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

Good day, and thank you for standing by. Welcome to the Q2, 2026, Nu Skin Enterprises Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, B.G. Hunt, Investor Relations. Please go ahead.

Thanks, Daniel, and good afternoon, everyone. I'm joined by Ryan Napierski, President and CEO, and by our Interim CFO, Chelsea Lantz. Today we'll be sharing Nu Skin's Q2 2026 results and providing guidance for the remainder of the year. Before I turn 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, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor website, ir.nuskin.com, for any required reconciliation of these non-GAAP numbers. And with that, I'd like to turn the call over to Ryan.

Thanks, B.G. Good afternoon, everyone. Thanks for joining the call. Over the past quarter, our team around the world has been focused upon aligning our top leaders around the next era of opportunity for Nu Skin as we extend our anti-aging leadership position with the introduction of our new innovation, Prysm iO. The field is now learning, adapting, and incorporating this new technology into their business models, which contributed to second quarter revenue of approximately $320 million. Our focus on profitability and operational efficiency helped us achieve adjusted earnings per share near the midpoint of our previously communicated range. We've made meaningful progress on our strategic priorities, including expanding our Prysm iO platform and global rollout, working to align and activate our sales leaders via an enhanced leader elite achievement and incentive road map, and preparing India for formal opening. We're building capabilities that we believe will strengthen our competitive position and create sustainable growth over time as we advance our vision to becoming the world's #1 leadership company, powering our intelligent anti-aging platform. As we have greater clarity and line of sight on the remainder of the year, we are updating our full year revenue and EPS guidance, which Chelsea will cover in just a few minutes. Let me briefly update you on the 3 strategic priorities and continue to guide our business forward. Our first priority is extending Nu Skin's leadership position in intelligent anti-aging. For nearly 2 decades, ageLOC has differentiated Nu Skin through world-class anti-aging science, generating approximately $16 billion in cumulative revenue. Today advances in epigenetics and biological aging research are creating an entirely new frontier. Our next major anti-aging innovation, Prysm iO, remains in the early stages of its global rollout with more than 39,000 devices placed to date, up nearly 30% quarter over quarter, and 2.5 million scans, which is up 25% over the same quarterly comparison. We're learning a lot from the nascent technology, including consumer lifestyle behavior and habits, as well as overall nutrition health status and trends around the world. Our next objective is to turn these learnings into increasing engagement opportunities to improve customer health and wellness by improving their nutritional health scores. On the business frontier, one of our biggest learnings to date has been how our sales leaders are using this device to grow their businesses. Many of our sales leaders are primarily using Prysm iO as a wellness consultation tool to invite consumers into their own personal wellness journey, which is different from our earlier hypothesis of the Prysm iO being an in-home placement device. These early insights are helping us refine our commercial strategy as we enter our next phase of global deployment to better assist our brand affiliates in performing wellness consultations at scale. As we work towards the longer term vision of placing a Prysm iO in every healthy household, we expect to place 50,000 to 60,000 devices by year's end. At our global live event in Japan this September, we plan to introduce the next generation of AI-enabled Prysm iO app, powered by our proprietary new intelligent platform to deliver even more personalized wellness assessments, product recommendations, and 90-day wellness plans to improve customer engagement, conversion and lifetime value. In the future, the new intelligent, proprietary trained agent will also assist our affiliates in their personalized wellness and business journeys with Nu Skin. Based upon early findings with Prysm iO, as well as new scientific research from institutions, including Shanghai Jiao Tong University, Yonsei University in South Korea, and our collaborators such as Dr. Anne Chang at Stanford Medicine, we are expanding our understanding of how nutritional and lifestyle impact biological aging, reinforcing our belief that the future of wellness will increasingly focus on extending health span or the quality of years lived, not only the quantity or longevity of those years. This work is now informing the next stage of anti-aging research and our aging response modulator science, an approach to anti-aging research incorporating epigenetics that we believe will fuel our next generation of innovation. In addition to supporting the continued rollout of Prysm iO, we will introduce a new range of products at our live event, including 2 new products to support women's unique health needs, helping support hormonal balance and empowering women through every stage of life. These innovations further demonstrate our commitment to advancing our intelligent anti-aging leadership position. Our second strategic priority is engaging, aligning and empowering our sales force to grow the channel. While our field continues to demonstrate resilience in a difficult operating environment, recruiting and leadership development remain below the levels needed to return the business to sustainable growth. Over the past several months, we've been redesigning how we reward, recognize and empower leadership globally to empower them to do what they do best, build the network of independent entrepreneurs. We continue to refine our global compensation framework to place greater emphasis on balancing product selling, team building and leadership development while maintaining appropriate flexibility for local market needs, including modifications to mainland China's distinct business model. This revised framework has been rolled out across the Americas and Pacific in the first half of '26 and will continue into other markets throughout 2027. Our greatest strength is our global leadership. And this fall, we will begin introducing a new leadership achievement roadmap, which will provide clearer developmental pathways, stronger recognition, and incentives that reinforce long-term leadership building. This progressive system will be accompanied by increasing investments and leadership achievements, by working more closely with our field leaders to better assist in training and development of new affiliates on the skills and capabilities required for today's evolving environment. Sustainable growth begins with successful leaders who find, develop and mentor the next generation of aspiring entrepreneurs, and strengthening our commitment to our talented leadership remains one of our top priorities. Our third strategic priority is expanding our growth opportunities in emerging markets. Across Latin America, we continue to navigate a mixed macroeconomic environment while remaining encouraged by the long-term opportunities in the region. Our leaders throughout the region continue to demonstrate strong commitment and resilience to building the business in spite of persistent disruptions. In India, our focus during the first half of the year has been on building the operational foundation necessary for long-term success, including high-quality local product sourcing, integrated supply chain, technology and regulatory readiness. As we progress, we've identified additional opportunities to refine elements of our business model before formally launching into the market. And as a result, we've decided to move our full market launch into the first half of 2027 to ensure business model, operational and field readiness for the significant long-term opportunity. While this extends our formal opening timeline for India, we believe taking the time to optimize the model today will position us for stronger and more sustainable growth once we scale the market. In parallel with our growth initiatives, we'll equally focus on improving profitability along the way. We continue to optimize our gross margin through thoughtful price actions, supply chain efficiencies and infrastructure improvements as we work towards our long-term objective of approximately 80% gross margin in our core business. This includes strategic price increases to offset rising costs of goods around the globe, as well as realigning manufacturing to further leverage our facilities in China for our Asia-based businesses and our U.S. facilities for our Western businesses. From an operations perspective, our East and West markets each deploy unique approaches to the business. And so to better enable our leaders and business to grow in these adjacent models, our Chief Operating Officer, Chayce Clark, is leading an effort to build out a more distinct East-West structure, which marks a shift from our current approach focusing on 7 distinct regions and will result in our global teams being better positioned to support our customers and sales leaders. This transition will occur over the next 2 quarters and is intended to create a more agile, efficient and growth-oriented organization. And with that, I'll turn the time over to Chelsea to go through some of the financial details.

Thanks, Ryan, and good afternoon, everyone. Today I'll review our second quarter results, discuss our outlook for the third quarter and provide an update to our full year guidance. Second quarter revenue was 320.1 million, including an approximate 1% or $4 million foreign currency headwind. Reported earnings per share were negative $5.14 or a positive $0.20 excluding non-cash accounting charges related to a goodwill impairment and evaluation allowance on our U.S. deferred tax assets. Adjusted earnings per share were in line with our guidance range. Gross margin for the quarter was 68.2% compared to 68.8% in the prior year, reflecting the revenue mix between the Nu Skin core and Rhyz businesses. Within the core Nu Skin business, gross margin improved to 77.7%, up 20 basis points from the prior year, reflecting continued progress on our margin improvement initiative. Selling expense as a percentage of revenue was 33.7% compared to 33.2% in the prior year. Within the core Nu Skin business, selling expense was 39.8%, down slightly from 40% in the prior year. General and administrative expenses declined by $15.9 million year-over-year, reflecting continued cost discipline while maintaining investments in our strategic priorities. G&A represented 28.4% of revenue compared to 27.6% in the prior year. Adjusted operating margin for the quarter was 6.1% compared to 8% in the prior year. Following the year-to-date changes in our market capitalization, we performed an interim goodwill impairment assessment, resulting in a $78.9 million non-cash goodwill impairment charge related to our Rhyz manufacturing reporting unit. The goodwill impairment also led us to reassess the realizability of our deferred tax assets, resulting in a $167.5 million non-cash valuation allowance within income tax expense. We have excluded these non-cash accounting adjustments from our adjusted results as we do not believe they are indicative of our ongoing operating performance. Our effective tax rate for the quarter was negative [ 295.4% ] or positive 36.6% on an adjusted basis compared to 23% in the prior year. As Ryan discussed, we will be implementing an East-West operating model designed to better align our resources with the needs of our markets while creating a more agile organization. We expect these changes to improve operating efficiency and generate meaningful cost savings beginning in the second half of this year with a larger benefit in 2027. We currently anticipate approximately $5 to $10 million in cash-based organizational transition costs through the remainder of the year, which are excluded from our adjusted earnings guidance. On the balance sheet, we continue to maintain a strong liquidity position and remain focused on disciplined capital allocation. During the quarter, we generated $10.6 million of operating cash flow and ended the quarter with $189.6 million of cash and cash equivalents. Total debt at quarter end was 213.7 million. We also returned $2.9 million to shareholders through dividends during the quarter. We did not repurchase shares, and ended the period with $137.3 million remaining under our current authorization. Looking ahead, our adjusted guidance reflects current business trends and our expectations for the remainder of the year. For the third quarter, we expect revenue in the range of $310 to $340 million, including an anticipated 2% to 3% foreign currency headwind. We expect reported earnings per share in the range of $0.00 to $0.09 or adjusted earnings per share of $0.10 to $0.20 cents. For the full year, we now expect revenue of $1.28 to $1.35 billion, including an anticipated foreign currency headwind of approximately 1%. We expect annual reported earnings per share of negative $4.90 to negative $4.73 or adjusted earnings per share of $0.70 to $0.90 cents. Our adjusted EPS guidance excludes certain first quarter charges, the second quarter goodwill impairment, anticipated second half organizational transition costs and the deferred tax valuation allowance. After these adjustments, our guidance reflects an effective tax rate of approximately 35%. Our outlook incorporates the continued adoption of our strategic initiatives as well as the expected benefits from our ongoing cost optimization and margin improvement initiatives. As we move forward, our focus remains on disciplined execution, improving profitability and continuing to invest in the initiatives that strengthen our business and position us for sustainable growth. And with that, operator will now open the line for questions.

[Operator Instructions] Our first question comes from Dave Storms with StoneGate.

I appreciate you taking my questions. I wanted to maybe start with India. Ryan, you mentioned that it's going to be pushed back a little bit. It sounds very intentional. Maybe you could spend a little more time talking about what you've learned and what you're doing, what the pushback should yield.

Yes, Dave, with respect to India, as we look to that market, clearly India is one of the most robust or more robust growing direct selling markets in the world, continues to report strong year-over-year growth across the industry, but it's also a very nuanced market. So as we've begun our exploration in Q4 of this past year, several of the key learnings that we've taken out of that include, one, how do we ensure Nu Skin's standard of quality for our products is maintained through local manufacturing partners? So how do we improve that and ensure that that's on par with our 6S Quality Process? Two, logistics in the market are unique and complex. So moving forward, how do we get the right partnerships that know the local market needs beyond maybe more of the global considerations as we go? Three, technologically, we have good partners there in our Infosys managed service provider, but how do we ensure that we integrate our systems effectively into kind of the government structure, payment systems, et cetera. So all 3 of those areas for us have been, we've been refining in the first half of this year and they're on track. What we want to do as we evaluate the model moving forward is to ensure that the actual business model, in other words, how our affiliates will grow the business in India based upon our first 6 or 7 months of learning that we optimize in order to enable better network building capabilities in the market. Every business is a little different. And India is as well. And so we just want -- we're taking this time now to refine the business model, make sure that it syncs well with local practices, commercial practices there to enable ourselves to build longer term more effectively. So we anticipate it being a first half opening. The market today, we are able to facilitate business in terms of products and building out our network, but in terms of actual opening, we want to make sure to have all of these elements dialed in most effectively, and the business model is where we're going to be focusing here over the next few months to get -- to ensure that we have that right.

That's great. I appreciate it. I also wanted to ask maybe a question around the sales force, and I wanted to ask it maybe through the lens of Prysm. With Prysm being maybe more of a wellness than a beauty product, does that open up the aperture of the profile of someone who could be maybe a sales leader? Or does that shift the focus of someone who could be a sales leader? It might be a little nuanced, but yes.