Nu Skin Enterprises, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the New Skin Enterprises Third Quarter 2020 Earnings Conference Call. At this time, all participant lines are in list 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Scott Pond, Head of Investor Relations. Thank you. Please go ahead, sir.

Thanks, Shannon, and good afternoon, everyone. Today on the call with me are Rich Wood, Chief Executive Officer, Ryan Napierski, President, and Mark Lawrence, Chief Financial Officer. On today's call, comments will be made that include 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. Please refer to our investor page at ir.newskin.com for any required reconciliation of non-GAAP numbers. And I'll now turn the time over to Rich.

Thank you, Scott. Good afternoon, everyone. Thank you very much for joining us today. Amid the global uncertainty of this pandemic, we are so pleased with the stability and the strength of our business driven by our global sales force and customer base. Our thoughts and appreciation continue to turn to first responders and all those who are giving their all to help us through these challenging times. And we recognize our own first responders, those in our supply chain, our manufacturing and support groups who are working around the clock to ensure our customers have product and our sales leaders have the support they need. The third quarter was truly a remarkable quarter for our business. Generally, we see a seasonal decline due to vacation during summer months in many of our markets. Rather, this year we improved sequentially, resulting in 19% year-over-year revenue growth and 37% EPS growth in the quarter. These results were driven by customer growth of 28% and sales leader improvement of 12%. Both enhanced by our socially enabled business model and the investments we have made in becoming a digital-focused company. A particular note is the sequential improvement in sales leaders as we prepare for our new product introductions here in this fourth quarter. Our results are benefiting from an environment where individuals around the world are working from home and shopping more online. These results are also being driven by our focus to grow customers, Thank you for joining us. We continue to provide an unrivaled opportunity for aspiring entrepreneurs to build a business with our unique and flexible compensation programs. Ryan will speak to each of these priorities in more detail. The effective execution of our strategy is spurring significant growth in our West region, consisting of the Americas, EMEA, and Pacific markets where social selling has been more widely adopted by our sales force. Mainland China continues to stabilize with sequentially improving revenue, customers, and sales leaders, and we remain on track for a return to year-over-year growth in China in the fourth quarter. Each of our other regions reported modest growth. I am very encouraged with the improving geographic balance of our global business. Our manufacturing business has also performed well, reporting 34% revenue growth in the quarter, And we're continuing to see strong demand from many customers. Our manufacturers are also providing significant benefits to the new skin business as we continue to work through the supply challenges associated with COVID-19. We see tremendous potential in this segment moving forward. We continue to lean in also on our sustainability efforts. This year, we've been particularly focused on our top 20 products. analyzing their environmental impact and making sustainable changes that are measurable. For example, our newly introduced Nutri-Essentials line was awarded several Global Green Beauty Awards for its cleaner formulas and more eco-friendly packaging. And this is just the beginning of some exciting news and new ways we're improving the impact we have on the planet. We generated very strong cash from operations in the quarter and continue to strengthen our balance sheet. Thank you. Thank you. Thank you. And we believe the momentum we're generating now will help set us up for an exciting 2021. With that overview, I'll turn the call over to Ryan.

Thanks, Rich. Good afternoon, everyone. Over the past three years, we've been executing our strategy to transform Nu Skin to become the world's leading opportunity platform. Direct selling, which has traditionally relied heavily on face-to-face, word-of-mouth marketing, is currently being impacted by the convergence of social commerce, Influencer and Affiliate Marketing, and the Growing Gig Economy. These macroeconomic shifts have also disrupted traditional advertising and retail business practices in favor of socially enabled and directed consumer models. Most recently, due to COVID-19, the migration to remote work and online shopping has further accelerated disruption across all industries. These shifts in the way people live and work present us with a unique opportunity to amplify the strength of our person-to-person sales model as we evolve to become a digital-first, socially-enabled affiliate opportunity platform. The power of word-of-mouth marketing has always been at the backbone of our business, and together with these converging macro trends, we are seeing a new horizon of growth for Nu Skin as our affiliates grow their businesses online at an accelerated pace. To enable this transformation and empower our leaders, affiliates, and customers, we continue to make significant strategic investments in our digital platform, our innovative product portfolio, and our empowerment programs. These investments are crucial to ensuring the long-term growth of Nu Skin, and I'd like to provide you with a quick update on each of them. First, regarding our digital platform. As we've transitioned to the cloud, we've expanded our ability to access a host of microservices that are now enabling us to provide an enhanced online customer experience and digital tools to empower our affiliates and customers. These tools are designed to enable affiliates to focus on attracting new customers and developing their teams. We're in the process of rolling out Vera, our personal recommendation app, and my site, our personal offer app, which empower our affiliates to build their businesses socially. Today, approximately 90% of our revenue flows through our digital properties. Second, we continue to refine our approach to product innovation as we seek to provide customers with products that help them look and feel their best. We're excited about our latest beauty device system, Ageloc Boost, which generated $30 million during the third quarter as we accelerated some early top leader previews in a few of our markets. The U.S. and EMEA are leading out with Nutri-Central's bioadaptives, which is targeted towards the millennial and Gen Z customer segments. We anticipate $70 to $80 million of sales from these new product previews in Q4 ahead of the full launch in 2021. Third, we continue to expand and refine our programs that provide an opportunity for people everywhere. The gig economy has disrupted traditional industries as people seek new or additional ways to supplement their personal or family incomes with greater flexibility to work at their own pace and in their own environments. This approach is new and unfamiliar for many companies, but it's not new to us. Our velocity sales compensation plan and Enjoy Rewards programs that were rolled out over the past two years continue to perform well, supporting the accelerated growth in both customers and sales leaders that Rich mentioned. Our long-term strategy has contributed to our strong global results over the past few quarters as we build on a track record of improving performance around the world, which is evident in the result of each of our major geographies. Over the past three quarters, we've seen an improving geographic balance with accelerated growth from our West markets, which now make up 30% of our business, as our affiliates have embraced this socially enabled business model. The Americas and Pacific grew by 90% in constant currency, with customer growth of 92% and sales leader growth of 86%. A key contributing factor of this growth has been a strategic relaunch of our U.S. business, that we spoke about a year ago and have referred to as Discover the Best U.S. We also generated significant growth in Latin America, particularly in Chile, where sales leader and customer growth is driving strong revenue trends in these emerging markets, which now account for more than 5% of global sales. We see great potential for continued growth in this region. EMEA also reported high double-digit growth of 67% in constant currency and This is supported by 59% growth in customers and 53% growth in sales leaders. We are seeing growth throughout the region, led by the UK, Poland, and South Africa, attributing to further adoption of this socially enabled business. We also experienced improvements in Japan and Korea, where both markets grew modestly and are trending in the right direction. South Korea showed encouraging progress reporting local currency revenue growth of 5%, driven by an increase in sales leaders due to the anticipation of the boost's launch. Japan continued to show favorable local currency growth of 4% and sales leader growth of 9%, driven by an increasingly younger sales force. In Greater China, we're pleased with continued stabilization as the business has been on a long-term recovery following last year's setbacks in mainland China. Mainland China reported a moderate local currency decline of 4%, but continued to show sequential improvements across the business as we transform to a digital-first approach and reduce our reliance on in-person meetings. With two consecutive quarters of sequential growth in our sales leaders and customers, combined with an upcoming product preview, we anticipate a return to revenue growth in the fourth quarter. Hong Kong and Taiwan were even with the prior year and had an encouraging leader preview of age lock boost, giving us optimism that these markets are moving in the right direction. Southeast Asia also reported constant currency revenue growth of 8% due in part to a successful virtual convention, which generated excitement in anticipation of the upcoming boost previews. Customers were up 12% and sales leaders grew 5% over the prior year. We're encouraged by the adoption of our socially enabled business model in key markets like Indonesia and the Philippines and are looking forward to a successful boost preview throughout Southeast Asia in the fourth quarter. So in summary, we're pleased with how the business continues to perform amidst the uncertainty in the broader global marketplace. Our ongoing investments are enabling us to transform our business from a traditional direct sales company into a socially enabled, digital-first affiliate opportunity platform. We believe that the world needs what we have to offer, and we're committed to our mission of scaling this business to empower as many people as possible as we work to become the world's leading business opportunity platform. And with that, I'll turn the time over to Mark.

Thanks, Ryan. I would provide some additional color regarding our financial results, give Q4 guidance, and update our full year 2020 outlook. As a reminder, you can find additional financial information in our release and the supplemental slides and tables on the investor section of our website. Third quarter revenue and earnings per share came in above the top end of our prior guidance. Q3 revenue was $703.3 million, with a negative foreign currency impact of less than 1%. Earnings per share for the quarter were $1.08. Gross margin for the quarter was 73.9% compared to 76.2% in the prior year quarter, with Nu Skin gross margin moving from 78.6% in the prior year to 76.3% this year. Gross margin was lower largely due to two factors. First, freight. The significant sales increase in some of our markets required us to expedite product to keep in stock. The expedited freight increased coupled with incremental shipping costs associated with COVID-19 amounted to approximately $9.5 million and impacted gross margin by more than 1%. Second, our geographic mix is shifting due to the strong growth in the West region. The West has lower average gross margins than the East due to its product mix and pricing dynamics in the emerging markets there. While the growth in the West weighs on gross margin, that impact to the P&L is largely offset by the lower tax rate generated by the increased profit from those markets, specifically the U.S. Selling expense as a percent of revenue was 39.9%, compared to 39.3% in the prior year. Selling expense for the NuSkim business was 42.4%. compared to 41.5%. As we have referenced in the past, selling expense increases as the number of qualifiers for incentive increases due to strong revenue growth. This is also reflected in our sales leader count, which increased significantly. General and administrative expense as a percent of revenue was 23.5% compared to the prior year of 25.1%. Our operating margin for the quarter was 10.6%. The other income expense line reflects a $500,000 gain compared to a $5 million expense in the prior year. During the quarter, we generated $118.4 million in cash from operations, paid $19.2 million in dividends, and repurchased $20 million of our stock, with $342.8 million remaining in authorization. We also reduced our debt by $72.5 million. Our financial position remains strong, and we are confident in our ability to maintain adequate liquidity and flexibility to successfully navigate this current crisis, pursue our strategic plans, and return value to our shareholders. Our tax rate for the quarter was 24.7%. benefited significantly by increased U.S. profitability, as mentioned earlier in my comments. Ryan spoke earlier about our digital transformation, and it is worth noting that we are applying this in all aspects of our business. For example, we have deployed AI-powered predictive analytics to rapidly adjust product forecasts around the world, enabling us to better allocate our supply. This key ability has helped us respond to surges in product demand and also become more efficient with our inventory levels in which our terms continue to improve. Due to our strong third quarter results, strengthening trends, and the upcoming product introductions, we are increasing our annual revenue guidance by approximately $150 million. Our fourth quarter revenue guidance is $720 million to $750 million, including $70 to $80 million of anticipated sales from new product introductions. Earnings per share guidance is $1.10 to $1.20. This assumes a positive foreign currency impact of approximately 1% and a tax rate of 26 to 31%. Our 2020 annual revenue guidance is $2.55 billion to $2.58 billion with earnings per share of $3.35 to $3.45. This guidance assumes a negative foreign currency impact of approximately 1% and a tax rate of 27% to 30%. With that, we will now turn the call back to the operator. Four questions and answers.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Steph with Jefferies. Your line is open.

Thanks. Good afternoon, everyone. Two questions for you, if we could. The first is just on the significant growth you've seen in your customer counts. As you prepare for the launch of Boost, can you talk a little bit about your marketing agenda, how you expect maybe to approach the end market slightly differently than you did with Lumispage as a comparison? And then the second question, Mark, really for you is just in the increase in guidance, anything over and above the increase in the launch that's embedded in the guidance, or are you seeing a lift to your underlying business as well, so a bit of a tethering effect in anticipation of the launch but also in the underlying business? Thank you.

Yeah, Steph, maybe for the first question that's right, I'll take that. Yeah, the customer growth that we're seeing right now, we're particularly pleased. The customer growth is coming largely through this socially-enabled business. Now, applying the boost global previews in Q4 and into the main global launches in first half of 2021, We'll deploy a very similar model to how we deployed LumaSpa in those local launches will happen in the first half. I think that socially enabled model, we anticipate, will continue to foster that customer growth.

Yeah, and Seth, to follow on to your question around the guidance for the fourth quarter, our number is really driven by Assuming that the trends that we saw in Q3 would continue into Q4, and as you noted in our comments, we did $30 million of boost in the third quarter, and we're anticipating an additional $70 to $80 million in the fourth quarter. So you can add that incremental number of 40 to 50 of boost versus what we did in the third quarter to get to our number of our guidance.

Okay, thank you.

Thanks, Steph.

Our next question comes from Wendy Nicholson with Citi. Your line is open.

Hi. Good evening. I had a couple questions. First is with regard to, you know, the evolution of the business to take advantage of this gig economy, which on the one hand makes total sense and it's fantastic, but my question is what's your confidence in, that the people who are coming in to sell Nu Skin products now are going to get. I mean, the whole idea of a gig is you do it, and then you go on to the next. And so I'm reiterating, you know, because we're seeing this type of elevated activity at several print direct sellers right now, and I'm just kind of humanly sure that we're sitting here from now to spend retention and crash your sales force.

Thank you very much, Wendy, for that question. I'll speak to it and Ryan can add on. It's an exciting opportunity really to participate and expand the potential of our sales leaders. They have an opportunity to reach to a lot more customers. The key, I think, really is allowing them to progress through our sales leader pipeline, so allowing them to begin to earn commissions, build an organization, and start to really be successful in that way. We keep them through our recognition programs, through an ability to continue to compensate them and have them continue to feel like there's upside in building their business, a steady flow of new products that are launching, as well as customer rewards programs. So it's a fairly broad approach that we take in terms of helping somebody start as a customer and then progress all the way to a successful sales leader. But clearly, with a lot more people coming in, that's an area that we have to focus on and continue to get better at is this idea of retaining and motivating our sales force.

Yeah, and I would just add, Wendy, that what's unique about our type of model is that it isn't a traditional gig in that, to Rich's point, our model enables those additional opportunities And so through our sales compensation program, Velocity, we do provide that gig-like opportunity of sharing or selling products, but there are abilities to build teams of sharers as well as lead organizations. And so it does provide a more sticky framework than a traditional gig model does. And I think just based upon our historical context, you know, this is really where Nu Skin has excelled over 35 years. And so in a way, I feel like the gig economy is a foray or an entry into what we've always known. But I think to Rich's point, our focus is to ensure that that leader pipeline or the shares come in and those gigs that come in are able to find more opportunity through these advanced programs that traditional gigs do not offer.

And do you have a sense for the people who are coming in now, do you have any sense for the demographics in terms of, I assume they're probably younger, but do you have any sense for whether they are maybe former Nu Skin sales, or are they just all new?

Yeah, with this acceleration, we're definitely seeing an acceleration from a demographic side of, Predominantly female, younger demographics than we've traditionally seen. But I would say if we were to track back over 2016, 17, 18, there's just been a progressive trend towards this direction. And so it's not something that's happened in the last quarter or two quarters. It's been three or four years of progression to a younger sales force. Again, skewing more to the female demographic.

Fair enough. And then just one quick question, if I can. Thank you so much. On the gross margin, I totally get the headwind from MIPS, which is offset by tax, so that's fine. But just on the freight issue that you called out, I mean, it looks like headwinds from a freight expense perspective might be with us for some time to come. So, Should we just expect there to be gross margin pressure from freight for a while, or do you think you can raise prices, or is this really just a COVID thing that regardless of the freight environment, as we get a more normalized business environment, you won't have to do as much expedited shipping?

Yeah, it's a really good question and one that we've looked at a lot. We're always going to look for ways to improve our freight. We're putting more products on ocean versus air. And so we will get some benefits there. I do think the fourth quarter is going to be particularly challenging with freight as we enter the holidays and we've all seen the news on what's going to happen with freight and the challenges that will be there. So we'll certainly experience some freight pressure in the fourth quarter. I do think it will extend into next year, but we'll do what we can on our part to get more product to our sales leaders through less expensive methods.

Thank you so much. Oh, sorry.

Yeah, I was just going to add, Wendy, that there's A portion of that freight is just trying to keep the product in stock. That issue, we're getting our arms around that, and we've been able to catch up with the supply chain. The COVID issues related to the supply chain in terms of actually building product and having packaging and so forth to do it, those are starting to loosen up a little bit. We're getting our arms around the expediting issue. It's really the other freight that will continue to lag into next year and You know, be something we'll just have to continue to work through and figure out the best way to figure out how to get our margins back to where they need to be. Fortunately, there are other things that we can do. We can leverage our overhead and so forth. So we're still shooting for a 13% operating margin over the coming couple years and believe that that's, you know, right in our sights.

Thank you.

Thank you. Our next question comes from Cesar Alway with Deutsche Bank. Your line is open. Yes. Hi. Thank you.

So a few questions for me. First, I just wanted to talk about, you know, this extraordinary growth that you're seeing in the West region and why you're not sort of seeing a similar type of growth, you know, across Asia. And, you know, I know in China you have a different model. But I'm wondering if you can sort of maybe philosophically talk about what the differences are and, you know, why there's a growth in the West and that you're not seeing that in the Eastern markets.

Yeah, maybe I'll answer it and Rich can add on if you'd like. Yeah, so, and you've followed the company for quite some time and, you know, historically the company's done very well at in Asia through that more traditional direct sales model and has been lagging a bit in prior years in the West. What we're really seeing from the social side is that there's a new and emerging leadership group throughout the West that are really socially inclined, as I mentioned earlier, younger demographics coming in. We're starting to see those same elements appearing in Japan, for instance, in some of our Southeast Asia markets, and we're seeing pockets as well in greater China. And so from our point of view, it's more of a transitory or transitional process where the traditional model is a little more strongly rooted in Asia than the social model. But we're seeing the migration happen. And as a company, we're fairly overt in identifying best practices and sharing best practices across our market segments. And so we are seeing that migration evolve. Also on our digital platform, we're ensuring that those tools that we're building are being deployed out so that those leaders, socially emerging leaders in Asia, are able to take advantage of the model as well. And so it's more of a transitional process to answer the question.

Okay, great. And then if I could just ask about the manufacturing business, I mean, clearly there's –

We've seen very strong growth.

How should we think about the growth in that business going forward? Where are you in terms of capacity in that business? Is there a ceiling, and do you expect to maybe invest more in manufacturing going forward? Just a little bit in terms of how you're thinking about that business.

Yeah, great. Thanks, Faiza. Manufacturing business was an initiative we leaned into about three years ago with the real desire that we felt like we could secure our supply chain better for our own business, that we could speed up our go-to-market opportunities with different products and innovations. And then, at the same time, we could really participate in an opportunity where there are a lot of companies growing and taking advantage of manufacturing, so we would benefit from sales Thank you very much. I think somewhat from COVID as some of their customers are benefiting from COVID, but then a lot of new customers as well. So we see the demand continuing to go. Are there areas we can lean in? There are certain areas that our manufacturers don't provide for new skin. For example, powders and stick packs, things like that is not a capability that we have today in our current manufacturing partners. So We'll continue to look for opportunities where we can really gain synergistic benefits in the new skin business. That's really the first and foremost decision we make. And then with an opportunity to continue to expand the manufacturing segment. So really twofold in terms of our expansion philosophy. The first is to drive more success into the new skin business. And then secondly, to look at expanding the segments.

Okay. And then if I may just ask, I might have missed this in your comments, but the $30 million in boost sales, were those in a particular region? I don't know if you broke that out by region.

We actually didn't break it out on the comments, but about half of it was in the greater China region, a little bit more than half, and then spread around really the rest of the world.

Okay. And then the incremental that you're expecting for 4Q, that's global, or is that a particular region where we should expect that to be in?

It's generally global. However, we're not launching boost in EMEA or in North America. So those boost sales will generally come next year in those markets. So it's more Asia-focused in the fourth quarter than inclusive of the EMEA and North America markets.

But you're launching the nutraceutical bioadaptive, right, in EMEA and North America? So that's included in that incremental $50 million?

Yeah, that's correct. Yeah, that's correct. It won't be as big of a launch. It's a relaunch, so it won't be the same sort of pop that we get from Boost, but we do anticipate that it will be a nice new product that the sales leaders will be excited about here as well.

All right, great. Thank you so much.

You bet. Thank you, Faiza.

Thank you. Our next question comes from Olivia Tong with Banks of America. Your line is open.

Great, thanks. Good afternoon. So lots of new sales leaders and customers, particularly in the U.S. and much in Europe, and that's obviously accelerated pretty nicely this year. So a few questions there. First, with all – All these new people, these people who are new to the brand, I'm a little surprised that you don't see more acceleration and growth from Q3 to Q4. Like obviously Q3 was very, very strong, but the sequential acceleration is a little bit lighter than I would have anticipated given the strength of Q3. So can you just update us a little bit on your expectations there? And within that, why are you waiting to launch Boost in Europe and North America? Thanks.

Yeah, good questions, and we're really, really encouraged with what's happening in our West market. A lot of times with our business, we'll see a real strong push as there's a lot of excitement, and then it will consolidate to some extent and get another push. The growth into Q3 from Q2 continued to be really strong, but obviously not the same acceleration we saw in Q2. Q4, we'll probably see a good strong quarter as we continue to have new products. We have Black Friday promotions in those markets and so forth that have been successful. So we'll continue to push. There's great opportunity because we're relatively small, I would say, in these large direct selling markets in the West. We think there's great potential as we continue to go forward and as the sales leaders continue to learn the business and the better ways to be effective in how they take our products to customers. So Exciting opportunities there, and we think that growth, you know, is something that we can continue to sustain as we move forward.

And then on the boost, you had asked about, Olivia, the boost timing for North American EMEA. That's really a product registration timeline, and so we've supplemented the bioadaptive, NutriCentral's bioadaptive, launch in place of the boost this year, and then as those products are registered next year, they'll roll out there.

Got it. That makes a lot of sense. And then just following up on Wendy's question about how to hold on to all these new sales leaders when traditional work opportunities come back, are you making any technology investments or compensation enhancements that will help them stay for longer?

Yeah, I think that's really been at the heart of our digital strategy, Olivia. So, yes, absolutely. Our focus is all around providing these new leaders with the tools, the capabilities to run their businesses. Our goal, of course, is to empower them with a flexible opportunity. And we feel like these changes we've made over the last two years with the Velocity model – Coupled with these digital tools, we're able to provide a home for them to – a flexible home for them to build their businesses on their terms here. And so that's major focus behind what's driving our digital strategy.

Got it. And then just lastly, a question on selling expense. I'm a bit surprised that the expense relative to sales increased less than it did in Q2, despite the fact that your sales clearly accelerated more dramatically. So – Usually, I mean, we see this ratio increase as sales growth improves since your sellers are hitting new payouts. So is this just a function of you just have a lot of new sellers, right? So, you know, they're just, you know, they're not necessarily increasing their basket size. It's just a lot more people who are buying. And if that's the case, can you just talk a little bit about what drives more sustainable growth in your view? Is it more about adding more leaders and customers who drive that sales? for increasing the basket size across the board.

Yeah, from our perspective, the sustainability of growth really is driven by a customer and sales leader growth that match each other. Sometimes we'll see, and particularly what we've seen as social selling has picked up, is we'll see a fast increase in customers followed by a sales leader growth that then supports that customer growth. But in order to be successful, for example, as we look at a Q4 launch of new products here, we have to be able to drive a bigger customer base and a larger sales organization. And that's what sustains the growth going into 2021. So as we execute our plans and everything that Ryan talked about as we build up to this launch, it's allowing sales leaders to qualify and then participate in And then I would just say as the sales expense, it will fluctuate. Sometimes as a lot of new sales leaders come in, we'll see that expense push up just a little bit as people qualify for different rewards, incentives, benefits, and so on. And so forth. And then it'll settle down as the sales leader number settles down as well. So it fluctuates as much as 100 basis points here from quarter to quarter, but generally will settle right back down around the 42% range.

Great. Thank you.

Thank you.

Our next question comes from Doug Lane with Lane Research. Your line is open.

Yes. Good afternoon, everybody. Rich, staying on that, I know that you've worked a lot over the last few years to shift your marketing focus from the sales leaders right to the direct consumer, to your end user. Can you explain that dynamic? Because this is a little unusual. If I understood your last answer, you're actually looking to build a customer base that will then drive increase in sales leaders, which is kind of counterintuitive to how it used to be. So can you clarify that just a little bit on what the strategy shift is there?

Yeah, I think three and a half years ago or so, as Ryan and I put together our strategy to build the business, we really felt like social, the power of social and the gig economy allowed us to reach out to a lot more customers than we had ever done in the past through word-of-mouth marketing. And so we really built a strategy around these three Ps, the program, the product, and the platform, in terms of opening that funnel to be able to talk to new customers. And so we really shifted in terms of how we present our products, our pricing strategy to some extent, the compensation structure through velocity to reach more and more customers and to be able to allow more and more people to benefit through a sharing program, very similar to what an affiliate receives. So Yeah, we really focused on the customer. We continue to be very focused on the customer. In fact, it's one of our three tenets to be customer obsessed, and we'll continue to focus on that going forward. And we see today a broader number of customers per sales leader. We're doing more and more to capture data around our customers and leverage that to help our sales leaders be more effective, and that really is key to our success going forward.

So the customer number that you give, each one of those customers has a sales leader. They're not independent sort of channels. It's not like an e-commerce business and a direct selling business here.

They are interacting.

But the point is, with the customer growth that we've seen the last two quarters in the upper 20%, if things go well, then we should see sales leaders come up, not the customer number come back down to where the sales leaders are. Do I understand that right?

Yeah, that's exactly right. They are all purchasing from the company generally, but they all are connected somehow to a sales leader who's the one who introduced them to the business. So that's correct. And those two numbers come together. Generally, we've seen some increased number of customers per sales leader, which would tend to drive the customer number a little bit higher than the sales leader growth, but generally those will come back in line with each other.

Okay. Thank you.

Our next question comes from Mark Espartan with Stifel. Your line is open.

Thanks, and afternoon, everyone. Hey, Mark. I wanted to ask about the thoughts or how you're thinking about the ability to sustain this momentum that you have in the business when lapping some of the lockdowns and peak COVID impacts. Thank you very much. You've been coming out of that period, so I guess is there anything to read into that for the rest of the world next year?

Yeah, great questions, Mark. Thanks for those. The COVID impacts have sort of been staggered all around the world. It's interesting that, for example, in Southeast Asia right now, in Malaysia, there's quite a lockdown. You know, it just has seemed to sort of ebb and flow market to market around the world. What we've really, really focused on is Getting better and better at working remotely, at providing digital tools that allow our sales leaders to do their training, to hold their meetings, to contact their customers, and be more effective. Because we believe that's the way the world needs to shift anyway, and specifically to China, where our business was always driven through meetings. And for whatever reason, those meetings would be restricted from time to time. Our focus over the last two years has really been to develop additional technology which would make us less dependent on in-person meetings and more and more effective leveraging technology. So as we start to lap these numbers, I really, really like our product lineup for next year. As you know, the West will be launching the Boost product in the first half. The other markets in the first half will be introducing the NutriCentral line. And then we have a strong product lineup for the back half of the year, which will roll out at the beginning of the year. We haven't laid that out in front of our sales leaders yet, but we've got a good product pipeline. We'll continue to focus on driving customer growth, which we think will continue to drive sales leader growth as we go forward. This year's growth has all been done without, like you mentioned, without China. We do anticipate China will have a nice fourth quarter. With the launch of Boost, and that should generate energy, which will help the business next year in China and allow China to hopefully participate in this growth excitement that we're seeing around the world. So we think we've got very good plans to continue to drive growth in the business and see great potential.

Yeah, and I would just add, Mark, that for us, COVID has really given us an opportunity to really lean into the digital-first approach. As we talk about laughing some of these year-on-year comps, from a business model perspective, we're just leaning full into digital-first. While there's going to continue to be uncertainty in various forms around the globe, our focus will be very directly on this digital-first approach. We feel, while the world around us is somewhat tumultuous, From a strategy perspective, it's just very, very clear what we have to do. I mean, we have to go digital first. In China, we'll continue to go digital first. That's really the focus. And so, you know, I think as we continue to lean in, we continue to align our investments there, we'll have a greater ability to sustain growth and to proliferate it in some of these markets that have been lagging, you know, like China, that was more reliant on that person-to-person approach or face-to-face approach, I would say. Thank you.

Thank you, Mark. And it looks like that's all of our questions today. Thanks to all of you for joining us and for your interest in our company. We look forward to speaking with you soon and wish you all a good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.