optimistic about our future growth potential as we continue to reposition the enterprise toward becoming the world's leading integrated beauty, wellness, and lifestyle ecosystem. And with that, I'll turn the call over to James to dive deeper into our guidance and the financials. Thank you, Ryan. And thanks to all of you for joining us today.

James Thomas: And the range of 60% to 70% due to rate impacts from stock awards and anticipate a projected 2024 annual tax rate of 25% to 35%. This annual rate reflects an anticipated higher global effective tax rate, primarily due to the expected geographical mix of earnings.

James Thomas: During the year and the rate impact from our stock awards in Q1.

James Thomas: As Ryan mentioned and as part of our long term transformational goals today today, we announced an update to our capital allocation strategy rebalancing the quarterly dividend <unk> <unk> per share we remain in a strong financial position and we will continue to generate healthy cash flow. This dividend change puts our overall payout ratio more.

James Thomas: In line.

James Thomas: In line with or better than our industry peers and will provide approximately $65 million in capital that can be used to fund growth opportunities. This action also enables us to prioritize responsible debt management actively pursue inorganic growth opportunities and enhance shareholder value through opportunistic share repurchases.

James Thomas: Shifting focus now to guidance taking into account the aforementioned economic conditions and challenges associated with transforming our business. We are projecting 2020 for revenue in the $1 $73 billion to $187 billion range, we anticipate earnings per share of seven.

James Thomas: I'll provide a brief Q4 and 2023 full year financial review and then give Q1 and 2024 projections. For additional details, please visit our Investor Relations website. For 2023, we generated revenue of $1.97 billion, with a negative foreign currency impact of 3% or $60 million. Earnings per share for the year were $0.17 or $1.85, excluding restructuring and other charges, compared to $2.07 or $2.90, excluding restructuring and impairment charges.

James Thomas: Five to a $1 15, our adjusted earnings of 95 to $1 35, our guidance assumes a negative foreign currency impact of approximately 1% and assumes a higher effective tax rate of 25% to 35% primarily due to the expected geographic mix of earnings during the year.

James Thomas: We are projecting first quarter revenue of $400 million to $435 million, assuming a foreign currency headwind of approximately 3% with reported earnings per share of negative seven to three <unk>.

James Thomas: <unk> zero cents to <unk> 10, excluding restructuring charges in closing.

James Thomas: As we realign the company for success by transforming our core Nu skin business and expand our rise ecosystem, we're structuring ourselves to increase investments in promising high growth opportunities that will benefit all stakeholders as we implement our comprehensive enterprise vision and strategy, our dedication to generating lasting value.

James Thomas: For the fourth quarter, we posted revenue of $488.6 million, which was ahead of our previous guidance range and included a negative foreign currency impact of 1% or $7.2 million. Reported earnings, which also came in slightly ahead of previous guidance, were $0.15 or $0.37, excluding restructuring and other charges, compared to $1.15 or $0.89, excluding restructuring and payment charges, and a favorable tax rate in Q4 2022. Our gross margin was 72.1% compared to 71.7%. Fourth quarter gross margin for the core NU Skin business was 77.4% compared to 74.9% in the prior year quarter.

James Thomas: For the enterprise remains steadfast as we position ourselves for future growth and with that operator, we will now open the call up for questions.

Speaker Change: Thank you again, ladies and gentlemen, who'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star One line one moment for your first question.

Speaker Change: Our first question comes from the line of Dead Lane of water Tower Research. Your line is open.

Dead Lane: Yes, hi, good afternoon everybody.

Dead Lane: A lot going on here, Ryan, but let's focus on the capital allocation it seems to be the big news here.

Dead Lane: I don't have a cash flow, yes, what was capital spending in 2023.

Ryan S. Napierski: Yes, Doug Thanks for thanks for the question, Yes, so capital allocation and overall capital spend James is in 2023, what we're looking at 50 58.

Speaker Change: 58 net opex.

Ryan S. Napierski: And what kind of Directionally, where you think thats going into 2020 for the same.

Guests up right.

James Thomas: The 250 basis point improvement in our core business was primarily driven by the strategic decision to rebalance our product portfolio, reduce product promotions, and the intentional focus on higher-margin products. Selling expenses, a percentage of revenue, decreased to 37.1% compared to 38.5% in the prior year quarter. The lower selling expense is due in large part to growth in our rising manufacturing segment, which carries a lower selling expense. For the core NU Skin business, selling expense was 40.8% compared to 40.5%, in line with expectation. General and administrative expenses as a percentage of revenue were 29.7% compared to 24.4%.

Ryan S. Napierski: The capital allocation is actually in our forward plan, we're estimating between 50 and $60 million and our capital spend.

Speaker Change: Okay. That's helpful.

Speaker Change: So then.

Speaker Change: With the freed up $65 million from the dividends, we should probably be modeling free cash positive in 2024 correct.

Speaker Change: Yes, yes, that's the plan going forward.

Speaker Change: And then just to wrap it up what would be the priorities for use of free cash flow under the new policy.

Speaker Change: Yes.

Speaker Change: Doug the way as I said in my in my remarks, we're really seeking for opportunities those investment opportunities I mentioned around the rise investments.

Looking at India growth prospects and affiliate opportunity platform build out Tech technology wise.

James Thomas: The increased percentage can largely be attributed to lower quarterly revenue levels and increased promotional campaign spend in the quarter. As previously discussed, during the fourth quarter, we made the decision to strategically re-evaluate our NU Skin core business and align our operating costs to be in line with revenue. In the fourth quarter, we incurred an initial $10 million charge for severance and made the determination to extend our restructuring and cost efficiency program through Q2 of 2024 with an anticipated additional $15 million of restructuring charges. We expect the cost efficiency program to deliver annual savings of between $40 million and $65 million before taxes in the core NU Skin operating plan, excluding investments in rides. We will continue to seek business efficiencies in all areas and believe these actions will help us maximize cash flows, target improved margins, and enhance earnings per share going forward. Operating margin for the quarter was 3.3 percent or 6.4 percent, excluding restructuring and other charges, compared to 5.3 percent or 8.8 percent, excluding restructuring and impairment charges in the prior year.

Speaker Change: So reinvesting in the business is really priority one at this point and even to the point of not even paying down debt just really focus on those investment opportunities in your business.

Speaker Change: Yes, Doug as we as we look at the landscape of our cash position. We typically in Q1 have tighter pressures coming through Q1, but yes as Ryan outlined that's the capital allocation strategy and we're going after those those growth opportunities, which you see significant growth in Q4.

Speaker Change: At our management of that.

Speaker Change: We'll go after that as well in terms of how do we manage that while we look for opportunities.

Speaker Change: Inside our business and outside to grow in the future.

Speaker Change: That makes sense. Thanks for the clarification and then just shifting gears you report on your.

Speaker Change: Customers and affiliates and sales leaders, which is very helpful. Because your business evolving and getting more complex. If you will but it seems that customers are really consumers and the affiliates or social media influencers to oversimplify and sales leaders are your traditional entrepreneurs micro entrepreneurs and business.

Speaker Change: <unk> and yet each was down 10% to 15% is it.

Speaker Change: Those numbers tend to run in tandem or could they diverge at some point, depending upon whats going on at the company.

Speaker Change: Yes, I mean, they're interrelated I mean that the important thing to note and we've pointed this out before with affiliates.

Speaker Change: You can consider our affiliates as kind of the.

Speaker Change: Yes, theyre, partially socially driven but there are more kind of the early an early out types of more flexible engaged people. We're in the process of reclassifying affiliates.

Speaker Change: We do segment by segment so each each year, we've done a few of the segments and so thats, where that number flex is a little bit differently than the consumers and the sales leaders, but there are relationships and we see for example customers being down further than the channel over this past.

James Thomas: The other income expense line reflects a $6.7 million expense compared to a $3.1 million expense in the prior year quarter. We generated strong cash from operations for the fourth quarter of $54 million, compared to $26 million in the prior year period. This was mainly driven by focused efforts in improving existing inventory levels and tightening our supply chain. We paid $19.3 million in dividends and did not repurchase any stock.

Speaker Change: Q4, as we saw is more related to pricing pressure in the broader economy, and just just afford to build where consumers are buying.

Speaker Change: And how the sales leads are leaders are selling whether they're selling to registered customers or or more to retail customers and so there's always going to be some mix shift between that because of how the affiliates and the sales leaders actually are selling the products again, if they go direct to customer through our retail model versus registered customers with us.

James Thomas: We have $162.4 million remaining on the current authorization. Our tax rate for the quarter was 21.9% or 24.9% excluding restructuring and impairment charges compared to negative 134.9% or negative 3.7% excluding restructuring and impairment charges in the prior year period. For the 1st quarter, we anticipate an elevated tax rate in the range of 60 to 70% due to rate impacts from stock awards, and we anticipate a projected 2024 annual tax rate of 25% to 35%. This annual rate reflects an anticipated higher global effective tax rate primarily due to the expected geographical mix of earnings during the year and the rate impact from our stock awards in Q1.

Speaker Change: And we do both so theres correlation, but there's not there's not a perfect correlation.

Speaker Change: Okay that helps me understand it then it makes sense for those numbers to be Directionally close yes.

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Ryan S. Napierski: That's helpful. Thanks, Ryan.

Doug: Thanks, Doug.

Speaker Change: Thank you.

Speaker Change: Again, ladies and gentlemen would you like to ask a question. Please press star one on your telephone again to ask a question. Please press star 111 moment.

Speaker Change: I'm showing no further questions at this time, ladies and gentlemen. This does conclude today's conference. Thank you all participating you may now disconnect.

Speaker Change: Have a great day.

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James Thomas: As Ryan mentioned, and as part of our long-term transformational goals today, today we announced an update to our capital allocation strategy, rebalancing the quarterly dividend of six cents per share. We remain in a strong financial position and will continue to generate healthy cash. This dividend change puts our overall payout ratio more in line with, or better than, our industry peers and will provide approximately $65 million in capital that can be used to fund growth opportunities. This action also enables us to prioritize responsible debt management, actively pursue inorganic growth opportunities, and enhance shareholder value through opportunistic share repurchase. Shifting focus now to Gaia.

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James Thomas: Taking into account the aforementioned economic conditions and challenges associated with transforming our business, we are projecting 2024 revenue in the $1.73 to $1.87 billion range. We anticipate earnings per share of $0.75 to $1.15, or adjusted earnings of $0.95 to $1.35. Our guidance assumes a negative foreign currency impact of approximately 1% and assumes a higher effective tax rate of 25 to 35%, primarily due to the expected geographic mix of earnings during the year.

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James Thomas: We are projecting first quarter revenue of $400 to $435 million, assuming a foreign currency headwind of approximately 3%, with reported earnings per share of negative $0.07 to $0.03 or $0.00 to $0.10, excluding restructuring charges. As we realign the company for success by transforming our core NU Skin business and expanding our RISE ecosystem, we are structuring ourselves to increase investments in promising high-growth opportunities that will benefit all stakeholders as we implement our comprehensive enterprise vision and strategy. Our dedication to generating lasting value for the enterprise remains steadfast as we position ourselves for future growth. And with that, Operator, we'll now open the call up for questions. Thank you.

Operator: Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Thank you again for asking the question. Our first question comes from the line of Doug Lane of Water Tower Research.

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Douglas Matthai Lane: Yes, hi, good afternoon, everybody. There's a lot going on here, Ryan, but let's focus on the capital allocation. That seems to be the big news here. I don't have a cash flow yet.

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Douglas Matthai Lane: But what was capital spending in 2020? Yeah, Doug, thanks for asking. Yeah, so capital allocation and overall capital spend, James, is in 2023. What were we looking at?

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James Thomas: It was $58 million. Yeah, $58 million. And what kind of directionally direction do you think that's going in 2024? The same, I would guess up, right? The capital allocation is actually, in our forward plan, we're estimating between $50 and $60 million in our capital. Okay, okay, that's helpful. So then, with the freed up 65 million from the dividends, we should probably be modeling in free cash positive in 2024, correct? Yes, yes, that's the plan going forward. And then, just to wrap it up, what would be the priorities for the use of free cash flow under the new policy?

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Ryan S. Napierski: Yeah, so I think Doug, as I said in my remarks, we're really seeking opportunities, those investment opportunities I mentioned around the rise in investments, looking at India's growth prospects, and affiliate opportunity platform build out tech-wise. So reinvestment in the business is really priority one at this point. And even to the point of not even paying down debt, just really focus on those investment opportunities in your business.

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James Thomas: Yeah, Doug, as we as we look at the landscape of our cash position, we typically in Q1 have tighter pressures coming through Q1. But yes, as Ryan outlined, that's the capital allocation strategy. And we're going after those, those growth opportunities, which you see significant growth in in Q4. Debt, our management of debt, we'll go after that as well in terms of how do we manage that while we look for opportunities, both inside our business and outside to grow. In the future.

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Douglas Matthai Lane: Okay, that makes sense. Thanks for the clarification, and just shifting gears, you report on your customers than affiliates and sales leaders, which is very helpful because, you know, your business is evolving and getting more complex, if you will. But it seems that customers are really consumers, and affiliates are social media influencers, to oversimplify it. And sales leaders are your traditional entrepreneurs, micro entrepreneurs, and business builders. And yet, each was down 10 to 15%.

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Ryan S. Napierski: Is it that those numbers tend to run in tandem? Or could they diverge at some point, depending upon what's going on at the company? Yeah, I mean, they're interrelated.

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Ryan S. Napierski: I mean, the important thing to note, we've pointed this out before with affiliates, you can consider our affiliates as kind of the, yeah, they're partially socially driven, but they're more kind of the early in, early out type, the more flexible, engaged people. We're in a process of reclassifying them. We do it segment by segment. So each year, we do a few of the segments. And so that's where that number flexes a little bit differently than the consumers and the sales leaders. But there are relationships, and we see, for example, customers being down further than the channel over this past, you know, in Q4 is more related to pricing pressure in the broader economy and just affordability, where consumers are buying, and how the sales leaders are selling, whether they're selling to registered customers or more to retailers. And so there's always going to be some mixed messages between that because of how the affiliates and the sales leaders actually are selling the products. Again, if they go direct to customers through a retail model versus registered customers with us, and we do both.

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Ryan S. Napierski: So there's correlation, but there's not a perfect correlation. Okay, that helps me understand it, that it makes sense for those numbers to be directionally close. Yeah, that's right. Yeah, generally.

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Douglas Matthai Lane: That's helpful. Thanks, Ryan. Thanks, Doug. Thanks. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Thank you again to ask the question. I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's.., you all. Please see the complete disclaimer at https://sites.google.com Used with permission. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Thanks for watching!

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Q4 2023 Nu Skin Enterprises Inc Earnings Call

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