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…

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…

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.

Thank you. [Operator Instructions] I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.