如新 (NUS) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter Nu Skin Enterprises earnings conference call. My name is Philip and I'll be your operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Scott Pond, Director of Investor Relations. Please proceed, sir.

Thanks Philip. Good morning everyone, we appreciate you joining us.

Today on the call with me are Truman Hunt, President and Chief Executive Officer; Ritch Wood, Chief Financial Officer; Dr. Joe Chang, Chief Scientific Officer and Dan Chard, Vice President of Sales and Operations.

Just a reminder, during the call comments can and 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. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of these risks. And with that, I'll turn the time over to Truman.

Actually --

I'm sorry, Ritch.

Good morning everyone and as always thank you again for joining us on the call today.

By all measures 2013 was a great year and we are pleased with the growth that we enjoyed globally, with every one of our geographic regions contributing to our success. We also generated significant growth in our active accounts and in our sales force. Our success in 2013 was a result of focused and consistent effort and execution from the global Nu Skin family.

The fourth quarter was our first billion-dollar quarter with solid results in all of our regions. Note that the fourth quarter included approximately $350 million in LTO sales. This all led to a record year with revenue exceeding $3 billion. Annual revenue growth of 49% positively impacted the rest of the income statement with operating margin for the year reaching 17.4%.

Earnings per share for the quarter and the year were also strong and we generated cash from operations of $530 million, up from $311 million in 2012. We returned cash to shareholders by paying $71 million in dividends and re-purchasing $141 million of common stock in 2013, leaving our stock re-purchase authorization at year-end at $395 million.

I'll also note that we recently re-classified a small portion of our selling expenses as a contra revenue rebate. This reclassification reduced revenue and selling expenses by about $19 million in the fourth quarter and $59 million for the year.

This reclassification had no impact on operating income, net income, earnings per share or cash flow, but we built it in slightly lower revenue than the Company's previous estimate. A presentation of financial data for previous periods has been similarly re-classified for comparative purposes.

Our balance sheet continues to be strong as we completed the year with $547 million in cash and $182 million of debt. We believe global revenue for the first quarter will be between $650 million and $670 million. So despite recent events impacting our business in China, we're projecting global revenue growth of 20% to 24% for the first quarter. At this level of revenue we would expect earnings per share in the $0.90 to $0.94 range.

Our guidance reflects a compression in our operating margin in the first quarter as a result of lower than budgeted revenue, as well as expenses associated with internal and regulatory reviews of our business in China. Also note that unlike the global compensation structure, where commissions are variable, a significant portion of our sales compensation in China is fixed. This will increase our selling expense percentage in the first quarter.

Decrease in projected revenue versus our first quarter guidance provided last November is primarily a result of the recent measures we have taken in China. In addition, slightly lower than anticipated revenue increases in other markets and an impact of about $20 million associated with the reclassification of a small percentage of selling expenses, combined to result in today's revenue guidance. Finally, our first-quarter revenue guidance also anticipates a 4% negative impact from foreign currency fluctuations.

Today we also announced an increase to our dividend of 15%, marking the 13th year of dividend increases which is reflecting with the strong cash flow dynamics of our business and our board's ongoing commitment to return cash to shareholders. With that introduction, I'll now turn the time over to Truman.

Thank you Ritch and good morning everyone. Today I'd like to provide some additional highlights of the year as well as provide some commentary on our outlook for 2014.

First, in 2013 we added a significant new product to our ageLOC anti-aging lineup, the TR90 weight management and body shaping system. We launched this product system through a global limited time offer and generated approximately $560 million in sales, making it the largest product launch in our Company's history.

Since launching the ageLOC brand in 2008 we have generated over $3 billion in sales of ageLOC products, making it a key growth driver for our business. And thanks to our product development team we enjoy a robust pipeline we believe will deliver a steady stream of innovation for many years to come.

Last year we also made significant investments in advancing Nu Skin's long-term growth prospects with the completion of the Nu Skin Innovation Center and campus expansion here at our corporate headquarters. And we're also in the process of completing a new innovation park in Shanghai that will serve as our regional headquarters for the Greater China region. This facility also will include new product development labs and manufacturing facilities.

We finished the year by celebrating our largest ever global convention, with sales leaders joining us from more than 50 countries. At this event we celebrated the achievements of our sales force and we also renewed our long-term vision of becoming the world's leading direct-selling company.

Now as we turn to 2014, we recognize that shareholders want to understand the direction of the business and what we forecast for the remainder of the year, given the media and regulatory attention in China. Our primary objective today is to cooperate with the Chinese government in their review of our business. We also want to demonstrate our willingness to continue to follow their guidance and their direction to ensure that we're operating on a foundation that can lead to long-term success in this important market.

The China regulatory review is ongoing, so we're limited in what we can discuss at this point in time and, consequently, my goal today is to provide as much information as possible on this call. And we would ask you to accommodate us as we deviate from our historical practice of taking questions at the end of our remarks. This is merely a reflection of the ongoing nature of this review.

We now have an 11-year operating history in China. During that time we've invested a tremendous amount of resources in the market and our product offering has enjoyed great success.

For example, our ageLOC facial spa has gained significant market share within the home use skin care treatment device category in China. And we continue to believe that the appetite for high quality anti-aging products is both large and robust.

From a channel perspective, we continue to believe in the market's potential for direct-selling, with the industry continuing to enjoy impressive growth. In addition we're encouraged by the Chinese government's continuing commitment to develop its economy. We believe that these factors will bode well for us and for our industry going forward.

Following media reports in January, we elected to voluntarily suspend business promotional meetings, as well as the engagement of new salespeople in China to cooperate with relevant authorities and demonstrate our commitment to our policies. Now we recognize that these are strong actions, but they're also a reflection of our commitment to continue operating in compliance with China's regulation of our business.

In addition, we have also initiated our own internal review of our China operations. This effort is being led by our audit committee with the engagement of outside counsel.

Given this review, and the possibility that various components of our annual report on Form 10-K could be impacted, the Company's Board of Directors has determined that we can't file our annual report by the March 3 due date. We currently expect that the audit committee will have made sufficient progress in its review to enable us to file the annual report by the March 18 extended filing deadline.

With respect to guiding for the balance of the year, we note that we're still early in the process of understanding the impact of recent events in China on our business. As we have more clarity on the outcome of the regulatory reviews in China, we'll be in a better position to share additional information and to guide for the remainder of the year.

We are committed to doing what we need to do to succeed in the long term in China. We're already working to enhance training of our sales leaders, and if we need to make additional changes to our processes then we will. And while our voluntary measures to temporarily suspend some business development efforts in China will slow growth this year, we believe these steps and the internal business review that we're undertaking will make our long-term success more likely.

Now in the meantime we have a number of strong global initiatives in place for 2014, including regional LTOs and launches of the ageLOC TR90 weight management and body shaping system. In addition, subject to resolution of China regulatory reviews, we're also planning a greater China LTO of our highly successful ageLOC Tru Face Essence Ultra product. This is a daily use anti-aging serum that has been very successful outside of Greater China.

And in fact we anticipate that TFEU, as we abbreviate it, will be the focus of the greater China LTO as opposed to TR90, with a TR90 rollout coming later on the time line. So let me take just a minute and remind you of the schedule for upcoming LTOs around the world.

South Korea's TR90 LTO was just completed in February, with Japan's LTO scheduled for March, this month. April LTOs will occur in the South Pacific, Europe and the Americas.

Greater China's LTO is scheduled for June and July. And then finally the Southeast Asia LTO is scheduled for the month of July. I also want to remind you that a new version of the ageLOC facial spa is scheduled to be available for sale in the US in the second half of this year and that will, of course, be a welcome addition to the US product offering.

Now finally before we conclude the call, I would like to note that 2014 marks the 30th anniversary of Nu Skin, and in our 30 years of operations we have demonstrated a history of providing consumers with highly beneficial and differentiated products while also offering a compelling business opportunity that rewards people for hard work and for productivity.

Throughout our history we have focused on innovation, always striving to find better ways to do things. This effort has produced an environment that has attracted many of the best and the finest people in the business.

Above all we feel deeply our responsibility to all those who put their trust in us. This is a company that has stood the test of time for 30 years, and I'm optimistic and my team is optimistic that we will continue to move the Company forward into an even brighter future.

We appreciate your support as we continue this effort and we thank you, again, for joining us today on the call.

Ladies and gentlemen that concludes today's conference. Thank you all for your participation. You may all now disconnect. Have a wonderful day.