Part I [Business](index=5&type=section&id=Item%201.%20Business) Nu Skin is a global direct selling company developing and distributing beauty and wellness solutions across approximately 50 markets, primarily through direct selling - In 2020, the company's revenue was **$2.6 billion**, with **84%** generated from outside the United States[9](index=9&type=chunk)[11](index=11&type=chunk) - Mainland China is the largest market, accounting for approximately **24%** of 2020 revenue[11](index=11&type=chunk) - The strategic investment arm, Rhyz Inc., generated **$150.2 million** (**6%** of total revenue) in 2020 from external sales, primarily from its manufacturing companies[10](index=10&type=chunk) [Products](index=5&type=section&id=PRODUCTS) The company offers personal care and wellness products under Nu Skin, Pharmanex, and ageLOC brands, emphasizing innovation and intellectual property protection Revenue by Product Category (2018-2020) | Product Category | 2020 Revenue (Millions) | 2020 % | 2019 Revenue (Millions) | 2019 % | 2018 Revenue (Millions) | 2018 % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Personal Care | $1,491.8 | 57.8% | $1,423.5 | 58.8% | $1,659.7 | 62.0% | | Wellness | $922.6 | 35.7% | $863.1 | 35.7% | $921.3 | 34.4% | | Other (Rhyz) | $167.5 | 6.5% | $133.8 | 5.5% | $98.0 | 3.6% | | **Total** | **$2,581.9** | **100.0%** | **$2,420.4** | **100.0%** | **$2,679.0** | **100.0%** | - ageLOC personal care products accounted for **50%** of the personal care category revenue and **29%** of total revenue in 2020[17](index=17&type=chunk) - ageLOC nutritional products accounted for **42%** of the wellness category revenue and **15%** of total revenue in 2020[18](index=18&type=chunk) - The company is launching a new beauty device system, ageLOC Boost, in the second half of 2020 and into 2021[12](index=12&type=chunk) [Distribution Channel](index=8&type=section&id=DISTRIBUTION%20CHANNEL) Nu Skin employs a direct selling channel, increasingly leveraging social commerce, with distinct models for customer and sales leader engagement, especially in Mainland China Total Customers and Sales Leaders by Region (as of year-end) | Region | Customers 2020 | Sales Leaders 2020 | Customers 2019 | Sales Leaders 2019 | Customers 2018 | Sales Leaders 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mainland China | 381,460 | 21,990 | 292,812 | 17,987 | 303,789 | 33,129 | | Americas/Pacific | 404,955 | 14,439 | 220,216 | 7,607 | 248,609 | 8,354 | | South Korea | 158,953 | 7,059 | 168,972 | 7,251 | 182,026 | 7,565 | | Southeast Asia | 154,355 | 8,903 | 136,349 | 7,480 | 153,465 | 8,933 | | Japan | 128,400 | 6,318 | 125,557 | 5,916 | 130,181 | 5,916 | | EMEA | 258,587 | 7,063 | 153,330 | 4,619 | 149,085 | 4,791 | | Hong Kong/Taiwan | 70,592 | 4,663 | 65,669 | 3,900 | 76,891 | 4,767 | | **Total** | **1,557,302** | **70,435** | **1,162,905** | **54,760** | **1,244,046** | **73,455** | - The business model in Mainland China is different from other markets due to local regulations, utilizing retail stores, sales employees, independent direct sellers, and independent marketers[29](index=29&type=chunk)[42](index=42&type=chunk) - Outside Mainland China, Brand Affiliates earn money through retail markups and sales compensation from their network's product sales (multi-level compensation)[39](index=39&type=chunk)[40](index=40&type=chunk) [Geographic Regions](index=12&type=section&id=GEOGRAPHIC%20REGIONS) Operating in approximately 50 markets, the company's revenue is segmented geographically, with Mainland China being the largest contributor in 2020 Revenue by Segment (2018-2020) | Segment | 2020 Revenue (Millions) | 2020 % | 2019 Revenue (Millions) | 2019 % | 2018 Revenue (Millions) | 2018 % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mainland China | $625.5 | 24% | $722.5 | 30% | $886.5 | 33% | | Americas/Pacific | $511.9 | 20% | $349.1 | 14% | $385.0 | 14% | | South Korea | $326.5 | 13% | $330.0 | 14% | $373.4 | 14% | | Southeast Asia | $302.7 | 12% | $301.6 | 12% | $316.9 | 12% | | Japan | $273.7 | 10% | $260.0 | 11% | $254.9 | 10% | | EMEA | $230.2 | 9% | $167.2 | 7% | $182.4 | 7% | | Hong Kong/Taiwan | $161.1 | 6% | $166.3 | 7% | $185.9 | 7% | | Manufacturing | $149.3 | 6% | $121.9 | 5% | $90.6 | 3% | | **Total** | **$2,581.9** | **100%** | **$2,420.4** | **100%** | **$2,679.0** | **100%** | [Regulation](index=12&type=section&id=REGULATION) The company's direct selling model and products are subject to extensive global regulations, with particularly complex and restrictive frameworks in Mainland China - Direct selling regulations are intended to prevent pyramid schemes and generally require compensation to be based on product sales, not recruitment[54](index=54&type=chunk) - The regulatory environment in Mainland China is complex, prohibiting multi-level compensation and requiring a different business model, with no new direct selling licenses issued since early 2019[55](index=55&type=chunk) - Several markets, including Mainland China and South Korea, impose limits on the amount of sales compensation that can be paid (e.g., **30%** of revenue in China, **35%** of total value in South Korea)[58](index=58&type=chunk) - Products are regulated by agencies like the FDA, with cosmetics regulated for safety and labeling, and wellness products (dietary supplements) under DSHEA with specific rules for claims and new ingredients[61](index=61&type=chunk)[71](index=71&type=chunk) - The FTC exercises jurisdiction over advertising in the U.S. and has taken action against companies for deceptive advertising and lack of substantiation for claims, with the company having a consent decree from the early 1990s regarding product and earnings claims[84](index=84&type=chunk)[86](index=86&type=chunk) [Competition](index=19&type=section&id=COMPETITION) Nu Skin faces intense competition in direct selling and product markets from established global companies with greater financial resources and brand recognition - Competes with other direct selling organizations such as Amway, Avon Products, and Herbalife to attract and retain its sales force and consumers[92](index=92&type=chunk) - Product competitors include a broad array of marketers of personal care and nutritional products like L'Oréal, Clinique, Estée Lauder, and Mary Kay[93](index=93&type=chunk) [Human Capital Resources](index=19&type=section&id=HUMAN%20CAPITAL%20RESOURCES) As of year-end 2020, Nu Skin employed approximately 5,000 globally and 21,000 in Mainland China, with a human capital strategy focused on business transformation and diversity - As of year-end 2020, the company had approximately **5,000** full- and part-time employees globally, and an additional **21,000** sales employees in Mainland China[94](index=94&type=chunk) - The human capital strategy focuses on three objectives: supporting business transformation, leveraging diversity and inclusion, and simplifying the employee experience[95](index=95&type=chunk) - Recognized by Direct Selling News as one of the best places to work in direct selling for the fifth consecutive year in 2020[98](index=98&type=chunk) [Available Information](index=20&type=section&id=AVAILABLE%20INFORMATION) The company provides free access to its SEC filings and other material information on its Investor Relations website - SEC filings are available free of charge on the company's Investor Relations website, ir.nuskin.com[100](index=100&type=chunk) [Information About Our Executive Officers](index=21&type=section&id=INFORMATION%20ABOUT%20OUR%20EXECUTIVE%20OFFICERS) This section details executive officers as of January 2021, including a planned CEO transition for September 2021 - A CEO transition is planned for September 1, 2021, with current President Ryan S. Napierski set to succeed Ritch N. Wood as Chief Executive Officer[108](index=108&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from direct selling model challenges, intense Mainland China scrutiny, competition, and cybersecurity threats - Challenges to the network marketing system, particularly from the FTC regarding pyramid schemes and improper earnings claims, pose a significant risk[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - Operations in Mainland China are subject to intense government scrutiny and complex regulations that prohibit multi-level compensation, creating significant business risk[138](index=138&type=chunk)[143](index=143&type=chunk) - The business is dependent on its ability to recruit and retain its independent sales force, which is subject to high turnover[174](index=174&type=chunk) - The COVID-19 pandemic has negatively impacted the business by limiting in-person meetings, disrupting supply chains, and increasing regulatory scrutiny of health-related claims[161](index=161&type=chunk)[163](index=163&type=chunk) - Cybersecurity risks and failure to protect customer and sales force data could lead to litigation, liability, and reputational harm, especially with evolving data privacy laws like GDPR[236](index=236&type=chunk)[237](index=237&type=chunk) [Unresolved Staff Comments](index=44&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[242](index=242&type=chunk) [Properties](index=45&type=section&id=Item%202.%20Properties) The company's principal properties include corporate headquarters, R&D centers, and manufacturing facilities primarily in Utah and Mainland China - Principal administrative offices are in Provo, Utah and Shanghai, China[244](index=244&type=chunk) - The company operates its own manufacturing facilities in Mainland China and, through its Rhyz arm, in Utah[246](index=246&type=chunk) [Legal Proceedings](index=45&type=section&id=Item%203.%20Legal%20Proceedings) The company is in ongoing litigation with Don Roberts over a claimed **50%** ownership in its indoor-growing business, seeking over **$250 million** - The company is in litigation with Don Roberts, who claims a **50%** ownership interest in the indoor-growing business and is seeking damages exceeding **$250 million**[247](index=247&type=chunk) [Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[248](index=248&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=46&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A common stock trades on the NYSE under 'NUS', with **325,479** shares repurchased for approximately **$17 million** in Q4 2020 Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining Under Plan (millions) | | :--- | :--- | :--- | :--- | | Oct 1 – 31, 2020 | 60,985 | $54.12 | $339.5 | | Nov 1 – 30, 2020 | 142,954 | $51.36 | $332.2 | | Dec 1 – 31, 2020 | 121,540 | $52.09 | $325.8 | | **Total** | **325,479** | **$52.15** | **$325.8** | - The company's Class A common stock is listed on the NYSE under the symbol 'NUS'[250](index=250&type=chunk) [Reserved](index=47&type=section&id=Item%206.%20Reserved) This item is not applicable [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, revenue grew **7%** to **$2.58 billion**, driven by digital commerce and customer growth, despite a decline in Mainland China [Results of Operations](index=52&type=section&id=Results%20of%20Operations) For 2020, revenue increased **7%** to **$2.58 billion**, driven by Americas/Pacific and EMEA growth, offsetting a Mainland China decline, while gross margin decreased 2020 vs. 2019 Revenue Change by Segment | Segment | 2020 Revenue (millions) | 2019 Revenue (millions) | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Mainland China | $625.5 | $722.5 | (13)% | (14)% | | Americas/Pacific | $511.9 | $349.1 | 47% | 53% | | South Korea | $326.5 | $330.0 | (1)% | — | | Southeast Asia | $302.7 | $301.6 | — | 1% | | Japan | $273.7 | $260.0 | 5% | 3% | | EMEA | $230.2 | $167.2 | 38% | 35% | | Hong Kong/Taiwan | $161.1 | $166.3 | (3)% | (6)% | | **Total Nu Skin** | **$2,431.7** | **$2,298.4** | **6%** | **6%** | - Overall revenue increased **7%** to **$2.58 billion** in 2020 from **$2.42 billion** in 2019[286](index=286&type=chunk) - Diluted earnings per share increased **17%** to **$3.63** in 2020 from **$3.10** in 2019, driven by higher revenue, a lower tax rate, and stock repurchases[288](index=288&type=chunk) - Gross profit as a percentage of revenue decreased to **74.5%** in 2020 from **76.0%** in 2019, primarily due to higher freight costs and shifts in product and geographic mix[307](index=307&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity remains strong, with cash from operations increasing to **$379.1 million** in 2020, supporting dividends, repurchases, and capital expenditures - Generated **$379.1 million** in cash from operations in 2020, a significant increase from **$177.9 million** in 2019[315](index=315&type=chunk) - Ended 2020 with **$423.9 million** in cash and cash equivalents, up from **$344.0 million** in 2019[316](index=316&type=chunk) - In 2020, the company repurchased **5.1 million** shares for **$144.3 million** and paid **$78.4 million** in dividends[322](index=322&type=chunk)[323](index=323&type=chunk) - As of Dec 31, 2020, the company had **$337.5 million** outstanding on its term loan and no borrowings under its **$350 million** revolving credit facility[321](index=321&type=chunk) [Critical Accounting Policies and Estimates](index=51&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Management identifies Income Taxes and Intangible Assets as critical accounting policies, requiring significant judgment in valuation and impairment testing - The company's critical accounting policies are identified as Accounting for Income Taxes and Accounting for Intangible Assets[275](index=275&type=chunk) - As of December 31, 2020, the company had net deferred tax assets of **$34.8 million** and unrecognized tax benefits of **$17.6 million**[276](index=276&type=chunk)[280](index=280&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually; no impairment charges were recognized in 2020, 2019, or 2018[283](index=283&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to foreign currency and interest rate risks, managing the latter with interest rate swaps and monitoring the LIBOR transition - A majority of revenue is from outside the U.S., exposing the company to foreign currency risk, where a strengthening U.S. dollar negatively impacts reported revenue and earnings[331](index=331&type=chunk) - The company is exposed to interest rate risk on its variable-rate debt; as of Dec 31, 2020, a hypothetical **1%** increase in rates would increase annual interest expense by about **$1.4 million**[336](index=336&type=chunk) - The company uses interest rate swaps to hedge variable cash flows associated with its variable-rate debt, with a total notional amount of **$200 million** as of year-end 2020[322](index=322&type=chunk)[336](index=336&type=chunk) - The company is monitoring the planned phase-out of LIBOR, which is the reference rate for its credit facility and interest rate swaps[338](index=338&type=chunk) [Financial Statements and Supplementary Data](index=61&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal year 2020, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | **Total Assets** | **$1,957,076** | **$1,769,006** | | Total Current Assets | $903,198 | $740,166 | | **Total Liabilities** | **$1,062,805** | **$893,717** | | Total Current Liabilities | $542,856 | $356,760 | | Long-term Debt | $305,393 | $334,461 | | **Total Stockholders' Equity** | **$894,271** | **$875,289** | Consolidated Income Statement Data (Year Ended Dec 31) | (in thousands, except per share) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | $2,581,934 | $2,420,416 | $2,679,008 | | Gross Profit | $1,923,906 | $1,838,996 | $2,044,868 | | Operating Income | $257,564 | $267,426 | $240,860 | | **Net Income** | **$191,355** | **$173,553** | **$121,887** | | Diluted EPS | $3.63 | $3.10 | $2.16 | Consolidated Cash Flow Data (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $379,141 | $177,931 | $202,738 | | Net cash used in investing activities | ($79,428) | ($71,412) | ($108,761) | | Net cash used in financing activities | ($245,166) | ($154,794) | ($116,714) | | **Net increase (decrease) in cash** | **$67,053** | **($51,281)** | **($39,488)** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=103&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[532](index=532&type=chunk) [Controls and Procedures](index=103&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[533](index=533&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2020[535](index=535&type=chunk) [Other Information](index=103&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[536](index=536&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Certain Relationships](index=104&type=section&id=ITEMS%2010-14) Information for these items will be incorporated by reference from the forthcoming 2021 Definitive Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2021 Definitive Proxy Statement[538](index=538&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=104&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists documents filed as part of the Form 10-K, including financial statements and various corporate exhibits [Form 10-K Summary](index=106&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary for this item - None[545](index=545&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Class A Common Stock, $.001 par value NUS New York Stock Exchange FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ____ ...

Financial Data and Key Metrics Changes - In Q3 2020, the company reported a revenue of $703.3 million, reflecting a 19% year-over-year growth, and earnings per share (EPS) of $1.08, which is a 37% increase compared to the previous year [7][22][27] - Gross margin decreased to 73.9% from 76.2% in the prior year, primarily due to increased freight costs and a shift in geographic mix towards lower-margin regions [22][23] - The company generated $118.4 million in cash from operations and reduced debt by $72.5 million, maintaining a strong financial position [25][26] Business Line Data and Key Metrics Changes - The manufacturing segment experienced a significant revenue growth of 34% in Q3, driven by strong demand and effective supply chain management [9] - The company’s digital platform strategy has resulted in approximately 90% of revenue flowing through digital properties, enhancing customer acquisition and productivity [15] Market Data and Key Metrics Changes - The Americas and Pacific regions grew by 90% in constant currency, with customer growth of 92% and sales leader growth of 86% [17] - EMEA reported high double-digit growth of 67% in constant currency, supported by 59% growth in customers and 53% growth in sales leaders [18] - Mainland China showed a moderate local currency decline of 4%, but there were sequential improvements in revenue, customers, and sales leaders [19] Company Strategy and Development Direction - The company is focused on transforming into a digital-first, socially enabled affiliate opportunity platform, leveraging macroeconomic shifts towards online shopping and social commerce [12][21] - The 3P strategy (platforms, products, and programs) is central to the company’s growth, emphasizing digital technologies, innovative products, and flexible compensation programs [8][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued strong demand for products and the opportunity for supplemental income for entrepreneurs globally [11] - The company is raising its 2020 revenue and EPS guidance due to positive trends in customer and sales leader growth ahead of new product launches [10][27] Other Important Information - The company is committed to sustainability efforts, focusing on the environmental impact of its top products and making measurable changes [10] - The company anticipates challenges with freight costs in the fourth quarter but is exploring ways to mitigate these impacts [39][40] Q&A Session Summary Question: Customer growth and marketing agenda for Boost - Management indicated that customer growth is largely driven by a socially enabled business model and plans to apply a similar marketing strategy as with LumiSpa for the Boost launch [28][29] Question: Confidence in retaining new sales leaders - Management emphasized the importance of providing opportunities for sales leaders to progress and earn commissions, which helps retain them in the business [32][33] Question: Growth in the West region vs. Asia - Management noted that the West is experiencing a new leadership group embracing social selling, while Asia is transitioning from a traditional model [42][43] Question: Manufacturing business growth and capacity - The manufacturing segment is expected to continue growing, with capacity available for expansion and ongoing investments planned [45][46] Question: Sustaining momentum post-COVID - Management is focused on leveraging digital tools to maintain growth momentum and anticipates a strong product lineup for the upcoming year [70][72]

Q2 2020 Financial Performance - Revenue decreased by 2% year-over-year, with a 3% negative impact from foreign exchange, equivalent to a $19.8 million decrease[5] - Earnings per share (EPS) were $0.81, compared to $0.83 in the same quarter of the previous year[5] - The number of Sales Leaders decreased by 9%, while the number of Customers increased by 29%[5] - A dividend payment of $19.4 million was made in Q2[27] Customer and Sales Leader Metrics - Total Customers reached 1,500,000[7] - Total Sales Leaders reached 56,036[7] - In Mainland China, Customers increased by 41.90%, while Sales Leaders decreased by 29.72%[7] - In Americas/Pacific, Customers increased by 67.23%, and Sales Leaders increased by 32.18%[7] Q3 Outlook and 2020 Guidance - Q3 2020 revenue is projected to be between $605 million and $635 million, representing a growth of 3% to 8%, with an approximate (1 to 2%) foreign exchange impact[28] - Q3 2020 EPS is expected to be between $0.78 and $0.88[28] - 2020 revenue is projected to be between $2.37 billion and $2.45 billion, representing a (2%) to +1% change, with an approximate (2% to 3%) foreign exchange impact[28] - 2020 EPS is expected to be between $2.85 and $3.10[28]

Financial Data and Key Metrics Changes - The company reported Q2 2020 revenue of $612.4 million, exceeding guidance, with earnings per share of $0.81, driven by a strong socially-enabled business model and strategic investments in technology [6][22] - Gross margin for the quarter was 74.8%, down from 75.3% year-over-year, impacted by increased freight charges and COVID-19 related costs [22] - Operating margin for the quarter was 9.5%, with selling expenses as a percentage of revenue increasing to 40.6% from 39.4% in the prior year [23][24] Business Line Data and Key Metrics Changes - The manufacturing segment reported a growth of 20%, contributing significantly to the overall business performance [10][11] - Customer growth was reported at 29%, with digitally enabled transactions exceeding 85% for the quarter [6][7] Market Data and Key Metrics Changes - The Americas and Pacific regions generated 48% constant currency revenue growth, with customer growth of 67% [15] - EMEA experienced constant currency revenue growth of 21%, with customer growth of 51% [17] - Mainland China saw a local currency revenue decline of 18% year-over-year but an 8% sequential increase, with customer growth of 42% [16][33] Company Strategy and Development Direction - The company is focused on becoming a leading business opportunity platform, emphasizing digital transformation and customer acquisition [13][19] - Upcoming product launches, including ageLOC Boost and Nutricentials, are expected to drive growth in the second half of the year [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and ability to generate growth in the second half of the year, despite macroeconomic uncertainties [21][24] - The company raised its annual revenue guidance by approximately $200 million, anticipating revenue between $2.37 billion and $2.45 billion [24][25] Other Important Information - The enJoy consumer rewards program was introduced to enhance customer loyalty and retention, with plans for broader rollout in the U.S. and EMEA [20][56] - The Vera app, leveraging AI and machine learning, is set to provide personalized product recommendations based on individual assessments [19][60] Q&A Session Summary Question: What drove the huge increases in the U.S. and Europe? - Management noted strong customer acquisition and the effectiveness of social sharing in driving growth, particularly in the West region [27][28] Question: How are you thinking about China specifically in the back half? - Management anticipates continued improvement in China, with expectations for slight growth in the second half due to product launches [32][33] Question: What are the sales trends for nutrition versus personal care? - There was a slight improvement in nutrition and manufacturing, offset by a decline in personal care [45][46] Question: Can you clarify the timing of new product launches? - All markets will receive new products in Q4, with full launches expected in Q1 of the following year [48] Question: What is the level of confidence regarding the Boost product's reception? - Management expressed confidence based on positive early feedback and the product's value proposition [50][51] Question: Can you update on the Go technology business? - The company continues to invest in sustainable and traceable ingredient technology, with potential revenue opportunities expected [52][53] Question: Can you discuss the enJoy customer loyalty program? - The program rewards customer loyalty and has shown success in reactivating previous customers [56][57] Question: How is the Vera app leveraging data for recommendations? - The app uses AI and big data to provide personalized product recommendations, enhancing sales leader productivity [59][60]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________ Commission File Number: 001-12421 NU SKIN ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Delaware 87-0565309 (State ...

Q1 2020 Financial Performance - Revenue decreased by 17% year-over-year, with a 2% or $14 million negative impact from foreign exchange [5] - Earnings per share (EPS) were $036, compared to $077 in the same period last year [5] Sales Force and Customer Trends - Sales Leaders decreased by 22% year-over-year [5] - Customer base decreased by 5% year-over-year [5] - Total Customers decreased by 522% from 1,193,206 in Q1 2019 to 1,130,947 in Q1 2020 [7] - Total Sales Leaders decreased by 2166% from 63,248 in Q1 2019 to 49,551 in Q1 2020 [7] - Mainland China experienced a 4012% decrease in Sales Leaders and a 019% decrease in Customers [7] - Americas/Pacific region experienced an 1185% decrease in both Sales Leaders and Customers [7] Q2 2020 Outlook - Revenue is projected to be between $520 million and $550 million, representing a 12% to 17% decrease, with a 3% to 4% negative impact from foreign exchange [15] - EPS is projected to be between $042 and $052 [15] 2020 Full Year Outlook - Revenue is projected to be between $217 billion and $226 billion, representing a 7% to 10% decrease, with a 2% to 3% negative impact from foreign exchange [15] - EPS is projected to be between $205 and $235 [15]

Nu Skin Enterprises, Inc. (NYSE:NUS) Q1 2020 Earnings Conference Call May 6, 2020 5:00 PM ET Company Participants Scott Pond - Vice President, Investor Relations Ritch Wood - Chief Executive Officer Ryan Napierski - President Mark Lawrence - Chief Financial Officer Conference Call Participants Stephanie Wissink - Jefferies Faiza Alwy - Deutsche Bank Doug Lane - Lane Research Olivia Tong - Bank of America Mark Astrachan - Stifel Wendy Nicholson - Citi Linda Bolton-Weiser - D.A. Davidson Operator Ladies and g ...

[Report Information](index=1&type=section&id=Report%20Information) Nu Skin Enterprises, Inc. filed its Q1 2020 quarterly report (Form 10-Q), classified as a Large Accelerated Filer, detailing company specifics - Nu Skin Enterprises, Inc. submitted its quarterly report (Form 10-Q) for the period ended March 31, 2020[1](index=1&type=chunk) - The company is classified as a "Large accelerated filer"[2](index=2&type=chunk) Company Basic Information | Indicator | Details | | :--- | :--- | | **Company Name** | NU SKIN ENTERPRISES, INC. | | **State of Incorporation** | Delaware | | **Stock Symbol** | NUS | | **Listing Exchange** | New York Stock Exchange | | **Shares Outstanding as of May 1, 2020** | 51,899,031 Class A Common Shares | [Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) The company's unaudited consolidated financial statements for Q1 2020 show decreased revenue and net income, offset by improved operating cash flow [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited consolidated financial statements for Q1 2020, detailing balance sheets, income, comprehensive income, equity, and cash flows, with accompanying notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Presents the company's consolidated balance sheets as of March 31, 2020, and December 31, 2019, detailing assets, liabilities, and equity Consolidated Balance Sheet Key Data (as of March 31, 2020 vs December 31, 2019) | Indicator (thousands of dollars) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | 1,746,319 | 1,769,006 | | **Total Liabilities** | 945,821 | 893,717 | | **Total Stockholders' Equity** | 800,498 | 875,289 | | **Cash and Cash Equivalents** | 352,578 | 335,630 | | **Inventories, Net** | 257,474 | 275,891 | | **Total Current Liabilities** | 420,104 | 356,760 | | **Long-Term Debt** | 327,197 | 334,461 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Details the company's consolidated statements of income for the three months ended March 31, 2020, and 2019, showing revenue, cost of sales, gross profit, operating income, income tax provision, and net income Consolidated Statements of Income Key Data (for the three months ended March 31) | Indicator (thousands of dollars) | 2020 | 2019 | | :--- | :--- | :--- | | **Revenue** | 518,028 | 623,623 | | **Cost of Sales** | 125,793 | 146,664 | | **Gross Profit** | 392,235 | 476,959 | | **Operating Income** | 36,565 | 68,653 | | **Income Tax Provision** | 10,661 | 22,803 | | **Net Income** | 19,730 | 43,002 | | **Basic Net Income Per Share** | 0.36 | 0.78 | | **Diluted Net Income Per Share** | 0.36 | 0.77 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Presents the company's consolidated statements of comprehensive income for the three months ended March 31, 2020, and 2019, including net income and other comprehensive income (loss) Consolidated Statements of Comprehensive Income Key Data (for the three months ended March 31) | Indicator (thousands of dollars) | 2020 | 2019 | | :--- | :--- | :--- | | **Net Income** | 19,730 | 43,002 | | **Other Comprehensive (Loss) Income, Net of Tax** | (14,997) | 4,140 | | **Comprehensive Income** | 4,733 | 47,142 | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Details changes in the company's consolidated stockholders' equity for the three months ended March 31, 2020, and January 1, 2020, including total equity, treasury stock, and retained earnings Stockholders' Equity Changes Key Data (for the three months ended March 31) | Indicator (thousands of dollars) | March 31, 2020 | January 1, 2020 | | :--- | :--- | :--- | | **Total Stockholders' Equity** | 800,498 | 875,289 | | **Treasury Stock** | (1,384,036) | (1,324,826) | | **Retained Earnings** | 1,726,816 | 1,727,772 | | **Cash Dividends** | (20,686) | (20,531) | | **Repurchase of Class A Common Stock** | (60,886) | (825) | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Presents the company's consolidated statements of cash flows for the three months ended March 31, 2020, and 2019, detailing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows Key Data (for the three months ended March 31) | Indicator (thousands of dollars) | 2020 | 2019 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | 69,027 | (8,186) | | **Net Cash from Investing Activities** | (19,184) | (18,142) | | **Net Cash from Financing Activities** | (22,979) | (52,967) | | **Net Increase (Decrease) in Cash and Cash Equivalents** | 16,948 | (76,623) | | **Cash and Cash Equivalents at End of Period** | 352,578 | 310,288 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed notes to the consolidated financial statements, explaining significant accounting policies, goodwill, debt, leases, capital stock, fair value, income taxes, segment information, commitments, contingencies, and restructuring [Note 1. The Company](index=9&type=section&id=Note%201.%20The%20Company) Describes Nu Skin Enterprises, Inc. as a holding company operating globally through its direct selling business, focusing on personal care and wellness products - Nu Skin Enterprises, Inc. is a holding company, with its primary operating unit being the global direct selling company Nu Skin[15](index=15&type=chunk) - The company develops and distributes personal care and wellness products under brands like Nu Skin, Pharmanex, and ageLOC[15](index=15&type=chunk) - The company reports nine operating segments: seven geographic regions (Mainland China, South Korea, Southeast Asia, Americas/Pacific, Japan, Hong Kong/Taiwan, EMEA), a Manufacturing segment, and a Grow Tech segment[15](index=15&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=9&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the company's significant accounting policies, including US GAAP compliance, potential COVID-19 impacts, and the adoption of new accounting standards - Financial statements are prepared in accordance with US Generally Accepted Accounting Principles (US GAAP) and include management's necessary adjustments[16](index=16&type=chunk) - The COVID-19 pandemic may impact future estimates for goodwill, other long-lived asset impairments, income tax provisions, and inventory recoverability[16](index=16&type=chunk) - The adoption of new accounting standards ASU 2016-13, ASU 2018-13, and ASU 2018-15 did not have a material impact on the company's consolidated financial statements[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk) Net Inventory (thousands of dollars) | Indicator | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Raw Materials** | 85,167 | 87,942 | | **Finished Goods** | 172,307 | 187,949 | | **Total Inventories, Net** | 257,474 | 275,891 | - Contract liabilities (deferred revenue) related to customer loyalty programs were **$11.9 million** as of March 31, 2020, and **$12.5 million** as of December 31, 2019[21](index=21&type=chunk)[22](index=22&type=chunk) [Note 3. Goodwill](index=10&type=section&id=Note%203.%20Goodwill) Details the company's goodwill by reporting segment as of March 31, 2020, and December 31, 2019 Goodwill by Reporting Segment (thousands of dollars) | Segment | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Mainland China** | 32,179 | 32,179 | | **South Korea** | 29,261 | 29,261 | | **Americas/Pacific** | 9,449 | 9,449 | | **Southeast Asia** | 18,537 | 18,537 | | **Japan** | 16,019 | 16,019 | | **Hong Kong/Taiwan** | 6,634 | 6,634 | | **EMEA** | 2,875 | 2,875 | | **Manufacturing** | 72,469 | 72,469 | | **Grow Tech** | 9,150 | 9,150 | | **Total** | 196,573 | 196,573 | [Note 4. Debt](index=10&type=section&id=Note%204.%20Debt) Provides information on the company's debt facilities, including a credit agreement from April 2018, and confirms compliance with all covenants as of March 31, 2020 - The company entered into a credit agreement in April 2018, including a **$400 million** term loan and a **$350 million** revolving credit facility[24](index=24&type=chunk) - As of March 31, 2020, the company was in compliance with all covenants under its credit agreement[24](index=24&type=chunk) Summary of Debt Facilities (thousands of dollars) | Facility or Arrangement | Balance as of March 31, 2020 | Balance as of December 31, 2019 | | :--- | :--- | :--- | | **Credit Agreement Term Loan** | 360,000 | 365,000 | | **Credit Agreement Revolving Credit Facility** | 65,000 | 0 | | **Current Portion of Debt** | 95,000 | 27,500 | [Note 5. Leases](index=11&type=section&id=Note%205.%20Leases) Describes the company's operating and finance leases for various facilities and equipment, including weighted-average lease terms and discount rates - The company holds operating and finance leases for regional offices, manufacturing facilities, retail centers, distribution centers, and certain equipment[27](index=27&type=chunk) - As of March 31, 2020, the weighted-average remaining lease term for operating leases was **6.4 years**, with a weighted-average discount rate of **4.8%**[28](index=28&type=chunk) Lease Expense (thousands of dollars) | Lease Expense | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | **Operating Lease Cost** | 13,136 | 12,861 | | **Variable Lease Cost** | 974 | 1,052 | | **Short-Term Lease Cost** | — | 52 | | **Sublease Income** | (1,131) | (1,593) | | **Total Lease Expense** | 13,024 | 12,372 | Lease Liability Maturities (thousands of dollars) | Year Ended December 31 | Operating Leases | | :--- | :--- | | **2020** | 37,395 | | **2021** | 43,231 | | **2022** | 28,941 | | **2023** | 20,119 | | **2024** | 15,597 | | **Thereafter** | 30,881 | | **Total** | 176,164 | | **Less: Imputed Interest** | 27,563 | | **Total Principal Liability** | 148,601 | [Note 6. Capital Stock](index=12&type=section&id=Note%206.%20Capital%20Stock) Details capital stock activities, including the declaration and payment of quarterly cash dividends and share repurchases under the company's stock repurchase program - In February 2020, the Board of Directors declared a quarterly cash dividend of **$0.375 per share**, paid on March 11, 2020, totaling **$20.7 million**[33](index=33&type=chunk) - In the first quarter of 2020, the company repurchased **2.6 million shares** of Class A common stock for **$60.9 million** under its stock repurchase program[33](index=33&type=chunk) - As of March 31, 2020, **$409.3 million** remained available for repurchase under the stock repurchase program[33](index=33&type=chunk) [Note 7. Fair Value](index=12&type=section&id=Note%207.%20Fair%20Value) Explains the company's measurement of certain financial assets at fair value according to a fair value hierarchy (Level 1, Level 2, Level 3) - The company measures certain financial assets at fair value according to a fair value hierarchy (Level 1, Level 2, Level 3)[35](index=35&type=chunk) Financial Assets Measured at Fair Value by Level (thousands of dollars) | Financial Asset | Total as of March 31, 2020 | Total as of December 31, 2019 | | :--- | :--- | :--- | | **Cash Equivalents and Current Investments** | 49,670 | 54,642 | | **Other Long-Term Assets** | 202 | 3,216 | | **Life Insurance Contracts** | 35,339 | 41,707 | | **Total** | 85,211 | 99,565 | [Note 8. Income Taxes](index=13&type=section&id=Note%208.%20Income%20Taxes) Provides key income tax data, including income tax provision, effective tax rate, and deferred tax assets, and discusses the impact of the CARES Act Income Tax Key Data (thousands of dollars, percentage) | Indicator | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | **Income Tax Provision** | 10,700 | 22,800 | | **Effective Tax Rate** | 35.1% | 34.7% | | **Net Deferred Tax Assets** | 19,500 | 20,000 | | **Undistributed Indefinitely Reinvested Foreign Earnings** | 60,000 (as of December 31, 2019) | - | - The company expects the total unrecognized tax benefits (net of foreign currency adjustments) to potentially decrease by approximately **$0.5 million to $1.5 million** within the next 12 months[43](index=43&type=chunk) - The CARES Act is not expected to have a material impact on the company's effective tax rate for 2020[89](index=89&type=chunk) [Note 9. Segment Information](index=15&type=section&id=Note%209.%20Segment%20Information) Presents detailed segment information, including revenue, contribution, and capital expenditures across the company's geographic and operational segments - The company reports revenue based on seven geographic regions, a Manufacturing segment, and a Grow Tech segment[45](index=45&type=chunk) - Segment contribution is a key measure of profitability controllable by segment managers, excluding certain intercompany expenses[46](index=46&type=chunk) Revenue by Segment (thousands of dollars) | Segment | March 2020 | March 2019 | | :--- | :--- | :--- | | **Mainland China** | 137,696 | 208,488 | | **South Korea** | 75,719 | 83,853 | | **Americas/Pacific** | 74,573 | 86,456 | | **Southeast Asia** | 69,586 | 72,495 | | **Japan** | 61,300 | 62,109 | | **Hong Kong/Taiwan** | 35,827 | 40,558 | | **EMEA** | 35,403 | 41,818 | | **Total Nu Skin** | 490,877 | 594,351 | | **Manufacturing** | 27,147 | 29,272 | | **Grow Tech** | 4 | — | | **Total** | 518,028 | 623,623 | Contribution by Segment (thousands of dollars) | Segment | March 2020 | March 2019 | | :--- | :--- | :--- | | **Mainland China** | 37,387 | 59,167 | | **South Korea** | 24,099 | 25,668 | | **Americas/Pacific** | 10,585 | 12,019 | | **Southeast Asia** | 16,718 | 17,992 | | **Japan** | 14,592 | 14,106 | | **Hong Kong/Taiwan** | 6,938 | 7,474 | | **EMEA** | 631 | 1,351 | | **Total Nu Skin Contribution** | 110,950 | 137,777 | | **Manufacturing** | 2,849 | 3,646 | | **Grow Tech** | (6,850) | (3,629) | | **Total Segment Contribution** | 106,949 | 137,794 | Capital Expenditures by Segment (thousands of dollars) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | **Mainland China** | 2,861 | 1,681 | | **Manufacturing** | 10,505 | 1,602 | | **Grow Tech** | 178 | 2,985 | | **Corporate and Other** | 4,159 | 6,411 | | **Total** | 19,387 | 13,765 | [Note 10. Commitments and Contingencies](index=18&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) Discusses the company's exposure to government regulations, lawsuits, investigations, and tax audits, and management's assessment of potential financial impact - The company is subject to government regulations (product formulation, labeling, advertising, direct selling systems) and foreign tax and customs authorities[55](index=55&type=chunk) - The company is a defendant in various lawsuits, investigations, and other proceedings, but management believes the ultimate liability will not materially adversely affect its financial position[55](index=55&type=chunk) - The company is regularly audited by federal, state, and foreign tax authorities, which may result in additional tax liabilities[56](index=56&type=chunk) [Note 11. Restructuring](index=18&type=section&id=Note%2011.%20Restructuring) Outlines the strategic restructuring plan initiated in Q4 2018 to align resources and capabilities, noting no restructuring activities in Q1 2020 - In the fourth quarter of 2018, the company initiated a strategic plan to align resources and capabilities to support its vision of becoming the world's leading business platform[57](index=57&type=chunk) - The restructuring plan resulted in a **$48.6 million** non-cash information technology asset impairment charge and **$22.1 million** in cash charges, including **$20.1 million** for employee severance[57](index=57&type=chunk) - No restructuring activities occurred during the three months ended March 31, 2020[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2020 financial condition and operating results, highlighting revenue and EPS declines from regulatory review and COVID-19, despite improved operating cash flow [Overview](index=20&type=section&id=Overview) Provides an overview of the company's performance for the three months ended March 31, 2020, highlighting revenue and EPS declines due to regulatory review and COVID-19 - For the three months ended March 31, 2020, revenue decreased by **17%** year-over-year to **$518 million**, with foreign currency fluctuations having a **2%** negative impact[61](index=61&type=chunk) - The number of sales leaders decreased by **22%**, and the number of customers decreased by **5%**[61](index=61&type=chunk) - The decline in revenue and sales leaders was primarily impacted by the 2019 regulatory review in Mainland China and the 2020 COVID-19 pandemic[62](index=62&type=chunk) - Earnings per share (EPS) decreased by **53%** year-over-year to **$0.36**, mainly due to lower revenue, particularly from the highly profitable Mainland China market[63](index=63&type=chunk) [Segment Results](index=20&type=section&id=Segment%20Results) Analyzes the performance of the company's operating segments, detailing revenue changes, customer and sales leader numbers, and specific regional impacts Revenue Change by Segment (for the three months ended March 31) | Nu Skin Segment | March 2020 Revenue (thousands of dollars) | March 2019 Revenue (thousands of dollars) | Change Rate | Constant Exchange Rate Change Rate | | :--- | :--- | :--- | :--- | :--- | | **Mainland China** | 137,696 | 208,488 | (34)% | (31)% | | **South Korea** | 75,719 | 83,853 | (10)% | (4)% | | **Americas/Pacific** | 74,573 | 86,456 | (14)% | (9)% | | **Southeast Asia** | 69,586 | 72,495 | (4)% | (3)% | | **Japan** | 61,300 | 62,109 | (1)% | (2)% | | **Hong Kong/Taiwan** | 35,827 | 40,558 | (12)% | (13)% | | **EMEA** | 35,403 | 41,818 | (15)% | (13)% | | **Total Nu Skin** | 490,877 | 594,351 | (17)% | (15)% | | **Manufacturing** | 27,147 | 29,272 | (7)% | (7)% | | **Grow Tech** | 4 | — | — | — | | **Total** | 518,028 | 623,623 | (17)% | (15)% | Customer and Sales Leader Counts by Segment (as of March 31) | Segment | 2020 Customers | 2020 Sales Leaders | 2019 Customers | 2019 Sales Leaders | Customer Change Rate | Sales Leader Change Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Mainland China** | 271,536 | 16,159 | 272,053 | 26,986 | — | (40)% | | **South Korea** | 174,004 | 6,608 | 181,150 | 6,671 | (4)% | (1)% | | **Americas/Pacific** | 214,139 | 6,930 | 242,925 | 7,862 | (12)% | (12)% | | **Southeast Asia** | 145,116 | 6,634 | 138,112 | 7,071 | 5% | (6)% | | **Japan** | 119,784 | 5,635 | 126,526 | 5,840 | (5)% | (4)% | | **Hong Kong/Taiwan** | 66,024 | 3,348 | 70,354 | 3,959 | (6)% | (15)% | | **EMEA** | 140,344 | 4,237 | 162,086 | 4,859 | (13)% | (13)% | | **Total** | 1,130,947 | 49,551 | 1,193,206 | 63,248 | (5)% | (22)% | - Mainland China's revenue and sales leader decline was primarily due to the 2019 regulatory review and COVID-19 restrictions, with the company responding through technological solutions[71](index=71&type=chunk) - The Japan segment achieved growth in segment contribution despite a decline in revenue, driven by successful general and administrative expense savings[77](index=77&type=chunk) - Manufacturing segment revenue decreased by **7%**, mainly due to supply chain disruptions caused by the pandemic; the Grow Tech segment continues to invest in controlled environment agriculture technology and is expected to incur ongoing losses in 2020[80](index=80&type=chunk)[82](index=82&type=chunk) [Consolidated Results](index=23&type=section&id=Consolidated%20Results) Discusses the company's consolidated financial performance, including gross margin, selling expenses, general and administrative expenses, other income (expense), and net income - In Q1 2020, the gross margin was **75.7%**, lower than **76.5%** in the prior year, primarily due to reduced absorption of fixed overheads from lower revenue, negative foreign exchange impacts, and a higher proportion of lower-margin Manufacturing segment revenue[84](index=84&type=chunk) - Selling expenses as a percentage of revenue remained largely consistent with the prior year at **39.8%**[85](index=85&type=chunk) - General and administrative expenses decreased by **$9 million** to **$149.6 million**, mainly due to reduced employee performance incentive compensation and lower travel and sales activities due to the COVID-19 pandemic; however, as a percentage of revenue, they increased from **25.4%** to **28.9%** due to lower revenue[86](index=86&type=chunk) - Net other income (expense) was a negative **$6.2 million**, compared to a negative **$2.8 million** in the prior year, primarily due to increased foreign exchange losses and asset disposal losses, partially offset by reduced interest expense[87](index=87&type=chunk) - Net income was **$19.7 million**, compared to **$43 million** in the prior year[90](index=90&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) Reviews the company's liquidity and capital resources, including cash flow from operations, working capital, capital expenditures, and share repurchases - In the first three months of 2020, operating activities generated **$69 million** in cash flow, compared to a negative **$8.2 million** in the prior year, primarily due to improved inventory management and other cost-saving measures[91](index=91&type=chunk) Liquidity Key Data (thousands of dollars) | Indicator | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Cash and Cash Equivalents (including current investments)** | 361,700 | 344,000 | | **Working Capital** | 309,500 | 383,400 | | **Capital Expenditures (first three months)** | 19,400 | - | | **Stock Repurchases (first three months)** | 60,900 | - | | **Credit Agreement Term Loan Balance** | 360,000 | 365,000 | | **Credit Agreement Revolving Credit Facility Balance** | 65,000 | 0 | | **Remaining Available for Stock Repurchase Program** | 409,300 | - | | **Cash and Cash Equivalents Held by Foreign Operations** | 290,400 | 277,900 | - Total capital expenditures for 2020 are projected to be approximately **$65 million to $70 million**, including **$15 million to $18 million** for a new manufacturing facility in Mainland China[94](index=94&type=chunk) - The company's Board of Directors declared a quarterly cash dividend of **$0.375 per share** in February 2020, paid in March, and expects to continue paying quarterly dividends[97](index=97&type=chunk) - The company believes its existing cash balances, future operating cash flows, and available credit facilities are sufficient to meet short-term and long-term cash needs[100](index=100&type=chunk) [Contingent Liabilities](index=27&type=section&id=Contingent%20Liabilities) Refers to Note 10 of the consolidated financial statements for information on contingent liabilities - Contingent liabilities information is referenced in Note 10 to the consolidated financial statements[101](index=101&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) States that no significant changes occurred in critical accounting policies during the first quarter of 2020 - No significant changes occurred in the company's critical accounting policies during the first quarter of 2020[102](index=102&type=chunk) [Seasonality and Cyclicality](index=27&type=section&id=Seasonality%20and%20Cyclicality) Explains how the company's business is affected by seasonal factors like cultural events and holidays, and the impact of product launches or promotions - The company's business is affected by seasonal factors such as major cultural events (e.g., Asian New Year in Q1) and holiday patterns (e.g., Q3)[103](index=103&type=chunk) - Initial product launches or promotional activities may lead to unusual increases in revenue, sales leaders, and/or customer counts in a given quarter, affecting year-over-year and sequential comparisons[104](index=104&type=chunk) [Currency Risk and Exchange Rate Information](index=27&type=section&id=Currency%20Risk%20and%20Exchange%20Rate%20Information) Discusses the company's exposure to currency risk, the impact of exchange rate fluctuations on reported revenue and earnings, and strategies for mitigation - A significant portion of the company's revenue and expenses are recognized outside the U.S., with a weaker U.S. dollar positively impacting reported revenue and earnings, and a stronger U.S. dollar having a negative impact[105](index=105&type=chunk) - The Argentine subsidiary adopted highly inflationary accounting as of July 1, 2018, changing its functional currency to the U.S. dollar[106](index=106&type=chunk) - The company may use foreign currency forward contracts and intercompany foreign currency loans to mitigate foreign exchange fluctuation risks, but held no non-designated hedging derivative contracts as of March 31, 2020[107](index=107&type=chunk) [Non-GAAP Financial Measures](index=28&type=section&id=Non-GAAP%20Financial%20Measures) Defines fixed exchange rate revenue change as a non-GAAP financial measure used to eliminate foreign currency fluctuation impacts for performance comparison - Fixed exchange rate revenue change is a non-GAAP financial measure used to eliminate the impact of foreign currency fluctuations for comparable performance analysis[109](index=109&type=chunk) [Available Information](index=28&type=section&id=Available%20Information) Informs about the availability of company reports on its investor relations website - The company provides annual reports, quarterly reports, 8-K reports, and amendments free of charge on its investor relations website ir.nuskin.com[110](index=110&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Quantitative and qualitative disclosures about market risk are incorporated by reference into the "Currency Risk and Exchange Rate Information" section of Item 2 - Market risk disclosure information is incorporated by reference into the "Currency Risk and Exchange Rate Information" section of "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations"[112](index=112&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management assessed disclosure controls and procedures as effective on March 31, 2020, with no significant changes in internal financial reporting controls during the quarter - As of March 31, 2020, the effectiveness of the company's disclosure controls and procedures was evaluated by the Chief Executive Officer and Chief Financial Officer and deemed effective[113](index=113&type=chunk) - No significant changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2020[114](index=114&type=chunk) [Part II. Other Information](index=29&type=section&id=Part%20II.%20Other%20Information) This section covers legal proceedings, risk factors, equity security sales, senior securities defaults, mine safety disclosures, other information, and exhibits [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is in litigation with Don Roberts regarding alleged partnership interest and IP rights in its indoor farming business, actively defending against these claims - The company is involved in litigation with Don Roberts, who claims partnership interest and intellectual property rights in the company's indoor farming business, seeking over **$250 million** in damages[117](index=117&type=chunk) - The company has filed a lawsuit seeking a declaratory judgment that Mr. Roberts is not the inventor of any intellectual property nor a partner in the business[117](index=117&type=chunk) - The company believes Mr. Roberts' claims lack merit and intends to vigorously defend itself[117](index=117&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from pandemics (like COVID-19) and other crises, potentially causing sales declines, supply chain disruptions, financial deterioration, and covenant non-compliance - Epidemics (including COVID-19) and other crises have had and may continue to have a negative impact on the company's business, particularly due to the face-to-face nature of direct selling[119](index=119&type=chunk)[120](index=120&type=chunk) - The COVID-19 pandemic has led to economic contraction, global supply chain disruptions, reduced ability for sales teams to hold meetings, event cancellations, and temporary store closures[120](index=120&type=chunk) - Any significant decline in future operating results could adversely affect the company's financial condition and liquidity, potentially impacting its ability to comply with credit agreement financial covenants[121](index=121&type=chunk) - Regulatory bodies (e.g., FTC) closely scrutinize product and earnings claims made by direct selling companies and their independent distributors, with improper claims potentially leading to investigations and reputational damage[122](index=122&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2020, the company repurchased **2.6 million shares** of Class A common stock for **$60.9 million** under its stock repurchase program, with **$409.3 million** still available Equity Security Repurchases (Q1 2020) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased Under Publicly Announced Plans | Approximate Value of Shares That May Yet Be Purchased Under the Plans (millions of dollars) | | :--- | :--- | :--- | :--- | :--- | | **January 1-31** | — | — | — | 470.2 | | **February 1-29** | 502,273 | 28.40 | 502,273 | 455.9 | | **March 1-31** | 2,135,878 | 21.83 | 2,135,878 | 409.3 | | **Total** | 2,638,151 | — | 2,638,151 | - | - The company approved a stock repurchase program in August 2018, authorizing the repurchase of up to **$500 million** of Class A common stock[123](index=123&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during this reporting period - No defaults upon senior securities[124](index=124&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This disclosure item is not applicable to the company's business - Not applicable[125](index=125&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) On April 24, 2020, the company drew **$50 million** from its revolving credit facility, increasing the total outstanding balance to **$115 million** - On April 24, 2020, the company drew **$50 million** from its revolving credit facility, bringing the total outstanding balance to **$115 million**[126](index=126&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including stock certificates, CEO and CFO certifications, and XBRL-related documents - Exhibits include a specimen of the Class A common stock certificate, certifications by the Chief Executive Officer and Chief Financial Officer under the Securities Exchange Act and Sarbanes-Oxley Act[127](index=127&type=chunk) - Also included are Inline XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, and Presentation Linkbase Document[127](index=127&type=chunk) [Signature](index=31&type=section&id=Signature) This report was signed by Chief Financial Officer Mark H. Lawrence on behalf of Nu Skin Enterprises, Inc. on May 6, 2020 - This report was signed by Chief Financial Officer Mark H. Lawrence on behalf of Nu Skin Enterprises, Inc. on May 6, 2020[129](index=129&type=chunk)