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…

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…

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…

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…

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.