Nu Skin Enterprises, Inc.

Mind360 is built to serve customers who are seeking support for stress management, cognitive performance, and sleep in this rapidly growing $9 billion global cognitive health market. Second, we discuss plans to enhance our overall brand awareness, announcing our integrated brand building plans as we strive to build greater presence wherever our customers seek to find us, including enhanced digital marketing and third-party marketplaces like Amazon. Improving overall brand awareness will lead to greater engagement and conversion for our customers and affiliates as we build synergistic value in the marketplace. And third, we announced our increasing efforts and focus to further penetrate developing and emerging markets around the globe, beginning with revised operating models in Latin America and some Southeast Asia markets beginning the second half of this year. Developing markets represent more than half of the markets in which Nu Skin currently operates and are significantly underrepresented in revenue and operating performance. Our revised operating plan will include a more localized product portfolio and business model that will enable us to reach a broader demographic than historically feasible through our current business model in these markets, as well as streamlined operations. We will leverage these learnings as we prepare for our previously announced exploration of the India market. Our team is very focused on building successful developing and emerging market business models that will take Nu Skin's mission of being a global force for good by empowering people to improve lives to new markets around the world. Shifting next to Rise, as I mentioned previously, Rise continues to perform at an accelerated pace as we invest in build and scale these businesses towards long-term integrated beauty, wellness, and lifestyle ecosystems. RISE is made up of several businesses ranging from technologies, manufacturing, and more recently, brands. Every investment in RISE holds synergistic value to the other businesses in our ecosystem and play critical roles in our long-term vision and strategy. One critical business within Rise is Maverly, our everyday influencer platform that connects more than 70,000 affiliates to over 1,200 beauty, wellness, and lifestyle brands in the United States. Maverly is rapidly becoming a leading affiliate brand platform, leveraging technology that enables brands to access our army of everyday influencers to share their brands via social media. Leveraging machine learning and working to implement next-generation AI, Maverly curates brands for its affiliates to share via social media, simple, fast, and easy. And we're leveraging the Maverly platform to develop a new skin Maverly app instance that will enable our affiliates to share new skin brands more easily while gaining access to hundreds of other brands to promote and share. Additionally, Maverly enables the promotion of other Rise brands such as Beauty Bio to Maverly affiliates. We anticipate that affiliate marketing will continue to outpace virtually all other forms of advertising and promotion, and we believe that our approach to integrated affiliate marketing via Maverly will become a more meaningful player in this rapidly shaping industry. In addition to Maverly, the benefits to vertical integration across manufacturing and our owned and partnered brands enables us to accelerate product innovation, and speed to market as we move more quickly to keep pace with consumer trends in beauty and wellness. Rise also provides us optionality to drive brand awareness and engagement, meeting more consumers where they discover and shop. We continue to invest in Rise as a critical innovation accelerator for our overall enterprise transformation strategy. Leveraging the expertise of companies within Rise has been instrumental in accelerating our innovation agenda in product and device research and development, sustainability, and supply chain capabilities. We'll continue to expand on this and share progress with you in the coming quarters. So in summary, our enterprise transformation remains on track with second quarter results in line with guidance and at the halfway point of 2024. We've continued to demonstrate our ability to adapt to challenges and deliver within expectations. We're focused on accelerating innovation across our Nu Skin core business with our Mind360 product division, an enhanced business model for developing and emerging markets, and integrated brand building efforts. We're also investing in key enterprise growth initiatives, including Maverly and several other businesses in RISE, which continue to deliver strong growth. We have a long runway into the future and provide us with synergistic tools and capabilities that we can leverage across the enterprise. Operationally, we continue to focus on managing costs and driving efficiencies throughout our ongoing transformation. Despite the persistence of macroeconomic headwinds, we remain focused on executing our long-term vision of becoming the world's leading integrated beauty, wellness, and lifestyle ecosystem. So with that, I'll turn the time over to James to cover second quarter results in more detail along with our guidance, and then we'll open it up for questions.

James. Thank you, Ryan. Thanks to all of you for joining today. I'll provide a brief Q2 update and then speak to Q3 and 2024 guidance. For additional details, please visit our investor relations website. For the second quarter, we posted a revenue of $439.1 million, which was at the midpoint of our previous guidance range and included a slightly larger than expected negative foreign currency headwind of 4.2%, or $21 million. Reported earnings were negative $2.38, or 21 cents excluding restructuring and impairment charges. Our gross margin was 70% compared to 72.9% in the prior year quarter. Our overall gross margin continues to be impacted by growth in our Rise business, which carries a lower gross margin. Gross margin for the Nu Skin Core business was 76.1% compared to 77.2% in the prior year quarter. This decline in margin can largely be attributed to the geographic shift of revenue in the core and fixed overhead costs on lower volume. We're accelerating our SKU rationalization project and expect to see sequential improvements in gross margin with an approximate 20% reduction in our overall SKU count by the end of 2024. Selling expense as a percentage of revenue was 37.7% compared to 37% in the prior year quarter. For the NuSCAN core business, selling expense was 42.2% compared to 40.2% in the prior year period. Our core Nu Skin selling expense typically ranges between 40% to 42% with a slight increase mainly attributed to enhancements made to the compensation plan targeting customer and affiliate acquisition. General and administrative expense declined nearly $20 million due to the continued execution of our cost efficiency program related restructuring activities in the quarter, and bringing overall operating costs more in line with current revenue levels. As a percent of revenue, G&A for the quarter was 26.9% compared to 27.4% in Q2 2023. Over the past several years, our core Nu Skin business has faced challenges due to global economic downturns, the rising cost of capital, and overall direct selling industry pressures. These factors have contributed to a depressed market valuation which resulted in a non-cash goodwill and intangibles impairment of $141 million, mainly across the Nu Skin reporting units. Additionally, in the second quarter, we incurred $8.4 million in restructuring charges and plan to extend our restructuring program as we continue to evolve our operating footprint as we transform our business. Our operating margin for the quarter was negative 28.6% or 5.4% excluding restructuring and impairment charges compared to 8.5% in the prior year quarter. Interest expense was $6.7 million for the quarter compared to $5.8 million in the prior year. The other income expense line reflects $0.6 million of income compared to $0.4 million of income in the prior year quarter. In the second quarter, we continued to make strides in our inventory management and portfolio optimization plan, which helped generate healthy cash flows from operations of $51.2 million, which also generated free cash flow of $43.1 million in the quarter. We paid $3 million in dividends, paid down $25 million of our outstanding debt during the quarter. We did not repurchase any stock and have $162.4 million remaining on our current authorization. Our tax rate for the quarter was 10.2% or 41.4% excluding restructuring charges compared to 27.5%. For both the third quarter and the year, we anticipate an adjusted tax rate of 36% to 42%. This annual rate reflects an anticipated higher global effective tax rate primarily due to the expected geographical mix of our earnings. Shifting attention now to guidance, based on our first half performance in 2024 at the midpoint of our prior guide, increased FX pressure and the current state of the business, we are tightening our annual guidance. We now expect 2024 revenue in the $1.73 to $1.81 billion range with earnings per share of negative $2.01 to negative $1.81, or adjusted earnings of 75 cents to 95 cents. Our guidance now assumes increased foreign currency headwind of approximately negative 4% to negative 3%. We are projecting third quarter revenue of $430 million to $465 million, assuming a foreign currency headwind of approximately 4% to 3%.

With reported earnings per share of $0.08 to $0.18 or adjusted earnings of $0.15 to $0.25.