Nuskin - An Mlm Amongst Wonky Accounts

Regular readers volition know that I am non an unbridled fan of multi-level marketing schemes MLMs - but I don't mean value they are all evil either.

They make render a service that is valuable - they render community back upward for whatsoever production they are selling.

But they convey a vogue to sell the concern chance rather than the product. And they convey a vogue to decentralized police avoidance - for illustration selling snake-oil cures inwards breach of FDA regulations.

I wrote a post 1 time almost good-and-bad MLMs - where I went through Avon together with Pampered Chef every bit to a greater extent than oft than non skilful MLMs together with Nuskin every bit a concern built on decentralized police avoidance.

Herbalife was a fair agency upward the Pampered Chef halt of the scale.

Nuskin sells to a greater extent than oft than non vastly overpriced vitamin pills. This is a motion-picture exhibit of some:

Nuskin is inwards the procedure of blowing up.

Nuskin's principal production is overpriced together with is sold nether the ridiculous label of "lifepak nano" every bit if they comprise nano-technology. The pills hope "enhanced molecular delivery" without an explanation of what that powerfulness be. The pills are possibly 50, possibly 100 times overpriced. And they convey a bunch of claims for them. Look at the master copy postal service for the whole comical listing but they make (falsely) hope the outflow of youth. Here is 1 claim:

Advanced anti-aging formula helps protect the trunk amongst key nutrients such every bit NanoCoQ10™ together with nano carotenoids*

The asterisk - which I am certain the distributors ignore - is to say that the claim is non evaluated past times the nutrient together with drug administration.

But lets instruct into the truthful snake-oil here.

NanoCoQ10 utilizes cutting-edge nanotechnology to deliver highly bioavailable coenzyme Q10 for strong cardiovascular together with cognitive benefits.

There was no asterisk where I took that quote from!

It is gobbledygook - but suffice to say that Coenzyme_Q10 is synthesized inwards pretty good all tissues inwards the body. There is some show that it reduces some headaches - together with then I estimate in that location are cognitive benefits - if poorly explained.

Anyway - I am non writing almost the concern model - which on my observation differs substantially from Herbalife - I am writing almost the accounts. And those are disastrous.

Here is the residuum sheet:

June 30, 2014			Dec 31, 2013
ASSETS
Current assets:
Cash together with cash equivalents	$	219,501		$	525,153
Current investments		14,227			21,974
Accounts receivable		41,712			68,652
Inventories, net		389,650			339,669
Prepaid expenses together with other		180,957			162,886
		846,047			1,118,334
Property together with equipment, net		429,332			396,042
Goodwill		112,446			112,446
Other intangible assets, net		79,258			83,168
Other assets		136,531			111,072
Total assets	$	1,603,614		$	1,821,062
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	35,836		$	82,684
Accrued expenses		383,012			626,284
Current component of debt		99,828			67,824
		518,676			776,792
Long-term debt		111,621			113,852
Other liabilities		81,559			71,799
Total liabilities		711,856			962,443
Commitments together with contingencies (Note 9)
Stockholders' equity:
Class Influenza A virus subtype H5N1 mutual stock – 500 meg shares authorized, $.001 par value, 90.6 million  shares issued		91			91
Additional paid-in capital		410,440			397,383
Treasury stock, at cost – 31.3 meg together with 31.6 meg shares, respectively		(844,615)			(826,904)
Accumulated other comprehensive loss		(42,284)			(46,228)
Retained earnings		1,368,126			1,334,277
		891,758			858,619
Total liabilities together with stockholders' equity	$	1,603,614		$	1,821,062

And hither is the P&L:

		Three Months Ended						Six Months Ended
		June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Revenue	$	650,027		$	671,328		$	1,321,088		$	1,212,633
Cost of sales		156,010			111,273			262,654			201,318
Gross profit		494,017			560,055			1,058,434			1,011,315
Operating expenses:
Selling expenses		283,575			297,170			596,676			530,264
General together with administrative expenses		155,705			148,302			305,824			283,809
Total operating expenses		439,280			445,472			902,500			814,073
Operating income		54,737			114,583			155,934			197,242
Other income (expense), net		(21,119)			(1,187)			(38,627)			(1,075)
Income before provision for income taxes		33,618			113,396			117,307			196,167
Provision for income taxes		14,111			38,961			42,946			67,450
Net income	$	19,507		$	74,435		$	74,361		$	128,717

Now I desire y'all to detect $389 meg inwards inventory versus vi months cost of goods sold of 263 million. It has almost 270 days of inventory. By contrast Herbalife has almost 50 days of inventory.

It looks similar Herbalife is professionally run together with Nuskin is not.

But I mean value it powerfulness hold upward worse. Nuskin has $389 meg of inventory together with the inventory is mostly vitamin pills. Can y'all imagine what $389 meg inwards vitamin pills sitting inwards warehouses at production cost looks like? It is sort of unusual thinking only how much that is...

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But the asset padding at Nuskin continues. It has less than one-half the sales of Herbalife but has $429 meg of belongings found together with equipment. Herbalife has $363 meg together with that is after Herbalife has built some large impressive plants.

By comparing Nuskin seems profligate amongst found - but hi - I convey never seen 1 of their factories. Maybe they are gold-plated.

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But the whole affair becomes worse on the cash menses line. Herbalife is massively cash generative - almost comically cash generative.

Nuskin is not.

Here is Nuskin's cash menses statement.

		Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net income	$	74,361		$	128,717
Adjustments to reconcile internet income to internet cash provided past times operating activities:
Depreciation together with amortization		24,965			15,527
Foreign currency (gains)/losses		48,264			863
Stock-based compensation		13,726			11,411
Deferred taxes		3,871			(2,901)
Changes inwards operating assets together with liabilities:
Accounts receivable		27,121			(24,647)
Inventories, net		(54,218)			(45,228)
Prepaid expenses together with other		(31,157)			(25,515)
Other assets		(14,797)			(10,987)
Accounts payable		(46,503)			3,593
Accrued expenses		(233,532)			132,787
Other liabilities		3,034			5,237
Net cash provided past times (used in) operating activities		(184,865)			188,857
Cash flows from investing activities:
Purchases of belongings together with equipment		(57,136)			(82,515)
Proceeds of investment sales		22,011			9,701
Purchases of investments		(13,655)			(5,077)
Net cash used inwards investing activities		(48,780)			(77,891)

You powerfulness detect that 186 meg of cash was used inwards operating activities together with a farther 49 meg was used inwards investing activities.

The cash residuum dropped from $525 to $220 million. And in that location is a bunch of long term debt every bit well. It has to a greater extent than cash than long term debt - together with then survival is at to the lowest degree possible. But they amend plough some awfully fast.

With Nuskin nosotros convey to analyse inwards terms of survival which is far from guaranteed only on the accounts.

It is that bad.

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Now every bit readers know I am a fleck of a Herbalife fan. When I take in Herbalife distributors I come across people providing a existent service. The existent service is emotional together with physical back upward during dieting. Some sell Herbalife together with run fitness clubs. Sometimes it looks to a greater extent than similar a café. Some sell Herbalife out of "spiritual healing massage centres". Where I alive inwards Commonwealth of Australia it is oft the personal trainers who sell Herbalife on the side - together with comment (favourably I guess) on the novel svelte bodies inwards their charge.

But inwards all cases in that location is a back upward network for dieting behind successful sellers. The production is non only the milk tremble - it is the back upward network that goes amongst it - together with the back upward network fits into the civilization from where it is from. In Queens they reverberate low-wage Hispanic workers. In to a greater extent than middle shape areas of Miami the clubs are larger together with amend appointed. In Sydney they are fitness obsessed together with at the beach together with amongst upper-middle shape customers.

And it shows. Herbalife generates to a greater extent than cash every year. The cash menses disceptation tells the story. This is for vi months:

	Six Months Ended
		June 30, 2014				June 30, 2013
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	194,160			$	262,035
Adjustments to reconcile internet income to internet cash provided past times operating activities:
Depreciation together with amortization			44,776				42,310
Excess taxation benefits from share-based payment arrangements			(6,693	)			(15	)
Share-based compensation expenses			23,398				15,253
Non-cash involvement expense			19,021				1,295
Deferred income taxes			(7,838	)			(7,939	)
Inventory write-downs			12,373				10,448
Unrealized unusual commutation transaction loss (gain)			2,532				(44	)
Foreign commutation loss relating to Venezuela			86,108				15,116
Other			3,717				(674	)
Changes inwards operating assets together with liabilities:
Receivables			(1,163	)			(312	)
Inventories			(2,409	)			(14,094	)
Prepaid expenses together with other electrical flow assets			(50,669	)			(13,150	)
Other assets			(4,642	)			(534	)
Accounts payable			13,038				4,586
Royalty overrides			(12,113	)			(2,051	)
Accrued expenses together with accrued compensation			16,661				43,761
Advance sales deposits			20,915				4,481
Income taxes			(8,158	)			(12,546	)
Deferred compensation conception liability			4,569				3,527
NET CASH PROVIDED BY OPERATING ACTIVITIES			347,583				351,453
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, found together with equipment			(105,482	)			(56,048	)
Proceeds from sale of property, found together with equipment			11				33
Investments inwards Venezuelan bonds			(7,588	)			—
NET CASH USED IN INVESTING ACTIVITIES			(113,059	)			(56,015	)

Note 348 meg produced inwards operating cash flows, 113 meg consumed inwards investing (but that includes the structure of the above-mentioned large together with impressive factory). I suspect investing cash drain falls together with Herbalife becomes fifty-fifty to a greater extent than cash generative.

The internet complimentary cash subsequently vi months is 234 meg or 470 meg annualized. I suspect it volition hold upward higher because the investing cash purpose should drop.

This does non await expensive versus marketplace cap (or fifty-fifty marketplace cap summation internet debt).

Its a existent business, providing existent together with valuable service to at to the lowest degree 10 meg people - together with it is highly cash generative.

But hi - that was where I started. Not all MLMs are equal. And non all outcomes are equal either.

Billy Bob shorted the incorrect MLM.




John

Disclosure: Long Herbalife, brusque a niggling Nuskin. I regret non having the Nuskin brusque on earlier. The residuum canvas was e'er a niggling stretched - the inventory build inwards 2013 was insane - together with the concern model did non brand feel - but the denouement is to a greater extent than rapid than I idea possible.

At to the lowest degree 1 mortal I speak to got that alone correct including timing both the long Herbalife together with brusque Nuskin legs.