Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Nu Skin Enterprises 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 conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today Scott Pond, Vice President of Investor Relations. Thank you. Please, go ahead, sir..

Thanks, Christy, and good afternoon, everyone. Today on the call with me are Ritch Wood, Chief Executive Officer; Ryan Napierski, President; Mark Lawrence, Chief Financial Officer; and Dr. Joe Chang, Chief Scientific Officer. 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 financial numbers assist in comparing period-to-period results in a more consistent manner.

Please refer to our Investor page at ir.nuskin.com for any required reconciliation of non-GAAP numbers. And with that, I'll turn the time over to Ritch..

Thank you, Scott, and good afternoon, everyone. Thank you for taking some time to join with us today. Last time we spoke about our results in early February, we mentioned the difficulty of predicting the impact of coronavirus on our business.

Since then, what began as a regional outbreak has grown into a global pandemic? On behalf of the entire team at Nu Skin, our hearts go out to all those impacted. And we are grateful for the efforts of healthcare workers, first responders and essential workers around the world.

For our part, we are diligently working to protect the health and safety of our employees, our sales leaders and communities around the world, including significant donations to support COVID-19 relief efforts.

While Nu Skin is not immune to a disruption of this magnitude, we are fortunate to have a flexible business model, built on empowering people to work remotely. For example, more than 80% of our revenue globally is already processed online.

We also learned valuable lessons in 2019 when government actions significantly restricted meetings and gatherings for much of the year in Mainland China. This experience has helped prepare our business and sales representatives to operate in today's reality.

This is demonstrated by the fact that we produced first quarter results above our guidance, with revenue of $518 million and earnings per share of $0.36, including a 2% foreign currency headwind. Our dedicated and resilient sales leaders remain focused on building their businesses and providing top-notch service to their customers.

Our customer numbers held steady on a sequential basis, which is notable, given the sequential nature and the cyclical nature of our business, where the first quarter typically shows a sequential decline. While our sales leader numbers were down year-over-year, primarily due to the decline during 2019.

We are pleased that the seasonal decline in the first quarter was slightly better than typical. We also experienced stronger-than-anticipated demand for our nutrition supplements and have seen strong customer activity in the first quarter giving us optimism for the remainder of this year.

As expected, our Mainland China business was down for the quarter. We have a deep understanding of the Chinese market. And throughout 2019, we implemented creative strategies to improve customer sentiment and provide digital tools to assist in training and developing the sales network.

On the strength of our institutional knowledge, the power of our products and the easing of the pandemic-related restrictions in China, we are seeing gradual signs of improvements in the second quarter and expect this to continue throughout the balance of the year.

In other markets, we're proud of the way our sales leaders have stepped up to the challenge. While COVID-19 had more impact in the Americas and the EMEA markets than anticipated from the time we gave our previous guidance. Sequentially the global business held stable with improving customer and sales leader activity.

Additionally, with strong product launches slated for the back half of 2020, we expect these markets to also return to growth by the fourth quarter. Our manufacturing segment performed well given the circumstances.

The segment declined modestly, largely due to supply chain disruptions on certain ingredients and packaging materials from third-party suppliers caused by pandemic-related shutdowns. Our strategic investment in these businesses has enabled our Nu Skin product supply chain to be stable at a time when others are being significantly disrupted.

During the quarter, we invested in additional equipment and capacity, which will add to our manufacturing capabilities and growth opportunities later in this year.

Finally, our business generated solid cash from operations in Q1 and the strength of our balance sheet enabled us to return value to our shareholders by increasing our dividend for the 19th straight year and repurchasing shares.

While no one can be certain of the severity or duration of this global COVID-19 impact, we have a strong financial position and a business model that benefits our customers, sales leaders and employees while prioritizing their health and safety.

Overall, based on the trends we are seeing in Q1 and through April, we continue to feel confident about the future of our business and are executing on our plans, which we believe will generate growth in the second half of this year.

We will continue to invest in customer and sales leader initiatives as well as our strategic manufacturing capabilities and see a great future ahead. I will now turn the call over to Ryan to provide more detail around our global business and our product launch plans.

Ryan?.

Thanks, Rich. Good afternoon, everyone. The world is certainly a different place since our last earnings call, but I'm so proud of how our leaders and employees around the world have responded in this crisis to serve the needs of our Nu Skin family and the broader community.

While this global pandemic is impacted business everywhere, what hasn't changed is the commitment to our mission and vision, our long-term strategy and our optimism about the future.

We're committed to empowering our leaders around the world with tools they need to serve their customers with innovative products while building their digitally and socially enabled businesses.

We've built a resilient business at Nu Skin, which has historically performed well in times of economic uncertainty and people are actively looking for ways to supplement their income. Our digital-first transformation that began a few years ago is proving beneficial, particularly as current circumstances limit face-to-face interactions.

We feel fortunate that the leaders in many of our markets are already accustomed to conducting business remotely. It's what they've done for many years. And it's an area where we've continued to invest heavily.

What we learned from our experiences in 2019 led to the implementation of better technologies and tools to educate train and empower our sales force. For instance in China, our leadership, education, and training is now operating fully online through broadcast with tens of thousands of views each month.

In the Americas, Southeast Asia and other geographies, leaders conduct virtual seminars to promote our products to customers and train their teams. As we look to our Q1 results globally, I want to call out a few specific markets. While our Mainland, China business was down over previous year, it performed slightly better than anticipated.

We're encouraged to see the environment in China is beginning to normalize as business opens back up and people return to work. Over the past year, our leaders have been leaning -- learning how to conduct business digitally and adapting to a new reality where in-person meetings are restricted.

We continue to invest in digital tools to enable this migration with a new online training platform released in the first quarter. We've also implemented more digital product expos and promotions. With these additional digital capabilities, we are reducing our reliance on in-person meetings.

In general, the rest of our markets performed largely in line with expectations following the COVID outbreak. As Rich mentioned, our Americas and EMEA markets were hit harder than expected by COVID-19. However, we're seeing improving trends benefiting from increasing levels of social sharing activities.

While South Korea performed mostly in line with our expectations in Q1, we anticipate the effects of COVID-19 to potentially be more impactful in the second quarter. Southeast Asia performed in line with expectations with improvements in Indonesia, Malaysia and Vietnam.

While this region performed relatively well in the first quarter, we anticipate the significant closures from COVID-19 will impact our second quarter, which is reflected in our guidance.

We continue to see stabilizing in Japan, while revenue remained relatively flat despite government-mandated virus restrictions that are expected to remain in place a bit longer. And in Hong Kong and Taiwan, they performed in line with expectations. And we're optimistic that these markets will improve as the world stabilizes.

All factors considered, we remain optimistic that our business will improve throughout the year and return to growth in the fourth quarter in line with forecast. Regarding our long-term strategy and plans for 2020, we remain focused on executing our priorities as we operate our business in this evolving environment.

Let me provide some updates since our last call. From a technology perspective, we're focused on enhancing customer experiences across all of our digital touch points.

As Rich mentioned with more than 80% of our global revenue now coming through online transactions it's imperative that we continue to build on the progress we've made with our digital business transformation.

Next, we plan to launch a new digital tool called VERA, which leverages artificial intelligence and machine learning to provide personalized product recommendations together with our upcoming product previews in Q4.

Speaking of products, while the pandemic precluded us from holding our annual Team Elite Trip, we held a global broadcast instead to introduce our new product innovations, and align our leadership around our global launch plan.

We share the details of upcoming product introductions including ageLOC Boost, which will be our latest addition to our number one at-home Beauty Device Systems brand. This proprietary microcurrent device system provides customers with an on-the-go treatment that promotes youthful looking skin.

We also announced the new innovative bioadaptive skincare line under the Nutricentials brand. These products made with worry-free clean ingredients will help skin adapt to everyday environmental stresses like UV and blue light rays and pollution.

These two products will follow our proven launch process similar to how LumiSpa was introduce with a global preview in Q4 and local market launches throughout the first half of 2021. Finally with our empowering programs, we've introduced new leadership incentives to spur growth as we build towards the launch of our new products.

We believe that we'll see increased interest in our opportunity as people around the world are looking for supplemental income opportunities that they can do from home using digital tools and social media to connect with others. We also believe this increased interest in our opportunity and new product launches will help our business.

But if economic issues continue to worsen, our sales force may have some difficulty selling products and finding new customers. So in summary, we remain confident in our long-term strategy and are optimistic that our business will continue to improve as we move forward towards our 2020 product previews and as the broader landscape evolves.

Our business strategy and experienced global team give us confidence that we can expand our business and drive innovation to help us return to growth towards the end of this year. And with that, I'll turn the call over to Mark..

Thanks, Ryan. I will walk through our financial results for the quarter and provide Q2 and full year 2020 guidance. As a reminder you can find additional financial information in our release and on our supplemental slides and tables on the Investors Section of our website.

First quarter revenue and earnings per share came in above the top end of our guidance range. Q1 revenue was $518 million and was negatively impacted 2% or approximately $14 million by unfavorable foreign currency fluctuations. Earnings per share were $0.36. Gross margin for the quarter was 75.7% compared to 76.5% in the prior year quarter.

The difference comes from our manufacturing segment making up a larger percentage of revenue, fixed cost overhead on lower revenue, and negative FX impact. The Nu Skin gross margin was 78.1% compared to 78.7% in the prior year. Selling expense as a percent of revenue was 39.8% compared to 40% in the prior year.

Selling expense for the Nu Skin business was flat at 42%. Our efforts to actively manage our expenses resulted in a $9 million reduction in general and administrative expenses versus the prior year quarter. As a percent of revenue, it was 28.9% compared to 25.4% in the prior year due to the lower revenue base.

To ensure the safety of our employees and sales leaders, we incurred some additional SG&A expenses related to cancellation of sales trips and meetings, security, protective equipment, workplace cleaning and modifications and online tools. These additional costs were largely offset by our proactive expense management efforts.

The other income expense line reflects a $6.2 million expense, compared to $2.8 million in the prior year. The increase is largely attributable to higher foreign currency losses. During the quarter, we paid $20.7 million in dividends and repurchased $60.9 million of our stock with $409 million remaining under authorization.

Our tax rate for the quarter was 35.1%. During the quarter we generated $69 million in cash from operations, increased our cash position on our balance sheet and have $285 million available on the revolver. We also continue to actively manage our inventory and further reduced it by $18 million in the quarter. Our financial position is strong.

And we are confident in our ability to maintain adequate liquidity and flexibility to successfully navigate the current crisis, pursue our strategic plans and return value to our shareholders. As Rich noted, we anticipate our results will be impacted due to the ongoing outbreak of the coronavirus.

We also continue to see the effects of a strengthening U.S. dollar, with FX impact more than 1% higher than we had originally estimated in our original 2020 annual guidance.

Due to that larger estimated impact of FX, we are making a slight adjustment to the high end of our annual revenue range, and our projected revenue is now $2.17 billion to $2.26 billion with earnings per share of $2.05 to $2.35. Our guidance assumes a negative foreign currency impact of approximately 2% to 3% and a tax rate of 31% to 37%.

Our second quarter revenue guidance is $520 million to $550 million with earnings per share of $0.42 to $0.52. This assumes a negative foreign currency impact of 3% to 4% and a tax rate of 33% to 37%. With that, we will now turn the call back to the operator for Q&A..

Christie, are you there?.

Yes. [Operator Instructions] Our first question comes from Stephanie Wissink with Jefferies..

Hi. Thank you. Good afternoon everyone. I wanted to just unpack a couple of things. But first just with respect to your product launch in the fourth quarter.

Can you just give us some insight everything on track with that launch? What's been communicated so far to your partners in the field? And how should we think through that launch relative to maybe to prior launches that you've done?.

Yes. That's great. First and foremost, yes, everything is on track for our ageLOC Boost and our Nutricentials launches for the fourth quarter. The launches will be staggered so that -- so the global preview will take place in the fourth quarter for ageLOC Boost for most of our markets. There are a couple of markets including the U.S.

that will lead with Nutricentials. And then the follow-up product launches will happen in the first half of 2021. As far as how you kind of think about those, we are utilizing our global launch process. It's very similar to how we launched LumiSpa, for instance, which was around a $100 million launch.

Of course, the business is in a bit of a different state, but we are kind of looking towards that direction as well. So, we will follow that global process and both products will launch at that point..

Okay. That's great.

And I think if I recall Mark, you would limit the number of units or the volume in the launch process, should we think again similar to that LumiSpa experience you'll approach it in a similar way?.

Yes. I think that's a great memory. When we launched LumiSpa, we were careful to make sure that inventory wasn't stacked up at our distributors around the world and that they have the ability to sell-through that product very quickly, so that it could be generally available shortly after the -- in the quarters following that initial launch.

We'll follow that same process with the ageLOC Boost product..

Okay. Great. And then another question on just the changing conditions. And what you're learning about the digitization of your experiences particularly your large-scale experiences like your conferences.

Can you just extrapolate a little bit on some of the learnings that are you able to widen out the net participation? How should we think about the balance of the year and then maybe implied into the forward years in terms of opportunities to really rethink or reimagine that conference and event structure?.

Yes. This has been a really good learning for us Steph. And it started really last year I think as we were not allowed to have in-person meetings in China. So, we began putting in place digital tools to help do trainings and allow our sales leaders to carry on their business. That's been helpful as we rolled into the beginning of this year.

Clearly, our event structure and how we motivate and incentivize sales leaders will need to adjust a little bit going forward depending on how this continues to transpire. But our salesforce has responded very well.

We've probably had as much or better communication I would say today than we have in the past as we've employed technology to communicate more frequently and regularly with our sales force around the world.

And Ryan what would you add to that?.

Yes. No, I think to that expand all of our live events that we hold. You'll recall that every other year we do a global live event. And then on the off years we do market live events at the individual market level. So all of those meetings have been rechanneled digital first and so they're digitally broadcast.

So, to Rich's point, we've really doubled down on digital-based communication. Incentive trip wise many have been have really been postponed and so that's how we're operating on that front..

Okay, great. And then last if you could just talk a little bit about the two major divisions the Beauty division versus the Nutrition and Wellness division.

Maybe talk about some of the patterns that you saw throughout the quarter maybe what you're seeing quarter-to-date separating the two? And maybe also share a little bit about your customer acquisition if you're seeing some new customers to the brand platform in the environment that we're in right now?.

Yes, I actually debated today putting that in the script last minute but I thought that might throw everything off.

Yes Personal Care and Nutrition divisions continue to perform generally in line with the historic pattern we've seen a minor uptick in our Nutritional product sales more recently related actually the body shaping predominantly our TR90 system has done really well. And so that's kind of the shift there.

We're also seeing some movements in social sharing products that we're seeing kind of in higher volume sunless tanners our LumiSpa is doing well as well on that front. So -- but that's kind of a brief product overview.

As far as customer acquisition goes, we've been very focused for the last really three years on ensuring that we're taking a customer-obsessed approach to how we manage our business.

We've been very focused on improving our relationship management capability, very focused on improving our digital experiences across our nuskin.com and our China platform and very focused on product promotion efforts related to providing greater value to customers. And those efforts continue around the world.

China continues to do very well as you saw in the customer numbers generally. And so that will remain a focus of ours moving forward..

Okay, great. Thanks guys for the color. Appreciate it..

Thanks Steph..

Your next question is from the line of Faiza Alwy with Deutsche Bank..

Yes hi. So, I wanted to talk a little bit just about what you're seeing regionally across the different markets in the month of April? And sort of what you're embedding as you look ahead to the rest of the year? So, I think when we had previously talked you were anticipating I think a 20% to 25% decline in China.

So, I'm curious if that how are you thinking about China? Because it seems like maybe China has come back a little bit earlier or better than your expectations.

So just some -- what are some of the puts and takes by region as you look out to the rest of the year?.

Thank you for that question. Faiza just from a high level we saw really good customer acquisition as Ryan mentioned in the first quarter specifically. So an actual uptick in the number of new customers coming into the business in Q1 versus Q4 which is rare.

Usually, we see that decline a little bit and then we've seen that strength continue into April which is very encouraging to us. We haven't adjusted our annual modeling for China.

We continue to look at that as down 20% to 25% although it strengthens throughout the year, as we go throughout the year, driven by a strong customer base which towards the end of the year with the new product launch we'd anticipate the sales leaders to build. And I would say that's fairly consistent region to region.

We'll see a fairly strong customer count I think here in the first half of the year with sales leaders starting to grow in the second half and ready for a strong product launch in the fourth quarter of this year..

Okay. Thank you, so much..

Your next question comes from the line of Doug Lane with Lane Research..

Yes, hi, good afternoon everybody. I'm interested in how your thinking has changed over these last four to eight weeks. You've got the two product lines and you've been teasing the Beauty Device for some time. So I understand following through with that.

But it seems like in the environment that we're heading into a high ticket beauty item may not be quite as attractive as a nutritional supplement item.

So, how quickly can you pivot from this focus on beauty to focusing on nutrition for new products?.

Well, we have actually really good products in both lines. And the idea that you attack health and wellness and beauty from the inside and the outside harmonizes really good together. We have good momentum around our Personal Care line which is why we want to take advantage of that with this new device that we think will play really, really well.

Together with that, we have a line of Nutricentials which again, we think is strong. We continue to put focus behind the nutritional product lines. So, we don't have a big launch this year our focus next year will actually be on the nutrition line and we have some good strong initiatives there.

So naturally we've seen some uptick in our nutritional product sales as Ryan mentioned with interest in TR90 and other supplements that we're selling. We anticipate that to continue to be strong. But our big product launches this year will focus on the momentum we've been gaining in the Personal Care area..

And Doug, I would maybe just add, when you talked about -- or asked about the pivoting. One thing Ritch mentioned previously is with this manufacturing capability that we now have -- we have been able to pivot very quickly in terms of supplying the increased demand across this portfolio of products.

Sot that's just something to highlight that I think has been a real strength over the course of this four to eight-week period that you were asking about..

Okay. Thank you..

Your next question comes from Olivia Tong with Bank of America..

Great. Thanks. Good afternoon. I was hoping you could give a little bit more detail on the guidance. First, it's a little bit different since a lot of companies have pulled their guide to see that somebody efficiently that you kept it. So just talk a little bit about your decision-making there.

And then in terms of what underlying there, can you talk about a few topics.

First, what you're assuming in terms of the macro environment when various lockdowns lift across various regions? Whether you're assuming anything in terms of potential second wave in the winter? And then just broadly, what's typically happened during recessionary periods with your portfolio? Thank you..

All good questions. I hope I can hit on all of them and Mark can add to this. Thank you, Olivia. It's interesting because I've been here either as the CFO or CEO for a number of these ups and downs.

And generally, we've been able to lean in on times where there's been an economic slowdown and generally we've had really strong product launches during those periods of time.

So, as I look at this year specifically, I believe we have a very, very strong product launch in the back half of the year, which gives us confidence in our ability to work through some of the headwinds that we find from an economic standpoint.

What have we built into the guidance? And why did we continue to provide it? This was a good discussion that we've had internally. We believe that our modeling has held very consistent as we've come into this year which gives us confidence.

And then obviously we see April come in, which was solid, gives us confidence to be able to go out and continue to give confidence to shareholders that the business is performing well that our cash flow is coming in strong and that we feel like we can continue to give some level of guidance. We obviously have given a larger range.

We did tighten that up just a little bit here. As we came into this -- as we start into the second quarter. But overall, we see the business trending well and we also see the strength of a product launch in the fourth quarter which is important that we give that guidance we feel. So, do we anticipate a second wave? That's hard to know.

But what we do know is that, the world probably won't be the same as it's been in the past. So we have to continue to lean in on our digital efforts.

Have to do everything we can to make sure we're customer-focused and obsessed in providing tools which make it very easy for our sales leaders and customers to be able to get our products regardless of the exterior situation that we find ourselves in.

So, we'll work towards that, and hopefully be able to absorb some of the shocks that come along the path..

The only thing, I would add Olivia is as Rich mentioned the performance of Q1 performed right in line with how we had modeled our forecast for Q2 came in right in line with our models as did the rest of the year with only one exception and that would just be the continued strengthening of the U.S. dollar.

We continue to see FX headwind and that really put pressure on the high end of our annual guidance, since we made a slight adjustment there for the slightly more than 1% increase in FX headwind that we'll see throughout the rest of the year..

That's helpful. Thank you. I guess two things. First, just in terms of the way that you guys have typically run campaigns there's a lot of events. You talked about the trips, as promotional trips and things like that.

Going forward, how are you thinking about how you incentivize leaders? Has there been any change in terms of leader commissions? And then on China a similar question to a previous analyst, but the numbers were a little bit better than we had anticipated.

And usually your sales force by and large uses the March quarter around Chinese New Year as a grace month anyway.

So did that in any way help shield you from some of the COVID-19-related downturn? Or were there other factors that actually played into your China performance in Q1?.

Yeah. No, both great questions. So, first on the incentives and leader commissions. Yeah, you're absolutely right. A key part of our business is focused on incentivizing through providing those experiences.

We've actually been exploring for quite some time in the experienced economy alternative mediums to motivate our sales force trips certainly has been a key focus. As you know, the tourist industry is really struggling at this time. But we do continue to explore opportunities for providing alternative types of experiences.

We're doing some things in our EMEA region that explore smaller trips that are still motivating and incentivizing. So we're looking at that, as well as combining some experiences with events. So we'll continue to explore there. There hasn't really been a change in terms of leader commissions as Mark reported; we're really paying out at the same level.

We are really focused on ensuring that every dollar's value is maximized in the commissioning. So, no changes to the overall payout levels. As far as China goes and whether or not Q1 was shielded in part because of the general slowness from a seasonal perspective and the like.

I mean, I do think that, what we saw certainly over the Chinese New Year we see our business traditionally slow down. And that's -- that probably had maybe some effect. I think the bigger issue or the bigger benefit for us is really again leaning in on these digital platforms. Our leaders are adjusting to how to build digital first.

And they're really getting used to more of the new normal where in-person meetings are not as heavily relied upon for training, motivating, educating. And so that's to me that would be maybe the bigger benefit that we saw..

Got it. Thank you so much..

Thank you, Olivia..

You next question is from the line Mark Astrachan with Stifel..

Yeah. Thanks, and afternoon, everyone..

Hi, Mark..

I guess a few questions.

One, just building on the last question, maybe talk about the progression of sales trends in China through the quarter and into April? And I guess, did you see any benefit as people stayed at home and the economy shut and has -- how have trends progressed as the economy has gradually reopened through April and into May? And then not really related but related to China sales leaders declines continue customers are better.

But I guess what should we be focused on at this point in terms of what you think we should be paying attention to drive or be correlated to growth?.

Yeah. Thanks Mark. As it relates to our China number specifically, we did see in the first quarter strong customer intake, which is important. But we really felt throughout last year the impact of not being able to have meetings and the training impact. The lack of training really hit our sales leader numbers.

So we're down substantially from where we were a year ago. And that really is a primary focus as we come into our product launches this -- end of this year, as to build that sales leader number back. It always starts with the customer. It always starts by increasing the number of customers coming in.

And then having them, start to proceed through the channel to become sales leaders for those who choose to. So -- and I think that basically applies to the rest of the world.

We see strong customer numbers coming, that needs to then start to translate into sales leader numbers which we believe will really start to hit later probably Q3, when we see real growth in the sales leader numbers coming into the product launch. So, no doubt in order to have a real successful product launch later on in the year.

We've got to see those numbers build. That's where our focus is. We like the first signs that we're seeing of strong customer numbers. And then, we've got to build from that to motivate and incent the sales force to continue to develop..

So was there any change as far as progression of trends in China, in April and early May versus what you saw through the quarter?.

I didn't see anything significant changed. We just saw continued strength, as we came into April as well. Particularly we saw a nice uptick. Well China was steady, I would say with the trends we saw through the first quarter. We saw a fairly strong uptick in EMEA and the U.S. the Americas market, as they continue to lean in on social selling.

So those trends were strong. I think we'll see Southeast Asia and possibly Japan being impacted a little bit more by COVID-19, as we came through April and the shutdowns were more significant there. It's interesting because it's kind of -- the global business started with shutdowns. And in China and Korea those then rolled into EMEA and into the U.S.

As those markets are now coming out of it. We see the shutdowns in Southeast Asia and Japan. And everybody is following a fairly similar trend of about two to 2.5 months of shutdown then, you start getting people back to work. So the key thing for us, I think is to continue to lean into our digital tools.

And allow people that continue to do the business, whether they're doing it from home or whether they're able to get out more. And we like what we saw in April. That's what gave us confidence that continue to give numbers throughout the balance of the year..

Okay.

Great, just lastly, what is subscription revenue as a percentage of sales? And then, maybe for Mark on, accrued expenses, so how does the ability to payout or what Ryan was talking about in terms of thinking about different from potential payouts affect the timing of that? Meaning does that potentially go to more of a longer term? So, from a balance sheet payout or cash outflow does that change at any point?.

Yeah. Thanks for that question too. Subscription continues to be around 60% of total sales. And in terms of the balance sheet there's nothing out of the ordinary there. The one thing that was a little different, sometimes we'll have a real strong December.

So there's a high commission payment that happens in Q1, which sometimes causes our cash from operations to dip in the first quarter, because December was not real strong or out of the ordinary. It allowed our Q1 to look more like a regular quarter and $69 million with cash from operations was a real strong number in the first quarter..

Yeah. But there's nothing that concerns with our accrued expenses in any way, they haven't fluctuated either up or down, significantly over the last several quarters..

Got it, okay. Thank you..

Thank you, Mark..

Our next question comes from Wendy Nicholson with Citi..

Hi. A couple of questions please. My first is the $9 million you cut in the G&A spending. How much flexibility do you have to continue to cut? If there are increased expenses owing to COVID-19 structurally sort of higher expenses in terms of cleaning and things like that, in your facilities.

How much more flexibility do you have to offset that from cost cutting?.

Yes. Wendy that's a great question.

The nice thing is that that $9 million reduction in G&A spend year-over-year and $10 million quarter-over-quarter is sustainable because that did include increased expenses as we mentioned for security, cleaning our facilities, our manufacturing plants and also covering increased cost from canceled success trips and travel and such.

I believe this is an area where as a company we're looking at very seriously. How can we continue to reduce our overhead and manage our expenses well and there's a lot of commitment to continue to be careful with spend. And I think that's a process we started several years ago. And we're starting to see -- we're seeing the benefits of it now..

And Wendy, I'd just add it may be consistent with other companies that you follow. But it's -- we've learned a lot by being forced to learn a lot.

For example, call centers that operate remotely now and individuals working from their homes, less travel some of those things we believe can be sustainable going forward longer-term as well as we've learned a new way to operate it can increase some of the efficiencies that we see..

Got it. Terrific. On the top-line forecast, can you clarify -- and I don't know if your practice to get as granular.

But can you clarify how much you're embedding in that full year forecast from the fourth quarter launch? I know most of it will come in 2021, but I'm just trying to get, sort of, an order of magnitude for how meaningful those launches are? How important it is for those to get off to a good start in the fourth quarter in order for you to hit the full year number.

And is there a scenario where if the economic environment remains really pressured and challenging for a while you might say you know what better for us to push this whole thing into 2021? Or is there the risk of upsetting some of your distributors that that just wouldn't be worth that you're going to go ahead in the fourth quarter no matter what?.

Yes. That's a great question. So I'll start with the fourth quarter. So we don't give our guidance out by quarter. But we'll give you some proxy numbers. The best proxy to understand how we are thinking of the launch of ageLOC Boost would be how LumiSpa launched. And we're starting from a lower base of sales leaders than we were when we launched LumiSpa.

So we have to couch that to some effect. But we generated a net $100 million incremental with the preview and introduction of LumiSpa. And so we would model something within that range again understanding that we're starting from a little bit lower base from sales leaders..

I think, generally, let me just add one thing there also. The product launch slated for the fourth quarter is something we start to build to awards well in advance of that. So as Ryan mentioned we've done trainings. We're already working with the sales force they'll start to qualify to be able to participate in prelaunch activities.

And so there's a lot of momentum that we build towards. And frankly, it would be critical for us to keep that launch in order to keep the momentum going. I go back to 2008 and 2009 when we launched some ageLOC products in a difficult environment.

And it was really the strength of those launches that kept the sales force really engaged in moving forward. So yes we'll hold on to those dates. We have no plans of pushing it back or delaying. And we see that is a real opportunity I would say to work our way through tough economic times..

Terrific. And then my very last question. It was great to see you buyback stock in the quarter because not that many companies have the flexibility to do that right now. So good for you for that.

But in terms of the guidance for the full year on the earnings front can you quantify how much more buyback you're expecting to do maybe in totality for the year? Thanks..

Yes. Thank you, Wendy. Typically, we don't forecast any of the planned repurchases into our numbers. So we haven't built anything of additional purchases into those numbers, but continue to see our priority around cash from operations being first driving the business. Second, making sure we're paying our debt down and our dividend.

And then thirdly, looking for opportunities to drive shareholder value. And we just felt like it was a great opportunity for us to be in the market and use our cash to generate some hopeful good shareholder value later on. Thank you for that question..

Great. Thanks for all the color..

You bet..

Your next question comes from Linda Bolton-Weiser with D.A. Davidson..

Hi. I was wondering if you could talk a little bit more about China in the sense of -- I believe last year when you were having difficulties there was some discussion of the media coverage of -- or media articles about the direct selling industry in China that was -- that you felt was impacting demand for your products.

Could you talk about if that has sort of cleared away and what the tone is like there now? And then can you also just clarify, apart from COVID, what is the situation there with meetings? Are meetings of size still constrained by the government? Or what exactly is the situation apart from COVID impacts? Thanks..

Yeah. Sure. No, great questions on China. So first and foremost on the media coverage yes. I mean the environment is stabilizing around direct selling. The government issued their outcomes in the fall of last year and continue to pursue their actions according to the industry efforts. So we have not seen a resurgence of any of that at this point in time.

Regarding meetings, and specific to COVID or meeting restrictions from last year, certainly the government continues to be somewhat leery or hesitant to open up meetings too much. There are small -- relatively small meetings being approved in China.

Our view as a company is that we really continue to lean into this digital-first approach to decrease continuously on a go forward basis the need for in-person meetings, so that we're not as reliant as we were in the past. And so that effort continues.

We anticipate that because of COVID and just the general apprehension over large meetings in China that we shouldn't rely on that. And so we'll continue to lean in on digital..

Thanks. And I think that when you had talked on the last call about the outlook for this year that you were talking about a gross margin in the 75% to 76% range.

Is that still kind of what you would say?.

Yes. I think Q1 played inside of that range. And from what we're seeing in -- for a Q2 model and the rest of the year, we expect it to be still in that range..

Okay. And then finally, I think you had mentioned some shortage of certain input or supplies or something related to your manufacturing operations. Can you just give a little more color on what that was and has that been resolved? Thanks..

Yeah. Thank you. Our manufacturers have actually performed really well trying to work through a number of disruptions that came from not being able to get an ingredient here or a packaging item there, which didn't permit them to get some orders shipped out to some of their customers during the quarter. That is coming back.

In fact in April, we saw things improve there as the supply chain sort of came back. Obviously, there's products, in packaging particularly that comes out of China. And that was the primary impact I would say in Q1. But we are seeing that improve and wouldn't anticipate that it really impacts Q2 or going forward.

It seems like things have really stabilized there..

Okay. Thank you very much..

Thank you. And it looks like that's all of our questions. We really do appreciate all of you joining us on the call today. And as you can sense we really are optimistic about returning to growth this year based on the plans that we have in place.

So, while the world faces a great deal of fair and uncertainty, it is gratifying to see so many people pulling together in a united effort to help one another. And we are hopeful that the lessons we're learning now will make each of us a little bit better, a little more thoughtful, a little more grateful.

Stay healthy everyone and we look forward to connecting with you again on our next call..

Ladies and gentlemen, thank you for participating. You may now disconnect..