Nu Skin Enterprises, Inc. (NUS) Earnings Call Transcript & Summary

Hi, everybody. I'm Christina Xue with D.A. Davidson. And today with me on stage, we have CEO, Ryan Napierski; and CFO, James Thomas. So I've been looking forward to this discussion. I know Nu Skin has great products in beauty and wellness, and you are the #1 device system brand by Euromonitor. So over the last few years, you have evenly distributed revenue around the globe, diversified your portfolio. And on top of that, the Rhyz Group recently announced the divestiture of Mavely for a significant value. So before we get into all that, let's start with a brief overview of the business and some of the recent trends that you are seeing in the direct selling space.

Yes. No, Christina, thank you. Thanks, everyone, for being here. So we're excited to be at this conference. I appreciate Reed and ICR hosting it. Yes, Nu Skin, we are an integrated beauty and wellness company that leverages our affiliate channel to distribute a series of innovative products around the globe, including those innovative beauty and wellness devices you mentioned. According to Euromonitor, we are the #1 beauty and wellness device systems brand in the world. We take a lot of pride in that. We are a brand that's very focused on our original product philosophy around the origin of all of the good, none of the bad, so clean before clean was really a theme, so to speak. And our devices and device systems are a critical part of that strategy. We, in the more recent years -- so we operate in 50 countries around the globe, the top personal care and beauty markets. We've primarily done that through -- over the course of our 40-year history through direct selling. although that is evolving, and that's been a part of our evolutionary journey the last few years, as we've been leaning more and more into social media and social commerce driven, which does have some degree of channel conflict. We might get into that later, but that's part of our transformation. So how do we get these integrated beauty and wellness devices and our broader portfolio out to consumers in a manner where consumers are. So traditionally, we haven't been in third-party marketplaces. We haven't been direct to company. We've utilized the sales force. Today, that's different. We are engaging in Amazon third-party marketplaces. We're engaging in search engine, social media advertising, early stages of that. And we're doing it in a way that integrates with our affiliates or our sales force, so that we avoid or minimize channel conflict. I think the other dynamic that's interesting about Nu Skin is 4 or 5 years ago, we began a journey. You mentioned the company Rhyz, which is a subsidiary company of Nu Skin Enterprises that invests in and grows technologies and other synergistic services to the core, other businesses out there. So today, roughly 15% to 20% of our business is in Rhyz. And some of those investments are directly linked in with our core business, while other investments like Mavely, they may continue to service the business, but they have greater value outside of the enterprise, and so we divested Mavely. It was an interesting -- it was 3% of our revenue for about 70% of our market cap. When we divested it, I think for shareholders, it was the right thing to do. We still have access to the technology, but in any case, that's now -- Rhyz is now a part of our enterprise, and it's part of our transformational journey.

Okay. So on the news of the divestiture for $250 million, can you -- since it was your fastest-growing segment, can you share some like rationale behind the deal? How did the deal come about? And can you share some background on the decision?

Yes, you bet. Yes. So Mavely is an interesting technology. We originally acquired it, and it was a link-sharing technology, for those of you -- on Instagram or TikTok, you see the link in bio. It was a link-sharing technology. We needed that for our sales force. And so we made an original investment to buy that technology as opposed to build it. We put it into the business, and that was great. But independent of that, it grew its own business, really servicing brands, everyday influencers and retailers, connecting them. So through our technology, we were able to build out a fairly strong independent business. And up until a couple of months ago, our plan was to keep that in the business and continue to grow it. But Summit Partners came along, really interested in the technology. They have a broader portfolio of services that we wanted access to, and we felt like it would be better together, Mavely would be better together with their platform. And so we sold the majority. We still have a minority stake -- a small minority stake in the business. We have access to their services to power our business, and we'll continue to leverage those services. But I think it's a good reflection. And at this conference, it's been interesting. I've had a lot of analysts and bankers asking the question, well, hey, we didn't even know about this. So I want to be really, really clear to anyone listening, we have Rhyz. Rhyz is a synergistic collective of businesses. We have 7 or 8 other companies in Rhyz. Each one of those has significant potential on an enterprise value basis. We see a lot more value in Rhyz, frankly, than our current stock price reflects. And I think it's incumbent upon management to do a better job explaining the assets and the capabilities that we have in that business, because we anticipate there will be many more businesses like that, that either synergistically accelerate the performance of the core, or they're better value outside and we'll utilize proceeds. And maybe James can talk about utilization of proceeds there.

Yes. So let's talk about what's your plan for the proceeds? Like what are the capital allocation priorities for you guys? Can investors expect any of the share buyback activity in the coming quarters?

Yes. One of the things about Mavely is Mavely was a lone party to our debt agreement. So there are certain restrictions that we have on the uses of cash for that sale. One of them is, obviously, we're required to pay that down towards our term loan, but we can also use it for other capital expenditures within our business. And so that's the main usage of the proceeds of those sales just based on the debt agreement itself. But what that does is it frees up operating capital, and we generate very strong cash flows from our other side of the business. That will allow us a lot more freedom to go after different growth drivers within our core and also within the Rhyz ecosystem that Ryan talked about.

Okay. Great. But switching gears a little. So another exciting news came through yesterday about the fourth quarter sales being at the high end of the guidance range. Can you talk about what's driving the sales momentum behind it? And any updates that you have on the cost side for the quarter?

Yes. I think the quarter was good. It was at the high end of guide, as you said. And I think for us, what's more encouraging post that quick bump in beauty that everyone experienced post COVID. I think the last few years have been tough, especially in premium beauty. So we were encouraged to see a Q3 -- Q4 growth over Q3, which we haven't seen in the last couple of years. And I think that largely being driven as Rhyz performed well. We've also had that I think we should get into in a moment, some encouraging results coming out of the Americas, specifically Latin America, our developing markets, Southeast Asia as well, some encouraging results there, which indicate that the consumer, especially in premium, is starting to recover. Certainly not there yet, but we're starting to see some signs of recovery, which for our business will be helpful.

I think from my perspective, Christina, is we actually saw core business kind of grow in Q3 to Q4 [indiscernible]. So for us, not just the growth rate we actually saw in Q3 to Q4 in the core business, and that's something that we haven't seen. So as we strip down those markets and look for what those growth -- where that growth is coming from, it's can we repeat more of that and broaden that around the rest of the markets around Nu Skin that have had somewhat of a drag to them.

Okay. So looking ahead a little, like what can we expect for '25, as it relates to new products and areas of focus?

So -- and I'm noticing the video here. So I'm not sure. I think she's checking her vital statistics there. But -- so we've introduced several new products into the market this past year. Typically, we'll introduce a product or preview a product, and we'll roll that product out globally. So a couple of the introductions we had at the end of last year that helped with Q4. We have a line of products called Tru Face, and we're utilizing peptide technology to deliver retinol in a unique way. So retinol for anyone that has teenagers and beyond is a very popular product right now, utilizing our peptide technology. We're excited about that. We also have MYND360, which is a new cognitive health division for the company, really honing in on the cognitive performance. Yes, there's a picture of it where we have focus, sleep, memory and different products that will really help with overall cognitive performance. And of course, that's really an ecosystem of products, because you effectively need to attack sleep, stress, anxiety. They all play with each other, and then lack of sleep harms cognitive performance. And so it's this vicious cycle when you're not on top of it. We believe that this is a product category that is needed in the world. And I think probably the last thing that I'm really interested in, and we'll be at greater liberty to talk about post earnings, is around what we call truly intelligent wellness. Nu Skin is the world's leading beauty device systems brand, beauty and wellness device systems brand. One major part of our business is around nutritional supplements. We're an integrated beauty and wellness company. And we have new wellness assessment technology that will be coming to market that actually enables a consumer to assess and measure their nutritional supplementation in a very unique way that, frankly, nobody is doing. And we're excited to bring that technology to market in 2026, but we'll have a little bit of that preview late '25.

Okay. So on the topic of core business, we know China is your largest market. So do you have any updates over the dynamics over there? And do you think we could kind of expect like a return to growth kind of like later down the road?