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 SEPTEMBER 30, 20212022

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number: 001-12421

 NU SKIN ENTERPRISES, INC. 
 (Exact name of registrant as specified in its charter) 

Delaware 87-0565309
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

 
75 West Center Street
Provo, Utah 84601
 
 (Address of principal executive offices, including zip code) 

 (801) 345-1000 
 (Registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, $.001 par value NUS New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☑   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ☑
Accelerated filer   ☐
Non-accelerated filer   ☐
Smaller reporting company   ☐
 
Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☑

As of October 31, 2021, 49,823,3072022, 49,420,202 shares of the registrant’s Class A common stock, $.001 par value per share, were outstanding.

Table of Contents
NU SKIN ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q – THIRD QUARTER 20212022

TABLE OF CONTENTS

 Page
Part I.
Financial Information
 
 Item 1.
Financial Statements (Unaudited):
 
  
Consolidated Balance Sheets
1
  
Consolidated Statements of Income
2
  
Consolidated Statements of Comprehensive Income
3
  
Consolidated Statements of Stockholders’ Equity
4
  
Consolidated Statements of Cash Flows
6
  
Notes to Consolidated Financial Statements
7
 Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18
 Item 3.
Quantitative and Qualitative Disclosures about Market Risk
26
27
 Item 4.
Controls and Procedures
26
27
    
Part II.
Other Information
 
 Item 1.
Legal Proceedings
27
28
 Item 1A.
Risk Factors
27
28
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
29
 Item 3.
Defaults Upon Senior Securities
31
29
 Item 4.
Mine Safety Disclosures
3129
 Item 5.
Other Information
31
29
 Item 6.
Exhibits
32
30
    
 
Signature
33
31

In this Quarterly Report on Form 10-Q, references to “dollars” and “$” are to United States (“U.S.”) dollars.

Nu Skin, Pharmanex, and ageLOC are our trademarks. The italicized product names used in this Quarterly Report on Form 10-Q are product names and also, in certain cases, our trademarks.

Table of Contents
PART I.  FINANCIAL INFORMATION

ITEM 1.
ITEM 1.
FINANCIAL STATEMENTS

NU SKIN ENTERPRISES, INC.
Consolidated Balance Sheets (Unaudited)
(U.S. dollars in thousands)

 
September 30,
2021
  
December 31,
2020
  
September 30,
2022
  
December 31,
2021
 
ASSETS            
Current assets:            
Cash and cash equivalents $282,412  $402,683  $294,136  $339,593 
Current investments  19,190   21,216   13,868   15,221 
Accounts receivable, net  52,441   63,370   47,991   41,299 
Inventories, net  415,203   314,366   327,481   399,931 
Prepaid expenses and other  121,626   101,563   94,366   76,906 
Total current assets  890,872   903,198   777,842   872,950 
                
Property and equipment, net  464,049   468,181   433,367   453,674 
Operating lease right-of-use assets  128,887   155,104   105,103   120,973 
Goodwill  215,582   202,979   206,432   206,432 
Other intangible assets, net  88,497   89,532   68,743   76,991 
Other assets  186,522   138,082   171,685   175,460 
Total assets $1,974,409  $1,957,076  $1,763,172  $1,906,480 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable $52,023  $66,174  $41,620  $49,993 
Accrued expenses  378,573   446,682   281,418   372,201 
Current portion of long-term debt  110,000   30,000   42,500   107,500 
Total current liabilities  540,596   542,856   365,538   529,694 
                
Operating lease liabilities  95,741   112,275   78,053   88,759 
Long-term debt  278,563   305,393   382,323   268,781 
Other liabilities  123,032   102,281   95,324   106,474 
Total liabilities  1,037,932   1,062,805   921,238   993,708 
                
Commitments and contingencies (Notes 5 and 11)  0   0       
                
Stockholders’ equity:                
Class A common stock – 500 million shares authorized, $0.001 par value, 90.6 million shares issued
  91   91   91   91 
Additional paid-in capital  590,678   579,801   609,886   601,703 
Treasury stock, at cost – 40.5 million and 39.7 million shares
  (1,518,535)  (1,461,593)
Treasury stock, at cost – 40.9 million and 40.7 million shares
  (1,559,967)  (1,526,860)
Accumulated other comprehensive loss  (75,658)  (64,768)  (109,385)  (73,896)
Retained earnings  1,939,901   1,840,740   1,901,309   1,911,734 
Total stockholders’ equity  936,477   894,271   841,934   912,772 
Total liabilities and stockholders’ equity
 $1,974,409  $1,957,076  $1,763,172  $1,906,480 

The accompanying notes are an integral part of these consolidated financial statements.

1
Table of Contents
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Income (Unaudited)
(U.S. dollars in thousands, except per share amounts)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2022  2021  2022  2021 
Revenue $537,805  $641,152  $1,703,319  $2,022,233 
Cost of sales  173,500   158,907   483,099   501,448 
Gross profit  364,305   482,245   1,220,220   1,520,785 
                 
Operating expenses:                
Selling expenses  216,478   260,333   678,603   816,887 
General and administrative expenses  137,987   156,528   428,105   490,225 
Restructuring and impairment expenses
  30,124   —   30,124   — 
Total operating expenses  384,589   416,861   1,136,832   1,307,112 
                 
Operating income (loss)
  (20,284)  65,384   83,388   213,673 
Other income (expense), net  (8,680)  2,781   (18,773)  351 
                 
Income (loss) before provision for income taxes  (28,964)  68,165   64,615   214,024 
Provision (benefit) for income taxes  (3,574)  18,436   17,052   57,527 
                 
Net income (loss)
 $(25,390) $49,729  $47,563  $156,497 
                 
Net income (loss) per share (Note 6):                
Basic $(0.51) $0.99  $0.95  $3.11 
Diluted $(0.51) $0.97  $0.94  $3.03 
                 
Weighted-average common shares outstanding (000s):                
Basic  50,199   50,098   50,187   50,304 
Diluted  50,199   51,260   50,822   51,629 

The accompanying notes are an integral part of these consolidated financial statements.

12
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NU SKIN ENTERPRISES, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(U.S. dollars in thousands, except per share amounts)thousands)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
Revenue $641,152  $703,347  $2,022,233  $1,833,741 
Cost of sales  158,907   183,374   501,448   463,277 
Gross profit  482,245   519,973   1,520,785   1,370,464 
                 
Operating expenses:                
Selling expenses  255,719   280,695   807,358   735,365 
General and administrative expenses  161,142   165,050   499,754   466,232 
Total operating expenses  416,861   445,745   1,307,112   1,201,597 
                 
Operating income  65,384   74,228   213,673   168,867 
Other income (expense), net  2,781  525   351  (4,068)
                 
Income before provision for income taxes  68,165   74,753   214,024   164,799 
Provision for income taxes  18,436   18,446   57,527   46,911 
                 
Net income $49,729  $56,307  $156,497  $117,888 
                 
Net income per share (Note 6):                
Basic $0.99  $1.10  $3.11  $2.24 
Diluted $0.97  $1.08  $3.03  $2.23 
                 
Weighted-average common shares outstanding (000s):                
Basic  50,098   51,308   50,304   52,741 
Diluted  51,260   52,243   51,629   52,906 
 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2022  2021  2022  2021 
Net income (loss)
 $(25,390) $49,729  $47,563  $156,497 
                 
Other comprehensive (loss) income, net of tax:                
Foreign currency translation adjustment, net of taxes of $(10) and $(1) for the three months ended September 30, 2022 and 2021, respectively, and $19 and $1 for the nine months ended September 30, 2022 and 2021, respectively
  (22,502)  (7,165)  (46,914)  (13,431)
Net unrealized gains/(losses) on cash flow hedges, net of taxes of $(1,262) and $(7) for the three months ended September 30, 2022 and 2021, respectively and $(3,441) and $(678) for the nine months ended September 30, 2022 and 2021, respectively
  4,570   25   12,462   2,455 
Reclassification adjustment for realized losses/(gains) in current earnings on cash flow hedges, net of taxes of $225 and $(10) for the three months ended September 30, 2022 and 2021, respectively and $286 and $(24) for the nine months ended September 30, 2022 and 2021, respectively
  (815)  35   (1,037)  86 
   (18,747)  (7,105)  (35,489)  (10,890)
Comprehensive income (loss)
 $(44,137) $42,624  $12,074  $145,607 

The accompanying notes are an integral part of these consolidated financial statements.

23
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NU SKIN ENTERPRISES, INC.
Consolidated Statements of Comprehensive Income Stockholders’ Equity (Unaudited)
(U.S. dollars in thousands)

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
Net income $49,729  $56,307  $156,497  $117,888 
                 
Other comprehensive (loss) income, net of tax:                
Foreign currency translation adjustment, net of taxes of $(1) and $(8) for the three months ended September 30, 2021 and 2020, respectively, and $1 and $(3) for the nine months ended September 30, 2021 and 2020, respectively
  (7,165)  10,022   (13,431)  1,873 
Net unrealized gains/(losses) on cash flow hedges, net of taxes of $(7) and $(83) for the three months ended September 30, 2021 and 2020, respectively and $(678) and $(83) for the nine months ended September 30, 2021 and 2020, respectively
  25   305   2,455   305 
Reclassification adjustment for realized losses/(gains) in current earnings on cash flow hedges, net of taxes of $(10) and $(2) for the three months ended September 30, 2021 and 2020, respectively and $(24) and $(2) for the nine months ended September 30, 2021 and 2020, respectively
  35   6   86   6 
   (7,105)  10,333   (10,890)  2,184 
Comprehensive income $42,624  $66,640  $145,607  $120,072 
 For the Three Months Ended September 30, 2022 
  
Class A
Common Stock
  
Additional
Paid-in Capital
  
Treasury
Stock
  
Accumulated Other
Comprehensive Loss
  
Retained
Earnings
  Total 
Balance at July 1, 2022
 $91  $606,349  $(1,520,769) $(90,638) $1,946,002  $941,035 
                         
Net loss
  —   —   —   —   (25,390)  (25,390)
Other comprehensive loss, net of tax  —   —   —   (18,747)  —   (18,747)
Repurchase of Class A common stock (Note 6)  —   —   (40,028)  —   —   (40,028)
Exercise of employee stock options (0.1 million shares)/vesting of stock awards
  —   366   830   —   —   1,196 
Stock-based compensation  —   3,171   —   —   —   3,171 
Cash dividends  —   —   —   —   (19,303)  (19,303)
Balance at September 30, 2022
 $91  $609,886  $(1,559,967) $(109,385) $1,901,309  $841,934 

 For the Three Months Ended September 30, 2021 
  
Class A
Common Stock
  
Additional
Paid-in Capital
  
Treasury
Stock
  
Accumulated Other
Comprehensive Loss
  
Retained
Earnings
  Total 
Balance at July 1, 2021
 $91  $586,976  $(1,509,867) $(68,553) $1,909,179  $917,826 
                         
Net income  —   —   —   —   49,729   49,729 
Other comprehensive income, net of tax  —   —   —   (7,105)  —   (7,105)
Repurchase of Class A common stock (Note 6)  —   —   (10,005)  —   —   (10,005)
Exercise of employee stock options (0.1 million shares)/vesting of stock awards
  —   609   1,337   —   —   1,946 
Stock-based compensation  —   3,093   —   —   —   3,093 
Cash dividends  —   —   —   —   (19,007)  (19,007)
Balance at September 30, 2021
 $91  $590,678  $(1,518,535) $(75,658) $1,939,901  $936,477 

The accompanying notes are an integral part of these consolidated financial statements.

34
Table of Contents
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(U.S. dollars in thousands)

 For the Three Months Ended September 30, 2021 
  
Class A
Common Stock
  
Additional
Paid-in Capital
  
Treasury
Stock
  
Accumulated Other
Comprehensive Loss
  
Retained
Earnings
  Total 
Balance at July 1, 2021
 $91  $586,976  $(1,509,867) $(68,553) $1,909,179  $917,826 
                         
Net income  0   0   0   0   49,729   49,729 
Other comprehensive loss, net of tax  0   0   0   (7,105)  0   (7,105)
Repurchase of Class A common stock (Note 6)  0   0   (10,005)  0   0   (10,005)
Exercise of employee stock options (0.1 million shares)/vesting of stock awards
  0   609   1,337   0   0   1,946 
Stock-based compensation  0   3,093   0   0   0   3,093 
Cash dividends  0   0   0   0   (19,007)  (19,007)
Balance at September 30, 2021
 $91  $590,678  $(1,518,535) $(75,658) $1,939,901  $936,477 

 For the Three Months Ended September 30, 2020 
  
Class A
Common Stock
  
Additional
Paid-in Capital
  
Treasury
Stock
  
Accumulated Other
Comprehensive Loss
  
Retained
Earnings
  Total 
Balance at July 1, 2020
 $91  $563,115  $(1,427,064) $(93,441) $1,749,311  $792,012 
                         
Net income  0   0   0   0   56,307   56,307 
Other comprehensive income, net of tax  0   0   0   10,333   0   10,333 
Repurchase of Class A common stock (Note 6)  0   0   (19,994)  0   0   (19,994)
Exercise of employee stock options (0 million shares)/vesting of stock awards
  0   261   684   0   0   945 
Stock-based compensation  0   7,115   0   0   0   7,115 
Cash dividends  0   0   0   0   (19,245)  (19,245)
Balance at September 30, 2020
 $91  $570,491  $(1,446,374) $(83,108) $1,786,373  $827,473 

The accompanying notes are an integral part of these consolidated financial statements.

4
Table of Contents

NU SKIN ENTERPRISES, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(U.S. dollars in thousands)

 For the Nine Months Ended September 30, 2021  For the Nine Months Ended September 30, 2022 
 
Class A
Common
Stock
  
Additional
Paid-in
Capital
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  Total  
Class A
Common
Stock
  
Additional
Paid-in
Capital
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Loss
  
Retained
Earnings
  Total 
Balance at January 1, 2021
 $91  $579,801  $(1,461,593) $(64,768) $1,840,740  $894,271 
Balance at January 1, 2022
 $91  $601,703  $(1,526,860) $(73,896) $1,911,734  $912,772 
                                                
Net income  0   0   0   0   156,497   156,497   —   —   —   —   47,563   47,563 
Other comprehensive loss, net of tax  —   0   0   (10,890)  0   (10,890)  —   —   —   (35,489)  —   (35,489)
Repurchase of Class A common stock (Note 6)  0   0   (70,415)  0   0   (70,415)  —   —   (60,038)  —   —   (60,038)
Exercise of employee stock options (0.6 million shares)/vesting of stock awards
  0   (5,599)  13,473   0   0   7,874 
Exercise of employee stock options (1.2 million shares)/vesting of stock awards
  —   (1,137)  26,931   —   —   25,794 
Stock-based compensation  0   16,476   0   0   0   16,476   —   9,320   —   —   —   9,320 
Cash dividends  0   0   0   0   (57,336)  (57,336)  —   —   —   —   (57,988)  (57,988)
Balance at September 30, 2021
 $91  $590,678  $(1,518,535) $(75,658) $1,939,901  $936,477 
Balance at September 30, 2022
 $91  $609,886  $(1,559,967) $(109,385) $1,901,309  $841,934 

 For the Nine Months Ended September 30, 2020  For the Nine Months Ended September 30, 2021 
 
Class A
Common Stock
  
Additional
Paid-in Capital
  
Treasury
Stock
  
Accumulated Other
Comprehensive Loss
  
Retained
Earnings
  Total  
Class A
Common Stock
  
Additional
Paid-in Capital
  
Treasury
Stock
  
Accumulated Other
Comprehensive Loss
  
Retained
Earnings
  Total 
Balance at January 1, 2020
 $91  $557,544  $(1,324,826) $(85,292) $1,727,772  $875,289 
Balance at January 1, 2021
 $91  $579,801  $(1,461,593) $(64,768) $1,840,740  $894,271 
                                                
Net income  0   0   0   0   117,888   117,888   —   —   —   —   156,497   156,497 
Other comprehensive income, net of tax  0   0   0   2,184  0   2,184
Other comprehensive loss, net of tax  —   —   —   (10,890)  —   (10,890)
Repurchase of Class A common stock (Note 6)  0   0   (127,361)  0   0   (127,361)  —   —   (70,415)  —   —   (70,415)
Exercise of employee stock options (0.3 million shares)/vesting of stock awards
  0   (2,492)  5,813   0   0   3,321 
Exercise of employee stock options (0.6 million shares)/vesting of stock awards
  —   (5,599)  13,473   —   —   7,874 
Stock-based compensation  0   15,439   0   0   0   15,439   —   16,476   —   —   —   16,476 
Cash dividends  0   0   0   0   (59,287)  (59,287)  —   —   —   —   (57,336)  (57,336)
Balance at September 30, 2020
 $91  $570,491  $(1,446,374) $(83,108) $1,786,373  $827,473 
Balance at September 30, 2021
 $91  $590,678  $(1,518,535) $(75,658) $1,939,901  $936,477 

The accompanying notes are an integral part of these consolidated financial statements.

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NU SKIN ENTERPRISES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(U.S. dollars in thousands)

 
Nine Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2021  2020  2022  2021 
Cash flows from operating activities:            
Net income $156,497  $117,888  $47,563  $156,497 
Adjustments to reconcile net income to net cash provided by operating activities:        
Adjustments to reconcile net income to cash flows from operating activities:        
Depreciation and amortization  57,858   55,279   53,935   57,858 
Non-cash lease expense  40,703   34,087   33,250   40,703 
Stock-based compensation  16,476   15,439   9,320   16,476 
Foreign currency losses  5,501   1,203   7,077   5,501 
Loss on disposal of assets  13,210   2,516   568   13,210 
Deferred taxes  3,846   (7,931)  2,483   3,846 
Unrealized (gain)/losses on equity investments  (18,077)
  0 
Impairment of fixed assets and other intangibles
  9,916   — 
Unrealized gain on equity investments
  —   (18,077)
Changes in operating assets and liabilities:                
Accounts receivable, net  8,377   (9,273)  (15,523)  8,377 
Inventories, net  (109,371)  4,882   48,422   (109,371)
Prepaid expenses and other  (29,311)  4,180   (6,801)  (29,311)
Other assets  (18,438)  (76,487)  8,030   (18,438)
Accounts payable  (11,182)  15,884   (1,224)  (11,182)
Accrued expenses  (89,993)  99,438   (95,928)  (89,993)
Other liabilities  5,977   27,343   (18,551)  5,977 
Net cash provided by operating activities  32,073   284,448   82,537   32,073 
                
Cash flows from investing activities:                
Purchases of property and equipment  (50,384)  (48,810)  (45,274)  (50,384)
Proceeds on investment sales  11,171   7,630   5,535   11,171 
Purchases of investments  (14,973)  (8,759)  (13,955)  (14,973)
Acquisitions (net of cash acquired)  (18,963)  0 
Acquisitions, net of cash acquired
  —   (18,963)
Net cash used in investing activities  (73,149)  (49,939)  (53,694)  (73,149)
                
Cash flows from financing activities:                
Exercise of employee stock options and taxes paid related to the net shares settlement of stock awards  7,874   3,321   25,794   7,874 
Payment of cash dividends  (57,336)  (59,287)  (57,988)  (57,336)
Repurchases of shares of common stock  (70,415)  (127,361)  (60,038)  (70,415)
Finance lease principal payments  (1,409)  0   (1,401)  (1,409)
Payment of debt issuance costs
  (5,077)  — 
Payments of debt  (77,500)  (135,000)  (410,000)  (77,500)
Proceeds from debt  130,000   115,000   460,000   130,000 
Net cash used in financing activities  (68,786)  (203,327)  (48,710)  (68,786)
                
Effect of exchange rate changes on cash  (10,409)  (102)  (25,590)  (10,409)
                
Net increase (decrease) in cash and cash equivalents  (120,271)  31,080   (45,457)  (120,271)
                
Cash and cash equivalents, beginning of period  402,683   335,630   339,593   402,683 
                
Cash and cash equivalents, end of period $282,412  $366,710  $294,136  $282,412 

The accompanying notes are an integral part of these consolidated financial statements.

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NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

1.The Company

Nu Skin Enterprises, Inc. (the “Company”) is a holding company, with Nu Skin, being the primary operating unit.  Nu Skin develops and distributes premium-quality, innovative beauty and wellness products that are sold worldwide under the Nu Skin, Pharmanex and ageLOC brands and a small number of other products and services.  The Company reports revenue from 10nine segments, consisting of its 7seven geographic Nu Skin segments—Americas,Mainland China; Americas, which includes Canada, Latin America and the United States; Mainland China; Southeast Asia/Pacific, which includes Australia, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam; South Korea; Japan; Europe, Middle East and Africa (“EMEA”), which includes markets in Europe as well as Israel Russia and South Africa; Japan; Southeast Asia/Pacific, which includes Australia, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam; and Hong Kong/Taiwan, which also includes Macau—and 3two Rhyz Investments segments—Manufacturing, which includes manufacturing and packaging subsidiaries it has acquired; Grow Tech, which focuses on developing controlled-environment agriculture technologies and Rhyz other, which includes other investments by its Rhyz strategic investment arm (the Company’s subsidiaries operating within each segment are collectively referred to as the “Subsidiaries”).

2.Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited consolidated financial statements include the accounts of the Company and its Subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information as of September 30, 2021,2022, and for the three- andthree-and nine-month periods ended September 30, 20212022 and 2020.2021. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. The consolidated balance sheet as of December 31, 20202021 has been prepared using information from the audited financial statements at that date. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2020.2021.

Reclassifications
Certain prior period amounts have been reclassified to conform to the current presentation. The Company reclassified $4.6 million and $9.5 million of events and other miscellaneous selling costs from the general and administration expenses line to the sellingexpenses line on the consolidated statement of income for the three- and nine-month periods ended September 30, 2021, respectively. The Company believes these costs are better reflected in selling expenses. The reclassification had no impact on operating income for the three- and nine-month periods ended September 30, 2021.


Accounting Pronouncements

In March 20202020,, the FASBFinancial Accounting Standards Board (“FASB”) issued, ASU 2020-04,2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-042020-04 applies only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in ASU 2020-042020-04 are elective and are effective upon issuance for all entities. The Company had previously elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. In the second quarter of 2022, the Company elected the hedge accounting expedient that allows an update to the hedged risk in active hedging relationships without de-designation as the Company’s debt transitioned to Secured Overnight Financing Rate (“SOFR”). Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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Inventory

Inventories consist of the following (U.S. dollars in thousands):

 
September 30,
2021
  
December 31,
2020
  
September 30,
2022
  
December 31,
2021
 
Raw materials $182,656  $118,877  $141,823  $179,891 
Finished goods  232,547   195,489   185,658   220,040 
Total Inventory, net $415,203  $314,366  $327,481  $399,931 

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Revenue Recognition

Contract Liabilities – Customer Loyalty Programs

Contract liabilities, recorded as deferred revenue within the accrued expenses line in the consolidated balance sheets, include loyalty point program deferrals with certain customers which are accounted for as a reduction in the transaction price and are generally recognized as points are redeemed for additional products.

The balance of deferred revenue related to contract liabilities as of September 30, 20212022 and December 31, 20202021 was $24.517.7 million million and $18.222.0 million million,, respectively. The contract liabilities impact to revenue for the three-monththree-month periods ended September 30, 2021,2022, and 20202021 was an increase of $0.7 million and a decrease of $0.7 million, and a decrease of $1.8 million, respectively. The impact to revenue for the nine-month periods ended September 30, 2022, and 2021 and 2020 was a decreasean increase of $6.3$4.3 million and  a decrease of $5.3$6.3 million, respectively.respectively.


Equity Investments

The Company holds strategic investments in other companies. These investments are accounted for under the measurement alternative described in ASC 321, Investments - Equity Securities ("ASC 321") for equity investments that do not have readily determinable fair values. These investments are measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company does not exercise significant influence over these companies. These investments are carried on the Consolidated Balance Sheets within Other Assets. Changes in fair value based on impairments or resulting from observable price changes are recorded in Other Income (expense), net on the Consolidated Statement of Comprehensive Operations. See Note 7 – Fair Value and Equity Investments, for further details around the Company’s equity investments.

3.Goodwill

The Company’s reporting units for goodwill are its operating segments, which are also its reportable segments.

The following table presents goodwill allocated to the Company’s reportable segments for the periods ended September 30, 20212022 and December 31, 20202021 (U.S. dollars in thousands):

 
September 30,
2021
  
December 31,
2020
  
September 30,
2022
  
December 31,
2021
 
Nu Skin            
Americas $9,449  $9,449 
Mainland China $32,179  $32,179   32,179   32,179 
Americas  9,449   9,449 
Southeast Asia/Pacific  18,537   18,537 
South Korea  29,261   29,261   29,261   29,261 
Southeast Asia/Pacific  18,537   18,537 
Japan
  16,019   16,019 
EMEA
  2,875   2,875   2,875   2,875 
Japan  16,019   16,019 
Hong Kong/Taiwan  6,634   6,634   6,634   6,634 
Rhyz Investments                
Manufacturing  78,875   78,875   78,875   78,875 
Grow Tech  9,150   9,150 
Rhyz Other  12,603   0   12,603   12,603 
Total $215,582  $202,979  $206,432  $206,432 

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4.Debt

2018 Credit Agreement

On April 18, 2018, the Company entered into a Credit Agreement (the “Credit“2018 Credit Agreement”) with several financial institutions as lenders and Bank of America, N.A., as administrative agent. The 2018 Credit Agreement providesprovided for a $400 million term loan facility and a $350 million revolving credit facility, each with a term of five years. Both facilities bearbore interest at the LIBOR, plus a margin based on the consolidated leverage ratio. The term loan facility amortizesamortized 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 2018 Credit Agreement, with the remainder payable at final maturity. The 2018 Credit Agreement requiresrequired the Company to maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00.

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Credit Agreement

On June 14, 2022, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with several financial institutions as lenders and Bank of America, N.A., as administrative agent, which amended and restated the 2018 Credit Agreement. The Credit Agreement provides for a $400 million term loan facility and a $500 million revolving credit facility, each with a term of five years.  Both facilities bear interest at the SOFR, plus a margin based on the Company’s consolidated leverage ratio. Commitment fees payable under the Credit Agreement are also based on the consolidated leverage ratio as defined in the Credit Agreement and range from 0.175% to 0.30% on the unused portion of the total lender commitments then in effect.  The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the second, third, fourth and fifth years after the closing date of the Credit Agreement, with the remainder payable at final maturity. The Credit Agreement is guaranteed by certain of the Company’s domestic subsidiaries and collateralized by assets of such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries. The Credit Agreement requires the Company to maintain a consolidated leverage ratio not exceeding 2.75 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. As of September 30, 2021,2022, the Company was in compliance with all covenants under the Credit Agreement.

The following table summarizes the Company’s debt facilities as of September 30, 20212022 and December 31, 2020:2021:

Facility or Arrangement 
Original
Principal Amount
 
Balance as of
September 30, 20212022 (1)(2)
 
Balance as of
December 31, 20202021 (1)(2)
 Interest Rate Repayment Terms
2018 Credit Agreement term loan facility
$400.0 million
—$307.5 million
Variable 30 day: 2.80%
Principal amount was paid in full during June 2022.
2018 Credit Agreement revolving credit facility
— $70.0 million
Variable 30 day: 2.72%
Principal amount was paid in full during June 2022 and credit line was closed.

Credit Agreement term loan facility $400.0 million 
$
315.0397.5 million
 
 $337.5 million—
 
Variable 30 day: 2.33%4.88%
 
35%21% of the principal amount is payable in increasing quarterly installments over a five-year period that began on JuneSeptember 30, 2018,2022, with the remainder payable at the end of the five-year term.
           
Credit Agreement revolving credit facility   $75.030.0 million $—
0 
Variable 30 day: 2.33%4.88%
 Revolving line of credit expires April 18, 2023.June 14, 2027.

(1)As of September 30, 20212022 and December 31, 2020,2021, the current portion of the Company’s debt (i.e., becoming due in the next 12 months) included $35.0$12.5 million and $30.0$37.5 million, respectively, of the balance of its term loan under the Credit Agreement and 2018 Credit Agreement.

(2)
The carrying value of the debt reflects the amounts stated in the above table, less debt issuance costs of $1.4$2.7 million and $2.11.2 million as of September 30, 20212022 and December 31, 2020,2021, respectively, related to the Credit Agreement and 2018 Credit Agreement, which are not reflected in this table.

5.Leases

As of September 30, 2021,2022, the weighted average remaining lease term was 6.78.4 and 4.03.0 years for operating and finance leases, respectively. As of September 30, 2021,2022, the weighted average discount rate was 4.0%3.5% and 3.8% for operating and finance leases, respectively.

The components of lease expense were as follows (U.S. dollars in thousands):

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2021  2020  2021  2020  2022  2021  2022  2021 
Operating lease expense                        
Operating lease cost $12,193  $13,038  $37,408  $39,043  $9,479  $12,193  $30,179  $37,408 
Variable lease cost  1,121   678   4,145   2,062   1,572   1,121   4,223   4,145 
Short-term lease cost  13   118   590   258   84   13   181   590 
Sublease income  (1,352)  (1,075)  (5,164)  (3,264)  —   (1,352)  —  (5,164)
Finance lease expense                                
Amortization of right-of-use assets  594   0   1,811   0   530   594   1,632   1,811 
Interest on lease liabilities  77   0   248   0   53   77   178   248 
Total lease expense
 $12,646  $12,759  $39,038  $38,099  $11,718  $12,646  $36,393  $39,038 

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Supplemental cash flow information related to leases was as follows (U.S. dollars in thousands):

 
Nine Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2021  2020  2022  2021 
Operating cash outflow from operating leases $40,072  $40,865  $28,880  $40,072 
Operating cash outflow from finance leases $250  $0  $170  $250 
Financing cash outflow from finance leases $1,409  $0  $1,401  $1,409 
Right-of-use assets obtained in exchange for operating lease obligations $19,120  $62,514  $28,785  $19,120 
Right-of-use assets obtained in exchange for finance lease obligations $59  $0  $203  $59 

Maturities of lease liabilities were as follows (U.S. dollars in thousands):

Year Ending December 31 
Operating
Leases
  
Finance
Leases
  
Operating
Leases
  
Finance
Leases
 
2021 $11,911  $535 
2022  35,502   2,150  $9,453  $505 
2023  24,955   2,069   26,680   1,884 
2024  19,610   1,958   19,671   1,688 
2025  14,725   1,385   13,775   1,209 
2026  8,127   264 
Thereafter  41,327   262   46,139   4 
Total  148,030   8,359   123,845   5,554 
Less: Finance charges  18,241   622   16,736   319 
Total principal liability $129,789  $7,737  $107,109  $5,235 

The Company has additional lease liabilities of $0.1 million which have not yet commenced as of SSeptembereptember 30, 20212022, and as such, have not been recognized on the consolidated balance sheets.

6.Capital Stock

Net income per share

Net income per share is computed based on the weighted-average number of common shares outstanding during the periods presented. Additionally, diluted earnings per share data gives effect to all potentially dilutive common shares that were outstanding during the periods presented. For the three-monththree-month periods ended September 30, 20212022 and 2020,2021, stock options of 0.10.5 million and 0.20.1 million, respectively, and for the nine-month periods ended September 30, 20212022 and 2020,2021, stock options of 0.1 million and 0.60.1 million, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

Dividends

In February, May and August 20212022, the Company’s board of directors declared quarterly cash dividends of $0.38$0.385 per share. These quarterly cash dividends of $19.3$19.3 million, $19.0$19.4 million and $19.0$19.3 million were paid on March 10, 2021, 9, 2022, June 9, 20218, 2022 and September 8, 20217, 2022, respectively, to stockholders of record on February 26, 2021,  28, 2022, May 28, 202127, 2022 and August 27, 2021.26, 2022, respectively. In November 2021October 2022, the Company’s board of directors declared a quarterly cash dividend of $0.38$0.385 per share to be paid on December 8, 20217, 2022 to stockholders of record on November 26, 2021.

25, 2022.

Repurchase of common stock

During the three-month periods ended September 30, 20212022 and 2020,2021, the Company repurchased 0.21.0 million and 0.4 million shares of its Class A common stock under its stock repurchase plan for $10.0 million and $20.0 million, respectively. During the nine-month periods ended September 30, 2021 and 2020, the Company repurchased 1.4 million shares and 4.80.2 million shares of its Class A common stock under its stock repurchase plan for $70.4$40.0 million and $127.4$10.0 million, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company repurchased 1.4 million shares and 1.4 million shares of its Class A common stock under its stock repurchase plan for $60.0 million and $70.4 million, respectively.As of September 30, 2021, $2022,255.4 $185.4 million was available for repurchases under the Company’s stock repurchase plan.

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7.Fair Value and Equity Investments

Fair Value

The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximates fair values due to the short-term nature of these instruments. The carrying value of debt approximates fair value due to the variable 30-day interest rate. Fair value estimates are made at a specific point in time, based on relevant market information.

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The FASB Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. On a quarterly basis, the Company measures at fair value certain financial assets, including cash equivalents. Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:

◾■Level 1 – quoted prices in active markets for identical assets or liabilities;
◾■Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
◾■Level 3 – unobservable inputs based on the Company’s own assumptions.

Accounting standards permit companies, at their option, to measure certain financial instruments and other eligible items at fair value. The Company has elected not to apply the fair value option to existing eligible items beyond what is required by US GAAP.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (U.S. dollars in thousands):

 Fair Value at September 30, 2021  Fair Value at September 30, 2022 
 Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
Financial assets (liabilities):                        
Cash equivalents and current investments $74,360  $0  $0  $74,360  $68,552  $—  $—  $68,552 
Derivative financial instruments asset  0   4,395   0   4,395   —   21,168   —   21,168 
Life insurance contracts  0   0   48,625   48,625   —   —   38,302   38,302 
Derivative financial instruments liability  0   (112)  0   (112)
Contingent consideration  0   0   (12,132)  (12,132)  —   —   (8,372)  (8,372)
Total $74,360  $4,283  $36,493  $115,136  $68,552  $21,168  $29,930  $119,650 

 Fair Value at December 31, 2020  Fair Value at December 31, 2021 
 Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
Financial assets (liabilities):                        
Cash equivalents and current investments $56,628  $0  $0  $56,628  $66,477  $—  $—  $66,477 
Derivative financial instruments asset  0   1,145   0   1,145   —   6,590   —   6,590 
Life insurance contracts  0   0   45,453   45,453   —   —   49,851   49,851 
Derivative financial instruments liability  0   (105)  0   (105)
Contingent consideration  0   0   (3,125)  (3,125)  —   —   (10,341)  (10,341)
Total $56,628  $1,040  $42,328  $99,996  $66,477  $6,590  $39,510  $112,577 

The following table provides a summary of changes in fair value of the Company’s Level 3 life insurance contracts (U.S. dollars in thousands):

Beginning balance at January 1, 2021
 $45,453 
 2022  2021 
Beginning balance at January 1 $49,851  $45,453 
Actual return on plan assets  3,172   (11,549)  3,172 
Purchase and issuances  7,016 
Purchases and issuances  —   7,016 
Sales and settlements  (7,016)  —   (7,016)
Transfers into Level 3  0   —   — 
Ending balance at September 30, 2021
 $48,625 
Ending balance at September 30 $38,302  $48,625 

Life insurance contracts: ASCAccounting Standards Codification (“ASC”) 820 preserves practicability exceptions to fair value measurements provided by other applicable provisions of U.S. GAAP. The guidance in ASC 715-30-35-60 allows a reporting entity, as a practical expedient, to use cash surrender value or conversion value as an expedient for fair value when it is present. Accordingly, the Company determines the fair value of its life insurance contracts as the cash-surrender value of life insurance policies held in its Rabbi Trust.
 
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The following table provides a summary of changes in fair value of the Company’s Level 3 contingent consideration (U.S. dollars in thousands):

Beginning balance at January 1, 2021
 $(3,125)
 2022  2021 
Beginning balance at January 1 $(10,341) $(3,125)
Additions from acquisitions  (8,702)  —   (8,702)
Changes in fair value of contingent consideration  (305)  1,969   (305)
Ending balance at September 30, 2021
 $(12,132)
Ending balance at September 30 $(8,372) $(12,132)

Contingent consideration: Contingent consideration represents the obligations incurred in connection with acquisitions. The estimate of fair value of the contingent consideration obligations requires subjective assumptions to be made regarding the future business results, discount rates, discount periods and probabilities assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of reaching various targets or of achieving certain milestones. The fair value measurement is based on significant inputs unobservable in the market and thus represents a levelLevel 3 measurement. Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or decrease in the fair value of the contingent consideration obligation.

Equity Investments

The Company maintains equity investments in companies which are accounted for under the measurement alternative described in ASC 321-10-35-2321-10-35-2 for equity securities that lack readily determinable fair values. The carrying amount of equity securities held by the Company without readily determinable fair values was $28.1$28.1 million as at each of September 30, 20212022 and $5.0 million as of December 31,2021. During the three months ended September 30,2021, the Company made an additional investment of $5.0 million. During the three months and nine months ended September 30, 2021 the Company recognized $18.1$18.1 million upward fair value adjustments, based on the valuation of additional equity issued by the investee which was deemed to be an observable transaction of a similar investment under ASC 321. The third quarter of 2021 gain was recorded within Other income (expense), net on the Consolidated Statement of Comprehensive Operations.Income. The upward fair value adjustment represents a nonrecurriingnonrecurring fair value measurement based on observable price changes and is classified as a level 2Level 3 fair value measurement.

8.Income Taxes

Provision for income taxes for the three- and nine-month periods of 2021ended September 30, 2022 was $18.4$(3.6) million and $57.5$17.1 million, compared to $18.4 million and $46.9$57.5 million for the prior-year periods. The effective tax rates for the three- and nine-month periods ended September 30, 2022, were 27.0%12.3% and 26.9%26.4% of pre-tax income compared to 24.7%27.0% and 28.5%26.9% in the prior-year periods.

The Company accounts for income taxes in accordance with ASC Topic 740 “Income Taxes.” These standards establish financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. The Company takes an asset and liability approach for financial accounting and reporting of income taxes. The Company pays income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between the Company and its foreign affiliates. Deferred tax assets and liabilities are created in this process. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized. The Company had net deferred tax assets of $25.5$22.2 million and $34.8$24.1 million as of September 30, 20212022 and December 31, 2020,2021, respectively.

The Company evaluates its indefinite reinvestment assertions with respect to foreign earnings for each quarter. For all foreign earnings, the Company accrues the applicable foreign income taxes. For the earnings that have been indefinitely reinvested, the Company does not accrue foreign withholding taxes. Undistributed earnings that the Company has indefinitely reinvested, for which no foreign withholding taxes have been provided, aggregate to $60.0 million as of December 31, 2020.2021. If the amount designated as indefinitely reinvested as of December 31, 20202021 was repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.  The Company intends to utilize the indefinitely reinvested offshore earnings to fund foreign investments, specifically capital expenditures.

The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company is no longer subject to tax examinations from the IRS for all years for which tax returns have been filed before 2020. With a few exceptions, the Company is no longer subject to state and local income tax examination by tax authorities for the years before 2017. In 2009, the Company entered into a voluntary program with the IRS called Compliance Assurance Process (“CAP”). The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return. As of December 31, 2021, tax years through 2020 have been audited and are effectively closed to further examination. For tax years 2021 and 2022, the Company is in the Bridge phase of the CAP program, pursuant to which the IRS will not accept disclosures, will not conduct reviews and will not provide letters of assurance for the Bridge years. There are limited circumstances under which tax years in the Bridge phase will be opened for examination. The Company has elected to participate in CAP for 2021 and may elect to continue participating in CAP for future tax years; the Company may withdraw from the program at any time. With a few exceptions, the Company is no longer subject to state and local income tax examination by tax authorities for the years before 2018. In major foreign jurisdictions, the Company is generally no longer subject to income tax examinations for years before 2015.2016. However, statutes of limitations in certain countries may be as long as ten years.years. The Company is currently under examination in certain foreign jurisdictions; however, the outcomes of those reviews are not yet determinable.  The Company’s unrecognized tax benefits relate to multiple jurisdictions. Due to potential increases in unrecognized tax benefits from the multiple jurisdictions in which the Company operates, as well as the expiration of various statutes of limitations, it is reasonably possible that the Company’s gross unrecognized tax benefits, net of foreign currency adjustments, may decreaseincrease in the next 12 months by approximately $3.0$1.0 to $4.0$2.0 million.

12
Table of Contents
9.Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2021,2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $112 thousand$8.2 million will be reclassified as an increasea reduction to interest expense.

As of September 30, 20212022 and December 31, 2020,2021, the Company had 4four outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk with a total notional amount of $200 million.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet:

   Fair Values of Derivative Instruments    
Fair Values of
Derivative Instruments
 
Derivatives in Cash flow
Hedging Relationships:
 
Balance Sheet
Location
 
September 30,
2021
  
December 31,
2020
  
Balance Sheet
Location
 
September 30,
2022
  
December 31,
2021
 
Interest Rate Swap - Asset Other Assets $4,395  $1,145  Prepaid expenses and other $8,178  $557 
Interest Rate Swap - Liability Accrued Expenses $112  $105 
Interest Rate Swap - Asset
 Other assets $12,990  $6,033 

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income.

 Amount of Gain (Loss) Recognized in OCI on Derivative  
Amount of Gain (Loss)
Recognized in OCI on Derivatives
 
 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
Derivatives in Cash flow September 30,  September 30,  September 30,  September 30, 
Hedging Relationships: 2021  2020  2021  2020  2022  2021  2022  2021 
Interest Rate Swaps $32  $388  $3,133  $388  $5,832  $32 $15,903  $3,133 

   
Amount of Gain (Loss) Reclassified from
Accumulated Other Comprehensive Loss into Income
    
Amount of Gain (Loss)
Reclassified from Accumulated
Other Comprehensive Loss into Income
 
     Three Months Ended  Nine Months Ended       Three Months Ended  Nine Months Ended 
Derivatives in Cash flow Income Statement September 30,  September 30,  Income Statement September 30,  September 30, 
Hedging Relationships: Location 2021  2020  2021  2020  Location 2022  2021  2022  2021 
Interest Rate Swaps Other Income (Expense), Net
 $(45) $(8) $(110) $(8) Other income (expense), net
 $1,040 $(45) $1,323 
$
(110
)

13
Table of Contents
10.Segment Information

The Company reports revenue from 10nine segments, consisting of its 7seven geographic Nu Skin segments—Americas, Mainland China, Americas,Southeast Asia/Pacific, South Korea, Southeast Asia/Pacific, Japan, EMEA, and Hong Kong/Taiwan—and 3two Rhyz Investments segments—Manufacturing Grow Tech and Rhyz other. The Nu Skin other category includes miscellaneous corporate revenue and related adjustments. The Rhyz other segment includes other investments by our Rhyz strategic investment arm. These segments reflect the way the chief operating decision maker evaluates the Company’s business performance and allocates resources. Reported revenue includes only the revenue generated by sales to external customers.

Profitability by segment as determined under US GAAP is driven primarily by the Company’s transfer pricing policies. Segment contribution, which is the Company’s segment profitability metric presented in the table below, excludes certain intercompany charges, specifically royalties, license fees, transfer pricing, discrete charges and other miscellaneous items. These charges have been included in Corporate and other expenses. Corporate and other expenses also include costs related to the Company’s executive and administrative offices, information technology, research and development, and marketing and supply chain functions not recorded at the segment level.

In the first quarter of 2021, as a result of a change in the Company’s transfer pricing policies in the Americas, the
Prior year segment contribution calculation has been adjusted. The prior year Americas and Corporate and other has been recast to conform with the new policy.

Beginning in July 2021, the Company has changed how the chief operating decision maker manages and reports the Pacific market. The Pacific market will be now be reported with the Southeast Asia segment and no longer with the Americas segment. Segment information has been recast to reflect the move of the Pacific components from the "America/Pacific"“America/Pacific” operating segment to the "Southeast“Southeast Asia/Pacific"Pacific” operating segment.segment to comply with current segment presentation. Prior year segment information has been recast to reflect the fourth quarter 2021 exit of the Grow Tech segment, which has been recast to Corporate and other expenses. Consolidated financial information is not affected.

The accounting policies of the segments are the same as those described in Note 2 – Summary of Significant Accounting Policies. The Company evaluates the performance of its segments based on revenue and segment contribution. Each segment records direct expenses related to its employees and its operations.

Summarized financial information for the Company’s reportable segments is shown in the following tables. Asset information is not reviewed or included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.

Revenue by Segment


 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(U.S. dollars in thousands)
 2021  2020  2021  2020  2022  2021  2022  2021 
            
Nu Skin                        
Americas
 $
131,591  $
131,482  $
379,616  $
403,755 
Mainland China $134,291  $169,068  $438,066  $453,096  
75,151  
134,291  
286,454  
438,066 
Americas  131,482   133,618   403,755   312,436 
Southeast Asia/Pacific  83,502   79,081   267,805


246,338 
South Korea  91,989   83,460   261,724   236,094   67,237   91,989   208,678   261,724 
Southeast Asia/Pacific  79,081   101,949   246,338   262,038 
Japan
  53,276   65,117   171,019   203,001 
EMEA
  55,839   61,411   215,134   147,590   45,099   55,839   148,938   215,134 
Japan  65,117   70,958   203,001   200,549 
Hong Kong/Taiwan  39,921   42,265   114,795   115,253   39,587   39,921   117,408   114,795 
Nu Skin other  889   (314)  2,350   374   496
   1,672
  2,434
   3,497
 
Total Nu Skin
  598,609   662,415   1,885,163   1,727,430   495,939   599,392   1,582,352   1,886,310 
Rhyz Investments
                                
Manufacturing (1)  41,635   40,910   135,760   105,975   41,328   41,635   119,898   135,760 
Grow Tech  783   22   1,147   336 
Rhyz other  125   0   163   0   538
   125
   1,069
   163
 
Total Rhyz Investments
  42,543   40,932   137,070   106,311   41,866   41,760   120,967   135,923 
Total $641,152  $703,347  $2,022,233  $1,833,741  $537,805  $641,152  $1,703,319  $2,022,233 

(1)
The Manufacturing segment had $27.4$17.5 million and $10.9$27.4 million of intersegment revenue for the three months ended September 30, 20212022 and 2020,2021, respectively, and $68.0$48.9 million and $24.2$68.0 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. Intersegment revenue is eliminated in the consolidated financial statements, as well as the reported segment revenue in the table above.above.

14
Segment Contribution

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(U.S. dollars in thousands) 2021  2020  2021  2020  2022  2021  2022  2021 
Nu Skin                        
Americas
 $23,016  $25,752  $78,165  $83,495 
Mainland China $30,677  $54,522  $121,596  $135,577   12,933   30,677   54,873   121,596 
Americas  25,752   20,618   83,495   48,730 
Southeast Asia/Pacific
  20,719   19,020   68,492   59,881 
South Korea  28,984   25,232   84,401   73,421   20,455   28,984   63,776   84,401 
Southeast Asia/Pacific  19,020   23,892   59,881   62,263 
Japan  13,103   16,267   41,867   50,709 
EMEA
  6,693   7,111   29,270   11,084   3,379   6,693   13,377   29,270 
Japan  16,267   18,245   50,709   49,292 
Hong Kong/Taiwan  8,940   9,048   24,848   22,825   8,425   8,940   26,276   24,848 
Nu Skin contribution  136,333   158,668   454,200   403,192   102,030   136,333   346,826   454,200 
Rhyz Investments                                
Manufacturing  3,059   6,749   15,649   15,000   1,755   3,059   6,235   15,649 
Grow Tech  (6,798)  (5,322)  (19,869)  (17,659)
Rhyz other  (659)  0   (1,178)  0   (1,724)  (659)  (4,069)  (1,178)
Rhyz Investments contribution  (4,398)  1,427   (5,398)  (2,659)  31   2,400   2,166   14,471 
Total segment contribution  131,935   160,095   448,802   400,533   102,061   138,733   348,992   468,671 
Corporate and other  (66,551)  (85,867)  (235,129)  (231,666)  (122,345)  (73,349)  (265,604)  (254,998)
Operating income  65,384   74,228   213,673   168,867   (20,284)  65,384   83,388   213,673 
Other income (expense)  2,781   525   351   (4,068)  (8,680)  2,781   (18,773)  351 
Income before provision for income taxes $68,165  $74,753  $214,024  $164,799  $(28,964) $68,165  $64,615  $214,024 

Depreciation and Amortization

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(U.S. dollars in thousands) 2021  2020  2021  2020  2022  2021  2022  2021 
Nu Skin                        
Americas
 $
89  $
190  $
480  $
656 
Mainland China $3,253  $2,649  $9,868  $7,631  
3,528  
3,253  
9,088  
9,868 
Americas  190   251   656   714 
Southeast Asia/Pacific
  382   359   1,144   1,096 
South Korea  805   756   2,768   2,731   377   805   1,137   2,768 
Southeast Asia/Pacific  359   334   1,096   1,300 
Japan
  148   220   670   699 
EMEA
  281   231   850   731   125   281   599   850 
Japan  220   296   699   1,602 
Hong Kong/Taiwan  1,004   691   2,794   1,948   743   1,004   2,152   2,794 
Total Nu Skin  6,112   5,208   18,731   16,657   5,392   6,112   15,270   18,731 
Rhyz Investments                                
Manufacturing  3,069   2,077   8,644   5,954   3,161   3,069   9,773   8,644 
Grow Tech  1,303   1,302   4,002   3,775 
Rhyz other  592   0   987   0   592   592   1,776   987 
Total Rhyz Investments  4,964   3,379   13,633   9,729   3,753   3,661   11,549   9,631 
Corporate and other  8,857   9,333   25,494   28,893   9,025   10,160   27,116   29,496 
Total $19,933  $17,920  $57,858  $55,279  $18,170  $19,933  $53,935  $57,858 

15
Capital Expenditures

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(U.S. dollars in thousands) 2021  2020  2021  2020  2022  2021  2022  2021 
Nu Skin                        
Americas
 $
23  $
95  $
152  $
294 
Mainland China $3,237  $9,000  $15,170  $12,577  
2,946  
3,237  
9,066  
15,170 
Americas  95   123   294   885 
Southeast Asia/Pacific  19   92   143   1,015 
South Korea  0   173   508   537   35   —   613   508 
Southeast Asia/Pacific  92   1,256   1,015   1,899 
Japan  16   3   200   94 
EMEA
  391   718   821   1,378   183   391   961   821 
Japan  3   1,484   94   3,132 
Hong Kong/Taiwan  110   7   222   23   587   110   1,386   222 
Total Nu Skin  3,928   12,761   18,124   20,431   3,809   3,928   12,521   18,124 
Rhyz Investments                                
Manufacturing  2,604   2,113   11,604   13,221   1,923   2,604   4,353   11,604 
Grow Tech  212   343   1,215   760 
Rhyz other  0   0   0   0   —   —   —   — 
Total Rhyz Investments  2,816   2,456   12,819   13,981   1,923   2,604   4,353   11,604 
Corporate and other  6,791   4,901   19,441   14,398   19,723   7,003   28,400   20,656 
Total $13,535  $20,118  $50,384  $48,810  $25,455  $13,535  $45,274  $50,384 

11.Commitments and Contingencies

The Company is subject to government regulations pertaining to product formulation, labeling and packaging, product claims and advertising, and the Company’s direct selling system.  The Company is also subject to the jurisdiction of numerous foreign tax and customs authorities. Any assertions or determination that either the Company or the Company’s sales force is not in compliance with existing statutes, laws, rules or regulations could have a material adverse effect on the Company’s operations. In addition, in any country or jurisdiction, the adoption of new statutes, laws, rules or regulations or changes in the interpretation of existing statutes, laws, rules or regulations could have a material adverse effect on the Company and its operations. No assurance can be given that the Company’s compliance with applicable statutes, laws, rules and regulations will not be challenged by foreign authorities or that such challenges will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company and its Subsidiaries are defendants in litigation, investigations and other proceedings involving various matters. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company believes it has appropriately provided for income taxes for all years. Several factors drive the calculation of its tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results.

16
12.Acquisitions

In December 2020, the Company acquired 100% of the outstanding equity interest of Ingredient Innovations International Company (“3i”). The purchase price for 3i was $15.7 million, net of cash acquired of $2.1 million and $0.8 million to be paid within six months, all payable in cash. In addition, there is potential for an incremental $7.0 million in contingent consideration, which becomes payable if certain performance targets are reached in 2021 and 2022. The fair value of the contingent consideration recorded on the acquisition date was $3.1 million. The Company allocated the gross purchase price of $24.5 million to the assets acquired and liabilities assumed at estimated fair values. The estimated fair value of assets acquired included $14.4 million of intangible assets, $0.3 million of property and equipment, $2.1 million of cash, $0.8 million of accounts receivable and less than $0.3 million of inventory, and the acquisition also included approximately $0.3 million of current liabilities and resulted in a deferred tax liability of $3.1 million. The excess purchase price over the aggregate fair value of assets acquired less liabilities assumed of $6.4 million was recorded as goodwill. The intangible assets acquired were comprised of $3.7 million for Customer relationships, $10.0 million for technology and $0.7 million for other intangibles, all with an assigned estimated useful life of approximately 8 years. All the goodwill was assigned to our Manufacturing segment. The allocation of the fair value of assets acquired and liabilities assumed for the acquisition was finalized during the three months ended March 31, 2021.

In April 2021, the Company acquired 100% ownership in MyFavoriteThings, Inc. (“Mavely”), making Mavely a wholly owned subsidiary of the Company. The acquisition enables the Company to continue to expand its digital tools. The purchase price for Mavely was $16.8 million, net of cash acquired of $0.4 million and $0.9 million to be paid within six months, all payable in cash. In addition, there is potential for an incremental $24.0 million in contingent consideration, which becomes payable if certain revenue and profitability targets are reached in 2021, 2022 and 2023. The fair value of the contingent consideration recorded on the acquisition date was $8.7 million. The Company allocated the gross purchase price of $29.4 million to the assets acquired and liabilities assumed at estimated fair values. The estimated fair value of assets acquired included $16.4 million of intangible assets, $0.4 million of cash, $0.1 million of accounts receivable, and also resulted in a deferred tax liability of $3.5 million. The excess purchase price over the aggregate fair value of assets acquired less liabilities assumed of $12.6 million was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies. None of the goodwill is expected to be deductible for income tax purposes. The intangible assets acquired were comprised of $2.0 million for customer relationships, $11.3 million for technology, $2.8 million for trademarks and $0.3 million for other intangibles. The intangibles were assigned useful lives of 8 years for the technology and tradename, approximately 4 years for the customer relationships and 3 years for the other intangibles. All the goodwill was assigned to our Rhyz other segment. The allocation of the fair value of assets acquired and liabilities assumed for the acquisition was finalized during the three months ended September 30, 2021.

1716
13.Restructuring

In the fourth quarter of 2021, the Company determined to exit the Grow Tech segment, to better align its resources on key strategic initiatives to achieve the future growth objectives and priorities of the core Nu Skin business. The Grow Tech segment was pursuing the commercialization of controlled-environment agriculture for use in the agriculture feed industry. This segment had been operating as part of the Company’s Rhyz strategic investment arm. As a result of the restructuring program, the Company recorded a non-cash charge of $38.5 million in 2021, including $9.2 million for impairment of goodwill, $9.0 million for impairment of intangibles, $13.7 million of fixed asset impairments and $6.6 million for inventory write-off, and $20.0 million of cash charges, including $6.5 million for employee severance and $13.5 million for other related cash charges with our restructuring. As of December 31, 2021, the $20.0 million liability related to cash charges was recorded within Accrued expenses. During the first quarter of 2022, the Company made cash payments of $11.6 million, leaving an ending restructuring accrual of $8.3 million as of March 31, 2022. During the second quarter of 2022, the Company made cash payments of $8.0 million, leaving an ending restructuring accrual of $0.3 million as of June 30, 2022. During the third quarter of 2022, the Company made cash payments of $0.3 million, leaving no restructuring accrual as of September 30, 2022. The restructuring charges were recorded in the previous Grow Tech segment, which in the current year has been recast to Corporate and Other.


In the third quarter of 2022, the Company adopted a strategic plan to focus resources on the Company’s strategic priorities and optimize future growth and profitability. The global program includes workforce reductions and footprint optimization. The Company estimates total charges under the program will approximate $35–$45 million, with $30–$35 million in cash charges of severance and lease termination cost and $9.9 million of non-cash charges of impairment of fixed assets and other intangibles related to the footprint optimization. The Company expects to substantially complete the program during the first half of 2023. During the third quarter of 2022, the Company incurred charges to be settled in cash of $17.2 million in severance charges, $2.1 million in lease termination cost, and $0.9 million in other associated cost, and non-cash charges of $8.2 million in fixed asset impairments and $1.7 million in impairment of other intangibles.  During the third quarter of 2022, the Company made cash payments of $7.9 million related to this global program, leaving an ending restructuring accrual of $12.3 million.



Restructuring expense by segment


(U.S. dollars in thousands) 
Three Months Ended
September 30,2022
 
    
Nu Skin   
Americas
 $
1,723
 
Mainland China 

11,484
 
Southeast Asia/Pacific  
663
 
South Korea  
54
 
Japan  
—
 
EMEA  
894
 
Hong Kong/Taiwan  
747
 
Total Nu Skin  
15,565
 
Rhyz Investments    
Manufacturing  
—
 
Rhyz other  
—
 
Total Rhyz Investments  
—
 
Corporate and other
  
14,559
 
Total 
$
30,124
 

17
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that represent our current expectations and beliefs.  All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws and include, but are not limited to, statements of management’s expectations regarding our performance, initiatives, strategies, product introductions and offerings, growth, opportunities and risks; statements of projections regarding future sales, expenses, operating results, taxes and duties, capital expenditures, sources and uses of cash, foreign-currency fluctuations or devaluations, repatriation of undistributed earnings, and other financial items; statements of management’s expectations and beliefs regarding our markets and global economic conditions; statements regarding the payment of future dividends and stock repurchases; statements regarding the outcome of litigation, audits, investigations or other regulatory actions; statements regarding government policies and regulations relating to our industry, including government policies and regulations in Mainland China; accounting estimates and assumptions; statements of belief; and statements of assumptions underlying any of the foregoing. In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,” “optimistic,” “project,” “anticipate,” “determine,” “estimate,” “intend,” “plan,” “goal,” “objective,” “targets,” “become,” “likely,” “will,” “would,” “could,” “may,” “might,” the negative of these words and other similar words. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.  We caution and advise readers that these statements are based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results to differ materially from the expectations and beliefs contained herein. For a summary of these risks, see the risk factors included in our Annual Report on Form 10-K for the 20202021 fiscal year and in our subsequent quarterly and other reports, including this Quarterly Report.

The following Management’s Discussion and Analysis should be read in conjunction with our consolidated financial statements and related notes and Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the 20202021 fiscal year, and our other reports filed with the Securities and Exchange Commission through the date of this Quarterly Report.

Overview

Revenue for the three-month period ended September 30, 20212022 decreased 9%16% to $641.2$537.8 million, compared to $703.3$641.2 million in the prior-year period, and revenue for the nine-month period ended September 30, 2021 increased 10%2022 decreased 16% to $2.0$1.7 billion, compared to $1.8$2.0 billion in the prior-year period. Our revenue in the third quarter and first nine months of 2022 was negatively impacted 7% and 5%, respectively, from foreign-currency fluctuations. Our Customers, Paid Affiliates and Sales Leaders decreased 15%declined 11%, 11% and Customers decreased 9%22%, respectively, on a year-over-year basis. Our reported revenue benefited 2% and 4% from foreign-currency fluctuations for the three- and nine-month periods ended September 30, 2021, respectively.

Our third quarter and first nine months of 2022 revenue was softer than anticipated asprimarily driven by continuation of COVID-related factors in Mainland China, South Korea and Hong Kong; distractions in EMEA related to the COVID-19 delta variant created unexpected disruptionsongoing conflict in manyRussia and Ukraine; and the general global economic downturn pressures being felt in our global markets.

During the third quarter we began our limited introduction of the ageLOC LumiSpa iO in all of our markets.segments, which generated approximately $19.3 million of revenue. The unanticipated government restrictions impacted our ability to sell and distribute products,limited introductions are continuing into the fourth quarter, with the largest impact in our Mainland China and Southeast Asia/Pacific markets, and also disrupted our promotional activities such as the incentive trips and the performance of local expos in several markets.  The revenue growth for the first nine months of 2021 benefited from a strong first half of 2021 where we benefitted from social commerce. We are continuing the launch of our two new products Beauty Focus Collagen+ and ageLOC MetaLumiSpa , with bothiO being generally available for purchase in 2022.all of our markets by the end of the fourth quarter.

Earnings per share for the third quarter of 20212022 decreased 10%153% to $0.97,$(0.51), compared to $1.08$0.97 in the prior-year period. Earnings per share for the first nine months of 2021 increased 36%2022 decreased 69% to $3.03,$0.94, compared to $2.23$3.03 in the prior-year period. The decrease in earnings per share for the third quarter and first nine months of 2022 was primarily driven by the decrease in revenue. The increase in earnings per share for the first nine-months of 2021 was driven by the increasethird quarter restructuring and related cost, along with decreases in revenue and fixed nature of general and administrative expenses on the increased revenue.for both periods presented.

18
Segment Results

We report our business in tennine segments to reflect our current management approach. These segments consist of our seven geographic Nu Skin segments—Americas, Mainland China, Americas, South Korea, Southeast Asia/Pacific, South Korea, Japan, EMEA, and Hong Kong/Taiwan, and EMEA—Taiwan—and our three Rhyz Investment segments—Manufacturing Grow Tech and Rhyz other. The Nu Skin other category includes miscellaneous corporate revenue and related adjustments. The Rhyz other segment includes other investments by our Rhyz strategic investment arm, which were entered into during the second quarter of 2021.

The following table sets forth revenue for the three- and nine-month periods ended September 30, 20212022 and 20202021 for each of our reportable segments (U.S. dollars in thousands):

 
Three Months Ended
September 30,
   
Constant-
Currency
  
Nine Months Ended
September 30,
   
Constant-
Currency
  
Three Months Ended
September 30,
 
 
Constant-
Currency
  
Nine Months Ended
September 30,
 
 
Constant-
Currency
 
 2021 2020 Change  
Change(1)
 2021 2020 Change  
Change(1)
  2022 2021 Change  
Change(1)
 2022 2021 Change  
Change(1)
 
                                  
Nu Skin                                                
Americas 
$
131,591
  
$
131,482
  
—
  
3
%
 
$
379,616
  
$
403,755
  
(6
)%
 
(4
)%
Mainland China 
$
134,291
  
$
169,068
  
(21
)%
 
(26
)%
 
$
438,066
  
$
453,096
  
(3
)%
 
(11
)%
 
75,151
  
134,291
  
(44
)%
 
(41
)%
 
286,454
  
438,066
  
(35
)%
 
(34
)%
Americas 
131,482
  
133,618
  
(2
)%
 
(2
)%
 
403,755
  
312,436
  
29
%
 
28
%
Southeast Asia/Pacific 
83,502
  
79,081
  
6
%
 
12
%
 
267,805
  
246,338
  
9
%
 
13
%
South Korea 
91,989
  
83,460
  
10
%
 
8
%
 
261,724
  
236,094
  
11
%
 
5
%
 
67,237
  
91,989
  
(27
)%
 
(15
)%
 
208,678
  
261,724
  
(20
)%
 
(11
)%
Southeast Asia/Pacific 
79,081
  
101,949
  
(22
)%
 
(23
)%
 
246,338
  
262,038
  
(6
)%
 
(9
)%
Japan 
53,276
  
65,117
  
(18
)%
 
3
%
 
171,019
  
203,001
  
(16
)%
 
(1
)%
EMEA 
55,839
  
61,411
  
(9
)%
 
(11
)%
 
215,134
  
147,590
  
46
%
 
36
%
 
45,099
  
55,839
  
(19
)%
 
(6
)%
 
148,938
  
215,134
  
(31
)%
 
(22
)%
Japan 
65,117
  
70,958
  
(8
)%
 
(5
)%
 
203,001
  
200,549
  
1
%
 
2
%
Hong Kong/Taiwan 
39,921
  
42,265
  
(6
)%
 
(8
)%
 
114,795
  
115,253
  
—
  
(4
)%
 
39,587
  
39,921
  
(1
)%
 
6
%
 
117,408
  
114,795
  
2
%
 
6
%
Nu Skin other  
889
   
(314
)
 
383
%
 
382
%
  
2,350
   
374
  
528
%
 
530
%
  
496
   
1,672
  
(70
)%
 
(70
)%
  
2,434
   
3,497
  
(30
)%
 
(30
)%
Total Nu Skin 
598,609
  
662,415
  
(10
)%
 
(11
)%
 
1,885,163
  
1,727,430
  
9
%
 
5
%
 
495,939
  
599,392
  
(17
)%
 
(9
)%
 
1,582,352
  
1,886,310
  
(16
)%
 
(11
)%
Rhyz Investments                                                
Manufacturing 
41,635
  
40,910
  
2
%
 
2
%
 
135,760
  
105,975
  
28
%
 
28
%
 
41,328
  
41,635
  
(1
)%
 
(1
)%
 
119,898
  
135,760
  
(12
)%
 
(12
)%
Grow Tech 
783
  
22
  
3,459
%
 
3,459
%
 
1,147
  
336
  
241
%
 
241
%
Rhyz other  
125
   
—
         
163
   
—
         
538
   
125
  
330
%
 
330
%
  
1,069
   
163
  
556
%
 
556
%
Total Rhyz Investments  
42,543
   
40,932
  
4
%
 
4
%
  
137,070
   
106,311
  
29
%
 
29
%
  
41,866
   
41,760
  
—
  
—
   
120,967
   
135,923
  
(11
)%
 
(11
)%
Total 
$
641,152
  
$
703,347
  
(9
)%
 
(11
)%
 
$
2,022,233
  
$
1,833,741
  
10
%
 
6
%
 
$
537,805
  
$
641,152
  
(16
)%
 
(9
)%
 
$
1,703,319
  
$
2,022,233
  
(16
)%
 
(11
)%

(1)
Constant-currency revenue change is a non-GAAP financial measure. See “Non-GAAP Financial Measures,” below.

The following table sets forth segment contribution for the three- and nine-month periods ended September 30, 20212022 and 20202021 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 managecontrol for their respective segments. The prior year segment contribution has been recast for the fourth quarter of 2021 exit of the Grow Tech segment and the expense has been recast to Corporate and other. For additional information regarding our segments and the calculation of segment contribution, see Note 10 to the consolidated financial statements contained in this report.

 
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
     
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
    
 2021 2020 Change 2021 2020 Change  2022 2021 Change 2022 2021 Change 
                          
Nu Skin                                    
Americas 
$
23,016
  
$
25,752
  
(11
)%
 
$
78,165
  
$
83,495
  
(6
)%
Mainland China 
$
30,677
  
$
54,522
  
(44
)%
 
$
121,596
  
$
135,577
  
(10
)%
 
12,933
  
30,677
  
(58
)%
 
54,873
  
121,596
  
(55
)%
Americas 
25,752
  
20,618
  
25
%
 
83,495
  
48,730
  
71
%
Southeast Asia/Pacific 
20,719
  
19,020
  
9
%
 
68,492
  
59,881
  
14
%
South Korea 
28,984
  
25,232
  
15
%
 
84,401
  
73,421
  
15
%
 
20,455
  
28,984
  
(29
)%
 
63,776
  
84,401
  
(24
)%
Southeast Asia/Pacific 
19,020
  
23,892
  
(20
)%
 
59,881
  
62,263
  
(4
)%
Japan 
13,103
  
16,267
  
(19
)%
 
41,867
  
50,709
  
(17
)%
EMEA 
6,693
  
7,111
  
(6
)%
 
29,270
  
11,084
  
164
%
 
3,379
  
6,693
  
(50
)%
 
13,377
  
29,270
  
(54
)%
Japan 
16,267
  
18,245
  
(11
)%
 
50,709
  
49,292
  
3
%
Hong Kong/Taiwan  
8,940
   
9,048
  
(1
)%
  
24,848
   
22,825
  
9
%
  
8,425
   
8,940
   
(6
)%
  
26,276
   
24,848
   
6
%
Total Nu Skin 
136,333
  
158,668
  
(14
)%
 
454,200
  
403,192
  
13
%
 
102,030
  
136,333
  
(25
)%
 
346,826
  
454,200
  
(24
)%
Rhyz Investments                                    
Manufacturing 
3,059
  
6,749
  
(55
)%
 
15,649
  
15,000
  
4
%
 
1,755
  
3,059
  
(43
)%
 
6,235
  
15,649
  
(60
)%
Grow Tech 
(6,798
)
 
(5,322
)
 
(28
)%
 
(19,869
)
 
(17,659
)
 
(13
)%
Rhyz other  
(659
)
  
—
      
(1,178
)
  
—
      
(1,724
)
  
(659
)
  
(162
)%
  
(4,069
)
  
(1,178
)
  
(245
)%
Total Rhyz Investments 
(4,398
)
 
1,427
  
(408
)%
 
(5,398
)
 
(2,659
)
 
(103
)%
 
$
31
  
$
2,400
  
(99
)%
 
$
2,166
  
$
14,471
  
(85
)%

19
The following table providestables provide information concerning the number of Customers, Paid Affiliates and Sales Leaders as ofin our core Nu Skin business for the three-month periods ended September 30, 20212022 and 2020.  “Customers” are persons who have purchased products directly from2021. During the Company duringfirst quarter of 2022, in connection with the three months ended asintroduction of the date indicated. Our Customer numbers do not include consumers who purchase products directly from membersnew metric Paid Affiliates, we reviewed how we currently present Sales Leaders and adjusted that metric’s definition to what we believe provides a better insight into the trends of our sales force. “Sales Leaders” are independent distributors, and sales employees and independent marketers in Mainland China, who achieve certain qualification requirements.business. The definition of our Customer metric remained unchanged. We have recast the 2021 Sales Leaders to the new definition.

  
As of
September 30, 2021
  
As of
September 30, 2020
  % Increase (Decrease) 
  Customers  Sales Leaders  Customers  Sales Leaders  Customers  Sales Leaders 
                   
Mainland China  
355,256
   
13,838
   
341,386
   
20,970
   
4
%
  
(34
)%
Americas  
324,880
   
12,127
   
397,936
   
12,798
   
(18
)%
  
(5
)%
South Korea  
156,439
   
9,448
   
164,256
   
7,973
   
(5
)%
  
18
%
Southeast Asia/Pacific  
162,048
   
7,607
   
204,489
   
9,959
   
(21
)%
  
(24
)%
EMEA  
210,705
   
5,726
   
235,202
   
6,226
   
(10
)%
  
(8
)%
Japan  
123,453
   
6,029
   
126,896
   
6,523
   
(3
)%
  
(8
)%
Hong Kong/Taiwan  
62,490
   
3,790
   
69,346
   
4,067
   
(10
)%
  
(7
)%
Total  
1,395,271
   
58,565
   
1,539,511
   
68,516
   
(9
)%
  
(15
)%

●
“Customers” are persons who have purchased directly from the Company during the three months ended as of the date indicated. Our Customer numbers include members of our sales force who made such a purchase, including Paid Affiliates and those who qualify as Sales Leaders, but they do not include consumers who purchase products directly from members of our sales force.


●
“Paid Affiliates” are any Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who earned sales compensation during the three-month period. In all of our markets besides Mainland China, we refer to members of our independent sales force as “Brand Affiliates” because their primary role is to promote our brand and products through their personal social networks.


●
“Sales Leaders” are the three-month average of our monthly Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who achieved certain qualification requirements as of the end of each month of the quarter.

  
Three Months Ended
September 30,
    
Customers 2022  2021  Change 
Americas  
316,123
   
324,884
   
(3
)%
Mainland China  
256,183
   
355,256
   
(28
)%
Southeast Asia/Pacific  
153,432
   
162,047
   
(5
)%
South Korea  
134,549
   
156,431
   
(14
)%
Japan  
121,202
   
123,453
   
(2
)%
EMEA  
187,906
   
210,705
   
(11
)%
Hong Kong/Taiwan  
69,989
   
62,491
   
12
%
Total  
1,239,384
   
1,395,267
   
(11
)%

  
Three Months Ended
September 30,
    
Paid Affiliates 2022  2021  Change 
Americas  
44,745
   
50,619
   
(12
)%
Mainland China  
23,088
   
32,167
   
(28
)%
Southeast Asia/Pacific  
40,624
   
43,298
   
(6
)%
South Korea  
47,852
   
54,119
   
(12
)%
Japan  
38,119
   
38,315
   
(1
)%
EMEA  
31,409
   
36,245
   
(13
)%
Hong Kong/Taiwan  
17,439
   
18,872
   
(8
)%
Total  
243,276
   
273,635
   
(11
)%

  
Three Months Ended
September 30,
    
Sales Leaders 2022  2021  Change 
Americas  
9,545
   
11,889
   
(20
)%
Mainland China(1)
  
11,897
   
19,392
   
(39
)%
Southeast Asia/Pacific  
7,618
   
7,623
   
—
 
South Korea  
6,992
   
8,929
   
(22
)%
Japan  
6,063
   
6,007
   
1
%
EMEA  
4,777
   
6,417
   
(26
)%
Hong Kong/Taiwan  
2,932
   
3,629
   
(19
)%
Total  
49,824
   
63,886
   
(22
)%

(1)
The September 30, 2022 number reflects a modified Sales Leader definition. See “Mainland China,” below.

20
Following is a narrative discussion of our results in each segment, which supplements the tables above.

Americas. Our Americas segment continues to be challenged by macroeconomic issues in the Latin America markets, which drove the decline in Customers, Paid Affiliates and Sales Leaders. Our U.S. market revenue increased 7% for the third quarter of 2022 and 9% for the first nine months of 2022 due to continued social selling momentum and subscription enrollment. During the third quarter of 2022, we began our launch process of the ageLOC LumiSpa iO, with limited offerings to our sales force ahead of the full launch in the fourth quarter of 2022.  The limited launch of the ageLOC LumiSpa iO generated approximately $8.3 million in revenue.

The year-over-year decrease in segment contribution for the third quarter is primarily attributable to a 2.3 percentage point decrease in gross margin, primarily from sales mix and higher sales discounts and promotions during the quarter.  The year-over-year decrease in segment contribution for the first nine months of 2022 is primarily attributable to the decline in revenue, with a 1.7 percentage point decrease in gross margin, primarily from high sales discounts and promotions, partially offset by a 1.6 percentage point decrease in selling expenses as a percentage of revenue, primarily attributable to the make up of the sales force, which resulted in less Sales Leaders qualifying for increased compensation and a lower incentive trip expenses.

Mainland China. Our Mainland China market continued to be challenged during the third quarter and first nine months of 2021, as the COVID-19 delta variant and corresponding government restrictions2022, with  continued pressures from COVID-related factors, which negatively impacted our selling and promotional activities. As a result of the economic headwinds in the market we made some modifications to the compensation plan during the quarter, which provides our leaders more flexible requirements to maintain their business. Our revenue benefitted 5%Mainland China Sales Leader numbers as of September 30, 2022 reflect these modified requirements.

During July 2022, we resumed allowing Sales Leader meetings in this market on a limited basis, so long as they are in compliance with government regulations and 8% from favorable foreign-currency fluctuationsrelated controls that we have implemented. In our Quarterly Reports on Form 10-Q for the third quarter2022 first and first nine monthssecond quarters, we referenced government inquiries related to a meeting in a hotel in Wuhan, Hubei Province organized by an independent marketer of 2021, respectively. Our Customers benefited from the rollout of our Tencent digital tools, which launched in September of 2021.Nu Skin China. These inquiries have been resolved.

The year-over-year decrease in segment contribution for the third quarter and first nine months of 2021 is attributable to decreased reported revenue2022 primarily reflects lower revenue.  The decrease also reflects  a 1.7 and a 5.23.3 percentage point decrease in gross margin for the third quarter and 2.7 percentage point,first nine months of 2022, respectively, primarily from increased product promotions and discounts during the third quarter of 2022, along with a shift in product mix, where a higher proportion of devices were sold in the period, and increased freight charges. The decrease in segment contribution also reflects an increase in selling expense as a percentage of revenue. The salariesgeneral and service fees of our Sales Leaders in Mainland China are fixed until they are adjusted in a quarterly evaluation process. As a result, we have variations in our sellingadministrative expenses as a percentage of revenue particularly when there is a sequential change in revenue. Thedue to the fixed nature of these expenses.

Southeast Asia/Pacific. Our Southeast Asia/Pacific segment revenue increased 6% and 9% for the third quarter and first nine months of 2022, respectively, including a 6% and 4% negative impact from unfavorable foreign-currency fluctuations for the third quarter and first nine months of 2022, respectively. The increase in revenue was partially driven by strong product launches of ageLOC Meta (locally referred to as ageLOC Reset in the Southeast Asia markets), which generated approximately $40.3 million in revenue for the first nine months of 2022, along with loosening of COVID-related restrictions in the markets. In addition, during the third quarter of 2022, we began our launch process of the ageLOC LumiSpa iO, with limited offerings to our sales force with the full launch occurring in the fourth quarter of 2022.  Our product launches and promotions during the quarter were focused on re-energizing  our existing Sales Leaders, which led to a decline in our Customers and Paid Affiliates.

The year-over-year increase in segment contribution is alsoprimarily attributable to higher revenue, along with the fixed nature of general and administrative expenses on lower revenue.increased revenue, partially offset by increases in selling expenses attributable to product mix, as our products each have a differing commission percentage assigned to them, and sales force conventions that were held during the quarter.

AmericasSouth Korea. Our AmericasSouth Korea segment was challenged from a recent price increase to address the inflationary pressure, along with continued COVID-related disruptions for the third quarter and first nine months of 2022, resulting in a 27% and 20% decline in revenue for the third quarter and first nine months of 2022, along with declines in Customers, Paid Affiliates and Sales Leaders.  In addition, our revenue was negatively impacted 12% and 9% from unfavorable foreign-currency fluctuations.

The year-over-year decrease in segment contribution is primarily from a decline in revenue along with a slight decline in selling expenses as a percentage of revenue.

Japan. The decline in revenue is primarily attributable to benefit from greater adoptiona 21% and 15% unfavorable foreign-currency fluctuations for the third quarter and first nine months of innovative products shared increasingly via2022. On a local currency basis, revenue increased 3% for the social commerce business model supported by our digital tools, which drove increased revenue inthird quarter and decreased 1% for the first nine months of 2021. 2022.

The year-over-year decline in segment contribution is primarily from the decline in revenue.

21
EMEA. The continued softening of momentum in our EMEA segment was driven by distractions to our sales force from the ongoing geopolitical Russian/Ukraine conflict and led to a revenue, Customers, Paid Affiliates and Sales Leaders decline. Our reported revenue was also negatively impacted from foreign-currency fluctuations. We have suspended business operations in Ukraine and have closed our market in Russia. The Russia and Ukraine markets have historically accounted for less than 1% of our consolidated revenue.

The year-over-year decline in segment contribution reflects the decline in revenue Sales Leadersalong with a lower gross margin from unfavorable product mix and Customersincreased promotions, and the fixed nature of general and administrative expenses with a decline in revenue.

Hong Kong/Taiwan. Our Hong Kong /Taiwan segment revenue decreased 1% for the third quarter and increased 2% for the first nine months of 2021 is predominately due to the continued economic instability in the Latin America markets, Argentina in particular, which is experiencing hyperinflation.  Our U.S. market experienced 14%2022, reflecting negative impacts of 7% and 4% from foreign-currency fluctuations. On a constant-currency basis, revenue growthincreased 6% for both the third quarter whichand first nine months of 2022. The increase in constant-currency revenue is primarily attributablefrom revenue growth in our Taiwan market from social selling. Our Customers also increased 12%, from social commerce adoption and growth in our Taiwan market. Our Hong Kong market continues to be challenged from the ongoing pressures from COVID-19, which led to a strong product launch of Beauty Focus Collagen+, with approximately $19 milliondecline in revenue for the quarter.Sales Leaders and Paid Affiliates.

The year-over-year increasedecrease in segment contribution for the third quarter of 20212022, is primarily reflects the increasefrom a 1.4 percentage point drop in revenue in our U.S. market, which carries a more favorable gross margin than our Latin America markets; this was partially offset by anfrom elevated freight cost during the quarter, along with a 2.1 percentage point increase in selling expenses as a percent of revenue, from theprimarily attributable increased travel cost ofassociated with our incentive trips.  The increase in segment contribution for the first nine months of 20212022 is primarily reflects thedriven by an increase in revenue along with 2.6 percentage point increase in gross margin, and improvementsa decline in general and administrative expenses due to the fixed nature on increased revenue, all partially offset by a slight increase in selling expenses as a percent of revenue, from increased cost of incentive trips.
expenses.

South KoreaManufacturing. Our South Korea market continues to improve and benefited from successful product promotions and Sales Leader initiatives which contributed to a 10% and 11% increase inManufacturing segment revenue for the third quarter and first nine months of 2021, respectively and an 18% increase in Sales Leaders. Our product promotions during the quarter drove a 58% increase in sales of our TR90 product line. Our reported revenue reflects a 2% benefit and a 6% benefit from favorable foreign-currency fluctuations for the third quarter and first nine months of 2021, respectively.

The year-over-year increase in segment contribution primarily reflects the increased revenue and improvements in gross margin, due to the increase in sales of TR90, which has a more favorable margin, along with the fixed nature of general and administrative expenses on increased revenue.

20
Southeast Asia/Pacific. Our Southeast Asia/Pacific market continues to be challenged by the COVID-19 outbreak and the associated government restrictions from the delta variant. In addition, the associated restrictions have impacted our supply chain in the region, as we have been unable to fulfill orders in some markets. The aforementioned issues have contributed to a decline in revenue, along with Customers and Sales Leaders for the third quarter and the first nine months of 2021.

The year-over-year decline in segment contribution for the third quarter and first nine months of 2021 primarily reflects the decline in revenue.

EMEA. The decline in revenue, Customers and Sales Leaderswas flat for the third quarter of 2021 is primarily attributable to loosening of COVID-19 restrictions in the segment, which resulted in a longer summer vacation period, paired with a tough comparison against the strong growth in the third quarter of 2020. The increase in revenue2022 and declined 12% for the first nine months of 2022, primarily due to our customers rebalancing their inventory from higher levels in 2021, is primarily attributable to strong adoption of the social sharing business model supported by our digital tools, along with a strong Sales Leaders introduction of the ageLOC Boost reducing demand in the second quarter, which became generally available at the end of the third quarter.

The decline in segment contribution for the third quarter is primarily attributable to the decline in revenue, along with a 1.7 percentage point increase in selling expense as a percent of revenue from increased cost of incentive trips.  The increase in segment contribution for the first nine months of 2021 is primarily attributable to the increase in revenue, improvements in gross margin from a favorable product mix from the Boost launch and the fixed nature of general and administrative expenses.

Japan. The decline in revenue, Customers and Sales Leaders for the third quarter of 2021 is attributed to the ongoing COVID-19 outbreak and the related supply chain disruptions in the market, which impacted product availability.

The year-over-year increase in segment contribution for the first nine months of 2021 primarily reflects a slight decline in selling expense as a percent of revenue from normal fluctuations. The decline in segment contribution for the third quarter of 2021 is primarily attributed to the decline in revenue and the fixed nature of general and administrative expenses.

Hong Kong/Taiwan. Our Hong Kong /Taiwan segment was negatively impacted by the continued pressure from COVID-19 and the delta variant for the third quarter, which contributed to the decline in revenue, Customers and Sales Leaders.2022.

The decline in segment contribution foris attributable to lower revenue, along with the third quarter reflects the decline in reported revenue partially offset by a decline in selling expenses as a percentage of revenue. The increase in segment contribution for the first nine months of 2021 is primarily driven by a 1.0 percentage point decline in selling expenses as a percentage of revenue from product mix.

Manufacturing. Our Manufacturing segment generated a 2% year-over-year increase in revenue for the third quarter and a 28% increase for the nine-month period ended September 30, 2021. Our continued investments in additional capacity have allowedmix between our manufacturing companies to increase revenue as the demand for nutrition and personal care products continues to expand.entities with differing profitability levels.

The 55% decline and 4% increase in segment contribution for the three- and nine-month periods ended September 30, 2021, respectively, reflect revenue growth, offset by approximately a  $4.8 million increase in inventory reserves.

Grow Tech. Our Grow Tech segment continues to invest in controlled-environment agriculture technologies. We have found this technology has broader applications in agriculture, and we are investing to pursue this potential opportunity. We are expecting continued losses in 2021 from this segment as we continue to research and refine the technology. We are currently evaluating strategic alternatives with respect to this business.

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Consolidated Results

Revenue

Revenue for the three-month period ended September 30, 20212022 decreased 9%16% to $641.2$537.8 million, compared to $703.3$641.2 million in the prior-year period. Revenue for the nine-month period ended September 30, 2021 increased 10%2022 decreased 16% to $2.0$1.7 billion compared to $1.8$2.0 billion. Our reported revenue benefited 2%was negatively impacted 7% and 4%5% from foreign-currency fluctuations for the three- and nine-month periods ended September 30, 2021,2022, respectively. For a discussion and analysis of these changesdecreases in revenue, see “Overview” and “Segment Results,” above.

Gross profit

Gross profit as a percentage of revenue was 75.2%67.7% for the third quarter of 2021,2022, compared to 73.9%75.2% for the prior-year period, and 75.2%71.6% for the first nine months of 2021,2022, compared to 74.7%75.2% for the prior-year period.  Gross profit as a percentage of revenue for core Nu Skin increased 2.3decreased 5.6 percentage points to 78.6%73.0% for the third quarter of 20212022 and increased 1.0decreased 2.6 percentage points to 78.2%75.6% for the first nine months of 2021.2022. The decline in our gross margin for the third quarter of 2022 and first nine months of 2022 is primarily driven by our strategic decision to align our inventory on hand with our future sales and promotional plans, which resulted in an incremental $26.9 million write-off, which was recorded in our Corporate and other category. Our Nu Skin gross profit benefitted from a favorable productmargin was also negatively impacted by increased sales promotions during the third quarter and first nine months of 2022, as well as changes in our geographical revenue mix, along with lower freight as a percentage of revenue, as during 2020 in order to meet high demand we utilized more costly express shipments.our markets have differing gross margins.

Selling expenses

Selling expenses as a percentage of revenue remained consistent at 39.9%decreased to 40.3% for the third quarter of 2022, compared to 40.6% for the prior year period, and decreased to 39.9%39.8% for the first nine months of 2021,2022, compared to 40.1%40.4% for the prior-year period. Core Nu Skin selling expenses as a percentage of revenue increased 0.3 percentage points to 42.7%remained flat at 43.5% for the third quarter of 20212022 and increased 0.2decreased 0.5 percentage points to 42.8% for the first nine months of 2021.2022. Selling expenses for our core Nu Skin business are driven by the specific performance of our individual Sales Leaders. Given the size of our sales force and the various components of our compensation and incentive programs, selling expenses as a percentage of revenue typically fluctuate plus or minus approximately 100 basis points from period to period.

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General and administrative expenses

General and administrative expenses decreased to $161.1$138.0 million in the third quarter of 2021,2022, compared to $165.1$156.5 million in the prior-year period and increaseddecreased to $499.8$428.1 million in the first nine months of 2021,2022, compared to $466.2$490.2 million in the prior-year period. The $33.6$18.5 million increasedecrease for the third quarter of 2022 was primarily from a $9.8 million contraction in labor expense from lower employee performance incentive compensation, along with our recent restructuring plan, and a $6.9 million decline from our fourth quarter 2021 exit of the Grow Tech segment. The $62.1 million decrease for the first nine months of 20212022 was partially attributable to approximately $11.3primarily from a $37.2 million contraction in increased IT expenses, associated with our cloud transition and ongoing development of digital tools, approximately $5.0 million in higher depreciation which is partially attributable to manufacturing capacity expansions, $3.1 million associated with market distributor events held during the year, and miscellaneous increases due to increased revenue. The $4.0 million decrease for the third quarter is mainly driven by lower labor expenses due tofrom lower employee performance incentive compensation, partially offset byalong with our fourth quarter 2021 exit of the increase in IT expenses and depreciation, as discussed above.Grow Tech segment, which led to $20.0 million less expense for the first nine months of 2022. General and administrative expenses as a percentage of revenue increased to 25.1%25.7% for the third quarter of 2021,2022, from 23.5%24.4% for the prior-year period, and decreasedincreased to 24.7%25.1% for the first nine months of 2021,2022, from 25.4%24.2% for the prior-year period.

Restructuring and impairment expenses

In the third quarter of 2022, we adopted a strategic plan to focus resources on our strategic priorities and optimize future growth and profitability. The global program includes workforce reductions and footprint optimization. We estimate total charges under the program will approximate $35–$45 million, with $30–$35 million in cash charges of severance and lease termination cost and $9.9 million of non-cash charges of impairment of fixed assets and other intangibles related to the footprint optimization. We expect to substantially complete the program during the first half of 2023. During the third quarter of 2022, we incurred charges to be settled in cash of $17.2 million in severance charges, $2.1 million in lease termination cost, and $0.9 million in other associated cost, with non-cash charges of  $8.2 million in fixed asset impairments and $1.7 million in impairment of other intangibles.

Other income (expense), net

Other income (expense), net was $(8.7) million for the third quarter and $(18.8) million for the first nine months of 2022, which included a $3.3 million and $9.0 million unrealized investment loss for the third quarter and first nine months of 2022, respectively, related to a controlled environment agriculture company we invested in as part of our previous Grow Tech segment. With our fourth quarter of 2021 exit from the Grow Tech segment, we are in the process of exiting this investment. Other income (expense), net was  $2.8 million for the third quarter of 2021 compared to $0.5 million for the prior-year period, and $0.4 million for the first nine months of 2021, compared to $(4.1) million for the prior-year period. The increase in other income for the third quarter and first nine months of 2021, is predominately fromwhich included a $18.1 million ofin unrealized equity investmentsinvestment income, partially offset by a $10.7 million loss on asset disposal, both of assets, primarily attributable to our current initiative to right-size our physical footprint and optimize our physical occupancy. See Note 7 to the consolidated financial statements containedwhich did not recur in this report for more information on the unrealized equity investments income. In addition, we incurred $3.1 million and $5.5 million in losses from unfavorable foreign currency fluctuations for the three- and nine-month periods ending September 30, 2021, compared to a gain of $0.2 million and a loss of $1.2 million, for the comparable periods.2022.

Provision for income taxes

Provision for income taxes for the three- and nine-month periods of 2021ended September 30, 2022 was $18.4$(3.6) million and $57.5$17.1 million, respectively, compared to $18.4 million and $46.9$57.5 million for the prior-year periods. The effective tax rates for the three- and nine-month periods ended September 30, 2022 were 27.0%12.3% and 26.9%26.4% of pre-tax income compared, respectively, to 24.7%27.0% and 28.5%26.9% in the prior-year periods. The increasedecrease in the effective tax rate for the third quarter is primarily due to the prior year statute limitations expiration for an uncertain tax position. The decrease in the effective tax rate for theand first nine months of 20212022 primarily reflects our expenses associated with the strongadoption of a strategic plan to focus resources on our strategic priorities and optimize future growth in the U.S. market and Manufacturing segment, which enabled us to utilize additional foreign tax credits to offset the U.S. income taxes.profitability.

Net income

As a result of the foregoing factors, net income for the third quarter of 20212022 was $49.7$(25.4) million, compared to $56.3$49.7 million in the prior-year period. Net income for the first nine months of 20212022 was $156.5$47.6 million, compared to $117.9$156.5 million for the first nine months of 2020.2021.

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Liquidity and Capital Resources

Historically, our principal uses of cash have included operating expenses (particularly selling expenses) and working capital (principally inventory purchases), as well as capital expenditures, stock repurchases, dividends, and debt repayment and the development of operations in new markets.repayment. We have at times incurred long-term debt, or drawn on our revolving line of credit, to fund strategic transactions, stock repurchases, capital investments and short-term operating needs. We typically generate positive cash flow from operations due to favorable margins and have generally relied on cash from operations to fund operating activities. In the first nine months of 2021,2022, we generated $32.1$82.5 million in cash from operations, compared to $284.4$32.1 million in cash from operations during the prior-year period. The decreaseincrease in cash flow from operations primarily reflects an approximate $144.9$48.4 million decline in inventory during the period, compared to an increase in the prior year period, as we continue to work towards our optimal inventory partially attributable tolevels, and a decrease in accrued expenses from the 2022 payout of our strategic decision to carry more inventory to meet customer demand for our new products and build some protection from potential supply chain disruptions, along with the firstfourth quarter of 2021 payout of the accrued commission and accrued employee incentive payments attributable to our fourth-quarter growth.restructuring cost. Cash and cash equivalents, including current investments, as of September 30, 20212022 and December 31, 20202021 were $301.6$308.0 million and $423.9$354.8 million, respectively, with the decrease being driven by purchases of property and equipment,capital expenditures, as discussed below, our quarterly dividend payments, stock repurchases and acquisitions, partially offset by increased net borrowings underpayment on liabilities associated with our revolving credit facility.fourth quarter 2021 and third quarter of 2022 restructurings.

Working capital. As of September 30, 2021,2022, working capital was $350.3$412.3 million, compared to $360.3$343.3 million as of December 31, 2020.2021. The declineincrease in working capital is primarily attributable to our second quarter debt modification, which resulted in a net $52.5$60.0 million of incremental borrowings, while shifting $100.0 million from current to long-term debt. Our working capital also benefited from a  $17.5 million increase in borrowings under our revolving credit facility during the first half of the year to fund our acquisitionsprepaid expenses and stock repurchases and other expenses for operations, partially offset by increased inventory and higher prepaid assets primarily attributable to prepaid income tax.tax, a $90.8 million reduction in accrued expenses from the first half of 2022 pay-out of restructuring cost, employee incentive accruals,  and a decline in accrued commission from the decline in sales, all partially offset by a $72.5 million decrease in inventory.

Capital expenditures. Capital expenditures for the nine months ended September 30, 20212022 were $50.4$45.3 million. We expect that our capital expenditures in 20212022 will be primarily related to:


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

●purchases and expenditures for computer systems and equipment, software, and application development;

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

●a new manufacturing plant in Mainland ChinaChina.

We estimate that capital expenditures for the uses listed above will total approximately $80–$75–95 million for 2021. 2022. We are currently in the building phaseexpecting to complete construction of the new manufacturing plant in Mainland China. To dateChina in the first half of 2023.  As of September 30, 2022, we have spent approximately $30.5$43.1 million on this project, including $5.8 million in the first nine months of 2022 and expect that our expenditures for this project will total approximately $55$52-57 million, over the next year, including approximately $25-30$15-20 million during 2021.2022.

Credit Agreement. In April 2018,On June 14, 2022, we entered into aan Amended and Restated Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative agent. The Credit Agreement provides for a $400.0 million term loan facility and a $350.0$500.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the previous credit agreement, andagreement. Both facilities bear interest at the outstanding balance on the convertible notes. The interest rate applicable to the facilities is subject to adjustmentsSOFT, plus a margin based on our consolidated leverage ratio. The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the first and secondsubsequent 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. As of September 30, 2021 and December 31, 2020,2022, we had $75.0$30.0 million and noof outstanding borrowings under our revolving credit facility, and $315.0$397.5 million and $337.5 million remaining balance on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $(1.4) million and $(2.1)$(2.7) million as of September 30, 2021 and December 31, 2020, respectively,2022, related to the Credit Agreement. The Credit Agreement requires us to maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. We are currentlyAs of September 30, 2022, we were in compliance with all debt covenants under the Credit Agreement. We are planning to refinance our Credit Agreement within the next twelve months.

Modification of previous credit agreement. On June 14, 2022, we repaid our outstanding debt under our credit agreement, dated as of April 18, 2018, with several financial institutions as lenders and Bank of America, N.A., as administrative agent. We had indebtedness of $70.0 million on our revolver as of December 31, 2021, and $307.5 million on our term loan as of December 31, 2021.

Derivative Instruments. As of September 30, 2021,2022, we had four interest rate swaps, with a total notional principal amount of $200 million and a maturity date of July 31, 2025. We entered into these interest rate swap arrangements during the third quarter of 2020 to hedge the variable cash flows associated with our variable-rate debt under the Credit Agreement.

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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 nine monthsthird quarter of  2021,2022, we repurchased approximately 1.41.0 million shares of our Class A common stock under the plan for $70.4$40.0 million. As of September 30, 2021, $255.42022, $185.4 million was available for repurchases under the plan. Our stock repurchases are used primarily to offset dilution from our equity incentive plans and for strategic initiatives.

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Dividends. In February, May and August 2021,2022, our board of directors declared quarterly cash dividends of $0.38$0.385 per share. These quarterly cash dividends of $19.3 million, $19.0$19.4 million and $19.0$19.3  million werewas paid on March 10, 2021,9, 2022, June 9, 20218, 2022  and September 8, 20217, 2022 to stockholders of record on February 26, 2021,28, 2022, May 28, 202127, 2022 and August 27, 2021.26, 2022. In November 2021,October 2022, our board of directors declared a quarterly cash dividend of $0.38$0.385 per share to be paid on December 8, 20217, 2022 to stockholders of record on November 26, 2021.25, 2022. Currently, we anticipate that our board of directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments. However, the continued declaration of dividends is subject to the discretion of our board of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and other relevant factors.

Cash from foreign subsidiaries. As of September 30, 20212022 and December 31, 2020,2021, we held $301.6$308.0 million and $423.9$354.8 million, respectively, in cash and cash equivalents, including current investments. These amounts include $241.8$221.9 million and $374.7$274.9 million as of September 30, 20212022 and December 31, 2020,2021, respectively, held in our operations outside of the U.S. Substantially all of our non-U.S. cash and cash equivalents are readily convertible into U.S. dollars or other currencies, subject to procedural or other requirements in certain markets, as well as an indefinite-reinvestment designation, as described below.

We typically fund the cash requirements of our operations in the U.S. through intercompany dividends, intercompany loans and intercompany charges for products, use of intangible property, and corporate services. However, some markets impose government-approval or other requirements for the repatriation of dividends. For example, in Mainland China, we are unable to repatriate cash from current operations in the form of dividends until we file the necessary statutory financial statements for the relevant period. As of September 30, 2021,2022, we had $32.1$34.1 million in cash denominated in Chinese RMB. We also have experienced delays in repatriating cash from Argentina. As of September 30, 20212022 and December 31, 2020,2021, we had $10.9$13.6 million and $10.6$11.3 million, respectively, in intercompany receivablereceivables with our Argentina subsidiary. We also have intercompany loan arrangements within some of our markets, including Mainland China, that allow us to access available cash, subject to certain limits in Mainland China and other jurisdictions. We also have drawn on our revolving line of credit to address cash needs until we can repatriate cash from Mainland China or other markets, and we may continue to do so. Except for $60.0 million of earnings in Mainland China that we designated as indefinitely reinvested during the second quarter of 2018, we currently plan to repatriate undistributed earnings from our non-U.S. operations as necessary, considering the cash needs of our non-U.S. operations and the cash needs of our U.S. operations for dividends, stock repurchases, capital investments, debt repayment and strategic transactions. Repatriation of non-U.S. earnings is subject to withholding taxes in certain foreign jurisdictions. Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings.

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

Contingent Liabilities

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

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Critical Accounting Policies and Estimates

There were no significant changes in our critical accounting policies or estimates during the third quarter of 2021.2022.

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Seasonality and Cyclicality

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

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

Non-GAAP Financial Measures

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

Available Information

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

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

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency Risk and Exchange Rate Information

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

In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation in Argentina exceeded 100 percent, and as of July 1, 2018, we elected to adopt highly inflationary accounting for our subsidiary in Argentina. Under highly inflationary accounting, the functional currency for our subsidiary in Argentina became the U.S. dollar, and the income statement and balance sheet for this subsidiary have been measured in U.S. dollars using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other income (expense), net and was not material. As of September 30, 2021,2022, our subsidiary in Argentina had a small net peso monetary position. Net sales of our subsidiary in Argentina were less than 2% of our consolidated net sales for the three- and nine-month periods ended September 30, 20212022 and 2020.2021.

We may seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts and through intercompany loans of foreign currency. We do not use derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results. As of September 30, 20212022 and 2020,2021, we did not hold material non-designated mark-to-market forward derivative contracts to hedge foreign denominated intercompany positions or third party foreign debt. As of September 30, 2021,2022, and 20202021 we did not hold any material forward contracts designated as foreign currency cash flow hedges. We continue to evaluate our foreign currency hedging policy.

For additional information about our market risk see Note 9 to the consolidated financial statements contained in this Quarterly Report.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based on that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of September 30, 2021.2022.

Changes in Internal Controls Over Financial Reporting.

We made no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 20212022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

There have been no material developments concerning the matters discussed in the “Legal Proceedings” section of our Annual Report on Form 10-K for the 20202021 fiscal year. Please refer to Note 11 to the consolidated financial statements contained in this report for certain information regarding our legal proceedings.

ITEM 1A.RISK FACTORS

The information presented below supplements and should be read in conjunction with the detailed discussion of risks associated with our business in our recent SEC filings, including our Annual Report on Form 10-K for the 20202021 fiscal year and subsequent reports.

Challenges to the form of our network marketing system could harm our business.

We may be subject to challenges by government regulators regarding the form of our network marketing system. Legal and regulatory requirements concerning the direct selling industry generally do not include “bright line” rules and are inherently fact-based and subject to interpretation. As a result, regulators and courts have discretion in their application of these laws and regulations, and the enforcement or interpretation of these laws and regulations by government agencies or courts can change.

Recent settlements between the U.S. Federal Trade Commission (“FTC”) and other direct selling companies and guidance from the FTC have addressed inappropriate earnings and lifestyle claims, problematic compensation structures and the importance of focusing on consumers. These developments have created ambiguity as to the proper interpretation of the law and related court decisions. The FTC has been active in its enforcement activities, and any adverse rulings or legal actions could impact our business if direct selling laws or anti-pyramid laws are interpreted more narrowly or in a manner that results in additional burdens or restrictions on direct selling companies. For example:


•
In 2015, the FTC took aggressive actions against a multi-level marketing company, alleging an illegal business model and inappropriate earnings claims.

In 2016, the FTC entered into a settlement with a multi-level marketing company, requiring the company to modify its business model, including basing sales compensation and qualification only on sales to retail and preferred customers and on purchases by a distributor for personal consumption within allowable limits. Although this settlement does not represent judicial precedent or a new FTC rule, the FTC has indicated that the industry should look at this settlement, and the principles underlying its specific measures, for guidance.

In 2019, the FTC entered into a settlement with a multi-level marketing company, alleging an illegal business model and compensation structure and inappropriate earnings claims. The company agreed to a prohibition from engaging in multi-level marketing. The FTC and another multi-level company are currently in litigation, and that company has indicated the FTC is seeking to limit the levels of payment in its compensation structure as a condition to settlement.

During 2020, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make.

In October 2021, the FTC sent a notice to more than 1,100 companies, including us, that outlined several practices that the FTC determined to be unfair or deceptive in prior administrative cases. These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so. The penalties could be up to $43,792 per violation, and there is some ambiguity in how a “violation” would be defined for these purposes.

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Although we take steps to educate our Brand Affiliates on proper claims, if our Brand Affiliates make improper claims, or if regulators determine we are making any improper claims, this could lead to an FTC investigation and could harm our business. In addition, if the requirements related to compensation structures in the actions listed above lead to new industry standards or new rules, or if they limit the levels in the network for which payments can be made, our business could be impacted and we may need to amend our global sales compensation plan. With a majority of our revenue in the United States coming from sales to retail customers, preferred customers, and Brand Affiliates who have never sponsored other Brand Affiliates, we believe that we can demonstrate consumer demand for our products, but we continue to monitor developments to assess whether we should make any changes to our business or global sales compensation plan. If we are required to make changes or if the FTC seeks to enforce similar measures in the industry, either through rulemaking or an enforcement action against our company, our business could be harmed.

We could also be subject to challenges by private parties in civil actions. We are aware of civil actions against other direct-selling companies in the United States, that have, and may in the future, resulted in significant settlements. Allegations directed at us and our competitors regarding the legality of multi-level marketing in various markets and adverse media reports have also created intense public scrutiny of us and our industry. Our business has also been subject to formal and informal inquiries from various government regulatory authorities in the past regarding our business and our compliance with local laws and regulations. All of these actions and any future scrutiny of us or our industry could generate negative publicity or further regulatory actions that could result in fines, restrict our ability to conduct our business in our various markets, enter into new markets, motivate our sales force and attract consumers.

Laws and regulations may prohibit or severely restrict direct selling and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business.

Various government agencies throughout the world regulate direct sales practices. Laws and regulations in the United States, Japan, South Korea and Mainland China are particularly stringent and subject to broad discretion in enforcement by regulators. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as “pyramid schemes,” that compensate participants primarily for recruiting additional participants without significant emphasis on product sales to consumers. The laws and regulations in our current markets often:

impose requirements related to sign-up, order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers;
require us, or our sales force, to register with government agencies;
impose limits on the amount of sales compensation we can pay;
impose reporting requirements; and
require that our sales force is compensated primarily for selling products and not for recruiting others.

Complying with these widely varying and sometimes inconsistent rules and regulations can be difficult, time-consuming and expensive, and requires significant resources. The laws and regulations governing direct selling are modified from time to time, and like other direct selling companies, we are subject from time to time to government inquiries and investigations in our various markets related to our direct selling activities. This can require us to make changes to our business model and aspects of our sales compensation plan in the markets impacted by such changes and investigations. In June 2021, the U.S. Federal Trade Commission (“FTC”) announced that it is initiating a review of its Business Opportunity Rule, which imposes certain obligations on business opportunity sellers in their dealings with prospective buyers. Currently, multi-level marketing companies are exempted from this rule. If this exemption is eliminated or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force and our revenue. In addition, markets where we currently do business could change their laws or regulations to prohibit direct selling. If we are unable to obtain necessary licensesretain our existing sales force and certifications within required deadlines or continue business in existing markets or commence operations in new markets because of these laws,recruit additional people to join our sales force, our revenue may not increase and profitability may even decline. Any delay could negatively impact

Our products are primarily marketed by our sales force, and we depend on them to generate virtually all of our revenue.

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Improper Our sales force actions could harmmay terminate their services at any time, and like most direct selling companies, we experience high turnover among our business.

sales force from year to year. People who join our company to purchase our products for personal consumption or for short-term income goals frequently only stay with us for a short time. Sales force activities that violate applicable laws, regulations Leaders who have committed time and effort to build a sales organization will generally stay for longer periods. To increase our revenue, we must increase the number of and/or policies, or that are alleged to do so, have, and could in the future, harmed our business and reputation and resulted in government or third-party actions against us.

For example, in 2014, allegations were made by various media outlets that certainproductivity of our sales representativesforce. We must also expand our outreach and outbound efforts to attract, connect and nurture new customers for a wider consumer base who purchase product and whom we can foster along a consumer journey to promote retention and higher lifetime value.

We have experienced periodic fluctuations in Mainland China failed to adequately follow and enforce our policies and regulations. This adverse publicity, as well as a government review and actions that we voluntarily took to address the situation, resulted in a significant negative impact on our revenue and the number ofboth Sales Leaders and Customers in the region. Similar or more extreme actions by government agenciespast and could experience such fluctuations again in the future. For example, our Sales Leaders in Mainland China or other markets in the future could have a significant adverse impact on our businessdeclined 46% from December 31, 2018 to December 31, 2019 due to such factors as meeting restrictions and results of operations.

The direct selling industry in Japan continues to experience regulatory andnegative media scrutiny, and other direct selling companies have been suspendedfurther declined 39% from sponsoring activities. Japan imposes strict requirements regarding how Brand Affiliates approach prospective customers. From timeSeptember 30, 2021 to time, we receive informationSeptember 30, 2022 due to continued pressures from consumer centers in certain prefectures about the number of general inquiriesCOVID-related factors. Our ability to retain our Sales Leaders and complaints about us and our Brand Affiliates. Based on this information, we continually evaluate and enhance our Brand Affiliate compliance, education and training efforts in Japan. However, we cannotCustomers could be certain that our efforts will successfully prevent regulatory actions against us, including fines, suspensions or other sanctions, or that the company and the direct selling industry will not receive further negative media attention, all of which could harm our business.

Except in Mainland China, members ofaffected as our sales force aremakes increased use of social sharing channels, which may allow them to more easily engage their consumers and sales network in other opportunities. If our initiatives do not employeesdrive growth in both Sales Leaders and act independently of us. The most significant area of risk for such activities relatesCustomers, our operating results could be harmed. While we take many steps to improper product claimshelp train, motivate and claims regarding the business opportunity of joining our sales force. For example:

During 2020 the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make.


•
In October 2021, the FTC sent a notice to more than 1,100 companies, including us, that outlined several practices that the FTC determined to be unfair or deceptive in prior administrative cases. These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so. The penalties could be up to $43,792 per violation, and there is some ambiguity in how a “violation” would be defined for these purposes.

We implement strict policies and procedures to ensure our sales force complies with legal requirements. However, given the size ofretain our sales force, we experience problems from time to time. For example, product claims made by some of our sales force in 1990cannot accurately predict how the number and 1991 led to a FTC investigation that resulted in our entering into a consent agreement with the FTC and various agreements with state regulatory agencies. In addition, rulings by the South Korean Fair Trade Commission and by judicial authorities against us and other companies in South Korea indicate that, if our sales force engages in criminal activity, we may be held liable or penalized for failure to supervise them adequately. Our sales force may attempt to anticipate which markets we will open in the future and begin marketing and sponsoring activities in markets where we are not qualified to conduct business. We could face fines, suspensions or other legal action if our sales force violates applicable laws and regulations, and our reputation and brand could be negatively impacted.

In addition, as our sales force increasingly uses social media to promote our business opportunity and products, this increases the burden on us to monitor compliance of such activities and increases the risk that such social media content could contain problematic claims in violation of our policies and applicable regulations.

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Epidemics, including COVID-19, and other crises have and may continue to negatively impact our business.

Due to the person-to-person nature of direct selling, our results of operations have been, and will likely continue to be, harmed if the fear of a communicable and rapidly spreading disease or other crises such as natural disasters result in travel restrictions or cause people to avoid group meetings or gatherings or interaction with other people. It is difficult to predict the impact on our business, if any, of the emergence of new epidemics or other crises. The outbreak of COVID-19 in 2020 and resulting pandemic resulted in significant contraction of economies around the world and interrupted global supply chains as many governments issued stay-at-home orders to combat COVID-19. Government-imposed restrictions and public hesitance regarding in-person gatherings, travel and visiting public places have reduced our sales force’s ability to hold sales meetings, resulted in cancellations of key sales leader events and incentive trips, and required us to temporarily close our walk-in and fulfillment locations in some markets where we have such properties. The outbreak has also impacted our ability to obtain some ingredients and packaging as well as ship products in some markets. Our supply chain and logistics have incurred some interruptions and cost impacts to date, and we could experience more significant interruptions and cost impacts or face more significant closures in the future. These factors and other events related to COVID-19 have negatively impacted our sales and operations and will likely continue to negatively affect our business and our financial results. Although some of the negative impacts of COVID-19 have recently improved, this situation continues to be fluid and there is uncertainty regarding its duration and future impacts. For example, the delta variant or other variants have caused some of the pandemic’s negative impacts to worsen or return. In addition, the productivity of our sales force has been,may fluctuate because we rely primarily upon our Sales Leaders to find new consumers and to find, train and develop new Sales Leaders. Our operating results could continuebe harmed if we and our Sales Leaders do not generate sufficient interest in our business and its products to be, negatively impacted as restrictions are liftedretain and motivate our existing sales force and attract new people to join our sales force.

The number and productivity of our sales force is ablenegatively impacted by several additional factors, including:

any adverse publicity or negative public perception regarding us, our products or ingredients, our distribution channel, or our industry or competitors;
lack of interest in, dissatisfaction with, or the technical failure of, existing or new products;
lack of compelling products or income opportunities, including through our sales compensation plans and incentive trips and other offerings;
negative sales force reaction to more freely travelchanges in our sales compensation plans or to our failure to make changes that would be necessary to keep our compensation competitive with the market;
interactions with our company, including our actions to enforce our policies and take vacations.procedures and the quality of our customer service;
any regulatory actions or charges against us or others in our industry, as well as regulatory changes that impact product formulations and sales viability;
general economic, business, public health and geopolitical conditions, including employment levels, employment trends such as the gig and sharing economies, pandemics or other conditions that curtail person-to-person interactions, and the ongoing conflict in Russia and Ukraine which has caused disruption to our sales force;
changes in the policies of social media platforms used to prospect or recruit potential consumers and sales force participants;
recruiting efforts of our competitors and changes in consumer-loyalty trends; and
potential saturation or maturity levels in a given market, which could negatively impact our ability to attract and retain our sales force in such market.

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Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks.

Any significant declineOur ability to capitalize on growth in our operating results in the future could also adversely affect our financial positionnew international markets and liquidity. Under the terms of our existing credit facility, we are required to maintain certain interest coverage and leverage ratios. In addition, our outstanding borrowings under our credit facility and related term loan impose debt service and amortization requirements. A significant deterioration in our resultsthe current level of operations in our existing international markets is exposed to risks associated with our international operations, including:

the futurepossibility that a government might ban or severely restrict our sales compensation and business models;
the possibility that local civil unrest, political instability, or changes in diplomatic or trade relationships might disrupt our operations in one or more markets—for example, the ongoing conflict in Russia and Ukraine has caused disruption to our sales force;
the lack of well-established or reliable legal systems in certain areas where we operate;
the presence of high inflation in the economies of international markets in which we operate;
the possibility that a government authority might impose legal, tax, customs, or other financial burdens on us or our sales force, due, for example, to the structure of our operations in various markets;
the possibility that a government authority might challenge the status of our sales force as independent contractors or impose employment or social taxes on our sales force; and
the possibility that governments may impose currency remittance restrictions limiting our ability to repatriate cash.

There has been an increasing level of tension in U.S.-China relations over the last few years. Given the significant size of our China business, our business could be harmed if relations continue to deteriorate or additional sanctions or restrictions are imposed by either government. In addition, there have been adverse public reaction and media attention to statements made by representatives of other businesses related to these issues that have adversely affected business. We could similarly face adverse public or media attention, and potentially increased regulatory scrutiny, as a result of the COVID-19 pandemic could impact our ability to comply with our financial covenants and debt service and amortization obligations, which could result in an event of default under the terms of our credit facility. An event of default under our credit facility could result in an inability to access funding under the agreement and the acceleration of our obligations, which would have a material adverse effect on our financial condition and liquidity.

In addition, regulatory authorities closely scrutinize the product- and earnings-related claims madeincreased trade or political tensions or any statements or actions by direct-selling companies and their sales force, including claims related to the COVID-19 pandemic. For example, during 2020 and 2021, the FTC has issued letters warning several direct-selling companies to remove and address claims that theyemployees or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make. Although we take steps to educate our Brand Affiliates on proper claims, if our Brand Affiliates make improper claims, or if regulators determine we are making any improper claims, this could lead to an FTC investigation and could harm our business and reputation.

Difficult economic conditions could harm our business.

Difficult economic conditions, such as high unemployment levels, inflation, or recession, could adversely affect our business by causing a decline in demand for our products, particularly if the economic conditions are prolonged or worsen. For example, an increase in oil prices would likely cause our shipping expenses to increase, which would negatively affect our profitability. In addition, economic conditions may adversely impact access to capital for us and our suppliers, may decrease the ability of our sales force and consumersthat generate publicity with respect to obtain or maintain credit cards, and may otherwise adversely impact our operations and overall financial condition. There also appears to be increased concerns about potential inflationary pressures, which could have a negative impact on our business if it impacts the discretionary spending of our consumers.these issues.

Our business could be negatively impacted by corporate citizenship and sustainability matters.

There are increased expectations and focus from certain investors, Brand Affiliates, consumers, employees and other stakeholders concerning corporate citizenship and sustainability matters, including environmental, social and governance matters; packaging; responsible sourcing; and diversity, equity and inclusion matters. From time to time, we announce certain initiatives and goals in these areas. We could fail, or be perceived to fail, in our achievement of such initiatives or goals or in stakeholders’ expectations, or we could fail in accurately reporting our progress on such initiatives, goals and expectations. Moreover, the standards by which corporate citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions. The standards or assumptions could change over time. In addition, we could be criticized for the scope of our initiatives or goals or perceived as not acting responsibly in connection with these matters, such as with our carbon footprint, recyclability of our packaging, ingredients used in our products or the sourcing of such ingredients. Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.

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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

  (a)  (b)  (c)  (d) 
Period 
Total
Number
of Shares
Purchased
  
Average
Price Paid
per Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
(in millions)(1)
 
             
July 1 - 31, 2021  
56,955
  
$
54.73
   
56,955
  
$
262.3
 
August 1 - 31, 2021  
132,308
   
52.06
   
132,308
  
$
255.4
 
September 1 - 30, 2021  
—
   
—
   
—
  
$
255.4
 
Total  
189,263
  
$
52.87
   
189,263
     
  (a)  (b)  (c)  (d) 
Period 
Total
Number
of Shares
Purchased
  
Average
Price Paid
per Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
(in millions)(1)
 
             
July 1 - 31, 2022  
236,075
  
$
42.10
   
236,075
  
$
215.5
 
August 1 - 31, 2022  
320,528
   
44.51
   
320,528
  
$
201.2
 
September 1 - 30, 2022  
393,931
   
40.17
   
393,931
  
$
185.4
 
Total  
950,534
  
$
42.11
   
950,534
     

(1)
In August 2018, we announced that our board of directors approved a stock repurchase plan. Under this plan, our board of directors authorized the repurchase of up to $500 million of our outstanding Class A common stock on the open market or in privately negotiated transactions.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.OTHER INFORMATION

None.

3129
ITEM 6.EXHIBITS

Exhibits
Regulation S-K
Number

Description

31.1

Certification by Ryan S. Napierski, Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2

Certification by Mark H. Lawrence, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1

Certification by Ryan S. Napierski, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2

Certification by Mark H. Lawrence, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH

Inline XBRL Taxonomy Extension Schema Document
101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document
104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

3230
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

November 3, 20212, 2022

NU SKIN ENTERPRISES, INC.
  
By:
/s/ Mark H. Lawrence

 
Mark H. Lawrence

 
Chief Financial Officer

 
(Duly Authorized Officer and Principal Financial Officer)




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