Q2 2025 Nu Skin Enterprises Inc Earnings Call

Speaker #1: Good day, and thank you for standing by. Welcome to the Q2 2025 NU SKIN ENTERPRISES earnings conference call. At this time, all participants are in a listen-only mode.

Speaker #1: 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 *11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to our first speaker today, B.G. Hunt, Vice President of Treasury and Investor Relations. Please go ahead.

Speaker #2: Thanks, James. And good afternoon, everyone. I'm joined by Ryan Napierski, President and CEO, and James D. Thomas, CFO. We're excited to share NU SKIN's results from Q2 of 2025.

Speaker #2: Before I turn the time over to Ryan, let me point out that on today's call, comments will be made that include forward-looking statements. These statements involve important risks and uncertainties.

Speaker #2: And actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for complete discussion on these risks.

Speaker #2: 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.

Speaker #2: Please refer to our investor website, ir.nuskin.com, for any required reconciliation of these non-GAAP numbers. And with that, I'd like to now turn the call over to Ryan.

Speaker #3: Thanks, B.G. Thanks, everyone, for joining the call. We've spent some time this past quarter with our amazing and talented top leaders in our annual team lead incentive trip in Greece, where we aligned around our vision, strategy, and plans for our next big opportunities.

Speaker #3: Which I'll get to in just a moment. But before I get to the strategy, I'll begin with an overview of our Q2 performance and provide an update on our key strategic priorities for the remainder of 2025 as we continue pursuing our mission of being a global force for good by empowering people to look, feel, and live better lives.

Speaker #3: I'm pleased to report that we delivered revenue at the high end of our guidance range and significantly exceeded our earnings per share forecast for the second quarter.

Speaker #3: We achieved revenue of $386.1 million, more notably, we delivered earnings per share of $43. Well above our guidance range of 20 to 30 cents.

Speaker #3: This strong earnings performance reflects our disciplined approach to cost management and operational efficiency improvements that we've been implementing across the organization. As we review our reporting segments, we're seeing encouraging signs in several parts of the business as we navigate the macro environmental uncertainties impacting consumers around the world.

Speaker #3: We continue to drive strong year-over-year growth in Latin America as our developing market strategy takes hold in region. This was offset by declines in North America, which has faced increasing macro pressures on the business.

Speaker #3: Japan reported growth in the quarter and continues to benefit from a strong subscription-based wellness business. While revenue in South Korea and China was down due to persistent economic challenges, we're seeing signs of sequential improvement.

Speaker #3: We experienced growth in the Pacific while the rest of Southeast Asia remained sluggish. Europe and Africa also experienced improving trends in customer and new sales leader engagement with our enhanced sales performance plan.

Speaker #3: And our rise segments performed well with manufacturing reporting 17% up year-over-year in the quarter. Now, let me update ou on our strategic priorities for 2025 as we made significant progress in preparing our sales leaders for these next opportunities.

Speaker #3: First, we're making good progress in inging to market our next big innovation, Prismaio, our truly intelligent wellness platform. As I mentioned in Q1, Prismaio was built upon more than 20 years of collective science scientific research and development and our extensive antioxidant database that contains more than 20 million scans from 10 million participants across more than 50 countries.

Speaker #3: By utilizing AI capabilities to interpret this data, through our own proprietary new intelligence platform, we'll be able provide our customers with truly intelligent, healthy lifestyle insights as well as personalized product recommendations to improve their antioxidant score and support their wellness journey.

Speaker #3: In just 15 seconds, this palm-sized device will accurately and non-invasively measure carotenoid levels in the skin via the fingertip. As we educate consumers on four primary dimensions of health, diet, fitness, oxidative stress, and supplementation, the Prismaio score can provide insights to motivate them to implement lifestyle changes aimed at improving their overall health span.

Speaker #3: We'll rolling out Prismaio in limited quantities for qualified sales leaders during the fourth quarter this year, followed by broader leader launches around the globe in the first half of 2026, and consumer launches anticipated to the back half of the year.

Speaker #3: The Prismaio launch will be accompanied by enhanced and expanded line of geographically customized life-pack product solutions, as well as other targeted wellness products via our subscription-based retention model.

Speaker #3: We will be reformulating our leading line of nutritional supplements, leveraging the latest metadata and scientific research to meet geographic dietary needs at various pricing tiers.

Speaker #3: For ample, studies show that vitamin E is often underconsumed in many parts of the world, which can negatively affect immune and cardiovascular health. Adjusting vitamin E levels for these areas provides customized product solutions to better meet the needs of diverse consumer segments around the world.

Speaker #3: As consumers are growing increasingly more conscientious about their overall well-being, we're excited about the potential impact of Prismaio and our revolutionary intelligent wellness platform.

Speaker #3: And with our unique ability to provide customized subscription-based product solutions, that support one's overall health and well-being we are uniquely positioned to play in this rapidly growing wellness movement.

Speaker #3: Our second key priority our developing market strategy, which continues to deliver remarkable results in Latin America, which reported up more than 100% year-over-year in revenue, customers, and sales leaders.

Speaker #3: NU SKIN has historically been known for our premium market positioning in beauty and wellness space, and as we envision a more expansive future for our company, it is imperative that we broaden our positioning to appeal to emerging segments in both existing and new markets.

Speaker #3: We continue to learn and gain insights that help us expand this strategy into other markets, including India, which represents an enormous opportunity given the $1.4 billion population and rapidly growing beauty and wellness industries.

Speaker #3: As we prepare for India, we're following this simplified and scalable business model, including a localized product portfolio containing a new massege brand called Serenue, that is priced for India's growing middle class.

Speaker #3: This targeted product offering combined with a refined compensation plan and a digital first operating infrastructure will enable a more focused and scalable path to growth for this emerging market.

Speaker #3: We're on track with our plans in India for a Q4 pre-market opening for qualified India-eligible sales leaders and are building towards a formal launch anticipated in mid-2026.

Speaker #3: We remain excited about the prospects for India, and our other developing markets, which we anticipate will become a much larger portion our revenue moving forward.

Speaker #3: And thirdly, we're pleased to see overall margin expansion through project accelerate our ongoing initiative to improve operational efficiencies to strengthen our bottom line. We're focused on three key drivers.

Speaker #3: Improving gross margin in the core NU SKIN business to 78% through product portfolio optimization, selling expense alignment to better reward growth in our sales force, and GNA prudence around the globe.

Speaker #3: Overall, our efforts led to significant improvements in our Q2 operating margin to 8%. We have also strengthened our balance sheet to become a cash-to-debt positive, which provides us with greater flexibility amid market fluctuations and an roved ability to invest in growth initiatives and return value to shareholders.

Speaker #3: One last point I'd like to mention is about RISE, our innovation incubator. As we experienced with our recently transacted Mavely business, which generated approximately $200 million in value to the balance sheet, RISE plays a strategically significant role for our enterprise.

Speaker #3: Notably, RISE manufacturing, which grew 17% year-over-year, enables us to gain speed to market for new, cutting-edge beauty and wellness innovations. For example, our US business recently introduced mSmart, a drink mix-in that helps support a healthy blood glucose response after meals, and brought it to market in less than two months.

Speaker #3: Another RISE business, LifeDNA, a genetic wellness assessment business, continues to perform ahead of expectations and we anticipate will support our broader intelligent wellness platform vision in the future.

Speaker #3: So with that, I'll turn the time over to James, who will provide more financial details, including our updated guidance for the remainder of 2025.

Speaker #3: James?

Speaker #4: Thank you, Ryan. Good afternoon, and thank you for joining us today for our Q2 earnings call. I'm pleased to provide an overview of our performance for the second quarter the year, including key highlights, challenges, and our outlook for the rest of 2025.

Speaker #4: As always, I'll walk through the financial results, touch on some key business dynamics, discuss our outlook Q3, and the rest of the year, as well as provide an update on we're navigating the current macroeconomic environment.

Speaker #4: Turning to our financial results for the quarter, I'm pleased to report solid performance in several key areas. For the second quarter, we delivered revenue near the top end of the range, at $386 million.

Speaker #4: With neutral foreign currency impact. Earnings per share came in at $43 cents. This surpassed our guidance by 13 cents and demonstrated significant improvement over the prior year, 21 cents, adjusted earnings per share due to our cost efficiency efforts deployed over the last two years.

Speaker #4: Our Q2 gross margin was 68.8%, compared to 70% in prior year. Primarily due to the revenue mix between RISE entities and the NU SKIN core following the sell of Mavely.

Speaker #4: Within our core NU SKIN business, gross margin was 77.5%, up 140 basis points from the prior year, resulting in four quarters of sequential adjusted gross margin improvement.

Speaker #4: We're continuing to see the benefits of our portfolio optimization and operational refinement efforts. Selling expense as a percentage of revenue was 33.2%, for the quarter.

Speaker #4: A decline from the prior year, primarily reflecting the impact of the Mavely sell on the overall revenue mix between our core NU SKIN business and RISE.

Speaker #4: Within the core NU SKIN segment, selling expense was 40%, down from 42.2% in the prior year. The decline was largely driven by lower sales performance in the US, China, and Southeast Asia Pacific markets compared to the prior year.

Speaker #4: For the core, we anticipate selling expense to remain around 40% as the enhanced compensation plan continues to gain adoption. General and administrative expenses were down 11.2 million dollars compared to Q2 of 2024, reflecting cost reduction efforts in labor and a migration to a shared service model for technology.

Speaker #4: It did increase on a percentage basis due to the overall declines in revenue. Operating margin for the quarter was 8%, up 260 basis points from adjusted operating margin of 5.4% in the prior year, due to our discipline approach to operational efficiencies.

Speaker #4: Improving our operating margin remains a long-term priority, which positions us to reinvest in the business through growth initiatives like Prismaio and new market expansion into India.

Speaker #4: We will remain disciplined and adaptable especially when navigating the continued top-line pressures and evolving market conditions and are very pleased with our operating income results year to date.

Speaker #4: I'd now like to turn to our balance sheet and liquidity position. We generated strong cash flow from operations in the quarter of $35.8 million, which enabled us to achieve our goal of becoming net cash positive ahead of schedule.

Speaker #4: The first time we've been in this position in more than four years. This net cash position provides us with strong financial flexibility enabling us to navigate economic uncertainties more confidently, invest strategically in growth, and return value to shareholders.

Speaker #4: We ended the quarter with $264 million in cash. In line with our capital allocation strategy, we returned approximately $3 million to shareholders in the form of a dividend.

Speaker #4: We did not repurchase any stock and have one hundred and fifty-seven point four million dollars remaining under our current share repurchase authorization. Looking ahead to the remainder of 2025, we're encouraged with the performance of the business through the second quarter.

Speaker #4: At the same time, we remain mindful of ongoing global uncertainties, including potential tariff impacts and evolving geopolitical conditions. Given these factors and continued uncertainty around consumer durability and our key markets, we're taking a disciplined and asured approach by narrowing our revenue outlook for the back half of 2025 and increasing our earnings per share as we've proven our ability to deliver profitability notwithstanding market headwinds and pressures on the business.

Speaker #4: We project third quarter revenue between $360 million and $390 million, factoring in an expected foreign currency headwind of approximately 1%, Q3 earnings per share is anticipated to be in the range of 25 cents, to 35 cents.

Speaker #4: For 2025, we project revenue of $1.48 billion to $1.55 billion. And earnings per share of $3.05 to $3.25 with adjusted earnings per share of $1.15 to 1.35.

Speaker #4: To conclude, we are pleased with our Q2 performance and continue to stay focused on driving ur strategy forward, despite ongoing global challenges. We remain confident in our ility to adapt and are committed to driving operational performance managing costs, accelerating growth in key regions, and maintaining a strong financial position.

Speaker #4: We look forward to updating you on ur progress as we move through the third quarter of 2025. And with that, operator, we'll now open up the call for questions.

Speaker #1: Thank ou. At this time, we will conduct the question and answer session. As a inder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced.

Speaker #1: To withdraw your estion, please press *11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Dave Storms from Stonegate.

Speaker #1: Dave, your line is now Good

Speaker #1: open.

Speaker #5: ys narrow that range, but are there any, you know, initiatives or geographies that can maybe have an outsized impact that would put you on the higher end or lower end of that guidance?

Speaker #3: Hey, Dave. yeah, just, maybe I'll, I'll share my thoughts and then, obviously, James, James can dive into it little bit, better. But I think as, as I mentioned through first half performance, you know, we continue to to see Latin America overperforming.

Speaker #3: Expectations, a little bit offset through North America, which is a key market and, you know, we're working to to improve there. you know, there, again, puts and takes, as you said, it's, Korea and China.

Speaker #3: Korea, we're seeing improving trends there. China's always, you know, a big question mark, especially with the macro, you know, uncertainties or uncertainties there, the economically and just geopolitically.

Speaker #3: so those are probably, for me, the ones that are, are, are like top of mind would be those, you know, North America, China, Korea, whereas Europe, you know, Southeast Asia, and Japan, and Latam, are, we, ou know, I think are gonna, are, are gonna do better.

Speaker #3: But, James, any additional color from your side?

Speaker #6: Yeah. no, as we look across the landscape, across the, the first two quarters of the year, there was a lot of shifts between geographies and the performance between the outcomes of our reported numbers through Q2.

Speaker #6: When we looked in the back half and we're forecasting out forward, Ryan touched on the ones where we see, we, we've rolled through that overperformance.

Speaker #6: And then, as also adjusted those, those, other markets that have underperformed through the first half. and, and looked at the energy maps and the, the programs that we have running in each of those regions, he touched on the highlights for us, Latin America continues to perform well.

Speaker #6: Japan continues to hold steady. and the markets and regions we're oking forward to are Q4 launch of our Prismaio as well as, are getting ready and staging for the opening of India.

Speaker #3: That's great color. I appreciate that. And then maybe just, double-clicking on the shrank scene in Latin America there. are you able to highlight what's really working there and how much runway, is left, you know, does Prismaio turn into, you know, is that pouring gas on the fire for Latin America or just kind of how you see that playing out in the near term?

Speaker #6: Yeah. Yeah. Latin America has been an esting journey for us. you know, obviously, at the macro level, it's always been a region that has enormous potential and direct selling.

Speaker #6: but, but for us, has maybe been underrepresented, what we're pleased with there. We took a different approach. They're about two years ago, aligning with our leaders there around how we would simplify the model to really get a focus that would enable us to scale more profitably.

Speaker #6: And what we ended finding out is the more we focused and simplified the model from an operational efficiency perspective, the, the better the sales force aligned and focused.

Speaker #6: And so to true extent, less was more. and from there, that, that was born into kind of a three-pronged strategy from the, from the product side, the business model side, and then the operational side.

Speaker #6: So at the product level, really retuning the, the portfolio, to hit at the right price points with a good retail profit, you know, from a sales leader perspective.

Speaker #6: so working through margins there and, and, and that was important on the business model side. As I mentioned, it's critical in those markets that there's a healthy, and reliable retail profit that's made to the seller.

Speaker #6: In addition to the incentives that we align around growing the channel. And so striking the right balance between that selling and referring, together with our new sales performance plan is working really well.

Speaker #6: And then that last, you know, prong of, of scalable, infrastructure there. So really focusing much more on the, the, the technical and technology-based support rather than, you know, hard-cost infrastructure, has proven to, to be helpful there, being able to get to, you know, the needs of the consumers and affiliates down there.

Speaker #6: So, you know, I ink those are the, those are really the elements when we talk about the developing market strategy, even in India, same three types elements we'll be focused on the portfolio, the business model, and, and the, the flexible, digital first infrastructure.

Speaker #6: Prism, I think, will be a, a, an additional help there. Latin America historically has been a beauty origin market, you ow, the majority of our business down there is that, but we have some, some good nutritional products, like our collagen line down there that kind of spans the two.

Speaker #6: Our sales leaders are really excited about Prism and think there's a great, opportunity moving forward with this expanded life-pack line, which is our premium, nutritional supplement, that works really hand-in-hand with Prism.

Speaker #6: And we have a new formula called, Life Pack Elements that will be, introducing down there next year that, that we anticipate will, will further, you ow, further strengthen the, the, the, the offering down there.

Speaker #3: That's great. I, I really appreciate that. turning to, you know, at the consolidated level, the cost optimization, that you've been kind of driving e, it seems to really be making some strong progress.

Speaker #3: When you're thinking about it going forward, how many levers do you still see to pull there, ou know, is there any low-hanging fruit that could continue to drive margin improvement year over year like we saw this quarter?

Speaker #6: Yeah, I'll take that question, David. It's for us, you ow, we, we, we talked about earlier about four consecutive quarters of sequential growth. and gross margin.

Speaker #6: That is the, the result of cumulative efforts across, the last two years, mainly. And working through the inventory and the turns to get that flow through our, our cost of sell.

Speaker #6: So the lower overhead to roll through, we still believe that there's still opportunity there as we've lowered our inventory levels. and managed that to, to be really in line with our overall revenue.

Speaker #6: selling expense, we continue to optimize for us. That's something that helps, the field and generates the top line. And so we're really focused on spending efficiently where we can to make sure that we're optimizing performance.

Speaker #6: And then GNA, we're going to continue to focus on our operational footprint, like the developing market strategy that Ryan talked about in Latin America, we're oking across the scope of all of our markets and continue to look and find opportunities where we can, use technology and place of, physical presence or labor, and continue to find opportunities where we can deliver more dollars to the bottom line.

Speaker #6: And so, we're going to continue our efforts and we feel confident our ability navigate, our forward.

Speaker #3: That, that's great. I, I really appreciate that commentary. maybe just one more for me. W you ended the quarter with a strong balance sheet and you ioned that it gives you a lot of flexibility.

Speaker #3: just if you could help us maybe prioritize what your capital allocation priorities are going to be in the back half of the year, given that flexibility.

Speaker #6: Yeah. And, and maybe I could, I'll 'll have James kind of go into the detail on capital allocation. But, I mean, obviously for us, investing in, in growth of the business is critical.

Speaker #6: And, you know, kind of doubling down on, on our two growth opportunities, Dave, us that are always front and center, you ow, first from an innovation standpoint, Prismaio, as we're building upon the, the extensive database that we've created over the last 20 years, to, to now take that forward, in a new device that is really, you know, literally can, can fit in, , in anyone's pocket anywhere, at this, this device, coupled with our, our, database, extensive database, and then the app, the intelligent wellness app coming along is a major, for us, it's a major focus.

Speaker #6: And source of investment, as we lead out into this and this new world. And then, of course, leading into developing markets, again, we have a scalable model.

Speaker #6: We're taking a very different approach: digital-first there. So we're not talking about, you know, massive fixed-cost infrastructure investments. Rather, we're really building it out to be scalable.

Speaker #6: And so as we go into India, that's a priority and making certain that we're really allocating, you know, investment need or investment, into growth first.

Speaker #6: but, James, maybe you, you can talk more about capital allocation.

Speaker #5: Yeah. you know, our capital allocation strategy has been consistent. You know, we, we fund the business. We look for opportunities where we can find the rowth, like Ryan mentioned.

Speaker #5: right now, Prismaio, India, and then other several initiatives inside the business. We're heavily funding. the second one is, making sure that we're able service our debt.

Speaker #5: That we can manage our obligations going forward with where we're going to really healthy position. And the third is to continue to pay a strong dividend, return value to shareholders through, through both our dividend and then when opportunity permits to be able to be in the market to, to repurchase shares.

Speaker #5: and so that's, that's really what we have and we're looking forward. And we also look for other opportunities. where we, we can take advantage , a potential opportunity that may arise, to go after growth.

Speaker #3: That's great. Thank you for taking my questions and good luck in 3Q.

Speaker #6: Thanks, Dave. It.

Speaker #1: Thank ou. I'm showing no further questions at this time. I would like to Napierski for closing remarks.

Speaker #6: Well, we really appreciate everyone, joining the call. If you have additional questions, please, reach out to B.G., James, myself. to, to answer those. We're, we're very, very excited about, the future as it's unfolding.

Speaker #6: We were pleased with our first half results. and, and are now very focused on second half in preparations for 2026. We're going to be driving these three priorities across the business of accelerating innovation with Prismaio and our intelligent wellness platform.

Speaker #6: Our

Speaker #6: strengthening our core business with developing and emerging markets beginning turn it back to Ryan with India. And then driving operational performance and efficiency all with an end, end game of, of strengthening shareholder value as we provide greater opportunities for our empowered sales force, affiliates, and, and, and powerful leaders around the world where we provide them opportunities to grow and empowerment, initiatives is where we find success in our business.

Speaker #6: So that's what we're acutely focused on. We'll look forward to updating you in coming quarters and so please, please join the calls and, and reach out with any questions.

Speaker #6: Thank ou.