Good day, ladies and gentlemen. Thank you for standing by. Welcome to Nu Skin Enterprises Second Quarter 2023 Earnings Conference Call. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host for today, Mr. Scott Pond, Vice President of Investor Relations. Please go ahead.

Thanks, Olivia, and good afternoon, everyone. Today on the call with me are Ryan Napierski, President and CEO; Connie Tang, Chief Global Growth Officer; and James Thomas, CFO. On today's call, comments will be made that include some forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor website for any required reconciliation of non-GAAP numbers. And with that, I'll turn the call over to Ryan.

Thanks, Scott. Hello, everyone. Thanks for joining us today. In Q2, we continue to advance key initiatives enabling Nu Vision 2025, our multiyear transformation to becoming the world's leading integrated beauty and wellness company that is powered by our dynamic affiliate opportunity platform. While we remain confident in the direction and future outcome of our strategy, the persistence of macro headwinds has made the journey more challenging than expected, especially over the past several quarters. Nevertheless, we remain committed to our strategic direction, investing in the future through EmpowerMe personalization, social commerce, and our digital ecosystem while pivoting our action plan based on near-term needs in the business, which I'll speak to in just a moment. Our second quarter revenue was $500.3 million while earnings per share were $0.54. Both revenue and EPS were in line with our guidance and up on a sequential basis, mostly reflecting an 8% year-over-year growth in Mainland China, where momentum continued to build ahead of plan. With ongoing economic uncertainties in the market, we remain cautiously optimistic given the healthy growth of paid affiliates and sales leaders during the quarter, both encouraging signs leading to sustained second half growth. Our growth in China was offset by general softness in other markets, driven in large part by macro-related pressures negatively impacting overall consumer sentiment and spending. Aggressive strategic price increases over the past several quarters around the globe to combat margin pressures have taken their toll on customer acquisition, which has led to sluggish sales channel performance, most notably in developing markets including Southeast Asia Pacific, Europe, Africa, and Latin America. In the Americas and South Korea, we launched new products including Nu Colour Lash and Brow Serum as well as TRMe, which performed below expectations due in large part to declines in our channel dynamics impacting paid affiliates and sales leader counts. In the second half, we will be doubling down on efforts to stabilize consumer demand and regenerate growth in sales channels while continuing to focus on our long-term Nu Vision 2025 business transformation. Let me briefly describe our plans for the remainder of the year. We're in the final stages of preparation for the launch of the company's first holistic wellness, beauty, and beauty device ageLOC WellSpa iO. This device system, which helps users restore, revitalize, and recover their bodies, will be introduced in several markets in Q3 and is expected to be rolled out in nearly all markets by the end of 2023. WellSpa iO will be our second connected device, building upon what we've learned from the launch of our ageLOC LumiSpa iO, which has generated more than 6 million connected treatments to date, helping us learn more about the needs of our customers. WellSpa iO will be complemented with an enhanced interactive iO experience in our Vera app that will coach users through their optimal journeys. With the introduction of this next device, we expect to make steady progress towards our annual goal of 15% of revenue coming from connected device systems on our way to the longer-term target of 30% of revenue by 2025. Second, affiliate-powered social commerce. We're doubling down on our efforts to accelerate growth of our sales channel with the introduction of a new channel growth program in most of our markets called EmpowerStart. This new program is focused on motivating brand affiliates and their journey to becoming new brand representatives and sales leaders. EmpowerStart aligns with our EmpowerMe creator program introduced in Q2 and to focus our channel development efforts on both early and developing leaders, critical for regenerating growth in the channel. We anticipate that these two programs working together will bolster both affiliate and sales leaders in the second half and motivate customer acquisition. Also, please note, as you look at our paid affiliate numbers, we have adjusted the eligibility requirements for rewards in some markets to more narrowly focus on those affiliates who are actively building a consumer base. This adjustment will roll out in additional markets over the next several quarters. And third, our digital ecosystem. We continue to see solid adoption of our Vera and Stella apps, which are central to our initiatives around leveraging the power of a robust digital ecosystem by enabling us to drive deeper connections with customers and affiliates. We're well on our way to hitting our full-year targets of monthly active users for both apps and we'll begin transitioning to focus on growing customer acquisition, conversion, and lifetime value through deeper connections. Also in June, we began the implementation of Equinox, our new e-commerce global platform in North America. This new platform significantly expands the transactional scale of our business as we lean further into social commerce. Despite some early growing pains, migrating to a new platform will significantly expand our ability to create a more dynamic customer experience while enhancing operational efficiencies. Now regarding our RISE ecosystem, we're pleased to report 33% year-over-year growth in RISE as manufacturing performed well in the quarter and booked orders remained strong through the year's end. RISE continues to grow to become a larger part of our enterprise as we build out the synergistic ecosystem of capabilities that benefit our core business as well as enable our broader enterprise transformation. We made two important investments for our future in the second quarter. First, as you saw from our previous release, we completed the acquisition of BeautyBio, an omni-channel and clinically proven clean skincare and beauty device brand. The company's approach and mission are closely aligned with our core values and our enterprise strategy. BeautyBio has unique device IP in hydration, facial, and micro-needling technology, both fast-growing segments of the beauty device marketplace, which we anticipate leveraging for our core Nu Skin business. For BeautyBio, our unique expertise in devices, manufacturing, and technology will help this business reach its potential as part of the RISE ecosystem. BeautyBio will continue to operate as an independent business as we seek synergistic opportunities to strengthen all businesses through RISE. Second, we made further headway into the personalization space with a majority investment stake in Life DNA, a leading DNA assessment and recommendation technologies company. We believe that personalization in the beauty, wellness, and lifestyle space will deepen over time to the genetic level and that DNA will become an increasingly important source of information for our consumers to understand their personal care and wellness needs that can influence the quality and longevity of their lifespan. While it's too early to discuss the application to our business, our investment is indicative of our commitment to evolving our core Nu Skin business through personalization, and when combined with developing technologies like AI, we believe it will help Nu Skin become a meaningful disruptor in the beauty, wellness, and lifestyle space. So to wrap it up, the agility of our organization is a key strength as we adapt our business and tactics to this more challenging environment. While the pillars of Nu Vision 2025 have not changed, understandably, we're adjusting time and cadencing factors as needed. In addition, we are reemphasizing other critical aspects of the core business, including safeguarding the enterprise and optimizing profitability. And we remain highly strategic in our approach to allocating capital and prioritizing investment decisions. So with that, let me turn the time over to James to take you through our financials in more detail.

Thank you, Ryan, and thank you for joining us today. I look forward to working alongside this forward-thinking management team as we work toward achieving Nu Vision 2025 and accelerating our core business while we build out our extensive enterprise ecosystem strategy to generate long-term value for our shareholders and all stakeholders. I'll provide a brief Q2 financial review and then give initial Q3 guidance and speak to our full year 2023 projections. For more information, please visit our Investor Relations website. For the second quarter, we generated revenue within our prior guidance range of $500.3 million with a larger-than-expected negative foreign currency impact of 3% or $16.4 million. Our reported earnings per share of $0.54 landed near the high end of our guidance range, aided in part by our strict cost control measures. Our Q2 reported gross margin was 72.9%, which was down 70 basis points compared to the prior year period due to our RISE manufacturing segment making up a higher percentage of overall revenue. This decline was partially offset by improving margins in the Nu Skin core due to growth in China, in addition to improving margins in our RISE Manufacturing segment due to higher throughput to our expanding CPG customer base. We are also pleased with the 60 basis point sequential improvement as we execute on Project Accelerate, our cost optimization initiative, which focuses on driving margin improvement with margin-accretive products and improved operational efficiencies. Gross margin for the core Nu Skin business was 77.2%, a sequential improvement of 80 basis points. Selling expense as a percentage of revenue was 37%, 210 basis points lower due in large part to growth in our Manufacturing segment, which now represents 9% of our total revenue and does not carry selling expense. The lower selling expense can also be attributed to the sales compensation program in China as they operate under a different model. For the core Nu Skin business, selling expense was 40.2%. As part of our focus on operational efficiencies, general and administrative expense was $137.0 million or 27.4% compared to $141.6 million or 25.3% in the prior year period. Our operating margin for the quarter was 8.5% compared to 9.2% in the prior year period. The other income expense line reflects a $5.4 million expense compared to an $8.6 million expense in the prior year period. During the quarter, we paid $19.5 million in dividends and did not repurchase any stock. Considering the first half results, a stronger-than-expected U.S. dollar, and recent acquisitions, let me now provide initial Q3 projections and updated 2023 annual guidance ranges for revenue and EPS. For Q3 2023 we are projecting sequential improvement with revenue of $500 million to $540 million, including a negative foreign currency impact of 1% to 2%. This projection reflects continued macro challenges and factors and modest impact from the introduction of our ageLOC WellSpa iO system. Our Q3 EPS guidance is $0.54 to $0.69 and assumes a projected Q3 tax rate of 18% to 28%. For the full year 2023, we are projecting revenue of $2.0 billion to $2.08 billion, which includes a 2% to 3% unfavorable foreign currency impact. We are anticipating reported earnings per share of $2.15 to $2.45 or $2.30 to $2.60, which excludes the first-quarter restructuring charge of $9.8 million. Our guidance assumes an annual tax rate of 16% to 26%. While the current macro environment remains uncertain, impacting our near-term projections, we continue to believe that the future opportunities to accelerate our business will expand as we invest in our key strategic imperatives supporting our enterprise growth strategy. We are committed to continuing our operational improvement journey and believe our strong balance sheet and proven expense management discipline position us well for long-term success. And with that, operator, we will now open the call for questions.

Our first question comes from Chasen Bender with Citi. Your line is open.

Great, thanks, operator. First of all, James, congrats on the role. Looking forward to working with you more going forward. I guess maybe you can start, and you and Ryan can tag team this one. Could you maybe give us some additional color on the BeautyBio acquisition and the decision-making process behind it? It sounds like it was very attractive IP driven, but any more color on that would be great. And then if you can just help us understand the P&L impact of the acquisition and what that should mean at the top and the bottom line, please?

Yes. Sure, Jason. Thanks for being on the call and asking the question. I'll take the first part, and James can speak to the second. Yes, BeautyBio, as you said, we've been leaning into device systems in the beauty space for quite some time. We already have a strong complement of devices in our core business, but we're missing certain key areas of IP that we believe are critical to continue to lean into the world's leading device positioning that we have. And so that certainly was a big part of that business. Also, the capabilities of the team, the founder there, and the owner of that business is very good. They have strong omnichannel capabilities and all. We do see that business sitting separate and distinct from Nu Skin while we look at synergies across the RISE portfolio moving forward. James, maybe you?

Yes. Thank you for the question. So BeautyBio, it's a smaller acquisition, but yet very important to the strategic direction of our future with our enterprise strategy. And so the impacts on the back half of the year are relatively pretty small. You can get more information on that as you look at the disclosures around the acquisition. The uplift in revenue is around $10 million to $15 million in the back half, and there's a slight increase to our G&A pressure in the back half of the year.

Got it. And then just on China, it's nice to see the constant currency sales inflection and the trend in the affiliate count. You obviously got there sooner than expected, and understanding that comps are pretty easy. Can you give us some perspective on what drove that upside? And at this point, is it your view that the China business has troughed and that we should see year-over-year constant currency sales growth in the remainder of the year?

Yes, I'll comment on it, and then I'll have Connie also provide her perspective as well as she works directly with the team there. Yes, as I mentioned, we remain cautiously optimistic in that market. More from the macro perspective, we all read the reports coming out of China, and we understand the economic uncertainties in that market. Our business is generally seeing good recovery in those critical KPIs at the channel level, as you mentioned, in affiliates and brand reps or sales representatives over there. We use a different model in China. So that's good. I think from the product side as well, we're seeing good uptake on a new product line, TRMe there. So we're optimistic. Connie, what would you add to that?

I would add that certainly, we are cautious as the country and our sales leaders begin to be more active, have the opportunity, and certainly the capability to engage with customers much more closely than they have been over the past one and a half to two years. Of course, we saw some nice uplift sequentially in the affiliate count growth as well as sales leader growth, which gives us a strong indicator and some confidence as the onboarding of a new product launch also begins to take hold, and we're looking forward to that continuing.

Got it. And then, James, maybe one more for you. For the guidance for full year '23, I mean, for 2Q, you really landed at the midpoint of your constant currency sales guide. But if my math is right, it looks like you're actually taking down the implied 2H guide by about 4%. I know you mentioned just general caution on the macros. But is there anything else that's driving that? Is it conservatism? Or is there something more to that?

Yes. I think our main factors are just evaluating the first half results and the way the markets and regions have come in. The other major factor in that is foreign currency, when we look at it the way it's rolling through compared to our original guidance. As we go through and we look at currencies like the yen, the dollar has actually remained stronger than what our initial projections were. So we ran that through the model through the back half of the year, and that's another large part of that adjustment down.

Chasen, sorry, one other comment just on your first question before we move on, on the BeautyBio side, because I don't think I adequately represented some of the elements on that strategically. You all know for a long time, Nu Skin has really been a beauty and wellness company that on a core business basis, our product categories and the like. I think over time, what we've learned through just the industry overall beauty and wellness industry, we see our businesses as being highly undervalued for the products and the offering we have. And I think there's a lot we can and need to learn at an enterprise level from a total shareholder return perspective on how we better position ourselves for the products and the brands we represent as opposed to the channel through which those products are distributed. And so there's just a lot to learn from these, whether you call them Indie beauty or fashion beauty brands that I believe will benefit shareholders long term and benefit our core business as we learn how to better represent ourselves for those products and the innovations that we have. It's just a critical part of our transformational journey. So that's all I'd add to that piece.

Our next question comes from the line of Blake Anderson with Jefferies. Your line is open.

Appreciate the time. Just wanted to ask on the guidance, a follow-up question on that. I think you mentioned you expect to show a return to growth in Q4. Just was wondering if you could kind of rank the main factors that give you that confidence?

Yes. Sure, Blake. Just a couple of thoughts, and James can back in as well on this. But certainly, as we continue to look at the China activities and the trends there, we're feeling optimistic that, that will continue. And then I think with WellSpa iO, this is a major category-disrupting product for us. It will be our first wellness and beauty product. So it's a body product that a lot of our Asia businesses are very nutrition-focused. The TR90 brand is very strong there, and we just see this as an opportunity to kind of bridge the world of devices and IoT connected devices and bring those more and more into our Asia businesses as well. So those are the two key factors for sustaining a return to growth guide. Anything James on that?

Yes. The only other thing that I would add to that is just as we go through when we look at the revenue mix between our different revenue-generating segments, that shift has come in different ways. So China is a big part of that in the back half, and then coupled with the product launches, we see the back half of the year going through with sequential improvements from Q3 and then progressively into Q4.

Let me add one more thing. This is Connie. I believe this new program that we had just launched literally today, the EmpowerStart program, adds very nicely to generating momentum and energy to attract, to motivate and to help our current sales leaders attract new affiliates into the channel. Coupled with the very strong unique innovative launch of WellSpa iO, we really have a nice lineup to allow for new customer acquisition, customer retention, as well as help further along an affiliate's successful journey through our business.

That's really helpful. And then I just wanted to ask on the BeautyBio acquisition. I think you mentioned the revenue number of $10 million to $15 million in the second half and then some slight G&A pressure. Can you talk at all about maybe accretion expectations or just broader synergy impacts? Any way to kind of size that up over the next 12 months or so?

Yes. James can address the technical accounting since that's not my area of expertise. From a synergies standpoint, we clearly have opportunities in manufacturing and scaling some of our services from a RISE perspective. I believe there are beneficial opportunities in that area. Our primary focus with that business is to maintain growth as they continue to expand within the U.S. market, ensuring we provide the necessary support and services to facilitate that. Additionally, we will leverage some of their intellectual property capabilities to help enhance our core business and maintain our leading position in Beauty Device Systems brands. James, would you like to add anything?

Yes. I would just say, again, look at our disclosures in the 10-Q because they have more detail as to the pro forma statements of what that company is from a number perspective. And then the purchase accounting on the acquisition is the drag that you'll see come through in G&A. But with the way we look at BeautyBio and the way we position that, how the Nu Skin core benefits from that IP and technology, we see some uplift through that going forward throughout the next several years.

Got it. And then last one from us. I think you mentioned some of the impacts in the international markets from price increases. I was wondering if you could talk a little bit more about the U.S. consumer, any kind of change in how they're behaving in the last few months?

Yes. The U.S. has been a really interesting business for all of us as we watch the economic reports coming out from the government, et cetera. Generally, what we're finding with ours is there are trade-off decisions that are being made. Some industries continue to do really well around experiential economy and even kind of basic CPG type of activities in broader consumer products. We found that there are some trade-off decisions that we're seeing in our higher-end products here. And I do think that's a leveling effect in the sense that I don't see this as a long-term issue. I just think it's an adjustment as consumers and households are balancing discretionary spend. But yes, it's a real question mark for us as we all try to watch and observe the economy and what's going on there.

Our next question comes from the line of Mark Astrachan with Stifel. Your line is open.

Hi, this is Chris Armes on for Mark Astrachan. So just kind of broadly on the BeautyBio acquisition. What's Nu Skin kind of getting from the acquisition? And if it's basically the technology, why couldn't it have developed it more internally? And basically, what could Nu Skin have done on its own versus what BeautyBio can do?

Yes, Chris, that's a great question. We consistently evaluate options like build, buy, or borrow as we explore different opportunities. I want to emphasize that BeautyBio is an exciting omnichannel brand, sharing a similar product philosophy with us focused on clean beauty and a modern market approach. There is significant value in their business. When discussing specific technology and intellectual property, the patents related to microneedling and hydration in facial treatments are vital, as these product categories are rapidly growing. With the appropriate research and development, we can effectively approach these markets. Finding a strong company with an effective strategy can accelerate our entry into markets that benefit both BeautyBio and our Nu Skin core, particularly as we expand our device systems platform. Hydration, facial treatments, and microneedling present substantial opportunities. We also recognize the consumer trade-offs and spending patterns. By offering in-home services like hydration facials or microneedling, which have traditionally relied on estheticians, we can leverage our knowledge from products like Galvanic Spa and the upcoming WellSpa iO. This strategy allows us to advance more swiftly into the device and connected device sector. On BeautyBio's end, they gain access to manufacturing capabilities, services, and expertise that a smaller, emerging brand may lack. We view this as a synergistic partnership that will expedite our progress.

And our next question in queue is coming from the line of Linda Bolton-Weiser with D.A. Davidson. Your line is open.

Yes. I apologize. I missed your introductory statements, but on the BeautyBio acquisition, can you just tell me, is it also a direct seller or how do they distribute their products currently? And then are you going to just integrate this brand and product into your direct selling and the sales force will be able to sell the product? Is that the plan here?

Hi Linda, yes, no worries. You can read the transcripts as well. So I appreciate you joining. Yes. No, I think for BeautyBio, they are not a direct sales company. They really started out in television shopping 11 or 12 years ago. They're really very rapidly expanding in the omnichannel space, so strong in Ulta, Sephora, as well as a lot of department stores. In fact, they have a full footprint in Ulta, which is a pretty remarkable thing for a young beauty brand to get into. That's kind of how they work today. No, as we said, BeautyBio will continue to operate independently. We will look at their IP and we'll look at opportunities to incorporate some of that technology into our Nu Skin business, but we don't plan to integrate those at this point in time, although there are some synergistic value adds that each business will have independently.

Okay. And just related to that, I'm just curious, USANA, which I follow, they're actually making some acquisitions because they want to explore other channels. So they're buying products that are sold in other channels like regular retail, and they're keeping them separate. So is that what you're doing? I mean, are you kind of doing a learning experience here with experimenting in those beauty channels? Is that kind of part of why you're doing this acquisition?

No, we've discussed this previously, and it's something we need to elaborate on at a future Investor Day regarding our overall enterprise strategy. Looking ahead, we are actively working on developing our integrated beauty and wellness platform. Over time, we envision Nu Skin Enterprises and our RISE business evolving into what we refer to as an ecosystem—comprising brands and companies in beauty, wellness, and lifestyle that collaboratively address market needs for consumers. This initiative is more than just exploration; it's about focusing on an enterprise ecosystem strategy that caters to these industries. We are enthusiastic about learning from our partner companies and the various investments made in the past several years as we pursue this broader vision of creating a beauty, wellness, and lifestyle ecosystem. This is part of a long-term strategy that we should discuss in greater detail at a future Investor Day.

Okay. And then I was just wondering, can you remind me, I thought the TRMe or something, the personalized version was supposed to launch in maybe North America sometime in 2023. Has that launch occurred yet?

Yes. So no, it has not yet, and you're spot on. So there's a TR90 brand that was introduced several years ago, and then the TRMe, which is the customized version, is just beginning to roll out market by market. I think Q4 of last year went into Taiwan or so, Korea in Q1, and then China, Q2, with the formal launch going into Q3. Market by market, it's rolling out. With the U.S. market, as we continue to observe the weight management sector, it is a pretty cloudy space, as you know, for the companies you follow. I think it's still yet to be said exactly how we bring this customization or personalization in weight management system to be truly differentiated here. We're really leaning in and learning in Asia where this business is really quite unique. There aren't many of the companies that are here in a more crowded market in the U.S. So we're kind of exploring there and learning and understanding how personalization fits with the bigger strategy. But while we continue to observe what's going on here. We do anticipate it coming here, but we need to do it at the right time.

So I'm just curious because I follow that weight loss space. And of course, there's been so much publicity over those GLP-1 drugs. Are those drugs growing prevalent? Is that kind of what's making you rethink that launch a little bit?

Yes, I think it's a significant question mark regarding how that will develop. Traditionally, our strategy has not focused on pharmaceuticals; instead, we lean toward nutraceuticals, nutrition, and healthy lifestyle management. We are observing the situation and aligning it with our product philosophy of emphasizing the good while minimizing the bad, but we need more time to see how it evolves. In the meantime, we are focusing on Asia, where our approach to product value and nutrition appears to be more effective, and particularly well-suited to that market. We will continue to monitor the situation for a bit longer.

I think we are through all of the questions. I just wanted to close by saying thank you to all of you that were able to attend and asking questions. As we mentioned previously, we're in a very continuously interesting time as we continue to work towards our transformation and Nu Vision 2025 and building out our broader beauty, wellness, and lifestyle ecosystem. We continue to make strategic moves in that direction while pivoting in the near term to ensure that we're addressing the factors that we face today, and we'll continue to keep you well abreast of those decisions and those pivots, so that you're familiar with our plans. So thanks for joining. We look forward to chatting with you again next quarter. Bye-bye. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.