Other clubs, they have better conversion. People are coming in. What they’re coming in for could be a variety of things. They might be coming in, some of these clubs have workouts that are happening a couple of times a week. Some of the clubs, people are doing wellness evaluations. Some of the clubs, they’re running challenges where they’ll have weekly meetings and they’ll have groups of people that are coming in. Those types of clubs have higher conversion. So we believe long-term that the more people focus on multi services, the higher the conversion is going to go. Now by the way, I don’t want to talk about the tech stack because this is the bigger picture of things for the future. But having technology that allows someone to, for example, simply scan a QR code on a shake, and it says maybe would you like to have more information about what’s in the shake?
This brings them to a platform that says, “Hey, here’s what’s in the shake? And would you like to join a platform where you can get recipes, where you can learn about nutrition, where you can track your daily steps on a day, how you slept last night?” Everything that’s wearable, everything that’s connected today that it actually is a place for them to live on a platform, that add value to them, that’s connected to their distributor, that’s connected to the company, that’s connected to the club that they’re connected to. And so this is the opportunity for us in the future. Part of it is tech based and part of it is really upskilling and allowing our distributors to have access to the information they need to be able to go out and add these additional services into their businesses to be able to get the conversion up.
John Baumgartner: And that scan that you’re referencing, is that — is the idea to be on a product label or elsewhere, like advertising? Like where would that scan actually be for consumers?
Stephan Gratziani: The sky is the limit, John, right? I mean, in today’s world of marketing, I mean, it is so wide and so large. So it could be on a shake. When someone buys a shake at a club, it could print out based on the ingredients that are in there. Scan this, you’re good to know. By the way, you could have something that someone walks up to a club and it says, take our questionnaire, right, answer five questions and be able to refer a friend or be able to win something as a prize. Marketing today, social media marketing, it’s so vast and it’s so broad and it’s — there’s so much opportunity there. So what’s beautiful about this is if the technology is there, it’s unlimited what you can do. And our distributors are amazing. They are creative, they are always pushing the envelope. And as a company, it’s our job to make sure that we’re supporting them and everything that they need to be able to take their businesses wherever they want to go.
John Baumgartner: Thanks, Stephan. Very helpful.
Stephan Gratziani: Thank you.
Operator: Thank you. Please standby for our next question. Our next question comes from the line of Linda Bolton-Weiser with D.A. Davidson. Your line is open.
Linda Bolton Weiser: Yes, hello. So I was wondering, Stephan, when you were talking about the account management operating model, I’m just curious about like those people that will be doing that, are those — will those be corporate employees? And if so, does that kind of add over time, like something to your cost structure to implement that type of model?
Stephan Gratziani: Yes. So Linda, we have already corporate employees that do interface with distributors. And so it’s part of what’s already happening there. As we add and we are actually going to be having more and more of them, it’s really about how we are designing and we are going to reallocate resources to this area. Quite honestly, the distributors that are out there, we look at any market, right? There’s different ways that they have access to information. We are finding actually that having company employees that are on the ground, that are visiting the clubs or visiting distributor leaders and that are sharing information with them that’s relevant because, again, going back to John’s question, why do we need the training?
Why do we need this type of connectivity, is because some people come into the business. They get a result on the products, they’re inspired, but they don’t have a background in business. They don’t know how to read the numbers, or they don’t know how to specifically sometimes plan, and they just don’t have the background. So this is something that we are going to be formatting, developing with our leadership to be able to understand where can we give the most value to the distributors. We already have, in some regions, what we would call regionals that are actually on the ground, in the field, meeting distributor leadership. It’s part of what they’re doing is what they’re going to be doing in the future, but we are really going to standardize and format this.
And by the way, then if we think about AI and the information and the data and how things can be automated, and we can take a program and know what’s delivering the value is, but then we can also automate the program to deliver the value to more people. So this is just the beginning of something that’s going to be very, very big for us in the future and that we’re very excited about, and as mentioned, we will reallocate and we will automate.
Linda Bolton Weiser: Great. And then I was wondering if you could talk a little bit more about China. And what exactly was done there to kind of bring about this turnaround? I’m wondering how much of it is just the general market there becoming more open and — or is it specific actions that you took? And just remind us, too, is China less of a Nutrition Club market? I don’t think that was as much the focus there. Is that the case?
Stephan Gratziani: Well, it’s quite interesting. So to answer your question, it’s kind of both. It’s obviously coming out of the pandemic, they were the last ones. They were the longest in the lockdowns. They were the last ones to come out. And so the distributors or the service providers that we have there, quite honestly, they had a very difficult time. And in terms of clubs, they actually started to adopt and implement Nutrition Clubs right before the pandemic. And so I don’t know if you just kind of visualize and imagine, imagine thousands of service providers that opened up clubs, took locations just before the pandemic and then all of a sudden, they didn’t even have a chance to get off the ground. So it was really disruptive.
And I would say what is kind of leading the turnaround, a couple of things. One, number one, getting closer to the leadership there and supporting the service provider leaders and then actually understanding after a couple of years that the company is there to support them. And so this started early last year with Michael and myself meeting with them in March. We went together also in April. I went another 2x there and met personally with distributors or service provider leaders and local staff. And I would say that everything is coming together. They also had a back to growth plan that’s really kind of lined up and organize things for the year. So we have positive numbers. Things are looking very good there. Again, they’re coming off a 2-year very strong disruption.
It’s going to take a bit of time to build momentum there, but we do have positive momentum happening. And so again, we are feeling very, very good about this.
Linda Bolton Weiser: Great. And I was just wondering, why was the price mix all of a sudden seemingly in China, it looks like it was down about 11% or so. It looked a bit like an anomaly. Was there something that caused that in the numbers?
Alex Amezquita: Say that — the price mix, say that again, Linda.
Linda Bolton Weiser: For China — yes, sorry, for China, I saw it looked like the price/mix, like it looked like the volume point growth was really strong, but the price/mix was — I thought volumes were up 28% and price/mix was down 11%. Is that wrong or …?
Alex Amezquita: I’ll have to come back to you on that, Linda.
Linda Bolton Weiser: Okay. Yes, we can do that offline. And then just another, I guess, financial one for you, Alex. On the free cash flow for 2024, I guess I’d be picturing it to be maybe down somewhat because — what would be the working capital benefits? Are you expecting some more of those in 2024?
Alex Amezquita: Yes, so the working capital benefit in 2023 was largely rightsizing the inventory, that isn’t a benefit that we are expecting to see in 2024 because we are now at the rightsized level. So we are not going to have that contributor, which was a significant contribution to our 2023. We do expect one thing that we did do in 2023 is we had our cash flow conversion get back to our stronger levels where it was above 1x. You might notice that in 2022 is below 1x. So we expect that cash flow conversion still to be strong in 2024. However, the working capital piece is not going to be a contributor to that 2024 benefit.
Linda Bolton Weiser: You mean conversion of EBITDA to cash flow or net — adjusted net income to cash flow?
Alex Amezquita: We typically look at it from an adjusted net income basis.
Linda Bolton Weiser: Okay. Okay. And then just in terms of the GLP-1 stuff that you talked about, that’s very clever that they’re reaching out to prescription providers to look for clients. I’m just wondering if you’re in the works for doing something more formalized, some sort of partnership where you can actually partner with a GLP-1 provider to get a funnel of kind of customers? Is that something you’re thinking about?
Michael O. Johnson: Hi, Linda, it’s Michael. I’ve been waiting for that question from you. So we have studied this really carefully. And we’ve looked at health care providers, telehealth, we’ve gone back and forth on it. We think the best method to the marketplace for this is to work locally, is to work with the opportunity for our distributors to work with longevity clinics, work with doctors, work with different areas in their local marketplaces to provide a product that’s complementary. We don’t see ourselves in the near future offering a GLP-1 product. We believe that our strength is in the behavioral modification, giving product to people that complements a GLP-1 user on their journey. As you know, you’re on that personal journey.
