Q3 2026 NU SKIN ENTERPRISES EARNINGS CONFERENCE CALL - NU SKIN ENTERPRISES INC

Financial Performance:

• Q3 2026 revenue reached $311 million, within guidance, with a 1.1% foreign currency headwind ($3.9 million).
• Reported EPS was -$0.02; Adjusted EPS was $0.10, both meeting guidance ranges.
• Gross margin declined to 65% (Q3) from 70.5% (prior year) due to revenue mix shifts between Core and RISE businesses; Core NuSkin gross margin was 76.6%.
• Selling expense as a percentage of revenue decreased to 33.2% from 35.8% (prior year); Core selling expense targeted at 40%.
• General and administrative expenses dropped by $10.9 million YoY to $30.2 million (30.2% of revenue).
• Adjusted operating margin was 3.7% compared to 5.9% in the prior year.
• Balance sheet health remains solid with $164.9 million in cash and cash equivalents; total debt reduced to $203.7 million.
• Returned $2.9 million to shareholders via dividends; $137.3 million remaining under share repurchase authorization.

Guidance and Future Outlook:

• Q4 2026 revenue guidance set between $310 million and $340 million, including a 1% foreign currency tailwind.
• Q4 Adjusted EPS guidance ranges from $0.11 to $0.21; Reported EPS guidance ranges from $0.05 to $0.15.
• Full-year 2026 revenue guidance revised to $1.26 billion – $1.29 billion, including a 1% foreign currency headwind.
• Full-year Adjusted EPS guidance set at $0.55 – $0.65, excluding non-cash goodwill impairment, deferred tax valuation allowance, and ~$5 million in transition costs.
• Management anticipates sequential revenue growth in Q4 driven by holiday engagement.
• Strategic focus for 2027 includes advancing anti-aging platforms, strengthening the sales channel, and formalizing the India market launch.

Business Segments and Product Lines:

• RISE manufacturing platform delivered exceptional year-over-year revenue growth.
• Prism.io platform (integrated anti-aging technology) has deployed ~41,000 devices globally with 4.5 million scans completed by Q3 end.
• App version 2.0 integration of AI intelligence doubled the scan-to-purchase conversion rate to 10%.
• Flagship supplement LifePak sales grew nearly 3% year-to-date.
• New product pipeline for women's health scheduled to begin mid-2027 rollout.
• Operational restructuring into an "East-West" model to align manufacturing hubs (US for West, China for East) with regional market needs.

Market and Competitive Landscape:

• Sales channel transformation focuses on shifting from traditional wholesale to social media-driven direct transaction models.
• India market identified as a high-potential long-term opportunity; formal launch planned for H1 2027 following pre-marketing learnings.
• 12,000 sales leaders attended the global convention in Yokohama, Japan, to preview innovations and drive engagement.
• Management emphasizes that short-term incentives are less effective than sustained programmatic approaches for channel rebuilding.
• Market pressures noted in core business require a focus on simplifying organization and improving productivity.

Risks and Challenges:

• Core business faces ongoing revenue and customer/sales metric pressures.
• Gross margin compression observed due to current revenue mix between Core and RISE segments.
• Foreign currency fluctuations present ongoing headwinds/tailwinds affecting revenue recognition.
• One-time organizational transition costs of approximately $5 million expected in Q4 related to the East-West model implementation.
• Non-cash charges (goodwill impairment and deferred tax valuation allowance) impacting reported full-year EPS guidance.

Management Commentary and Tone:

• Tone was cautious yet confident, emphasizing disciplined execution, cost control, and long-term strategic positioning.
• Management expressed encouragement regarding the Prism.io platform's potential to deepen engagement and drive recurring consumption.
• CEO highlighted the dedication of the global sales force and the necessity of the company's mission in the current market.
• Leadership transitioned focus from short-term promotions to systemic capability building and leadership development.

Analyst Questions and Answers:

• Incentive Structure: Management clarified that the focus is on long-term capability building and updated compensation/incentive roadmaps rather than short-term promotions, aiming to align incentives with customer acquisition over team building.
• Prism.io Saturation: Management indicated the 10% conversion rate is in early stages (post-August v2.0 update); with 4.5 million scans across 41,000 units, significant room for growth exists as AI algorithms better personalize recommendations for diverse consumer needs.
• Sales Expense: Management reaffirmed 40% as the target selling expense level for the core business, citing it as the appropriate balance for cost structure and investment.

Other Key Points:

• Leadership development initiatives included sessions with industry expert Eric Worre and a mastermind event for 2,000 top sales leaders.
• The East-West operating model aims to improve gross margins, speed to market, and fixed cost optimization by localizing manufacturing.
• The company remains committed to the "RISE" platform as a key driver of operational success alongside the core NuSkin business.
• The effective tax rate for the full year is anticipated to be approximately 39%.