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Nu Skin Enterprises (NYSE:NUS)
Q4 2019 Earnings Call
Feb 12, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, ladies and gentlemen, and welcome to the Q4 2019 Nu Skin Enterprises earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I'll now turn the call over to Mr. Scott Pond, vice president of investor relations.

Please go ahead, sir.

Scott Pond -- Vice President of Investor Relations

Thank you, Lee, and good afternoon, everyone. On the call with me today 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 I'll now turn the time over to Ritch.

Ritch Wood -- Chief Executive Officer

Good afternoon, everyone, and thank you for joining us today. With everything that is going on in the world right now, we appreciate you taking time to participate in today's call. Before I speak more about the broader global issues, let's take a couple of minutes and go over our Q4 and 2019 results. Our fourth quarter finished in line with our expectations, with revenue of $583.4 million and earnings per share of $0.72.

Our markets generally performed as we have modeled, although in Mainland China, we continued to feel the effects of the meeting restrictions and negative media from earlier in the year. For 2019, our revenue was $2.42 billion, down 10% or 7% in constant currency when adjusting for the 3% currency headwind throughout the year. Earnings per share were $3.10. Overall, our business results were greatly impacted by the events in China, which caused our China business to retreat 15% in local currency for the year.

However, we are confident in our long-term position and our future opportunities in China, and we have strong product and digital initiatives lined up for 2020. Early in the fourth quarter, we held a global convention in Salt Lake City with leaders from around the world in attendance and tens of thousands more participating via live stream. During the event, we aligned our sales force around upcoming initiatives and outlined our product strategy for 2020, generating energy and enthusiasm among our sales leaders and setting the stage for the upcoming year. We're also pleased with the performance of our manufacturing entities, reporting 24% growth in the quarter and 35% growth for the year.

These partner companies are contributing to improvements in our revenue, operating margin, cost efficiencies and product innovation, and we anticipate continued growth in 2020. Before we discuss our business in China and our outlook for 2020, I want to express our sincere concern for everyone being impacted by the recent spread of coronavirus. Our top priority is the health and wellness of our customers, our sales leaders and our employees in Mainland China and around the world, and we are taking proactive and appropriate measures to protect them. We're also working carefully with local and international authorities regarding this issue.

Accordingly, beginning in mid-January, we suspended in-person meetings in China and have asked our corporate employees in Shanghai to work from home. Based on collaboration with officials in Shanghai, we plan to keep our corporate offices closed through February 24, when we will reevaluate based on conditions at that time. As of this week, our manufacturing and distribution centers are starting back up, and we expect they will soon be fully operational. Over the past year, I've had the privilege of traveling to China numerous times.

I treasure my relationships with friends, employees and business partners in this beautiful part of the world. And I hope and pray that the situation will be resolved soon and look forward to returning to China in the near future. Although it's difficult to understand the full effect of coronavirus on our business, we do anticipate a significant short-term impact as public gatherings and travel remain restricted, which we believe will reduce the number and effectiveness of our sales leaders engaged in our business. While we have strong plans to regenerate growth in our business in China and around the world, which Ryan will speak about in a moment, we feel it is best to be cautious in our financial modeling for 2020, and we are estimating a revenue decline of 20% to 25% in Mainland China.

The majority of this decline should be in the first half of the year, and we believe our business will recover in the second half with the launch of our new beauty device. Our experienced management teams are helping our sales leaders work through this temporary issue, and we will continue to invest in our customer and sales leader initiatives as we see great future for our business in China. I will now turn the call over to Ryan to provide more detail around our global business, and following Ryan, Mark will address our financial results and walk through our 2020 guidance. Ryan?

Ryan Napierski -- President

Thanks, Ritch, and good afternoon, everyone. We've spoken at length in the past couple of years about our long-term strategy. We grow our business by empowering sales leaders to grow customers by providing engaging technology platforms, enabling products and empowering programs. We remain committed to this strategy and are actively refining our plans as we navigate a changing global environment.

I want to spend the next few minutes talking about what we accomplished in the fourth quarter and how we plan to execute in 2020. Before I walk you through the highlights of our reporting segments for the quarter, I think it would be helpful to provide you with broader context on the full year of 2019, as Q4 was effectively a result of the full year's performance. Significant negative media coverage of the health food and direct selling industries in Mainland China and the resulting government restrictions on meetings throughout the year had a cumulative impact on our ability to create and retain sales leaders. Our meeting strategy plays a significant role in creating, training and developing new sales leaders.

However, we've learned a lot through our experiences in 2019, which will benefit us into 2020 and beyond. For instance, we have accelerated our transition to a digital-first approach, including online product expo and promotions, which helped us to drive continued customer activity and increased sales leader productivity. We also began the development of a new digital training platform, which began rolling out this month. We believe this platform will help reduce our reliance on meetings in the future as it is fully implemented, which I'll speak to more in a moment.

In general, the remainder of our segments performed largely in line with our expectations. A few of the highlights or insights into those global results are as follows: improved sequential trends in our Americas and Pacific region, fueled by growth in Pacific, Mexico and Colombia, but offset by continued instability of Argentina; stabilization with improving sequential trends in South Korea, even as we faced a difficult year-over-year comparison from a successful restage of our Nu Skin 180 skin care system in the prior year; improvement in Japan, where we saw 2% year-over-year growth; continued challenges in Hong Kong impacted by ongoing social instances; mixed results in Southeast Asia with double-digit growth in Indonesia, offset by softness in other key markets; and improving sequential trends in EMEA due to the positive results from Black Friday and holiday promotions. Next, let me provide some updates on our long-term strategy. From a technology perspective, our 2019 focus was migrating to the cloud, to increase the scalability and flexibility of our technology infrastructure.

We completed this migration in the latter half of the year. We also made great progress on our digital-first approach with more than 80% of our global revenue and more than 90% of our global transactions now taking place online. For 2020, we are now focusing on enhancing our customer experiences across all of our digital touch points. For example, in Mainland China, we recently launched Phase 1 of our NU TOWN digital app.

NU TOWN enables our sales leaders to digitally attract and acquire new customers, promote and sell products and train new sales leaders. We will also leverage this technology to improve education and development of our sales force, which we believe will reduce our reliance on in-person meetings over time. This will help us build a stronger foundation to return Mainland China to growth. Regarding our product strategy, in 2019, we relaunched our new Galvanic Spa device, which was our best-selling product in the fourth quarter, followed by LumiSpa.

One key learning we've had is that restaged products do not generate the same incremental results as a new Hero product, particularly in light of a challenged business environment. We have a long history of launching new Hero products approximately every two to three years. As Ritch mentioned, in the second half of 2020, we plan to launch our next Hero product, an innovative beauty device system targeted toward the emerging skincare enthusiast market. It will be our first Hero product launched since Lumispa in Q4 2017, which we believe will have a positive impact on our business.

We began our global leadership alignment process in January and will extend product training throughout the coming quarters, leading up to a global preview beginning in the second half of 2020. Finally, for empowering programs, we continue to optimize velocity, our sales compensation plan as a key part of our effort to attract and retain sales leaders by enhancing their productivity. In 2020, we will also continue to expand our customer loyalty programs around the world to enhance retention and lifetime value. We remain confident in our long-term strategy and that our 2020 plans will enable us to return to growth as the landscape improves.

We look forward to -- with firm resolve and full confidence in our team around the world. And with that, I'll turn the call over to Mark.

Mark Lawrence -- Chief Financial Officer

Thanks, Ryan. I will walk through our financial results for the fourth quarter, the full year of 2019 and provide Q1 and full-year 2020 guidance. As a reminder, you can find additional financial information in our release and on the Investors section of our website. Fourth-quarter revenue came in above the midpoint of our guidance at $583.4 million and was negatively impacted 1% or approximately $6 million by unfavorable foreign currency fluctuations.

For the full year, our revenue was $2.42 billion and was negatively impacted 3% or $82 million by foreign currency fluctuations. Fourth-quarter earnings per share were $0.72, compared to a negative $0.32, which included a $1.37 impact from impairment and restructuring charges in the prior year. Earnings per share for the year were $3.10, compared to earnings of $2.16, which was inclusive of the impairment and restructuring charges. Gross margin for the quarter was 75.9%, compared to 76.3% in the prior-year quarter.

The difference comes primarily from our manufacturing segment, making up a larger percentage of revenue. Nu Skin gross margin improved to 78.5%, compared to 77.9% in the prior year. Selling expense as a percent of revenue was 39.1%, compared to 39.4% in the prior year. Selling expense for the Nu Skin business was 41.3%, compared to 40.9% in the prior year.

General and administrative expense as a percent of revenue was 27.4%, compared to 23.9% in the prior year. As expected, general and administrative expense was impacted approximately $11 million by our global LIVE! convention during the quarter. The other income expense line reflects a $1.1 million expense, compared to a $4.3 million expense in the prior year. During the quarter, we paid $20.6 million in dividends and did not repurchase any stock.

Our tax rate for the quarter was 25.1%. As Ritch noted, we anticipate our first quarter and annual results will be impacted due to the outbreak of the coronavirus. Due to the uncertainty surrounding this situation, our guidance includes a larger-than-normal range. Our revenue guidance for the first quarter is $480 million to $510 million and includes an approximate 2% to 3% foreign currency headwind.

We project Q1 earnings per share of $0.23 to $0.33, which assumes a tax rate of 33% to 36%. Note that our EPS guidance is disproportionately lower than our revenue guidance for a couple of reasons. First, the revenue reduction comes primarily from China, one of our most profitable regions. Second, we view this as a temporary disruption, and we will continue to invest strategically to return this market to growth as soon as possible.

This impacts both our quarterly and annual guidance. For the full year, we anticipate annual revenue in the $2.17 billion to $2.30 billion range inclusive of an approximate negative 1% to negative 2% foreign currency impact. We are projecting earnings per share of $2 to $2.40. As Ritch mentioned, our guidance anticipates a return to growth in the fourth quarter.

Our annual guidance assumes the following: Mainland China revenue decline of 20% to 25%; gross margin, 75% to 76%, with Nu Skin gross margin, 78% to 79%; selling expense, 39% to 40%, with Nu Skin selling expense, 41% to 42%; g&A expense, 26% to 27%; operating margin, 9% to 10%; tax rate, 31% to 37%; capital expense, $60 million to $70 million plus additional capital spending up to $18 million, depending on the timing of the construction of our China factory. You'll also note that we increased our dividend for the 19th consecutive year. We have a strong balance sheet and cash position, and we intend to use this to increase shareholder value. We have approximately $470 million remaining in our stock repurchase authorization.

With that, operator, we will now open up the call for questions.

Questions & Answers:


Operator

[Operator instructions] We have a question from Faiza Alwy from Deutsche Bank. Your line is now open.

Faiza Alwy -- Deutsche Bank -- Analyst

Yes, hi. So my first question is just on revenues in China in the quarter. I'm curious if that was in line with what you were expecting going into the quarter? Because it feels like there was a bit of a sequential decline from 3Q, and you did miss at least what I was expecting. So I'm curious how you think about just that revenue number in the quarter.

Ritch Wood -- Chief Executive Officer

Yeah. Thank you, Faiza. The revenues really for almost all of our regions were in line with our expectations for the quarter. So we had modeled China about where it came in.

And we were not surprised or it was according to what we had planned.

Faiza Alwy -- Deutsche Bank -- Analyst

OK. I'm curious how you thought about your guidance for next year and potentially how that changed as the coronavirus news spread and impacted your business in January, so if we could maybe disaggregate. I know you talked about China being 20% to 25%. Could you say how much of that impact is coronavirus-related? And how much of it is just lingering impact from 2019 regulatory disruption?

Ritch Wood -- Chief Executive Officer

Yeah, thank you. Let me take a shot, and then Mark can add some more detail to this. As we were preparing our guidance at the beginning of the year and before coronavirus had really broken out, we anticipated about a flat year, is what we would have guided to, slightly down to slightly up. So you can see that this coronavirus impacted two things.

One, the dollar has strengthened during that time. So there's an additional about 1% of FX headwind that we're anticipating. Secondly, although coronavirus will impact more than just Mainland China, most of the decline is coming from Mainland China, which we would have projected being close to flat for the year to down about 20% to 25%. So you can see most of the impact in the revenue line is coming from Mainland China, which definitely has an impact on our profitability as well.

Mark Lawrence -- Chief Financial Officer

Yeah. The only thing I would add is, as Ritch mentioned, we believe that coronavirus will have impact in other regions of the world, in particularly, our other Asian markets. And so we did also reduce our guidance models for Korea, Japan and Southeast Asia. We expect all of those to grow slightly below what our historical averages are.

Faiza Alwy -- Deutsche Bank -- Analyst

OK. So I know you gave the guidance for 1Q. Are you expecting sort of normalization as we get into 2Q? So I know you're not specifically guiding for 2Q at this point. But if we think about China being down 20% to 25% in the first quarter, at this point, how are you thinking about? And I know you said growth in 4Q.

Like, how should we think about 2Q and 3Q just for --

Ritch Wood -- Chief Executive Officer

Yeah, the down in China will be more severe in the first half of the year, and 20% to 25% was our annual guidance for that market. But we would anticipate, what we built into the model is really a more severe impact in the first half of the year. We do believe we'll have a strong product launch in the fourth quarter specifically, where we anticipate we'll actually see growth by that point in time. It should grow both revenue, but more importantly, sales leader and customer growth, which is really the fundamentals to continue to see consistent growth going forward.

So the impact is primarily in the first half of the year. It will carry a little bit into the third quarter and then the fourth quarter will benefit from the strong product launch.

Faiza Alwy -- Deutsche Bank -- Analyst

All right. Thank you so much.

Ritch Wood -- Chief Executive Officer

You bet. Thanks, Faiza.

Operator

Your next question is from Olivia Tong from Bank of America. Your line is now open.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. Good afternoon. I want to still build on like talking about the cadence to the recovery.

Because it does seem like you're looking for a pretty meaningful increase from the device launch. And I guess, can you sort of just parse out a little bit more, if there's anything that you're seeing right now? I would imagine that there's not a ton of activity, but these categories, like, is there anything that can get picked up, like just a little bit more like on the ground of what's happening now, if anything? Thanks.

Ritch Wood -- Chief Executive Officer

Yeah, it's a really good question, Olivia. Thank you for that. And we will certainly be transparent as we go throughout these first couple of quarters in talking about what's happening specifically with customer and sales leader growth, but I'd like to have Ryan just take a minute and talk through how we align our leadership around the Hero product launch and generally how we see things trend during the year.

Ryan Napierski -- President

Yeah, Olivia, as you may recall, we have really a long run model that we use, called our alignment and launch process here, where we work to align our sales force globally around these types of new Hero products. You could think back to the LumiSpa being the most recent example in 2017. That process is really an annual process that began in January this year. And we continue to align our sales force from our top leadership on down through the broader sales force throughout the year with the execution of the global preview in Q4 and then local launches come in the following two quarters of Q1, Q2 next year.

And so we look at this one from a device innovation perspective and a system perspective to be very similar to LumiSpa. So if you look at the comparisons back in 2017, that's really where we're, our planning is based from there. In terms of China specifically and working through that with our leaders, obviously, as Ritch mentioned, the disruptions locally in terms of how we meet with our leaders and such will have an impact in terms of getting that full alignment earlier. But to my points and my comments, we're leveraging our digital technology and NU TOWN, specifically, to provide the adequate training that we need to build toward that Q4 event.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Got it. OK. And then you also mentioned investment. And I'd love a little bit more detail on what you're spending behind or what you believe is still mission critical? Presumably, you have to hold your sales leaders at their current levels, even though, clearly, there's an impediment to reaching those levels right now.

So what else is going on that's going to continue to be a cost? And where can you make some mitigating maneuvers in order to offset some of the overall costs?

Ritch Wood -- Chief Executive Officer

Yeah. Yeah, good question, Olivia. We believe this is not a sort of foundational issue, it's sort of a temporary issue that we have to work through. So we'll continue to hold our sales leaders.

There will be some expense around selling expense for sure. We're investing in brand building opportunities there in China, specifically, that we think are important at this point in time. And then we continued to invest in our digital initiatives that we think will be really valuable going forward. So those are the three primary investments in China.

There are some additional expenses, obviously, to the coronavirus that will impact us slightly. But if it were more foundational, I would be much more aggressive in saying we have to adjust the foundation of the expense structure. We do believe this is temporary. We believe our sales force is anxious to go to work as soon as the environment improves, and we'll see the business come back.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Got it. And then just lastly, the $335 million in cash. Could you just talk through a little bit where it's domiciled?

Mark Lawrence -- Chief Financial Officer

Yes. So we have made progress in moving our cash, particularly out of China. So in China, we have about $75 million in cash. The rest is relatively evenly dispersed around the world with a large chunk here in Provo as well.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Ritch Wood -- Chief Executive Officer

Thanks, Olivia.

Operator

Your next question is from Steph Wissink from Jefferies. Your line is now open.

Steph Wissink -- Jefferies -- Analyst

Thank you. I want to follow up on the digital training. Can you just remind us how many markets today have access to that platform? And then give us a sense by the fourth-quarter new product launch, how many of your global markets will be onboard and using that platform?

Ryan Napierski -- President

Yeah. Steph, we have really two platforms that we run globally. One is in China with our Alibaba partners. The other is here located for the rest of the world with our AWS partners.

So we do have that platform. And NU TOWN that I was specifically commenting on is, as I mentioned, began to roll out at the end of last year and earlier this year on the training side. We do have LMS, or learning management system, support on our global platform as well. That actually is running today.

The content is lighter than it needs to be long term, but we continue to invest in that content globally. So effectively, all markets have a learning management system. The NU TOWN one in China specifically is a little more robust based on the local technology ecosystem and our partnerships there. We're utilizing those learnings through our global technology organization to benefit mutually both platforms by taking key learnings and practices and spreading them across both of them.

Steph Wissink -- Jefferies -- Analyst

That's great. And then my second question is just on customer count growth or lack of growth embedded in your 2020 guidance. Can you help us think through the balance between leaders and customers? Because you had some improved performance in your leader count -- excuse me, your customer count. I wanted to just understand how you're thinking about those two key inputs into the sales growth guidance for the year?

Ritch Wood -- Chief Executive Officer

Yeah. Great question, Steph. We have a real focus around customer growth, and we did that when we rolled out our Velocity compensation program. So it's really meant to provide a faster and more flexible opportunity for our sales leaders, helping them to be more productive and really focusing on driving customer growth.

So we've actually had good success generally in driving customer growth and seeing those initiatives working fairly well around the world. The key to our customer growth this year will really be around a strong product launch, and a strong product launch to us equals growth in the customer base and in the sales leader number. So we believe, as we go throughout the year, we'll see, particularly in the back half of the year, stronger numbers in both customers and sales leaders. It's being led initially by customers, I think, and then it will transition to the sales leaders as they build out a stronger base of customers.

But our plan would be to see good, steady growth throughout the year with strength particularly in the fourth quarter.

Steph Wissink -- Jefferies -- Analyst

Thank you.

Operator

Your next question is from Doug Lane from Lane Research. Your line is now open.

Doug Lane -- Lane Research -- Analyst

Oh, hi. Yeah. Good afternoon, everybody. Just staying on the whole concept of sales leadership, where your sales leaders are down a lot since that LumiSpa launch in 2017.

They're down about a third. And I get a lot of that's China with what's going on over the past year or so. But if I look at the numbers, all the regions are down from that peak at the end of 2017 when you launched LumiSpa. So you've done a lot with the social media and the Velocity and what have you.

But really, is getting away from the LTO model maybe a mistake here?

Ritch Wood -- Chief Executive Officer

Thanks for the question, Doug. I'd answer, first of all, that since that Hero product launch, we haven't had a strong product launch since then, which typically is what drives strong customer growth. The end of 2017 was spiked a little bit. Particularly if you look at the numbers in China, we had a number of incentives running throughout that year, which had spiked our sales leader number.

So I think the better comparison, obviously, 2018 was a strong year. We grew the business 18% that year. And then as we hit China and the disruption with the lack of meetings and so forth has really impacted that sales leader number. Around the rest of the world, generally, even though the issues were in China, it certainly had a hangover effect on a lot of our other markets where we have strong Chinese contingents that drive our businesses well.

So in the wake of sort of a headwind with the business situation, we didn't have a strong product launch. And that's why we see the other markets soft in terms of sales leader count as well. We feel like we have good plans this year to help drive that. The LTO model, or what we'd refer to here as an alignment approach to launching a new Hero product, is really critical to that effort.

And Ryan spoke about it, but it's a constant training and preparation for nine months before we actually start selling the product. And we're inside that window already and moving forward. So that should help drive that sales leader number. Your question is right on.

Because at the end of the day, that will be the key to our success this year, is seeing growth in that sales leader number. I think we've got good initiatives that will drive that.

Doug Lane -- Lane Research -- Analyst

Great, Ritch. Thanks.

Ritch Wood -- Chief Executive Officer

Thank you.

Operator

Your next question is from Linda Bolton-Weiser from D.A. Davidson. Your line is now open.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Hi. I was wondering if you could provide a little more information about China and the process. When you do return to a more normalized meeting process after the coronavirus abates, how is that going to work? In other words, if you're voluntarily curtailing meetings, is it up to you when you start up meetings? Or is there some government intervention that even though you're voluntarily curtailing, they are still dictating the meeting? So can you just kind of talk about that? And in your guidance and everything, when are you assuming that the spread of the disease actually abates? Like, what are you assuming kind of in your thinking when you give this guidance? Thanks.

Ryan Napierski -- President

Yeah, Linda. So I'll speak to the normalization of meetings. Certainly, in China, it is a collaboration between the company and government officials whenever dealing with large group meetings. We need to get approval -- or all companies need to get approval for large meetings.

And so we are in cooperation and collaboration with government officials. Prior to coronavirus, you'll recall that we were receiving approvals from government groups to hold meetings, but there were still limitations placed on the number of people in those meetings in some parts of China. We've since ceased the meetings through the coronavirus activities. As we see the light coming through there, we'll plan to open those up and work collectively with the government and government officials on the appropriate size of meetings and location for those meetings.

Ritch Wood -- Chief Executive Officer

I think in terms of our guidance, as Mark and I have worked on this very closely, it's just really difficult to know how quickly we'll be able to return to sort of normalized business. So for us, our first focus has really been on developing digital tools, which will allow our salespeople to do their business without having to be in meetings. I think that's going to help for sure. And then what we've anticipated is the business will stabilize second and third quarters, and then we'll get a push as we launch our strong product in the fourth quarter.

So it's hard to know exactly, but our modeling is -- I think we've been quite conservative in estimating a pretty big impact in China, specifically, as we come out of the New Year celebration and really limitations on travel and so forth are pretty strict there right now.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. And then just secondly, I think in your commentary in the past, you had alluded to the idea that the rollout of Velocity was a bit disruptive in some markets. Can you comment on whether those types of disruptions, specifically with regard to its implementation, whether those disruptions are over with? And are there any regions at all that are still kind of feeling some disruption from that? Or are you into now that it's just beneficial to your operations? Thanks.

Ritch Wood -- Chief Executive Officer

There will always be opportunity to continue to optimize. I think where we've seen the biggest challenge is when we launched a new compensation structure in a market that didn't really have momentum. So when there's a change like that, and the business doesn't have momentum behind it, it's easy to point to potentially Velocity or whatever else as a cause of the reason that things aren't going quite as well. Generally, we believe the majority of that learning process has happened, and now we can refine and help to improve.

But I think at this point in time, most of that impact has flowed through our revenue numbers and our sales leader numbers and would anticipate, again, with strong product initiatives, it helps every aspect of the business go better and look better and sales leaders income improves and we take our eye off the problems and focus more on the opportunity. So I think a lot of the impact to the sales compensation plan has happened and the benefits of launching a strong product will really come through the compensation plan as we go forward.

Ryan Napierski -- President

And I would just only add to that to Ritch's point, there are always opportunities to optimize, but we remain very optimistic about the model itself and the way it is built to help us expand or broaden our appeal to a broader demographic of entrepreneurs. We're seeing that play out in terms of number of payees. Customer acquisition and productivity is good. It's really just a change in the qualification structure for sales leaders that we've worked through.

But to Ritch's point now, we're going well beyond a year of implementation. And so I think those year-over-year comparisons really normalize from this point forward.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Great. Thank you very much.

Ritch Wood -- Chief Executive Officer

Thank you.

Operator

Your next question is from Mark Astrachan from Stifel. Your line is now open.

Kimberly Butt -- Stifel Financial Corp. -- Analyst

Hi, this is Kimberly on for Mark. So we just had a question. You ended the year with $290 million of accrued expenses. Can you just discuss what liabilities are included in that balance? And kind of a general time line for when those payments are due? And how you plan to fund those, given the expected decline in profitability, particularly in the first half of the year?

Mark Lawrence -- Chief Financial Officer

Yeah. Thank you for the question. Our accrued liabilities aren't an anomaly of where we are in any given quarter. We have a strong cash position.

We continue to produce cash throughout the course of this year. So I don't see any concerns about the accrued liability number. There's nothing abnormal from a normal year-end.

Kimberly Butt -- Stifel Financial Corp. -- Analyst

OK. Fair enough. Thanks.

Ritch Wood -- Chief Executive Officer

Thank you, Kimberly. I think that is the end of the questions. And we sure appreciate your time. Especially, I would like to thank you for your interest in Nu Skin and despite the temporary slowing in the business due to the outbreak of the coronavirus, I want you to know that us as a management team are very confident that we're set up for a good year.

We are confident that we'll be able to grow the business, particularly in the fourth quarter of this year as we see things normalize and settle in. So thanks again for your time, and we look forward to updating you on our progress as we go throughout this year.

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Scott Pond -- Vice President of Investor Relations

Ritch Wood -- Chief Executive Officer

Ryan Napierski -- President

Mark Lawrence -- Chief Financial Officer

Faiza Alwy -- Deutsche Bank -- Analyst

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Steph Wissink -- Jefferies -- Analyst

Doug Lane -- Lane Research -- Analyst

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Kimberly Butt -- Stifel Financial Corp. -- Analyst

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