Nu Skin Enterprises, Inc. Q4 FY2022 Earnings Call

Good day and thank you for joining us. Welcome to the Fourth Quarter 2022 Nu Skin Enterprises Earnings Conference Call. I will now turn the call over to Scott Pond, VP of Investor Relations. Please proceed.

Thanks, Victor, and good afternoon, everyone. Today on the call with me are Ryan Napierski, President and CEO; Connie Tang, Chief Global Growth Officer; and Mark Lawrence, 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 financial 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 it over to Ryan.

Thanks, Scott. Hello, everybody. Thanks for joining us today. We have a lot to cover, so let me just dive into this. 2022 was a year filled with unanticipated macro environmental disruptions that impacted our business globally. We finished the year at $2.23 billion in revenue and EPS of $2.90, excluding one-time charges. The majority of the year-over-year decline in our business was due to strict COVID-related factors in China, which accounted for approximately $208 million of the revenue shortfall, as well as unfavorable FX, which negatively impacted us by about $150 million, and overall global inflation, which impacted consumer sentiment and global supply chain. Despite these headwinds, we made meaningful progress on several of the key strategic imperatives, foundational to our Nu Vision 2025 transformation, which helped us deliver annual revenue growth of 4% in the U.S. and 2% in Southeast Asia Pacific. Our Japan and Hong Kong, Taiwan segment also grew in constant currency in the year, while reported revenue was down due to FX headwinds. We remain well-positioned to capitalize on enormous landscape shifts that are transforming the beauty and wellness industries around personalization, social commerce, and the gig economy. Let me quickly review our fourth-quarter results. Our revenue of $522 million was in line with revised guidance, while non-GAAP EPS of $0.89 was well ahead of our projection, reflecting disciplined expense control, along with a favorable tax-related adjustment. Like many companies, we are expecting macro conditions to remain challenging over the near term, with gradual improvements in the second half. And so we're taking a conservative approach to setting expectations for 2023, which Mark will address in just a minute. Last year at this time, we introduced Nu Vision 2025, our multiyear strategic transformation from our historic direct selling roots to becoming the world's leading integrated beauty and wellness company powered by our dynamic affiliate opportunity platform. We defined three distinct strategic imperatives that enable our vision to come to life, which are: number one, EmpowerMe, our personalized beauty and wellness strategy, including smart IoT-connected device systems; number two, the evolution of our go-to-market strategy from traditional direct selling to affiliate-powered social commerce; and number three, the build-out of our integrated digital ecosystem, including the introduction of two apps, our Vera consumer app and our Stela affiliate app. So let's dive deeper into each of these strategies and provide you with a roadmap of key milestones for measuring progress over the next several quarters. First, EmpowerMe. This is our revolutionary approach to disrupting the beauty and wellness industry. It will focus on providing personalized product recommendations with our comprehensive personal care and nutrition product portfolio, incorporating AI and ML technology in our apps and including consumer insights from our smart IoT-connected device systems. We've entered a new landscape of gathering insights from and engaging with our customers with the launch of LumiSpa iO in late 2022. In the past, we gathered insights via consumer surveys, purchasing habits, and general research. We will now be able to capture additional insights like usage patterns and habits to integrate with the customers' state of skincare needs and goals, and we'll get all of that data in real-time. This depth of consumer insight can only be captured through our iO-connected devices, which we believe to be a significant advantage for Nu Skin in the future. Moving forward, as we more effectively understand our consumers, we will be able to offer personalized product regimens and content curation and drive greater overall consumer engagement and lifetime value. With iO device systems, we expect to strengthen our position as the world's leading beauty device systems brand, as noted by Euromonitor. In 2023, we'll introduce our next smart connected device system beginning in Q3. This new body iO device is a breakthrough in holistic wellness and beauty inside and out. This patent-pending device provides multiple integrated beauty and wellness benefits that help consumers with body recovery, a revitalized appearance, and their overall well-being. iO device systems are becoming an increasingly important part of our portfolio as we seek to meet the personalized needs of our consumers. With the introduction of LumiSpa iO in late '22, we generated around 5% of revenue from iO device systems and then now set a target for connected devices to provide at least 15% of total revenue in 2023 on our way to approximately one-third of revenue by 2025. EmpowerMe will be a major disruptive force throughout the industry in the coming years as this strategy unfolds. Next, the power of social media and influencer marketing will continue to disrupt the way consumers discover beauty and wellness products. Our affiliate-powered social commerce model underscores our continued commitment to lead and evolve the power of word-of-mouth marketing with the scale and reach of social media through authentic affiliate promotion. We continue to see our global sales force leveraging social media in unique ways to share products they love with consumers seeking authentic product recommendations from people they trust. In 2022, we saw our sales channel contract primarily due to macroeconomic factors around the globe. Nevertheless, we continue to explore and test new initiatives around the world, intended to unlock the scalable power of social media for our affiliates. We tested several initiatives, including a new One Price model on limited products as well as product-sharing bundles, which were responsible for a good portion of growth in the U.S. last year. We also introduced several new social selling products like Nu Biome and Collagen+, which enabled increasing social sharing. Last year, we introduced paid affiliates as a new key performance indicator to provide greater insight into our emerging segment of early product sharers, who are critical to the social business model. In 2022, affiliates outpaced sales leaders by more than 30%, and we're encouraged by this trend as we attract more early sharers into the business with social commerce. In 2023, we will be rolling out additional initiatives to unleash the power of our affiliates, including a new affiliate rewards and recognition program in North America, an enhanced affiliate-powered business model in Latin America, and other programs around the globe. We will continue to evolve our social commerce business model to empower our global army of authentic, micro, and nano influencers to scale their businesses. And finally, the third pillar of Nu Vision 2025, our comprehensive digital ecosystem, which is integrating company, affiliate, and consumer engagement across the entire spectrum of our business, from product discovery and purchase to affiliate engagement and productivity, CRM, and other customer lifetime value drivers. Last April, we introduced two new apps, Vera and Stela, in English with limited functionality. We enhance these apps globally throughout the year with additional languages and features. Vera helps identify a consumer's unique product needs, coaches them on how to use the products, and helps track their progress so that they can see how the products are working for them. Stela is our one-stop business management app that helps affiliates increase their productivity by efficiently managing their businesses and attracting and engaging new customers. In 2023, we will continue to elevate the user experience of our Vera and Stela apps by streamlining ease of use and adding new capabilities and features. In fact, this quarter, together with our AWS partners, we will be applying new AI capability into our personal product recommendation and in an entirely new wellness consultation feature later this year. We are also extending our sharing and attribution features into the Stela app itself so that affiliates can easily share our Vera app with other users, gain visibility into the products being recommended to their customers with permission, and receive revenue attribution. And lastly, we will begin a global deployment of our new e-commerce platform that we've been developing together with our Infosys partners, beginning in North America in Q2 and extending globally throughout 2024. This new e-commerce platform will enable a more dynamic and seamless digital experience across our website and apps. For Q4 2022, the ratio of average monthly active users of the Vera app to our average monthly active customers was approximately 10%, and we have set a target to grow this to approximately 30% by year's end. For Stela, the ratio of average monthly active users to the average monthly paid affiliates for Q4 was close to 10%, and our year-end goal for this is approximately 35%. Over the next 2 to 3 years, our integrated digital ecosystem, including Vera and Stela, will be key to our business as Uber's driver and rider apps are to theirs. So in summary, despite some very challenging conditions in 2022, we made considerable progress on the initial phase of Nu Vision 2025, including the implementation of several foundational changes that will help propel our business into the future. 2023 is going to be another important year for our strategic transformation, and early results from key initiatives have galvanized our commitment to becoming the world's leading integrated beauty and wellness company, powered by our dynamic affiliate opportunity platform. While the macro environment remains uncertain in the near term, with challenging comparisons in Q1 specifically, we expect it to steadily improve throughout the year. We will continue to be prudent in our cost management with ongoing expense-reduction efforts in order to invest in our future. We will be conservative in our guidance, given macro uncertainties, while being transparent with our progress to our plans and aggressive in our efforts to achieve Nu Vision 2025.

Thank you, Ryan. While the macroeconomic factors Ryan discussed had a widespread impact on consumer acquisition and sales channel growth across our reporting segments, we were able to grow annual revenue in constant currency in three of our segments as well as in our U.S. market. ageLOC LumiSpa iO has been launched in all of our markets now, which we will continue to focus on. We will also launch a personalized approach to weight management with TRMe in several markets, followed by our next smart connected device system in the second half of the year. Let me give a little more color on each of our reporting segments. In the Americas, our U.S. market grew 4% for the year on top of 32% revenue growth in 2021, attributed to continued social selling momentum and customer subscription enrollment. The challenging macroeconomic environment in our Latin America markets offset the strength in the U.S., which led to a decline in revenue and other key metrics for the segment. This segment continues to lead the way for us in social commerce adoption, and our activities this year are focused on affiliate-powered social commerce to drive customer acquisition. For 2023, we are projecting revenue to range from plus 1% to minus 6%. Please note that as I provide our projection for each segment, the ranges may be larger than normal due to the uncertain macroeconomic environment. As Ryan noted, our Mainland China business continues to be challenged by COVID-related factors that are negatively impacting our selling and promotional activities. This is reflected in our decline in revenue and other KPIs. While China has been lifting restrictions and opening up in recent weeks, it has also led to a large surge in COVID infections. As a result, we anticipate the first half of the year to remain difficult. As we return to more typical business activities in China, we need to rebuild our sales force, which will take time to revitalize momentum. We remain confident in the potential of China and our future here and are projecting a return to growth by the end of the year as we introduce our body iO-connected device system. Overall, we project revenue in China will be down this year between 23% and 35%. In our Hong Kong/Taiwan segment, our strong performance in Taiwan this year was largely offset by the impact of COVID lockdowns in Hong Kong, resulting in slight revenue growth in constant currency. The results of a preview of TRMe in both markets at the end of last year give us optimism heading into the consumer launches this month. We have discussed the growth of social selling in Taiwan in the past. And we have also been gaining traction with our customer base development through our loyalty programs with increases in customer acquisition and order volume. We project this segment to range from up 2% to minus 5%. For the past year, we have discussed the impact in EMEA of the ongoing conflict, energy crisis, and inflationary pressures on consumer spending and our business activities throughout the region. We know that without these external disruptions, our social commerce model works in EMEA and typically drives strong customer acquisition. Looking forward, we are focused on expanding our channel to drive customer attraction and rebuild momentum with further promotion of Rose Gold LumiSpa iO and our social sharing Nutricentials pumps. This coming year, we anticipate annual revenue to range from up 3% to down 3%. We faced several challenging headwinds in South Korea in 2022 with COVID-related disruptions early in the year, followed by high inflation and associated pricing disruptions. We also faced a negative 9% FX impact for the year and the difficult comp with the successful launch of ageLOC Meta in 2021. Korea has been a strong market for our TR90 products, and we are looking forward to building upon that with the sales leader preview and consumer launch of TRMe in the first half of 2023, followed by the introduction of our newest iO device in the back half of the year. For the coming year, we are projecting revenue up 2% to down 5%. In Japan, we achieved growth in local currency, but they faced a 16% FX headwind in reported currency. Our other key metrics also remained relatively steady, with sales leader development activities helping to build some channel momentum heading into 2023. Japan has been a strong market for customer subscriptions, and we expect to expand that base as Japan launches Beauty Focus Collagen+ in the first half of the year. For 2023, we are projecting Japan to grow between 1% and 2%. And finally, in Southeast Asia Pacific, we generated 7% revenue growth in constant currency for the year. Southeast Asia is our strongest region for TR90 sales, and efforts to increase the customer base through this brand will continue in advance of a 2024 launch of TRMe in these markets. Sales for ageLOC Meta, which is called ageLOC Reset in Southeast Asia, remained strong throughout the year. In the first half of the year, this region will focus on the combined efforts and benefits of ageLOC LumiSpa iO and Collagen+ ahead of the launch of our next connected body iO device system in the back half of the year. We anticipate 2023 revenue to range from up 1% to down 5%. Overall, all our markets continue to execute against Nu Vision 2025. We're focused on accelerating social commerce adoption across our markets and expanding our channel with affiliate acquisitions and productivity programs, which will also help us grow our customer base. With the insights we are gaining from our smart connected device systems and our Vera and Stela apps, we will also focus on retaining our customers and engaging them with personalized experiences to drive greater lifetime value.

Thank you, Connie, and thanks to all of you for joining us today. I will give Q4 and a high-level 2022 financial review and then provide initial Q1 and full year 2023 projections that include additional financial detail. For more information, please visit our Investor Relations website. For 2022, we generated revenue of $2.23 billion, with a negative foreign currency impact of 5% or $150 million. Earnings per share for the year were $2.07 or $2.90 excluding restructuring and impairment charges associated with the previously announced company's strategic resource reallocation incurred throughout the year and a tax method change. For the fourth quarter, we generated revenue at the midpoint of our prior guidance at $522.3 million, with a negative foreign currency impact of 7% or $51 million. The U.S. dollar continued to strengthen, which negatively impacted our results. Both reported and non-GAAP earnings per share for the quarter exceeded our previous guidance at $1.15 or $0.89 excluding restructuring and impairment charges and a recent IRS-approved favorable tax method change, which allowed us to utilize foreign tax credits which were previously offset by a valuation allowance. Our fourth quarter 2022 earnings per share benefited from a reported negative 135% or a negative 3.7% tax rate excluding restructuring and impairment. Our Q4 reported gross margin was 71.7% and continued to be impacted by our geographic revenue mix, foreign currency exchange rates, and global inflationary pressure. Gross margin for the core Nu Skin business was 74.9%. Selling expense as a percent of revenue was 38.5%, 60 basis points below the prior-year period. For the core Nu Skin business, selling expense was 40.5%. As part of our focus on operational efficiencies, general and administrative expense declined $36.5 million year-over-year to 24.4%, flat with the prior year. By concentrating on strict cost management throughout the year, we saved over $105 million against our original 2022 G&A budget. Operating margin for the quarter was 5.3% or 8.8% excluding previously mentioned charges. This compares to 3% or 11.7% excluding restructuring and impairment charges in the fourth quarter of 2021. The other income expense line reflects a $3.1 million expense compared to a $1.9 million expense in the prior-year period. We continue to prioritize a strong balance sheet and returning value to shareholders even during uncertain times. During the quarter, we paid $19 million in dividends and repurchased $10 million of our stock, with $175.4 million remaining on the current authorization. In a separate announcement today, our Board of Directors approved an annual dividend increase, which marks the 22nd consecutive year of both paying and increasing our dividend. Our Rhyz segment, which includes our manufacturing partners, was down 11.8% when compared to the prior-year quarter, primarily due to our customers rebalancing their inventory from higher levels in 2021. Our manufacturing entities continue to significantly benefit our core Nu Skin business by helping shore up our supply chain, increase our speed to market for new products, and generate U.S. profit that lowers our overall tax rate. We anticipate our Rhyz segment to grow 6% to 13% in 2023. Our restructuring efforts, which began last year, remain on track. In the fourth quarter, we incurred an $18.4 million charge and expect an additional $5 million to $10 million in the first quarter as the original restructuring project winds down. Also, we recently finalized an outstanding legal matter pertaining to the exit of Grow Tech, which was closed in 2021. The implications of that resolution are reflected in our reported results. We remain focused on aligning all our resources toward Nu Vision 2025. Let me now provide Q1 and 2023 annual guidance ranges for revenue and EPS and give some additional detail regarding several key financial statement line items. As Ryan mentioned, we are on a multiyear path to transform our business with Nu Vision 2025, and we continue to operate in a very uncertain world, prompting us to give slightly wider guidance ranges. For Q1 2023, our seasonally softest quarter, our revenue guidance is $450 million to $490 million, including a negative foreign currency impact of approximately 5%. Our projection reflects continued macro challenges while lapping a strong Q1 from last year and are largely in line with our historical average sequential decline from Q4. Our Q1 EPS guidance is $0.17 to $0.27 or $0.25 to $0.35 excluding restructuring and impairment charges and a projected tax rate of 18% to 26%. While we face a challenging first quarter, I believe we will be able to demonstrate sequential progress towards our Nu Vision 2025 initiative throughout 2023. For the full year 2023, we are projecting revenue of $2.03 billion to $2.18 billion, which includes a 1% to 2% unfavorable foreign currency impact. We are expecting earnings per share of $2.27 to $2.67 or $2.35 to $2.75 excluding restructuring and impairment charges. We anticipate our operating margin to be 8.4% to 9.1% or 8.7% to 9.3% excluding restructuring and impairment charges, with a tax rate of 18% to 26%. Our tax rate will fluctuate, depending on where profit is generated geographically. I will now walk you through several of our projected 2023 P&L line items. We project 2023 gross margin to be 73.5% to 74%. We have experienced gross margin erosion due primarily to a shift in our geographic footprint and a strong U.S. dollar. We anticipate this will stabilize to some extent, and we should see sequential gross margin improvements over the course of the year. We anticipate that selling expense will remain in the 39.5% to 40% range. We expect general and administrative expense to be 25% to 26%, but down on a dollar basis for the year as we continue to see cost efficiencies while strategically investing in product innovations, technology, and emerging markets. Other income expense, which includes interest expense, foreign currency gains and losses and gains and losses on investments, can fluctuate significantly, although we do anticipate that interest expense will increase this year as interest rates have risen significantly. We are modeling $20 million to $22 million of expense for the year, an approximate $10 million increase year-over-year. We project cash from operations of $170 million to $180 million. Depreciation and amortization will be approximately $70 million, and capital spend will be between $75 million and $95 million. As Ryan discussed earlier, Nu Vision 2025 is all about how we will transform our business from a traditional direct selling business into an integrated beauty and wellness opportunity platform. While the current macro environment remains volatile and therefore, our near-term projections are impacted, we believe that the future opportunities to accelerate our business will expand as we invest in our key strategic imperatives of EmpowerMe, affiliate-powered social commerce, and our enterprise services platform. We are committed to continuing our operational improvement along the way to our stated 13% operating income target. Our strong balance sheet and proven expense management discipline during turbulent times gives me further confidence in our ability to navigate this journey effectively. And with that, operator, we will now open up the call for questions.

Our first question will come from Mark Astrachan from Stifel.

I have a few related questions. First, could you walk us through your revenue projections for the year? It seems noteworthy that outside of Mainland China, all regions are expecting a decent improvement throughout 2023. How much of that is based on comparisons, and how much is due to your insights regarding improvements in each region? Additionally, what should investors watch for to assess whether you're on track to achieve these improvements?

Yes, Mark. It's good to hear from you. Regarding revenue projections, we see growth opportunities in nearly all segments, except for China, which is likely a follow-up topic. As for our outlook, we anticipate progress in the second half of the year. We believe that macro factors like inflation and foreign exchange impacts will diminish over time. From a core business standpoint, we have several product launches planned, particularly the upcoming body iO device that we're excited about, alongside TRMe in some of our Asian markets where it performs well. We expect continued growth throughout the year, especially in constant currency across those regions. To track our performance, the three key performance indicators I mentioned earlier will be important, and we'll discuss these further. Specifically, monitoring our iO device revenue as a percentage will be crucial for future growth. We're also seeing improvements in affiliate growth from a social commerce perspective, compared to traditional sales metrics. Additionally, the digital adoption of our applications is something to keep an eye on. Regarding China, last year we anticipated its reopening in Q1 and saw positive signs, but strict government lockdowns in mid-Q2 impacted our results. This tough comparison in Q1, combined with ongoing COVID infections, affects our business, which thrives when people can engage freely. We expect gradual alleviation in China as both government restrictions and public behaviors shift toward reactivation. There's a possibility for growth in China by year-end, but we must remain cautious due to the tough Q1 comparison, as conditions in China can be unpredictable. We will continue to monitor the situation closely, and that sums up our outlook for the region.

Regarding the situation in China, what are you focusing on in terms of returning to a more normal business environment, even though large gatherings may not be realistic? How are you viewing the specific sales model in that region? In the previous call, you mentioned a new flexible compensation structure. What impact is that having? Also, on a different note, Mark, what revenue should we incorporate into our models for innovation for 2023?

We'll come back to that third question, Mark. I want to make sure we're clear on revenue from innovation. Maybe you're talking about new product revenue perhaps?

Exactly, yes.

We can discuss new product revenue and provide general insights based on our past performance. Regarding China, I'll share some thoughts and then Connie can provide additional details since she works closely with the local team. As you mentioned, we continue to operate in a traditional direct sales environment where companies are somewhat reverting to past practices. We firmly believe in the importance of face-to-face interaction. Meetings play a crucial role in motivating our sales force and recognizing their efforts. The lack of this interaction in China has severely impacted us, but we expect improvements as the government begins to permit more meetings. In the meantime, we are focusing on a digital-first approach and will continue to invest accordingly. We hope for an increase in face-to-face meetings, whether in coffee shops or other settings, as this will positively affect our business. Additionally, larger meetings will be beneficial for training and motivation, especially as we work to reactivate a salesforce that has been inactive for three years, as reflected in the significant reduction of key performance indicators since 2019. We are hopeful for some relief in this situation. Connie, do you have anything to add?

Yes. I would add that what’s most important are the activities, promotional drivers, and incentives that we know can rejuvenate and revitalize our sales channel and motivate them to attract customers. Unfortunately, these have not been possible. We are confident that executing and communicating these initiatives will be key drivers that will help reignite the business. This business involves emotional, practical, and tactical elements. Given the improvements we are seeing in the marketplace, we are optimistic that in the second half of the year, we will be able to achieve positive results.

Great. Mark, I will share some numbers regarding innovation. We have discussed the importance of tracking a metric for new product revenue. We need to define this better for you and include it in our regular reporting. For now, I'll provide some general figures that we can elaborate on in the future. New product revenue, including our offerings like Meta, Collagen+, and our iO devices, accounted for about 13% of our revenue in 2022. Looking ahead to next year, Ryan mentioned that we aim for our iO devices to represent around 15% of our total revenue. Our major focus this coming year will be increasing iO devices from about 5% of our business to 15%. Additionally, we will introduce several new products that will further contribute to this growth.

Got it. Great. And Mark, maybe just quickly, CapEx and D&A in the fourth quarter, please?

Yes. So I'll give you CapEx for the year. I didn't break it out by quarter. So CapEx for the year will be about $75 million to $90 million.

I mean for '22?

For 2022, CapEx was approximately $60 million, with $13.7 million for the quarter.

Great. And D&A, please?

Yes. Depreciation and amortization was $18.5 million for the quarter and $72.5 million for the year.

Our next question will come from the line of Linda Bolton-Weiser from D.A. Davidson.

This is Christina on for Linda Bolton-Weiser. So I guess my first question would be with the launch of the new One Price model. I'm curious to know, what kind of feedback have you been getting from the affiliates? And maybe another question on what do you think is driving the growth of the U.S. business?

Yes. Christina, regarding your two questions about the One Price model feedback and growth in the U.S., I'll share my thoughts and maybe Connie can add more. We're still testing new models to enhance the initial earning potential of our affiliates. The One Price concept we introduced with LumiSpa iO and some other product promotions is quite new, especially in many of our Asian markets, and we are still figuring out whether to expand it. We understand that early affiliate earnings are crucial for our future growth, so while we’ll continue experimenting, we are not yet ready to confirm how One Price will fit into our business strategy. Concerning growth in the U.S., it’s important to note that we have seen three consecutive years of solid growth. We are pleased to maintain this growth even as some aspects of the industry have slowed down moving on from the COVID lockdowns. Achieving this amidst tougher comparisons has been encouraging, and social commerce has been a major factor driving this performance, which we plan to continue focusing on. Connie, do you have any additional insights on these topics?

No, I think the U.S. market in particular has been able to not only test but refine and find tactics and models that work to support a strong early affiliate earning opportunity that drives the attraction of that affiliate base and leads to strong customer acquisition. We also found, in particular last year, with products that were socially adaptable, meaning that they are simpler to demonstrate and to also amplify, from a messaging standpoint, on social media. They became products that were not only simpler to understand but also extremely relevant and attractive for us to engage in improving and increasing our subscription enrollment. So coupled with that, with customer development along with a compelling affiliate opportunity where they can realize earlier earnings, we really felt that, that continued to lead to the growth in the U.S.

Our next question will be from Chasen Bender from Citi.

I just want to come back to this idea of how big the iO devices could be as a percentage of sales. Can you give us a sense of how many customers already have devices? And specifically, how often do you see them upgrading devices? I get that the iO connectivity is a compelling tech and reason to upgrade for those customers that already have the devices. But is there anything else you can do to kind of drive adoption, whether that be targeted promotion or something else?

Yes, that's a great question, Chasen. In terms of iO devices and device systems, it's important to note that these devices are significant due to the systems they integrate with across our larger portfolio. For instance, we have clinical studies related to LumiSpa iO and Collagen+, which show the benefits of connectivity for customers. While we typically don't delve into specific details, it's estimated that devices currently account for approximately 25% to 30% of our global revenue. It may even be slightly more.

A little lower. It's about 20%.

About 20%? Yes, you're right, Meta comes in.

The cadence.

As we look to the future, our goal is to aim for iO device system revenue to reach 30% by 2025. This is a crucial indicator because the systems-plus portfolio in personalized product recommendation engines needs to significantly extend its reach. When considering how to advance our business from a personalization standpoint, the iO device systems represent a key opportunity for connectivity. We believe achieving a balance of one-third to two-thirds is essential. However, it's important to note that we are still in the early stages, with less than 5% of our revenue currently coming from this area due to LumiSpa iO launching in Q4. We are concentrating on various promotions in the first half of this year to drive adoption and subsequently focusing on body iO to enhance this further. A critical aspect is encouraging users to upgrade from one device to the next. Mark made an observation about devices having varying lifespans; while some have a short lifecycle, ours tend to last a few years at good performance levels. With the advantages of iO, we expect the adoption rate to be quicker than just waiting for a device to wear out over time. The user benefits with iO are significantly greater. Therefore, we are committed to implementing promotions and campaigns to increase iO adoption, as the long-term value from this is what we are pursuing. Would you like to add anything, Mark?

I would like to add a few points. LumiSpa iO builds on our original LumiSpa and offers significant iO benefits. However, for someone who already owns a LumiSpa, these benefits might not be enough to encourage a purchase. Body iO, which will be launched under a different name, is an entirely new product and represents a new category for us. It should not face the same challenges as LumiSpa. Customers with existing body products will find this new product distinctly different, both in appearance and experience, so we anticipate broader adoption. Additionally, our digital tools and devices will continue to improve. As we gather data from usage, we'll be able to add new features and enhance the iO experience. With the addition of more iO devices, we will become increasingly knowledgeable by leveraging customer data. This will be our first series of products that improve over time, which I believe will contribute to achieving our long-term goal of 30%.

And just to dovetail on Mark's comments, the increasingly improving iO experience for that end customer, for us, we have a strong belief that, that will also lead to stronger not only engagement but stickiness and relationship with the company and the brand, allowing us to further maximize on providing customized integrated product recommendations and really incorporating more of our Nu Skin products in various categories into the daily life of a customer, thereby increasing total lifetime value. That's really where, when we say long tail, there's a longevity of retention as well. But certainly, we believe an opportunity for us to increase how integrated we are in terms of their product usage and what we can provide as solutions for their total health and beauty.

And Chasen, I apologize for taking up so much time on this, but we could delve into the topic of iO. Considering our roadmap and as Mark pointed out, we're launching multiple devices. Our device ecosystem, which includes the LumiSpa iO, addresses the facial aspects of personal care for consumers. With our app, we can effectively guide people toward the right products. Additionally, we're set to introduce a wellness consultation in the second half of this year, focusing on body health and nutrition, alongside a body iO device to collect insights. When we look at our multiyear roadmap, it becomes clear that we're developing a digital twin concept, gathering data and insights on various layers of the consumer, all while prioritizing privacy and user consent. This illustrates the critical role these iO device systems play in mapping the entire experience within the beauty and wellness sector over time.

Got you. No, that's all super helpful color. So I appreciate all of that commentary. And then just to switch gears, I'd like to hone in specifically on kind of promotions and those targeted towards the new affiliates. It's something you guys have been talking about for a couple of quarters now. And I'm just kind of curious, what are you seeing in terms of productivity of these new affiliates, now that you guys have actually put that in place? And I guess specifically in the script, you mentioned some new reward programs going into North America and Lat Am. Is there any more color you could give around those? And what incrementally may be different than what you've already kind of put through? And at what point would you start to consider institutionalizing these types of promotions? And ultimately, any implications that may have for overall selling expense?

Yes, absolutely. As I mentioned earlier and as the data shows, our affiliates have outperformed our sales leader activity by a significant margin, around 30%. This ties into Mark Astrachan's question regarding sales leadership in China, and I realize now that I didn't fully address that. Additionally, we are putting more effort into enhancing the early affiliate experience, which can be likened to a gig-like product share, and this remains a priority for us. We understand its importance for our future and are conducting various tests. Regarding the rewards program in the U.S., our affiliate rewards initiative is designed to incentivize early affiliates and improve customer acquisition and productivity. We employ a testing model to refine and expand our strategies. When we launch something in one region, we optimize it based on feedback before expanding it globally. We will apply this approach to all our tests, including One Price and affiliate rewards. Regarding the impact on selling expenses, we do not foresee an increase related to this program; instead, it's about optimizing the funds we allocate through our selling expense model, so we do not expect any rise in those costs. Okay, it appears we have reached the end of today's call, and I apologize for the longer duration. Instead of holding an Investor Day, which we felt was not suitable, we wanted to provide this context. I appreciate your participation. As I consider the current state of our equity markets, I ask myself which companies will emerge from this recession stronger than before and what it will take for us to achieve that. I firmly believe that the companies with a clear vision for the future, those who direct their resources towards achieving it, and those who maintain a healthy balance sheet that offers sustainable value to investors will ultimately come out ahead. This is the path we are following at Nu Skin as we strive to create a brighter and more stable future while the world gradually returns to normal. Nu Vision 2025 represents our vision and serves as our roadmap for the future. Thank you for joining us today, and we look forward to updating you on our progress next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.