Q4 2024 Nu Skin Enterprises Inc Earnings Call
Good day and thank you for standing by welcome to the fourth quarter 2020 for Nu skin Enterprises earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a.
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BG: Please be advised that today's conference is being recorded I would now like to turn the conference over to be G. Hi. Please go ahead.
BG: Thanks, Lisa and good afternoon, everyone I'm, Peter Hunt and we'd like to introduce myself as the new head of Investor Relations at Nu skin.
BG: With nearly 20 years at Nu skin I've held positions in our global tax group led our administrative services help build out our southeast Asia headquarters and we will continue to head up our global Treasury team.
BG: I've enjoyed my early interactions with you and look forward to working more closely to build our investment community as we continue to transform our business towards becoming the world's leading beauty wellness and lifestyle ecosystem.
Speaker Change: With the progress we've made in several areas I'm excited to turn the time over to Brian appear ski President and CEO and James Thomas CFO to share more on the details.
Before I do that let me point out that on today's call comments will be made that include forward looking statements. These statements involve risks and uncertainties and actual results may differ materially from those discussed or anticipated.
Speaker Change: Please refer to today's earnings release, and our SEC filings for a complete discussion of these risks.
Also during the call certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements.
Speaker Change: We believe these non-GAAP numbers assist in comparing period to period results in a more consistent manner.
Speaker Change: Please refer to our Investor website, IR Dot <unk> dot com for any required reconciliation of these non-GAAP numbers.
Speaker Change: And with that I'd now like to turn the call over to Brian. Thanks, BG. Thanks, everyone for joining the call from Snowy, Utah, where we're finally getting the snow that we need.
Brian Appear: A much needed here, but thanks for joining the call I'll begin with an overview on our performance and then discuss our key priorities for 2025 as we continue to transform our journey towards becoming the world's leading integrated beauty wellness and lifestyle ecosystem, our fourth quarter revenue came in above our guidance range with encouraging sequential growth.
Brian Appear: From Q3 to Q4 in our core <unk> business, our adjusted earnings per share excluding restructuring and other charges also exceeded our projections. This momentum combined with the continued strong performance from rise demonstrates progress in our transformational journey in the quarter, we delivered constant currency growth in the Americas improved.
Profitability and paid down debt of $440 million.
Dollars.
Brian Appear: While persistent headwinds remain in China, and South Korea, the growth in Latin America, and parts of Southeast Asia was particularly encouraging and demonstrate our developing market strategy is gaining traction.
Brian Appear: Our Q4 results were driven in part by the launch of our new age locked true face peptide retinol complex and the performance of rise our newest toothpaste product launched in late 2024 and is demonstrating strong market acceptance. This innovative product leverages AI discovered peptide technology to deliver retinol and a unique.
Brian Appear: Way combining two types of retinoids for a powerful result in a gentle formula the success of this launch reinforces our ability to meet evolving consumer demands in the premium beauty space, while maintaining our commitment to innovative formulations.
Brian Appear: Our <unk> segments achieved 28% year on year growth in Q4 in January we announced the strategic transaction of <unk> with later in summit partners for $250 million. This transaction generated a five times return on our investments in 2021 and provides further validation of our of our rise ecosystem.
Brian Appear: Strategy, while also strengthening our balance sheet.
Brian Appear: Through our ongoing commercial relationship with later will maintain access to <unk> technology, and social commerce capabilities to support our affiliate marketing business.
Brian Appear: So looking ahead to 2025, we have three strategic priorities as we work towards our long term enterprise vision of becoming the world's leading beauty wellness and lifestyle ecosystem first strengthen our new skin core business.
Brian Appear: Accelerate innovation of our Io intelligent beauty and wellness platform, including rise and third improve our operational performance and efficiency, let's dive deeper into each of these first strengthening our new skin core business over the past few years following COVID-19 direct selling has seen perhaps the greatest level of this.
Brian Appear: Or option as consumers have shifted primarily to social online shopping social platforms have evolved their algorithms to maximize paid advertising revenue pushing down authentic product recommendations on their platforms. In addition, the broader declining consumer sentiment in critical markets like China, and South Korea is impacted premium beauty.
Brian Appear: <unk> and personal care categories.
Brian Appear: Our teams are.
Acutely aware of these trends and are actively evolving our core business to succeed in the future by enhancing our entrepreneurial business model to more effectively reward affiliates for building their businesses and the social first manner.
Brian Appear: While continuing to reward leaders for training and motivating motivating their sales teams.
Brian Appear: This new business model combines the best of affiliate marketing with the power of Nu skin leadership, and we plan to continue to roll it out with enhancements.
Brian Appear: Various markets around the world throughout 2025 and beyond.
Brian Appear: We're also refining our product portfolio to better fit todays emerging consumer needs around the world to make room for exciting new product innovations like <unk> 360, <unk> cognitive health, our cognitive health line, which we began to launch in 2024 and will be launching in additional markets throughout 2025.
Brian Appear: As well as a full restage of our true face prestige beauty line to be rolled out globally in 2025.
Brian Appear: Meeting consumers, where they are from a price value perspective is critical, particularly as we lean into our developing market segments.
Brian Appear: With this in mind, we will be increasing our focus on Nu skin's developing markets as we seek out new growth opportunities leveraging our simplified and focused business model in Latin America, which is responsible for driving significant year over year growth in Argentina, we will be leaning into these high potential yet underperforming markets in 2025%.
Brian Appear: To accelerate performance.
Brian Appear: Together with ongoing expansion efforts in India as we continue to explore future opportunities. We believe the developing markets will play an increasingly significant role in strengthening our <unk> business in 2025 years and years to come.
Brian Appear: Our second enterprise priorities to accelerate innovation of of our Io intelligent beauty and wellness platform, including rise.
Brian Appear: We recognize to truly meet the needs of beauty and wellness consumers around the globe a company must gather synthesize and provide insights that demonstrate the difference of the products. We produce the consumers for the past several years, we have been building out our Io connected beauty and wellness device systems platform. Most recently with the launch of wells spud.
Brian Appear: New spa in the past two years.
Brian Appear: This intelligent platform now contains over 25 million connected treatments for nearly 500000 connected devices with more than $100 million data points, providing insights into behaviors and product usage within our Io platform in.
Brian Appear: In 2025, we will begin integrating these topical.
Brian Appear: Insights together with data gathered from our bio photonics scanner as we build out a robust beauty and wellness insights database.
Brian Appear: These insights will power the AI engine behind our next innovation Prism Io are truly intelligent wellness device, our scientists that ride rise labs, together with leading spectral imaging researchers have developed a clinically substantiated patent pending technology that can accurately measure.
Brian Appear: Micro nutrient absorption in the skin. This noninvasive device aims to answer perhaps the biggest question perplexing nutritional supplementation, you might nutritional supplement actually work.
Brian Appear: And it provides this information at the touch of a finger tip.
Speaker Change: Prism Io is scheduled for limited release to top performing sales leaders around the world in the second half of 2025 with a global launch plan in 2026, as we look to further strengthen our euro monitor a claim position of <unk>.
Speaker Change: Being the worlds number one company for beauty and wellness device systems, we will dive much deeper into prism <unk> and our intelligent wellness journey in our upcoming earnings calls.
Speaker Change: And third we will improve operational performance and efficiency around the globe as we align our business to what matters most innovation growth at EPS.
Speaker Change: As we wrap up the previously announced restructuring we have taken an acute approach to evaluating every line item of our business.
Speaker Change: Our team is surgically analyzed our extensive global product portfolio based upon strategic fit volume and margin as part of our multiyear plan to optimize our global portfolio by more than 15 55 zero percent by the end of 2025, improving inventory holdings.
Speaker Change: Gross margin in our total cost of fulfillment.
Speaker Change: Further our finance and global leadership teams around the world have evaluated every market to optimize operations that will improve focus execution and profitability around the world. We're leveraging a streamline model developed for Argentina and extended into Latin America in the past year, which has resulted in both revenue growth.
And improved profitability across the region. Our goal is to bring every market around the globe to our profitability targets in 2025.
Speaker Change: James will dive deeper into our performance optimization plan, which we anticipate will produce meaningful improvements to our overall operating margin in 2025 and the years to come.
Speaker Change: Just before I wrap up I want to comment briefly on the transaction of <unk>, one of our rise portfolio businesses announced earlier this year maybe.
Speaker Change: <unk> represented approximately 4% of the company's revenue last year and transacted for $250 million.
Speaker Change: The sale of <unk> has strengthened our balance sheet in many different ways at a recent Investor Conference I was asked how such meaningful value.
Speaker Change: Creation with seemingly unnoticed in the market. My answer was that we have been vocal about rise over the past two years with specific callouts for <unk>. However, investors did not ascribe the full value of this asset.
Speaker Change: To follow up the follow up question was then asked what is most misunderstood about new skin <unk>.
Speaker Change: My answer in short was that unlike most companies in the beauty and wellness space are public market valuation is weighted more upon the channel by which our core nu skin business distributes our innovative products or services, rather than being valued for the full suite of innovations and businesses across our enterprise.
Speaker Change: To be clear, we are proud of the direct selling heritage that we've built over 40 years and I believe that accompanies should be viewed for its full suite of value drivers for us. This includes the value inherent within our core new skin business, including our innovative R&D engine dedicated sales force and our operational.
Speaker Change: Actually in nearly 50 markets as well as new and emerging businesses within rise, including companies like life, DNA Wasatch labs and various other investments.
Speaker Change: Moving forward it is incumbent upon us as management to continue highlighting potential breakthrough innovations like <unk> included including providing greater visibility into all other value drivers across the enterprise that propel us towards our vision of becoming the world's leading beauty wellness and lifestyle ecosystem.
James Thomas: With that I'll turn the time over to James.
You, Ryan and thanks to everyone for joining us today.
James Thomas: Start with a review of our Q4 performance highlight key takeaways from 2024, and then discuss our outlook for Q1 and full year 2025, I'll be speaking to adjusted non-GAAP financial measures as it pertains to our financial results reconciliations to the most directly comparable GAAP measures found on our.
James Thomas: <unk> relations website.
James Thomas: For the fourth quarter, we delivered revenue of $445 6 million exceeding our previous guidance range. Despite a 4% negative foreign currency impact of $21 million.
James Thomas: Adjusted earnings per share came in at 38.
James Thomas: Surpassing our guidance and slightly ahead of our prior year of 37.
James Thomas: For the full year, we generated $1 $73 billion in revenue landing within our original guidance, even as we navigated an unexpected additional FX headwind of approximately $60 million. Our Q4 adjusted gross margin was 71, 4% compared to 72.
James Thomas: 1% in the prior year within our core new skin business. Adjusted gross margin was 76, 6% down from 77, 4%, primarily due to a geographic shift in revenue away from China and Korea.
James Thomas: As Ryan mentioned, our strategy to streamline the portfolio focusing on strategic fit profitability and affordability has success successfully re engaged and expanded our opportunity in developing markets with a more targeted product offering due to the expanding success in Latin America and planned rollout.
James Thomas: In 2025, and Southeast Asia Pacific and Europe Africa, We've made the decision to take more aggressive efforts to reduce our portfolio, resulting in a $38 $8 million write down this quarter. These strategic actions are already driving positive momentum, helping us grow our base of sales leaders in Latin America.
James Thomas: And in turn increasing revenue in these emerging but high potential markets.
James Thomas: Selling expenses remained consistent at 37, 1%.
James Thomas: For the core Nu skin business selling expense was 43% slightly lower than prior years, 48% in line with expectations General and administrative expenses improved as a percentage of revenue declining to 27, 1% from 29, 7% reflecting reductions in labor.
James Thomas: <unk> physical facilities and more efficient promotional spend.
James Thomas: Adjusted operating margin for the quarter was seven 7% up 130 basis points from six 4% in the prior year, despite topline pressures demonstrating our commitment to operational efficiency and disciplined cost management.
James Thomas: Over the last several years, our business has navigated significant topline pressures necessitating a disciplined approach to cost restructuring through targeted restructuring efforts optimized inventory and our migration to a shared services model for technology. We have worked diligently to align our cost structure with our current level of <unk>.
James Thomas: Revenue.
James Thomas: I am pleased to report that our 2023 restructuring plan is now materially complete.
James Thomas: While these efforts have been challenging they have positioned us for a more sustainable future as our cost structure is now right sized to support our forecast performance with this foundation in place we are focused on driving greater efficiency on driving greater efficiencies and capturing opportunities for long term value creation.
I'd like to now shift our focus to our balance sheet and liquidity, where we've made meaningful progress a key priority in 2024 was strengthening our balance sheet and we took we took significant steps to delever the business, we reduced our debt by $110 million funded entirely through our cash from ops.
James Thomas: <unk> highlighting our disciplined approach to capital management, we delivered $70 million in free cash flow, an increase of $10 million over the prior year.
James Thomas: In addition, we returned $12 million to shareholders in the form of dividends, maintaining a yield that remains at the high end of our industry peers.
As previously announced on January 3rd we sold our <unk> business, which added an approximate two.
James Thomas: $200 million in cash to our balance sheet, our credit agreement requires us to use the proceeds from the cell towards our debt or business related capital investments.
After the sell in Q1 2025, we used $115 million of these proceeds to further reduce our outstanding debt.
James Thomas: Enforcing our commitment to maintaining a strong financial position as we work towards cash to debt neutrality we.
James Thomas: We did not repurchase any stock and have $162 $4 million remaining on our current authorization.
James Thomas: Looking ahead to 2025, we are encouraged by improving revenue trends across several markets, while continuing to navigate challenges in China and Korea. We project 2025 revenue in the range of $1 four 8 billion.
James Thomas: To 162 billion.
James Thomas: Including an estimated foreign currency currency exchange headwind of $52 5 million or 3% excluding.
James Thomas: Excluding <unk> from the prior year comparison, we anticipate a revenue decline of 3% to 11%.
James Thomas: We anticipate earnings per share in the range of $3 45.
James Thomas: The $3 85 with.
James Thomas: With adjusted earnings between 90.
James Thomas: And $1 30.
James Thomas: This reflects strong growth of 7% to 55% driven by the successful execution of our operational efficiency initiatives. We project first quarter revenue between $345 million and $365 million factoring in an expected foreign currency headwinds.
James Thomas: Approximately 3% rips.
James Thomas: Reported earnings per share is anticipated to be in the range of $2 65 to.
James Thomas: <unk> to $2 75.
James Thomas: Or 10 to 20.
When excluding the transaction of <unk>.
As a reminder, Q1 is historically, our lowest quarter due to the seasonality of our business.
In review of 2024, we have taken significant steps to strengthen our financial foundation, enhancing our cash position materially reducing leverage year over year and aligning our inventory portfolio with a renewed brand strategy. Looking ahead, we are forecasting meaningful earnings growth and are well.
James Thomas: Positioned to deliver even in the face of topline pressures in certain markets. We remain committed to executing our strategy with discipline, providing transparency around our initiatives and driving long term value for our shareholders. We look forward to sharing our continued progress in the quarters ahead and with that operator.
James Thomas: We will now open up the call for questions.
James Thomas: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.
James Thomas: <unk> made it message and advising your hand is raised.
James Thomas: We also ask that you. Please wait for your name and company to be announced before you proceed with your question one moment for the first question.
Wagner: And our first question will come from the line of <unk> Wagner of Jefferies. Your line is open.
Speaker Change: Hi, Thank you for taking our question you called out continued economic challenges in South Korea, and China I'm. Just wondering if you can elaborate on how those trends in those regions progressed throughout the quarter and then maybe any kind of incremental detail. It sounds like you're continuing to expect headwinds into 2025 by any any extra color. There you can see.
Sure. Thank you.
Speaker Change: Yes, Sidney no great question, Yes, I think we're all probably reading the same materials.
Speaker Change: And so I'm not sure how much how much detail to go into there, but economic outlook reports from various banks.
Speaker Change: And the like continue to be fairly fairly hesitant for both of these markets and I think a couple of key trends that we're noticing and then may I could give you local context as well from our teams there.
Speaker Change: Is this really is economic challenges occur spending consumer spending drops savings rates go up unemployment is down.
Speaker Change: And economists right now we are expecting that to persist throughout 2025 in our from our point of view, we'd have it built into our forecast is as not necessarily getting worse.
Speaker Change: But we're also not seeing the silver lining yet over there. So so our local teams as we work with our teams over there I think their sentiment is relatively consistent that consumers are hesitant to spend these days I think discount sellers, especially local brands, both in China and Korea.
Speaker Change: Coupon for example in Korea, China, obviously, a lot of local branding there that tends to be a consumer.
Speaker Change: <unk> already.
Speaker Change: As its going on there so really just we're forecasting out as we look at the world.
Speaker Change: It's consistent or similar to what we saw over the past year, but we will continue to monitor it I think on our side from a more proactive point of view, we're really trying to lean into how do we support local consumers during economic economically challenged times, we look at our product pricing strategy.
Speaker Change: Now those products fit into the market, we look at our emerging opportunity is we obviously are provide a bit of a gig type of.
Speaker Change: The opportunity there and so we believe we have opportunities for the market.
Speaker Change: In those in those places, but I think those macro pressures will continue to persist throughout the year.
Speaker Change: That's helpful. Thank you.
Speaker Change: Thanks Sidney.
Speaker Change: Thank you, we'll now move to the next question.
Speaker Change: And our next question will be coming from the line of Christine you.
Speaker Change: <unk> D. A Davidson your line is open.
Speaker Change: Hi, This is what you see now congrats on the quarter.
Speaker Change: You're asking about I think you mentioned there are going to be certain markets.
Speaker Change: <unk> returned to growth in 'twenty five.
Speaker Change: Can you talk a little bit about what markets do you expect.
Speaker Change: Potentially a return to growth in 'twenty five noted Scott Todd to sequential growth.
Speaker Change: So and what are what do you see as the primary catalysts for that kind of light recovery.
Speaker Change: Yes, Hi, Kristine good to hear from you again.
Speaker Change: Yes, so I think I'll provide comments and maybe James will have additional thoughts there, yes. Some areas that we're particularly encouraged about leaving 2024 and these are kind of sub segment levels, but Latin America is doing really really well of course, we report that up through the Americas segment.
Speaker Change: But Latin America is doing well and we do see we do believe the Americas.
Speaker Change: A real potential to grow next year.
Speaker Change: Looking forward to Southeast Asia Pacific also with good potential Japan, we believe has potential there and I think those are kind of some of the keys that we're looking out there again as we just discussed China and Korea continued to be challenged for the upcoming year and then Europe.
James Thomas: We watch that we believe there is opportunities in Europe, as well, but James any additional.
James Thomas: Color you could provide.
James Thomas: You touched most of the markets, where we're seeing in our forecasted in our guide, where we where we show those signs of growth really with deploying that developing market strategy. We're looking at how can we expand that into other regions.
James Thomas: So southeast Asia, we're going out with and then some of our Europe markets. We're also deploying that and we've seen good success there when we get pricing right. So those are two of them.
Speaker Change: Brian called out, Japan, where we're seeing growth and then I will add that the other segments.
Speaker Change: In our in our guide of down three to down 11%, we are seeing reduced declines.
Speaker Change: For those other segments. So we are improving and some of those areas, but we're still facing some some topline pressures there.
Speaker Change: Working our way through it.
Okay. Thank you maybe another question I know you started selling on Amazon in the U S.
Early last year.
Speaker Change: Just wondering like how do you see the self performance on right on Amazon.
Speaker Change: Can you comment a little on that.
Speaker Change: Yes, I think Amazon has been an interesting journey for us.
Speaker Change: And particularly in the U S, where we've been exploring various approaches.
Speaker Change: Obviously in our business.
Speaker Change: It's important that we maintain the premium image of of our brands and the premium positioning of our brands and Unfortunately in these third party marketplaces, there tends to be a lot of discount reselling that hurts the brand and hurts, our entrepreneurial as opportunities to build their businesses and so we began a couple of years back.
Speaker Change: Maybe not quite a couple of years 18 months or so ago with AA.
Speaker Change: In exploration with our partners there to really eliminate.
Speaker Change: Leveraging the policies and procedures and Amazon.
Speaker Change: Eliminate or limit the discount retailing by unauthorized sellers on their platform and it's really been helpful to do that.
Speaker Change: To do that benefit we've been able to largely mirror.
Speaker Change: Minimize that that distraction from our own business and our own brand in.
Speaker Change: In addition to that as we sell our products their retail plus.
Speaker Change: Those products have done well and we continue to build out that platform. We don't report numbers on it.
Speaker Change: It's part of our Americas revenue, what I will say is I think our strategy. There is a really a dual benefit on the one side, we're able to offer consumers access to products in a way that only Amazon can from an accessibility perspective with all the benefits of Amazon like Prime.
Speaker Change: But also the <unk>.
Speaker Change: The additional benefit of then supporting our affiliates who are in the same marketplace.
Speaker Change: Seeking out customers as well and so it creates a more fair playing field then while we build our brand there will continue to explore opportunities. We believe that there are platforms around the world and while we know their platforms around the world that have similar both challenges and opportunities we're going to continue to explore those.
Speaker Change: 2025, and as it becomes a more meaningful part of revenue I think we will plan to provide more detail on those but for now it's working as we had hoped and were leaning further into it to understand how we can provide that dual benefit.
Speaker Change: Okay. Thank you I'll pass it on.
Kristina: Thanks Kristina.
Speaker Change: Thank you.
Speaker Change: And that does end, our Q&A session for the day and I would like to go ahead and turn the call back over to Ryan.
Speaker Change: Please go ahead.
Speaker Change: Thank you very much and thanks for the questions. We really appreciate that I. Appreciate you dialing in and we'd be happy to answer any additional questions that you have please just feel free to reach out to BG, James or myself with those.
Speaker Change: We very much appreciate your paying attention and youre watching new skin, we're excited about what's coming out in the future I know that the world continues to be an unsettled place, but were here at Nu skin acutely focused on driving value through innovation with the lights of prism Io with our developing markets.
Speaker Change: And to continue to build out our rides business, which has great potential and so we look forward to updating you on further calls quarter by quarter of these plans unfold. So look forward to speaking with you in the next 90 days take care.
Speaker Change: Thank you all for joining today's conference call you may now disconnect.
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