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MarketScreener Homepage  >  Equities  >  Nyse  >  Nu Skin Enterprises, Inc.    NUS

NU SKIN ENTERPRISES, INC.

(NUS)
  Report  
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08/06NU SKIN : 2Q Earnings Snapshot
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08/06NU SKIN ENTERPRISES : Reports Second-Quarter 2019 Results
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08/06NU SKIN ENTERPRISES : Announces Quarterly Dividend
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NU SKIN ENTERPRISES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/07/2019 | 06:07am EDT
This quarterly report on Form 10-Q (this "Quarterly Report") contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that represent our current expectations and beliefs.  All statements
other than statements of historical fact are "forward-looking statements" for
purposes of federal and state securities laws and include, but are not limited
to, statements of management's expectations regarding our performance,
initiatives, strategies, product introductions and offerings, growth,
opportunities and risks; statements of projections regarding future sales,
expenses, operating results, taxes and duties, capital expenditures, sources and
uses of cash, foreign currency fluctuations or devaluations, repatriation of
undistributed earnings, and other financial items; statements of management's
expectations and beliefs regarding our markets and global economic conditions;
statements regarding the payment of future dividends and stock repurchases;
statements regarding the outcome of litigation, audits, investigations or other
regulatory actions; statements regarding government policies and regulations
relating to our industry, including government policies and regulations in
Mainland China; accounting estimates and assumptions; statements of belief; and
statements of assumptions underlying any of the foregoing. In some cases, you
can identify these statements by forward-looking words such as "believe,"
"expect," "project," "anticipate," "estimate," "intend," "plan," "targets,"
"likely," "will," "would," "could," "may," "might," the negative of these words
and other similar words. We undertake no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future
events or otherwise, except as required by law.  We caution and advise readers
that these statements are based on assumptions that may not be realized and
involve risks and uncertainties that could cause actual results to differ
materially from the expectations and beliefs contained herein. For a summary of
these risks, see the risk factors included in our Annual Report on Form 10-K for
the 2018 fiscal year and in our subsequent quarterly and other reports,
including this Quarterly Report on Form 10-Q.

The following Management's Discussion and Analysis should be read in conjunction
with our consolidated financial statements and related notes and Management's
Discussion and Analysis included in our Annual Report on Form 10-K for the 2018
fiscal year, and our other reports filed with the Securities and Exchange
Commission through the date of this Quarterly Report on Form 10-Q.

Overview


Revenue for the three-month period ended June 30, 2019 decreased 11% to $623.5
million, compared to $704.2 million in the prior-year period, and revenue for
the six-month period ended June 30, 2019 decreased 6% to $1.2 billion, compared
to $1.3 billion in the prior-year period. Sales Leaders decreased 14% and
Customers increased 1% on a year-over-year basis.

The declines in revenue and Sales Leaders are primarily due to sales meeting
restrictions and negative media scrutiny and consumer sentiment in Mainland
China, as discussed in the Segment Results section below. Our revenue was also
negatively impacted 4% from foreign-currency fluctuations in the second quarter
of 2019, and 5% in the first six months of 2019, compared to the respective
prior-year periods.

Earnings per share for the second quarter of 2019 decreased 8% to $0.83,
compared to $0.90 in the prior-year period. The decrease in earnings per share
primarily reflects lower revenue. Earnings per share for the first six months of
2019 increased 4% to $1.59, compared to $1.53 in the prior-year period. The
increase in earnings per share primarily reflects a $25.3 million decrease in
general and administrative expenses, partially offset by a decline in revenue.

Segment Results


We report our business in nine segments to reflect our current management
approach. Effective as of the first quarter of 2019, we reorganized the
structure of our segments to separately disclose a Manufacturing segment, which
includes the manufacturing and packaging subsidiaries that we acquired in the
first quarter of 2018, and a Grow Tech segment, which focuses on a long-term
strategy for consistently sourcing pure, effective and sustainable ingredients
for use in our products, while also working on and developing applications in
other industries. Our Manufacturing and Grow Tech segments were previously
included in the Other category. Segment information for the three- and six-month
periods ended June 30, 2018 has been recast to reflect this change. Consolidated
financial information was not affected.

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The following table sets forth revenue for the three- and six-month periods
ended June 30, 2019 and 2018 for each of our reportable segments (U.S. dollars
in thousands):

                     Three Months Ended                       Constant-            Six Months Ended                         Constant-
                          June 30,                            Currency                 June 30,                             Currency
                     2019          2018         Change        Change(1)          2019            2018         Change        Change(1)

Nu Skin
Mainland China     $ 185,333     $ 245,256          (24 )%           (19 )%   $   393,821     $   442,787         (11 )%            (5 )%
Americas/Pacific      92,841       103,990          (11 )%            (6 )%       179,297         196,279          (9 )%            (2 )%
South Korea           84,732        91,624           (8 )%             -          168,585         180,554          (7 )%            (1 )%
Southeast Asia        75,395        79,223           (5 )%            (3 )%       147,890         150,083          (1 )%             1 %
Japan                 65,251        64,113            2 %              2 %        127,360         127,337           -                1 %
Hong Kong/Taiwan      43,712        52,206          (16 )%           (14 )%        84,270          93,198         (10 )%            (7 )%
EMEA                  43,400        44,010           (1 )%             5 %         85,218          88,991          (4 )%             3 %
Other                  1,249         1,030           21 %             21 %           (177 )         1,265        (114 )%          (114 )%
Total Nu Skin        591,913       681,452          (13 )%            (9 )%     1,186,264       1,280,494          (7 )%            (2 )%
Manufacturing         31,557        22,738           39 %             39 %         60,829          39,915          52 %             52 %
Grow Tech                 30             -            -                -               30               -           -                -
Total              $ 623,500     $ 704,190          (11 )%            (7 )%   $ 1,247,123     $ 1,320,409          (6 )%            (1 )%


(1) Constant-currency revenue change is a non-GAAP financial measure. See

"Non-GAAP Financial Measures," below.




The following table sets forth segment contribution for the three- and six-month
periods ended June 30, 2019 and 2018 for each of our reportable segments (U.S.
dollars in thousands). Segment contribution excludes certain intercompany
charges, specifically royalties, license fees, transfer pricing and other
miscellaneous items. We use segment contribution to measure the portion of
profitability that the segment managers have the ability to manage for their
respective segments. For additional information regarding our segments and the
calculation of segment contribution, see Note 10 to the consolidated financial
statements contained in this report.

                     Three Months Ended                        Six Months Ended
                          June 30,                                 June 30,
                     2019          2018        Change         2019          2018        Change

Nu Skin
Mainland China     $  51,087     $  73,899         (31 )%   $ 110,254     $ 118,716          (7 )%
Americas/Pacific      16,420        17,068          (4 )%      28,439        26,240           8 %
South Korea           25,979        24,880           4 %       51,647        51,081           1 %
Southeast Asia        20,840        20,639           1 %       38,832        37,041           5 %
Japan                 15,823        13,377          18 %       29,929        26,615          12 %
Hong Kong/Taiwan       9,217         7,835          18 %       16,691        15,681           6 %
EMEA                   3,234         3,069           5 %        4,585         7,823         (41 )%
Total Nu Skin        142,600       160,767         (11 )%     280,377       283,197          (1 )%
Manufacturing          3,375         2,348          44 %        7,021         1,994         252 %
Grow Tech             (4,582 )      (2,057 )      (123 )%      (8,211 )      (3,317 )      (148 )%



The following table provides information concerning the number of Customers and
Sales Leaders as of June 30, 2019 and 2018.  "Customers" are persons who have
purchased products directly from the Company during the three months ended as of
the date indicated. Our Customer numbers do not include consumers who purchase
products directly from members of our sales force. "Sales Leaders" are
independent distributors, and sales employees and independent marketers in
Mainland China, who achieve certain qualification requirements. Our Velocity
sales compensation program enhancements were designed to drive and reward
increased productivity of our Sales Leaders with adjusted requirements for
qualifying and maintaining "Sales Leader" status, which could impact the number
of independent distributors under our global compensation program who achieve
such requirements. For example, the sales volume necessary to achieve initial
qualification has been increased in some markets, financial rewards have been
increased for higher monthly productivity, qualification requirements have been
modified and the enhanced program also provides some flexibility to remain a
Sales Leader with a lower sales volume for a short time. As of the date of this
report, we have introduced Velocity in all segments other than Mainland China.
Mainland China operates under a different business model and is not impacted by
these changes.

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                                  As of                        As of
                              June 30, 2019                June 30, 2018                 % Increase (Decrease)
                                          Sales                        Sales                                Sales
                          Customers      Leaders       Customers      Leaders       Customers              Leaders

Mainland China               226,877       24,336         209,456       33,378               8 %                 (27 )%
Americas/Pacific             253,684        8,161         265,431        8,964              (4 )%                 (9 )%
South Korea                  180,365        7,239         183,978        6,875              (2 )%                  5 %
Southeast Asia               137,450        7,417         134,601        7,597               2 %                  (2 )%
Japan                        127,900        5,931         131,593        5,972              (3 )%                 (1 )%
Hong Kong/Taiwan              70,089        4,223          75,828        4,196              (8 )%                  1 %
EMEA                         164,055        4,256         147,048        4,355              12 %                  (2 )%

Total                      1,160,420       61,563       1,147,935       71,337               1 %                 (14 )%


Following is a narrative discussion of our results in each segment, which supplements the tables above.


Mainland China. The year-over-year decrease in revenue in Mainland China for the
three- and six-month periods ended June 30, 2019, along with the decline in
Sales Leaders, reflects continued restrictions on sales meetings, as well as
negative media scrutiny of the industry, including Nu Skin, which we believe
negatively impacted consumer sentiment. While we anticipated we could begin
holding meetings in the second quarter of 2019, meeting approvals for the
industry have been significantly more restrictive than expected and remain
limited. As of the date of this filing, we have received approval to hold
meetings in the majority of the market, but both the size and number of meetings
remain more restricted than before the 100-day period. We anticipate that the
meeting restrictions, adverse publicity regarding our Company and industries,
and negative consumer sentiment could continue to impact our business for the
balance of the year. The year-over-year revenue declines in this segment for the
three- and six-month periods also reflect the negative impacts of
foreign-currency fluctuations of 5% and 6%, respectively. Due in part to the
restrictions on sales meetings, we conducted customer initiatives during the
second quarter of 2019, which we believe drove the year-over-year increase in
Customers as of June 30, 2019.

The year-over-year decrease in segment contribution for both the second quarter
and the first six months of 2019 primarily reflects lower revenue in 2019.  In
addition, for the second quarter of 2019, selling expenses as a percentage of
revenue increased 4.3 percentage points.  The salaries and service fees of our
sales force in Mainland China are fixed until they are adjusted in a quarterly
evaluation process. As a result, we have variations in our selling expenses as a
percentage of revenue, particularly when there is a sequential change in
revenue. The decline in segment contribution from lower revenue and increased
selling expenses as a percentage of revenue was partially offset by an
improvement in gross margin. For the first half of 2019, the decline in segment
contribution from lower revenue was partially offset by decreased general and
administrative expenses as a result of cost saving initiatives and lower sales
force event expenses due to limited meetings.

In addition to restrictions on sales meetings and negative media scrutiny, the
Mainland China government's recently completed 100-day campaign to review and
inspect the health products and direct selling industries also has resulted in
an increased number of government reviews, inspections, and inquiries and
consumer complaints in Mainland China. We anticipate that the heightened level
of media and regulatory scrutiny of these industries will continue. There is
also uncertainty whether any changes to the regulations that apply to these
industries will be made based on the review. Given the current situation, we
have postponed some of our business initiatives to later in the year. We will
continue to follow the guidance we receive from Chinese regulators. It is
uncertain how much impact these issues related to the 100-day review could have
on our business.

Americas/Pacific. The year-over-year decreases in revenue, Sales Leaders and
Customers are largely attributable to our Argentina market, where the economy is
experiencing hyperinflation.  We have implemented price increases in response to
inflation in Argentina. Our revenue in this segment was negatively impacted 5%
and 7% from foreign-currency fluctuations for the three- and six-month periods
ended June 30, 2019, respectively, primarily due to the weakening Argentine
peso.  The declines in revenue, Sales Leaders and Customers in this segment also
reflect softness in the U.S. market.

The year-over-year decline in segment contribution for the second quarter of
2019 primarily reflects the decline in revenue, partially offset by a decline in
general and administrative expense from cost savings initiatives. The
year-over-year increase in segment contribution for the six-month period ended
June 30, 2019 reflects improved gross margin from product mix and a lower
general and administrative expense from cost saving initiatives, partially
offset by a decline in revenue.

South Korea.  We are seeing some stabilization of our business in South Korea,
as the year-over-year decrease in revenue in this segment for the three- and
six-month periods ended June 30, 2019 was primarily attributable to negative
foreign-currency fluctuations.  Competitive pressures have continued to
negatively affect our revenue and Customer acquisition in this segment. The
year-over-year increase in our Sales Leaders for the second quarter reflects
successful distributor initiatives.

The increases in segment contribution for the three- and six-month periods ended
June 30, 2019 reflect improved gross margins for the second quarter from changes
in product mix and a decrease in general and administrative expense.

Southeast Asia. The year-over-year decline in revenue for the second quarter of
2019 in our Southeast Asia segment reflects a difficult comparable period;
during the second quarter of 2018 a successful distributor event increased sales
for the period.

The year-over-year increase in segment contribution for the second quarter and
first half of 2019 reflects a 2.5 and 2.2 percentage point increase in gross
margin, respectively. This increase was partially offset by lower revenue and a
higher selling expense as a percentage of revenue for both the second quarter
and first half of 2019.

Japan.  Revenue increased 2% for the second quarter of 2019 and remained flat
for the first half of 2019.  The declines in our Sales Leader and Customer
numbers in our Japan segment continued to reflect a soft direct selling market,
which we believe is attributable to a challenging regulatory environment and an
aging demographic. However, we are beginning to see improved trends related to
our sales force in this segment, and we believe our business in Japan may be
stabilizing.

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Through successful general and administrative cost-saving measures and improved
revenue, segment contribution increased for the second quarter and first half of
2019.

Hong Kong/Taiwan. The year-over-year decline in revenue and Customers in our
Hong Kong/Taiwan segment for both the second quarter and the first half of 2019
was primarily driven by the prior-year period, which included increased sales
from the Greater China convention that was held in Hong Kong. The increasing
political tension in Hong Kong also impacted our second quarter, and it is
uncertain when the situation will be resolved.

Despite lower revenue for the second quarter and first half of 2019, segment
contribution improved due to a higher gross margin from  product mix, and a
decline in general and administrative expenses primarily due to a regional
convention in Hong Kong in 2018, partially offset by a 5.0 percentage point
increase in selling expense as a percentage of revenue in the second quarter of
2018.  These changes in selling expenses reflect the impact of Velocity. As
previously disclosed, Velocity includes a new bonus program for our sales force
that is funded by slightly increased prices for some of our products, causing
both gross margin and selling expenses as a percentage of revenue to increase.

EMEA. The 1% and 4% declines in revenue for the three- and six-month periods
ended June 30, 2019 reflect negative foreign-currency impacts of 6% and 7%,
respectively.  The continued growth in Customers reflects continued social
sharing initiatives along with the launch of Velocity in the first quarter of
2019.

The increase in segment contribution for the second quarter of 2019 reflects a
lower selling expense as a percentage of revenue, and slight improvements in
general and administrative expenses as a percentage of revenue.  The
year-over-year decline in segment contribution for the first half of 2019 is
mainly attributable to a decrease in gross margin of 0.8 percentage points,
which was mainly driven by foreign-currency fluctuations in the first quarter of
2019, and increases in selling expenses as a percentage of revenue of 0.7
percentage points and general and administrative expenses as a percentage of
revenue of 2.0 percentage points, driven by higher labor and promotion cost.

Manufacturing. Our Manufacturing segment generated a 39% year-over-year increase
in revenue for the second quarter of 2019 and a 52% increase for the six-month
period ended June 30, 2019.  The companies in this segment were acquired in the
first quarter of 2018 and provide products and services both to our Nu Skin
business and to external customers. Reported revenue includes only the revenue
generated by sales to external customers.

The $1.0 million and $5.0 million improvements in segment contribution for the
three- and six-month periods ended June 30, 2019, respectively, reflect revenue
increases and improved gross margin, primarily due to purchase accounting
adjustments recorded in 2018, partially offset by higher general and
administrative expenses for the second quarter of 2019.

Grow Tech. Our Grow Tech segment focuses on a long-term strategy for
consistently sourcing pure, effective and sustainable ingredients for use in our
products. Nu Skin plans to begin adding ingredients sourced from its Grow Tech
segment to its products in place of traditionally grown ingredients, while also
working on and developing applications in other industries. As previously
disclosed, we are expecting a continued loss in 2019 from this segment as we
continue to research and refine the technology.

Consolidated Results

Revenue


Revenue for the three-month period ended June 30, 2019 decreased 11% to $623.5
million, compared to $704.2 million in the prior-year period. Revenue for the
six-month period ended June 30, 2019 decreased 6% to $1.2 billion, compared to
$1.3 billion in the prior-year period. For a discussion and analysis of these
increases in revenue, see "Overview" and "Segment Results," above.

Gross profit


Gross profit as a percentage of revenue was 75.3% for the second quarter of
2019, compared to 76.1% for the prior-year period, and 75.9% for the first six
months of 2019, compared to 76.2% for the prior-year period.  Gross profit as a
percentage of revenue for core Nu Skin decreased 0.1 percentage points to 77.8%
for the second quarter of 2019 and increased 0.3 percentage points to 78.2% for
the first half of 2019.  The negative impact from foreign-currency fluctuations
was partially offset by cost savings realized from our supply chain.  The
increased revenue at our Manufacturing segment lowered consolidated gross margin
2.5 percentage points for the second quarter of 2019 and 2.3 percentage points
in the first half of 2019. As previously disclosed, the gross margin of our
Manufacturing segment is significantly lower than that of our core Nu Skin
business.

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Selling expenses


Selling expenses as a percentage of revenue were 39.4% for the second quarter of
2019, compared to 38.7% for the prior-year period, and 39.7% for the first six
months of 2019 compared to 40.2% for the prior-year period. Selling expenses for
our core Nu Skin business are driven by the specific performance of our
individual sales leaders. Given the size of our sales force and the various
components of our compensation programs, selling expenses as a percentage of
revenue typically fluctuate plus or minus approximately 100 basis points from
period to period.  For the second quarter, core Nu Skin's selling expenses as a
percentage of revenue increased 1.5 percentage points to 41.5%, primarily from
our Mainland China and Hong Kong/Taiwan segments as discussed above. This was
partially offset by the impact of the increase in revenue from our Manufacturing
segment, which does not carry significant selling expenses and therefore lowered
consolidated selling expenses as a percentage of revenue 2.1 percentage points,
compared to 1.3 percentage points in the prior-year period.  For the first half
of 2019, core Nu Skin's selling expenses as a percentage of revenue increased
0.4 percentage points to 41.8%, and this increase was offset by the impact of
increased revenue in our Manufacturing segment, which lowered selling expenses
as a percentage of revenue by 2.1 percentage points, compared to 1.2 percentage
points in the prior-year period.

General and administrative expenses


General and administrative expenses as a percentage of revenue decreased to
24.0% for the second quarter of 2019, from 25.6% for the prior-year period, and
to 24.7% for the first six months of 2019, from 25.2% for the prior-year
period.  General and administrative expenses decreased to $149.4 million in the
second quarter of 2019 and $308.0 million in the first six months of 2019,
compared to $180.1 million and $333.4 million in the respective prior-year
periods, primarily reflecting a decrease in labor expenses of $12.5 million for
the second quarter of 2019 and $11.0 million for the first six months of 2019,
due to decreased employee headcount during 2019 and higher employee incentive
compensation for the 2018 periods upon achievement of performance goals.
Expenses related to sales force events and initiatives also decreased $12.2
million for the second quarter of 2019 and $13.2 million for the first six
months of 2019, due to limited sales meetings in Mainland China and our
prior-year distributor event in Hong Kong. In the fourth quarter of 2019, we
anticipate general and administrative expenses will be higher from our global Nu
Skin LIVE! event, which will take place in October 2019.

Other income (expense), net


Other income (expense), net was $(3.3) million of expense for the second quarter
of 2019 compared to $(11.2) million of expense for the prior-year period, and
$(6.2) million of expense for the first six months of 2019 compared to $(10.0)
million of expense for the prior-year period. These decreases in other income
(expense) primarily reflect foreign-currency fluctuations.  In the second
quarter of 2018, the U.S. dollar strengthened against the Chinese yuan, and
following the hyperinflation classification in Argentina there was a sharp
increase in the U.S. dollar against the Argentine peso.

Provision for income taxes


Provision for income taxes for the second quarter of 2019 was $24.5 million,
compared to $20.6 million for the prior-year period, and $47.3 million for the
first six months of 2019, compared to $45.3 million for the prior-year period.
The effective tax rate was 34.6% of pre-tax book income during the second
quarter of 2019 and first half of 2019 compared to 28.8% and 34.4% in the
prior-year periods. The difference in rate in the second quarter of 2019
compared to the second quarter of 2018 primarily relates to our decision in the
second quarter of 2018 to designate $60.0 million of our earnings in Mainland
China as permanently reinvested.

Net income


As a result of the foregoing factors, net income for the second quarter of 2019
was $46.3 million, compared to $51.0 million in the prior-year period. Net
income for the first six months of 2019 was $89.4 million, compared to $86.5
million for the first six months of 2018.

Liquidity and Capital Resources


Historically, our principal uses of cash have included operating expenses
(particularly selling expenses) and working capital (principally inventory
purchases), as well as capital expenditures, stock repurchases, dividends, debt
repayment and the development of operations in new markets. We have at times
incurred long-term debt, or drawn on our revolving line of credit, to fund
strategic transactions and stock repurchases. We typically generate positive
cash flow from operations due to favorable margins and have generally relied on
cash from operations to fund operating activities. In the first six months of
2019, we generated $74.5 million in cash from operations, compared to generating
$51.9 million in cash from operations during the prior-year period. The increase
in cash flow from operations reflects reduced cash outlay for sales force events
and other cost saving initiatives implemented by our markets, partially offset
by a higher payout of accruals in the first quarter of 2019 mainly attributable
to severance pay-out.  Cash and cash equivalents, including current investments,
as of June 30, 2019 and December 31, 2018 were $368.4 million and $398.3
million, respectively, driven by the repayment of debt, ongoing capital
expenditures and payment of the quarterly dividend.

Working capital. As of June 30, 2019, working capital was $373.6 million,
compared to $359.6 million as of December 31, 2018. The increase in working
capital is primarily attributable to an increased prepaid expense, a decrease to
accruals from the payout of the severance in the first quarter of 2019, and a
decrease in our revolving line of credit, which is offset by a lower cash
balance.

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Capital expenditures. Capital expenditures for the first half of 2019 were $29.2 million. Our 2019 capital expenditures include the following:

? the expansion and upgrade of facilities in our various markets;

? purchases and expenditures for computer systems and equipment, software,

application development and the migration of legacy systems to cloud-based

systems; and

? purchases of equipment and development of our technology in our Grow Tech

   initiative.



We estimate that capital expenditures for the uses listed above will total
approximately $65-70 million for 2019. In addition, we are also in the planning
phase for a new manufacturing plant in Mainland China. We currently expect that
our expenditures for this project will be approximately $55- 60 million over the
next 2-3 years, with approximately $20 million during 2019.

Conversion and satisfaction of convertible notes. In June 2016, we issued $210.0
million principal amount of convertible 4.75% senior notes due 2020 (the
"Convertible Notes") to Ping An ZQ China Growth Opportunity Limited ("Ping An
ZQ") at face value. During the first quarter of 2018, Ping An ZQ elected to
convert the Convertible Notes pursuant to their terms. In connection with such
conversion and pursuant to the terms of the indenture governing the Convertible
Notes, we became obligated to deliver shares of Class A common stock and cash to
Ping An ZQ. We satisfied our obligation to deliver shares of Class A common
stock to Ping An ZQ during the first quarter of 2018 and, in April 2018,
satisfied our obligations under the Convertible Notes by paying Ping An ZQ
$213.4 million.

Credit agreement. In April 2018, we entered into a Credit Agreement (the "Credit
Agreement") with various financial institutions as lenders and Bank of America,
N.A., as administrative agent. The Credit Agreement provides for a $400.0
million term loan facility and a $350.0 million revolving credit facility, each
with a term of five years. Concurrently with the closing of the Credit
Agreement, we drew the full amount of the term loan facility and $78.5 million
of the revolving facility, each of which initially bear interest at the London
Interbank Offered Rate ("LIBOR") plus 2.25%. We used the proceeds of the term
loan and the draw on the revolving facility to pay off the Previous Credit
Agreement, as defined below, and the outstanding balance on the Convertible
Notes. The interest rate applicable to the facilities is subject to adjustment
based on our consolidated leverage ratio. The term loan facility amortizes in
quarterly installments in amounts resulting in an annual amortization of 5.0%
during the first and second years, 7.5% during the third and fourth years and
10.0% during the fifth year after the closing date of the Credit Agreement, with
the remainder payable at final maturity. The Credit Agreement requires us to
maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a
consolidated interest coverage ratio of no less than 3.00 to 1.00. We are
currently in compliance with all debt covenants under the Credit Agreement.

Modification of previous credit agreement. In April 2018, we repaid debt that
was outstanding under our credit agreement, dated as of October 9, 2014 (the
"Previous Credit Agreement") with various financial institutions as lenders, and
Bank of America, N.A., as administrative agent. We had indebtedness of $257.6
million in principal amount outstanding under the Previous Credit Agreement as
of both March 31, 2018 and the repayment date of April 18, 2018. See Note 4 to
the consolidated financial statements contained in this report for further
information regarding the Credit Agreement, Convertible Notes and other debt.

Stock repurchase plan. In 2018, our board of directors approved a stock
repurchase plan authorizing us to repurchase up to $500.0 million of our
outstanding shares of Class A common stock on the open market or in private
transactions.  During the first half of 2019, we repurchased approximately
14,000 shares of our Class A common stock under the plan for $0.8 million. As of
June 30, 2019, $470.2 million was available for repurchases under the plan. Our
stock repurchases are used primarily to offset dilution from our equity
incentive plans and for strategic initiatives.

Dividends. In February and April 2019, our board of directors declared quarterly
cash dividends of $0.37 per share. These quarterly cash dividends of $20.5
million and $20.6 million were paid on March 13, 2019 and June 12, 2019 to
stockholders of record on February 25, 2019 and May 31, 2019.  In August 2019,
our board of directors declared a quarterly cash dividend of $0.37 per share to
be paid on September 11, 2019 to stockholders of record on August 30, 2019.
Currently, we anticipate that our board of directors will continue to declare
quarterly cash dividends and that the cash flows from operations will be
sufficient to fund our future dividend payments. However, the continued
declaration of dividends is subject to the discretion of our board of directors
and will depend upon various factors, including our net earnings, financial
condition, cash requirements, future prospects and other relevant factors.

Cash from foreign subsidiaries. As of June 30, 2019 and December 31, 2018, we
held $368.4 million and $398.3 million, respectively, in cash and cash
equivalents, including current investments. These amounts include $343.9 million
and $296.6 million as of June 30, 2019 and December 31, 2018, respectively, held
in our operations outside of the U.S. Substantially all of our non-U.S. cash and
cash equivalents are readily convertible into U.S. dollars or other currencies,
subject to procedural or other requirements in certain markets, as well as an
indefinite-reinvestment designation, as described below.

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We typically fund the cash requirements of our operations in the U.S. through
intercompany dividends, intercompany loans and intercompany charges for
products, use of intangible property, and corporate services. However, some
markets impose government-approval or other requirements for the repatriation of
dividends. For example, in Mainland China, we are unable to repatriate cash from
current operations in the form of dividends until we file the necessary
statutory financial statements for the relevant period. As of June 30, 2019, we
had $176.5 million in cash denominated in Chinese RMB. We also have intercompany
loan arrangements with some of our markets, including Mainland China, that allow
us to access available cash, subject to certain limits in Mainland China and
other jurisdictions. We also have drawn on our revolving line of credit to
address cash needs until we can repatriate cash from Mainland China or other
markets, and we may continue to do so. Except for $60.0 million of earnings in
Mainland China that we designated as indefinitely reinvested during the second
quarter of 2018, we currently plan to repatriate undistributed earnings from our
non-U.S. operations as necessary, considering the cash needs of our non-U.S.
operations and the cash needs of our U.S. operations for dividends, stock
repurchases, capital investments, debt repayment and strategic transactions.
Repatriation of non-U.S. earnings is subject to withholding taxes in certain
foreign jurisdictions. Accordingly, we have accrued the necessary withholding
taxes related to the non-U.S. earnings.

We currently believe that existing cash balances, future cash flows from
operations and existing lines of credit will be adequate to fund our cash needs
on both a short- and long-term basis. The majority of our historical expenses
have been variable in nature, and as such, a potential reduction in the level of
revenue would reduce our cash flow needs. In the event that our current cash
balances, future cash flow from operations and current lines of credit are not
sufficient to meet our obligations or strategic needs, we would consider raising
additional funds in the debt or equity markets or restructuring our current debt
obligations. Additionally, we would consider realigning our strategic plans,
including a reduction in capital spending, stock repurchases or dividend
payments.

Contingent Liabilities

Please refer to Note 11 to the consolidated financial statements contained in this report for information regarding our contingent liabilities.

Critical Accounting Policies

There were no significant changes in our critical accounting policies during the second quarter of 2019.


Seasonality and Cyclicality

In addition to general economic factors, we are impacted by seasonal factors and
trends such as major cultural events and vacation patterns.  For example, most
Asian markets celebrate their respective local New Year in the first quarter,
which generally has a negative impact on that quarter.  We believe that direct
selling is also generally negatively impacted during the third quarter, when
many individuals, including our sales force, traditionally take vacations.

Prior to making a key product generally available for purchase, we may do one or
more introductory offerings of the product, such as a preview of the product to
our Sales Leaders, a limited-time offer, or other product introduction or
promotion. These offerings may generate significant activity and a high level of
purchasing, which can result in a higher-than-normal increase in revenue, Sales
Leaders and/or Customers during the quarter and can skew year-over-year and
sequential comparisons.

Currency Risk and Exchange Rate Information


A majority of our revenue and many of our expenses are recognized outside of the
United States, except for inventory purchases, a significant portion of which
are primarily transacted in U.S. dollars from vendors in the United States. The
local currency of each of our Subsidiaries' primary markets is considered the
functional currency with the exception of our Asia product-distribution
subsidiary in Singapore and, as discussed below, our subsidiary in Argentina.
All revenue and expenses are translated at weighted-average exchange rates for
the periods reported. Therefore, our reported revenue and earnings will be
positively impacted by a weakening of the U.S. dollar and will be negatively
impacted by a strengthening of the U.S. dollar. These impacts may be significant
because a large portion of our business is derived from outside of the United
States. While the U.S. dollar has continued to strengthen in 2019, given the
uncertainty of exchange rate fluctuations, it is difficult to predict the effect
of these fluctuations on our future business, product pricing and results of
operations or financial condition.

In the second quarter of 2018, published inflation indices indicated that the
three-year cumulative inflation in Argentina exceeded 100 percent, and as of
July 1, 2018, we elected to adopt highly inflationary accounting for our
subsidiaries in Argentina. Under highly inflationary accounting, Argentina's
functional currency became the U.S. dollar, and its income statement and balance
sheet have been measured in U.S. dollars using both current and historical rates
of exchange. The effect of changes in exchange rates on peso-denominated
monetary assets and liabilities has been reflected in earnings in Other income
(expense), net and was not material. As of June 30, 2019, Argentina had a small
net peso monetary position. Net sales of Argentina were less than 2% of our
consolidated net sales for the six-month periods ended June 30, 2019 and 2018.

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We may seek to reduce our exposure to fluctuations in foreign currency exchange
rates through the use of foreign currency exchange contracts and through
intercompany loans of foreign currency. We do not use derivative financial
instruments for trading or speculative purposes. We regularly monitor our
foreign currency risks and periodically take measures to reduce the impact of
foreign exchange fluctuations on our operating results. As of June 30, 2019 and
2018, we did not hold non-designated mark-to-market forward derivative contracts
to hedge foreign denominated intercompany positions or third party foreign debt.
As of June 30, 2019, and 2018 we did not hold any forward contracts designated
as foreign currency cash flow hedges. We continue to evaluate our foreign
currency hedging policy.

Non-GAAP Financial Measures


Constant-currency revenue change is a non-GAAP financial measure that removes
the impact of fluctuations in foreign-currency exchange rates, thereby
facilitating period-to-period comparisons of the company's performance. It is
calculated by translating the current period's revenue at the same average
exchange rates in effect during the applicable prior-year period and then
comparing this amount to the prior-year period's revenue.  We believe that
constant-currency revenue change is useful to investors, lenders, and analysts
because such information enables them to gauge the impact of foreign-currency
fluctuations on our revenue from period to period.

Available Information


Our website address is www.nuskin.com. We make available, free of charge on our
Investor Relations website, ir.nuskin.com, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission.

We also use our Investor Relations website, ir.nuskin.com, as a channel of
distribution of additional Company information that may be deemed material.
Accordingly, investors should monitor this channel, in addition to following our
press releases, Securities and Exchange Commission filings and public conference
calls and webcasts. The contents of our website shall not be deemed to be
incorporated herein by reference.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2019 2 499 M
EBIT 2019 293 M
Net income 2019 183 M
Finance 2019 141 M
Yield 2019 3,68%
P/E ratio 2019 12,2x
P/E ratio 2020 11,7x
EV / Sales2019 0,84x
EV / Sales2020 0,85x
Capitalization 2 230 M
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Mean consensus OUTPERFORM
Number of Analysts 7
Average target price 47,64  $
Last Close Price 40,14  $
Spread / Highest target 74,4%
Spread / Average Target 18,7%
Spread / Lowest Target -7,82%
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Managers
NameTitle
Ritch N. Wood Chief Executive Officer & Director
Ryan S. Napierski President
Steven J. Lund Executive Chairman
Mark H. Lawrence Chief Financial Officer & Executive Vice President
Joseph Y. Chang Chief Scientific Officer & EVP-Product Development
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