[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)

Nu Skin Enterprises, Inc. (NYSE:NUS) Q4 2019 Earnings Conference Call February 12, 2020 5:00 PM ET Company Participants Scott Pond - VP of IR Ritch Wood - CEO Ryan Napierski - President Mark Lawrence - CFO Dr. Joe Chang - Chief Scientific Officer Conference Call Participants Faiza Alwy - Deutsche Bank Olivia Tong - Bank of America Steph Wissink - Jefferies Doug Lane - Lane Research Linda Bolton-Weiser - D.A. Davidson Kimberly Ross - Stifel Operator Good afternoon, ladies and gentlemen, and welcome to the Q4 ...

Part I [ITEM 1. BUSINESS](index=5&type=section&id=ITEM%201.%20BUSINESS) Nu Skin develops and distributes beauty and wellness solutions globally through a direct selling model, with 2019 revenue of $2.4 billion, largely from international markets - In 2019, the company generated **$2.4 billion** in revenue, with **87%** originating from outside the United States. Mainland China was the largest market, contributing approximately **30%** of total revenue[10](index=10&type=chunk)[12](index=12&type=chunk) - The company operates through a direct selling channel, using person-to-person marketing. It also has a strategic investment arm, Rhyz Inc., which includes manufacturing companies that generated **$122.0 million** in external revenue in 2019[10](index=10&type=chunk)[11](index=11&type=chunk) [Products](index=5&type=section&id=PRODUCTS) The company's product portfolio, including personal care and wellness, is driven by ageLOC anti-aging products, with manufacturing split between third-party and in-house facilities Revenue by Product Category (2017-2019) | Product Category | 2019 Revenue (millions) | 2019 % | 2018 Revenue (millions) | 2018 % | 2017 Revenue (millions) | 2017 % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Personal Care | $1,423.5 | 58.8% | $1,659.7 | 62.0% | $1,456.4 | 63.9% | | Wellness | $863.1 | 35.7% | $921.3 | 34.4% | $817.2 | 35.9% | | Other | $133.8 | 5.5% | $98.0 | 3.6% | $5.5 | 0.2% | | **Total** | **$2,420.4** | **100.0%** | **$2,679.0** | **100.0%** | **$2,279.1** | **100.0%** | - ageLOC branded products are a significant revenue driver, with ageLOC personal care products accounting for **30%** of total revenue and ageLOC nutritional products accounting for **17%** of total revenue in 2019[19](index=19&type=chunk)[20](index=20&type=chunk) - The company utilizes a combination of in-house R&D, collaborations with universities, and technology acquisitions to develop innovative products. Key acquisitions include Pharmanex and LifeGen Technologies[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) - Most products for markets outside Mainland China are sourced from third-party suppliers. In Mainland China, the company operates its own manufacturing facilities to produce the majority of products sold locally[26](index=26&type=chunk) [Distribution Channel](index=9&type=section&id=DISTRIBUTION%20CHANNEL) Nu Skin uses a direct selling model with distinct customer and sales leader groups, while Mainland China operates a unique retail and sales employee model due to regulatory restrictions Total Customers and Sales Leaders by Region (as of Dec 31) | Region | 2019 Customers | 2019 Sales Leaders | 2018 Customers | 2018 Sales Leaders | 2017 Customers | 2017 Sales Leaders | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mainland China | 292,812 | 17,987 | 303,789 | 33,129 | 192,604 | 40,610 | | Americas/Pacific | 220,216 | 7,607 | 248,609 | 8,354 | 244,467 | 8,871 | | South Korea | 168,972 | 7,251 | 182,026 | 7,565 | 172,553 | 8,431 | | Southeast Asia | 136,349 | 7,480 | 153,465 | 8,933 | 121,764 | 8,020 | | Japan | 125,557 | 5,916 | 130,181 | 5,916 | 132,041 | 6,592 | | EMEA | 153,330 | 4,619 | 149,085 | 4,791 | 135,051 | 4,683 | | Hong Kong/Taiwan | 65,669 | 3,900 | 76,891 | 4,767 | 71,091 | 4,671 | | **Total** | **1,162,905** | **54,760** | **1,244,046** | **73,455** | **1,069,571** | **81,878** | - The 'Velocity' sales compensation program, introduced starting in Q4 2017, was designed to increase Sales Leader productivity but has impacted the total number of individuals qualifying for 'Sales Leader' status due to adjusted requirements[37](index=37&type=chunk) - In Mainland China, a unique business model is used due to a prohibition on multi-level compensation. This model involves sales employees, independent direct sellers, and independent marketers compensated through retail bonuses and service fees[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) [Geographic Regions](index=15&type=section&id=GEOGRAPHIC%20REGIONS) The company operates across seven geographic segments, with Mainland China being the largest in 2019, contributing **30%** of total revenue Revenue by Segment (2017-2019) | Segment | 2019 Revenue (millions) | 2019 % | 2018 Revenue (millions) | 2018 % | 2017 Revenue (millions) | 2017 % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mainland China | $722.5 | 30% | $886.5 | 33% | $717.0 | 32% | | Americas/Pacific | $349.1 | 14% | $385.0 | 14% | $342.4 | 15% | | South Korea | $330.0 | 14% | $373.4 | 14% | $361.7 | 16% | | Southeast Asia | $301.6 | 12% | $316.9 | 12% | $268.6 | 12% | | Japan | $260.0 | 11% | $254.9 | 10% | $256.1 | 11% | | EMEA | $167.2 | 7% | $182.4 | 7% | $160.3 | 7% | | Hong Kong/ Taiwan | $166.3 | 7% | $185.9 | 7% | $166.7 | 7% | | Manufacturing | $121.9 | 5% | $90.6 | 3% | — | — | | Other/Grow Tech | $1.8 | — | $3.4 | — | $6.3 | — | | **Total** | **$2,420.4** | **100%** | **$2,679.0** | **100%** | **$2,279.1** | **100%** | [Regulation](index=15&type=section&id=REGULATION) The company's direct selling and product activities face extensive global regulations, particularly in Mainland China, with oversight from agencies like the FDA and FTC - Direct selling is regulated globally to prevent fraudulent schemes. Laws often govern product returns, sales compensation limits, and mandate that compensation is for product sales, not recruitment[56](index=56&type=chunk) - Mainland China's regulatory environment is complex, prohibiting multi-level compensation and subjecting the company to significant government and media scrutiny. In 2019, heightened government reviews and inspections limited business meetings[57](index=57&type=chunk)[58](index=58&type=chunk) - Several markets, including Mainland China and South Korea, impose limits on sales commissions. For example, South Korea limits sales compensation to **35%** of the total value of goods supplied[59](index=59&type=chunk) - Products are subject to extensive regulation. In the U.S., the FDA regulates cosmetics, OTC drugs, and dietary supplements under the Dietary Supplement Health and Education Act (DSHEA), which governs labeling and claims[63](index=63&type=chunk)[64](index=64&type=chunk)[71](index=71&type=chunk) - Advertising and product claims are regulated by the FTC in the U.S., which requires scientific substantiation. The company has a consent decree with the FTC from the early 1990s regarding distributor claims[83](index=83&type=chunk)[85](index=85&type=chunk) [Competition](index=22&type=section&id=COMPETITION) Nu Skin competes with global and local direct selling companies, as well as traditional marketers of personal care and nutritional products, based on product innovation and business opportunity - The company competes with other global direct selling companies such as Amway, Avon, and Herbalife, as well as local competitors in markets like Mainland China[89](index=89&type=chunk) - In the product space, competition comes from a broad array of marketers of personal care and nutritional products, including pharmaceutical companies, many with greater financial resources and name recognition[90](index=90&type=chunk) [Employees](index=22&type=section&id=EMPLOYEES) As of December 31, 2019, the company had approximately **4,900** global employees, excluding **20,000** sales employees in Mainland China - As of December 31, 2019, Nu Skin had approximately **4,900** full- and part-time employees worldwide, in addition to approximately **20,000** sales employees in Mainland China[91](index=91&type=chunk) [Information About Our Executive Officers](index=23&type=section&id=INFORMATION%20ABOUT%20OUR%20EXECUTIVE%20OFFICERS) This section lists the company's executive officers as of January 31, 2020, including key figures like Steven J. Lund (Executive Chairman) and Ritch N. Wood (CEO) Executive Officers (as of Jan 31, 2020) | Name | Age | Position | | :--- | :--- | :--- | | Steven J. Lund | 66 | Executive Chairman of the Board | | Ritch N. Wood | 54 | Chief Executive Officer | | Ryan S. Napierski | 46 | President | | Mark H. Lawrence | 50 | Executive Vice President and Chief Financial Officer | | Joseph Y. Chang | 67 | Executive Vice President of Product Development and Chief Scientific Officer | | D. Matthew Dorny | 55 | Executive Vice President, General Counsel and Secretary | [ITEM 1A. RISK FACTORS](index=24&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces substantial risks from regulatory challenges, especially in Mainland China, adverse publicity, epidemics, foreign currency fluctuations, and high sales force turnover - The company faces risks from challenges to its network marketing system, citing recent FTC settlements with other direct selling companies that have created ambiguity about legal standards for the industry[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Operations in Mainland China are a significant risk due to intense government scrutiny. A 100-day government campaign in 2019 to inspect the health products industry led to meeting restrictions and negative media coverage[112](index=112&type=chunk)[114](index=114&type=chunk)[120](index=120&type=chunk) - Epidemics, such as the coronavirus outbreak, are identified as a major risk that could negatively impact business due to the person-to-person nature of direct selling, with a significant negative impact anticipated in Mainland China[121](index=121&type=chunk) - The company is exposed to foreign currency risk, as **87%** of its 2019 sales occurred outside the U.S. A strengthening U.S. dollar negatively impacts reported revenue and profit[134](index=134&type=chunk) - High turnover in the sales force is a key risk. The ability to retain existing and recruit new sales force members is critical for revenue growth. Sales Leaders in Mainland China declined **46%** from year-end 2018 to 2019[148](index=148&type=chunk)[149](index=149&type=chunk) - The loss of key, high-level Sales Leaders could negatively impact growth and revenue, as a small number of top leaders drive a substantial portion of sales[151](index=151&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=45&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the Securities and Exchange Commission - None [ITEM 2. PROPERTIES](index=45&type=section&id=ITEM%202.%20PROPERTIES) The company's principal properties include corporate headquarters in Provo, Utah, and offices in Shanghai, China, along with various distribution, R&D, and manufacturing facilities - Principal properties include corporate headquarters in Provo, Utah; distribution centers in Provo and Mainland China; R&D centers in Provo and Shanghai; and manufacturing facilities in Mainland China and Utah[241](index=241&type=chunk)[242](index=242&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=46&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is in litigation with a consultant seeking over **$250 million** in damages related to an indoor-growing business, which the company is vigorously defending - The company is in litigation with consultant Don Roberts, who claims partnership in the indoor-growing business and seeks over **$250 million** in damages. The company is contesting the claims[243](index=243&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=46&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable Part II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=47&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%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 a **$500 million** stock repurchase plan, and has underperformed the S&P 500 over five years - The company's Class A common stock is listed on the New York Stock Exchange under the trading symbol 'NUS'[246](index=246&type=chunk) - As of December 31, 2019, **$470.2 million** remained available for repurchase under the company's **$500 million** stock repurchase plan authorized in August 2018[247](index=247&type=chunk) 5-Year Cumulative Total Return Comparison | Date | Nu Skin | S&P 500 Index | S&P MidCap 400 Consumer Staples Index | | :--- | :--- | :--- | :--- | | Dec 31, 2014 | 100.00 | 100.00 | 100.00 | | Dec 31, 2015 | 89.49 | 101.38 | 96.43 | | Dec 31, 2016 | 116.69 | 113.51 | 109.04 | | Dec 31, 2017 | 170.99 | 138.29 | 112.62 | | Dec 31, 2018 | 156.76 | 132.23 | 104.57 | | Dec 31, 2019 | 108.15 | 173.86 | 115.91 | [ITEM 6. SELECTED FINANCIAL DATA](index=49&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section provides a five-year summary of the company's consolidated financial data from 2015 to 2019, including key income statement, balance sheet, and operating metrics Selected Financial Data (2015-2019) | (in thousands, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $2,420,416 | $2,679,008 | $2,279,099 | $2,207,797 | $2,247,047 | | **Operating Income** | $267,426 | $240,860 | $274,483 | $231,104 | $244,702 | | **Net Income** | $173,553 | $121,887 | $129,437 | $143,086 | $133,046 | | **Diluted EPS** | $3.10 | $2.16 | $2.36 | $2.55 | $2.25 | | **Total Assets** | $1,769,006 | $1,694,446 | $1,589,872 | $1,474,045 | $1,505,843 | | **Stockholders' Equity** | $875,289 | $781,867 | $704,596 | $664,070 | $825,621 | | **Customers** | 1,162,905 | 1,244,046 | 1,069,571 | 987,563 | 993,788 | | **Sales Leaders** | 54,760 | 73,455 | 81,878 | 61,627 | 67,575 | [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=50&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2019, revenue decreased **10%** to **$2.42 billion** due to Mainland China challenges, while EPS increased, and the company anticipates significant 2020 impact from the coronavirus outbreak [Results of Operations](index=55&type=section&id=Results%20of%20Operations) In 2019, revenue decreased **10%** to **$2.42 billion**, primarily due to an **18%** decline in Mainland China, while net income increased due to lower 2018 restructuring charges - 2019 revenue decreased **10%** to **$2.42 billion**, while Sales Leaders and Customers declined **25%** and **7%**, respectively. The decline was largely due to challenges in Mainland China and a **3%** negative impact from foreign currency fluctuations[288](index=288&type=chunk)[289](index=289&type=chunk) Revenue by Segment (2019 vs 2018) | Segment | 2019 Revenue (thousands) | 2018 Revenue (thousands) | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Mainland China | $722,526 | $886,472 | (18)% | (15)% | | Americas/Pacific | $349,078 | $385,034 | (9)% | (4)% | | South Korea | $329,978 | $373,357 | (12)% | (6)% | | Southeast Asia | $301,620 | $316,890 | (5)% | (5)% | | Japan | $260,039 | $254,939 | 2% | 1% | | EMEA | $167,165 | $182,394 | (8)% | (3)% | | Hong Kong/ Taiwan | $166,335 | $185,893 | (11)% | (9)% | | **Total Nu Skin** | **$2,298,362** | **$2,588,402** | **(11)%** | **(8)%** | - In Q4 2018, the company recorded a **$70.7 million** restructuring and impairment charge, which included a **$48.6 million** non-cash impairment of IT assets and **$22.1 million** in cash charges for severance and other costs[320](index=320&type=chunk) - The company anticipates a significant negative impact on its business in Mainland China and other markets due to the coronavirus outbreak, related meeting restrictions, and travel quarantines[291](index=291&type=chunk) [Liquidity and Capital Resources](index=61&type=section&id=Liquidity%20and%20Capital%20Resources) The company generated **$177.9 million** in cash from operations in 2019, maintaining **$344.0 million** in cash, and has a **$400 million** term loan and **$350 million** revolving credit facility - Cash provided by operating activities was **$177.9 million** in 2019, compared to **$202.7 million** in 2018[325](index=325&type=chunk) - As of December 31, 2019, cash and cash equivalents were **$344.0 million**, with **$277.9 million** held in operations outside the United States[326](index=326&type=chunk)[334](index=334&type=chunk) - In April 2018, the company entered into a new Credit Agreement providing for a **$400 million** term loan and a **$350 million** revolving credit facility[330](index=330&type=chunk) - The company paid **$82.2 million** in dividends in 2019 (**$1.48** per share) and approved an increase for 2020[333](index=333&type=chunk) Contractual Obligations as of December 31, 2019 | Obligation (in thousands) | Total | Due in 2020 | Due 2021-2022 | Due 2023-2024 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt obligations | $365,000 | $27,500 | $67,500 | $270,000 | $— | | Interest payable | $37,822 | $12,625 | $22,032 | $3,165 | $— | | Operating lease obligations | $170,502 | $45,942 | $62,367 | $30,825 | $31,368 | | Purchase obligations | $289,776 | $209,222 | $73,258 | $7,238 | $58 | | Other long-term liabilities | $96,795 | $4,098 | $7,155 | $6,573 | $78,969 | | **Total** | **$959,895** | **$299,387** | **$232,312** | **$317,801** | **$110,395** | [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=69&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements for 2019, including balance sheets, income statements, cash flows, and accompanying notes and auditor's report Consolidated Income Statement (Year Ended Dec 31) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Revenue | $2,420,416 | $2,679,008 | $2,279,099 | | Gross Profit | $1,838,996 | $2,044,868 | $1,777,021 | | Operating Income | $267,426 | $240,860 | $274,483 | | **Net Income** | **$173,553** | **$121,887** | **$129,437** | Consolidated Balance Sheet (As of Dec 31) | (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $335,630 | $386,911 | | Total Current Assets | $740,166 | $799,237 | | **Total Assets** | **$1,769,006** | **$1,694,446** | | Total Current Liabilities | $356,760 | $439,655 | | Long-term debt | $334,461 | $361,008 | | **Total Liabilities** | **$893,717** | **$912,579** | | **Total Stockholders' Equity** | **$875,289** | **$781,867** | Consolidated Statement of Cash Flows (Year Ended Dec 31) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $177,931 | $202,738 | $302,555 | | Net cash used in investing activities | ($71,412) | ($108,761) | ($91,964) | | Net cash used in financing activities | ($154,794) | ($116,714) | ($159,572) | | **Net (decrease) increase in cash** | **($51,281)** | **($39,488)** | **$69,153** | - Subsequent to year-end, the company placed a temporary hold on in-person meetings in Mainland China due to the coronavirus outbreak and anticipates a significant short-term impact on financial results for 2020[516](index=516&type=chunk) [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=115&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 [ITEM 9A. CONTROLS AND PROCEDURES](index=115&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, 2019, with an unqualified audit opinion from PricewaterhouseCoopers LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[534](index=534&type=chunk) - Based on an assessment using the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2019. This assessment was audited by PricewaterhouseCoopers LLP[537](index=537&type=chunk)[538](index=538&type=chunk) Part III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=116&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information for this item, excluding executive officer details in Part I, will be incorporated by reference from the 2020 Definitive Proxy Statement - Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement, except for executive officer information already provided in Part I of this report[541](index=541&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=116&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement - Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement[541](index=541&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=116&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement - Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement[541](index=541&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=116&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement - Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement[541](index=541&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=116&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement - Information for this item will be incorporated by reference from the company's 2020 Definitive Proxy Statement[541](index=541&type=chunk) Part IV [ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES](index=116&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all exhibits filed with the Form 10-K, including governance documents, material contracts, and required certifications - This section provides a list of all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications required by the Sarbanes-Oxley Act[542](index=542&type=chunk)[543](index=543&type=chunk)[544](index=544&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=118&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company reports that no Form 10-K summary is provided - None

Nu Skin Enterprises, Inc. (NYSE:NUS) Q3 2019 Earnings Conference Call November 5, 2019 5:00 PM ET Company Participants Scott Pond - VP of IR Ritch Wood - CEO Ryan Napierski - President Mark Lawrence - CFO Conference Call Participants Olivia Tong - Bank of America Stephanie Wissink - Jefferies Mark Astrachan - Stifel Doug Lane - Lane research Beth Kite - Citi Operator Good day, ladies and gentlemen and welcome to the Q3 2019 Nu Skin Enterprises Earnings Conference Call. At this time, all participants are in ...

Part I. Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Nu Skin Enterprises, Inc., including the balance sheets, income statements, comprehensive income statements, stockholders' equity statements, and cash flow statements, along with detailed notes explaining significant accounting policies, financial instruments, segment performance, and other relevant financial disclosures [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time **Consolidated Balance Sheet Highlights (U.S. dollars in thousands):** | Item | September 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------------- | :------------------ | | **ASSETS** | | | | Total current assets | $739,129 | $799,237 | | Property and equipment, net | $447,653 | $464,535 | | Right-of-use assets | $115,557 | — | | Goodwill | $196,573 | $196,573 | | Total assets | $1,736,905 | $1,694,446 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $368,407 | $439,655 | | Operating lease liabilities | $80,953 | — | | Long-term debt | $341,724 | $361,008 | | Total liabilities | $891,105 | $912,579 | | Total stockholders' equity | $845,800 | $781,867 | | Total liabilities and stockholders' equity | $1,736,905 | $1,694,446 | - Total assets increased by **$42.46 million** from December 31, 2018, to September 30, 2019, primarily due to the recognition of right-of-use assets totaling **$115.56 million** upon adoption of the new lease accounting standard[6](index=6&type=chunk) - Total current liabilities decreased by **$71.25 million**, mainly driven by a reduction in the current portion of long-term debt from **$69.46 million** to **$25.00 million**[6](index=6&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section details the company's financial performance over specific periods, presenting revenue, gross profit, operating income, and net income **Consolidated Statements of Income Highlights (U.S. dollars in thousands, except per share amounts):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $589,934 | $675,312 | $1,837,057 | $1,995,721 | | Gross profit | $449,772 | $517,855 | $1,396,203 | $1,523,434 | | Operating income | $69,892 | $80,675 | $212,747 | $222,429 | | Net income | $44,090 | $53,146 | $133,441 | $139,646 | | Basic net income per share | $0.79 | $0.96 | $2.40 | $2.54 | | Diluted net income per share | $0.79 | $0.94 | $2.39 | $2.47 | - Revenue decreased by **13%** for the three months ended September 30, 2019, and by **8%** for the nine months ended September 30, 2019, compared to the prior-year periods[8](index=8&type=chunk) - Net income per diluted share decreased by **16%** for the three-month period and by **3%** for the nine-month period year-over-year[8](index=8&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's comprehensive income, including net income and other comprehensive income or loss components, primarily from foreign currency translation adjustments **Consolidated Statements of Comprehensive Income Highlights (U.S. dollars in thousands):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $44,090 | $53,146 | $133,441 | $139,646 | | Other comprehensive income (loss), net of tax | $(13,685) | $(7,095) | $(15,027) | $(16,237) | | Comprehensive income | $30,405 | $46,051 | $118,414 | $123,409 | - Other comprehensive loss, primarily due to foreign currency translation adjustments, increased significantly for the three-month period ended September 30, 2019, to **$(13.68) million** from **$(7.10) million** in the prior year[10](index=10&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's equity, reflecting net income, dividends, stock repurchases, and other comprehensive income adjustments **Changes in Stockholders' Equity (U.S. dollars in thousands):** | Item | Balance at July 1, 2019 | Net Income | Other Comprehensive Income, net of tax | Stock-based Compensation | Cash Dividends | Balance at September 30, 2019 | | :-------------------------------- | :---------------------- | :--------- | :------------------------------------- | :----------------------- | :------------- | :---------------------------- | | Total Stockholders' Equity | $834,950 | $44,090 | $(13,685) | $1,015 | $(20,552) | $845,800 | | Item | Balance at January 1, 2019 | Cumulative Effect Adjustment (ASC Topic 842) | Net Income | Other Comprehensive Income, net of tax | Repurchase of Class A Common Stock | Stock-based Compensation | Cash Dividends | Balance at September 30, 2019 | | :-------------------------------- | :----------------------- | :----------------------------------- | :--------- | :------------------------------------- | :--------------------------------- | :----------------------- | :------------- | :---------------------------- | | Total Stockholders' Equity | $781,867 | $657 | $133,441 | $(15,027) | $(825) | $9,649 | $(61,636) | $845,800 | - Total stockholders' equity increased from **$781.87 million** at January 1, 2019, to **$845.80 million** at September 30, 2019, driven by net income and stock-based compensation, partially offset by cash dividends and other comprehensive loss[14](index=14&type=chunk) - The adoption of ASC Topic 842 resulted in a cumulative effect adjustment of **$0.66 million** increase to beginning retained earnings as of January 1, 2019[14](index=14&type=chunk)[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities over specific periods **Consolidated Statements of Cash Flows Highlights (U.S. dollars in thousands):** | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $128,028 | $113,850 | | Net cash used in investing activities | $(58,129) | $(75,238) | | Net cash used in financing activities | $(129,242) | $(58,810) | | Net increase (decrease) in cash and cash equivalents | $(66,877) | $(36,333) | | Cash and cash equivalents, end of period | $320,034 | $390,066 | - Net cash provided by operating activities increased by **$14.18 million**, primarily due to improvements in inventory management and cost-saving initiatives[15](index=15&type=chunk)[126](index=126&type=chunk) - Net cash used in financing activities significantly increased to **$(129.24) million** in 2019 from **$(58.81) million** in 2018, mainly due to higher debt payments and lower proceeds from debt[15](index=15&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [Note 1. The Company](index=10&type=section&id=Note%201.%20The%20Company) Nu Skin Enterprises, Inc. is a global direct selling company specializing in personal care products and nutritional supplements under the Nu Skin and Pharmanex brands. The company operates through nine segments, including seven geographic Nu Skin segments, a Manufacturing segment, and a Grow Tech segment, which focuses on sustainable ingredient sourcing and other industry applications - Nu Skin operates as a holding company with Nu Skin as its primary operating unit, focusing on premium personal care products and nutritional supplements[16](index=16&type=chunk) - The company reports revenue from nine segments: Mainland China, South Korea, Southeast Asia, Americas/Pacific, Japan, Hong Kong/Taiwan, EMEA, Manufacturing, and Grow Tech[16](index=16&type=chunk) - The Manufacturing segment includes subsidiaries acquired in Q1 2018, while the Grow Tech segment focuses on sourcing sustainable ingredients and developing applications for other industries[16](index=16&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's significant accounting policies, including the adoption of new accounting standards for leases (ASC Topic 842) and goodwill impairment (ASU 2017-04), inventory valuation, revenue recognition principles under ASC Topic 606, and accounting for contract liabilities related to customer loyalty programs [Accounting Pronouncements](index=10&type=section&id=Accounting%20Pronouncements) This subsection details the adoption of new accounting standards, including those for leases, goodwill impairment, and hedging activities, and their financial impact - The company adopted ASU 2016-02, Leases (Topic 842), effective January 1, 2019, using the modified retrospective transition method, resulting in a **$0.7 million** increase to beginning retained earnings and recognition of right-of-use assets and lease liabilities[18](index=18&type=chunk) - ASU 2017-04, Simplifying the Test for Goodwill Impairment, was early adopted effective January 1, 2019, with no material impact on financial statements[19](index=19&type=chunk) - ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, was effective January 1, 2019, and did not have a material impact[20](index=20&type=chunk) [Inventory](index=12&type=section&id=Inventory) This subsection provides a breakdown of the company's inventory, including raw materials and finished goods, and highlights changes over time **Inventory, Net (U.S. dollars in thousands):** | Item | September 30, 2019 | December 31, 2018 | | :----------------- | :------------------- | :------------------ | | Raw materials | $89,026 | $91,610 | | Finished goods | $193,971 | $204,211 | | Total Inventory, net | $282,997 | $295,821 | - Total inventory, net, decreased by **$12.82 million** from December 31, 2018, to September 30, 2019, primarily due to a reduction in finished goods[23](index=23&type=chunk) [Revenue Recognition](index=12&type=section&id=Revenue%20Recognition) This subsection explains the company's principles for recognizing revenue from customer contracts and accounting for loyalty programs - The company adopted ASC Topic 606, "Revenue from Contracts with Customers," on January 1, 2018, resulting in a net reduction to opening retained earnings of **$13.0 million**, primarily related to loyalty point program deferrals[24](index=24&type=chunk)[25](index=25&type=chunk) - Revenue is recognized when performance obligations are satisfied by transferring promised products to the customer, typically at the shipping point[26](index=26&type=chunk) - Contract liabilities for customer loyalty programs, recorded as deferred revenue, were **$12.7 million** as of September 30, 2019, down from **$13.8 million** at December 31, 2018[27](index=27&type=chunk)[28](index=28&type=chunk) [Leases](index=14&type=section&id=Leases_Note2) This subsection details the accounting treatment for operating leases, including the recognition of right-of-use assets and lease liabilities on the balance sheet - Operating leases are recognized on the balance sheet as right-of-use (ROU) assets and lease liabilities, measured at the present value of lease payments over the lease term[32](index=32&type=chunk)[33](index=33&type=chunk) - The company accounts for lease and non-lease components as a single lease component[34](index=34&type=chunk) [Note 3. Goodwill](index=14&type=section&id=Note%203.%20Goodwill) Goodwill is allocated to the company's reportable segments, which include geographic Nu Skin segments, Manufacturing, and Grow Tech. The total goodwill remained unchanged at $196.57 million from December 31, 2018, to September 30, 2019 **Goodwill by Reportable Segment (U.S. dollars in thousands):** | Segment | September 30, 2019 | December 31, 2018 | | :----------------- | :------------------- | :------------------ | | Mainland China | $32,179 | $32,179 | | Americas/Pacific | $9,449 | $9,449 | | South Korea | $29,261 | $29,261 | | 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 | - The company reorganized its segment structure in Q1 2019 to separately disclose Manufacturing and Grow Tech segments, which were previously part of the 'Other' category[35](index=35&type=chunk) [Note 4. Debt](index=15&type=section&id=Note%204.%20Debt) This note details the company's debt facilities, including a $400 million term loan and a $350 million revolving credit facility under the 2018 Credit Agreement. It also covers the conversion and extinguishment of $210 million convertible senior notes in Q1 2018, which resulted in a $7.2 million loss on extinguishment of debt - The company entered into a new Credit Agreement in April 2018, providing a **$400 million** term loan and a **$350 million** revolving credit facility, with interest rates tied to LIBOR plus **2.25%**[38](index=38&type=chunk) - As of September 30, 2019, the term loan facility balance was **$370.0 million**, and the revolving credit facility had a zero balance, down from **$49.5 million** at December 31, 2018[44](index=44&type=chunk) - The **$210.0 million** convertible senior notes issued in 2016 were converted in Q1 2018, leading to the issuance of **1,535,652** shares of Class A common stock and a cash payment of **$213.4 million**, and a **$7.2 million** loss on extinguishment of debt[40](index=40&type=chunk)[43](index=43&type=chunk) [Note 5. Leases](index=18&type=section&id=Note%205.%20Leases) This note provides detailed information on the company's operating leases, including lease terms, discount rates, and lease expenses. As of September 30, 2019, the company recognized $115.6 million in operating right-of-use assets and $118.2 million in total principal lease liabilities - As of September 30, 2019, the weighted average remaining lease term for operating leases was **4.0 years**, and the weighted average discount rate was **4.8%**[46](index=46&type=chunk) **Lease Expense (U.S. dollars in thousands):** | Item | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :------------------ | :------------------------------ | :----------------------------- | | Operating lease cost | $12,399 | $37,677 | | Short-term lease cost | $41 | $145 | | Variable lease cost | $732 | $2,889 | | Total | $13,172 | $40,711 | **Maturities of Lease Liabilities (U.S. dollars in thousands):** | Year Ending December 31, | Operating Leases | | :----------------------- | :--------------- | | 2019 | $12,801 | | 2020 | $39,764 | | 2021 | $32,965 | | 2022 | $18,419 | | 2023 | $11,387 | | Thereafter | $15,721 | | Total | $131,057 | | Less: Finance charges | $12,860 | | Total principal liability | $118,197 | [Note 6. Capital Stock](index=20&type=section&id=Note%206.%20Capital%20Stock) This note details the company's capital stock activities, including net income per share calculations, quarterly cash dividends, and common stock repurchases. The company declared quarterly cash dividends of $0.37 per share and repurchased a minimal number of shares in 2019 [Net income per share](index=20&type=section&id=Net%20income%20per%20share) This subsection presents the company's basic and diluted net income per share calculations and factors affecting them - Basic net income per share was **$0.79** for Q3 2019 and **$2.40** for the nine months ended September 30, 2019[8](index=8&type=chunk) - Diluted net income per share was **$0.79** for Q3 2019 and **$2.39** for the nine months ended September 30, 2019[8](index=8&type=chunk) - Stock options of **1.3 million** (Q3 2019) and **1.2 million** (YTD 2019) were excluded from diluted EPS calculation as they were anti-dilutive[52](index=52&type=chunk) [Dividends](index=20&type=section&id=Dividends) This subsection details the company's quarterly cash dividend declarations and payment schedules - The board of directors declared quarterly cash dividends of **$0.37** per share in February, April, and August 2019, totaling approximately **$20.5 million** to **$20.6 million** each[53](index=53&type=chunk) - A quarterly cash dividend of **$0.37** per share was also declared in November 2019, payable on December 11, 2019[53](index=53&type=chunk) [Repurchase of common stock](index=21&type=section&id=Repurchase%20of%20common%20stock) This subsection outlines the company's common stock repurchase activities and the remaining authorization under its stock repurchase plan - During the nine months ended September 30, 2019, the company repurchased **14,000** shares of Class A common stock for **$0.8 million**[54](index=54&type=chunk) - As of September 30, 2019, **$470.2 million** remained available under the company's stock repurchase plan[54](index=54&type=chunk) [Note 7. Fair Value](index=21&type=section&id=Note%207.%20Fair%20Value) This note outlines the fair value hierarchy for financial instruments, categorizing them into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs). The company measures certain financial assets, including cash equivalents and life insurance contracts, at fair value on a recurring basis **Fair Value Hierarchy of Financial Assets (U.S. dollars in thousands):** | Item | Level 1 | Level 2 | Level 3 | Total (Sep 30, 2019) | | :--------------------------------- | :------ | :------ | :------ | :------------------- | | Cash equivalents and current investments | $84,500 | $— | $— | $84,500 | | Other long-term assets | $3,748 | $— | $— | $3,748 | | Life insurance contracts | $— | $— | $39,644 | $39,644 | | Total | $88,248 | $— | $39,644 | $127,892 | | Item | Level 1 | Level 2 | Level 3 | Total (Dec 31, 2018) | | :--------------------------------- | :------ | :------ | :------ | :------------------- | | Cash equivalents and current investments | $35,260 | $— | $— | $35,260 | | Other long-term assets | $3,568 | $— | $— | $3,568 | | Life insurance contracts | $— | $— | $35,590 | $35,590 | | Total | $38,828 | $— | $35,590 | $74,418 | - Total financial assets measured at fair value increased from **$74.42 million** at December 31, 2018, to **$127.89 million** at September 30, 2019, primarily driven by an increase in Level 1 cash equivalents and current investments[57](index=57&type=chunk) [Note 8. Income Taxes](index=22&type=section&id=Note%208.%20Income%20Taxes) The company's provision for income taxes increased for both the three- and nine-month periods ended September 30, 2019, with effective tax rates of 32.1% and 33.8% respectively. This note also discusses deferred tax assets, indefinitely reinvested foreign earnings, and ongoing tax examinations **Provision for Income Taxes (U.S. dollars in thousands):** | Period | Provision for Income Taxes | Effective Tax Rate | | :--------------------------------- | :------------------------- | :----------------- | | Three Months Ended Sep 30, 2019 | $20,823 | 32.1% | | Three Months Ended Sep 30, 2018 | $20,547 | 27.9% | | Nine Months Ended Sep 30, 2019 | $68,153 | 33.8% | | Nine Months Ended Sep 30, 2018 | $65,843 | 32.0% | - The increase in effective tax rates for 2019 compared to 2018 is primarily due to the release of a valuation allowance in Q3 2018 and the decision to designate **$60.0 million** of Mainland China earnings as permanently reinvested in Q2 2018[124](index=124&type=chunk) - The company had net deferred tax assets of **$19.3 million** as of September 30, 2019, and expects gross unrecognized tax benefits to increase by approximately **$0.5 million** to **$1.5 million** in the next 12 months[61](index=61&type=chunk)[63](index=63&type=chunk) [Note 9. Derivative Financial Instruments](index=23&type=section&id=Note%209.%20Derivative%20Financial%20Instruments) The company uses non-designated foreign currency derivatives to hedge intercompany transactions and mitigate foreign currency fluctuations, though no gains or losses were recognized from these in 2019. It also designates foreign currency forward contracts as cash-flow hedges for forecasted intercompany transactions, with no such contracts held as of September 30, 2019 - The company did not have any gains or losses related to derivative instruments not designated as hedging instruments for the three- and nine-month periods ended September 30, 2019 and 2018[65](index=65&type=chunk) - As of September 30, 2019 and 2018, the company held no foreign currency forward contracts designated as cash-flow hedges[67](index=67&type=chunk) - The accumulated other comprehensive loss of **$95.0 million** (Sep 30, 2019) and **$79.9 million** (Dec 31, 2018) is primarily related to cumulative translation adjustments[69](index=69&type=chunk) [Note 10. Segment Information](index=25&type=section&id=Note%2010.%20Segment%20Information) This note provides detailed financial information by segment, including revenue, segment contribution, depreciation and amortization, and capital expenditures. The company reorganized its segments in Q1 2019 to separately disclose Manufacturing and Grow Tech, which were previously part of 'Other' [Revenue by Segment](index=26&type=section&id=Revenue%20by%20Segment) This subsection provides a detailed breakdown of the company's revenue generated by each operating segment over various periods **Revenue by Segment (U.S. dollars in thousands):** | Segment | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Mainland China | $173,974 | $226,645 | $567,795 | $669,432 | | Americas/Pacific | $83,635 | $93,580 | $262,932 | $289,859 | | South Korea | $79,435 | $89,963 | $248,020 | $270,517 | | Southeast Asia | $78,963 | $86,307 | $226,853 | $236,390 | | Japan | $67,197 | $63,649 | $194,557 | $190,986 | | Hong Kong/Taiwan | $40,449 | $44,949 | $124,719 | $138,147 | | EMEA | $35,742 | $42,819 | $120,960 | $131,810 | | Manufacturing | $30,601 | $26,022 | $91,430 | $65,937 | | Grow Tech | $— | $— | $30 | $— | | Total | $589,934 | $675,312 | $1,837,057 | $1,995,721 | - Mainland China revenue decreased by **23%** (**21%** constant currency) for the three-month period and **15%** (**11%** constant currency) for the nine-month period, primarily due to sales meeting restrictions and lack of major product launches[98](index=98&type=chunk)[95](index=95&type=chunk) - Manufacturing segment revenue increased by **18%** for the three-month period and **39%** for the nine-month period, reflecting increased capacity and external sales[98](index=98&type=chunk)[116](index=116&type=chunk) [Segment Contribution](index=26&type=section&id=Segment%20Contribution) This subsection presents the financial contribution of each operating segment, reflecting their profitability before corporate allocations **Segment Contribution (U.S. dollars in thousands):** | Segment | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Mainland China | $48,619 | $71,185 | $158,873 | $189,901 | | Americas/Pacific | $12,875 | $11,848 | $41,314 | $38,088 | | South Korea | $24,770 | $24,754 | $76,417 | $75,836 | | Southeast Asia | $22,063 | $21,204 | $60,895 | $58,245 | | Japan | $16,287 | $15,162 | $46,216 | $41,777 | | Hong Kong/Taiwan | $8,063 | $8,100 | $24,754 | $23,781 | | EMEA | $1,529 | $2,614 | $6,114 | $10,438 | | Manufacturing | $4,577 | $2,045 | $11,598 | $4,039 | | Grow Tech | $(5,822) | $(2,732) | $(14,033) | $(6,049) | | Total segment contribution | $132,961 | $154,180 | $412,148 | $436,056 | | Corporate and other | $(63,069) | $(73,505) | $(199,401) | $(213,627) | | Operating income | $69,892 | $80,675 | $212,747 | $222,429 | - Mainland China's segment contribution decreased by **32%** for the three-month period and **16%** for the nine-month period, primarily due to lower revenue[100](index=100&type=chunk)[104](index=104&type=chunk) - Manufacturing segment contribution increased by **124%** for the three-month period and **187%** for the nine-month period, driven by revenue increases and improved gross margin[101](index=101&type=chunk)[117](index=117&type=chunk) - Grow Tech segment reported increased losses, reflecting ongoing research and development investments[101](index=101&type=chunk)[118](index=118&type=chunk) [Depreciation and Amortization](index=26&type=section&id=Depreciation%20and%20Amortization) This subsection details the depreciation and amortization expenses allocated across the company's various operating segments **Depreciation and Amortization by Segment (U.S. dollars in thousands):** | Segment | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Nu Skin | $6,223 | $6,697 | $20,259 | $21,297 | | Manufacturing | $1,711 | $2,950 | $4,916 | $8,596 | | Grow Tech | $1,244 | $652 | $3,064 | $1,098 | | Corporate and other | $10,127 | $12,392 | $29,725 | $31,842 | | Total | $19,305 | $22,691 | $57,964 | $62,833 | - Total depreciation and amortization decreased for both the three-month and nine-month periods ended September 30, 2019, compared to the prior year[79](index=79&type=chunk)[80](index=80&type=chunk) [Capital Expenditures](index=28&type=section&id=Capital%20Expenditures) This subsection outlines the capital expenditures made by each operating segment for property, equipment, and strategic initiatives **Capital Expenditures by Segment (U.S. dollars in thousands):** | Segment | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Mainland China | $10,614 | $2,117 | $13,328 | $5,015 | | Total Nu Skin | $12,445 | $3,336 | $19,052 | $7,960 | | Manufacturing | $1,100 | $1,100 | $4,281 | $2,568 | | Grow Tech | $2,577 | $3,127 | $7,628 | $11,449 | | Corporate and other | $7,448 | $6,301 | $21,823 | $20,316 | | Total | $23,570 | $13,864 | $52,784 | $42,293 | - Total capital expenditures increased to **$52.78 million** for the nine months ended September 30, 2019, from **$42.29 million** in the prior-year period, with a significant increase in Mainland China[82](index=82&type=chunk) [Note 11. Commitments and Contingencies](index=28&type=section&id=Note%2011.%20Commitments%20and%20Contingencies) The company is subject to various government regulations, legal proceedings, and tax audits. Management believes that the ultimate liability from these claims and contingencies will not materially adversely affect the company's financial condition, results of operations, or cash flows - The company is subject to government regulations regarding product formulation, labeling, claims, advertising, and its direct selling system[83](index=83&type=chunk) - Regular audits by tax authorities may result in additional tax liabilities, but the company believes it has appropriately provided for income taxes[84](index=84&type=chunk) [Note 12. Acquisitions](index=28&type=section&id=Note%2012.%20Acquisitions) In Q1 2018, the company completed three acquisitions: Innuvate Health Sciences, LLC (nutritional product manufacturer), Treviso, LLC (liquid contract manufacturing), and L&W Holdings, Inc. (packaging supplier). These acquisitions resulted in a total goodwill of $72.5 million - On January 22, 2018, Nu Skin acquired the remaining **73%** ownership in Innuvate Health Sciences, LLC for **$23.5 million** in cash and shares[85](index=85&type=chunk) - On February 12, 2018, Nu Skin acquired the remaining **65%** ownership in Treviso, LLC for **$83.9 million** in cash and shares, making it a wholly-owned subsidiary[86](index=86&type=chunk) - On February 12, 2018, Nu Skin acquired **100%** ownership in L&W Holdings, Inc. for **$25.0 million** in shares[87](index=87&type=chunk) - These acquisitions resulted in goodwill allocations of **$17.2 million** for Innuvate, **$42.5 million** for Treviso, and **$12.8 million** for L&W[88](index=88&type=chunk) [Note 13. Restructuring](index=30&type=section&id=Note%2013.%20Restructuring) In Q4 2018, the company initiated a strategic restructuring plan, primarily impacting information technology and corporate/Americas offices. This resulted in a $48.6 million non-cash charge for asset impairment and $22.1 million in cash charges for severance and other related costs - A non-cash charge of **$48.6 million** was recorded for impairment of information technology assets, including internally developed software[90](index=90&type=chunk) - Cash charges of **$22.1 million** were incurred, including **$20.1 million** for employee severance[90](index=90&type=chunk) - There was no restructuring activity for the three months ended September 30, 2019[91](index=91&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results for the third quarter and first nine months of 2019. It covers revenue declines, segment-specific challenges and improvements, consolidated financial metrics, liquidity, capital resources, and key accounting policies, highlighting the impact of foreign currency fluctuations and regulatory scrutiny in Mainland China [Overview](index=30&type=section&id=Overview) This section provides a high-level summary of the company's financial performance, including revenue, sales leaders, customers, and diluted EPS trends - Revenue decreased **13%** to **$589.9 million** for Q3 2019 and **8%** to **$1.8 billion** for the first nine months of 2019, compared to prior-year periods[94](index=94&type=chunk) - Sales Leaders decreased **16%** year-over-year, while Customers increased **4%**[94](index=94&type=chunk) - Revenue declines were attributed to continued restrictions on sales meetings in Mainland China, lack of a major product launch in 2019, and negative foreign-currency impacts of **2%** (Q3) and **4%** (YTD)[95](index=95&type=chunk) - Diluted EPS decreased **16%** to **$0.79** for Q3 2019 and **3%** to **$2.39** for the first nine months of 2019[96](index=96&type=chunk) [Segment Results](index=31&type=section&id=Segment%20Results) This section analyzes the financial performance of each operating segment, highlighting revenue, customer, and sales leader trends, along with segment contribution **Customers and Sales Leaders as of September 30:** | Segment | 2019 Customers | 2019 Sales Leaders | 2018 Customers | 2018 Sales Leaders | % Change Customers | % Change Sales Leaders | | :----------------- | :------------- | :----------------- | :------------- | :----------------- | :----------------- | :--------------------- | | Mainland China | 317,257 | 23,776 | 210,212 | 33,335 | 51% | (29)% | | Americas/Pacific | 229,013 | 7,760 | 276,923 | 8,475 | (17)% | (8)% | | South Korea | 169,589 | 7,363 | 180,254 | 7,700 | (6)% | (4)% | | Southeast Asia | 145,845 | 7,936 | 146,586 | 8,668 | (1)% | (8)% | | Japan | 128,373 | 5,964 | 130,831 | 6,182 | (2)% | (4)% | | Hong Kong/Taiwan | 68,862 | 4,231 | 75,985 | 4,402 | (9)% | (4)% | | EMEA | 147,758 | 4,060 | 144,977 | 4,320 | 2% | (6)% | | Total | 1,206,697 | 61,090 | 1,165,768 | 73,082 | 4% | (16)% | [Mainland China](index=33&type=section&id=Mainland%20China) This subsection details the financial performance of the Mainland China segment, focusing on revenue, customer growth, and the impact of regulatory scrutiny - Revenue decreased year-over-year due to continued restrictions on sales meetings and negative media scrutiny impacting consumer sentiment and Sales Leader attraction[103](index=103&type=chunk) - Customers increased by **51%** year-over-year, driven by customer initiatives during Q3 2019[102](index=102&type=chunk)[103](index=103&type=chunk) - Segment contribution declined due to lower revenue, partially offset by decreased general and administrative expenses from cost-saving initiatives and limited sales force events[104](index=104&type=chunk) [Americas/Pacific](index=33&type=section&id=Americas%20%2F%20Pacific) This subsection analyzes the financial performance of the Americas/Pacific segment, including revenue, sales leaders, and the impact of foreign currency fluctuations - Revenue, Sales Leaders, and Customers decreased, significantly impacted by hyperinflation in Argentina, which accounted for over **$5.0 million** (Q3) and **$19.1 million** (YTD) of the decline[105](index=105&type=chunk) - Foreign-currency fluctuations negatively impacted revenue by **4%** (Q3) and **6%** (YTD), primarily due to the weakening Argentine peso[105](index=105&type=chunk) - Segment contribution increased due to effective cost-saving measures and a decrease in selling expenses as a percentage of revenue, despite lower revenue[106](index=106&type=chunk) [South Korea](index=35&type=section&id=South%20Korea) This subsection details the financial performance of the South Korea segment, including revenue, sales leaders, and the impact of competitive pressures and foreign currency - Revenue, Sales Leaders, and Customers decreased, reflecting competitive pressures and a negative **6%** impact from foreign-currency fluctuations[107](index=107&type=chunk) - Segment contribution remained flat due to decreased general and administrative expenses and lower selling expenses as a percentage of revenue, offsetting the revenue decline[108](index=108&type=chunk) [Southeast Asia](index=35&type=section&id=Southeast%20Asia) This subsection analyzes the financial performance of the Southeast Asia segment, highlighting revenue, sales leaders, and the impact of regulatory changes and prior-year comparisons - Revenue and Sales Leaders declined due to a tough prior-year comparison (significant distributor event) and changes in Vietnam regulations that lengthened the distributor process[109](index=109&type=chunk) - The revenue decline was offset by improvements in gross margin from favorable sales mix and reductions in general and administrative expenses[110](index=110&type=chunk) [Japan](index=35&type=section&id=Japan) This subsection details the financial performance of the Japan segment, focusing on constant-currency revenue growth and improvements in segment contribution - Constant-currency revenue grew **2%** in Q3 2019 and **1%** for the first nine months, indicating market stabilization, despite soft Sales Leader and Customer numbers[111](index=111&type=chunk) - Segment contribution increased due to improved revenue, higher gross margin, and successful general and administrative cost-saving measures[112](index=112&type=chunk) [Hong Kong/Taiwan](index=35&type=section&id=Hong%20Kong%2FTaiwan) This subsection analyzes the financial performance of the Hong Kong/Taiwan segment, including revenue, customer trends, and the impact of social incidents - Revenue and Customers declined, primarily due to a strong prior-year period (Greater China sales force event) and business disruptions from social incidents in Hong Kong[113](index=113&type=chunk) - Segment contribution remained flat in Q3 2019 due to improved gross margin from product mix and reduced general and administrative expenses, despite lower revenue[114](index=114&type=chunk) [EMEA](index=35&type=section&id=EMEA) This subsection details the financial performance of the EMEA segment, focusing on revenue and sales leader declines due to market scrutiny and program adjustments - Revenue and Sales Leaders declined due to negative media scrutiny in the UK market and a longer-than-anticipated adjustment period for Sales Leaders with the Velocity program[115](index=115&type=chunk) - Segment contribution decreased primarily from the revenue decline and an increase in selling expenses as a percentage of revenue[115](index=115&type=chunk) [Manufacturing](index=35&type=section&id=Manufacturing) This subsection analyzes the financial performance of the Manufacturing segment, highlighting revenue growth and improved segment contribution from increased capacity - Revenue increased **18%** (Q3) and **39%** (YTD) year-over-year, driven by previous investments in additional capacity[116](index=116&type=chunk) - Segment contribution improved by **$2.5 million** (Q3) and **$7.6 million** (YTD) due to revenue increases and improved gross margin[117](index=117&type=chunk) [Grow Tech](index=36&type=section&id=Grow%20Tech) This subsection details the strategic focus and financial performance of the Grow Tech segment, including its long-term goals and expected losses from R&D investments - The Grow Tech segment focuses on long-term strategy for sourcing pure, effective, and sustainable ingredients[118](index=118&type=chunk) - The segment is expected to continue incurring losses in 2019 due to ongoing research and refinement of technology[118](index=118&type=chunk) [Consolidated Results](index=36&type=section&id=Consolidated%20Results) This section provides a consolidated view of the company's financial performance, analyzing key metrics such as revenue, gross profit, and net income [Revenue](index=36&type=section&id=Revenue_Consolidated) This subsection details the consolidated revenue trends for the company over specific periods - Consolidated revenue decreased **13%** to **$589.9 million** in Q3 2019 and **8%** to **$1.8 billion** for the first nine months of 2019[119](index=119&type=chunk) [Gross profit](index=36&type=section&id=Gross%20profit) This subsection analyzes the company's consolidated gross profit and gross margin, identifying factors influencing changes - Gross profit as a percentage of revenue was **76.2%** for Q3 2019 (down from **76.7%**) and **76.0%** for the first nine months of 2019 (down from **76.3%**)[120](index=120&type=chunk) - The decrease in consolidated gross margin was attributed to increased revenue from the lower-margin Manufacturing segment and lower revenue from the core Nu Skin business[120](index=120&type=chunk) [Selling expenses](index=36&type=section&id=Selling%20expenses) This subsection details the company's consolidated selling expenses and their percentage of revenue, noting contributing factors - Selling expenses as a percentage of revenue were **39.3%** for Q3 2019 (down from **40.2%**) and **39.6%** for the first nine months of 2019 (down from **40.2%**)[121](index=121&type=chunk) - The increase in Manufacturing segment revenue, which has low selling expenses, contributed to lowering consolidated selling expenses as a percentage of revenue[121](index=121&type=chunk) [General and administrative expenses](index=36&type=section&id=General%20and%20administrative%20expenses) This subsection analyzes the company's consolidated general and administrative expenses, highlighting reductions from labor and event cost savings - General and administrative expenses decreased to **$147.9 million** in Q3 2019 and **$456.0 million** for the first nine months of 2019[122](index=122&type=chunk) - The decrease was primarily due to a **$19.3 million** reduction in labor expenses (Q3) and **$35.0 million** (YTD) from decreased employee headcount and lower employee incentive compensation[122](index=122&type=chunk) - Expenses related to sales force events decreased **$10.4 million** for the first nine months due to limited sales meetings in Mainland China[122](index=122&type=chunk) [Other income (expense), net](index=36&type=section&id=Other%20income%20(expense)%2C%20net) This subsection details the company's other income and expenses, net, including foreign currency impacts and non-cash charges/gains - Other income (expense), net, improved to **$(5.0) million** in Q3 2019 and **$(11.2) million** for the first nine months of 2019[123](index=123&type=chunk) - The improvement primarily reflects decreased foreign-currency translation losses of **$2.0 million** (Q3) and **$10.8 million** (YTD)[123](index=123&type=chunk) - The nine-month improvement also reflects a **$7.2 million** non-cash charge from convertible note conversion in Q1 2018, offset by a **$13.6 million** non-cash gain on step acquisitions in Q1 2018[123](index=123&type=chunk) [Provision for income taxes](index=37&type=section&id=Provision%20for%20income%20taxes) This subsection presents the company's provision for income taxes and effective tax rates, explaining factors for period-over-period changes - Provision for income taxes was **$20.8 million** for Q3 2019 and **$68.2 million** for the first nine months of 2019[124](index=124&type=chunk) - Effective tax rates were **32.1%** for Q3 2019 and **33.8%** for the first nine months of 2019, higher than prior-year periods due to valuation allowance release and permanently reinvested earnings designation in 2018[124](index=124&type=chunk) [Net income](index=37&type=section&id=Net%20income_Consolidated) This subsection details the company's consolidated net income for the reported periods - Net income for Q3 2019 was **$44.1 million**, down from **$53.1 million** in the prior year[125](index=125&type=chunk) - Net income for the first nine months of 2019 was **$133.4 million**, down from **$139.6 million** in the prior year[125](index=125&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial liquidity and capital management, including cash flows, working capital, debt, and shareholder return programs - Cash from operations increased to **$128.0 million** for the first nine months of 2019, up from **$113.9 million** in the prior-year period, driven by inventory management and cost savings[126](index=126&type=chunk) - Cash and cash equivalents, including current investments, decreased to **$327.5 million** as of September 30, 2019, from **$398.3 million** at December 31, 2018[126](index=126&type=chunk) [Working capital](index=37&type=section&id=Working%20capital) This subsection analyzes changes in the company's working capital, identifying key drivers such as prepaid expenses and debt reductions - Working capital increased to **$370.7 million** as of September 30, 2019, from **$359.6 million** at December 31, 2018[127](index=127&type=chunk) - The increase was primarily due to increased prepaid expenses for the global Nu Skin LIVE! event, decreased accruals from severance payouts, and a reduction in the revolving line of credit, partially offset by a lower cash balance[127](index=127&type=chunk) [Capital expenditures](index=37&type=section&id=Capital%20expenditures) This subsection details the company's capital expenditures for facility expansions, systems, and strategic initiatives, along with future projections - Capital expenditures for the first nine months of 2019 totaled **$52.8 million**, including facility expansions, computer systems, and Grow Tech initiatives[128](index=128&type=chunk) - Estimated capital expenditures for 2019 are **$65-70 million**, with an additional **$55-60 million** projected over the next two to three years for a new manufacturing plant in Mainland China, of which **$10 million** was spent by Sep 30, 2019[129](index=129&type=chunk) [Conversion and satisfaction of convertible notes](index=37&type=section&id=Conversion%20and%20satisfaction%20of%20convertible%20notes) This subsection describes the conversion and settlement of the company's convertible senior notes, including stock issuance and cash payments - The **$210.0 million** convertible senior notes were converted in Q1 2018, leading to the issuance of Class A common stock and a cash payment of **$213.4 million** in April 2018[130](index=130&type=chunk) [Credit Agreement](index=37&type=section&id=Credit%20Agreement) This subsection details the company's credit facilities, including term loans and revolving credit, and compliance with debt covenants - The company entered into a Credit Agreement in April 2018, providing a **$400.0 million** term loan and a **$350.0 million** revolving credit facility[131](index=131&type=chunk) - Proceeds from the new debt were used to pay off the previous credit agreement and the outstanding convertible notes[131](index=131&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2019[132](index=132&type=chunk) [Modification of Previous Credit Agreement](index=39&type=section&id=Modification%20of%20Previous%20Credit%20Agreement) This subsection details the repayment of outstanding debt under the company's previous credit agreement - The outstanding debt of **$257.6 million** under the Previous Credit Agreement was repaid in April 2018[134](index=134&type=chunk) [Stock repurchase plan](index=39&type=section&id=Stock%20repurchase%20plan) This subsection outlines the company's stock repurchase program, including shares repurchased and remaining authorization - The board approved a **$500.0 million** stock repurchase plan in 2018[135](index=135&type=chunk) - Approximately **14,000** shares were repurchased for **$0.8 million** during the first nine months of 2019[135](index=135&type=chunk) - **$470.2 million** remained available for repurchases as of September 30, 2019[135](index=135&type=chunk) [Dividends](index=39&type=section&id=Dividends_Liquidity) This subsection details the company's quarterly cash dividend policy and funding sources - Quarterly cash dividends of **$0.37** per share were declared and paid in March, June, and September 2019[136](index=136&type=chunk) - The company anticipates continuing quarterly cash dividends, funded by cash flows from operations[136](index=136&type=chunk) [Cash from foreign subsidiaries](index=39&type=section&id=Cash%20from%20foreign%20subsidiaries) This subsection discusses the company's cash holdings in non-U.S. operations and plans for repatriation of earnings - As of September 30, 2019, **$223.5 million** of cash and cash equivalents were held in non-U.S. operations[137](index=137&type=chunk) - The company plans to repatriate undistributed earnings from non-U.S. operations as needed, except for **$60.0 million** of Mainland China earnings designated as indefinitely reinvested[138](index=138&type=chunk) [Contingent Liabilities](index=39&type=section&id=Contingent%20Liabilities) This subsection refers to information on the company's contingent liabilities, including government regulations, legal proceedings, and tax audits - The company refers to Note 11 for information regarding contingent liabilities, which include government regulations, legal proceedings, and tax audits[140](index=140&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) This section confirms that there were no significant changes to the company's critical accounting policies during the reporting period - There were no significant changes in critical accounting policies during the third quarter of 2019[140](index=140&type=chunk) [Seasonality and Cyclicality](index=40&type=section&id=Seasonality%20and%20Cyclicality) This section discusses how seasonal factors and product offerings impact the company's business performance and comparisons - The company's business is impacted by seasonal factors, such as local New Year celebrations in Asian markets (negative impact in Q1) and vacation patterns (negative impact in Q3)[141](index=141&type=chunk) - Introductory product offerings or promotions can generate significant activity and skew year-over-year and sequential comparisons[142](index=142&type=chunk) [Currency Risk and Exchange Rate Information](index=40&type=section&id=Currency%20Risk%20and%20Exchange%20Rate%20Information) This section details the company's exposure to foreign currency fluctuations and its strategies for mitigating currency risk - A majority of revenue and expenses are recognized outside the U.S., making reported revenue and earnings sensitive to U.S. dollar fluctuations[143](index=143&type=chunk) - The company adopted highly inflationary accounting for its Argentina subsidiary as of July 1, 2018, due to cumulative inflation exceeding **100 percent**[144](index=144&type=chunk) - The company may use foreign currency exchange contracts and intercompany loans to reduce exposure to foreign currency fluctuations, but held no designated or non-designated forward contracts as of September 30, 2019[145](index=145&type=chunk) [Non-GAAP Financial Measures](index=40&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and explains the use of non-GAAP financial measures, such as constant-currency revenue change, for performance analysis - Constant-currency revenue change is a non-GAAP measure used to remove the impact of foreign-currency fluctuations for period-to-period performance comparisons[146](index=146&type=chunk) [Available Information](index=40&type=section&id=Available%20Information) This section informs stakeholders about where to access the company's SEC filings and other material information - The company makes its SEC filings and other material information available free of charge on its Investor Relations website (ir.nuskin.com)[147](index=147&type=chunk)[148](index=148&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section incorporates by reference the discussion on currency risk and exchange rate information from Item 2 and Note 9, detailing the company's exposure to market risks, primarily foreign currency fluctuations - Information on market risk, particularly currency risk and exchange rate fluctuations, is incorporated from Item 2 and Note 9 of the consolidated financial statements[150](index=150&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of September 30, 2019, based on evaluation by the CEO and CFO, and states that no material changes were made to internal controls over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This subsection details the evaluation of the company's disclosure controls and procedures - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[151](index=151&type=chunk) [Changes in Internal Controls Over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Controls%20Over%20Financial%20Reporting) This subsection reports on any changes in the company's internal controls over financial reporting - No material changes were made to internal control over financial reporting during the fiscal quarter ended September 30, 2019[152](index=152&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, but no specific material details are provided in this section - The company is involved in legal proceedings arising in the ordinary course of business[154](index=154&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section highlights significant risks, particularly those related to the company's operations in Mainland China, including intense government scrutiny and the potential for regulatory changes or enforcement actions. It also addresses challenges to the network marketing system and the implications of recent FTC settlements with other direct selling companies [Mainland China Operations and Regulatory Scrutiny](index=43&type=section&id=Mainland%20China%20Operations%20and%20Regulatory%20Scrutiny) This subsection details the significant government scrutiny and regulatory risks faced by the company's operations in Mainland China - Operations in Mainland China are subject to significant government scrutiny, with broad latitude for investigations and varying interpretations of regulations[155](index=155&type=chunk)[156](index=156&type=chunk) - Increased regulatory scrutiny and negative media coverage in 2019, initially due to competitor claims, have led to more government reviews, inspections, and consumer complaints[156](index=156&type=chunk) - Non-compliance could result in substantial fines, business interruptions, and termination of licenses[156](index=156&type=chunk) [Direct Selling Regulations in Mainland China](index=43&type=section&id=Direct%20Selling%20Regulations%20in%20Mainland%20China) This subsection outlines the specific direct selling and anti-pyramiding regulations in Mainland China and the risks associated with their interpretation and enforcement - Mainland China's direct selling and anti-pyramiding regulations prohibit multi-level compensation and overseas personnel participation, requiring a distinct business model[159](index=159&type=chunk) - Regulators have broad discretion to interpret and enforce regulations, posing a risk of changes to the company's business model or imposition of penalties[160](index=160&type=chunk)[162](index=162&type=chunk) - A 100-day campaign in January 2019 to review health products and direct selling industries has led to heightened scrutiny and uncertainty regarding future regulatory changes[163](index=163&type=chunk) [Challenges to Network Marketing System](index=45&type=section&id=Challenges%20to%20Network%20Marketing%20System) This subsection discusses the regulatory and legal challenges to the company's network marketing system, including the impact of FTC settlements and potential business model changes - The company faces challenges from government regulators and private parties regarding its network marketing system, as laws are fact-based and subject to interpretation[164](index=164&type=chunk)[170](index=170&type=chunk) - Recent FTC settlements with other direct selling companies have created ambiguity regarding appropriate earnings/lifestyle claims and the focus on consumers, potentially leading to new industry standards or enforcement actions[165](index=165&type=chunk)[166](index=166&type=chunk)[168](index=168&type=chunk) - Adverse rulings, legal actions, or negative publicity could impact the business, potentially requiring changes to the global sales compensation plan or restricting operations[168](index=168&type=chunk)[170](index=170&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports that the company did not repurchase any shares of its Class A common stock during the three months ended September 30, 2019, under its publicly announced stock repurchase plan **Purchases of Equity Securities by the Issuer (July 1 - Sep 30, 2019):** | 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 Plans or Programs (in millions) | | :-------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | July 1 - 31, 2019 | — | — | — | $470.2 | | August 1 - 31, 2019 | — | — | — | $470.2 | | September 1 - 30, 2019 | — | — | — | $470.2 | | Total | — | — | — | | - As of September 30, 2019, **$470.2 million** remained available for repurchases under the company's **$500 million** stock repurchase plan[171](index=171&type=chunk) [Item 3. Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[172](index=172&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[172](index=172&type=chunk) [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported[172](index=172&type=chunk) [Item 6. Exhibits](index=46&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO under the Sarbanes-Oxley Act and Inline XBRL documents - Exhibits include certifications by the CEO and CFO (Rule 13a-14(a) and Section 1350) and various Inline XBRL documents[172](index=172&type=chunk) Signature This section provides the official signature and date of filing for the financial report - The report was signed by Mark H. Lawrence, Chief Financial Officer, on November 5, 2019[173](index=173&type=chunk)

Nu Skin Enterprises, Inc. (NYSE:NUS) Q2 2019 Earnings Conference Call August 6, 2019 5:00 PM ET Company Participants Scott Pond - Vice President of Investor Relations Ritch Wood - Chief Executive Officer Ryan Napierski - President Mark Lawrence - Chief Financial Officer Conference Call Participants Faiza Alwy - Deutsche Bank Steph Wissink - Jefferies Jackie Roth - Bank of America Doug Lane - Lane Research Beth Kite - Citi Mark Astrachan - Stifel Operator Good afternoon, ladies and gentlemen and welcome to t ...

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, 2019 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) (State or other jurisdictio ...

Financial Performance - Q2 2019 revenue was $623.5 million, a decrease of 11% compared to Q2 2018's $704.2 million, impacted by a 4% foreign exchange headwind, equivalent to $31 million[6] - Q2 2019 EPS was $0.83, down 8% compared to Q2 2018's $0.90[5][6] - The company paid $20.6 million in dividends[28] Sales Force and Customer Base - Total customers increased by 1% to 1,160,420[5][8] - Total sales leaders decreased by 14% to 61,563[5][8] - Mainland China saw an 8% increase in customers but a 27% decrease in sales leaders[7] Regional Performance - EMEA experienced a 5% revenue increase[5] - Hong Kong/Taiwan saw a 7% revenue increase[5] - Japan experienced a 10% revenue increase[5] - Southeast Asia experienced a 12% revenue increase[5] - South Korea experienced a 14% revenue increase[5] - Americas/Pacific experienced a 15% revenue increase[5] - Americas revenue decreased by 11% to $93 million[13] - Japan revenue decreased by 2%[21] - HK/Taiwan revenue decreased by 16% to $44 million[23] Operational Metrics - Gross margin decreased from 76.1% in Q2 2018 to 75.3% in Q2 2019[27] - Operating margin decreased from 11.9% in Q2 2018 to 11.8% in Q2 2019[27] - Selling expenses decreased from 39.4% in Q2 2018 to 38.7% in Q2 2019[27] - G&A expense decreased from 25.6% in Q2 2018 to 24.0% in Q2 2019[27]