UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_____________
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Commission File Number: 001-12421
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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(Address of principal executive offices, including zip code)
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(
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(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ☑
As of October 31, 2022, 49,420,202 shares
of the registrant’s Class A common stock, $.001 par value per share, were outstanding.
NU SKIN ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q – THIRD QUARTER 2022
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Page
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Part I.
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Financial Information
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Item 1.
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1
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2
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3
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4
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6
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7
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Item 2.
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18 | ||
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Item 3.
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27 | ||
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Item 4.
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27 | ||
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Part II.
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Other Information
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Item 1.
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28 | ||
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Item 1A.
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28 | ||
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Item 2.
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29 | ||
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Item 3.
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29 | ||
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Item 4.
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29 | ||
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Item 5.
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29 | ||
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Item 6.
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30 | ||
| 31 | |||
In this Quarterly Report on Form 10-Q, references to “dollars” and “$” are to United
States (“U.S.”) dollars.
Nu Skin, Pharmanex, and ageLOC are our trademarks. The italicized product names used in
this Quarterly Report on Form 10-Q are product names and also, in certain cases, our trademarks.
PART I. FINANCIAL INFORMATION
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
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September 30,
2022
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December 31,
2021
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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$
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Current investments
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Accounts receivable, net
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Inventories, net
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Prepaid expenses and other
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Total current assets
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Property and equipment, net
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Operating lease right-of-use assets
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Goodwill
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Other intangible assets, net
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Other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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$
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Accrued expenses
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Current portion of long-term debt
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Total current liabilities
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Operating lease liabilities
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Long-term debt
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Other liabilities
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Total liabilities
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Commitments and contingencies (Notes 5 and 11)
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Stockholders’ equity:
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Class A common stock –
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Additional paid-in capital
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Treasury stock, at cost –
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(
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)
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(
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Accumulated other comprehensive loss
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(
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(
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Retained earnings
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Total stockholders’ equity
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Total liabilities and stockholders’
equity
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$
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$
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The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands, except per share amounts)
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Three Months Ended
September 30,
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Nine Months
Ended
September 30,
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2022
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2021
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2022
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2021
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Revenue
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$
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$
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$
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$
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Cost of sales
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Gross profit
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Operating expenses:
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Selling expenses
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General and administrative expenses
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Restructuring and impairment expenses
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Total operating expenses
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Operating income (loss)
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(
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)
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Other income (expense), net
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(
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)
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(
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Income (loss) before provision for income taxes
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(
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Provision (benefit) for income taxes
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(
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)
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Net income (loss)
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$
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(
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)
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$
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$
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$
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Net income (loss) per share (Note 6):
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Basic
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$
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(
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)
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$
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$
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$
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Diluted
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$
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(
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)
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$
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$
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$
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Weighted-average common shares outstanding (000s):
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Basic
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Diluted
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The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
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Three Months Ended
September 30,
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Nine Months
Ended
September 30,
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2022
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2021
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2022
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2021
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Net income (loss)
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$
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(
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)
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$
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$
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$
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Other comprehensive (loss) income, net of tax:
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Foreign currency translation adjustment, net of taxes of $(
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(
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)
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(
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)
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(
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)
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(
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)
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Net unrealized gains/(losses) on cash flow hedges, net of taxes of $(
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Reclassification adjustment for realized losses/(gains) in current earnings on cash flow hedges, net of
taxes of $
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(
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)
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(
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)
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(
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)
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(
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)
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(
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(
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)
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|||||||||
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Comprehensive income (loss)
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$
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(
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)
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$
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$
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$
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The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
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For the Three Months Ended September 30, 2022
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Class A
Common Stock
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Additional
Paid-in Capital
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Treasury
Stock
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Accumulated Other
Comprehensive Loss
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Retained
Earnings
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Total
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|||||||||||||||||||
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Balance at July 1, 2022
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$
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$
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$
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(
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)
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$
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(
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)
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$
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$
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Net loss
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(
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(
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Other comprehensive loss, net of tax
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(
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)
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(
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||||||||||||||||
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Repurchase of Class A common stock (Note 6)
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(
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)
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(
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Exercise of employee stock options (
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Stock-based compensation
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Cash dividends
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|
(
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)
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(
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)
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||||||||||||||||
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Balance at September 30, 2022
|
$
|
|
$
|
|
$
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(
|
)
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$
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(
|
)
|
$
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|
$
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||||||||||
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For the Three Months Ended September 30, 2021
|
||||||||||||||||||||||||
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Class A
Common Stock
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Additional
Paid-in Capital
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Treasury
Stock
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Accumulated Other
Comprehensive Loss
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Retained
Earnings
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Total
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|||||||||||||||||||
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Balance at July 1, 2021
|
$
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|
$
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$
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(
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)
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$
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(
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)
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$
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$
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||||||||||
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Net income
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Other comprehensive income, net of tax
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(
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)
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(
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)
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||||||||||||||||
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Repurchase of Class A common stock (Note 6)
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|
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(
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)
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(
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)
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||||||||||||||||
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Exercise of employee stock options (
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||||||||||||||||||
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Stock-based compensation
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||||||||||||||||||
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Cash dividends
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
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Balance at September 30, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(U.S. dollars in thousands)
|
For the Nine Months Ended September 30, 2022
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||||||||||||||||||||||||
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Class A
Common
Stock
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Additional
Paid-in
Capital
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Treasury
Stock
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||
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Balance at January 1, 2022
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
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Net income
|
|
|
|
|
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|
||||||||||||||||||
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Other comprehensive loss, net of tax
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|
|
|
(
|
)
|
|
(
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)
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||||||||||||||||
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Repurchase of Class A common stock (Note 6)
|
|
|
(
|
)
|
|
|
(
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)
|
||||||||||||||||
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Exercise of employee stock options (
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|
(
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)
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|
|
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|||||||||||||||||
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Stock-based compensation
|
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||||||||||||||||||
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Cash dividends
|
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|
|
|
(
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)
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(
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)
|
||||||||||||||||
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Balance at September 30, 2022
|
$
|
|
$
|
|
$
|
(
|
)
|
$
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(
|
)
|
$
|
|
$
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||||||||||
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For the Nine
Months Ended September 30, 2021
|
||||||||||||||||||||||||
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Class A
Common Stock
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Additional
Paid-in Capital
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Treasury
Stock
|
Accumulated Other
Comprehensive Loss
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Retained
Earnings
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Total
|
|||||||||||||||||||
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Balance at January 1, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
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(
|
)
|
$
|
|
$
|
|
||||||||||
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Net income
|
|
|
|
|
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||||||||||||||||||
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Other comprehensive loss, net of tax
|
|
|
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(
|
)
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|
(
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)
|
||||||||||||||||
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Repurchase of Class A common stock (Note 6)
|
|
|
(
|
)
|
|
|
(
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)
|
||||||||||||||||
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Exercise of employee stock options (
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|
(
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)
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|||||||||||||||||
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Stock-based compensation
|
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||||||||||||||||||
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Cash dividends
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
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Balance at September 30, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
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The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
|
Nine Months
Ended
September 30,
|
||||||||
|
2022
|
2021
|
|||||||
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Cash flows from operating activities:
|
||||||||
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Net income
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net income to cash flows from operating activities:
|
||||||||
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Depreciation and amortization
|
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Non-cash lease expense
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||||||
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Stock-based compensation
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Foreign currency losses
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Loss on disposal of assets
|
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Deferred taxes
|
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|
||||||
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Impairment of fixed assets and other intangibles
|
||||||||
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Unrealized gain on equity investments
|
( |
) | ||||||
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Changes in operating assets and liabilities:
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||||||||
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Accounts receivable, net
|
(
|
)
|
|
|||||
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Inventories, net
|
|
(
|
)
|
|||||
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Prepaid expenses and other
|
(
|
)
|
(
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)
|
||||
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Other assets
|
|
(
|
)
|
|||||
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Accounts payable
|
(
|
)
|
(
|
)
|
||||
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Accrued expenses
|
(
|
)
|
(
|
)
|
||||
|
Other liabilities
|
(
|
)
|
|
|||||
|
Net cash provided by operating activities
|
|
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Purchases of property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Proceeds on investment sales
|
|
|
||||||
|
Purchases of investments
|
(
|
)
|
(
|
)
|
||||
|
Acquisitions, net of cash acquired
|
( |
) | ||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Exercise of employee stock options and taxes paid related to the net shares settlement of stock awards
|
|
|
||||||
|
Payment of cash dividends
|
(
|
)
|
(
|
)
|
||||
|
Repurchases of shares of common stock
|
(
|
)
|
(
|
)
|
||||
|
Finance lease principal payments
|
(
|
)
|
(
|
)
|
||||
|
Payment of debt issuance costs
|
( |
) | ||||||
|
Payments of debt
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from debt
|
|
|
||||||
|
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
||||
|
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
|
Net increase (decrease) in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents, beginning of period
|
|
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1. |
The Company
|
Nu Skin Enterprises, Inc. (the “Company”) is a holding company, with Nu Skin, being the primary operating unit. Nu Skin develops and distributes
premium-quality, innovative beauty and wellness products that are sold worldwide under the Nu Skin, Pharmanex and ageLOC brands and a small number of other products and services. The Company reports revenue from nine segments, consisting of its seven
geographic Nu Skin segments—Americas,
which includes Canada, Latin America and the United States; Mainland China; Southeast Asia/Pacific, which includes Australia, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam; South Korea; Japan; Europe, Middle
East and Africa (“EMEA”), which includes markets in Europe as well as Israel and South Africa; and Hong Kong/Taiwan, which also includes Macau—and two
Rhyz Investments segments—Manufacturing, which includes manufacturing and packaging subsidiaries it has acquired; and Rhyz other, which includes other investments by its Rhyz strategic investment arm (the Company’s subsidiaries operating within
each segment are collectively referred to as the “Subsidiaries”).
| 2. |
Summary of Significant Accounting Policies
|
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
presentation. The Company reclassified $4.6 million and $9.5 million of events and other miscellaneous selling costs from the general and administration expenses
line to the
line on the consolidated statement of income for the three- and nine-month periods ended September 30, 2021, respectively. The Company believes these
costs are better reflected in selling expenses. The reclassification had no impact on operating income for the three- and nine-month periods ended September 30, 2021.
Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued, ASU
2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for
a limited time to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be
discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in ASU
2020-04 are elective and are effective upon issuance for all entities. The Company had previously elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to
assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. In the second quarter of 2022, the Company elected the hedge accounting expedient that allows an update to the hedged risk
in active hedging relationships without de-designation as the Company’s debt transitioned to Secured Overnight Financing Rate (“SOFR”). Application of these expedients preserves the presentation of derivatives consistent with past presentation. The
Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
Inventory
Inventories consist of the following (U.S. dollars in thousands):
|
September 30,
2022
|
December 31,
2021
|
|||||||
|
Raw materials
|
$
|
|
$
|
|
||||
|
Finished goods
|
|
|
||||||
|
Total Inventory, net
|
$
|
|
$
|
|
||||
Revenue Recognition
Contract Liabilities – Customer Loyalty Programs
Contract liabilities, recorded as deferred revenue within the accrued expenses line in the consolidated balance sheets, include loyalty point
program deferrals with certain customers which are accounted for as a reduction in the transaction price and are generally recognized as points are redeemed for additional products.
The balance of deferred revenue related to contract liabilities as of September 30, 2022 and December 31, 2021 was $17.7
million and $22.0 million, respectively. The contract liabilities impact to revenue for the three-month
periods ended September 30, 2022, and 2021 was an increase of $0.7 million and a decrease
of $0.7 million, respectively. The impact to revenue for the nine-month periods ended September 30, 2022, and 2021 was an increase of $4.3 million and a decrease of $6.3 million, respectively.
| 3. |
Goodwill
|
The Company’s reporting units for goodwill are its operating segments, which are also its reportable segments.
The following table presents goodwill allocated to the Company’s reportable segments
for the periods ended September 30, 2022 and December 31, 2021 (U.S. dollars in thousands):
|
September 30,
2022
|
December 31,
2021
|
|||||||
|
Nu Skin
|
||||||||
|
Americas
|
$
|
|
$
|
|
||||
|
Mainland China
|
|
|
||||||
|
Southeast Asia/Pacific
|
|
|
||||||
|
South Korea
|
|
|
||||||
|
Japan
|
|
|
||||||
|
EMEA
|
|
|
||||||
|
Hong Kong/Taiwan
|
|
|
||||||
|
Rhyz Investments
|
||||||||
|
Manufacturing
|
|
|
||||||
|
Rhyz Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| 4. |
Debt
|
2018 Credit Agreement
On April 18, 2018, the Company entered into a Credit Agreement (the “2018 Credit Agreement”) with several financial institutions as lenders and Bank
of America, N.A., as administrative agent. The 2018 Credit Agreement provided for a $400 million term loan facility and a $350 million revolving credit facility, each with a term of five years 5.0 7.5 10.0 % during the
fifth year after the closing date of the 2018 Credit Agreement, with the remainder payable at final maturity. The 2018 Credit Agreement required the Company to maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00.
Credit Agreement
On June 14, 2022, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with several financial institutions as lenders and Bank
of America, N.A., as administrative agent, which amended and restated the 2018 Credit Agreement. The Credit Agreement provides for a $400
million term loan facility and a $500 million revolving credit facility, each with a term of five years 0.175 % to 0.30 % on the unused portion of the total lender commitments then in effect. The term loan facility amortizes in quarterly installments in amounts
resulting in an annual amortization of 2.5 % during the first year and 5.0 65 % of the
capital stock of certain foreign subsidiaries. The Credit Agreement requires the Company to maintain a consolidated leverage ratio not exceeding 2.75
to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. As of September 30, 2022, the Company was in
compliance with all covenants under the Credit Agreement.
The following table summarizes the Company’s debt facilities as of September 30, 2022 and December 31, 2021:
|
Facility or Arrangement
|
Original
Principal Amount
|
Balance as of
September 30, 2022 (1)(2)
|
Balance as of
December 31, 2021
(1)(2)
|
Interest Rate
|
Repayment Terms
|
|||||
|
2018 Credit Agreement term loan facility
|
$ |
$ |
|
|||||||
|
|
||||||||||
|
2018 Credit Agreement revolving credit facility
|
$ |
|
||||||||
|
|
||||||||||
|
Credit Agreement term loan facility
|
$
|
$
|
|
|
|
|||||
|
|
||||||||||
|
Credit Agreement revolving credit facility
|
$
|
|
|
|
| (1) |
|
| (2) |
|
| 5. |
Leases
|
As of September 30, 2022, the weighted average remaining lease term was 8.4 and 3.0 years for operating and
finance leases, respectively. As of September 30, 2022, the weighted average discount rate was 3.5 % and 3.8 % for operating and finance leases, respectively.
The components of lease expense were as follows (U.S. dollars in thousands):
|
Three Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Operating lease expense
|
||||||||||||||||
|
Operating lease cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Variable lease cost
|
|
|
|
|
||||||||||||
|
Short-term lease cost
|
|
|
|
|
||||||||||||
|
Sublease income
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Finance lease expense
|
||||||||||||||||
|
Amortization of right-of-use assets
|
|
|
|
|
||||||||||||
|
Interest on lease liabilities
|
|
|
|
|
||||||||||||
|
Total lease expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Supplemental cash flow information related to leases was as follows (U.S. dollars in thousands):
|
Nine
Months Ended
September 30,
|
||||||||
|
2022
|
2021
|
|||||||
|
Operating cash outflow from operating leases
|
$
|
|
$
|
|
||||
|
Operating cash outflow from finance leases
|
$
|
|
$
|
|
||||
|
Financing cash outflow from finance leases
|
$
|
|
$
|
|
||||
|
Right-of-use assets obtained in exchange for operating lease obligations
|
$
|
|
$
|
|
||||
|
Right-of-use assets obtained in exchange for finance lease obligations
|
$
|
|
$
|
|
||||
Maturities of lease liabilities were as follows (U.S. dollars in thousands):
|
Year Ending December 31
|
Operating
Leases
|
Finance
Leases
|
||||||
|
2022
|
$
|
|
$
|
|
||||
|
2023
|
|
|
||||||
|
2024
|
|
|
||||||
|
2025
|
|
|
||||||
|
2026
|
|
|
||||||
|
Thereafter
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: Finance charges
|
|
|
||||||
|
Total principal liability
|
$
|
|
$
|
|
||||
The Company has additional lease liabilities of $0.1 million which have not yet commenced as of September 30,
2022, and as such, have not been recognized on the consolidated balance sheets.
| 6. |
Capital Stock
|
Net income per share
Net income per share is computed based on the weighted-average number of common
shares outstanding during the periods presented. Additionally, diluted earnings per share data gives effect to all potentially dilutive common shares that were outstanding during the periods presented. For the three-month periods ended September 30, 2022 and 2021, stock options of 0.5 million and 0.1 million, respectively, and for the nine-month periods ended September 30, 2022 and 2021, stock options of 0.1 million and 0.1 million, respectively, were excluded from the calculation of diluted earnings per share because they
were anti-dilutive.
Dividends
In , and , the Company’s board of directors declared quarterly cash dividends of $0.385 19.3 million, $19.4 million and $19.3 million were paid on
March 9, 2022 , June 8, 2022
and September 7, 2022 , respectively, to stockholders of record on February 28, 2022 , May 27, 2022 and August 26, 2022 , respectively. In , the Company’s
board of directors declared a quarterly cash dividend of $0.385 per share to be paid on December 7, 2022 to stockholders of record on November 25, 2022 .
Repurchase of common stock
During the three-month periods ended September 30, 2022 and 2021, the Company repurchased 1.0
million and 0.2 million shares of its Class A common stock under its stock repurchase plan for $40.0 million and $10.0 million, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company
repurchased 1.4 million shares and 1.4
million shares of its Class A common stock under its stock repurchase plan for $60.0 million and $70.4 million, respectively. As of September 30, 2022, $185.4
million was available for repurchases under the Company’s stock repurchase plan.
| 7. |
Fair Value and Equity Investments
|
Fair Value
The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximates fair values due
to the short-term nature of these instruments. The carrying value of debt approximates fair value due to the variable 30 -day interest rate.
Fair value estimates are made at a specific point in time, based on relevant market information.
The FASB Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. On a quarterly basis, the Company measures at fair value certain financial assets, including cash equivalents. Accounting
standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the
Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:
| ■ |
Level 1 – quoted prices in active markets for identical assets or liabilities;
|
| ■ |
Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
| ■ |
Level 3 – unobservable inputs based on the Company’s own assumptions.
|
Accounting standards permit companies, at their option, to measure certain financial instruments and other eligible items at fair value. The Company
has elected not to apply the fair value option to existing eligible items beyond what is required by US GAAP.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (U.S. dollars in
thousands):
|
Fair Value at September 30,
2022
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Financial assets (liabilities):
|
||||||||||||||||
|
Cash equivalents and current investments
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Derivative financial instruments asset
|
|
|
|
|
||||||||||||
|
Life insurance contracts
|
|
|
|
|
||||||||||||
|
Contingent consideration
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Fair Value at December 31, 2021
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Financial assets (liabilities):
|
||||||||||||||||
|
Cash equivalents and current investments
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Derivative financial instruments asset
|
|
|
|
|
||||||||||||
|
Life insurance contracts
|
|
|
|
|
||||||||||||
|
Contingent consideration
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following table provides a summary of changes in fair value of the Company’s Level 3 life insurance contracts (U.S. dollars in thousands):
|
2022
|
2021
|
|||||||
|
Beginning balance at January 1
|
$
|
|
$
|
|
||||
|
Actual return on plan assets
|
(
|
)
|
|
|||||
|
Purchases and issuances
|
|
|
||||||
|
Sales and settlements
|
|
(
|
)
|
|||||
|
Transfers into Level 3
|
|
|
||||||
|
Ending balance at September 30
|
$
|
|
$
|
|
||||
Life insurance contracts: Accounting Standards
Codification (“ASC”) 820 preserves practicability exceptions to fair value measurements provided by other applicable provisions of U.S. GAAP. The guidance in ASC 715-30-35-60 allows a reporting entity, as a practical expedient, to use cash surrender
value or conversion value as an expedient for fair value when it is present. Accordingly, the Company determines the fair value of its life insurance contracts as the cash-surrender value of life insurance policies held in its Rabbi Trust.
The following table provides a summary of changes in fair value of the Company’s Level 3 contingent consideration (U.S. dollars in thousands):
|
2022
|
2021
|
|||||||
|
Beginning balance at January 1
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Additions from acquisitions
|
|
(
|
)
|
|||||
|
Changes in fair value of contingent consideration
|
|
(
|
)
|
|||||
|
Ending balance at September 30
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Contingent consideration: Contingent consideration represents the obligations
incurred in connection with acquisitions. The estimate of fair value of the contingent consideration obligations requires subjective assumptions to be made regarding the future business results, discount rates, discount periods and probabilities
assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of reaching various targets or of achieving certain milestones. The fair value measurement is based on significant
inputs unobservable in the market and thus represents a Level 3 measurement. Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or decrease in the
fair value of the contingent consideration obligation.
Equity Investments
The Company maintains equity investments in companies which are accounted for under
the measurement alternative described in ASC 321-10-35-2 for equity securities that lack readily determinable fair values. The
carrying amount of equity securities held by the Company without readily determinable fair values was $28.1 18.1 million upward fair value adjustments, based on the valuation of additional equity issued by the investee which was deemed to be an observable transaction of a similar
investment under ASC 321. The third quarter of 2021 gain was recorded within Other income (expense), net on the Consolidated Statement of Income. The
upward fair value adjustment represents a nonrecurring fair value measurement based on observable price changes and is classified as a Level 3 fair value
measurement.
| 8. |
Income Taxes
|
Provision for income
taxes for the three- and nine-month periods ended September 30, 2022 was $(3.6 ) million and $17.1 million, compared to $18.4 million and $57.5 million for the prior-year periods. The effective tax rates for the three- and nine-month periods ended September 30, 2022, were 12.3 % and 26.4 % of pre-tax income
compared to 27.0 % and 26.9 %
in the prior-year periods.
The Company accounts for income taxes in accordance with ASC Topic 740 “Income Taxes.” These standards establish financial accounting and reporting
standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. The Company takes an asset and liability approach for financial accounting and reporting of income taxes. The Company pays
income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between the Company and its foreign affiliates. Deferred tax assets and
liabilities are created in this process. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be
ultimately realized. The Company had net deferred tax assets of $22.2 million and $24.1 million as of September 30, 2022 and December 31, 2021, respectively.
The Company evaluates its indefinite reinvestment assertions with respect to foreign earnings for each quarter. For all foreign earnings, the
Company accrues the applicable foreign income taxes. For the earnings that have been indefinitely reinvested, the Company does not accrue foreign withholding taxes. Undistributed earnings that the Company has indefinitely reinvested, for which no
foreign withholding taxes have been provided, aggregate to $60.0 million as of December 31, 2021. If the amount designated as indefinitely
reinvested as of December 31, 2021 was repatriated to the United States, the amount of incremental taxes would be approximately $6.0
million. The Company intends to utilize the indefinitely reinvested offshore earnings to fund foreign investments, specifically capital expenditures.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. In 2009, the Company entered into a voluntary
program with the IRS called Compliance Assurance Process (“CAP”). The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. As of
December 31, 2021, tax years through 2020 have been audited and are effectively closed to further examination. For tax years 2021 and 2022, the Company is in the Bridge phase of the CAP program, pursuant to which the IRS will not accept
disclosures, will not conduct reviews and will not provide letters of assurance for the Bridge years. There are limited circumstances under which tax years in the Bridge phase will be opened for examination. The Company may elect to continue
participating in CAP for future tax years; the Company may withdraw from the program at any time. With a few exceptions, the Company is no longer subject to state and local income tax examination by tax authorities for the years before 2018. In
major foreign jurisdictions, the Company is generally no longer subject to income tax examinations for years before 2016. However, statutes of limitations in certain countries may be as long as ten years . The Company is currently under examination in certain foreign jurisdictions; however, the outcomes of those reviews are not yet determinable. The Company’s
unrecognized tax benefits relate to multiple jurisdictions. Due to potential increases in unrecognized tax benefits from the multiple jurisdictions in which the Company operates, as well as the expiration of various statutes of limitations, it is
reasonably possible that the Company’s gross unrecognized tax benefits, net of foreign currency adjustments, may increase in the next 12 months by approximately $1.0 to $2.0 million.
| 9. |
Derivatives and Hedging Activities
|
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide
variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its
assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future
known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts
and its known or expected cash payments principally related to the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish
this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for
the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive
Income and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to
interest expense/income as interest payments are made/received on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $8.2 million will be reclassified as a reduction to interest expense.
As of September 30, 2022 and December 31, 2021, the Company had four 200
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet:
|
Fair Values of
Derivative Instruments
|
||||||||||
|
Derivatives in Cash flow
Hedging Relationships:
|
Balance Sheet
Location
|
September 30,
2022
|
December 31,
2021
|
|||||||
|
Interest Rate Swap - Asset
|
Prepaid expenses and other
|
$
|
|
$
|
|
|||||
|
Interest Rate Swap - Asset
|
Other assets
|
$
|
|
$
|
|
|||||
Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income.
|
Amount of Gain (Loss)
Recognized in OCI on Derivatives
|
||||||||||||||||
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
Derivatives in Cash flow
|
September 30,
|
September 30,
|
||||||||||||||
|
Hedging Relationships:
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Interest Rate Swaps
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Amount of Gain (Loss)
Reclassified from Accumulated
Other Comprehensive Loss into Income
|
||||||||||||||||||
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||
|
Derivatives in Cash flow
|
Income Statement
|
September 30,
|
September 30,
|
|||||||||||||||
|
Hedging Relationships:
|
Location
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Interest Rate Swaps
|
Other income (expense), net
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||||
| 10. |
Segment Information
|
The Company reports revenue from nine
segments, consisting of its seven geographic Nu Skin segments—Americas, Mainland China, Southeast Asia/Pacific, South Korea, Japan, EMEA,
and Hong Kong/Taiwan—and two Rhyz Investments segments—Manufacturing and Rhyz other. The Nu Skin other category includes miscellaneous
corporate revenue and related adjustments. The Rhyz other segment includes other investments by our Rhyz strategic investment arm. These segments reflect the way the chief operating decision maker evaluates the Company’s business performance and
allocates resources. Reported revenue includes only the revenue generated by sales to external customers.
Profitability by segment as determined under US GAAP is driven primarily by the Company’s transfer pricing policies. Segment contribution, which is
the Company’s segment profitability metric presented in the table below, excludes certain intercompany charges, specifically royalties, license fees, transfer pricing, discrete charges and other miscellaneous items. These charges have been included
in Corporate and other expenses. Corporate and other expenses also include costs related to the Company’s executive and administrative offices, information technology, research and development, and marketing and supply chain functions not recorded at
the segment level.
Prior year segment information has been recast to reflect the move of the Pacific components from the “America/Pacific” operating segment to the “Southeast
Asia/Pacific” operating segment to comply with current segment presentation. Prior year segment information has been recast to reflect the fourth quarter 2021 exit of the Grow Tech segment, which has been recast to Corporate and other expenses.
Consolidated financial information is not affected.
The accounting policies of the segments are the same as those described in Note 2 – Summary of Significant Accounting Policies. The Company
evaluates the performance of its segments based on revenue and segment contribution. Each segment records direct expenses related to its employees and its operations.
Summarized financial information for the Company’s reportable segments is shown in the following tables. Asset information is not reviewed or
included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
Revenue by Segment
|
Three Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
| (U.S. dollars in thousands) |
2022 | 2021 | 2022 | 2021 | ||||||||||||
|
Nu Skin
|
||||||||||||||||
|
Americas
|
$ |
$ |
$ |
$ |
||||||||||||
|
Mainland China
|
|
|
|
|
|
|
|
|
||||||||
| Southeast Asia/Pacific | ||||||||||||||||
|
South Korea
|
||||||||||||||||
|
Japan
|
||||||||||||||||
|
EMEA
|
||||||||||||||||
| Hong Kong/Taiwan | ||||||||||||||||
| Nu Skin other | ||||||||||||||||
| Total Nu Skin |
||||||||||||||||
| Rhyz Investments |
||||||||||||||||
| Manufacturing (1) | ||||||||||||||||
| Rhyz other | ||||||||||||||||
| Total Rhyz Investments |
||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| (1) |
|
Segment Contribution
|
Three Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Nu Skin
|
||||||||||||||||
|
Americas
|
$ | $ | $ | $ | ||||||||||||
|
Mainland China
|
|
|
|
|
||||||||||||
|
Southeast Asia/Pacific
|
||||||||||||||||
|
South Korea
|
|
|
|
|
||||||||||||
|
Japan
|
|
|
|
|
||||||||||||
|
EMEA
|
||||||||||||||||
|
Hong Kong/Taiwan
|
|
|
|
|
||||||||||||
|
Nu Skin contribution
|
|
|
|
|
||||||||||||
|
Rhyz Investments
|
||||||||||||||||
|
Manufacturing
|
|
|
|
|
||||||||||||
|
Rhyz other
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Rhyz Investments contribution
|
|
|
|
|
||||||||||||
|
Total segment contribution
|
|
|
|
|
||||||||||||
|
Corporate and other
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Operating income
|
(
|
)
|
|
|
|
|||||||||||
|
Other income (expense)
|
(
|
)
|
|
(
|
)
|
|
||||||||||
|
Income before provision for income taxes
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||
Depreciation and Amortization
|
Three Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Nu Skin
|
||||||||||||||||
|
Americas
|
$ |
$ |
$ |
$ |
||||||||||||
|
Mainland China
|
|
|
|
|
|
|
|
|
||||||||
|
Southeast Asia/Pacific
|
|
|
|
|
||||||||||||
|
South Korea
|
|
|
|
|
||||||||||||
|
Japan
|
||||||||||||||||
|
EMEA
|
|
|
|
|||||||||||||
|
Hong Kong/Taiwan
|
|
|
|
|
||||||||||||
|
Total Nu Skin
|
|
|
|
|
||||||||||||
|
Rhyz Investments
|
||||||||||||||||
|
Manufacturing
|
|
|
|
|
||||||||||||
|
Rhyz other
|
|
|
|
|
||||||||||||
|
Total Rhyz Investments
|
|
|
|
|
||||||||||||
|
Corporate and other
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Capital Expenditures
|
Three Months Ended
September 30,
|
Nine
Months Ended
September 30,
|
|||||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Nu Skin
|
||||||||||||||||
|
Americas
|
$ |
$ |
$ |
$ |
||||||||||||
|
Mainland China
|
|
|
|
|
|
|
|
|
||||||||
|
Southeast Asia/Pacific
|
|
|
||||||||||||||
|
South Korea
|
|
|
|
|
||||||||||||
|
Japan
|
|
|
|
|
||||||||||||
|
EMEA
|
||||||||||||||||
|
Hong Kong/Taiwan
|
|
|
|
|
||||||||||||
|
Total Nu Skin
|
|
|
|
|
||||||||||||
|
Rhyz Investments
|
||||||||||||||||
|
Manufacturing
|
|
|
|
|
||||||||||||
|
Rhyz other
|
|
|
|
|
||||||||||||
|
Total Rhyz Investments
|
|
|
|
|
||||||||||||
|
Corporate and other
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| 11. |
Commitments and Contingencies
|
The Company is subject to government regulations pertaining to product formulation, labeling and packaging, product claims and advertising, and the
Company’s direct selling system. The Company is also subject to the jurisdiction of numerous foreign tax and customs authorities. Any assertions or determination that either the Company or the Company’s sales force is not in compliance with existing
statutes, laws, rules or regulations could have a material adverse effect on the Company’s operations. In addition, in any country or jurisdiction, the adoption of new statutes, laws, rules or regulations or changes in the interpretation of existing
statutes, laws, rules or regulations could have a material adverse effect on the Company and its operations. No assurance can be given that the Company’s compliance with applicable statutes, laws, rules and regulations will not be challenged by
foreign authorities or that such challenges will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company and its Subsidiaries are defendants in litigation, investigations and other
proceedings involving various matters. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s consolidated financial condition, results of
operations or cash flows.
The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The
Company believes it has appropriately provided for income taxes for all years. Several factors drive the calculation of its tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law
and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results.
| 12. |
Acquisitions
|
In April 2021, the Company acquired 100 % ownership in
MyFavoriteThings, Inc. (“Mavely”), making Mavely a wholly owned subsidiary of the Company. The acquisition enables the Company to continue to expand its digital tools. The purchase price for Mavely was $16.8 million, net of cash acquired of $0.4 million and $0.9 million to be paid within six months, all payable in cash. In addition, there is potential for an incremental $24.0 million in contingent consideration, which becomes payable if certain revenue and profitability targets are reached in 2021, 2022 and 2023. The fair
value of the contingent consideration recorded on the acquisition date was $8.7 million. The Company allocated the gross purchase price of
$29.4 million to the assets acquired and liabilities assumed at estimated fair values. The estimated fair value of assets acquired included
$16.4 million of intangible assets, $0.4
million of cash, $0.1 million of accounts receivable, and also resulted in a deferred tax liability of $3.5 million. The excess purchase price over the aggregate fair value of assets acquired less liabilities assumed of $12.6 million was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies. None of the goodwill is expected to be
deductible for income tax purposes. The intangible assets acquired were comprised of $2.0 million for customer relationships, $11.3 million for technology, $2.8 million
for trademarks and $0.3 million for other intangibles. The intangibles were assigned useful lives of 8 years 4 years for the customer relationships and 3 years for the other intangibles. All the goodwill was assigned to our Rhyz
other segment. The allocation of the fair value of assets acquired and liabilities assumed for the acquisition was finalized during the three months ended September 30, 2021.
| 13. |
Restructuring
|
In the fourth quarter of 2021, the Company determined to exit the Grow Tech segment, to better align its resources on key strategic initiatives to
achieve the future growth objectives and priorities of the core Nu Skin business. The Grow Tech segment was pursuing the commercialization of controlled-environment agriculture for use in the agriculture feed industry. This segment had been
operating as part of the Company’s Rhyz strategic investment arm. As a result of the restructuring program, the Company recorded a non-cash charge of $38.5
million in 2021, including $9.2 million for impairment of goodwill, $9.0 million for impairment of intangibles, $13.7 million of fixed
asset impairments and $6.6 million for inventory write-off, and $20.0 million of cash charges, including $6.5 million for employee
severance and $13.5 million for other related cash charges with our restructuring. As of December 31, 2021, the $20.0 million liability related to cash charges was recorded within Accrued expenses. During the first quarter of 2022, the Company made cash payments of
$11.6 million, leaving an ending restructuring accrual of $8.3 million as of March 31, 2022. During the second quarter of 2022, the Company made cash payments of $8.0 million, leaving an ending restructuring accrual of $0.3 million as of June 30, 2022. During the third quarter of 2022, the Company made cash payments of $0.3
million, leaving no restructuring accrual as of September 30, 2022. The restructuring charges were recorded in the previous Grow Tech
segment, which in the current year has been recast to Corporate and Other.
In the third
quarter of 2022, the Company adopted a strategic plan to focus resources on the Company’s strategic priorities and optimize future growth and profitability. The global program includes workforce reductions and footprint optimization. The Company
estimates total charges under the program will approximate $35 –$45 million, with $30 –$35 million in cash charges of severance and lease termination cost and $9.9
million of non-cash charges of impairment of fixed assets and other intangibles related to the footprint optimization. The Company expects to substantially complete the program during the first half of 2023. During the third quarter of 2022, the
Company incurred charges to be settled in cash of $17.2 million in severance charges, $2.1 million in lease termination cost, and $0.9 million in
other associated cost, and non-cash charges of $8.2 million in fixed asset impairments and $1.7 million in impairment of other intangibles. During the third quarter of 2022, the Company made cash payments of $7.9 million related to this global program, leaving an ending restructuring accrual of $12.3 million.
Restructuring
expense by segment
|
(U.S. dollars in thousands)
|
Three Months Ended
September 30,2022
|
|||
|
Nu Skin
|
||||
|
Americas
|
$ |
|
||
|
Mainland China
|
|
|
||
|
Southeast Asia/Pacific
|
|
|||
|
South Korea
|
|
|||
|
Japan
|
|
|||
|
EMEA
|
|
|||
|
Hong Kong/Taiwan
|
|
|||
|
Total Nu Skin
|
|
|||
|
Rhyz Investments
|
||||
|
Manufacturing
|
|
|||
|
Rhyz other
|
|
|||
|
Total Rhyz Investments
|
|
|||
|
Corporate and other
|
|
|||
|
Total
|
$
|
|
||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that represent our current expectations and beliefs. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws and include, but are not
limited to, statements of management’s expectations regarding our performance, initiatives, strategies, product introductions and offerings, growth, opportunities and risks; statements of projections regarding future sales, expenses, operating
results, taxes and duties, capital expenditures, sources and uses of cash, foreign-currency fluctuations or devaluations, repatriation of undistributed earnings, and other financial items; statements of management’s expectations and beliefs
regarding our markets and global economic conditions; statements regarding the payment of future dividends and stock repurchases; statements regarding the outcome of litigation, audits, investigations or other regulatory actions; statements
regarding government policies and regulations relating to our industry, including government policies and regulations in Mainland China; accounting estimates and assumptions; statements of belief; and statements of assumptions underlying any of the
foregoing. In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,” “optimistic,” “project,” “anticipate,” “determine,” “estimate,” “intend,” “plan,” “goal,” “objective,” “targets,” “become,” “likely,”
“will,” “would,” “could,” “may,” “might,” the negative of these words and other similar words. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or
otherwise, except as required by law. We caution and advise readers that these statements are based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results to differ materially from the
expectations and beliefs contained herein. For a summary of these risks, see the risk factors included in our Annual Report on Form 10-K for the 2021 fiscal year and in our subsequent quarterly and other reports, including this Quarterly Report.
The following Management’s Discussion and Analysis should be read in conjunction with our consolidated financial statements and related notes and Management’s Discussion and Analysis included in our Annual Report on
Form 10-K for the 2021 fiscal year, and our other reports filed with the Securities and Exchange Commission through the date of this Quarterly Report.
Overview
Revenue for the three-month period ended September 30, 2022 decreased 16% to $537.8 million, compared to $641.2 million in the prior-year period, and revenue for the nine-month period ended September 30, 2022
decreased 16% to $1.7 billion, compared to $2.0 billion in the prior-year period. Our revenue in the third quarter and first nine months of 2022 was negatively impacted 7% and 5%, respectively, from foreign-currency fluctuations. Our Customers,
Paid Affiliates and Sales Leaders declined 11%, 11% and 22%, respectively, on a year-over-year basis.
Our third quarter and first nine months of 2022 revenue was softer than anticipated primarily driven by continuation of COVID-related factors in Mainland China, South Korea and Hong Kong; distractions in EMEA related
to the ongoing conflict in Russia and Ukraine; and the general global economic downturn pressures being felt in our global markets.
During the third quarter we began our limited introduction of the ageLOC LumiSpa iO in all of our segments, which generated approximately $19.3 million of revenue. The
limited introductions are continuing into the fourth quarter, with the ageLOC LumiSpa iO being generally available for purchase in all of our markets by the end of the fourth quarter.
Earnings per share for the third quarter of 2022 decreased 153% to $(0.51), compared to $0.97 in the prior-year period. Earnings per share for the first nine months of 2022 decreased 69% to $0.94, compared to $3.03
in the prior-year period. The decrease in earnings per share for the third quarter and first nine months of 2022 was primarily driven by the third quarter restructuring and related cost, along with decreases in revenue for both periods presented.
Segment Results
We report our business in nine segments to reflect our current management approach. These segments consist of our seven geographic Nu Skin segments—Americas, Mainland China, Southeast Asia/Pacific, South Korea,
Japan, EMEA, and Hong Kong/Taiwan—and our Rhyz Investment segments—Manufacturing and Rhyz other. The Nu Skin other category includes miscellaneous corporate revenue and related adjustments. The Rhyz other segment includes other investments by our
Rhyz strategic investment arm, which were entered into during the second quarter of 2021.
The following table sets forth revenue for the three- and nine-month periods ended September 30, 2022 and 2021 for each of our reportable segments (U.S. dollars in thousands):
|
Three Months Ended
September 30,
|
Constant-
Currency
|
Nine Months Ended
September 30,
|
Constant-
Currency
|
|||||||||||||||||||||||||||||
|
2022
|
2021
|
Change
|
Change(1)
|
2022
|
2021
|
Change
|
Change(1)
|
|||||||||||||||||||||||||
|
Nu Skin
|
||||||||||||||||||||||||||||||||
|
Americas
|
$
|
131,591
|
$
|
131,482
|
—
|
3
|
%
|
$
|
379,616
|
$
|
403,755
|
(6
|
)%
|
(4
|
)%
|
|||||||||||||||||
|
Mainland China
|
75,151
|
134,291
|
(44
|
)%
|
(41
|
)%
|
286,454
|
438,066
|
(35
|
)%
|
(34
|
)%
|
||||||||||||||||||||
|
Southeast Asia/Pacific
|
83,502
|
79,081
|
6
|
%
|
12
|
%
|
267,805
|
246,338
|
9
|
%
|
13
|
%
|
||||||||||||||||||||
|
South Korea
|
67,237
|
91,989
|
(27
|
)%
|
(15
|
)%
|
208,678
|
261,724
|
(20
|
)%
|
(11
|
)%
|
||||||||||||||||||||
|
Japan
|
53,276
|
65,117
|
(18
|
)%
|
3
|
%
|
171,019
|
203,001
|
(16
|
)%
|
(1
|
)%
|
||||||||||||||||||||
|
EMEA
|
45,099
|
55,839
|
(19
|
)%
|
(6
|
)%
|
148,938
|
215,134
|
(31
|
)%
|
(22
|
)%
|
||||||||||||||||||||
|
Hong Kong/Taiwan
|
39,587
|
39,921
|
(1
|
)%
|
6
|
%
|
117,408
|
114,795
|
2
|
%
|
6
|
%
|
||||||||||||||||||||
|
Nu Skin other
|
496
|
1,672
|
(70
|
)%
|
(70
|
)%
|
2,434
|
3,497
|
(30
|
)%
|
(30
|
)%
|
||||||||||||||||||||
|
Total Nu Skin
|
495,939
|
599,392
|
(17
|
)%
|
(9
|
)%
|
1,582,352
|
1,886,310
|
(16
|
)%
|
(11
|
)%
|
||||||||||||||||||||
|
Rhyz Investments
|
||||||||||||||||||||||||||||||||
|
Manufacturing
|
41,328
|
41,635
|
(1
|
)%
|
(1
|
)%
|
119,898
|
135,760
|
(12
|
)%
|
(12
|
)%
|
||||||||||||||||||||
|
Rhyz other
|
538
|
125
|
330
|
%
|
330
|
%
|
1,069
|
163
|
556
|
%
|
556
|
%
|
||||||||||||||||||||
|
Total Rhyz Investments
|
41,866
|
41,760
|
—
|
—
|
120,967
|
135,923
|
(11
|
)%
|
(11
|
)%
|
||||||||||||||||||||||
|
Total
|
$
|
537,805
|
$
|
641,152
|
(16
|
)%
|
(9
|
)%
|
$
|
1,703,319
|
$
|
2,022,233
|
(16
|
)%
|
(11
|
)%
|
||||||||||||||||
| (1) |
Constant-currency revenue change is a non-GAAP financial measure. See “Non-GAAP Financial Measures,” below.
|
The following table sets forth segment contribution for the three- and nine-month periods ended September 30, 2022 and 2021 for each of our reportable segments (U.S. dollars in thousands). Segment contribution
excludes certain intercompany charges, specifically royalties, license fees, transfer pricing and other miscellaneous items. We use segment contribution to measure the portion of profitability that the segment managers have the ability to control
for their respective segments. The prior year segment contribution has been recast for the fourth quarter of 2021 exit of the Grow Tech segment and the expense has been recast to Corporate and other. For additional information regarding our
segments and the calculation of segment contribution, see Note 10 to the consolidated financial statements contained in this report.
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||||||||||
|
2022
|
2021
|
Change
|
2022
|
2021
|
Change
|
|||||||||||||||||||
|
Nu Skin
|
||||||||||||||||||||||||
|
Americas
|
$
|
23,016
|
$
|
25,752
|
(11
|
)%
|
$
|
78,165
|
$
|
83,495
|
(6
|
)%
|
||||||||||||
|
Mainland China
|
12,933
|
30,677
|
(58
|
)%
|
54,873
|
121,596
|
(55
|
)%
|
||||||||||||||||
|
Southeast Asia/Pacific
|
20,719
|
19,020
|
9
|
%
|
68,492
|
59,881
|
14
|
%
|
||||||||||||||||
|
South Korea
|
20,455
|
28,984
|
(29
|
)%
|
63,776
|
84,401
|
(24
|
)%
|
||||||||||||||||
|
Japan
|
13,103
|
16,267
|
(19
|
)%
|
41,867
|
50,709
|
(17
|
)%
|
||||||||||||||||
|
EMEA
|
3,379
|
6,693
|
(50
|
)%
|
13,377
|
29,270
|
(54
|
)%
|
||||||||||||||||
|
Hong Kong/Taiwan
|
8,425
|
8,940
|
(6
|
)%
|
26,276
|
24,848
|
6
|
%
|
||||||||||||||||
|
Total Nu Skin
|
102,030
|
136,333
|
(25
|
)%
|
346,826
|
454,200
|
(24
|
)%
|
||||||||||||||||
|
Rhyz Investments
|
||||||||||||||||||||||||
|
Manufacturing
|
1,755
|
3,059
|
(43
|
)%
|
6,235
|
15,649
|
(60
|
)%
|
||||||||||||||||
|
Rhyz other
|
(1,724
|
)
|
(659
|
)
|
(162
|
)%
|
(4,069
|
)
|
(1,178
|
)
|
(245
|
)%
|
||||||||||||
|
Total Rhyz Investments
|
$
|
31
|
$
|
2,400
|
(99
|
)%
|
$
|
2,166
|
$
|
14,471
|
(85
|
)%
|
||||||||||||
The following tables provide information concerning the number of Customers, Paid Affiliates and Sales Leaders in our core Nu Skin business for the three-month periods ended September 30, 2022 and 2021. During the
first quarter of 2022, in connection with the introduction of the new metric Paid Affiliates, we reviewed how we currently present Sales Leaders and adjusted that metric’s definition to what we believe provides a better insight into the trends of
our business. The definition of our Customer metric remained unchanged. We have recast the 2021 Sales Leaders to the new definition.
| ● |
“Customers” are persons who have purchased directly from the Company during the three months ended as of the date indicated. Our Customer numbers include members of our sales force who made such a purchase, including Paid Affiliates and
those who qualify as Sales Leaders, but they do not include consumers who purchase products directly from members of our sales force.
|
| ● |
“Paid Affiliates” are any Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who earned sales compensation during the three-month period. In all of our markets besides Mainland China, we refer to
members of our independent sales force as “Brand Affiliates” because their primary role is to promote our brand and products through their personal social networks.
|
| ● |
“Sales Leaders” are the three-month average of our monthly Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who achieved certain qualification requirements as of the end of each month of the
quarter.
|
|
Three Months Ended
September 30,
|
||||||||||||
|
Customers
|
2022
|
2021
|
Change
|
|||||||||
|
Americas
|
316,123
|
324,884
|
(3
|
)%
|
||||||||
|
Mainland China
|
256,183
|
355,256
|
(28
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
153,432
|
162,047
|
(5
|
)%
|
||||||||
|
South Korea
|
134,549
|
156,431
|
(14
|
)%
|
||||||||
|
Japan
|
121,202
|
123,453
|
(2
|
)%
|
||||||||
|
EMEA
|
187,906
|
210,705
|
(11
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
69,989
|
62,491
|
12
|
%
|
||||||||
|
Total
|
1,239,384
|
1,395,267
|
(11
|
)%
|
||||||||
|
Three Months Ended
September 30,
|
||||||||||||
|
Paid Affiliates
|
2022
|
2021
|
Change
|
|||||||||
|
Americas
|
44,745
|
50,619
|
(12
|
)%
|
||||||||
|
Mainland China
|
23,088
|
32,167
|
(28
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
40,624
|
43,298
|
(6
|
)%
|
||||||||
|
South Korea
|
47,852
|
54,119
|
(12
|
)%
|
||||||||
|
Japan
|
38,119
|
38,315
|
(1
|
)%
|
||||||||
|
EMEA
|
31,409
|
36,245
|
(13
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
17,439
|
18,872
|
(8
|
)%
|
||||||||
|
Total
|
243,276
|
273,635
|
(11
|
)%
|
||||||||
|
Three Months Ended
September 30,
|
||||||||||||
|
Sales Leaders
|
2022
|
2021
|
Change
|
|||||||||
|
Americas
|
9,545
|
11,889
|
(20
|
)%
|
||||||||
|
Mainland China(1)
|
11,897
|
19,392
|
(39
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
7,618
|
7,623
|
—
|
|||||||||
|
South Korea
|
6,992
|
8,929
|
(22
|
)%
|
||||||||
|
Japan
|
6,063
|
6,007
|
1
|
%
|
||||||||
|
EMEA
|
4,777
|
6,417
|
(26
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
2,932
|
3,629
|
(19
|
)%
|
||||||||
|
Total
|
49,824
|
63,886
|
(22
|
)%
|
||||||||
| (1) |
The September 30, 2022 number reflects a modified Sales Leader definition. See “Mainland China,” below.
|
Following is a narrative discussion of our results in each segment, which supplements the tables above.
Americas. Our Americas segment continues to be challenged by macroeconomic issues in the Latin America markets, which drove the decline in Customers, Paid Affiliates and Sales Leaders. Our U.S. market revenue
increased 7% for the third quarter of 2022 and 9% for the first nine months of 2022 due to continued social selling momentum and subscription enrollment. During the third quarter of 2022, we began our launch process of the ageLOC LumiSpa iO, with limited offerings to our sales force ahead of the full launch in the fourth quarter of 2022. The limited launch of the ageLOC LumiSpa iO generated approximately
$8.3 million in revenue.
The year-over-year decrease in segment contribution for the third quarter is primarily attributable to a 2.3 percentage point decrease in gross margin, primarily from sales mix and higher sales
discounts and promotions during the quarter. The year-over-year decrease in segment contribution for the first nine months of 2022 is primarily attributable to the decline in revenue, with a 1.7 percentage point decrease in gross margin,
primarily from high sales discounts and promotions, partially offset by a 1.6 percentage point decrease in selling expenses as a percentage of revenue, primarily attributable to the make up of the sales force, which resulted in less Sales Leaders
qualifying for increased compensation and a lower incentive trip expenses.
Mainland China. Our Mainland China market continued to be challenged during the third quarter and first nine months of 2022, with continued pressures from COVID-related factors, which negatively impacted our
selling and promotional activities. As a result of the economic headwinds in the market we made some modifications to the compensation plan during the quarter, which provides our leaders more flexible requirements to maintain their business. Our
Mainland China Sales Leader numbers as of September 30, 2022 reflect these modified requirements.
During July 2022, we resumed allowing Sales Leader meetings in this market on a limited basis, so long as they are in compliance with government
regulations and related controls that we have implemented. In our Quarterly Reports on Form 10-Q for the 2022 first and second quarters, we referenced government inquiries related to a meeting in a hotel in Wuhan, Hubei Province organized by an
independent marketer of Nu Skin China. These inquiries have been resolved.
The year-over-year decrease in segment contribution for the third quarter and first nine months of 2022 primarily reflects lower revenue. The decrease also reflects a 1.7 and 3.3 percentage point
decrease in gross margin for the third quarter and first nine months of 2022, respectively, primarily from increased product promotions and discounts during the third quarter of 2022, along with a shift in product mix, where a higher proportion of
devices were sold in the period, and increased freight charges. The decrease in segment contribution also reflects an increase in general and administrative expenses as a percentage of revenue due to the fixed nature of these expenses.
Southeast Asia/Pacific. Our Southeast Asia/Pacific segment revenue increased 6% and 9% for the third quarter and first nine months of 2022, respectively, including a 6% and 4% negative impact from unfavorable
foreign-currency fluctuations for the third quarter and first nine months of 2022, respectively. The increase in revenue was partially driven by strong product launches of ageLOC Meta (locally referred to
as ageLOC Reset in the Southeast Asia markets), which generated approximately $40.3 million in revenue for the first nine months of 2022, along with loosening of COVID-related restrictions in the markets.
In addition, during the third quarter of 2022, we began our launch process of the ageLOC LumiSpa iO, with limited offerings to our sales force with the full launch occurring in the fourth quarter of 2022.
Our product launches and promotions during the quarter were focused on re-energizing our existing Sales Leaders, which led to a decline in our Customers and Paid Affiliates.
The year-over-year increase in segment contribution is primarily attributable to higher revenue, along with the fixed nature of general and administrative expenses on increased revenue, partially offset by increases
in selling expenses attributable to product mix, as our products each have a differing commission percentage assigned to them, and sales force conventions that were held during the quarter.
South Korea. Our South Korea segment was challenged from a recent price increase to address the inflationary pressure, along with continued COVID-related disruptions for the third quarter and first nine months
of 2022, resulting in a 27% and 20% decline in revenue for the third quarter and first nine months of 2022, along with declines in Customers, Paid Affiliates and Sales Leaders. In addition, our revenue was negatively impacted 12% and 9% from
unfavorable foreign-currency fluctuations.
The year-over-year decrease in segment contribution is primarily from a decline in revenue along with a slight decline in selling expenses as a percentage of revenue.
Japan. The decline in revenue is primarily attributable to a 21% and 15% unfavorable foreign-currency fluctuations for the third quarter
and first nine months of 2022. On a local currency basis, revenue increased 3% for the third quarter and decreased 1% for the first nine months of 2022.
The year-over-year decline in segment contribution is primarily from the decline in revenue.
EMEA. The continued softening of momentum in our EMEA segment was driven by distractions to our sales force from the ongoing geopolitical Russian/Ukraine conflict and led to a revenue, Customers, Paid
Affiliates and Sales Leaders decline. Our reported revenue was also negatively impacted from foreign-currency fluctuations. We have suspended business operations in Ukraine and have closed our market in Russia. The Russia and Ukraine markets have
historically accounted for less than 1% of our consolidated revenue.
The year-over-year decline in segment contribution reflects the decline in revenue along with a lower gross margin from unfavorable product mix and increased promotions, and the fixed nature of
general and administrative expenses with a decline in revenue.
Hong Kong/Taiwan. Our Hong Kong /Taiwan segment revenue decreased 1% for the third quarter and increased 2% for the first nine months of 2022, reflecting negative impacts of 7% and 4% from foreign-currency
fluctuations. On a constant-currency basis, revenue increased 6% for both the third quarter and first nine months of 2022. The increase in constant-currency revenue is primarily from revenue growth in our Taiwan market from social selling. Our
Customers also increased 12%, from social commerce adoption and growth in our Taiwan market. Our Hong Kong market continues to be challenged from the ongoing pressures from COVID-19, which led to a decline in Sales Leaders and Paid Affiliates.
The decrease in segment contribution for the third quarter of 2022, is primarily from a 1.4 percentage point drop in gross margin from elevated freight cost during the quarter, along with a 2.1 percentage point
increase in selling expenses as a percent of revenue, primarily attributable increased travel cost associated with our incentive trips. The increase in segment contribution for the first nine months of 2022 is primarily driven by an increase in
revenue along with a decline in general and administrative expenses.
Manufacturing. Our Manufacturing segment revenue was flat for the third quarter of 2022 and declined 12% for the first nine months of 2022, primarily due to our customers rebalancing their inventory from
higher levels in 2021, reducing demand in 2022.
The decline in segment contribution is attributable to lower revenue, along with the revenue mix between our manufacturing entities with differing profitability levels.
Consolidated Results
Revenue
Revenue for the three-month period ended September 30, 2022 decreased 16% to $537.8 million, compared to $641.2 million in the prior-year period. Revenue for the nine-month period ended September 30, 2022 decreased
16% to $1.7 billion compared to $2.0 billion. Our reported revenue was negatively impacted 7% and 5% from foreign-currency fluctuations for the three- and nine-month periods ended September 30, 2022, respectively. For a discussion and analysis of
these decreases in revenue, see “Overview” and “Segment Results,” above.
Gross profit
Gross profit as a percentage of revenue was 67.7% for the third quarter of 2022, compared to 75.2% for the prior-year period, and 71.6% for the first
nine months of 2022, compared to 75.2% for the prior-year period. Gross profit as a percentage of revenue for core Nu Skin decreased 5.6 percentage points to 73.0% for the third quarter of 2022 and decreased 2.6 percentage points to 75.6% for
the first nine months of 2022. The decline in our gross margin for the third quarter of 2022 and first nine months of 2022 is primarily driven by our strategic decision to align our inventory on hand with our future sales and promotional plans,
which resulted in an incremental $26.9 million write-off, which was recorded in our Corporate and other category. Our Nu Skin gross margin was also negatively impacted by increased sales promotions during the third quarter and first nine months
of 2022, as well as changes in our geographical revenue mix, as our markets have differing gross margins.
Selling expenses
Selling expenses as a percentage of revenue decreased to 40.3% for the third quarter of 2022, compared to 40.6% for the prior year period, and decreased to 39.8% for the first nine months of 2022, compared to 40.4%
for the prior-year period. Core Nu Skin selling expenses as a percentage of revenue remained flat at 43.5% for the third quarter of 2022 and decreased 0.5 percentage points to 42.8% for the first nine months of 2022. Selling expenses for our core
Nu Skin business are driven by the specific performance of our individual Sales Leaders. Given the size of our sales force and the various components of our compensation and incentive programs, selling expenses as a percentage of revenue typically
fluctuate plus or minus approximately 100 basis points from period to period.
General and administrative expenses
General and administrative expenses decreased to $138.0 million in the third quarter of 2022, compared to $156.5 million in the prior-year period and decreased to $428.1 million in the first nine months of 2022,
compared to $490.2 million in the prior-year period. The $18.5 million decrease for the third quarter of 2022 was primarily from a $9.8 million contraction in labor expense from lower employee performance incentive compensation, along with our
recent restructuring plan, and a $6.9 million decline from our fourth quarter 2021 exit of the Grow Tech segment. The $62.1 million decrease for the first nine months of 2022 was primarily from a $37.2 million contraction in labor expenses from
lower employee performance incentive compensation, along with our fourth quarter 2021 exit of the Grow Tech segment, which led to $20.0 million less expense for the first nine months of 2022. General and administrative expenses as a percentage of
revenue increased to 25.7% for the third quarter of 2022, from 24.4% for the prior-year period, and increased to 25.1% for the first nine months of 2022, from 24.2% for the prior-year period.
Restructuring and impairment expenses
In the third quarter of 2022, we adopted a strategic plan to focus resources on our strategic priorities and optimize future growth and profitability. The global program includes workforce reductions and footprint
optimization. We estimate total charges under the program will approximate $35–$45 million, with $30–$35 million in cash charges of severance and lease termination cost and $9.9 million of non-cash charges of impairment of fixed assets and other
intangibles related to the footprint optimization. We expect to substantially complete the program during the first half of 2023. During the third quarter of 2022, we incurred charges to be settled in cash of $17.2 million in severance charges,
$2.1 million in lease termination cost, and $0.9 million in other associated cost, with non-cash charges of $8.2 million in fixed asset impairments and $1.7 million in impairment of other intangibles.
Other income (expense), net
Other income (expense), net was $(8.7) million for the third quarter and $(18.8) million for the first nine months of 2022, which included a $3.3 million and $9.0 million unrealized investment loss for the third
quarter and first nine months of 2022, respectively, related to a controlled environment agriculture company we invested in as part of our previous Grow Tech segment. With our fourth quarter of 2021 exit from the Grow Tech segment, we are in the
process of exiting this investment. Other income (expense), net was $2.8 million for the third quarter of 2021 and $0.4 million for the first nine months of 2021, which included a $18.1 million in unrealized equity investment income, partially
offset by a $10.7 million loss on asset disposal, both of which did not recur in 2022.
Provision for income taxes
Provision for income taxes for the three- and nine-month periods ended September 30, 2022 was $(3.6) million and $17.1 million, respectively, compared to $18.4 million and $57.5 million for the prior-year periods.
The effective tax rates for the three- and nine-month periods ended September 30, 2022 were 12.3% and 26.4% of pre-tax income compared, respectively, to 27.0% and 26.9% in the prior-year periods. The decrease in effective tax rate for the third
quarter and first nine months of 2022 primarily reflects our expenses associated with the adoption of a strategic plan to focus resources on our strategic priorities and optimize future growth and profitability.
Net income
As a result of the foregoing factors, net income for the third quarter of 2022 was $(25.4) million, compared to $49.7 million in the prior-year period. Net income for the first nine months of 2022 was $47.6 million,
compared to $156.5 million for the first nine months of 2021.
Liquidity and Capital Resources
Historically, our principal uses of cash have included operating expenses (particularly selling expenses) and working capital (principally inventory purchases), as well as capital expenditures, stock repurchases,
dividends, and debt repayment. We have at times incurred long-term debt, or drawn on our revolving line of credit, to fund strategic transactions, stock repurchases, capital investments and short-term operating needs. We typically generate positive
cash flow from operations due to favorable margins and have generally relied on cash from operations to fund operating activities. In the first nine months of 2022, we generated $82.5 million in cash from operations, compared to $32.1 million
during the prior-year period. The increase in cash flow from operations primarily reflects an approximate $48.4 million decline in inventory during the period, compared to an increase in the prior year period, as we continue to work towards our
optimal inventory levels, and a decrease in accrued expenses from the 2022 payout of our fourth quarter of 2021 restructuring cost. Cash and cash equivalents, including current investments, as of September 30, 2022 and December 31, 2021 were $308.0
million and $354.8 million, respectively, with the decrease being driven by capital expenditures, as discussed below, our quarterly dividend payments, stock repurchases and payment on liabilities associated with our fourth quarter 2021 and third
quarter of 2022 restructurings.
Working capital. As of September 30, 2022, working capital was $412.3 million, compared to $343.3 million as of December 31, 2021. The increase in working capital is attributable to our second quarter debt
modification, which resulted in a net $60.0 million of incremental borrowings, while shifting $100.0 million from current to long-term debt. Our working capital also benefited from a $17.5 million increase in prepaid expenses and other assets
primarily attributable to prepaid income tax, a $90.8 million reduction in accrued expenses from the first half of 2022 pay-out of restructuring cost, employee incentive accruals, and a decline in accrued commission from the decline in sales, all
partially offset by a $72.5 million decrease in inventory.
Capital expenditures. Capital expenditures for the nine months ended September 30, 2022 were $45.3 million. We expect that our capital expenditures in 2022 will be primarily related to:
| ● |
purchases and expenditures for computer systems and equipment, software, and application development;
|
| ● |
the expansion and upgrade of facilities in our various markets; and
|
| ● |
a new manufacturing plant in Mainland China.
|
We estimate that capital expenditures for the uses listed above will total approximately $75–95 million for 2022. We are currently expecting to
complete construction of the new manufacturing plant in Mainland China in the first half of 2023. As of September 30, 2022, we have spent approximately $43.1 million on this project, including $5.8 million in the first nine months of 2022 and
expect that our expenditures for this project will total approximately $52-57 million, including approximately $15-20 million during 2022.
Credit Agreement. On June 14, 2022, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative
agent. The Credit Agreement provides for a $400.0 million term loan facility and a $500.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the
previous credit agreement. Both facilities bear interest at the SOFT, plus a margin based on our consolidated leverage ratio. The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5% during
the first year and 5.0% during the subsequent years after the closing date of the Credit Agreement, with the remainder payable at final maturity. As of September 30, 2022, we had $30.0 million of outstanding borrowings under our revolving credit
facility, and $397.5 million on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $(2.7) million as of September 30, 2022, related to the Credit Agreement. The Credit Agreement requires us to maintain a
consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. As of September 30, 2022, we were in compliance with all debt covenants under the Credit Agreement.
Modification of previous credit agreement. On June 14, 2022, we repaid our outstanding debt under our credit agreement, dated as of April 18, 2018, with several financial institutions as lenders and Bank of
America, N.A., as administrative agent. We had indebtedness of $70.0 million on our revolver as of December 31, 2021, and $307.5 million on our term loan as of December 31, 2021.
Derivative Instruments. As of September 30, 2022, we had four interest rate swaps, with a total notional principal amount of $200 million and a maturity date of July 31, 2025. We entered into these interest
rate swap arrangements during the third quarter of 2020 to hedge the variable cash flows associated with our variable-rate debt under the Credit Agreement.
Stock repurchase plan. In 2018, our board of directors approved a stock repurchase plan authorizing us to repurchase up to $500.0 million of our outstanding shares of Class A common stock on the open market or
in private transactions. During the third quarter of 2022, we repurchased approximately 1.0 million shares of our Class A common stock under the plan for $40.0 million. As of September 30, 2022, $185.4 million was available for repurchases under
the plan. Our stock repurchases are used primarily to offset dilution from our equity incentive plans and for strategic initiatives.
Dividends. In February, May and August 2022, our board of directors declared quarterly cash dividends of $0.385 per share. These quarterly cash dividends of $19.3 million, $19.4 million and $19.3 million was
paid on March 9, 2022, June 8, 2022 and September 7, 2022 to stockholders of record on February 28, 2022, May 27, 2022 and August 26, 2022. In October 2022, our board of directors declared a quarterly cash dividend of $0.385 per share to be paid
on December 7, 2022 to stockholders of record on November 25, 2022. Currently, we anticipate that our board of directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future
dividend payments. However, the continued declaration of dividends is subject to the discretion of our board of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and
other relevant factors.
Cash from foreign subsidiaries. As of September 30, 2022 and December 31, 2021, we held $308.0 million and $354.8 million, respectively, in cash and cash equivalents, including current investments. These
amounts include $221.9 million and $274.9 million as of September 30, 2022 and December 31, 2021, respectively, held in our operations outside of the U.S. Substantially all of our non-U.S. cash and cash equivalents are readily convertible into U.S.
dollars or other currencies, subject to procedural or other requirements in certain markets, as well as an indefinite-reinvestment designation, as described below.
We typically fund the cash requirements of our operations in the U.S. through intercompany dividends, intercompany loans and intercompany charges for products, use of intangible property, and corporate services.
However, some markets impose government-approval or other requirements for the repatriation of dividends. For example, in Mainland China, we are unable to repatriate cash from current operations in the form of dividends until we file the necessary
statutory financial statements for the relevant period. As of September 30, 2022, we had $34.1 million in cash denominated in Chinese RMB. We also have experienced delays in repatriating cash from Argentina. As of September 30, 2022 and December
31, 2021, we had $13.6 million and $11.3 million, respectively, in intercompany receivables with our Argentina subsidiary. We also have intercompany loan arrangements in some of our markets, including Mainland China, that allow us to access
available cash, subject to certain limits in Mainland China and other jurisdictions. We also have drawn on our revolving line of credit to address cash needs until we can repatriate cash from Mainland China or other markets, and we may continue to
do so. Except for $60.0 million of earnings in Mainland China that we designated as indefinitely reinvested during the second quarter of 2018, we currently plan to repatriate undistributed earnings from our non-U.S. operations as necessary,
considering the cash needs of our non-U.S. operations and the cash needs of our U.S. operations for dividends, stock repurchases, capital investments, debt repayment and strategic transactions. Repatriation of non-U.S. earnings is subject to
withholding taxes in certain foreign jurisdictions. Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings.
We currently believe that existing cash balances, future cash flows from operations and existing lines of credit will be adequate to fund our cash needs on both a short- and long-term basis. The majority of our
historical expenses have been variable in nature, and as such, a potential reduction in the level of revenue would reduce our cash flow needs. In the event that our current cash balances, future cash flow from operations and current lines of credit
are not sufficient to meet our obligations or strategic needs, we would consider raising additional funds in the debt or equity markets or restructuring our current debt obligations. Additionally, we would consider realigning our strategic plans,
including a reduction in capital spending, stock repurchases or dividend payments.
Contingent Liabilities
Please refer to Note 11 to the consolidated financial statements contained in this Quarterly Report for information regarding our contingent liabilities.
Critical Accounting Policies and Estimates
There were no significant changes in our critical accounting policies or estimates during the third quarter of 2022.
Seasonality and Cyclicality
In addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and vacation patterns. For example, most Asian markets celebrate their respective local New Year
in the first quarter, which generally has a negative impact on that quarter. We believe that direct selling is also generally negatively impacted during the third quarter, when many individuals, including our sales force, traditionally take
vacations.
Prior to making a key product generally available for purchase, we may do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders, a limited-time offer, or other
product introduction or promotion. These offerings may generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue, Sales Leaders and/or Customers during the quarter and can skew
year-over-year and sequential comparisons.
Non-GAAP Financial Measures
Constant-currency revenue change is a non-GAAP financial measure that removes the impact of fluctuations in foreign-currency exchange rates, thereby facilitating period-to-period comparisons of the Company’s
performance. It is calculated by translating the current period’s revenue at the same average exchange rates in effect during the applicable prior-year period and then comparing that amount to the prior-year period’s revenue. We believe that
constant-currency revenue change is useful to investors, lenders and analysts because such information enables them to gauge the impact of foreign-currency fluctuations on our revenue from period to period.
Available Information
Our website address is www.nuskin.com. We make available, free of charge on our Investor Relations website, ir.nuskin.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and
Exchange Commission.
We also use our Investor Relations website, ir.nuskin.com, as a channel of distribution of additional Company information that may be deemed material. Accordingly, investors should monitor this channel, in addition
to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Currency Risk and Exchange Rate Information
A majority of our revenue and many of our expenses are recognized outside of the United States, except for inventory purchases, a significant portion of which are primarily transacted in U.S. dollars from vendors in
the United States. The local currency of each of our Subsidiaries’ primary markets is considered the functional currency with the exception of our Asia product-distribution subsidiary in Singapore and, as discussed below, our subsidiary in
Argentina. All revenue and expenses are translated at weighted-average exchange rates for the periods reported. Therefore, our reported revenue and earnings will be positively impacted by a weakening of the U.S. dollar and will be negatively
impacted by a strengthening of the U.S. dollar. These impacts may be significant because a large portion of our business is derived from outside of the United States. Given the uncertainty of exchange rate fluctuations, it is difficult to predict
the effect of these fluctuations on our future business, product pricing and results of operations or financial condition.
In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation in Argentina exceeded 100 percent, and as of July 1, 2018, we elected to adopt highly inflationary
accounting for our subsidiary in Argentina. Under highly inflationary accounting, the functional currency for our subsidiary in Argentina became the U.S. dollar, and the income statement and balance sheet for this subsidiary have been measured in
U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other income (expense), net and was not material. As of
September 30, 2022, our subsidiary in Argentina had a small net peso monetary position. Net sales of our subsidiary in Argentina were less than 2% of our consolidated net sales for the three- and nine-month periods ended September 30, 2022 and
2021.
We may seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts and through intercompany loans of foreign currency. We do not use
derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results. As of September 30,
2022 and 2021, we did not hold material non-designated mark-to-market forward derivative contracts to hedge foreign denominated intercompany positions or third party foreign debt. As of September 30, 2022, and 2021 we did not hold any material
forward contracts designated as foreign currency cash flow hedges. We continue to evaluate our foreign currency hedging policy.
For additional information about our market risk see Note 9 to the consolidated financial statements contained in this Quarterly Report.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our
CEO and our CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Controls Over Financial Reporting.
We made no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER INFORMATION
| ITEM 1. |
LEGAL PROCEEDINGS
|
There have been no material developments concerning the matters discussed in the “Legal Proceedings” section of our Annual Report on Form 10-K for the 2021 fiscal year.
| ITEM 1A. |
RISK FACTORS
|
The information presented below supplements and should be read in conjunction with the detailed discussion of risks associated with our business in our recent SEC filings, including our Annual
Report on Form 10-K for the 2021 fiscal year and subsequent reports.
If we are unable to retain our existing sales force and recruit additional people to join our sales force, our revenue may not increase and may even decline.
Our products are primarily marketed by our sales force, and we depend on them to generate virtually all of our revenue. Our sales force may terminate their services at any time, and like most direct
selling companies, we experience high turnover among our sales force from year to year. People who join our company to purchase our products for personal consumption or for short-term income goals frequently only stay with us for a short time.
Sales Leaders who have committed time and effort to build a sales organization will generally stay for longer periods. To increase our revenue, we must increase the number of and/or the productivity of our sales force. We must also expand our
outreach and outbound efforts to attract, connect and nurture new customers for a wider consumer base who purchase product and whom we can foster along a consumer journey to promote retention and higher lifetime value.
We have experienced periodic fluctuations in both Sales Leaders and Customers in the past and could experience such fluctuations again in the future. For example, our Sales Leaders in Mainland China
declined 46% from December 31, 2018 to December 31, 2019 due to such factors as meeting restrictions and negative media scrutiny, and further declined 39% from September 30, 2021 to September 30, 2022 due to continued pressures from COVID-related
factors. Our ability to retain our Sales Leaders and Customers could be affected as our sales force makes increased use of social sharing channels, which may allow them to more easily engage their consumers and sales network in other
opportunities. If our initiatives do not drive growth in both Sales Leaders and Customers, our operating results could be harmed. While we take many steps to help train, motivate and retain our sales force, we cannot accurately predict how the
number and productivity of our sales force may fluctuate because we rely primarily upon our Sales Leaders to find new consumers and to find, train and develop new Sales Leaders. Our operating results could be harmed if we and our Sales Leaders do
not generate sufficient interest in our business and its products to retain and motivate our existing sales force and attract new people to join our sales force.
The number and productivity of our sales force is negatively impacted by several additional factors, including:
| • |
any adverse publicity or negative public perception regarding us, our products or ingredients, our distribution channel, or our industry or competitors;
|
| • |
lack of interest in, dissatisfaction with, or the technical failure of, existing or new products;
|
| • |
lack of compelling products or income opportunities, including through our sales compensation plans and incentive trips and other offerings;
|
| • |
negative sales force reaction to changes in our sales compensation plans or to our failure to make changes that would be necessary to keep our compensation competitive with the market;
|
| • |
interactions with our company, including our actions to enforce our policies and procedures and the quality of our customer service;
|
| • |
any regulatory actions or charges against us or others in our industry, as well as regulatory changes that impact product formulations and sales viability;
|
| • |
general economic, business, public health and geopolitical conditions, including employment levels, employment trends such as the gig and sharing economies, pandemics or other conditions that curtail
person-to-person interactions, and the ongoing conflict in Russia and Ukraine which has caused disruption to our sales force;
|
| • |
changes in the policies of social media platforms used to prospect or recruit potential consumers and sales force participants;
|
| • |
recruiting efforts of our competitors and changes in consumer-loyalty trends; and
|
| • |
potential saturation or maturity levels in a given market, which could negatively impact our ability to attract and retain our sales force in such market.
|
Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks.
Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is exposed to risks associated with our
international operations, including:
| • |
the possibility that a government might ban or severely restrict our sales compensation and business models;
|
| • |
the possibility that local civil unrest, political instability, or changes in diplomatic or trade relationships might disrupt our operations in one or more markets—for example, the ongoing conflict in Russia and
Ukraine has caused disruption to our sales force;
|
| • |
the lack of well-established or reliable legal systems in certain areas where we operate;
|
| • |
the presence of high inflation in the economies of international markets in which we operate;
|
| • |
the possibility that a government authority might impose legal, tax, customs, or other financial burdens on us or our sales force, due, for example, to the structure of our operations in various markets;
|
| • |
the possibility that a government authority might challenge the status of our sales force as independent contractors or impose employment or social taxes on our sales force; and
|
| • |
the possibility that governments may impose currency remittance restrictions limiting our ability to repatriate cash.
|
There has been an increasing level of tension in U.S.-China relations over the last few years. Given the significant size of our China business, our business could be harmed if relations continue to
deteriorate or additional sanctions or restrictions are imposed by either government. In addition, there have been adverse public reaction and media attention to statements made by representatives of other businesses related to these issues that
have adversely affected business. We could similarly face adverse public or media attention, and potentially increased regulatory scrutiny, as a result of increased trade or political tensions or any statements or actions by employees or our
sales force that generate publicity with respect to these issues.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Purchases of Equity Securities by the Issuer
|
(a)
|
(b)
|
(c)
|
(d)
|
|||||||||||||
|
Period
|
Total
Number
of Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
(in millions)(1)
|
||||||||||||
|
July 1 - 31, 2022
|
236,075
|
$
|
42.10
|
236,075
|
$
|
215.5
|
||||||||||
|
August 1 - 31, 2022
|
320,528
|
44.51
|
320,528
|
$
|
201.2
|
|||||||||||
|
September 1 - 30, 2022
|
393,931
|
40.17
|
393,931
|
$
|
185.4
|
|||||||||||
|
Total
|
950,534
|
$
|
42.11
|
950,534
|
||||||||||||
| (1) |
In August 2018, we announced that our board of directors approved a stock repurchase plan. Under this plan, our board of directors authorized the repurchase of up to $500 million of our outstanding Class A common stock on the open market
or in privately negotiated transactions.
|
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES
|
None.
| ITEM 4. |
MINE SAFETY DISCLOSURES
|
Not Applicable.
| ITEM 5. |
OTHER INFORMATION
|
None.
| ITEM 6. |
EXHIBITS
|
|
Exhibits
Regulation S-K
Number
|
Description
|
|
|
Certification by Ryan S. Napierski, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification by Mark H. Lawrence, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification by Ryan S. Napierski, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
Certification by Mark H. Lawrence, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
November 2, 2022
|
NU SKIN ENTERPRISES, INC.
|
||
|
By:
|
/s/ Mark H. Lawrence
|
|
|
Mark H. Lawrence
|
||
|
Chief Financial Officer
|
||
|
(Duly Authorized Officer and Principal Financial Officer)
|
||
31
EXHIBIT 31.1
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Ryan S. Napierski, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Nu Skin Enterprises, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| (d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
|
|
Date: November 2, 2022
|
/s/ Ryan S. Napierski
|
|
|
|
Ryan S. Napierski
|
|
|
|
Chief Executive Officer
|
|
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Mark H. Lawrence, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Nu Skin Enterprises, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| (d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
|
|
/s/ Mark H. Lawrence
|
|
|
|
|
Mark H. Lawrence
|
|
|
|
Chief Financial Officer
|
|
EXHIBIT 32.1
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Nu Skin Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 (the “Report”),
I, Ryan S. Napierski, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| 2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Date: November 2, 2022
|
/s/ Ryan S. Napierski
|
|
|
|
Ryan S. Napierski
|
|
|
|
Chief Executive Officer
|
|
EXHIBIT 32.2
SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Nu Skin Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 (the “Report”),
I, Mark H. Lawrence, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| 2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Date: November 2, 2022
|
/s/ Mark H. Lawrence
|
|
|
|
Mark H. Lawrence
|
|
|
|
Chief Financial Officer
|
|