Q2 2022 NU Skin Enterprises Inc Earnings Call

August 4, 2022

[music].

Okay.

Alright, good day and thank you for standing by welcome to the Nu skin conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your <unk>.

Allophone and he will then be.

Prompted with an automated message advising you to raise your hand, please be advised that today's conference is being recorded.

I would like now to hand the conference over.

To Scott Pond.

Thanks, Corey and good afternoon, everyone today on the call with me are Ryan appear ski President and CEO and Mark Lyons 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 financial 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 will turn the call over to Ryan.

Hey, Thanks, Scott Good afternoon, everybody and thanks for joining us on today's call as we've discussed with you over the past few quarters. We are actively engaged in new vision 2025, and our multi year transformation to becoming the world's leading integrated beauty and wellness company. That's powered by our dynamic affiliate opportunity platform, we're making progress on our <unk>.

<unk> despite ongoing macro challenges that are causing near term disruptions in several regions, including the extended lockdowns in mainland China ongoing distractions in EMEA and the economic uncertainties, particularly in emerging markets like Latin America, while second quarter revenue was lower than planned due to these headwinds.

Delivered non-GAAP EPS within our previous guidance range, reflecting the agility of our model and the entire team to adapt quickly to environmental challenges.

In addition, we delivered our ninth consecutive quarter of growth in the U S driven by our recent product launches and broader adoption of social commerce, which bodes well for our future growth aspirations in this market and our other regions.

We've also established a momentum in both southeast Asia, and Taiwan through our new age lock meta and beauty focused college impressed college and plus.

Product launches and we're gaining some traction with our social commerce model in these markets as well.

Over the past several months, we've continued to advance our three strategic imperatives that underpin new vision 2025, including empower me personalized beauty and wellness affiliate powered social commerce, and our digital first ecosystem.

These strategies support new skins transitioned from being identified largely by our traditional direct selling channel to being a leader in integrated beauty and wellness, we remain confident in our direction, along with our ability to accelerate future growth and drive significant value for shareholders.

Let me quickly update you on each of the three strategic imperatives.

We're thrilled to be approaching the introduction of empower me personalized beauty and wellness with our first Iot device system Loomis bio it will be introduced beginning in the third quarter with global availability later this year.

Connected input output devices are central to this strategy as we transition to a more holistic approach of providing integrated beauty and wellness solutions by offering deeper insights into every.

Every customer's unique beauty and wellness journey, we will empower them to better understand their personal needs, which will lead to higher levels of customer engagement and improve lifetime value.

This is a significant step forward as we connect with our customers in a more personal and integrated manner. We plan to follow it up with additional connected devices in 2023 and beyond.

Second we continue to build momentum in our affiliate powered social Commerce strategy led by the U S with encouraging signs in Taiwan and parts of Southeast Asia.

Nano Influencers and these markets are embracing social media and leveraging their personal brands to reach more customers and an authentic and scalable manner.

While EMEA was an early adopter of social commerce, we're looking to rebuild momentum that has been lost due to ongoing distractions caused by geopolitical factors were also accelerating the early earning potential of social commerce for affiliates with a new global one price model. We believe this model.

Which we are introducing with Loomis spa Io and other select products will promote affiliate productivity and retention.

And third we continue to advance our digital first ecosystem by expanding the reach of our recently introduced <unk> and stellar apps. We continue to add new features and languages to our Barrick consumer app that enable our empowered me personalization strategy and foster deeper relationships with our customers.

We expect accelerated adoption of <unk> with the upcoming launch of Loomis bio as customers connect to their devices via this app.

The stellar App makes it easier for our brand affiliates to manage their businesses from their mobile devices and facilitates the cultivation of customer relationships through unique features like connect our CRM campaign tool, we will further drive stellar adoption in the second half as we enhance its feature set through the consolidation.

<unk> of other legacy tools.

In China, we continue to invest in our digital ecosystem with the introduction of our new my shop storefront. In Q3. This is an individual version of the <unk> shops, social commerce corporate storefront, we rolled out last year, which drove new customer acquisition in this past quarter.

These three strategic imperatives are foundational to new vision 2025, and the transformation of our company over the next few years.

Next let me share with you some additional insights on market performance over the quarter, we had the opportunity to meet with many of our top global leaders in London last may for the first time since Covid spending time together aligning around new vision 2025, and our second half goals.

While we are heavily investing in our digitally enabled future. These face to face opportunities are critical to engaging motivating and training our teams.

Also with growing global complexities, we continue to seek additional opportunities to balance our market portfolio and provide greater stability to our geographically diverse business, which will help to improve stability of our business moving forward.

Mainland China continues to be very challenged reflecting the extended impact of COVID-19 related factors on our selling and promotional activities. The extended lockdowns halted business momentum for several quarters, now, which significantly impacted our affiliate and sales leader numbers.

For the quarter revenue was down 42% in local currency and we anticipate ongoing uncertainty in the region through the remainder of the year. Nevertheless, we continue to invest in this market and look forward to the introduction of <unk> Io and my shop, both effective tools to stimulate new activity in the market as we lead firm.

Other into our digital first strategy there.

Hong Kong and Taiwan grew 6% in constant currency, reflecting continued strength in Taiwan, as our product launches and social commerce model gathered momentum.

The Americas continued to be led by the U S, where we delivered our ninth consecutive quarter of growth with year over year revenue up 6% or top strong double digit growth in 2020 and 2021, we've established an effective cadence for new product launches in this market and our affiliates continue to become more immersed in Soc.

Commerce as we go.

However, in Latin America macro conditions to remain challenging we continue to believe our pathway to return to growth is tactically aligned with our approach in the U S market, including leveraging our collagen plus learnings along with the training and support to expand social commerce adapted for local market economics.

Conditions there.

The ongoing conflict in Russia, and Ukraine continues to cause distraction and uncertainty across EMEA region, resulting in segment revenue down 31% in constant currency, we look forward to the upcoming product introductions in this region, but remain cautious in the near term given the macro environment.

Japan continues to perform in line with expectations down around 3% in local currency. However, South Korea was down 12% in local currency due in part to lower performance in their quarterly promotions cadence.

Both markets were significantly affected by unfavorable foreign currency pressures, leading to double digit impact. Nevertheless, we are optimistic in our waiting of Loomis bio that comes in the second half.

In Southeast Asia, and Pacific momentum from age lock meta helped drive a 16% increase in constant currency revenue, we are seeing positive trends in Indonesia, and Singapore in particular and are encouraged by the energy of our teams in these high potential markets.

So overall with the global macro environment worsening the past few months, we expect to face continued headwinds in several regions over the near term and have adjusted our 2022 outlook. Accordingly. This is reflected in our revised guidance that Mark will cover in just a moment to.

To help mitigate the impact of these macro factors, we are taking several actions to proactively align all capabilities and resources to enable new vision 2025, and to continue transforming our organization to optimize future growth and profitability as well as maximize shareholder value. These.

Actions will result in a restructuring event in the second half and an estimated $100 million in cost savings in the coming year looks.

Looking towards the balance of the year, we are acutely focused on furthering new vision 2025, with the introduction of empower me personalized beauty and wellness beginning with Loomis bio and we're optimistic that momentum will begin to build sequentially throughout the remainder of this year.

We continue to gain solid traction with our newest product innovations and favorable social commerce adoption across several markets, reflecting the potential of our model and the direction of our vision, new skin is well positioned to capitalize on the tremendous opportunities in beauty and wellness space as we execute new vision 2025 by <unk>.

Leveraging our global brand scalable platform and our strong balance sheet and with that let me turn the time over to Mark to talk through our financials in more detail Mark. Thank you Ryan and thanks to all of you for joining today I'll provide a brief Q2 financial review and then give initial Q3 projections and update full year.

2022 guidance.

For additional detail please visit our Investor Relations website.

For the second quarter, we posted revenue of $566 million.

With a negative foreign currency impact of 5% or $34 6 million.

The U S. Dollar continues to strengthen at a pace well above expectations, which negatively impacted Q2 and will impact the balance of the year.

Reported earnings per share for the quarter was 67.

Or 77, when excluding an additional charge in other income expense associated with our Q4 2021 exit from <unk> Tec.

Our gross margin was 73, 6% a sequential improvement over the prior quarter.

Gross margin was negatively impacted by foreign currency exchange rates and increased promotions, particularly of lumia by devices in preparation for the launch of Leumi Spa Io beginning in the third quarter.

Gross margin for the core Nu skin business was 77% compared to 78, 3% in the prior year quarter.

We anticipate second half 2022 gross margin stabilization with new product introductions that have healthy margins along with ongoing global price increases to offset continued supply constraints and inflationary pressure.

Selling expense as a percent of revenue was 39, 1%.

80 basis points below the prior year period.

For the core Nu skin business selling expense was 42% compared to 42, 8%.

General and administrative expenses declined $25 million year over year as we remain focused on cost control.

As a percent of revenue G&A was 25, 3% compared to 23 six in the prior year.

Operating margin for the quarter was nine 2% compared to 12, 1% in the prior year period, driven by the lower revenue level. This year.

We anticipate sequential operating margin gains in the second half of 2022 as we work towards our mid term stated goal of 13% operating margin.

The other income expense line reflects an $8 $6 million of expense or an adjusted $2 9 million expense compared to a $4 million of expense in the prior year.

The adjustment in this line item is a $5 $7 million unrealized investment loss related to our Q4 2021 exit from the <unk> segment.

Cash from operations for the second quarter was $46 5 million compared to $20 7 million in the prior year.

We are.

Pleased with a $27 million reduction in inventory during the quarter and we remain committed to strategically invest in inventory to support our supply chain.

And plan to further reduce inventory levels as global supply chain constraints ease.

We paid $19 4 million in dividends and repurchased $10 million of our stock with $225 $4 million remaining on the current authorization.

Our balance sheet remains strong.

We are largely cash debt neutral with $382 million of cash and current investments.

And anticipate this growing in the second half of this year.

To further strengthen our financial position and increased flexibility. We recently closed a $900 million debt facility, which ensures we have the necessary resources to accomplish new vision 2025.

Our tax rate for the quarter was 22%.

Compared to 27, 1% in the prior year period the.

The decrease in effective tax rate for the second quarter, primarily reflects the strong growth in the U S market, which enabled us to utilize additional foreign tax credits to offset U S income taxes.

Our riot segment, which includes our manufacturing partners declined 20% in the quarter.

Remember that revenue reflected in this segment only represent sales to third party customers.

The demand for external customer products was soft in the quarter as many of our large customers. We're long on inventory and impacted by continued supply chain constraints.

Our manufacturing entities continued to significantly benefit our core nu skin business by helping firm up our supply chain the increase our speed to market for new products and generating U S profit that lowers our overall tax rate.

We also continue to carefully seek investment opportunities in this segment to further enhance our capabilities.

Lastly, as Ryan mentioned, we anticipate a second half restructuring and impairment charge of approximately $35 million to $45 million associated.

<unk> with the strategic reallocation of our capabilities and resources in support of New vision 2025.

We believe these actions will benefit the balance of 2022 and provide approximately $100 million of cost savings in 2023.

Shifting focus now to guidance.

Given the continued economic uncertainty prolonged COVID-19 related factors foreign exchange pressure and geopolitical conflicts. We are adjusting our annual guidance. We now expect 2022 revenue of 2.33 billion to $2 four 1 billion.

We anticipate earnings per share of $2 46 to.

$102 76.

Or $3 30 to $3 60.

Excluding Q2 charges associated with our Q4 2021 exit from <unk> and the second half restructuring and impairment charges.

This guidance assumes a negative foreign currency impact of approximately 5% and an adjusted tax rate.

18% to 24%.

We are projecting third quarter revenue of $550 million to $590 million, assuming a foreign currency headwind of approximately 6%.

Q3 earnings per share guidance is <unk>.

$2 22.

Or $72 85.

When excluding the third quarter restructuring charge of approximately $30 million of the $35 million to $45 million second half estimate.

In summary.

While the near term environment remains challenging we continue to execute on the strategic priorities that underpin new vision 2025, ensuring that all our resources are aligned to drive the transformation of our business to our vision of becoming the world's leading integrated beauty and wellness company powered by our dynamic.

Filiate opportunity platform and with that operator, we will now open up the call for your questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one.

One one on your telephone and wait for your name to be announced please stand by while we compile the Q&A roster.

Okay.

Alright first step we have Stephanie wissink with Jefferies.

Thank you good afternoon, everyone.

Brian Im wondering if you can start by just taking up around your key markets and helping us think through when lumia Io will be launched and when some of the digital tools will be launched.

Just help us understand the back half acceleration, you're anticipating just to think through when some of those key initiatives will be implemented.

Yes, Hi, Steph, yes, so just at a high level, we have the Loomis Spa Io introductions and launches so limited introductions to the sales force followed by launches.

The consumer base that are spread relatively evenly between Q3 and Q4.

Each market is on a slightly different cadence, but the goal is to have it in all markets over the course of the of the two quarters.

I think probably the best way to just to look at it would be a more even distribution between Q3 and Q4 for those products the digital tools, specifically Vera and Stella.

The App stores.

<unk> is the first part of Q2 is the last day of Q1.

Those have really been in a beta form and those will continue to rollout in English.

But they will continue to roll out really into Q3 and Q4.

As we add those features theyre going to be really the adoption of those tools are going to be highly associated with loomis bio because the device connects to the Vera app. So they kind of work in tandem with one another but they're not those apps are not specifically intended to be revenue driving Matt.

<unk> as much as facilitating the standard.

Standard business. So we're not we're not really associated revenue specifically with the apps.

Okay. That's helpful and then related to the product innovation pipeline.

The idea of integrated <unk>.

Beauty and wellness.

<unk> uniquely positioned to address and we wanted to give you a chance also to talk about what you're learning about college and plus.

What you've been seeing so far in your customer feedback your affiliates feedback on this idea of integration and how do you amplify that as you go into the back half and into 2023.

No yeah, great Great question, and I'm glad you really focus in on the integrated the word integration for us integration really intimate a couple of different.

Considerations. The first is the inside out approach of the product portfolio that we have as you know we're pretty well.

Split between personal care and wellness products and so to your point around college and plus.

Integrated with Loomis Loomis.

Alumina spot excuse me that we have clinical studies on that as a great example of how we look at input output. The other dimension is the input output devices themselves and device systems, specifically saw that devices plus the product lines that working in conjunction with those devices.

So, yes college and plus for US is definitely one of the one of these great integrated products as it plays really well with Loomis Spa. It is an ingestible beauty so to speak which is a very strong growing category in beauty as we know.

And so we see that would be very beneficial the other good thing with college and plus related to social commerce and their social selling is and it's a great subscription products. So in many of our markets. The U S. EMEA Latin America. These markets in particular have really leverage that is a subscription product.

Which creates a greater retained lifetime value of the customers on it the only thing I would add to that step is the collagen plus of the top five product for us in this quarter, which really shows.

The ability of new products to gain traction as we roll it out around the world I think this integrated beauty and wellness.

Theme is starting to resonate well around the world.

That's fantastic My last one markets for you I know cost restructuring programs are never easy to undertake and they can be emotional and culturally impacting so I wanted to just give you a chance to talk about the scope of this program. How you plan to implement as it sounds like it's going to be a bit more Q3 weighted maybe give us some sense of timing.

And as you look out into 'twenty $3 million to $100 million of savings is that net savings should be assume that drops through to the bottom line or is there some level of reinvestment. Thank you.

Yes, Stefan maybe I'll comment first and Mark Mark can can can really fill in all the details on that.

You are absolutely right every time, our business has to look at our restructure we take it extremely seriously and we have a global team.

That's really critical to that the transition as we talked about in the in the call. This is really all around looking at how we are allocating resources across legacy programs legacy capabilities legacy technologies legacy assets and what is truly needed.

For us to move more quickly as we shed some of those those legacy.

Element that can hold us back and so we felt like this is the right time to do it.

So we've structured it that way and we will be executing according to that plan, but it really is all around how do we align these resources to move more quickly into the future.

Bye.

<unk> go of some things that have held us back, but mark maybe you can provide a little more detail Brian hit on the key points. We went through it nearly every line item in our P&L and looked at our assets around the world looked at our different geographic balance of our business is it shifted pretty dramatically over the last few years, and then really work to re align.

The allocation of resources to where our business is really thriving in where it's thriving and ensure that we're putting resources towards the future towards new vision 2025, we are not backing off our stated investment of $500 million in technology. We believe that's key to our future. So there will be some real.

Location of resources, but I still believe that the $100 million is real and we can deliver that to the bottom line next year, even with those future.

Future investments in technology that we've already slated a spot for and then the timing stuff, we're going to try to get most of that done in Q3.

We stated about 30 of the 35% to $45 million range.

That will largely be dependent on.

How we work with governments around the world and make sure we are proper and taking care of employees in the proper way and doing things according to the law.

That will largely be what depends on whether it's Q3 or Q4 action.

All right very helpful. Thank you.

Thanks Steph.

Alright.

Thanks, Jeff next up we're going to have chosen vendor.

With Citi.

Hold on one second.

Chaz in Europe .

Great. Thank you operator.

Good afternoon, everyone and thanks for the question.

I guess, where I just wanted to start it.

Can you talk a little bit more about the one price incentive structure, specifically, which markets going into and how it's going to impact the sales leaders relative to the marketing plan that that's already there.

Yeah, Hey, Chad. Thanks for the question, we anticipated there would be one so thanks for asking it gives us a chance to explain it a little bit more.

You may be or may not be familiar with our model our traditional business model, where whereby we sell products traditionally at a wholesale product to our affiliates, who then mark them up and sell them at retail and this has been how the companys priced products most mostly speaking for since the beginning of the company.

Over the course of time as social Commerce continues to evolve we found that the retail margin is such a critical part of that and it's part of the social Commerce model for New brand affiliates, who are who are really early in their business being able to get earnings going and so the idea with one prices to.

<unk> that retail margin into the product, we felt that Loomis Spa Io was a perfect opportunity because largely because this product is is the Io technology adds such greater consumer value than than the one dot all the non connected device and so we really are bringing this out.

The market, we are planning to roll it out globally with Loomis bio and we will be introducing it across a few others I think three to four other products.

Around the globe as we continue to learn our way or lean further into social commerce. This will be really important we've talked about the adoption of social commerce into Asia in the past and how it's some it's somewhat more difficult and one of the areas has been.

The reselling or of a retail priced product to friends and associates, even online that theres, an apprehension to do that and in some Asian communities and so this this one price model will make it easier for our affiliates to sell it at that one price we believe around the globe.

Great.

And then if I could just ask about the teen meeting do you have like you said it was in London can you talk about whether post those meetings happening it has translated to either improving activity or productivity.

Amongst the sales force and then just juxtapose against Stoke.

Still challenging macro.

Travel restrictions and very digital oriented strategy and basically.

How does it change the way you're thinking about in person meetings.

Incentivize wound, Italy, catalyzing activity from sales leaders.

Yes, No question no question the world.

Macro factors over the last two and a half years have has evolved our thinking around this and we continue to learn.

But most certainly as we look to the future and we look to social commerce proliferation that model specifically online meetings.

Meetings are definitely an important part of it but the offline the face to face or the hybrid approach is really important for training motivating and aligning with our leadership and so we do expect moving into the future that more and more face to face meetings will be a hybrid part of just.

The workplace very much a hybrid part of our of our approach to growth.

We continue to believe that in person face to face is is important but even in London. We were not able to meet for example, with our Chinese team elites, because they were unable to receive visas.

<unk>, China, so even some of our Asian markets as recently as May.

We were not able to meet with them face to face and those those lockdowns continue to be challenging I think as governments around the globe learn how to how to adapt to this hybrid economy. We will continue to lean into online and limited offline meetings, we have an upcoming <unk>.

Live event for our U S market in September that by the way any of you who are interested.

In attending that we would love to have you. It's only for the U S. It's not a global meeting.

But we anticipate having that around September 7th So please reach out to Scott Pond, if you're interested we can get your information and we do those sorts of limited meetings in markets, where local governments are more favorable last comment I'll make on meetings within China I will say there is still severe restrictions lockdowns.

On face to face or person to person types of meetings due to the COVID-19.

Implications there and so we are very limited there and we really have to.

Rely upon limited online meetings there.

Got it thanks for that color.

Theyre now and then pass on thanks.

Thanks Jed.

Thank you Jonathan.

Next up is going to be trust and Chow with Stifel.

One second and I will let you know when you're live.

Christie you.

You are up.

Alright perfect.

Christian on for Mark.

Two questions one being I guess, you had just talked about.

Restrictions in China.

And there are some indications coming out of there that.

Just then no COVID-19 policy will continue indefinitely and David I, just have a reasonable timeline going back too.

Positive revenue growth in China.

The first one.

Yes, Tristan thanks, and give mark our regards as well.

Yes regarding China, you're absolutely right, it's uncertain the futures uncertain there for the Covid restrictions in the one case.

Structure, there, we really are leaning directly into digital first our investments in we shopped last year My shop this year.

We continue to just really invest in a digital first because we in the mid term don't want to be reliant upon face to face the way that the traditional China business has been it's really hard for us to forecast out.

Positive growth in that market and Mark can maybe talk a little bit more on his thoughts around that the way. We're looking at the model from the enterprise standpoint is we're really focusing on growth outside of China.

With with the uncertainty there in the market, although we believe in the long term potential of this market. We all know, it's an enormous beauty and wellness market. We know theres a lot of uncertainty in the short term, we believe that the economy needs too.

Needs to start to shape in the right direction and so we are really trying to position ourselves as we move forward into those China evolves locally to be to being a digital first company that reaches are our customers and our sales force.

<unk> of that digital first model and that's more of a mid term horizon, but you'd add to that I think it's too early for us to project when China can return back to normal.

Until we start seeing some stabilization. So we start seeing a period of time when there arent.

Daily and weekly updates of Lockdowns in various provinces around China, I think it would be too early for us to project, China, returning to any level of growth.

Yeah, and I might just sorry interest and I might just also just remind everyone because China has been such a critical part of the revenue equation for the company in the future state remains remains to be seen but it is it is certainly under 20% of the business today is much more geographically.

Diverse, which I think for us and frankly any company. These days is a very good thing to be its a definitely focus for us is making that balance.

Can continue as we go.

Okay. Thank you that's helpful.

The second question.

That 5% price increase taken at the start of it.

This past quarter are you seeing any pricing.

And.

Do you have any key takeaways from that price increase.

Your thoughts on.

Any price offsetting cost some of that gross margin pressure.

Yes, I'll talk to that maybe the consumer side and Mark can talk to the margin side on price increases I. Just just to reaffirm we are we are very committed to.

Addressing the impact of inflation.

On the business and on our margin structure. We are also very customer obsessed and we are very concerned about the broader pressure that's coming through consumers around the globe and so we're very careful in how we do price increases we did execute a price increase in the spring.

We will continue to look at opportunities there in the fall and beyond as as inflation continues to be managed and monitored around the globe.

It's hard to say in our in our.

Our price point, which is tends to be masstige and above.

How much pricing pressure, there really is and I would say if the inflation, we're really in an unprecedented inflationary levels and so it's hard for us to really know, but I think it's fair to it's fair to understand that the consumer wallets being really squeezed and so certainly there would be pricing pressure, even on more masstige and premium price.

<unk> products.

Fortunately I do feel that our devices for instance, or even even with price increases continued to be very reasonably priced in in markets of premium devices, we see product devices that are much more expensive than ours.

So I think the value proposition remains strong, but we'll continue to balance consumer.

Purchasing capability versus.

The margin tradeoffs and so far I don't think we've hit a ceiling there, but mark maybe not I would say that we were happy to see sequential improvement in gross margin in Q2, we're projecting for the second half margin stabilization.

Stabilization, which basically means we're expecting margins about where they are today and theres going to be a number of puts and takes.

In our business foreign exchange movement, and we're seeing a heavy headwind in foreign exchange that does impact gross margin in our hurts, our gross margin, obviously inflation and cost increases in raw materials also.

Hurt our.

So our gross margin and then we offset that with just the work we're doing to try to take cost out of our product and then the price increases, which we've flowed through to kind of keep gross margins about about where they are the new product introductions really help us those on average have better than better than average gross margins and we should see lift from those over time.

<unk>.

Okay. Thanks.

Thanks, Tristan and it doesn't look like we have any other hands raised so I think we'll go ahead and wrap up the call. If you do have any questions and wed like to setup time with Scott or Mark myself, we're more than happy to.

To find the time with you for certain so let me just thank you all for joining us so to summarize our views while the macro environment is uncertain. We remain acutely focused on our vision on this new vision 2025, and on executing our multi year transformation to becoming the world's leading integrated beauty and <unk>.

And this company as we laid out in Investor day earlier. This year, we have confidence in our capabilities as an innovative beauty and wellness company and a beauty device systems leader combined with our global affiliate channel to enable our transformation into this new space. We believe in the vision and we believe it will return greater value to.

Over the next few years as we scale, our integral integrated beauty and wellness platform and with that we'll go ahead and end the call. Thanks again for joining us.

Yes.

Okay.

As Johan during Q&A, you can dial one one.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Sure.

[music].

Yes.

Okay.

Thanks.

Sure.

Okay.

Sure.

Okay.

Thanks.

Yes.

Okay.

Yes.

Sure.

Thanks.

Sure.

Okay.

Sure.

Okay.

Hum.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Thanks.

Sure.

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

Sure.

[music].

Okay.

Yes.

Okay.

So.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Sure.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Sure.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Okay.

Sure.

Okay.

Sure.

Yes.

Thanks.

Yes.

Thank you.

Yes.

Okay.

Yes.

Thanks.

Yes.

Thank you.

Okay.

Sure.

Yes.

Right.

Sure.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

Okay.

Yes.

Thanks.

Yes.

Sure.

Okay.

Yes.

<unk>.

Okay.

[music].

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Sure.

Hi.

Okay.

Yes.

Hum.

Okay.

<unk>.

Sure.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Thanks.

Okay.

Alright, good day and thank you for standing by welcome to the New skin conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then be.

With an automated message advising you to raise your hand, please be advised that today's conference is being recorded.

I would like now to hand, the conference over to Scott Pond.

Thanks, Corey and good afternoon, everyone today on the call with me are Ryan appear ski President and CEO and Mark Lyons CFO .

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 financial 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.

Delivered non-GAAP EPS within our previous guidance range, reflecting the agility of our model and the entire team to adapt quickly to environmental challenges. In addition, we delivered our ninth consecutive quarter of growth in the U S driven by our recent product launches and broader adoption of social commerce, which bodes well for our future growth.

Aspirations in this market and our other regions.

We've also established a momentum in both southeast Asia, and Taiwan through our new age lock meta and beauty focused college and.

College, and plus product launches and we're gaining some traction with our social commerce model in these markets as well.

Let me quickly update you on each of the three strategic imperatives.

Connected input output devices are central to this strategy as we transition to a more holistic approach of providing integrated beauty and wellness solutions by offering deeper insights into every <unk>.

This is a significant step forward as we connect with our customers in a more personal and integrated manner. We plan to follow it up with additional connected devices in 2023 and beyond.

Second we continue to build momentum in our affiliate powered social Commerce strategy led by the U S with encouraging signs in Taiwan and parts of Southeast Asia Nano Influencers and these markets are embracing social media and leveraging their personal brands to reach more customers and an authentic and scalable manner.

<unk>, which we are introducing with Loomis spa Io and other select products will promote affiliate productivity and retention.

Expect accelerated adoption of Barra with the upcoming launch of <unk> Io as customers connect to their devices via this app.

Sedation of other legacy tools.

These three strategic imperatives are foundational to new vision 2025, and the transformation of our company over the next few years.

Future. These face to face opportunities are critical to engaging motivating and training. Our teams also with growing global complexities, we continue to seek additional opportunities to balance our market portfolio and provide greater stability to our geographically diverse business, which will help to improve.

The stability of our business moving forward.

Into our digital first strategy there.

Hong Kong and Taiwan grew 6% in constant currency, reflecting continued strength in Taiwan, as our product launches and social commerce model gathered momentum.

<unk> commerce as we go.

<unk> there.

Both markets were significantly affected by unfavorable foreign currency pressures, leading to double digit impact. Nevertheless, we're optimistic in our waiting of Loomis bio that comes in the second half.

In Southeast Asia Pacific momentum from age lock meta helped drive a 16% increase in constant currency revenue.

We are seeing positive trends in Indonesia, and Singapore in particular and are encouraged by the energy of our teams in these high potential markets.

Actions will result in a restructuring event in the second half and an estimated $100 million in cost savings in the coming year looks.

<unk> product innovations and favorable social commerce adoption across several markets, reflecting the potential of our model and the direction of our vision Nu skin is well positioned to capitalize on the tremendous opportunities in beauty and wellness space as we execute new vision 2025 by leveraging our global brand scale.

<unk> platform and our strong balance sheet and with that let me turn the time over to Mark to talk through our financials in more detail Mark. Thank you Ryan and thanks to all of you for joining today.

I'll provide a brief Q2 financial review and then give initial Q3 projections and update full year 2022 guidance.

For additional details please visit our Investor Relations website.

For the second quarter, we posted revenue of $566 million with a negative foreign currency impact of 5% or $34 6 million.

The U S. Dollar continues to strengthen at a pace well above expectations, which negatively impacted Q2 and will impact the balance of the year.

Reported earnings per share for the quarter was 67.

Or 77, when excluding an additional charge in other income and expense associated with our Q4 2021 exit from <unk>.

Our gross margin was 73, 6% a sequential improvement over the prior quarter.

Gross margin for the core Nu skin business was 77% compared to 78, 3% in the prior year quarter.

Selling expense as a percent of revenue was 39, 1%.

80 basis points below the prior year period.

For the core Nu skin business selling expense was 42% compared to 42, 8%.

General and administrative expenses declined $25 million year over year as we remain focused on cost control.

As a percent of revenue G&A was 25, 3% compared to 23, 6% in the prior year.

Operating margin for the quarter was nine 2% compared to 12, 1% in the prior year period, driven by the lower revenue level. This year.

We anticipate sequential operating margin gains in the second half of 2022 as we work towards our mid term stated goal of 13% operating margin.

The other income expense line reflects an $8 6 million dollar expense or an adjusted $2 9 million expense compared to a $4 million of expense in the prior year.

The adjustment in this line item is a $5 $7 million.

Unrealized investment loss related to our Q4 2021 exit from the <unk> segment.

Cash from operations for the second quarter was $46 5 million compared to $20 7 million in the prior year.

We are pleased with a $27 million reduction in inventory during the quarter and we remain committed to strategically invest in inventory to support our supply chain.

We plan to further reduce inventory levels as global supply chain constraints ease.

We paid $19 $4 million in dividend and repurchased $10 million of our stock with $225 $4 million remaining on the current authorization.

Our balance sheet remains strong.

We are largely cash debt neutral with $382 million of cash and current investments.

And anticipate this growing in the second half of this year.

To further strengthen our financial position and increased flexibility. We recently closed a $900 million debt facility, which ensures we have the necessary resources to accomplish new vision 2025.

Our tax rate for the quarter was 22%.

Compared to 27, 1% in the prior year period the.

Our riot segment, which includes our manufacturing partners declined 20% in the quarter.

Remember that revenue reflected in this segment only represent sales to third party customers.

The demand for external customer products was soft in the quarter as many of our large customers. We're long on inventory and impacted by continued supply chain constraints.

We also continue to carefully seek investment opportunities in this segment to further enhance our capabilities.

Lastly, as Ryan mentioned, we anticipate a second half restructuring and impairment charge of approximately $35 million to $45 million associated with the strategic reallocation of our capabilities and resources in support of New vision 2025.

We believe these actions will benefit the balance of 2022 and provide approximately $100 million of cost savings in 2023.

Shifting focus now to guidance.

Given the continued economic uncertainty prolonged COVID-19 related factors foreign exchange pressure and geopolitical conflicts we are adjusting our annual guidance.

We now expect 2022 revenue of 2.33 billion to $2 four 1 billion.

We anticipate earnings per share of $2 46 to.

<unk> to $2 76.

Or $3 30 to $3 60.

Excluding Q2 charges associated with our Q4 2021 exit from <unk> and the second half restructuring and impairment charges.

This guidance assumes a negative foreign currency impact of approximately 5% and an adjusted tax rate.

18% to 24%.

We are projecting third quarter revenue of 550 million to $590 million, assuming a foreign currency headwind of approximately 6%.

Q3 earnings per share guidance is <unk>.

222.

Or $72 85.

When excluding the third quarter restructuring charge of approximately $30 million of the $35 million to $45 million second half estimate.

In summary.

Opportunity platform and with that operator, we will now open up the call for your questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one.

One one on your telephone and wait for your name to be announced please stand by while we compile the Q&A roster.

Okay.

Alright first step we have Stephanie wissink with Jefferies.

Thank you good afternoon, everyone.

Brian Im wondering if you can start by just taking us around your key markets and helping us think through when <unk> will be launched and when some of the digital tools will be launched.

Just help us understand the back half acceleration youre anticipating just to think through when some of those key initiatives will be implemented.

Yes, Hi, Steph, yes, so just at a high level, we have the Loomis Spa Io introductions and launches so limited introductions to the sales force followed by launches.

The consumer base that are spread relatively evenly between Q3 and Q4.

Each market is on a slightly different cadence, but the goal is to have it in all markets over the course of the of the two quarters.

I think probably the best way to just to look at it would be a more even distribution between Q3 and Q4 for those products the digital tools, specifically Vera and Stella they hit the App stores.

<unk> is the first part of Q2 is the last day of Q1.

Those have really been in a beta form and those will continue to rollout in English.

But they will continue to roll out really into Q3 and Q4 as.

<unk> as much as facilitating the standard.

Standard business. So we're not we're not really associated revenue specifically with the apps.

Okay. That's helpful and then related to the product innovation pipeline.

<unk> uniquely positioned to address we wanted to give you a chance to also to talk about what you're learning about college and plus.

What you've been seeing so far in your customer feedback Youre affiliates feedback on this idea of integration and how do you amplify that as you go into the back half and into 2023.

No yeah, great Great question, and I'm glad you really focus in on the integrated the word integration for us integration really intimate a couple of different.

Considerations. The first is the inside out approach of the product portfolio that we have as you know we're pretty well.

Split between personal care and wellness products and so to your point around college and plus.

Integrated with Loomis spot.

So, yes college and plus for US is definitely one of the one of these great integrated products as it plays really well with Loomis Spa. It is an ingestible.

<unk> beauty, so to speak which is a very strong growing category in beauty as we know.

And so we see that would be very beneficial the other good thing with college and plus related to social commerce their social selling is and it's a great subscription products. So in many of our markets. The U S. EMEA Latin America. These markets in particular have really leverage that is a subscription product.

Which creates a greater retained lifetime value of the customers on it the only thing I would add to that step is the collagen plus of the top five product for us in this quarter, which really shows.

The ability of new products to gain traction as we roll it out around the world I think this integrated beauty and wellness.

Theme is starting to resonate well around the world.

That's fantastic My last one markets for you I know cost restructuring programs are never easy to undertake and they can be emotional and culturally impacting so wanted to just give you a chance to talk about the scope of this program. How you plan to implement as it sounds like it's going to be a bit more Q3 weighted maybe give us some sense of timing.

And as you look out into 'twenty $3 million to $100 million of savings is that net savings should be assume that drops through to the bottom line or is there some level of reinvestment. Thank you.

Yes, Stefan maybe I'll comment first and Mark Mark can can can really fill in all the details on that.

You are absolutely right every time, our business has to look at our restructure we take it extremely seriously and we have a global team.

For us to move more quickly as we shed some of those those legacy.

Element that can hold us back and so we felt like this is the right time to do it.

So we've structured it that way and we will be executing according to that plan, but it really is all around how do we align these resources to move more quickly into the future.

Bye.

Letting go of some things that have held us back, but mark maybe you can provide a little more detail Brian hit on the key points. We went through it nearly every line item in our P&L and looked at our assets around the world looked at our different geographic balance of our business as it shifted pretty dramatically over the last few years, and then really work to re.

Align the allocation of resources to where our business is really thriving in where it's thriving and ensure that we're putting resources towards the future towards new vision 2025, we are not backing off our stated investment of $500 million in technology. We believe that's key to our future. So there will be.

Some reallocation of resources, but I still believe that the $100 million is real and we can deliver that to the bottom line next year, even with those future.

Future investments in technology that we've already slated a spot for and then the timing stuff, we're going to try to get most of that done in Q3.

We stayed at about 30 of the of the 35% to $45 million range.

That will largely be dependent on.

How we work with governments around the world and make sure we are proper and taking care of employees in the proper way and doing things according to the law.

That will largely be what depends on whether it's Q3 or a Q4 action.

All right very helpful. Thank you.

Thanks Steph.

Alright.

Thanks, Jeff next up we're going to have chosen vendor.

With Citi.

Hold on one second.

Chaz in Europe .

Great. Thank you operator, good afternoon, everyone and thanks for the question.

I guess, where I just wanted to start it.

Can you talk a little bit more about the one price incentive structure, specifically, which markets going into and how it's going to impact the sales leaders relative to marketing plan that's already there.

Yeah, Hey, Chad. Thanks for the question, we anticipated there would be one so thanks for asking it gives us a chance to explain it a little bit more.

You may be or may not be familiar with our model our traditional business model, where whereby we sell products traditionally at a wholesale product to our affiliates, who then mark them up and sell them at retail and this has been how the company's price products. Most mostly speaking for since the beginning of the company.

<unk> that retail margin into the product, we felt that Loomis Spa Io was a perfect opportunity because largely because this product is is the Io technology adds such greater consumer value than than one dot all the non connected device and so we really are bringing this out too.

The market, we are planning to roll it out globally with Loomis bio and we will be introducing it across a few others I think three to four other products.

The re sailing or of a retail priced product too.

Two friends and associates, even online that Theres, an apprehension to do that and in some Asian communities and so this this one price model will make it easier for our affiliates to sell it at that one price we believe around the globe.

Great. That's helpful. And then if I could just ask about the teen meeting do you have like you said it was in London can you talk about whether post those meetings capital it has translated to either improving activity or productivity.

Amongst the sales force and then just juxtaposed against the still challenging macro travel restrictions and very.

Digital oriented strategy.

How does it change the way you're thinking about in person meetings.

Incentive Iceland casually catalyzing activity from sales leaders.

Yes, No question no question the world.

Macro factors over the last two and a half years have has evolved our thinking around this and we continue to learn.

But most certainly as we look to the future and we look to social commerce proliferation that model specifically online.

The workplace very much a hybrid part of our of our approach to growth.

We continue to believe that in person face to face is is important but even in London. We were not able to meet for example, with our Chinese team elites, because they were unable to receive visas to leave China. So even some of our Asian markets. As recently as May we were not able to meet with them face to.

And those those lockdowns continue to be challenging I think as governments around the globe learn how to how to adapt to this hybrid economy. We will continue to lean into online and limited offline meetings, we have an upcoming <unk>.

Live event for our U S market in September that by the way any of you who are interested.

In attending that we would love to have you. It's only for the U S. It's not a global meeting.

On face to face or person to person types of meetings due to the COVID-19.

Implications there and so we are very limited there and we really have to rely upon limited online meetings there.

Got it thanks for that color I'll pause there now and then pass it on thanks.

Thanks Jed.

Thank you Jonathan.

Next up is going to be tryst and Chow with Stifel.

One second and I will let you know when Youre live.

Chris you.

<unk>.

Alright perfect.

Christian on for Mark.

Two questions one being I guess, you had just talked about.

Restrictions in China.

And there are some indications coming out of there that.

Justin No Covid policy will continue indefinitely and David I, just have a reasonable timeline going back too.

Positive revenue growth in China.

The first one.

Yes, Tristan thanks, and give mark our regards as well.

Yes regarding China, Youre, absolutely right its uncertain the futures uncertain there for the Covid restrictions in the one case.

Structure, there, we really are leaning directly into digital first our investments and we shot last year My shop this year.

Needs to start to shape in the right direction and so we are really trying to position ourselves as we move forward into the China evolves locally to be to being a digital first company that reaches are our customers and our sales force.

Buyer that digital first model and that's more of a mid term horizon, but you'd add to that I think it's too early for us to project when China can return back to normal.

Until we start seeing some stabilization. So we start seeing a period of time when there arent.

Daily and weekly updates of Lockdowns in various provinces around China, I think it would be too early for us to project, China, returning to any level of growth.

Diverse, which I think for us and frankly any company. These days is a very good thing to be its a definitely focus for us is making that balance.

Can continue as we go.

Okay. Thank you.

Paul.

This is Jeff <unk> question.

That 5% price increase taken at the start of it.

This past quarter are you seeing any pricing elasticity in.

Do you have any key takeaways from that price increase.

Your thoughts on ladies.

Any price offsetting cost some of that gross margin pressure.

Yes, I'll talk to that maybe the consumer side and Mark can talk to the margin side on price increases I. Just just to reaffirm we are we are very committed to.

Addressing the impact of inflation.

We will continue to look at opportunities there in the fall and beyond as as inflation continues to be managed and monitored around the globe.

It's hard to say in our in our.

Our price point, which is tends to be masstige and above.

<unk> products.

And so I think the value proposition remains strong, but we'll continue to balance consumer.

Purchasing capability versus.

The margin trade offs, and so far I don't think we've hit a ceiling there, but mark maybe not I would say that we were happy to see sequential improvement in gross margin in Q2, we're projecting for the second half margin stabilization, which basically means we're expecting margins about where they are today and theres going to be a number of puts and takes.

In our business foreign exchange movement and were seeing a heavy headwind in foreign exchange that does impact gross margin in our hurts, our gross margin, obviously inflation and cost increases in raw materials also.

Kurt.

Okay. Thanks.

Thanks, Tristan and it doesn't look like we have any other hands raised so I think we'll go ahead and wrap up the call. If you do have any questions and we'd like to set up time with Scott or Mark myself, we're more than happy to.

And wellness company as we laid out in Investor day earlier. This year, we have confidence in our capabilities as an innovative beauty and wellness company and a beauty device systems leader combined with our global affiliate channel to enable our transformation into this new space. We believe in the vision and we believe it will return greater value to <unk>.

Shareholders over the next few years as we scale, our integral integrated beauty and wellness platform and with that we'll go ahead and end the call. Thanks again for joining us.

Q2 2022 NU Skin Enterprises Inc Earnings Call

Request a DemoDemo

NUS

Nu Skin

Earnings