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Thank you for standing by, and welcome to Nu Skin Enterprises Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to turn the conference over to your host, Mr. Scott Pond, Vice President of Investor Relations. Please go ahead.

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. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP 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. 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 ageLOC WellSpa iO in many markets, seasonal promotions in China and the continued strong performance of our Rhyz businesses. 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. 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 Rhyz businesses, which accounted for 13% of our revenue in the fourth quarter and continues to become a more meaningful part of our [Technical Difficulty] end users are achieving their desired results with this more personalized approach. WellSpa iO 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 RenuSpa 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, and our unique approach to holistic wellness positions us to provide integrated solutions to help our consumers find 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 Stela 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 towards lower-priced goods and services. In the meantime, we will be introducing new affordable luxury 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. Together with WellSpa, RenuSpa and our [indiscernible], 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 promotions. 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 are 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 '24. 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 Rhyz, which is becoming a more substantial part of our business. As consumer discovery and purchasing behavior shift further from traditional media into social media, influencer and affiliate marketing continues to grow at an accelerating pace. A recent statistic 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 Rhyz business segments and seek synergistic opportunities across our business units. By applying our nearly 40 years of learnings and affiliate marketing from our core business with new capabilities and learnings from our Rhyz 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. 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 Rhyz ecosystem, which grew 41% 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. 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 Rhyz, which was established back in 2018 as part of our enterprise diversification strategy. Rhyz is a synergistic ecosystem of consumer, technology and manufacturing companies focused on innovation within the beauty, wellness and lifestyle space. These companies synergistically support our core business and/or have capabilities that provide greater growth potential to our expanding ecosystem vision. Rhyz 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, Rhyz revenues were up over 100% or 87% excluding last year's BeautyBio acquisition. Rhyz 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 in Rhyz, 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 Mavely, 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 BeautyBio integration and acceleration framework that we developed last year. 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 Rhyz investments will enable us to delve further into the influencer or creator economy and is far reaching opportunities in the beauty, wellness and lifestyle space. We are 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, new market expansion, beginning with India. This vibrant country is rapidly becoming the world's fastest growing economy 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, which will enable us to expand our global footprint more 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 the 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. 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 Rhyz 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 Rhyz segments. 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 ecosystem. And with that, I'll turn the call over to James to dive deeper into our guidance and the financials. James?

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 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. 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 impairment 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. 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 expense as 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 Rhyz 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 expectations. General and administrative expenses as a percentage of revenue were 29.7% compared to 24.4%. 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 reevaluate 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 in 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 Rhyz. We will continue to seek business efficiencies in all areas and believe these actions will help us maximize cash flows, target improve margins and enhance earnings per share going forward. Operating margin for the quarter was 3.3% or 6.4%, excluding restructuring and other charges compared to 5.3% or 8.8%, excluding restructuring and impairment charges in the prior year. 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. 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 impairment charges in the prior year period. For the first quarter, we anticipate an elevated tax rate in 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 during the year and the rate impact from our stock awards in Q1. 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 $0.06 per share. We remain in a strong financial position and will continue to generate healthy cash flow. This dividend change plus 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 repurchases. Shifting focus now to guidance. Taking into account the aforementioned economic conditions and challenges associated with transforming our business, we are projecting 2024 revenue in the $1.73 billion 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. 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 $0.07 to $0.03 and or to $0.00 to $0.10 excluding restructuring charges. In closing, as we realign the company for success by transforming our core Nu Skin business and expand our Rhyz 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 Instructions] Our first question comes from the line of Doug Lane of Water Tower Research. Your line is open.

Yes. Hi. Good afternoon everybody. 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 but what was capital spending in 2023?

Yeah, Doug. Thanks for the question. Yeah. So capital allocation and overall capital spend, James, in 2023, what we're looking at?

Yes, $58 million CapEx.

And what kind of directionally, where you think that's going in 2024? Are the same, are we guess up, right?

No. The capital allocation is actually -- in our forward plan, we're estimating between $50 million and $60 million in our capital spend.

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. That's the plan going forward.

And then just to wrap it up, what would be the priorities for use of free cash flow under the new policy?

Yeah. So I think, Doug, the way -- as I said in my remarks, we're really seeking for opportunities. Those investment opportunities I mentioned around the Rhyz investments, looking at India growth prospects and affiliate opportunity platform build out technology 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 focused on those investment opportunities in your business?

Yeah, Doug. 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 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.

Okay. That makes sense. Thanks for the clarification. And just shifting gears, you report on your customers and affiliates and sales leaders, which is very helpful because your business is evolving and getting more complex, if you will. But it seems that customers or really consumers and the affiliates or social media influencers oversimplify and sales leaders are your traditional entrepreneurs, micro entrepreneurs and business builders and yet each was down 10% to 15%. Is it -- are 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. I mean the important thing to note, and we pointed this out before with affiliates, you can consider our affiliates as kind of the -- yes, 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 affiliates, we do segment by segment. So each year, we've done 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, in Q4, as we saw, is more related to pricing pressure in the broader economy and just affordable where consumers are buying and how the sales leaders are selling, whether they're selling to registered customers 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 a retail model, versus registered customers with us and we do both. So there's a correlation, but there's not a perfect correlation.

Okay. I mean that helps me understand, as it makes sense for those numbers to be directionally close.

Yeah, that's right. Yeah, generally.

That’s helpful. Thanks, Ryan.

Thanks, Doug.