Good day. Thank you for standing by. Welcome to the Q1 2024 Nu Skin Enterprise Earnings Conference Call. Please be advised that today's conference is being recorded.

Thanks, Michelle, 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 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 now I'd like to turn the call over to Ryan.

Thanks, Scott. Hello, everyone. Thanks for joining us today. Having just returned from our top sales leader alignment and activation event in Abu Dhabi and Dubai, I'm eager to provide an update on the state of our business as we enter our 40-year anniversary, pursuing our mission of being a global force for good by empowering people to look, feel and live better lives. I'll provide a performance summary for Q1 as well as an update on our ongoing enterprise transformation vision, strategy and plans. Our results for the first quarter were in line with guidance. At a high level, our business is on track with established expectations, and we are maintaining our full-year outlook. Revenue for the quarter was in the middle of our guidance range despite experiencing more FX pressure than we had anticipated. We were also pleased with our progress on expense reduction initiatives, which helped us deliver first quarter non-GAAP earnings per share at the high end of our range. Our Rhyz business delivered another strong quarter with revenues up 57% to more than $62 million, led by both our Mavely technology platform and Wasatch manufacturing business. The revenue contribution from Rhyz accounted for approximately 15% of total enterprise revenue in the first quarter, and we continue to expect this segment to account for 20% to 25% of our overall mix by 2025. Looking at the performance of our core Nu Skin business, our new product innovations delivered solid results. AgeLOC WellSpa iO and RenuSpa iO, the holistic wellness and beauty devices we launched recently; along with ageLOC TRMe, our personalized weight management system that also launched in 2023, contributed approximately $42 million to our Q1 revenue. In Europe and Africa, there was a very favorable response to TRMe during Q1. There were also positive trends in a handful of our Southeast Asia Pacific markets, and we were encouraged by continued improvements in our sales leader trends in Mainland China despite a generally tepid macroeconomic climate. In other regions, we continue to battle macroeconomic challenges, including heavy inflationary pressures on consumer spending for premium goods, which, along with our aggressive price increases from a year ago, have hampered our customer and affiliate acquisition efforts. In the Americas region, our subscription business in North America continues to be pressured by these factors, and we're making some adjustments to our model in Latin America to counter macro forces, particularly in Argentina. In South Korea, consumer sentiment remains negative due to the housing market crisis, making it difficult to grow customers and build the channel. Consumer sentiment is also a factor in Japan, in addition to significant FX pressure on our results. To combat these external factors, we are placing more emphasis on product innovation in the affordable luxury space, and we will be introducing several new products at our upcoming West and East live sales conferences in Q3, our first multi-market in-person event since COVID. Despite these headwinds, we remain committed to our long-term enterprise vision of transforming our core Nu Skin business while building out Rhyz in our long-term beauty, wellness and lifestyle ecosystem. As I mentioned earlier, we just returned from our meetings with our top leaders, where there was a palpable energy and excitement about the future. We introduced our next major product innovation, MYND360, a new division targeted at the rapidly growing $10 billion cognitive health market. MYND360 takes a holistic approach to addressing the interrelated factors of stress, sleep and cognitive performance that are impacting the well-being of consumers in today's busy world. We're excited to preview MYND360 at our upcoming live events in Q3 with planned introductions of MYND360 to follow towards the end of the year and into 2025. Channel activation within our core Nu Skin business is a top priority for us, and we're pleased to announce the promotion of Justin Keisel as our new President of Global Sales. Justin has been leading the work to expand our affiliate model across the Americas over the past several years. He has extensive sales leadership experience, both at Nu Skin and in prior roles, and has demonstrated his commitment to our leaders' success. Justin is spearheading our efforts to retool our entire global sales organization and bring a much more rigorous lens to sales performance management and channel activation. To this end, we recently launched a new series of incentives, including a new customer acquisition and leadership performance program to reenergize the field. We anticipate these new initiatives to take root through the remainder of this year. Also, let me quickly give an update on last quarter's announcement of our intent to enter India, one of the fastest-growing direct selling markets in the world. We are taking a very new approach to this high-potential emerging market that will enable us to reach a much wider array of customers and entrepreneurs. Our product offering, business model and operational footprint will be synchronized to enable broader mid-market appeal. We are just beginning to activate our channel towards a targeted market opening in 2025 with a digital-first approach that is more agile and will enable us to scale more quickly throughout the market. We see India and our emerging market business model as a gateway to many new markets in the future, and we anticipate these learnings will help us delve deeper into the second- and third-tier markets within Latin America, Southeast Asia and China. Growing out Rhyz and our Rhyz business is a critical element of our overall enterprise vision as we seek to build out the world's leading beauty, wellness and lifestyle ecosystem. Over the past several years, we've constructed essential infrastructure consisting of manufacturing, technology and operations to support Nu Skin's core business while enabling other brands to grow. We are now applying this ecosystem to BeautyBio to enable it to scale and see additional opportunities to extend our comprehensive suite of services, spanning product R&D, production, packaging, cutting-edge technology and logistics to the indie beauty and wellness industry for influencers and creators. We see great potential for this influencer incubator over the mid- to long term, and we are well positioned to capitalize on these opportunities as we lean into the disruption of the beauty and wellness industry due to social influencers and indie brands. We are utilizing our capital to invest in additional manufacturing, services, capabilities and opportunities to enable future growth. So in summary, first quarter results were in line with guidance, and we are maintaining our 2024 outlook. From a top-line perspective, we are acutely focused on channel activation with new incentives and continue to lean into our product strategy, including the upcoming launch of MYND360 as well as affordable luxury. We also continue to invest in our Rhyz business to accelerate growth and further transform our enterprise to leverage our competitive advantages within the beauty, wellness and lifestyle industries. Expense prudence remains a critical focus in 2024. And while we made significant progress on these initiatives during the first quarter, there are still opportunities to drive further efficiency, including our SKU optimization plan to eliminate 25% to 30% of our SKUs by the end of 2025. Despite the challenging conditions in many of our markets in the near to mid term, we remain focused on executing our long-term vision of becoming the world's leading integrated beauty and wellness ecosystem. And with that, I'll turn the call over to James to cover the first quarter results in more detail along with our guidance. James?

Thank you, Ryan, and thanks to all of you for joining today. I'll provide a brief Q1 update and then speak to Q2 and 2024 guidance. For additional details, please visit our Investor Relations website. For the first quarter, we posted revenue of $417.3 million, which was at the midpoint of our previous guidance range and included a negative foreign currency impact of 3.8% or $18.2 million, which created more pressure from our initial guidance. Reported earnings landed near the top end of our guidance range at negative $0.01 or $0.09, excluding restructuring charges. Our gross margin was 70.5% compared to 72.3% in the prior year quarter. Gross margin for the Nu Skin core business improved 50 basis points to 76.9% compared to 76.4% in the prior year quarter due to our SKU rationalization initiatives and targeted promotion mix. Selling expense as a percentage of revenue decreased to 36.8% compared to 39.1% in the prior year quarter. For the Nu Skin core business, selling expense was 41.7%, flat with the prior year. The lower overall gross margin and selling expense is due to growth in our Rhyz segment, which now accounts for 15% of our business. General and administrative expense declined $9.3 million year-over-year, and as a percentage of revenue was 29.9% compared to 27.8%. The increased percentage can be attributed to lower quarterly revenue levels. As previously discussed, we've been strategically evaluating our Nu Skin core business and better aligning our operating costs to be in line with revenue. In the first quarter, we incurred an additional $7.1 million restructuring charge, and we will continue our cost efficiency plan through next quarter with an anticipated $3 million to $8 million of restructuring charges. We continue to expect this cost efficiency plan to deliver annual savings of between $40 million and $65 million before taxes. We will continue to seek business efficiencies in all areas and believe these actions will help us maximize cash flows, focus on improved margins and enhanced earnings per share going forward. Our operating margin for the quarter was 2.1% or 3.8%, excluding restructuring charges compared to 3.3% or 5.4%, excluding restructuring charges in the prior year. Our interest expense was $7.3 million for the quarter compared to $4.9 million in the prior year. The other income expense line reflects a $0.4 million expense compared to a $3.4 million gain in the prior year quarter. In the first quarter, our cash flow from operations rose to a positive $3.3 million, driven by a concentrated effort on inventory management, in contrast with the $22.1 million cash outflow in the same period last year. Cash from operations is typically the lowest in the first quarter due to lower revenue levels in what is seasonally our slowest quarter. We paid $3 million in dividends and paid down our outstanding debt by $20 million in the quarter. We did not repurchase any stock and have $162.4 million remaining on the current authorization. Our tax rate for the quarter was 148.4% or 48.5%, excluding restructuring charges compared to 22%. For the second quarter, we anticipate an elevated tax rate in the range of 45% to 55%, and we anticipate a projected 2024 annual tax rate of 25% to 35%. This annual rate reflects an anticipated higher global effective tax rate, primarily due to the expected geographical mix of earnings during the year and the rate impact from our stock awards in Q1. Shifting focus now to guidance. In light of the continued economic pressures, challenges associated with transforming our business and increased volatility in foreign exchange rates, we are reiterating 2024 revenue in the $1.73 billion to $1.87 billion range. We anticipate earnings per share of $0.77 to $1.16, or adjusted earnings of $0.95 to $1.35. Our guidance now assumes an increased foreign currency headwind of approximately 2% to 3%. We are projecting second quarter revenue of $420 million to $455 million, assuming a foreign currency headwind of approximately 3% to 4% with reported earnings per share of $0.01 to $0.10 or $0.10 to $0.20, excluding restructuring charges.

Our first question comes from Chasen Bender with Citi.

I wanted to first ask about expectations for the remainder of the year. Looking specifically at the implied year-over-year currency growth, based on the midpoint of the 2Q and the 2024 guidance, it seems to suggest that you guys are going to go from down 9.25% in the first half to about minus 3% in the second half. And if I look at the sales leaders, the customer counts and the affiliate numbers, even when adjusting for the net change in qualification for affiliates, the trend looks like it's worsening. So the question is, what's really giving you confidence in that second half improvement? And maybe can you just dimensionalize any of the initiatives that you expect to contribute to that improvement?

Chasen, that's a great question, and I'm happy to discuss the overall situation. As we wrapped up our top leader sales alignment event in Q2, we gained significant clarity on our channel activation plans and the related incentives, which directly address your concerns about key performance indicators as we approach Q3 and our live events. We are focusing on these activation incentives and continuing to build momentum in open markets where there are local Indian populations, rather than in India itself. Additionally, we're introducing new products like MYND360 and affordable luxury, which are strategically priced and positioned to counter the inflationary pressures affecting customer and affiliate acquisition growth. We've collaborated with the sales team to address these challenges at both the channel activation level and in terms of product support. This is our roadmap moving forward. We also anticipate positive developments with Rhyz as well.

Yes. I want to highlight that similar to the channel activation we launched at the sales leader event, we are seeing strong momentum in the latter half of the year in conjunction with our new product introductions. Additionally, historically, the beauty and wellness industry tends to perform better in the third and fourth quarters. This trend is reflected in our forecast, where we anticipate an overall decline in Q3, but we are optimistic about potential year-over-year growth as we guide towards the higher end.

Got it. That's helpful. Ryan, could you expand on your comments about affordable luxury innovation? Specifically, could you address which categories the new products will be in and how quickly they are expected to reach the market? Additionally, can you provide an update on your strategy regarding the price architecture of the portfolio? Does it make sense to significantly expand into the affordable masstige level as you're currently doing?

Yes, that's exactly on point. I'll start by describing our portfolio architecture and then move on to what we anticipate for the second half of the year. We have been analyzing this for quite some time, especially with inflation impacting consumers globally and how that affects channel growth, as gaining customers is crucial for new business growth. Our global product team, led by Steve Hatchett, has created a portfolio architecture that allows us to span effectively from the premium segment, where we have traditionally focused on devices and premium goods, down to a new tier that addresses the affordable luxury or masstige level. Our research and development efforts, in collaboration with our manufacturing partners, are strong in this area. We have experience manufacturing for hundreds of brands, giving us insight into current trends and sales performance. With this expanded understanding, we have evaluated our second half portfolio and identified several product innovations within the affordable luxury range, priced between $10 and $30. We are making a deliberate effort to expand our portfolio while also reducing the number of SKUs, targeting a reduction of 25% to 30%. This includes phasing out premium products that are not performing well with today's consumers and replacing them with more accessible offerings. We believe this approach is more robust and will resonate better over the next few years, especially as inflation remains a factor affecting consumer spending. In the second half, the good news is that our R&D teams are continuously working on innovative products and currently have dozens ready for launch. The key challenge is ensuring alignment with our sales force so that new products receive the appropriate promotion and the necessary understanding of how to sell them. This will be crucial for our live events in both the East and West, where we will have the opportunity to explain these products, their functionality, and quality justification. While we are moving towards a more affordable luxury segment, we are not compromising on quality. We are focusing on a more elemental approach to innovation, concentrating on one or two key benefits that matter most, maintaining high quality and innovation while being price-conscious. These new products will be launched in the third quarter.

Got you. That's really helpful color. And then if I can just sneak in one more. On the cost savings side, it seems like that's one area where you're making some really good progress. And I know you mentioned the SKU rationalization, but I was hoping you could expand on that and maybe contextualize and dimensionalize for us the other areas where you're seeing the biggest savings opportunities. And I guess related to that, again, you mentioned Rhyz is an area of focus, but perhaps expand on how you're thinking about reinvestment and the level of reinvestment in the business as those savings are realized.

Yes. Yes, so really two questions there that we'll approach. Cost savings, SKU rationalization is really, really important. Obviously, operating in nearly 50 countries around the globe, it's fairly easy to get SKU proliferation. And so again, the same team, the global product team, as they do this portfolio analysis, it's going product by product, SKU by SKU, market by market to determine which contributions are acceptable and which are not looking at R&D. I should be clear on this. Because of this manufacturing entity and Steve Hatchett coming from that world, he has an extremely in-depth view on total cost of fulfillment, going all the way to raw goods and leveraging manufacturing capabilities to span not only the Nu Skin business but drive down raw materials across businesses. This is a very comprehensive A-Z approach. A lot of the cost savings that you saw with the gross margin improvement of 50 basis points, most of that is coming through a more rigorous approach on discounts and promotions. The SKU optimization will be future-forward savings. It's really important to note that the benefits on gross margin are related to SKU optimization. But those benefits are forthcoming at a better level as the SKU elimination then rolls through the actual purchasing cycle to inventory, if that makes sense. We do see SKU reduction. Again, 25% to 30% is our focus, including adding new products in the affordable luxury space, in the MYND360 lines and being very aggressive on ineffective or less effective discounts and promotions, which, by the way, don't always work well for the sales force. If there are too many promotions, they don't know what to focus on. That's kind of the cost-saving side. James, anything you would add to that?

You mentioned an important point, Chasen. The savings from the SKU rationalization represent future benefits as we aim to manage the current inventory levels of existing products while ensuring we have sufficient availability for them. As we progress, we will begin to recognize those additional savings, which we are already observing in several products this quarter. More savings are expected as we continue into 2025.

Regarding Rhyz, you inquired about the utilization of the savings. This is an area where James excels in analyzing every dollar spent. He often discusses our cash management philosophy, which is similarly applied to the business: we prioritize reinvesting in growth. Our main focus is on Rhyz, particularly on enhancing infrastructure capabilities and services. We are committed to investment in this area and continue to center our efforts on product innovation, which is essential to both Nu Skin's core business and our initiatives with Rhyz. Much of the cost savings will be redirected towards innovation and new technology. Additionally, while we are highly focused on shareholder value and acknowledge the pressures on our stock price due to decreased earnings, our commitment remains to return value to shareholders in alignment with our business investment and growth strategy. James, could you provide further insights on our investments?

Yes. The only other addition that I would add to that, Ryan, is just international market expansion through India.

Oh, yes. Yes, we should call that out. Yes, I said that earlier, but Nu Skin has always played in a premium and developed market arena. Our biggest markets tend to be those that are more developed economically. As I said, we are putting intensive focus with our partners locally in India. We manage the Infosys, the deep partnership we have there, which we announced last quarter, further going there. They're obviously digital experts in the field. We're taking a very intentional approach there to hit the right point in that market, which is growing a very large market: 1.4 billion people and a growing middle class, very astute, very educated, with strong technology prowess. We see the benefits going into developing markets where we haven't been as successful historically. Latin America is a great case in point where there's an enormous opportunity in our core business that we've yet to tap. We'll be looking to expand there. Southeast Asia, when we look at Indonesia, Malaysia, and when we look at Eastern Europe and future Africa and the Middle East; there's just a lot where we'll be learning. We see India as being a significant learning opportunity for us. In the mid- to long term, this is something that we're focused on, and we're doing the work now that we believe will benefit even in our current markets and developing markets, so yes, big investment there.

Our next question is going to come from the line of Sydney Wagner with Jefferies.

This is Sydney on for Ashley. You noted macro pressure weighing on customer and affiliate growth, but also called out strength in some of your higher price point connected products. Can you maybe just give more color on that dynamic and kind of what you're seeing in terms of macro-related spending behavior from your consumers?

Yes, it's a very interesting market. Luxury goods such as automobiles and handbags are still moving well. Our connected device business is performing strongly and is recognized as a leading social media innovation, particularly with products like LumiSpa and RenuSpa in the U.S. We see significant interest in these products, and consumers aspire to own them. However, there are undeniable pressures globally, including in China, Korea, Japan, and even the U.S. The current consumer price index reports indicate inflation levels that exceed what is being officially reported. This inflation is affecting our business, as consumers are forced to make choices between paying their utility bills and purchasing the latest Nu Skin innovations. Our focus remains on the affordable luxury sector. We have developed MYND360 with affordability in mind because these innovations are essential for the mass market, addressing stress and customer needs. We're being very intentional in our strategy. Looking forward, it's important to note that price increases rarely go back down. Very few companies have the ability to reduce prices after an increase, and rising raw goods prices are typically difficult to reverse. Therefore, we need to create new solutions that align with customer needs at suitable price points. We believe that by meeting consumers with more appropriately priced product innovations, we can help alleviate some of these challenges. On a broader scale, wages are likely to rise over time, leading to improvements in purchasing power worldwide. Our strategy is centered on controlling what we can: product innovation. Our focus is on launching new products at the right price points to meet consumer demands effectively. We anticipate that devices will maintain their appeal due to strong demand and robust interest on social media.

Ryan, I would add, when we look at our current quarter results quarter-over-quarter, we went from devices making up 14% of our revenue to this current quarter of 17% of our revenue. So it continues to show strong demand for our devices. What we look for in the back half of the year is in combination with affordable luxury, we hope to garner some traction.

Our next question comes from the line of Linda Bolton-Weiser with D.A. Davidson.

So I was wondering if you could remind us in terms of the beauty device business that you bought, the one that's distributed to the retail, I think it's in Ulta. How is that informing your rest of your business, your core business? Like I need a refresher here on what your intent was. Like is it to get the technology or the marketing know-how? Just what was the intent there? And how is that going? Are you getting out of it what you wanted in terms of that acquisition?

Yes. Great question, Linda. Thanks for joining. Yes. BeautyBio is the name of the company that we acquired last year, and we're now in our third quarter with the team. So we're still learning that business. It's a really interesting business for a lot of reasons. One, as you mentioned, they have unique IP that we didn't have or patents, and we continue to aspire to be the beauty device leader across the board, so we want that capability; that's great. They also have very good insight into the omni-channel approach. Jamie O'Banion and team are a small and agile but well-informed team across the omni-channel space, which we believe is very helpful across the Rhyz ecosystem. The third part of that, and maybe a subset of this, is that it is an influencer-led brand. Jamie herself, the brand was kind of founded out of her own views of beauty. In the beauty and wellness space, for the largest beauty companies, this is a disruption as influencers often disrupt traditional beauty brands. We've long felt that if we could take the best of Nu Skin, which has a number of affiliates marketing beauty and wellness products, and find indie brands founded by influencers, that we're in a great position to leverage knowledge across those worlds over time. This is a really significant opportunity in beauty and wellness. For us, BeautyBio is about learning the business. We're gaining insight into omni-channel and the Ulta, Sephora relationships, and other great retail partnerships that are important. The most important part for me is this influencer and creator disruption that's happening in beauty and leveraging those insights as we build out the Rhyz influencer incubator. We think this is a real opportunity for the mid term.

Okay. And then I just had a question on the MYND360 product line. I guess I'm just wondering, I mean, on your supplement side of your business, I believe you have products that address those needs. Maybe I'm mistaken, but maybe you could describe how this launch is different. Does it create several different products in a suite of products that people will buy? Or are these actual ingestible form products? Like what is this launch about?

No, you hit the nail on the head. In fact, I should mention anyone interested in attending our live event, again, at our L!VE West event, you're all welcome to come. Just contact Scott Pond for information. The MYND360 itself is very much different; we do have Pharmanex R&D and Pharmanex products that address specific concerns in the cognitive health space, such as sleep, stress, and the like. We've never had a holistic approach that really, an interrelated approach to developing this space. If you think through the consumer lifestyle, a lack of sleep impacts stress levels, cognitive performance, and memory recognition. These products have been developed holistically to interrelate and address broader lifestyle concerns. In terms of delivery form, we're excited about that: they'll be in supplement form, and there will also be gummies, which we know are much more popular among the 20- and 30-year-old segments. We even have drinkable tea-type mixes. It's a customized approach we're taking. Finally, regarding MYND360, we're addressing sustainability in a new way across our business with better packaging, taking a more sustainable approach. We're very excited about this. It seems we have finished the questions, and I appreciate those additional inquiries as they help us refine our presentations. Thank you for your questions. To conclude, it's been an interesting journey with Nu Skin for 29 years, and we've been in business for 40 years. Our mission has been to be a global force for good by empowering people to look, feel, and live better lives. Coming out of Dubai with our sales leader team, I sense a new energy in the market. Although the overall economic conditions are still challenging, our sales team is fully aligned with the company’s vision and our mission to become the world's leading beauty, wellness, and lifestyle ecosystem as we evolve our core business and expand our capabilities through Rhyz. We believe the future of this ecosystem is bright. I appreciate your time and attention to Nu Skin, and we are committed to delivering improved results and greater shareholder value as we work towards this vision. Thank you all. We look forward to updating you next month or in the next quarter on the call. Goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.