NU SKIN ENTERPRISES, INC. - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

OR

Commission File Number: 001-12421

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

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.

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.  ☐

As of  May 1, 2021, 50,042,337 shares of the registrant’s Class A common stock, $.001 par value per share, were outstanding.

NU SKIN ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q – FIRST QUARTER 2021

TABLE OF CONTENTS

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.

PART I.  FINANCIAL INFORMATION

ITEM 1.          FINANCIAL STATEMENTS

NU SKIN ENTERPRISES, INC.

Consolidated Balance Sheets (Unaudited)

(U.S. dollars in thousands)

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

NU SKIN ENTERPRISES, INC.

Consolidated Statements of Income (Unaudited)

(U.S. dollars in thousands, except per share amounts)

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

NU SKIN ENTERPRISES, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(U.S. dollars in thousands)

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

NU SKIN ENTERPRISES, INC.

Consolidated Statements of Stockholders’ Equity (Unaudited)

(U.S. dollars in thousands)

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

NU SKIN ENTERPRISES, INC.

Consolidated Statements of Cash Flows (Unaudited)

(U.S. dollars in thousands)

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

NU SKIN ENTERPRISES, INC.

Notes to Consolidated Financial Statements

1.	The Company

2.	Summary of Significant Accounting Policies

		March 31, 2021				December 31, 2020
Raw materials		$	143,998			$	118,877
Finished goods			219,433				195,489
Total Inventory, net		$	363,431			$	314,366

3.

Goodwill

		March 31, 2021				December 31, 2020
Nu Skin
Mainland China		$	32,179			$	32,179
Americas/Pacific			9,449				9,449
South Korea			29,261				29,261
EMEA			2,875				2,875
Japan			16,019				16,019
Southeast Asia			18,537				18,537
Hong Kong/Taiwan			6,634				6,634
Manufacturing			78,875				78,875
Grow Tech			9,150				9,150
Total		$	202,979			$	202,979

4.

Debt

Facility or Arrangement

Original Principal Amount

Balance as of March 31, 2021(1)(2)

Balance as of December 31, 2020(1)(2)

Interest Rate

Repayment Terms

Credit Agreement term loan facility

$

400.0 million

$

330.0 million

$

337.5 million

Variable 30 day: 1.86%

35% of the principal amount is payable in increasing quarterly installments over a five-year period that began on June 30, 2018, with the remainder payable at the end of the five-year term.

Credit Agreement revolving credit facility

$

60.0 million

—

Variable 30 day: 1.86%

Revolving line of credit expires April 18, 2023.

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

(2)	The carrying value of the debt reflects the amounts stated in the above table, less debt issuance costs of $1.9 million and $2.1 million as of March 31, 2021 and December 31, 2020, respectively, related to the Credit Agreement, which are not reflected in this table.

5.

Leases

		Three Months Ended March 31,
		2021				2020
Operating lease expense
Operating lease cost		$	12,815			$	13,136
Variable lease cost			1,368				974
Short-term lease cost			339				45
Sublease income			(1,984	)			(1,131	)
Finance lease expense
Amortization of right-of-use assets			611				—
Interest on lease liabilities			88				—
Total lease expense		$	13,237			$	13,024

		Three Months Ended March 31,
		2021				2020
Operating cash outflow from operating leases		$	14,149			$	13,367
Operating cash outflow from finance leases		$	89			$	—
Financing cash outflow from finance leases		$	483			$	—
Right-of-use assets obtained in exchange for operating lease obligations		$	10,891			$	21,822
Right-of-use assets obtained in exchange for finance lease obligations		$	49			$	—

Year Ending December 31		Operating Leases				Finance Leases
2021		$	35,534			$	1,661
2022			34,437				2,226
2023			23,875				2,144
2024			18,976				2,033
2025			14,298				1,436
Thereafter			41,344				260
Total			168,464				9,760
Less: Finance charges			21,060				805
Total principal liability		$	147,404			$	8,955

6.	Capital Stock

7.	Fair Value

◾

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;

◾

Level 3 – unobservable inputs based on the Company’s own assumptions.

		Fair Value at March 31, 2021
		Level 1				Level 2				Level 3				Total
Financial assets (liabilities):
Cash equivalents and current investments		$	57,236			$	—			$	—			$	57,236
Derivative financial instruments asset			—				5,030				—				5,030
Life insurance contracts			—				—				46,606				46,606
Derivative financial instruments liability			—				(83	)			—				(83	)
Contingent consideration			—				—				(3,264	)			(3,264	)
Total		$	57,236			$	4,947			$	43,342			$	105,525

		Fair Value at December 31, 2020
		Level 1				Level 2				Level 3				Total
Financial assets (liabilities):
Cash equivalents and current investments		$	56,628			$	—			$	—			$	56,628
Derivative financial instruments asset			—				1,145				—				1,145
Life insurance contracts			—				—				45,453				45,453
Derivative financial instruments liability			—				(105	)			—				(105	)
Contingent consideration			—				—				(3,125	)			(3,125	)
Total		$	56,628			$	1,040			$	42,328			$	99,996

Beginning balance at January 1, 2021		$	45,453
Actual return on plan assets			1,153
Purchase and issuances			7,016
Sales and settlements			(7,016	)
Transfers into Level 3			—
Ending balance at March 31, 2021		$	46,606

Beginning balance at January 1, 2021		$	(3,125	)
Changes in fair value of contingent consideration			(139	)
Ending balance at March 31, 2021		$	(3,264	)

8.	Income Taxes

9.	Derivatives and Hedging Activities

				Fair Values of Derivative Instruments
Derivatives in Cash flow Hedging Relationships:		Balance Sheet Location		March 31, 2021			December 31, 2020
Interest Rate Swap - Asset		Other Assets		$	5,030		$	1,145
Interest Rate Swap - Liability		Accrued Expenses		$	83		$	105

		Amount of Gain or (Loss) Recognized in OCI on Derivative
		Three Months Ended
Derivatives in Cash flow		March 31,
Hedging Relationships:		2021			2020
Interest Rate Swaps		$	3,879		$	—

				Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income
				Three Months Ended
Derivatives in Cash flow		Income Statement		March 31,
Hedging Relationships:		Location		2021			2020
Interest Rate Swaps		Other Income		$	(27)		$	—

10.	Segment Information

		Three Months Ended March 31,
(U.S. dollars in thousands)		2021				2020
Nu Skin
Mainland China		$	149,593			$	137,696
Americas/Pacific			149,465				74,573
South Korea			81,131				75,719
EMEA			76,180				35,403
Japan			69,864				61,300
Southeast Asia			67,585				69,586
Hong Kong/Taiwan			36,345				35,827
Other			705				773
Total Nu Skin			630,868				490,877
Manufacturing (1)			45,985				27,147
Grow Tech			173				4
Total		$	677,026			$	518,028

(1)	The Manufacturing segment had $17.4 million and $6.4 million of intersegment revenue for the three-month period ended March 31, 2021 and 2020, respectively. Intersegment revenue is eliminated in the consolidated financial statements, as well as the reported segment revenue in the table above.

		Three Months Ended March 31,
(U.S. dollars in thousands)		2021				2020
Nu Skin
Mainland China		$	39,439			$	37,387
Americas/Pacific			32,144				11,280
South Korea			26,525				24,099
EMEA			8,896				631
Japan			17,981				14,592
Southeast Asia			16,249				16,718
Hong Kong/Taiwan			7,348				6,938
Nu Skin contribution			148,582				111,645
Manufacturing			5,826				2,849
Grow Tech			(6,091	)			(6,850	)
Total segment contribution			148,317				107,644
Corporate and other			(85,404	)			(71,079	)
Operating income			62,913				36,565
Other income (expense)			1,582				(6,174	)
Income before provision for income taxes		$	64,495			$	30,391

		Three Months Ended March 31,
(U.S. dollars in thousands)		2021				2020
Nu Skin
Mainland China		$	3,339			$	2,424
Americas/Pacific			256				245
South Korea			990				1,057
EMEA			286				258
Japan			253				472
Southeast Asia			329				487
Hong Kong/Taiwan			885				639
Total Nu Skin			6,338				5,582
Manufacturing			2,688				1,815
Grow Tech			1,339				1,225
Corporate and other			7,979				10,473
Total		$	18,344			$	19,095

		Three Months Ended March 31,
(U.S. dollars in thousands)		2021				2020
Nu Skin
Mainland China		$	8,517			$	2,861
Americas/Pacific			278				694
South Korea			490				169
EMEA			172				27
Japan			91				157
Southeast Asia			399				633
Hong Kong/Taiwan			—				4
Total Nu Skin			9,947				4,545
Manufacturing			3,338				10,505
Grow Tech			942				178
Corporate and other			5,146				4,159
Total		$	19,373			$	19,387

11.	Commitments and Contingencies

12.	Acquisitions

13.	Subsequent Events

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,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” “may,” “might,” the negative of these words and other similar words. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.  We caution and advise readers that these statements are based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results to differ materially from the expectations and beliefs contained herein. For a summary of these risks, see the risk factors included in our Annual Report on Form 10-K for the 2020 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 2020 fiscal year, and our other reports filed with the Securities and Exchange Commission through the date of this Quarterly Report on Form 10-Q.

Overview

Revenue for the three-month period ended March 31, 2021 increased 31% to $677.0 million, compared to $518.0 million in the prior-year period.  Our revenue in the first quarter of 2021 benefitted 6% from foreign-currency fluctuations. Sales Leaders increased 22% and Customers increased 34% on a year-over-year basis.

Our results benefited from our strategic shift to become a more digital business, as well as the current environment where consumers are spending more time online and working from home, and our sales leaders have been able to leverage the power of social sharing to achieve greater levels of productivity.  If and when the COVID-19 pandemic subsides, there is uncertainty as to the impact on trends towards online shopping and how our business would be impacted by changes in those trends. Our 31% revenue growth was driven by solid growth in our Americas/Pacific and EMEA segments, where our Brand Affiliates have more broadly adopted social commerce to share our products. The pandemic negatively impacted our Asia markets more heavily, as our sales force generally relies more on in-person meetings in those markets and the social sharing model is less mature. We are continuing the launch of the ageLOC Boost and Nutricentials Bioadaptives, which generated more than $35 million of combined revenue in the first quarter of 2021.

Earnings per share for the first quarter of 2021 increased 153% to $0.91, compared to $0.36 in the prior-year period. The increase in earnings per share is primarily driven by the increase in revenue, lower weighted-average outstanding shares due to our stock repurchases and a lower tax rate, partially offset by an increase in selling expenses.

Segment Results

We report our business in nine segments to reflect our current management approach. These segments consist of our seven geographic Nu Skin segments—Mainland China, Americas/Pacific, South Korea, EMEA, Japan, Southeast Asia, and Hong Kong/Taiwan —and our Manufacturing and Grow Tech segments. The Other category includes miscellaneous corporate revenue and related adjustments.

The following table sets forth revenue for the three-month periods ended March 31, 2021 and 2020 for each of our reportable segments (U.S. dollars in thousands):

The following table sets forth segment contribution for the three-month periods ended March 31, 2021 and 2020 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. Prior year segment contribution for Americas/Pacific has been recast to conform with first quarter of 2021 changes to our transfer pricing policy.

The following table provides information concerning the number of Customers and Sales Leaders as of March 31, 2021 and 2020.  “Customers” are persons who have purchased products directly from the Company during the three months ended as of the date indicated. Our Customer numbers do not include consumers who purchase products directly from members of our sales force. “Sales Leaders” are our Brand Affiliates, and sales employees and independent marketers in Mainland China, who achieve certain qualification requirements.

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

Mainland China.  The 9% increase in revenue for the first quarter of 2021 is primarily attributable to the 8% benefit from favorable foreign-currency fluctuations.  Our Customers increased 16%, benefiting from the continued focus on customer initiatives including enJoy program and new customer coupon program. During the second quarter of 2021, the ageLOC Boost will be made generally available to all consumers.

The year-over-year increase in segment contribution for the first quarter of 2021 primarily reflects higher revenue and a 2.3 percentage point improvement in gross margin, due to product mix. This was largely offset by a 2.2 percentage point increase in selling expense as a percent of revenue. The salaries and service fees of our sales force in Mainland China are fixed until they are adjusted in a quarterly evaluation process. As a result, we have variations in our selling expenses as a percentage of revenue, particularly when there is a sequential change in revenue.

Americas/Pacific. Our Americas/Pacific markets continue to benefit from greater adoption of innovative products shared increasingly via the social commerce business model supported by our digital tools, combined with the current environment where consumers are spending more time at home, shopping and working online.  This contributed to a 100% increase in revenue for the first quarter of 2021. The new social and digital tools as well as strong sales leadership in social sharing in these markets have enabled our sales force to more effectively transact business digitally. These factors also led to a significant increase in Customers and Sales Leaders. Our reported revenue also reflects a 3% benefit from favorable foreign-currency fluctuations.

South Korea. Our first quarter of 2021 constant-currency revenue was flat compared to 2020; our reported revenue reflects a 7% benefit from favorable foreign-currency fluctuations.  Sales Leaders increased 7% from product promotions, while Customers declined 12% from a prior year customer campaign.

The year-over-year increase in segment contribution primarily reflects the increased revenue, along with improvements in gross margin from a shift to more favorable margin products.

EMEA. Our EMEA segment strong revenue trends continued into the first quarter 2021, benefiting from further adoption of the social sharing business model supported by our digital tools, combined with the current environment where consumers are spending more time shopping and working online. This contributed to a 115% increase in revenue, 111% increase in Customers and 88% increase in Sales Leaders. Our reported revenue also benefited 17% from foreign-currency fluctuations for the first quarter of 2021. Similar to our Americas/Pacific segment, the strong sales leadership in social sharing has allowed the EMEA segment to more effectively transact business digitally.

The strong improvement in segment contribution for the first quarter of 2021 is primarily attributable to higher revenue and the fixed nature of general and administrative expenses.

The year-over-year increase in segment contribution reflects the increased revenue, a slight decline from normal fluctuations in selling expense as a percent of revenue and the fixed nature of general and administrative expenses on increased revenue.

Southeast Asia. The year-over-year decrease in revenue in our Southeast Asia segment primarily reflects impacts from the COVID-19 pandemic. Continued restrictions and logistic challenges have led to a slower economic recovery in some Southeast Asia markets. The increase in Customers for the Southeast Asia segment was primarily driven by successful customer initiatives, which also drove an increase in our Sales Leaders.

The year-over-year decrease in segment contribution for the first quarter of 2021 primarily reflects the decline in revenue.

Hong Kong/Taiwan. Our Hong Kong /Taiwan segment revenue increased 1% for the quarter, with a 4% benefit from favorable foreign-currency fluctuations.  The fourth quarter of 2020 product launches drove an increase in Sales Leaders, which increased 5% as of the first quarter of 2021, compared to the prior-year period.

The increase in segment contribution was primarily driven by reported revenue growth, with general and administrative expenses remaining flat on slightly improved revenue.

Manufacturing. Our Manufacturing segment generated a 69% increase in revenue for the first quarter of 2021.  Our previous investments in additional capacity have allowed our manufacturing companies to continue to increase revenue as the demand for nutrition and personal care products continues to expand.

The 104% increase in segment contribution is primarily attributable to the increased revenue, along with the fixed nature of general and administrative expenses.

Grow Tech. Our Grow Tech segment continues to invest in controlled-environment agriculture technologies. We have found that some of this technology has broader applications in agriculture, and we are investing to pursue these potential opportunities. 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.

Consolidated Results

Revenue for the three-month period ended March 31, 2021 increased 31% to $677.0 million, compared to $518.0 million in the prior-year period. For a discussion and analysis of these increases in revenue, see “Overview” and “Segment Results,” above.

Gross profit as a percentage of revenue was 74.8% for the first quarter of 2021 compared to 75.7% for the prior-year period.  The gross margin of our core Nu Skin business declined 0.3 percentage points to 77.8%.  Our gross margin was 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 strong year-over-year growth within our Manufacturing segment, their revenue represented a higher proportion of our overall consolidated revenue in the first quarter of 2021 than in the prior-year quarter.

General and administrative expenses increased to $169.8 million in the first quarter of 2021, compared to $149.6 million in the prior-year period. The $20.2 million increase is mainly driven by a $14.1 million increase in labor expenses, attributable to higher employee performance incentive compensation, and approximately $3.0 million in increased IT expenses, associated with our cloud transition and ongoing development of digital tools. General and administrative expenses as a percentage of revenue declined to 25.1% for the first quarter of 2021 from 28.9% for the prior-year period, due to the relatively fixed nature of general and administrative expenses as revenue increased.

Other income (expense), net for the first quarter of 2021 was $1.6 million compared to ($6.2 million) for the same period in 2020.  The increase in other income is largely attributable to a $2.2 million decrease in foreign currency losses, $2.2 million decrease from a loss on asset disposal in the prior year, a $1.2 million decrease interest expense from lower interest rates and unrealized investment income.

Provision for income taxes for the first quarter of 2021 was $17.1 million, compared to $10.7 million for the prior-year period. The effective tax rate was 26.5% of pre-tax income during the first quarter of 2021 compared to 35.1% in the prior-year period. The decrease in the effective tax rate for the first quarter of 2021 primarily reflects the strong growth in the U.S. market and Manufacturing segment, which enabled us to utilize additional foreign tax credits to offset U.S. income taxes.  In addition, there was a statute of limitation expiration that resulted in a tax benefit in the first quarter.

As a result of the foregoing factors, net income for the first quarter of 2021 was $47.4 million compared to $19.7 million in the prior-year period.

Liquidity and Capital Resources

Historically, our principal uses of cash have included operating expenses (particularly selling expenses) and working capital (principally inventory purchases), as well as capital expenditures, stock repurchases, dividends, debt repayment and the development of operations in new markets. We have at times incurred long-term debt, or drawn on our revolving line of credit, to fund strategic transactions, 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. However, in the first three months of 2021, we had a net outflow of $18.9 million in cash from operations, compared to $69.0 million in cash from operations during the prior-year period. The decrease in cash flow from operations primarily reflects a $49.1 million increase in inventory partially attributable to the revenue growth at our manufacturing entities and increases in preparation of our product launches, along with the first quarter of 2021 payout of the accrued commission and accrued employee incentive payments attributable to our fourth-quarter growth.  Cash and cash equivalents, including current investments, as of March 31, 2021 and December 31, 2020 were $362.7 million and $423.9 million, respectively, with the decrease being driven by the net outflow of cash flow from operations, purchases of property and equipment, as discussed below, our quarterly dividend payments and stock repurchases, partially offset by increased borrowings under our revolving credit facility.

Working capital. As of March 31, 2021, working capital was $339.3 million, compared to $360.3 million as of December 31, 2020. The decline in working capital is primarily attributable to a net $60.0 million increase in borrowings under our revolving credit facility during the quarter to fund our stock repurchases and other expenses for operations, partially offset by increased inventory.

Capital expenditures. Capital expenditures for the three months ended March 31, 2021 were $19.4 million. We expect that our capital expenditures in 2021 will be primarily related to:

We estimate that capital expenditures for the uses listed above will total approximately $70–85 million for 2021. We are currently in the building phase of the new manufacturing plant in Mainland China.  To date we have spent approximately $26 million and expect that our expenditures for this project will total approximately $55 million over the next 1-2 years, including approximately $15-20 million during 2021.

Credit Agreement. In April 2018, we entered into a Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative agent. The Credit Agreement provides for a $400.0 million term loan facility and a $350.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the previous credit agreement, and the outstanding balance on the convertible notes. The interest rate applicable to the facilities is subject to adjustments based on our consolidated leverage ratio. The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year after the closing date of the Credit Agreement, with the remainder payable at final maturity. As of March 31, 2021 and December 31, 2020, we had $60.0 million and no outstanding borrowings under our revolving credit facility, and $330.0 million and $337.5 million remaining balance on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $(1.9) million and $(2.1) million as of March 31, 2021 and December 31, 2020, respectively, 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 currently in compliance with all debt covenants under the Credit Agreement.

Derivative Instruments. As of March 31, 2021, 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.

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 three months of 2021, we repurchased approximately 1.0 million shares of our Class A common stock under the plan for $50.4 million. As of March 31, 2021, $275.4 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.

Dividends. In February 2021, our board of directors declared quarterly cash dividends of $0.38 per share. This quarterly cash dividend of $19.3 million was paid on March 10, 2021 to stockholders of record on February 26, 2021. In May 2021, our board of directors declared a quarterly cash dividend of $0.38 per share to be paid on June 9, 2021 to stockholders of record on May 28, 2021. 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 March 31, 2021 and December 31, 2020, we held $362.7 million and $423.9 million, respectively, in cash and cash equivalents, including current investments. These amounts include $332.0 million and $374.7 million as of March 31, 2021 and December 31, 2020, 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 March 31, 2021, we had $91.7 million in cash denominated in Chinese RMB. We also have experienced delays in repatriating cash from Argentina. As of March 31, 2021 and December 31, 2020, we had $10.4 million and $10.6 million, respectively, in intercompany receivable with our Argentina subsidiary. We also have intercompany loan arrangements with some of our markets, including Mainland China, that allow us to access available cash, subject to certain limits in Mainland China and other jurisdictions. We also have drawn on our revolving line of credit to address cash needs until we can repatriate cash from Mainland China or other markets, and we may continue to do so. Except for $60.0 million of earnings in Mainland China that we designated as indefinitely reinvested during the second quarter of 2018, we currently plan to repatriate undistributed earnings from our non-U.S. operations as necessary, considering the cash needs of our non-U.S. operations and the cash needs of our U.S. operations for dividends, stock repurchases, capital investments, debt repayment and strategic transactions. Repatriation of non-U.S. earnings is subject to withholding taxes in certain foreign jurisdictions. Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings.

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

Contingent Liabilities

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

Critical Accounting Policies

There were no significant changes in our critical accounting policies during the first quarter of 2021.

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.

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 March 31, 2021, our subsidiary in Argentina had a small net peso monetary position. Net sales of our subsidiary in Argentina were less than 1% of our consolidated net sales for the three-month periods ended March 31, 2021 and 2020.

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 March 31, 2021 and 2020, we did not hold non-designated mark-to-market forward derivative contracts to hedge foreign denominated intercompany positions or third party foreign debt. As of March 31, 2021, and 2020 we did not hold any 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.

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 March 31, 2021.

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 March 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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 2020 fiscal year. Please refer to Note 11 to the consolidated financial statements contained in this report for certain information regarding our legal proceedings.

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 2020 fiscal year and subsequent reports.

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. Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.

Purchases of Equity Securities by the Issuer

None.

Not Applicable.

None.

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.

May 5, 2021