Nu Skin Enterprises, Inc. (NUS) Q2 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Nu Skin Enterprises’ Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Scott Pond, Vice President of Investor Relations. Please, go ahead, sir.

Thanks, Sarah and good afternoon, everyone. Today on the call with me are Ritch Wood, Chief Executive Officer; Ryan Napierski, President; and Mark Lawrence, Chief Financial Officer. On today’s call, comments will be made that include some 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 in a more consistent manner. Please refer to our Investor page at ir.nuskin.com for any required reconciliation of non-GAAP. And with that, I’ll turn the time over to Ritch.

Thank you, Scott and welcome everyone to our conference call. Thank you for joining us today. We’re pleased to report constant currency revenue growth in the second quarter and results well above our guidance with $612.4 million of revenue and earnings per share of $0.81. These results were driven by the strength of our socially-enabled business model, strategic investments in technology and digital tools, our balanced product portfolio and strengthen our manufacturing segment. I’m particularly proud of the way our global sales leaders are embracing digitally-enabled commerce, which is empowering them to accelerate customer acquisition and increase their productivity. This is evidenced by customer growth of 29% and also by the percentage of digitally enabled transactions, which reached more than 85% for the quarter. We continue to focus on customer growth, believing it will lead to increase sales leader product productivity, and ultimately sales force expansion. We are encouraged by the strong growth in customers this quarter and the sequential improvement in sales leaders. We believe our plans, product introductions of ageLOC Boost and Nutricentials will further drive these key metrics in the back half of the year. Our strong revenue growth believe – our strong revenue growth in the quarter came primarily from the west with double-digit gains in our America specific and EMEA regions. Our China business showed stabilization with sequential growth in customers, sales leaders, and revenue. I want to provide a few more details regarding how we are working through this global pandemic. We continue to focus on the health and wellness of our customers, our sales leaders, and our employees is our top priority. The majority of our employees around the world continue to work remotely, travel remains restricted, and we’re leveraging technology to the very best of our ability to keep optimal communication and interaction with our global sales force and our employee base. During the past 18 months, we’ve navigated many challenges and learned lessons that have accelerated adoption of digital technology and tools. For example, we began transitioning many of our global in-person meetings to online virtual experiences last year and this is an essential part of our success today. We will continue to invest further in technology to amplify the power of social sharing of our products through a robust digital infrastructure, expanding the reach of our sales leaders to more customers. We believe our business is very well positioned to succeed with our strong product offering, the flexibility of our velocity compensation program, and the technology improvements we have made to enhance the abilities of our sales force to work remote. In the west region, where our sales leaders are more mature with social sharing practices, we have seen an acceleration of the business, even with the impact of COVID and associated economic uncertainty. We believe we are now beginning to see early signs of this adoption in some of our Asia markets as well, which Ryan will address in more detail in a few moments. Our manufacturing segment performed well reporting growth of 20%. These manufacturing companies have provided significant benefit to our global business by helping us work through supply chain challenges associated with COVID. We see continued growth potential in this segment as we plan to make further strategic investments in our manufacturing capabilities. For example, in the past few months, we have added new capacity to produce liquid pouches and powders, and have also significantly increased our capability around the growing sanitizing and cleansing category. Also, we reported revenue in our Grow Tech division in the quarter and while small, we continue to make progress in developing our indoor grow lighting and technology, and believe this will provide additional opportunities for growth in the future. In the first half, we generated strong cash from operations, raised our dividend, strengthened our balance sheet and reduced our outstanding shares by nearly 8%. Looking ahead, due to the trends we are seeing in customer growth and what we anticipate will be a strong product introduction in the back half of the year. We are raising our 2020 revenue and EPS guidance, which Mark will lay out in more detail shortly. Overall, we continue to feel confident in our strategy and believe we will generate growth in second half of the year while building momentum for 2021. With that, I’ll turn the call over to Ryan to provide more detail around our global business. Ryan?

Thanks, Rich. Good afternoon, everybody. We’re encouraged by the improving performance of our business and are grateful for the lessons we’ve learned over the past several quarters. Nearly, three years ago, we initiated our expanded vision of becoming the world’s leading business opportunity platform as we leaned into the evolution of macro trends, including the gig economy, influencer and affiliate marketing and social commerce. This strategy is driving a transformation of our business to become more customer obsessed global and digital first, which is enabling our sales leaders, who are influencers themselves to build their businesses on Nu Skin’s opportunity platform. The implementation and adoption of better technologies and tools to support our sales force and building their online businesses has happened more quickly, because of meeting restrictions in Mainland China in 2019 and current limitations due to COVID around the globe. In today’s reality, where face-to-face interactions are more restricted continued investments in digital capabilities are helping our sales leaders to attract customers at an accelerated pace, which historically has been a leading indicator of ourselves leader growth to follow. Growth in Q2 was led in the west, where socially-enabled business is more broadly adopted. As a result, our global business is more geographically diversified than before, which we believe will result in greater operational stability over time. I’d like to provide a quick summary of our market segment performance during the quarter. Mainland China performed within expectations and continues to stabilize following a very difficult 2019 when the industry contracted more than 30%, according to the World Federation of Direct Sellers Association. For Q2, our local currency revenue declined 18% year-over-year, but increased 8% on a sequential basis. While we’re seeing approved meetings increase, there are still limitations on the number of participants primarily due to COVID-19. We’re optimistic. Our digital transformation will continue to reduce our reliance up in-person meetings. We’re particularly pleased with continued customer growth, which was 42% for the quarter and anticipate sales leader growth and a return to revenue growth for the market in the second half with our upcoming product previews. The Americans and Pacific generate 48% constant currency revenue growth, as our sales leaders leverage the power of our socially-enabled business to attract new customers, which grew by 67%. our leaders have expanded from our traditional socially shareable products like AP-24 toothpaste and Insta Glow Sunless Tanner to also include device systems such as LumiSpa, which was up 96% year-over-year in the region. EMEA also experienced renewed constant currency revenue growth of 21% with 51% customer growth led by the UK, Germany, Poland and South Africa. We anticipate our strong customer growth will lead to continued sales leader growth, which was up 20% year-over-year. In other Asian markets, improving sequential customer trends are helping stabilize our business and we anticipate sales leader improvements as we introduce our new products in the back half of the year. South Korea performed mostly in line with expectations with revenue down 5% in local currency, even considering the stronger impact of COVID in this market. Southeast Asia constant currency revenue declined 9% doing parts of logistical challenges related to COVID-19. However, we’re beginning to see some promising market trends with solid customer growth. We’re also encouraged as more of our Southeast Asia leaders are expanding their social capabilities. Japan has been a relative bright spot over the past several quarters. for Q2, we reported 2% local currency growth with improving sales leader and customer trends as we attract a younger demographic. Lastly, Hong Kong and Taiwan revenue declined 17% in constant currency, but we’re stable sequentially. As we continue to execute our strategy to empower sales leaders to grow customers through our engaging platforms, enabling products and empowering programs. We’re ahead of schedule in returning the business to revenue growth and we have strong plans in place to build on this momentum in the second half of the year, and leading into 2021. From a platforms perspective, we have historically been a person-to-person business, and we continue to leverage technology to enhance our customer reach with more than 85% of our global revenue coming through digital transactions. As part of that continued digital transformation, we will launch several tools in the second half of this year, including our new Vera app. This app will assist sales leaders in providing personalized product recommendations to their customers based on an individual skin assessment, leveraging artificial intelligence and machine learning algorithms. In terms of our product pipeline, we are currently preparing for a global preview of our next beauty device system innovation ageLOC Boost in most of our markets around the world. This new product will build on the number one at-home Beauty Device Systems brand position with a proprietary microcurrent device that promotes brighter, more youthful looking skin. in the U.S. and EMEA, we plan to roll out a new bioadaptive skincare line under our Nutricentials brand. Both products will be introduced using our proven launch process with a global preview in the fourth quarter and local market launches throughout the first half of 2021. Finally, regarding empowering programs, our latest innovation is called enJoy, a consumer rewards program focused on encouraging long-term loyalty through redeemable rewards points and improve customer relationship management. In Q2, this program was introduced in Southeast Asia and mainland China and is scheduled for a release in the U.S. and the second half of this year, and other markets to follow. So, in summary, while the macro environment remains uncertain and pleased with the growth trends we’re seeing, and I’m confident in our strategy and our ability to continue this momentum as we prepare for our 2020 product previews and beyond. And with that, I’ll turn the time over to Mark.

Thanks, Ryan. I will discuss our financial results for the quarter, provide Q3 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. both second quarter revenue and earnings per share came in above the top end of our prior guidance. Q2 revenue was $612.4 million and was negatively impacted 3% or approximately $20 million by unfavorable foreign currency fluctuations. earnings per share for the quarter were $0.81. gross margin for the quarter was 74.8%, compared to 75.3% in the prior-year quarter. gross margin was negatively impacted by additional freight charges due to increased customer demand and incremental costs associated with COVID-19. The Nu Skin gross margin was 77.6%, compared to 77.8% in the prior year. selling expense, as a percent of revenue, was 40.6%, compared to 39.4% in the prior year. selling expense for the Nu Skin business was 43.3%, compared to 41.5%. while our selling expense normally fluctuates plus or minus 1%, the larger than typical increase was primarily due to accelerated revenue growth in the west. General and administrative expense was essentially flat year-over-year. as a percent of revenue, it was 24.7% compared to the prior year of 24%. We continue to focus on controlling expenses during this period of uncertainty and would expect G&A to decrease as a percent of revenue in the second half of the year. our operating margin for the quarter was 9.5%. The other income expense line reflects a $1.6 million gain compared to a $3.3 million expense in the prior year. during the quarter, we paid $19.4 million in dividends and repurchased $46.5 million of our stock with $362.8 million remaining in authorization. Our tax rate for the quarter was 29.8% benefited by U.S. profitability. During the quarter, we generated $97 million in cash from operations and increased our cash position on our balance sheet. 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. due to the strong second quarter results, strengthening trends and the upcoming product introductions, we are increasing our annual guidance by approximately $200 million. We will continue with wider than normal guidance ranges due to the uncertainty of COVID-19. We now anticipate annual revenue of $2.37 billion to $2.45 billion with earnings per share of $2.85 to $3.10. Our guidance assumes a negative foreign currency impact of 2% to 3% and a tax rate of 29% to 34%. Our third quarter revenue guidance is $605 million to $635 million with earnings per share of $0.78 to $0.88. This assumes a negative foreign currency impact of 1% to 2% and a tax rate of 28% to 32%. With that, we will now turn the call back to the operator for questions and answers.

[Operator Instructions] Your first question comes from line of Faiza Alwy from Deutsche Bank. Your line is open.

Hi everyone.

Hi, Faiza.

First of all, congratulations. just I wanted to delve a little bit deeper in the strong results in the U.S. and in Europe. And it sounds like it was driven by social selling. So, I think Mark – I think it was, I think it was Ryan, who mentioned a little bit about this. but I’m curious, sort of what did you do, what drove the huge increases this quarter and what type of products were being sold?

Thanks, Faiza for that question and really encouraged with the progress we’ve seen in the West region, which we’re now starting to see in Southeast Asia as well. So that’s very encouraging. We mentioned on our first quarter call, we were encouraged by what we were seeing from a customer acquisition standpoint in the first quarter and that related particularly to the West, and then we saw that continue throughout the quarter. And Ryan, why don’t you speak to other things we’re seeing in the West specifically?

Yes, Faiza. I think you summarized it well. We’ve seen social sharing in the socially-enabled business. Really take hold well. Across the broader portfolio, which has been helpful. Historically, social sharing, it’s a relatively new way of building. And it’s taken time to get broader adoption. But we’ve seen good adoption through the West and through EMEA. We’ve seen it transition from those – kind of those historic, easily demonstrable, lower price point products that were very good, like AP-24, as I mentioned, but reaching into now our broader portfolio, which we’re really encouraged about. When we get into the Beauty Device Systems brand, LumiSpa, as I mentioned, very strong. We see Galvanic Spa strong as well. And they seem to be very, very effective at higher price points as well as low. So, our field is adjusting well and adopting the new model. They’re proliferating and sharing how they do it well, and then it’s expanding to a broader portfolio.

Okay. And then as part of your guidance, like is there a specific sales amount that you’ve allocated to the two big launches that you talked about, so ageLOC Boost and Nutricentials Bioadaptive skin care?

Yes, Faiza. That’s a great question. And I think as you look at how we laid out the guidance for Q3 and for the year, you can back into our Q4 number. And you’ll see that our Q4 number has roughly a $50 million increase over Q3. And part of the reason there is we look back at when we launched LumiSpa. And if you remember back to when we launched LumiSpa, that generated roughly $100 million incremental. And so we have built in $50 million incremental for a couple of reasons. One, we’re starting with a slightly lower amount of sales leaders, and we’re cautiously optimistic about what’s going to happen with those sales leaders as the growth in customers translate to sales leaders. There’s also continued uncertainty around COVID. And so we thought it was prudent to be a little bit careful with that incremental add for the fourth quarter, although we’re extremely excited about what we’re seeing and the trends we’re seeing associated with this product launch.

Okay, sounds good. could you just – just on China, I mean, I think you said that China was in line with expectations. So, I’m curious how are you thinking about China specifically in the back half.

Yes, thanks for that question as well. China performed really close to where we had anticipated in the second quarter. Made a nice improvement from a year-over-year standpoint, down 18% compared to a little bit more than 30% in the first quarter and we anticipate that trend to continue to improve throughout the year. We still believe that with the product launch in the fourth quarter, we’ll be able to show slight growth in China. At the beginning of the year, we mentioned we anticipated China to be down 20% to 25%. And in the modeling right now, it would be closer to 20%.

Okay, great. Thank you so much.

thanks, Faiza.

Your next question comes from the line of Olivia Tong from Bank of America. Please go ahead.

Great, thank you. Congrats on the great results. I wanted to sort of follow-up there a little bit. For the U.S., this is probably the highest growth we’ve seen in a non-convention period in quite some time. So maybe, you could parse it out a little bit differently. Obviously, you’ve got a record number of customers and leaders in the U.S. I would imagine that some of it is ahead of a big launch, but there’s also a lot more than your typical increase heading into a launch. So, is this COVID and looking for more flexible income stream? Or is it thinking through recession and lost shops and looking for supplemental sources of income, if you could just sort of talk through the customer and leader base a little bit and where that incremental sale is coming from, that would be helpful.

Yes. Thanks, Olivia. Ryan and I’ll take a shot at this. We’re really encouraged with the U.S. We actually built to a relaunch that we did in January of this year, just a refocus on our key metrics that were going to drive the business, and we started to see some strong customer acquisition really happening in the first quarter. This is very strong growth. And interestingly enough, while the product launch in the back half of the year, is important. It’s not a key driver to the growth that we’ve seen so far. It will be the Nutricentials product that we launched in the back half of the year with Boost launching in the first half of 2021. But we’re just seeing a real excitement around the business, a real strong increase in customers, which is now leading to a fuller and fuller pipeline of sales leaders. And we did start to see those sales leaders jump in the second quarter this year, too. So, really good progress there. And Ryan, what would you add to that?

Yes. I would only add Olivia, going off of Faiza’s question. I mean, really, it’s – we’ve been really focused, to Ritch’s point, on customer acquisition and really trying to understand and support. And when I say understand, I mean support this socially-enabled model. And as we’ve gone through this digital transformation, we’re really leaning into how to support that better. And then magnify that, I think, by the external factors that I mentioned before, really those macro trends. Retail shifting online, social commerce improvements, influencer marketing and to your point, around the gig economy as well. I think those trends are coming together. But I really would attribute the – our ability to capture that activity, support it, first of all, with our sales leaders and the capture it through our digital tools and our digital mediums, that’s been really key to it. And then to Ritch’s point on that balance between the customers and sales leaders. We’re very encouraged to that point, to see the growth in both and anticipate that, that will continue as we support the socially-enabled model moving forward.

Got it. And then if I could ask you about China, the difference between the growth of leaders and the growth of customers. I know there you can have – it can be volatile, but that difference just seems to be – it keeps getting wider. So what’s driving that almost massive disconnect between the growth of leaders and customers?

Yes, great question. As you know, we’ve been very, very focused on customer acquisition and retention around the globe. And certainly, those efforts continue. You may recall at the end of last year, we had a fairly significant customer bump as we implemented some new CRM capabilities there in the market, which has enabled us to retain more customers despite a lagging sales leader number. We’ve continued the – that expansion of customer-driven tool support with that enJoy Program that I referenced in my prior comments. And that drove additional activity in Q2. So, the customer growth continues to do well. Digitally speaking, we’re seeing an improvement in customer per sales leader productivity as well as we’re able to support that more effectively digitally. For the sales leaders, yes, we continue to be very focused on that longer term, and ultimately, we know both metrics have to rise with that. We are very much focused on that in the second half, leading up to this Boost global preview and the Boost preview in China, which historically has been good for China. China is good at that launch process. They understand that the sales force understands it. And so we anticipate doing that. But longer term, as we’ve said, the meeting restrictions do play a significant part of the sales leader creation. And so that continued pivot digitally. While we’re seeing improvements, it still hasn’t made up for the complete role of those meetings. So, I’d say that’s maybe a summary, Olivia.

Got it, got it. And then just lastly, relative to our expectations, a lot of the EPS beat in the quarter came from below the line. Like an $8 million to sequential swing in other income, much lower taxes. I know the taxes was part – it sounds like it was mostly country mix. But is there any way to get clarity on those, particularly in the second half and what you’re expecting? Because those do swing around quite a bit? Thank you.

Thanks. That’s a good question. In other income, yes, the big swing there was a foreign currency gain and lower interest expense. So the lower interest expense will continue going forward. And then I try to give you a little bit more narrow tax range than what we had given in the past and did skew that lower. We are seeing improved profitability in the U.S. and with that profitability in the U.S. being driven by the growth in our Nu Skin U.S. business, but also the increased profitability of our manufacturing entities, which grew 20% in the quarter. As we generate more U.S. profit, our tax rate will go down. And so we are signaling a lower tax rate for the second half as well.

Thanks very much.

Thank you, Olivia.

Your next question comes from the line of Doug Lane from Lane Research. Your line is open.

Yes, hi. Thanks. Good afternoon. Mark, can you give us what the sales trends were for nutrition versus personal care in the quarter?

Yes. There was a very little shift. It was about a one point improvement in nutrition and about a one point improvement in manufacturing. And then that was offset by the decline in Personal Care.

Okay. That’s helpful. And then trying to get a feel for new products. As important as they are, it’s a little bit complicated this year. It’s not just one product in one quarter everywhere. You’ve got the two products, staggered timing and different markets. So can you help clarify how this is going to play out over the next two or three quarters?

Yes. Doug, maybe from a very high level standpoint, you can think about it this way. All the markets will receive a new product in the fourth quarter. Most of the markets will receive Boost and western markets, this is, generally speaking, will get Nutricentials. Those products will be previewed on a limited basis, but quite a bit of availability. In the fourth quarter with the full launches happening in the first quarter of next year. And then as we move into the second quarter, generally speaking, those that released Boost in the fourth quarter will then bring Nutricentials and those that released Nutricentials will have Boost. So from a very high level standpoint, that’s what we’re looking at.

All right. That’s helpful. Thanks, Ritch. And then on the Boost, I mean, it’s a fairly expensive product, arguably discretionary and really a global recession. So I mean, what is your level of confidence that it will be as well received as maybe your other launches that might have been done like LumiSpa in a more favorable macro environment.

Yes. Interesting, Doug, on that note, on price points. And frankly, this has been something we’ve really pleased to see, again, when I go back to that socially-enabled model. Traditionally, we felt that, that model required a lower priced product. But what we’re finding is that the price value proposition ultimately is what matters. And as long as the value matches the price, consumers are willing to pay for a highly beneficial product. So as I mentioned, our LumiSpa device, our Galvanic Spa device, which are both Galvanics, obviously, higher price point than LumiSpa, Boost will fit right in the middle, very kind of in the middle position, so very similar in that range. But we anticipate that it will do very well based upon the research we’ve done so far, the feedback – early feedback we’ve had. It’s a good product, and it’s fitting that the right positioning there. So we’re pleased – we’re actually pleased and encouraged that we’ll see Boost that – be a significant complement to the other devices that are there at the price point where it is.

Okay, Thanks, Ryan. That’s helpful. And just lastly, can you update us on your go technology business, where it stands as far as fundamental performance and where you think it fits in strategically?

Yes, thanks. We about three years ago, began investing behind the technology to produce ingredient in a pure and traceable manner and more sustainable, using less land and water. We continue to believe our customers will demand a higher and higher level of sustainable and traceable ingredient going forward. So we’ve stayed very focused on that. And as we continue to develop the technology, we actually see other potential uses for the technology, which we’ll be able to provide, we believe, revenue and growth opportunities for the company. So as those continue to develop and we get closer to a significant revenue opportunity, then we will update further. But the technology has made good advancements. We’ve been able to produce really solid data that support the technology and we continue to believe that the customer trends and the demands around sustainability and around traceable ingredient where we can really zero in on that level of product development is going to be really helpful.

Okay. Thank you.

[Operator Instructions] Your next question comes from the line of Steph Wissink from Jefferies. Your line is open.

Thank you. Good afternoon, everyone. Two quick follow-up questions. The first is just on the enJoy customer loyalty program or that product. Can you talk a little bit about that, Ryan, I think you mentioned rolling it out in Southeast Asia and China, and it will be coming to the rest of the world here soon. Maybe talk first about that. And then I have one follow-up.

Yes. Great, Steph. Yes, this has been a program that we’ve been working on and actually testing and refining for the past several quarters. And in various markets to get it right. EnJoy, really is – it’s a rewards program that rewards for loyalty. So think of second month orders, multiple orders, subscription-based orders, and then having benefits for the consumer around those. And so that enJoy Program has been a good complement in the markets that we rolled it out in. In markets like, as I mentioned in Q2, a couple of markets in Southeast Asia and then in Mainland China, we’re seeing some good benefits there. Just one note in particular, the enJoy Program has been particularly helpful in reactivation of customers who had previously hadn’t purchased in the last six months. And so we’ve seen an increase in that reactivation rate, which is all part of our approach as our sales leaders are very effective at attracting new customers. We believe that the company through digital technology can be more effective in supporting them in retaining and reactivating those customers. So that’s really where enJoy is fit to set. By the way, with this acceleration in customer acquisition around the West – throughout the West, I should say, we’re very much focused, as I mentioned, in rolling that program out in the U.S. and throughout EMEA over the next few quarters because we anticipate that. We anticipate that need coming and now it’s here. So we’ll enact it there.

Great. And then my second one is also on technology. It’s related to the Vera app. So can you just help us think through how you’re leveraging data to make personalized product recommendations. I think you also mentioned some AI and some machine learning embedded in that app. So maybe talk a little bit about what you expect in terms of – both for the customer and your sales reps, what you expect in terms of the leverage of that data?

Yes. Absolutely, Steph. I appreciate you asking that. We can’t be for you to use this app. It’s going to be really cool. So you all will recall our partnership with AWS, of a couple of years ago with cloud. And one of the benefits that came with that or comes with that is the access to micro services. And with those micro services access, we’re able to really do significantly more around predictive analytics, right, and leveraging all of the transaction data that we have, when you think across our various platforms from the scanner on the health side or devices, any survey research we have, all of that big data or bigger data is leverageable in defining algorithms. The Vera app is really based upon a personal skin assessment. So you can think of a series of questions as well as a photograph. Of your face that is sent. And then through that personal information and the photograph as well as the data we have around the broader customer segments as well as the consumer themselves. Vera produces that personal recommendation. And so it’s actually quite a bit different. There are face recognition technologies and tools out there today. Ours is generally speaking, quite different because it leverages big data from multiple sources in a predictive manner. And so that’s probably the – it’s – I believe it’s the most robust tool out there in terms of facial recognition for product – personal recommendation engines. And the last thing I’ll say on that, a little bit long, but I’m excited about this is it’s a tool that is placed in the hands of our sales leaders, who can then push it out to their prospective customers and future sales leaders to utilize the tool and get that personal recommendation engine. And so it’s really in enabling that sales leader productivity to improve.

Okay. Thank you very much.

And your next question comes from the line of Mark Astrachan from Stifel. Your line is open.

Hey, this is actually Peter on for Mark. Thanks for taking our question. So with selling expenses increasing as a percentage of sales in the quarter, should we expect that to continue, especially as customer sales as customer and sales leader counts increase into 4Q and with new product introductions? Thank you.

Yes. Thanks, Peter. The sales leader or the sales incentive increase is due primarily to the quick uptick in sales where the group volumes of our sales leaders increased to a higher level. So it pays out at a slightly higher rate. The only reason that would continue to remain really high would be really fast to continued fast growth or even accelerating growth. Otherwise, we’ll see that number come down a little bit as we go into Q3 and Q4.

Thank you.

Okay. Thanks for those questions. I think that’s the last question. We really do appreciate everybody’s time and at the beginning of the year, I remember talking about our excitement for the back half of this year that we really felt like we could turn the business to growth. And the strength of our product launches were something that we are really confident would drive growth in the business. We’re excited that the momentum in the business has picked up a little bit earlier than we thought, which is going to allow us, we believe, to be in a really good position to be successful with those launches. Certainly an uncertain time out there, but we become more and more certain as we see the key indicators in our business pointing in the right direction, and that gives us good confidence as we move into the back half of the year. Thanks for listening, and good luck, everyone with everything you’re doing, and we’ll talk to you in a couple of months. Goodbye.

This concludes today’s conference call. Thank you for your participation. Have a wonderful day. You may now disconnect.