Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time I would like to welcome everyone to the Nu Skin Enterprises' Q3 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. I would now like to hand the conference over to Scott Pond, Vice President of Investor Relations. You may begin..

Thanks, Prilla, and good afternoon everyone. Today on the call with me are Ryan Napierski, President and CEO; and James Thomas, CFO. On today's call, comments will be made that include forward-looking statements. These statements involve risks and uncertainties and actual results may differ materially from those discussed or anticipated.

Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner.

Please refer to our investor website for any required reconciliation of these non-GAAP numbers. And with that I'd like to turn the call now over to Ryan..

Thanks, Scott. Hello everyone, thanks for joining our call.

I'll start by providing a performance summary on Q3, sharing thoughts on our near term priorities to improve operating performance followed by an update on our longer term strategies to reenergize growth as we continue to evolve our core Nu Skin traditional direct selling business towards a more expansive integrated beauty, wellness and lifestyle ecosystem including our Rhyz businesses.

The third quarter results were in line with our guidance range reflecting continued headwinds in our core Nu Skin business partially offset by ongoing strong performance from our Rhyz segments. We delivered growth in a handful of markets in Latin America and Southeast Asia as well as impressive growth from Mavely, our affiliate marketing platform.

We continue to face pressures in several of our larger markets including South Korea and China where ongoing macroeconomic factors are impacting consumer spending. I was recently in China with our team evaluating future opportunities in the market and continue to believe in the long-term potential of this market despite the near-term headwinds.

In the U.S.

where the direct selling industry faces ongoing pressures and many companies are evolving their business model to address the changing commercial landscape more towards social media driven product discovery and growing influencer and affiliate marketing we are introducing a new sales performance plan this month and are exploring innovative ways to make it even easier for affiliates to share Nu Skin products via social media links, both of which I will discuss more in just a moment.

Our Rhyz segments exceeded forecast and closed another record quarter up more than 20% year-over-year led by Mavely. Mavely is our affiliate marketing platform that enables approximately 1,200 brands and retailers to connect with consumers via more than 100,000 everyday influencers across most social media platforms.

We've invested in the development of Mavely over the past three years as their creator economy continues to expand and see tremendous potential looking forward. Manufacturing also continues to perform well, servicing a broad array of leading beauty and wellness brands across traditional CPG, direct-to-consumer and retail.

As we navigate the broader market uncertainties in the near term we will be accelerating our efforts to drive cost efficiencies and improve margins and cash flow even under a scenario where top line headwinds persist into 2025. To that end, our near-term priorities are focused on the following three areas.

First, on the product side, we will be accelerating our product portfolio optimization efforts that began earlier this year and are pleased with progress made to date of reducing approximately 20% of our sub optimized SKUs globally.

In 2025, we anticipate reducing another 30% of low performing SKUs, which will lead to more than 50% portfolio consolidation by year's end. Coupled with the work we've been doing on lowering raw material and manufacturing costs, we anticipate 150 basis points to 200 basis point gross margin improvement to our core Nu Skin business by the end of 2025.

Second, selling expense in the core has risen over the past several quarters due in large part to shifts in both geographic market and sales force mix. The new sales performance plan I mentioned earlier combines the best of affiliate marketing with the scaling power of our leadership driven business model.

By promoting healthy and sustainable growth in both direct consumer sales and team building, it places an enhanced focus on product selling and referrals for others who do the same. We'll start by introducing this in North America and South Korea this quarter with other markets to follow next year.

These initiatives will help to improve channel activation while optimizing selling expense in the core as we work towards our historic 40% target by year's end in 2025. And third, we'll extend our operational optimization efforts to all underperforming markets as we strive to ensure balanced profitability across all market segments in 2025.

We initiated this process in Argentina earlier this year and have experienced significant improvements in both top and bottom line as we simplified and focused our business in the market.

We anticipate improving annual profitability beyond $20 million across developing markets as we work towards $50 million in annualized G&A savings over the coming year.

Together, we believe these three near-term operational optimization initiatives will enhance our ability to simplify and focus our business on the things that matter most in terms of returning our business to growth while ensuring operational profitability.

Longer term, we remain focused on building out our enterprise vision of becoming the world's leading beauty, wellness and lifestyle ecosystem.

We've introduced several new initiatives that we believe will lead us towards this long term vision including one the introduction of Mind 360 at our East and West live events this past quarter, with global market launches continuing over the next few quarters.

Cognitive health is a rapidly growing consumer category, reported to be $9 billion globally and growing at 13% per year. While this burgeoning category is new to overall consumer behavior, we believe it will attract a new segment of customers to Nu Skin in the future.

Second, in addition, our product pipeline remains robust and we are also exploring new innovations in our nutrition supplement business along with technologies that help demonstrate their efficacy.

Our nutrition product lines including PharmanX, LifePak, g3 and others also hold some of the highest customer acquisition and retention rates in our portfolio. We anticipate some of these new innovations to hit the market in late 2025 and we'll discuss with you more in upcoming quarters.

At live we also introduced our exploration into integrated brand building with our sales force as we strive to broaden Nu Skin's accessibility wherever customers seek to find us.

We're very early in the exploration of efforts, but are beginning to see promising indicators as customers access our products via third party marketplaces and search engine advertisements. For instance, approximately 80% of those purchasing via online ads are customers who found their way back to Nu Skin to place an order through an advertisement.

We believe there is untapped potential in invigorating customer activation and retention through integrated brand building. Fourth, we will be releasing a beta version of Mavely initially in our U.S. - to our U.S. brand affiliates later this month.

Our affiliates are authentic micro influencers and we believe that the combination of Mavely and Nu Skin will further enhance their ability to engage with customers socially. The app will improve their ease of sharing Nu Skin products as well as more than 1,200 additional beauty, wellness and lifestyle brands on the Mavely platform.

And lastly, we continue to explore future market expansion into India. The world's second largest population and one of the fastest growing economies in the world.

India is a complex market that holds significant potential as we strive to introduce Nu Skin to this highly entrepreneurial, beauty and wellness conscious 1.3 billion person population anticipated in late 2025.

So in summary, despite the challenging operating environment, we are making progress in several areas of our vision over the immediate term, we are pushing harder to drive operational efficiencies, which will help to improve profitability and cash flow as well as free up additional resources to support our key growth initiatives.

We also continue to evolve our business model as well as overall branding efforts to regenerate healthy and sustainable growth. We remain focused on executing our long term vision of becoming the world's leading integrated beauty, wellness and lifestyle ecosystem.

So with that, I'll turn the time over to James to cover Q3 in more detail along with guidance and then we'll open it up for questions.

James?.

Good afternoon, and thank you for joining us to discuss Nu Skin's financial results for the third quarter. I'll provide a brief update and then speak to Q4 and 2024 guidance.

Our performance reflects our commitment to operational efficiency through our company-wide efforts to optimize expenses across the P&L while navigating the macro environmental uncertainties and weak consumer sentiment in the direct sales industry.

Before we dive into details, I'm pleased to share that we are on track with our plan to reduce SKUs by 30% in 2024 and are accelerating this effort in Q4 to simplify our portfolio and focus on higher margin products within our core business.

In our developing markets, we're beginning to see positive margin improvements as we pivot toward a more profitable product mix.

While we're still in the early stages of this transition, in our lower tier markets we have implemented strategic steps to enhance margin targets, reduce our operating overhead and streamline the business opportunity with a more attractive price target and commission structure to improve bottom line returns.

In addition to these changes, we're progressing well with our 2024 cost efficiency initiatives and are on track to reach the upper end of our previously announced G&A savings targets of $45 million to $65 million. Now on to third quarter results.

We posted revenue of $430.1 million, which landed within our prior guidance range and included a negative foreign currency impact of 3.4% or $16.7 million. Revenue for the prior year quarter was $498.8 million. Third quarter earnings per share of $0.17 also landed within our previous guidance range.

This compares to negative $0.74 or $0.56 excluding an inventory write-off in the prior year quarter. Our gross margin was 70.1% compared to 58.6% or 71.8% excluding an inventory write-off in the prior year quarter.

Gross margin for the Nu Skin core business was 76.5% compared to 61.8% or 76.8% excluding the inventory write-off, a reduction of 30 basis points due to geographic revenue shift from Mainland China and South Korea. Selling expense as a percentage of revenue was 39% compared to 37.6% in the prior year quarter.

Selling expense for the core Nu Skin business was 43.5%, which was elevated due to our first in-person sales convention since COVID compared to 41.7% in the prior year period.

General and administrative expenses declined approximately $15 million year-over-year due to the continuation of our cost efficiency program helping bring expenses more in line with current revenue levels. As a percent of revenue G&A for the quarter was 26.9% compared to 26.2% in Q3 of 2023.

Our operating margin for the quarter was 4.2% compared to negative 5.3% or 7.9% excluding an inventory write-off. Interest expense was $6.5 million for the quarter compared to $7.5 million in the prior year.

From a cash utilization perspective, we made solid progress in strategically reducing inventories across our product portfolio, which contributed to a healthy $31.4 million in operating cash flow this quarter. Additionally, we reduced our outstanding debt by $25 million and paid $3 million in dividends.

We did not repurchase any stock this quarter and have $162.4 million remaining under our current authorization. Our tax rate for the quarter was 37.6% compared to negative 7.3% or 10.1% excluding the inventory write-off. Shifting attention now to guidance.

Given the results of the first nine months of 2024 and the current state of the business, we are expecting 2024 revenue in the $1.70 billion to $1.73 billion range. We anticipate earnings per share of negative $2.32 to negative $2.22 or adjusted earnings of $0.65 to $0.75.

Our guidance now assumes an increased foreign currency headwind of approximately 3% to 4%.

We are projecting fourth quarter revenue of $410 million to $445 million assuming a foreign currency headwind of approximately 1% to 2% which reported earnings per share of negative $0.09 or $0.01 - sorry, to $0.01 or adjusted earnings of $0.19 to $0.29 excluding a planned cash restructuring charge of $15 million to $20 million to align our operating costs to be more in line with the revised outlook on current revenue.

As you can see, we are acutely focused on optimizing our operations to strategically focus our resources on driving the key initiatives that Ryan discussed, which align to our long term vision of becoming the world's leading beauty, wellness and lifestyle ecosystem.

We remain committed to improving operating margins as we work through our enterprise transformation by improving overall gross margin, contribution margin and operating margin in 2025 via these key initiatives, which will drive improved shareholder return in the mid-to-long term. And with that operator, we'll now open the call for questions..

Thank you. [Operator Instructions] Your first question comes from the line of Chasen Bender with Citigroup. Please go ahead..

Thanks, operator, and afternoon guys. I wanted to start high level. I mean clearly there's been a lot of initiatives underway to stay stabilize the core direct selling business, whether that be new operating models, new product introductions, leveraging e-com marketplaces.

I guess putting that all together in context of what is still a very challenging macro environment? How should we be thinking about the timeline for stabilizing the core Nu Skin businesses? Is that something that could happen in 25 based on the initiatives that you have underway? Or given how long it takes for some of those projects to build traction, is it really more like a 26 story at this point?.

Yes, Jason, that's a good question. I'll comment, maybe James can add his context as well how we're looking at the business.

The way I kind of split it right now is, we've got the near term, which obviously is kind of a prolonged state of decline across the business in most sectors and therefore our primary focus right now is ensuring that we are getting as frankly as simplified and focused as we can operationally across the product portfolio.

Even our selling expense optimization as I mentioned, and then developing markets where profitability hasn't been as great.

So very focused on that and really eliminating wasteful or less effective cost in order for us to then take that money and invest it in new initiatives that are both directed towards like the new sales performance plan I mentioned directed towards channel activation, but also these new initiatives like integrated brand building, social sharing and the like, so transformational.

I do think those are more mid to long term. So I think when we look into 2025 trying to read out what's going to happen, hard to know with political landscapes here in the U.S. and the like, but inflation seems to be leveling off and calming down, which we believe is going to help with more premium beauty and wellness.

As we look into later 2025, I think we're still a few quarters away from that. So we're not as transparent. The future is not as transparent now on that side.

But I think for us when we look at the model we're saying hey, it's going to be near term, and I think moving into early part of 2025, I think it's still going to be rough towards the second half. We have quite a few initiatives that we'll be talking about next quarter that will come in.

We'll have a little more transparency post-election here in the U.S. of where we think the economy will go and we'll see kind of how that plays out in late 2025. For us now though, it's very cost optimization focused near term while we then lean into these innovations that are a little more mid-to-long term focus.

James, would you have any other thoughts?.

Yes, I'd say Chasen, with what we saw with where we finished Q3 and where we're forecasting Q4, we're showing that softness in the back half of this year and going into 2025 we're being cautious about our forecast. We'll give guidance after the end of the year, how we're looking at 2025.

But in the meantime what we're doing is we're really working underneath through the P&L to make sure from an operating profit perspective that we're maximizing all of those opportunities and trying to really forecast profitability going forward..

Got it. I appreciate that color and then just switching gears. On the other hand, Rhyz just absolutely continues to be a bright spot. So, I was hoping you could provide a little additional context, particularly on the non-manufacturing side.

I know you mentioned Mavely, but just how are the various pieces like Mavely and BeautyBio contributing, and bigger picture, I know you've talked about rise mixing up to 20% to 25% of sales by 2025. It seems like you could get there much sooner given the decay in the direct selling side.

So maybe just provide some perspective on how to think about the organic growth rate across both manufacturing and other particularly in context that the manufacturing growth did slow pretty meaningfully this quarter on what was a difficult comp?.

Yes, no, I think Rhyz is doing really well as you said and we continue to invest in that platform. I mean, it is very much an investment in that platform as we look to allocate resources there. Mavely, if you break it down, manufacturing is kind of that steady business that for us is strategic.

I mean, a lot of people ask why do we hold manufacturing? I will be honest, then we have, we service hundreds of other, customers across multiple channels from DTC, CPG, traditional retail, e-commerce.

It's really interesting for us to be able to observe trends and be able to see how innovation is going into market and what channels are winning, frankly. So for us it's more than just an operational vertical play. It really is helpful for an insightful in the beauty and wellness space. But yes, it continues to go well.

We need to continue to invest to fuel that growth. Mavely has been, continues to be a really interesting investment. I mentioned it's only been three years. The business continues to perform well. It plays right in the sweet spot of the creator economy and, there's a lot of interest in that sector with recent deals there.

So we'll continue to invest on Mavely. We want to make sure it has the best opportunity for continued growth there. We do have brands, as you mentioned, the likes of BeautyBio. We have investments in a few other brands as well and we'll see how those go. I think the world of omnichannel is transitioning now.

We watch companies like Ulta and others, Sephora, et cetera. There's a lot of shifting in how their business mix goes from bricks and mortar to online. And I think we're experiencing and learning the same thing as we play with these businesses and understand them better.

I think BeautyBio is an amazing brand that has great, from a customer standpoint, great traction there and we want to figure out how to best bring it to market in the most effective way.

So a lot of those other businesses I think are very much around, I don't want to say in any way a private equity model, but there is a little bit of a quartile type of look where we anticipate over time that some of the brands will do extremely well and some will be moderate and then there will be some that don't work as well.

I think our commitment is to learn this omnichannel way and then again take those learnings and apply them across the core business. For instance, the integrated brand building.

A lot of our ROAs, our return on ad spend models that we're running right now on the integrated brand building of the core originated or at least the insights came from some of these other brands. So we see this when we look out three years, four years, five years from now, having a lot of learnings that come through this ecosystem of brands.

And you got the brands, we got the affiliates, we got the manufacturing, all of these have learnings there. So that's kind of how we're seeing it. I think the last thing I'll say is organic versus inorganic Rhyz obviously has come through a lot of investments that we've made across smaller brands and then we scale them up.

And I would imagine that will continue to be mostly the case, but I do think that Rhyz is beginning to have capabilities there where future state over the next few years we could see brands being launched inside that ecosystem that actually originated organically from all of the insights that we have..

Got it. Thanks for that. And then just for my last one, I wanted to ask about profitability. You have obviously been on a journey now to reduce costs have expanded some of the initiatives to take out additional costs through the remainder of this year and next year.

But as I look at the core direct selling gross margin, it's still down 30 bps on a year-over-year basis. And you've been taking out costs and managing promos more efficiently and doing the SKU rationalization. Yet it just seems like we're not seeing that show up in the P&L.

I know you mentioned mix, but maybe just unpack for us in some greater detail how all of that is coming together and why we're not seeing that in the P&L just yet..

Yes, I'll probably so this will be a good one for James and I to tag team on. Maybe my optimism and James pragmatic views will be helpful. The way I look at it, very much so is it's really hard with the top line being what it has been in to counter some of the effects. And then I think geographic mix for us has been difficult.

When we look at some higher margin businesses in China for instance, as that business has reset down, it's really impacted our gross margins globally. A lot of the cleanup work we started in 2024 has been really getting around kind of the periphery of suboptimized SKUs.

Like I said, we've hit a little more than 20% of our SKUs out this year, but they don't really affect significantly any sort of scaled revenue what we're really talking about next year in this additional 30% we really do start to get into more of the margin erodive [ph] products and SKUs that do have revenue.

And so there's a shift of customer behavior that needs to happen. But it's, it's also the more impactful side of the margin model that I think will play out. And so part of it is cleaning up the fringes, so that we can go after the more meaty components of margin that we're focused on.

And I'm optimistic in this is why I stated in my opening remarks that 150 basis points to 200 basis points for our core business is really what we're lasering in on to do. And I think that opportunity exists if we're prudent and vigilant on it.

But James, what are your?.

Yes, I mean it's a great question. It's one that we grapple with. Over the last two years as we've worked on trying to get that gross margin improvement, Ryan touched on it. I mean the majority of the shift away from China in the last two years, has moved from at one point 40% of our business now to the current quarter at 12%.

And then in addition to that, the other market of South Korea with the declines that we've seen in that market, they tend to overshadow some of the wins that we're making through the portfolio optimization.

And a large part of that upside is in a lot of the developing markets where we're focused through Latin America, also through Southeast Asia where we're starting to see good signs of improvement in our developing market strategy where we've really reduced the overall SKU count to that higher profile margin mix.

So as we continue to scale and move to that, I believe we'll start to see those improvements. We have held steady from Q1, Q2. We showed a 40 basis improvement sequentially from Q2 to Q3. So we are getting small wins with different product launches and mix.

And we're really starting to target with our future product launches that targeting that profile margin that we want to move forward to take us back to that 78% to 80% as we move through 2025 and 2026..

Got it. Very helpful. Appreciate all the detail. We'll pass it on..

Thanks, Chasen..

And your next question comes from the line of Ashley Helgans with Jefferies. Please go ahead..

Hi. Thanks for taking our questions. So we actually - we asked about this last quarter but just wanted to get an update here. You've talked about some kind of affordable luxury launches. And I know those were still early days last quarter, but any update there? And then curious on the nutrition side, just how it's expanding your customer base.

Maybe you can talk about customer base in the nutrition side versus the legacy business. And then last, any additional color on China and any expectations now that the government's putting stimulus into the market. Thanks so much..

Yes, no. All really meaty topics, Ashley, so I'll connect on those. So regarding affordable luxury, we are focusing a lot of our attention on affordable luxury, but more from a point of view that the products we're bringing to market, we want to make sure they're priced right.

So for example, the Mind 360 line that we're just starting to introduce now, most of those products really fit in what I would define as masstige pricing, maybe slight prestige, but not premium. And so that line coming out, that's new. We're doing work there.

We have some social selling products like Peptide Pout, we've had Lash and Brow Serums and other types of topical treatments that have really been built to be in that affordable luxury or that masstige to prestige area. And I think as inflation, the hyperinflation was rolling through, that definitely has been a focus of ours to orient that way.

I'm hopeful with inflation around the globe tempering and hopefully stabilizing much better, we'll start to see that our Prestige, not quite premium but Prestige product categories will perform better as we move into 2025.

So continue to focus on affordable luxury, but also making certain the products by the new ones we put in the market, but also making certain that we're investing in the brands that have kind of broader potential as the economy stabilizes.

On the nutritional supplement side, this is where I get pretty interested and maybe it applies to Chasen's outlook question for 2025. Nu Skin has historically been a very evenly weighted, relatively evenly weighted business between Nu Skin, our personal care business, and our wellness or nutrition business.

Over the course of the last seven or eight years, the vast majority of our innovation has come around the personal care side, which is kind of where social commerce is thriving. And so there is a lot of sense and logic in doing that.

But as we look at the portfolio performance nutrition and we look across business categories or product categories, nutrition generally holds in almost every market segment higher customer acquisition and retention for the nutritional supplements and that might partially be due to just the nature of you design supplements on 30-day models.

We have a lot of subscription based revenue with nutrition more so than in the personal care side. And so we just see longer tail customer lifetime value through the nutrition side. So we've really kind of on an innovation basis for 2025.

We've shifted more innovation to go into that nutrition business, which I think will bolster that back up to a more even split. And I think from a customer acquisition, including our affiliates and our leadership acquisition retention, we should see improvements there.

So strategically, we think it's an important move for us to balance the portfolio a little bit better, and that's what we'll be doing. Your last question was on, I'm trying to remember. Oh, on China, I wrote color, but you said color on China, so I stopped. Yes. So China's interesting.

Obviously, as you said, there's a lot of money being placed into the economy there by the local government. It's primarily going into sectors that probably don't directly drive to consumer spending in the market per se. And I'm not sure how that's going to play out longer term.

We're focusing really on the consumer in China and hoping to see shifts in spending there as opposed to the savings rates that we're seeing right now. So a little too early to tell.

I was there a couple of weeks ago meeting with our management team and some of our top leaders, and it was interesting because there's still a lot of energy and frankly, there's some optimism at the local market level that the economy is going to look up because the government is investing in the economy.

And so my hope is that consumer sentiment will follow suit and that the savings will start to be spent and spent particularly in premium beauty and the like. But I think based on some other peers in the area, people aren't baking a lot into China in 2025.

And for us, I think we're being fairly cautious right now with hope that some of this stimulus will improve consumer confidence and sentiment overall will drive purchasing back up, at least in the Prestige area, if not premium..

Thank you so much..

Does that help?.

Yes, very helpful. Thank you. I'll pass it off to someone else..

Thanks, Ashley. I think we're actually keeping it fairly short and sweet today. So I just wanted to maybe wrap up by thanking you all for being on the call and for continuing to monitor and observe our transformational story here at Nu Skin.

I think absolutely the headwinds that have been here over the last couple of years, as we look out to the future, we continue to see a lot of opportunity for Nu Skin in the world based on what we provide, which is opportunities for people to look, feel and live better lives. And that is something that's in need today.

How we get there and how we get that to market is the area where we're focusing a lot in terms of exploring integrated brand building, new product offerings and new opportunities throughout our broader rise ecosystem to make that happen. So we appreciate you tuning in. Look forward to updating you quarter by quarter as we go. Have a good day..

Thank you. And this concludes today's conference call. Thank you all for participating. You may now disconnect..