NU SKIN ENTERPRISES INC

Previous wording

Revenue for the three-month period ended June 30, 2024 decreased 12% to $439.1 million, compared to $500.3 million in the prior-year period, and revenue for the six-month period ended June 30, 2024 decreased 13% to $0.9 billion, compared to $1.0 billion in the prior-year period. Our revenue in the second quarter and first six months of 2024 was negatively impacted 4.2% and 4.0%, respectively, from foreign-currency fluctuations. Our Customers, Paid Affiliates and Sales Leaders declined 14%, 17% and 16%, respectively, on a year-over-year basis.

Current wording

Revenue for the three-month period ended September 30, 2024 decreased 14% to $430.1 million, compared to $498.8 million in the prior-year period, and revenue for the nine-month period ended September 30, 2024 decreased 13% to $1.3 billion, compared to $1.5 billion in the prior-year period. Our revenue in the third quarter and first nine months of 2024 was negatively impacted 3.4% and 3.8%, respectively, from foreign-currency fluctuations. Our Customers, Paid Affiliates and Sales Leaders declined 15%, 20% and 19%, respectively, on a year-over-year basis.

Previous wording

The declines in our second quarter and first six months of 2024 revenue were largely driven by continued macroeconomic pressures we’ve been facing in our core Nu Skin segments, which has negatively impacted consumer spending and customer acquisition. The declines in our core Nu Skin segments were partially offset by 32.3% and 43.3% revenue growth for the second quarter and first half of 2024, respectively, in our Rhyz segments, partially from acquisitions in the second quarter of 2023 as well as organic growth. Rhyz is a key component of our business, and we anticipate its continued growth in the coming years both on an absolute basis and as a percentage of our consolidated revenue. These companies enable us to diversify our revenue mix, serve more customers where they shop, and create synergies for our owned and partner brands. For our core Nu Skin segments, we remain optimistic for the remainder of the year with our third quarter Global Nu Skin L!VE, which was held in July 2024 in the United States for our Western markets and will be held in South Korea for our Eastern markets in September 2024. In addition, we expect to start the launch process for MYND360, our new brand taking a holistic approach to support cognitive health, in the third quarter of 2024.

Current wording

The declines in our third quarter and first nine months of 2024 revenue were largely driven by continued macroeconomic pressures we have been facing in our core Nu Skin segments, which have negatively impacted consumer spending and customer acquisition. In addition, while we continue to make progress on our long-term vision, we have experienced headwinds from the transformation process. The declines in our core Nu Skin segments were partially offset by 20.9% and 34.3% growth for the third quarter and first nine months of 2024, respectively, in our Rhyz segments, partially from acquisitions in the second quarter of 2023 as well as organic growth. Rhyz is a key component of our business, and we anticipate its continued growth in the coming years both on an absolute basis and as a percentage of our consolidated revenue. These companies enable us to diversify our revenue mix, serve more customers where they shop, and create synergies for our owned and partner brands. In the fourth quarter, we are beginning to introduce our new sales performance plan, which we believe combines the best of affiliate marketing and leadership incentives to activate our existing sales force and excite potential new prospects. The plan is placing an enhanced focus on upfront earnings to help attract and retain new affiliates.

Previous wording

Earnings per share for the second quarter of 2024 decreased 541% to $(2.38), compared to $0.54 in the prior-year period. Earnings per share for the first six months of 2024 decreased 414% to $(2.39), compared to $0.76 in the prior-year period. The decrease in earnings per share for the second quarter and first six months of 2024 is primarily driven by second quarter of 2024 restructuring and impairment charges of $149.4 million, along with the overall decline in revenue.

Current wording

Earnings per share for the third quarter of 2024 increased to $0.17, compared to $(0.74) in the prior-year period. Earnings per share for the first nine months of 2024 decreased to $(2.23), compared to $0.03 in the prior-year period. The increase in earnings per share for the third quarter is primarily driven by a third quarter of 2023 inventory write-off charge of $65.7 million, partially offset by a decline in revenue. The decrease in earnings per share for the first nine months of 2024 is primarily driven by second quarter of 2024 restructuring and impairment charges of $149.4 million, along with the overall decline in revenue, partially offset by the third quarter of 2023 inventory write-off charge.

Previous wording

The following table sets forth revenue for the three- and six-month periods ended June 30, 2024 and 2023 for each of our reportable segments (U.S. dollars in thousands):

Current wording

The following table sets forth revenue for the three- and nine-month periods ended September 30, 2024 and 2023 for each of our reportable segments (U.S. dollars in thousands):

Previous wording

The following table sets forth segment contribution for the three- and six-month periods ended June 30, 2024 and 2023 for each of our reportable segments (U.S. dollars in thousands). Segment contribution excludes certain intercompany charges, specifically royalties, license fees, transfer pricing and other miscellaneous items. We use segment contribution to measure the portion of profitability that the segment managers have the ability to control for their respective segments. For additional information regarding our segments and the calculation of segment contribution, see Note 10 to the consolidated financial statements contained in this report.

Current wording

The following table sets forth segment contribution for the three- and nine-month periods ended September 30, 2024 and 2023 for each of our reportable segments (U.S. dollars in thousands). Segment contribution excludes certain intercompany charges, specifically royalties, license fees, transfer pricing and other miscellaneous items. We use segment contribution to measure the portion of profitability that the segment managers have the ability to control for their respective segments. The prior year segment contribution has been recast due to a change in how we allocate certain corporate costs. Consolidated financial information was not affected. For additional information regarding our segments and the calculation of segment contribution, see Note 10 to the consolidated financial statements contained in this report.

Previous wording

Americas. The decline in revenue, Customers, Paid Affiliates and Sales Leaders in our Americas segment is attributable to the decline in momentum in our North America markets, while our Latin America markets continue to be challenged by macroeconomic issues. In connection with our transformation efforts, we experienced disruptions to our subscription sales in North America, which negatively impacted revenue. In the first quarter of 2024, we launched our new connected device, which generated approximately $21.7 million in revenue for the first half of 2024. In the third quarterof 2024 we expect tostart the launch process for our newageLOC TruFace Peptide Retinol Complex with advanced peptide technology. Our revenue for the second quarter and first half of 2024 was negatively impacted 6% by unfavorable foreign currency fluctuations.

Current wording

Americas. The results in our Americas segment reflect a continued decline in momentum in our North America markets, while our Latin America markets continue to be challenged by macroeconomic issues. In connection with our transformation efforts, we also have experienced disruptions to our subscription sales in North America, which negatively impacted revenue. In addition, our reported revenue reflects a negative impact from unfavorable foreign currency fluctuations of 15.9% and 9.0% for the three- and nine-month periods, respectively. Our 2024 revenue has benefited from new product launches; in the first quarter of 2024, we launched our new connected device, which generated approximately $27.8 million in revenue for the first nine months of 2024, and in the third quarter of 2024, we launched our newageLOC TruFace Peptide Retinol Complex with advanced peptide technology and MYND360, our new brand taking a holistic approach to support cognitive health, which generated a total of approximately $4.8 million of revenue during the quarter. We are introducing a new sales performance plan in North America starting in November 2024.

Previous wording

Southeast Asia/Pacific. The decline in revenue, Customers, Paid Affiliates and Sales Leaders for the second quarter and first half of 2024 is partially attributable to slowing momentum from the general macroeconomic factors in the markets along with price increases that we implemented in 2022 and 2023 to address inflation. During the second quarter of 2024, we began to see year-over-year improvements in many of our markets, but our Indonesia market remains challenging. Our revenue for the second quarter and first half of 2024 was negatively impacted 5% and 4%, respectively, by unfavorable foreign currency fluctuations. Our Paid Affiliates were negatively impacted by a change in eligibility requirements in our Pacific markets for receiving certain rewards within our compensation structure. We estimate the change in eligibility requirements resulted in a reduction of approximately one thousand Paid Affiliates for the three months ended June 30, 2024.

Current wording

Southeast Asia/Pacific. The decline in revenue, Customers, Paid Affiliates and Sales Leaders for the third quarter and first nine months of 2024 is partially attributable to slowing momentum from the general macroeconomic factors in the markets along with price increases that we implemented in 2022 and 2023 to address inflation. During the second quarter of 2024, we began to see year-over-year improvements in many of our markets, but our Indonesia market remains challenging. Our Paid Affiliates were negatively impacted by a change in eligibility requirements in our Pacific markets for receiving certain rewards within our compensation structure. We estimate the change in eligibility requirements resulted in a reduction of approximately 2,000 Paid Affiliates for the three months ended September 30, 2024. We are making additional changes in the fourth quarter of 2024.

Previous wording

Mainland China. Our Mainland China market continued to be challenged during the second quarter and first half of 2024, with ongoing macroeconomic factors and the associated decrease in consumer spending leading to declines in revenue. We anticipate issues related to the current Chinese-American relations and regulatory pressures as well as deflationary and other economic challenges persisting as the economy works to recover.

Current wording

Mainland China. Our Mainland China market continued to be challenged during the third quarter and first nine months of 2024, with ongoing macroeconomic factors and the associated decrease in consumer spending leading to declines in revenue, Customers, Paid Affiliates and Sales Leaders. We anticipate the current regulatory pressures as well as other economic challenges persisting as the economy works to recover.

Previous wording

The year-over-year decrease in segment contribution for the second quarter and first half of 2024 primarily reflects lower revenue. In addition, our segment contribution was impacted by a 2.7 percentage point and 2.6 percentage point decrease in gross margin for the second quarter and first half of 2024, respectively, attributable to increased sales promotions as well as pressure from the new manufacturing plant that went live in the fourth quarter of 2023. Our segment contribution was also impacted by a 2.7 percentage point and 2.5 percentage point increase in selling expenses as a percent of revenue for the second quarter and first half of 2024, respectively, from increased transitional sales force incentives.

Current wording

The year-over-year decrease in segment contribution for the third quarter and first nine months of 2024 primarily reflects lower revenue. In addition, our segment contribution was impacted by a 4.7 percentage point and 3.2 percentage point decrease in gross margin for the third quarter and first nine months of 2024, respectively, attributable to increased sales promotions as well as pressure from the new manufacturing plant that went live in the fourth quarter of 2023. Our segment contribution was also impacted by a 2.5 percentage point and 2.4 percentage point increase in selling expenses as a percentage of revenue for the third quarter and first nine months of 2024, respectively, due to increased transitional sales force incentives.

Previous wording

Japan. The decline in revenue is primarily attributable to an 11.3% and 10.8% negative impact from unfavorable foreign-currency fluctuations for the second quarter and first half of 2024, respectively. The increase in Sales Leaders is primarily from a modification we made to the compensation plan starting in the second quarter of 2023. Our Paid Affiliates were negatively impacted by a change in eligibility requirements for receiving certain rewards within our compensation structure. We estimate the change in eligibility requirements resulted in a reduction of approximately 14 thousand Paid Affiliates for the three months ended June 30, 2024.

Current wording

Japan. The third quarter of 2024 decline in revenue is primarily attributable to the third quarter of 2023 launch ofageLOC WellSpa iO, which generated $1.6 million in revenue in third quarter of 2024, compared to $4.4 million in the third quarter of 2023. In addition, Japan’s third quarter and first nine months of 2024 were negatively impacted 2.7% and 8.0%, respectively, from unfavorable foreign-currency fluctuations. Our Paid Affiliates were negatively impacted by a change in eligibility requirements for receiving certain rewards within our compensation structure. We estimate the change in eligibility requirements resulted in a reduction of approximately 14,000 Paid Affiliates for the three months ended September 30, 2024.

Previous wording

The year-over-year decline in segment contribution reflects the decreased revenue, partially offset by a decline in general and administrative expenses attributable to savings from our restructuring plan.

Current wording

The year-over-year decline in segment contribution reflects the decreased revenue, partially offset by a 1.4 percentage point decline in general and administrative expenses for the nine months period ended September 30, 2024 attributable to savings from our restructuring plan.

Previous wording

South Korea. Our South Korea market was challenged by difficult macroeconomic trends, including inflationary pressures, and our associated price increases which negatively impacted our revenue, Customers, Paid Affiliates and Sales Leaders for the second quarter and first half of 2024.

Current wording

South Korea. Our South Korea market was challenged by difficult macroeconomic trends, including inflationary pressures, and our associated price increases which negatively impacted our revenue, Customers, Paid Affiliates and Sales Leaders for the third quarter and first nine months of 2024. We are introducing a new sales performance plan in South Korea starting in November 2024.

Previous wording

Europe & Africa. The reduction in revenue, Customers, Paid Affiliates and Sales Leaders reflects the softening of momentum, as well as the macroeconomic factors that have led to a decline in the purchasing power of our customers for the second quarter and first half of 2024.

Current wording

Europe & Africa. The reduction in revenue, Customers, Paid Affiliates and Sales Leaders reflects the softening of momentum, as well as the macroeconomic factors that have led to a decline in the purchasing power of our customers for the third quarter and first nine months of 2024.

Previous wording

Hong Kong/Taiwan. The declines in our Hong Kong/Taiwan segment for the second quarter and first half of 2024 are attributable to macroeconomic issues, which are resulting in less purchasing power for our consumers. In addition, we experienced some pressures with the introduction of new technology in Taiwan. The increase in Paid Affiliates for the second quarter of 2024 is primarily attributable to recent incentive programs aimed at driving increased affiliates.

Current wording

Hong Kong/Taiwan. The declines in our Hong Kong/Taiwan segment for the third quarter and first nine months of 2024 are attributable to macroeconomic issues, which are resulting in less purchasing power for our consumers. In addition, we experienced some transformational pressures with new technology in Taiwan.

Previous wording

Manufacturing. Our Manufacturing segment revenue increased 13.0% and 25.2% for the second quarter and first half of 2024, respectively, primarily driven by our Wasatch Manufacturing entity. During the second quarter of 2024 and first half of 2024, Wasatch revenue increased 29.6% and 47.1%, respectively, primarily from onboarding new customers and continued automation efforts to increase efficiencies and capacity.

Current wording

Manufacturing. Our Manufacturing segment revenue increased 4.1% and 17.2% for the third quarter and first nine months of 2024, respectively, primarily driven by our Wasatch Manufacturing entity.

Previous wording

Rhyz Other. The increase in revenue of our Rhyz other segment is partially driven by 146.8% and 115.4% growth at our Mavely entity, for the second quarter and first half of 2024.

Current wording

Rhyz Other. The increase in revenue of our Rhyz other segment is primarily driven by 214.4% and 154.9% growth at our Mavely entity, for the third quarter and first nine months of 2024.

Previous wording

The decline in segment contribution is primarily from the companies we acquired in the second quarter of 2023, which we are continuing to invest in to enable future growth, as well as the impacts of purchase accounting, which resulted in $0.8 million and $2.1 million of incremental amortization of intangible assets for the second quarter and first half of 2024. This was partially offset by improving profitability at our Mavely entity.

Current wording

The increase in segment contribution for the third quarter of 2024 is primarily from increased profitability at our Mavely entity as it continues to grow. The decline in segment contribution for the first nine months of 2024 is primarily from the companies we acquired in the second quarter of 2023, which we are continuing to invest in to enable future growth, as well as the impacts of purchase accounting, which resulted in $2.3 million of incremental amortization of intangible assets for the first nine months of 2024.

Previous wording

Revenue for the three-month period ended June 30, 2024 decreased 12% to $439.1 million, compared to $500.3 million in the prior-year period. Revenue for the six-month period ended June 30, 2024 decreased 13% to $0.9 billion compared to $1.0 billion. Our reported revenue was negatively impacted 4.2% and 4.0% from foreign-currency fluctuations for the three- and six-month periods ended June 30, 2024, respectively. For a discussion and analysis of these decreases in revenue, see “Overview” and “Segment Results,” above.

Current wording

Revenue for the three-month period ended September 30, 2024 decreased 14% to $430.1 million, compared to $498.8 million in the prior-year period. Revenue for the nine-month period ended September 30, 2024 decreased 13% to $1.3 billion compared to $1.5 billion. Our reported revenue was negatively impacted 3.4% and 3.8% from foreign-currency fluctuations for the three- and nine-month periods ended September 30, 2024, respectively. For a discussion and analysis of these decreases in revenue, see “Overview” and “Segment Results,” above.

Previous wording

Gross profit as a percentage of revenue was 70.0% for the second quarter of 2024, compared to 72.9% for the prior-year period, and 70.2% for the first six months of 2024, compared to 72.6% for the prior-year period. Gross profit as a percentage of revenue forour core Nu Skin segments decreased 1.1 percentage points to 76.1% for the second quarter of 2024 and decreased 0.3 percentage points to 76.5% for the first six months of 2024. The second quarter of 2024 decline in our core Nu Skin segments gross margin is primarily attributable to sales promotions in our Americas and Mainland China segments during the quarter. Our gross margin for the three- and six-month periods ended June 30, 2024, was also impacted by the gross margin of our owned manufacturing entities, which as previously disclosed, is significantly lower than the gross margin of our core Nu Skin business. With the year-over-year growth within our Manufacturing segment, their revenue represented a higher proportion of our overall consolidated revenue for the three- and six-month periods ended June 30, 2023 than in the prior-year periods.

Current wording

Gross profit as a percentage of revenue was 70.1% for the third quarter of 2024, compared to 58.6% for the prior-year period, and 70.2% for the first nine months of 2024, compared to 67.9% for the prior-year period. Gross profit as a percentage of revenue for core Nu Skin increased 14.7 percentage points to 76.5% for the third quarter of 2024 and increased 4.7 percentage points to 76.6% for the first nine months of 2024. The third quarter of 2024 and first nine months of 2024 increase in our core Nu Skin gross margin is primarily attributable to a third quarter of 2023 $65.7 million inventory write-off charge, associated with a re-balancing and narrowing of our portfolio. Our consolidated gross margin for the three- and nine-month periods ended September 30, 2024, was also impacted by the gross margin of our owned manufacturing entities, which as previously disclosed, is significantly lower than the gross margin of our core Nu Skin business.

Previous wording

Selling expenses as a percentage of revenue increased to 37.7% for the second quarter of 2024, compared to 37.0% for the prior year period, and decreased to 37.3% for the first six months of 2024, compared to 38.0% for the prior-year period. Core Nu Skin segments selling expenses as a percentage of revenue increased 2.0 percentage points to 42.2% for the second quarter of 2024 and increased 1.0 percentage points to 42.0% for the first six months of 2024. 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. The increases in our selling expenses for the second quarter and first six months of 2024 also reflect changing market revenue mix and increased sales incentives. In the third quarter of 2024, we are holding our global Nu Skin L!VE event with an east L!VE in South Korea and a west L!VE in the United States. As a result of the global L!VE events we are anticipating an increase in selling expense as a percentage of revenue for the third quarter of 2024.

Current wording

Selling expenses as a percentage of revenue increased to 39.0% for the third quarter of 2024, compared to 37.6% for the prior year period, and decreased to 37.8% for the first nine months of 2024, compared to 37.9% for the prior-year period. Core Nu Skin selling expenses as a percentage of revenue increased 1.8 percentage points to 43.5% for the third quarter of 2024 and increased 1.3 percentage points to 42.5% for the first nine months of 2024. 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. In the third quarter of 2024, we held our global Nu Skin L!VE event with an east L!VE in South Korea and a west L!VE in the United States. As a result of these events, we incurred approximately $10.2 million of incremental expenditures, which contributed to our elevated selling expenses.

Previous wording

General and administrative expenses decreased to $117.9 million in the second quarter of 2024, compared to $137.0 million in the prior-year period and decreased to $242.5 million in the first six months of 2024, compared to $270.9 million in the prior-year period. The $19.1 million decrease for the second quarter of 2024 and $28.4 million decrease for the first six months of 2024 was primarily from contraction in labor expense and occupancy related expenses, both attributable to our ongoing restructuring efforts in which we reduced our physical footprint and reduced our headcount. General and administrative expenses as a percentage of revenue decreased to 26.9% for the second quarter of 2024, from 27.4% for the prior-year period, and increased to 28.3% for the first six months of 2024, from 27.6% for the prior-year period.

Current wording

General and administrative expenses decreased to $115.6 million in the third quarter of 2024, compared to $130.9 million in the prior-year period and decreased to $358.1 million in the first nine months of 2024, compared to $401.8 million in the prior-year period. The $15.3 million decrease for the third quarter of 2024 and $43.7 million decrease for the first nine months of 2024 was primarily from contraction in labor expense and occupancy related expenses, both attributable to our ongoing restructuring efforts in which we reduced our physical footprint and reduced our headcount. General and administrative expenses as a percentage of revenue increased to 26.9% for the third quarter of 2024, from 26.2% for the prior-year period, and increased to 27.8% for the first nine months of 2024, from 27.1% for the prior-year period.

Previous wording

In the fourth quarter of 2023, we adopted another strategic plan to focus resources on our global priorities and optimize future growth and profitability. The global program includes workforce reductions. We estimate total charges under the program will approximate $20.0 million in cash charges of severance, approximately $2.2 million in other cash charges and approximately $8.2 million in non-cash charges, including approximately $6.4 million in fixed asset impairments. We expect to substantially complete the program during the second half of 2024. The program may expand as we continue to evaluate our business, including our product portfolio, global processes and organization, and operational footprint. During the fourth quarter of 2023, we incurred charges to be settled in cash of $10.0 million in severance charges. During the first quarter of 2024, we incurred charges to be settled in cash of $4.1 million in severance charges and $2.0 million in other associated cost, and non-cash charges of $1.0 million in write-down of assets. During the second quarter of 2024, we incurred charges to be settled in cash of $1.0 million in severance charges and $0.1 million on other cash charges, and non-cash charges of $7.2 million in write-down of assets.

Current wording

In the fourth quarter of 2023, we adopted another strategic plan to focus resources on our global priorities and optimize future growth and profitability. The global program includes workforce reductions. We estimate total charges under the program will approximate $30–35 million in cash charges of severance, approximately $2.2 million in other cash charges and approximately $8.2 million in non-cash charges, including approximately $6.4 million in fixed asset impairments. We expect to substantially complete the program during the second half of 2024. The program may expand as we continue to evaluate our business, including our product portfolio, global processes and organization, and operational footprint. During the fourth quarter of 2023, we incurred charges to be settled in cash of $10.0 million in severance charges. During the first quarter of 2024, we incurred charges to be settled in cash of $4.1 million in severance charges and $2.0 million in other associated cost, and non-cash charges of $1.0 million in write-down of assets. During the second quarter of 2024, we incurred charges to be settled in cash of $1.0 million in severance charges and $0.1 million on other cash charges, and non-cash charges of $7.2 million in write-down of assets.

Previous wording

In addition, during the three months ended June 30, 2024, we determined that the current operating losses and decline in forecasted losses associated with our BeautyBio retail asset group were an interim triggering event that required us to perform an interim impairment analysis on our BeautyBio retail asset group. We assessed the recoverability of the related asset group comparing the carrying value of the asset group to the undiscounted cash flows expected to be generated. The recoverability test indicated the retail asset group was impaired. We concluded the carrying value of the retail asset group exceeded the estimated fair value which resulted in an impairment charge of $10.1 million in our Rhyz other segment.

Current wording

In addition, during the three months ended June 30, 2024, we determined that the current operating losses and decline in forecasted losses associated with our BeautyBio retail asset group were an interim triggering event that required us to perform an interim impairment analysis on our BeautyBio retail asset group. We assessed the recoverability of the related asset group comparing the carrying value of the asset group to the undiscounted cash flows expected to be generated. The recoverability test indicated the retail asset group was impaired. We concluded the carrying value of the retail asset group exceeded the estimated fair value which resulted in an impairment charge of $10.1 million in our Rhyz other segment during the three months ended June 30, 2024.

Previous wording

Interest expense increased to $6.7 million in the second quarter of 2024, compared to $5.8 million in the prior-year period. and $14.0 million for the first six months of 2024 compared to $10.7 million for the prior-year period. The increases in interest expense were primarily due to an increase in borrowings on our revolving credit facility.

Current wording

Interest expense decreased to $6.5 million in the third quarter of 2024, compared to $7.5 million in the prior-year period. The third quarter decrease in interest expense is primarily attributable to decreases in borrowings on our revolving credit facility. Interest expense for the first nine months of 2024 increased to $20.5 million compared to $18.2 million for the prior-year period. The increase in interest expense were primarily due to increased in borrowings on our revolving credit facility in the first half of 2024 compared to 2023, associated with our June 2023 acquisition of BeautyBio.

Previous wording

Other income (expense), net was $0.6 million for the second quarter of 2024 compared to $0.4 million for the prior-year period and $0.2 million for the first six months of 2024 compared to $3.8 million for the prior-year period. The decrease in other expense for the six-month period ended June 30, 2024 expense is primarily from the impact of foreign currency fluctuations on the valuation of our intercompany receivables/payables.

Current wording

Other income (expense), net was $1.6 million for the third quarter of 2024 compared to $(0.6) million for the prior-year period and $1.8 million for the first nine months of 2024 compared to $3.2 million for the prior-year period. The decrease in other income for the nine-month period ended September 30, 2024 expense is primarily from the impact of foreign currency fluctuations on the valuation of our intercompany receivables and payables.

Previous wording

Provision (benefit) for income taxes for the three- and six-month periods ended June 30, 2024 was $(13.4) million and $(11.8) million, respectively, compared to $10.2 million and $13.4 million for the prior-year periods. The effective tax rates for the three- and six-month periods ended June 30, 2024 were 10.2% and 9.0% of pre-tax income compared, respectively, to 27.5% and 26.0% in the prior-year periods. The decrease in effective tax rate for the second quarter and first six months of 2024 primarily reflects the impact of the second quarter of 2024 goodwill impairment.

Current wording

Provision (benefit) for income taxes for the three- and nine-month periods ended September 30, 2024 was $5.0 million and $(6.8) million, respectively, compared to $2.5 million and $15.9 million for the prior-year periods. The effective tax rates for the three- and nine-month periods ended September 30, 2024 were 37.6% and 5.8% of pre-tax income, respectively, compared to (7.3)% and 92.4% in the prior-year periods. Our tax rate for the nine-month period ended September 30, 2024 was impacted by our second quarter of 2024 goodwill impairment and restructuring charges. Our 2023 effective tax rates were impacted by our third quarter of 2023 inventory write-off charge and associated restructuring charges.

Previous wording

As a result of the foregoing factors, net income (loss) for the second quarter of 2024 was $(118.3) million, compared to $26.9 million in the prior-year period. Net income (loss) for the first six months of 2024 was $(118.8) million, compared to $38.3 million for the first six months of 2023.

Current wording

As a result of the foregoing factors, net income for the third quarter of 2024 was $8.3 million, compared to $(37.0) million in the prior-year period. Net income for the first nine months of 2024 was $(110.5) million, compared to $1.3 million for the first nine months of 2023.

Previous wording

Historically, our principal uses of cash have included operating expenses (particularly selling expenses) and working capital (principally inventory purchases), as well as capital expenditures, stock repurchases, dividends, and debt repayment. We have at times incurred long-term debt, or drawn on our revolving line of credit, to fund strategic transactions, stock repurchases, capital investments and short-term operating needs. We typically generate positive cash flow from operations due to favorable margins and have generally relied on cash from operations to fund operating activities. In the first six months of 2024, we generated $54.5 million in cash from operations, compared to $13.4 million during the prior-year period. The increase in cash flow from operations primarily reflects less inventory purchases compared to the first half of 2023, as we work to right size our balance sheet following the decline in revenue, partially offset by an increase in cash expenditures for the second quarter of 2024. Cash and cash equivalents, including current investments, as of June 30, 2024 and December 31, 2023 were $232.9 million and $267.8 million, respectively, with the decrease being driven by our quarterly debt payments, $30.0 million paid on our revolving credit facility and capital expenditures, as discussed below, partially offset by $54.5 million in cash from operations.

Current wording

Historically, our principal uses of cash have included operating expenses (particularly selling expenses) and working capital (principally inventory purchases), as well as capital expenditures, stock repurchases, dividends, and debt repayment. We have at times incurred long-term debt, or drawn on our revolving line of credit, to fund strategic transactions, stock repurchases, capital investments and short-term operating needs. We typically generate positive cash flow from operations due to favorable margins and have generally relied on cash from operations to fund operating activities. In the first nine months of 2024, we generated $86.0 million in cash from operations, compared to $64.5 million during the prior-year period. The increase in cash flow from operations primarily reflects less inventory purchases compared to the first nine months of 2023, as we work to right size our balance sheet following the decline in revenue, and an increase in accrued expenses primarily relating to increased deferred revenue associated with timing of sales, partially offset by an increase in cash expenditures associated with prepaid assets. Cash and cash equivalents, including current investments, as of September 30, 2024 and December 31, 2023 were $237.8 million and $267.8 million, respectively, with the decrease being driven by our quarterly debt payments, $50.0 million paid on our revolving credit facility and capital expenditures, as discussed below, partially offset by $86.0 million in cash from operations.

Previous wording

Working capital. As of June 30, 2024, working capital was $345.8 million, compared to $373.0 million as of December 31, 2023. Our decline in working capital is primarily attributable to the decline in cash as discussed above and a lower inventory balance partially offset by an increase in prepaid expenses primarily associated with corporate income tax payments.

Current wording

Working capital. As of September 30, 2024, working capital was $314.0 million, compared to $373.0 million as of December 31, 2023. Our decline in working capital is primarily attributable to the decline in cash as discussed above, a lower inventory balanceand higher current portion of long-term debt as we intend to pay off a higher portion of our revolving credit facility in the next twelve months partially offset by an increase in prepaid expenses primarily associated with corporate income tax payments.

Previous wording

Capital expenditures. Capital expenditures for the six months ended June 30, 2024 were $20.4 million. We expect that our capital expenditures in 2024 will be primarily related to:

Current wording

Capital expenditures. Capital expenditures for the nine months ended September 30, 2024 were $29.0 million. We expect that our capital expenditures in 2024 will be primarily related to:

Previous wording

We estimate that capital expenditures for the uses listed above will total approximately $40–60 million for 2024.

Current wording

We estimate that capital expenditures for the uses listed above will total approximately $35–55 million for 2024.

Previous wording

Credit Agreement. On June 14, 2022, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative agent. The Credit Agreement provides for a $400.0 million term loan facility and a $500.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the previous credit agreement. Both facilities bear interest at the SOFR, plus a margin based on our consolidated leverage ratio. The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the subsequent years after the closing date of the Credit Agreement, with the remainder payable at final maturity. As of June 30, 2024 and December 31, 2023, we had $90.0 million and $120.0 million of outstanding borrowings under our revolving credit facility, and $370.0 million and $385.0 million on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $1.7 million and $2.0 million as of June 30, 2024 and December 31, 2023, respectively, related to the Credit Agreement. The Credit Agreement requires us 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 June 30, 2024, we were in compliance with all debt covenants under the Credit Agreement.

Current wording

Credit Agreement. On June 14, 2022, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative agent. The Credit Agreement provides for a $400.0 million term loan facility and a $500.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the previous credit agreement. Both facilities bear interest at the SOFR, plus a margin based on our consolidated leverage ratio. The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the subsequent years after the closing date of the Credit Agreement, with the remainder payable at final maturity. As of September 30, 2024 and December 31, 2023, we had $70.0 million and $120.0 million of outstanding borrowings under our revolving credit facility, and $365.0 million and $385.0 million on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $1.5 million and $2.0 million as of September 30, 2024 and December 31, 2023, respectively, related to the Credit Agreement. The Credit Agreement requires us 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, 2024, we were in compliance with all debt covenants under the Credit Agreement.

Previous wording

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 second quarter of 2024 and 2023 we repurchased no shares of our Class A common stock under the plan. As of June 30, 2024, $162.4 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.

Current wording

Stock repurchase plan. In 2018, our board of directors approved a stock repurchase plan authorizing us to repurchase up to $500.0 million of our outstanding shares of Class A common stock on the open market or in private transactions. During the third quarter of 2024, we repurchased no shares of our Class A common stock under the plan. As of September 30, 2024, $162.4 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.

Previous wording

Dividends. In February and May 2024, our board of directors declared quarterly cash dividends of $0.06 per share. The quarterly cash dividends of $3.0 and $3.0 million were paid on March 6, 2024 and June 12, 2024 to stockholders of record on February 26, 2024 and May 31, 2024. In August 2024, our board of directors declared a quarterly cash dividend of $0.06 per share to be paid on September 11, 2024 to stockholders of record on August 30, 2024. 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.

Current wording

Dividends. In February, May and August 2024, our board of directors declared quarterly cash dividends of $0.06 per share. The quarterly cash dividends of $3.0 million were paid on March 6, 2024, June 12, 2024 and September 11, 2024 to stockholders of record on February 26, 2024, May 31, 2024 and August 30, 2024. In November 2024, our board of directors declared a quarterly cash dividend of $0.06 per share to be paid on December 11, 2024 to stockholders of record on November 29, 2024. 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.

Previous wording

Cash from foreign subsidiaries. As of June 30, 2024 and December 31, 2023, we held $232.9 million and $267.8 million, respectively, in cash and cash equivalents, including current investments. These amounts include $170.1 million and $213.7 million as of June 30, 2024 and December 31, 2023, 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.

Current wording

Cash from foreign subsidiaries. As of September 30, 2024 and December 31, 2023, we held $237.8 million and $267.8 million, respectively, in cash and cash equivalents, including current investments. These amounts include $179.1 million and $213.7 million as of September 30, 2024 and December 31, 2023, 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.

Previous wording

We typically fund the cash requirements of our operations in the U.S. through intercompany dividends, intercompany loans and intercompany charges for products, use of intangible property, and corporate services. However, some markets impose government-approval or other requirements for the repatriation of dividends. For example, in Mainland China, we are unable to repatriate cash from current operations in the form of dividends until we file the necessary statutory financial statements for the relevant period. As of June 30, 2024, we had $26.9 million in cash denominated in Chinese RMB. We also have experienced delays in repatriating cash from Argentina. As of June 30, 2024 and December 31, 2023, we had $18.6 million and $17.7 million, respectively, in intercompany receivables with our Argentina subsidiary. We also have intercompany loan arrangements in some of our markets, including Mainland China, that allow us to access available cash, subject to certain limits in Mainland China and other jurisdictions. We also have drawn on our revolving line of credit to address cash needs until we can repatriate cash from Mainland China or other markets, and we may continue to do so. Except for $60.0 million of earnings in Mainland China that we designated as indefinitely reinvested during the second quarter of 2018, we currently plan to repatriate undistributed earnings from our non-U.S. operations as necessary, considering the cash needs of our non-U.S. operations and the cash needs of our U.S. operations for dividends, stock repurchases, capital investments, debt repayment and strategic transactions. Repatriation of non-U.S. earnings is subject to withholding taxes in certain foreign jurisdictions. Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings.

Current wording

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, 2024, we had $32.1 million in cash denominated in Chinese RMB. We also have experienced delays in repatriating cash from Argentina. As of September 30, 2024 and December 31, 2023, we had $19.5 million and $17.7 million, respectively, in intercompany receivables with our Argentina subsidiary. We also have intercompany loan arrangements in some of our markets, including Mainland China, that allow us to access available cash, subject to certain limits in Mainland China and other jurisdictions. We also have drawn on our revolving line of credit to address cash needs until we can repatriate cash from Mainland China or other markets, and we may continue to do so. Except for $60.0 million of earnings in Mainland China that we designated as indefinitely reinvested during the second quarter of 2018, we currently plan to repatriate undistributed earnings from our non-U.S. operations as necessary, considering the cash needs of our non-U.S. operations and the cash needs of our U.S. operations for dividends, stock repurchases, capital investments, debt repayment and strategic transactions. Repatriation of non-U.S. earnings is subject to withholding taxes in certain foreign jurisdictions. Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings.

Previous wording

Our BeautyBio reporting unit remains sensitive to future increases in discount rates and changes in our forecast. We performed a sensitivity analysis on the impairment model used to test the manufacturing and Rhyz other reporting units’ goodwill. In doing so, we determined that individual changes of a 5% reduction in our annual earnings before interest and tax, or a 40 basis point increase in the discount rate used in the discounted cash flow models did not cause the estimated fair values of the reporting units to decline below their carrying value. We made our estimates based on information available as of the date of our assessment, using assumptions we believe market participants would use in performing an independent valuation of the business. Although we believe the estimates and assumptions used in the impairment testing are reasonable and appropriate, it is possible that the assumptions and conclusions regarding impairment or recoverability of our reporting units’ goodwill could change in future periods. There can be no assurance the estimates and assumptions, particularly our long-term financial projections, used in our goodwill impairment testing will prove to be accurate predictions of the future, if, for example, (i) the business does not perform as projected, (ii) overall economic conditions in the remainder of Fiscal 2024 or future years vary from current assumptions (including changes in discount rates and foreign currency exchange rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace, or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and profitability. A future impairment charge to our reporting units’ goodwill could have a material effect on the consolidated financial position and results of operations.

Current wording

Our BeautyBio reporting unit within our Rhyz other segment remains sensitive to future increases in discount rates, and changes in our forecast. We performed a sensitivity analysis on the impairment model used to test the manufacturing and Rhyz other reporting units’ goodwill. In doing so, we determined that individual changes of a 5% reduction in our annual earnings before interest and tax, or a 40 basis point increase in the discount rate used in the discounted cash flow models did not cause the estimated fair values of the reporting units to decline below their carrying value. We made our estimates based on information available as of the date of our assessment, using assumptions we believe market participants would use in performing an independent valuation of the business. Although we believe the estimates and assumptions used in the impairment testing are reasonable and appropriate, it is possible that the assumptions and conclusions regarding impairment or recoverability of our reporting units’ goodwill could change in future periods. There can be no assurance the estimates and assumptions, particularly our long-term financial projections, used in our goodwill impairment testing will prove to be accurate predictions of the future, if, for example, (i) the business does not perform as projected, (ii) overall economic conditions in the remainder of Fiscal 2024 or future years vary from current assumptions (including changes in discount rates and foreign currency exchange rates), (iii) business conditions or strategies change from current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace, or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and profitability. A future impairment charge to our reporting units’ goodwill could have a material effect on the consolidated financial position and results of operations.