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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-32381

 

HERBALIFE LTD.

(Exact name of registrant as specified in its charter)

 

Cayman Islands

98-0377871

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

P.O. Box 309

Ugland House

Grand Cayman

Cayman Islands

KY1-1104

(Address of principal executive offices)

(Zip code)

 

(213) 745-0500

(Registrant’s telephone number, including area code)

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

 

Title of each class:

Trading Symbol(s):

Name of each exchange on which registered:

Common Shares, par value $0.0005 per share

HLF

New York Stock Exchange

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

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

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

Number of shares of registrant’s common shares outstanding as of October 25, 2023 was 99,112,451.

 

 


 

TABLE OF CONTENTS

 

 

 

Page No.

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

Unaudited Condensed Consolidated Balance Sheets

3

 

Unaudited Condensed Consolidated Statements of Income

4

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

5

 

Unaudited Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

55

Item 4.

Controls and Procedures

59

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

62

Item 1A.

Risk Factors

62

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

62

Item 4.

Mine Safety Disclosures

62

Item 5.

Other Information

62

Item 6.

Exhibits

62

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HERBALIFE LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(in millions, except share and par value amounts)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

495.7

 

 

$

508.0

 

Receivables, net of allowance for doubtful accounts

 

 

79.5

 

 

 

70.6

 

Inventories

 

 

496.8

 

 

 

580.7

 

Prepaid expenses and other current assets

 

 

274.1

 

 

 

196.8

 

Total current assets

 

 

1,346.1

 

 

 

1,356.1

 

Property, plant, and equipment, at cost, net of accumulated depreciation and amortization

 

 

492.3

 

 

 

486.3

 

Operating lease right-of-use assets

 

 

190.7

 

 

 

207.1

 

Marketing-related intangibles and other intangible assets, net

 

 

314.4

 

 

 

315.7

 

Goodwill

 

 

92.8

 

 

 

93.2

 

Other assets

 

 

288.4

 

 

 

273.6

 

Total assets

 

$

2,724.7

 

 

$

2,732.0

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

77.9

 

 

$

89.8

 

Royalty overrides

 

 

335.1

 

 

 

343.3

 

Current portion of long-term debt

 

 

232.6

 

 

 

29.5

 

Other current liabilities

 

 

519.8

 

 

 

514.0

 

Total current liabilities

 

 

1,165.4

 

 

 

976.6

 

Long-term debt, net of current portion

 

 

2,319.0

 

 

 

2,662.5

 

Non-current operating lease liabilities

 

 

174.2

 

 

 

192.4

 

Other non-current liabilities

 

 

169.6

 

 

 

166.4

 

Total liabilities

 

 

3,828.2

 

 

 

3,997.9

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders’ deficit:

 

 

 

 

 

 

Common shares, $0.0005 par value; 2.0 billion shares authorized; 99.0 million (2023) and 97.9 million (2022) shares outstanding

 

 

0.1

 

 

 

0.1

 

Paid-in capital in excess of par value

 

 

222.0

 

 

 

188.7

 

Accumulated other comprehensive loss

 

 

(253.1

)

 

 

(250.2

)

Accumulated deficit

 

 

(1,072.5

)

 

 

(1,204.5

)

Total shareholders’ deficit

 

 

(1,103.5

)

 

 

(1,265.9

)

Total liabilities and shareholders’ deficit

 

$

2,724.7

 

 

$

2,732.0

 

 

See the accompanying notes to unaudited condensed consolidated financial statements.

3


 

HERBALIFE LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,
2023

 

 

September 30,
2022

 

 

September 30,
2023

 

 

September 30,
2022

 

 

 

(in millions, except per share amounts)

 

Net sales

 

$

1,281.3

 

 

$

1,295.1

 

 

$

3,847.4

 

 

$

4,023.6

 

Cost of sales

 

 

303.2

 

 

 

285.1

 

 

 

903.4

 

 

 

908.0

 

Gross profit

 

 

978.1

 

 

 

1,010.0

 

 

 

2,944.0

 

 

 

3,115.6

 

Royalty overrides

 

 

416.1

 

 

 

414.4

 

 

 

1,261.8

 

 

 

1,301.1

 

Selling, general, and administrative expenses

 

 

455.3

 

 

 

448.2

 

 

 

1,391.7

 

 

 

1,373.1

 

Other operating income

 

 

 

 

 

 

 

 

(10.1

)

 

 

(14.9

)

Operating income

 

 

106.7

 

 

 

147.4

 

 

 

300.6

 

 

 

456.3

 

Interest expense, net

 

 

38.5

 

 

 

34.5

 

 

 

116.3

 

 

 

95.9

 

Other income, net

 

 

(1.0

)

 

 

 

 

 

(1.0

)

 

 

 

Income before income taxes

 

 

69.2

 

 

 

112.9

 

 

 

185.3

 

 

 

360.4

 

Income taxes

 

 

26.4

 

 

 

30.7

 

 

 

53.3

 

 

 

93.5

 

Net income

 

$

42.8

 

 

$

82.2

 

 

$

132.0

 

 

$

266.9

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.43

 

 

$

0.84

 

 

$

1.33

 

 

$

2.70

 

Diluted

 

$

0.43

 

 

$

0.83

 

 

$

1.32

 

 

$

2.68

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

99.2

 

 

 

98.0

 

 

 

98.9

 

 

 

98.7

 

Diluted

 

 

100.4

 

 

 

98.8

 

 

 

100.0

 

 

 

99.7

 

 

See the accompanying notes to unaudited condensed consolidated financial statements.

4


 

HERBALIFE LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,
2023

 

 

September 30,
2022

 

 

September 30,
2023

 

 

September 30,
2022

 

 

 

(in millions)

 

Net income

 

$

42.8

 

 

$

82.2

 

 

$

132.0

 

 

$

266.9

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of income taxes of $(0.3) and $0.6 for the three months ended September 30, 2023 and 2022, respectively, and $(0.5) and $0.2 for the nine months ended September 30, 2023 and 2022, respectively

 

 

(15.5

)

 

 

(39.6

)

 

 

(0.7

)

 

 

(67.1

)

Unrealized gain (loss) on derivatives, net of income taxes of $ for both the three months ended September 30, 2023 and 2022, respectively, and $(0.1) and $ for the nine months ended September 30, 2023 and 2022, respectively

 

 

0.4

 

 

 

(1.6

)

 

 

(2.2

)

 

 

(5.4

)

Total other comprehensive loss

 

 

(15.1

)

 

 

(41.2

)

 

 

(2.9

)

 

 

(72.5

)

Total comprehensive income

 

$

27.7

 

 

$

41.0

 

 

$

129.1

 

 

$

194.4

 

 

See the accompanying notes to unaudited condensed consolidated financial statements.

5


 

HERBALIFE LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,
2023

 

 

September 30,
2022

 

 

 

(in millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

132.0

 

 

$

266.9

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

85.1

 

 

 

87.2

 

Share-based compensation expenses

 

 

35.7

 

 

 

37.5

 

Non-cash interest expense

 

 

5.5

 

 

 

5.0

 

Deferred income taxes

 

 

(25.9

)

 

 

(11.5

)

Inventory write-downs

 

 

21.9

 

 

 

29.2

 

Foreign exchange transaction (gain) loss

 

 

(2.7

)

 

 

10.0

 

Gain on extinguishment of debt

 

 

(1.0

)

 

 

 

Other

 

 

2.9

 

 

 

(15.1

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(11.8

)

 

 

(23.9

)

Inventories

 

 

62.9

 

 

 

(37.4

)

Prepaid expenses and other current assets

 

 

(24.5

)

 

 

(26.1

)

Accounts payable

 

 

(12.1

)

 

 

(3.7

)

Royalty overrides

 

 

(8.8

)

 

 

(16.8

)

Other current liabilities

 

 

13.6

 

 

 

(21.8

)

Other

 

 

(11.4

)

 

 

19.4

 

Net cash provided by operating activities

 

 

261.4

 

 

 

298.9

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant, and equipment

 

 

(99.7

)

 

 

(113.6

)

Other

 

 

0.1

 

 

 

0.2

 

Net cash used in investing activities

 

 

(99.6

)

 

 

(113.4

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings from senior secured credit facility

 

 

195.0

 

 

 

433.0

 

Principal payments on senior secured credit facility and other debt

 

 

(278.1

)

 

 

(505.0

)

Repayment of convertible senior notes

 

 

(64.3

)

 

 

 

Debt issuance costs

 

 

(1.8

)

 

 

 

Share repurchases

 

 

(9.7

)

 

 

(146.6

)

Other

 

 

2.3

 

 

 

3.4

 

Net cash used in financing activities

 

 

(156.6

)

 

 

(215.2

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(5.5

)

 

 

(40.0

)

Net change in cash, cash equivalents, and restricted cash

 

 

(0.3

)

 

 

(69.7

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

516.3

 

 

 

610.4

 

Cash, cash equivalents, and restricted cash, end of period

 

$

516.0

 

 

$

540.7

 

 

See the accompanying notes to unaudited condensed consolidated financial statements.

6


 

HERBALIFE LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization

Herbalife Ltd. (formerly Herbalife Nutrition Ltd.), a Cayman Islands exempted company with limited liability, was incorporated on April 4, 2002. Herbalife Ltd. (and together with its subsidiaries, the “Company” or “Herbalife”) is a global nutrition company that sells weight management; targeted nutrition; energy, sports, and fitness; and outer nutrition products to and through a network of independent members, or Members. In China, the Company sells its products to and through independent service providers and sales representatives to customers and preferred customers, as well as through Company-operated retail platforms when necessary. The Company sells its products in five geographic regions: North America; Latin America, which consists of Mexico and South and Central America; EMEA, which consists of Europe, the Middle East, and Africa; Asia Pacific (excluding China); and China. See Note 6, Segment Information, for further information regarding geographic regions.

2. Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or SEC, Regulation S-X. Accordingly, as permitted by Article 10 of the SEC’s Regulation S-X, it does not include all of the information required by generally accepted accounting principles in the U.S., or U.S. GAAP, for complete financial statements. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP, as permitted by Article 10 of the SEC’s Regulation S-X. The Company’s unaudited condensed consolidated financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 include Herbalife Ltd. and all of its direct and indirect subsidiaries. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited condensed consolidated financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 10-K. Operating results for the three and nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Recently Adopted Pronouncements

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging — Portfolio Layer Method. This ASU improves hedge accounting to better portray the economic results of an entity’s risk management activities in its financial statements. It expands the current last-of-layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio, and to reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The amendments in this update are effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company’s condensed consolidated financial statements.

In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs and a rollforward of the related obligations. The new standard does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for reporting periods beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for periods beginning after December 15, 2023. The adoption of this guidance during the first quarter of 2023 did not have a material impact on the Company's condensed consolidated financial statements.

7


 

In July 2023, the FASB issued ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement- Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation- Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 − General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which among various updates, includes (1) clarification on comprehensive income presentation for registrants having more than one class of common stock and (2) more specifically, clarifies language on considering the impact of material non-public information over share-based payment transactions, such as spring-loaded grants, when a) estimating the expected volatility for valuation purposes and b) calculating the fair value of the share based payment transactions to take into account a minimum amount of factors, including the current price of underlying shares. In addition, this ASU, also describes disclosure requirements for share-based payment transactions relating to these types of spring-loaded grant arrangements. This ASU does not provide any new guidance so there is no transition or effective date associated with this ASU which did not have a material impact on the Company's condensed consolidated financial statements.

New Accounting Pronouncements

In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842) - Common Control Arrangements. This ASU addresses issues related to accounting for leases under common control arrangements. The standard will include an amendment to Topic 842 for all entities with leasehold improvements in common control arrangements to amortize leasehold improvements that it owns over the improvements’ useful life to the common control group if certain criteria are met. The amendments in this update are effective for reporting periods beginning after December 15, 2023, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s condensed consolidated financial statements.

In August 2023, the FASB issued ASU No. 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement. This ASU addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The objectives of the amendments are to (1) provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and (2) reduce diversity in practice. The standard will require that a joint venture apply a new basis of accounting upon formation. By applying a new basis of accounting, a joint venture, upon formation, will recognize and initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). In addition, the update on the standard requires certain disclosures enabling financial statement users to understand the nature and financial effect of the joint venture formation in the period in which the formation date occurs. The amendments in this update do not amend the definition of a joint venture (or a corporate joint venture), the accounting by an equity method investor for its investment in a joint venture, or the accounting by a joint venture for contributions received after its formation. The amendments in this update are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. The adoption of this guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which amends the disclosure or presentation requirements of a variety of topics in the accounting standards codification in order to conform with certain SEC amendments in Release No. 33-10532, Disclosure Update and Simplification. The effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective. The Company is evaluating the potential impact of this guidance on its condensed consolidated financial statements.

Revenue Recognition

The Company’s net sales consist of product sales. In general, the Company’s performance obligation is to transfer its products to its Members. The Company generally recognizes revenue when product is delivered to its Members. For the majority of China independent service providers and for third-party importers utilized in certain other countries where sales historically have not been material, the Company recognizes revenue based on the Company’s estimate of when the service provider or third-party importer sells the products because the Company is deemed to be the principal party of these product sales due to the additional selling and operating requirements relating to pricing of products, conducting business with physical locations, and other selling and marketing activities required of the service providers and third-party importers. The Company recognizes revenue for certain China independent service providers upon delivery as such Members have pricing discretion and increased fulfillment responsibilities and accordingly were determined to be the Company’s customers for accounting purposes.

The Company’s Members, excluding its China independent service providers, may receive distributor allowances, which are comprised of discounts, rebates, and wholesale commission payments from the Company. Distributor allowances resulting from the Company’s sales of its products to its Members are recorded against net sales because the distributor allowances represent discounts from the suggested retail price.

8


 

The Company compensates its sales leader Members with royalty overrides for services rendered relating to the development, retention, and management of their sales organizations. Royalty overrides are payable based on achieved sales volume. Royalty overrides are classified as an operating expense reflecting the services provided to the Company. The Company compensates its China independent service providers and third-party importers utilized in certain other countries for providing marketing, selling, and customer support services. For China and third-party importer sales transactions, as the Company is the principal party for the majority of these product sales as described above, the majority of service fees payable to China independent service providers and the compensation received by third-party importers for the services they provide, which represents the discount provided to them, are recorded in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. In addition, for those certain China independent service providers who are deemed to be the Company’s customers for accounting purposes as described above, a portion of the service fees payable to these Members will be classified as a reduction of net sales as opposed to the entire service fee being recognized within selling, general, and administrative expenses.

The Company recognizes revenue when it delivers products to its United States Members; distributor allowances, inclusive of discounts and wholesale commissions, are recorded as a reduction to net sales; and royalty overrides are classified as an operating expense.

Shipping and handling services relating to product sales are recognized as fulfillment activities on the Company’s performance obligation to transfer products and are therefore recorded within net sales as part of product sales and are not considered as separate revenues. Shipping and handling costs paid by the Company are included in cost of sales.

The Company presents sales taxes collected from customers on a net basis.

The Company generally receives the net sales price in cash or through credit card payments at the point of sale. Accounts receivable consist principally of credit card receivables arising from the sale of products to the Company’s Members, and its collection risk is reduced due to geographic dispersion. Credit card receivables were $56.4 million and $52.4 million as of September 30, 2023 and December 31, 2022, respectively. Substantially all credit card receivables were current as of September 30, 2023 and December 31, 2022. The Company recorded bad-debt expense related to allowances for the Company’s receivables of approximately $0.1 million during the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $1.8 million and $2.1 million, respectively. As of September 30, 2023 and December 31, 2022, the majority of the Company’s total outstanding accounts receivable were current.

The Company records advance sales deposits when payment is received but revenue has not yet been recognized. In the majority of the Company’s markets, advance sales deposits are generally recorded to income when the product is delivered to its Members. Additionally, advance sales deposits also include deferred revenues due to the timing of revenue recognition for products sold through China independent service providers. The estimated deferral period for advance sales deposits is generally within one week. During the nine months ended September 30, 2023, the Company recognized substantially all of the revenues that were included within advance sales deposits as of December 31, 2022 and any remaining such balance was not material as of September 30, 2023. Advance sales deposits are included in other current liabilities on the Company’s condensed consolidated balance sheets. See Note 14, Detail of Certain Balance Sheet Accounts, for further information.

In general, if a Member returns product to the Company on a timely basis, they may obtain replacement product from the Company for such returned products. In addition, in general the Company maintains a buyback program pursuant to which it will repurchase products sold to a Member who has decided to leave the business. Allowances for product returns, primarily in connection with the Company’s buyback program, are provided at the time the sale is recorded. This accrual is based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received over a period of up to 12 months following the original sale. Allowances for product returns were $1.8 million and $2.1 million as of September 30, 2023 and December 31, 2022, respectively.

The Company’s products are grouped in five product categories: weight management; targeted nutrition; energy, sports, and fitness; outer nutrition; and literature and promotional items. However, the effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among all five product categories. The Company defines its operating segments through five geographic regions. The effect of economic factors on the nature, amount, timing, and uncertainty of revenue recognition and cash flows are similar among the geographic regions within the Company’s Primary Reporting Segment. See Note 6, Segment Information, for further information on the Company’s reportable segments and the Company’s presentation of disaggregated revenue by reportable segment.

9


 

Distributor Compensation – U.S.

In the U.S., distributor compensation, including Royalty overrides, is capped if the Company does not meet an annual requirement as described in the consent order discussed in more detail in Note 5, Contingencies. On a periodic basis, the Company evaluates if this requirement will be achieved by year end to determine if a cap on distributor compensation will be required, and then determines the appropriate amount of distributor compensation expense, which may vary in each reporting period. As of September 30, 2023, the Company believes that the cap to distributor compensation will not be applicable for the current year.

Other Operating Income

To encourage local investment and operations, governments in various China provinces conduct grant programs. The Company applied for and received several such grants in China. Government grants are recorded into income when a legal right to the grant exists, there is a reasonable assurance that the grant proceeds will be received, and the substantive conditions under which the grants were provided have been met. Generally, these substantive conditions are the Company maintaining operations and paying certain taxes in the relevant province and obtaining government approval by completing an annual application process. The Company believes the continuing obligation with respect to the funds is a general requirement that they are used only for its business in China. The Company did not recognize any government grant income related to its regional headquarters and distribution centers within China during the three months ended September 30, 2023 and 2022. The Company recognized government grant income related to its regional headquarters and distribution centers within China of approximately $10.1 million and $14.9 million during the nine months ended September 30, 2023 and 2022, respectively, in other operating income within its condensed consolidated statements of income. The Company intends to continue applying for government grants in China when programs are available; however, there is no assurance that the Company will receive grants in future periods.

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s condensed consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s condensed consolidated statements of cash flows:

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(in millions)

 

Cash and cash equivalents

 

$

495.7

 

 

$

508.0

 

Restricted cash included in Prepaid expenses and other current assets

 

 

15.5

 

 

 

2.5

 

Restricted cash included in Other assets

 

 

4.8

 

 

 

5.8

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

516.0

 

 

$

516.3

 

 

The majority of the Company’s consolidated restricted cash held by certain of its foreign entities consists of cash deposits that are required due to the business operating requirements in those jurisdictions. In addition, as of September 30, 2023, the Company's consolidated restricted cash also includes $12.5 million in deposits into an escrow account in the U.S. for the class action lawsuit, titled Rodgers, et al. v Herbalife Ltd., et al. See Note 5, Contingencies, for further information.

Use of Estimates

The Company continues to operate in an uncertain macroeconomic and geopolitical environment caused by high inflation, foreign exchange rate fluctuations, the war in Ukraine, lingering COVID-19 pandemic impacts and other factors. The Company is closely monitoring the evolving macroeconomic and geopolitical conditions to assess potential impacts on its business. Due to the significant uncertainty created by these circumstances, actual results could differ from Management's estimates and judgments. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current macroeconomic environment, which estimates and assumptions the Company believes to be reasonable under the circumstances. Changes in estimates resulting from continuing changes in the macroeconomic environment will be reflected in the financial statements in future periods.

10


 

3. Inventories

Inventories consist primarily of finished goods available for resale. Inventories are stated at lower of cost (primarily on the first-in, first-out basis) and net realizable value.

The following are the major classes of inventory:

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(in millions)

 

Raw materials

 

$

75.9

 

 

$

83.1

 

Work in process

 

 

11.0

 

 

 

7.0

 

Finished goods

 

 

409.9

 

 

 

490.6

 

Total

 

$

496.8

 

 

$

580.7

 

 

4. Long-Term Debt

Long-term debt consists of the following:

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(in millions)

 

Borrowings under senior secured credit facility, carrying value

 

$

890.5

 

 

$

971.3

 

2.625% convertible senior notes due 2024, carrying value

 

 

196.6

 

 

 

261.2

 

4.250% convertible senior notes due 2028, carrying value

 

 

270.1

 

 

 

269.1

 

7.875% senior notes due 2025, carrying value

 

 

596.7

 

 

 

595.6

 

4.875% senior notes due 2029, carrying value

 

 

594.2

 

 

 

593.6

 

Other

 

 

3.5

 

 

 

1.2

 

Total

 

 

2,551.6

 

 

 

2,692.0

 

Less: current portion

 

 

232.6

 

 

 

29.5

 

Long-term portion

 

$

2,319.0

 

 

$

2,662.5

 

 

Senior Secured Credit Facility

On August 16, 2018, the Company entered into a $1.25 billion senior secured credit facility, or the 2018 Credit Facility, consisting of a $250.0 million term loan A, or the 2018 Term Loan A, a $750.0 million term loan B, or the 2018 Term Loan B, and a $250.0 million revolving credit facility, or the 2018 Revolving Credit Facility, with a syndicate of financial institutions as lenders. The 2018 Term Loan B matures upon the earlier of: (i) August 18, 2025, or (ii) December 15, 2023 if the outstanding principal on the 2024 Convertible Notes, as defined below, exceeds $350.0 million and the Company exceeds certain leverage ratios as of that date. As described further below, the outstanding principal on the 2024 Convertible Notes was less than $350.0 million as of September 30, 2023. All obligations under the 2018 Credit Facility are unconditionally guaranteed by certain direct and indirect wholly-owned subsidiaries of Herbalife Ltd. and secured by the equity interests of certain of Herbalife Ltd.’s subsidiaries and substantially all of the assets of the domestic loan parties. Also on August 16, 2018, the Company issued $400.0 million aggregate principal amount of senior unsecured notes, or the 2026 Notes as described below, and used the proceeds from the 2018 Credit Facility and the 2026 Notes to repay in full the $1,178.1 million outstanding under the Company’s prior senior secured credit facility.

The 2018 Term Loan B was issued to the lenders at a 0.25% discount, or $1.9 million. The Company incurred approximately $11.7 million of debt issuance costs in connection with the 2018 Credit Facility. The discount and debt issuance costs are recorded on the Company’s condensed consolidated balance sheet and are being amortized over the life of the 2018 Credit Facility using the effective-interest method.

On December 12, 2019, the Company amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B from either the eurocurrency rate plus a margin of 3.25% or the base rate plus a margin of 2.25% to either the eurocurrency rate plus a margin of 2.75% or the base rate plus a margin of 1.75%. The Company incurred approximately $1.2 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to FASB ASC Topic 470, Debt, or ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. The debt issuance costs were recognized in interest expense, net within the Company’s condensed consolidated statement of income during the fourth quarter of 2019.

11


 

On March 19, 2020, the Company amended the 2018 Credit Facility which, among other things, extended the maturity of both the 2018 Term Loan A and 2018 Revolving Credit Facility to the earlier of: (i) March 19, 2025, or (ii) September 15, 2023 if the outstanding principal on the 2024 Convertible Notes, as defined below, exceeds $350.0 million and the Company exceeds certain leverage ratios as of that date (as described further below, the outstanding principal on the 2024 Convertible Notes was less than $350.0 million as of September 30, 2023); increased borrowings under the 2018 Term Loan A from $234.4 million to a total of $264.8 million; increased the total available borrowing capacity under 2018 Revolving Credit Facility from $250.0 million to $282.5 million; and reduced the interest rate for borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility from either the eurocurrency rate plus a margin of 3.00% or the base rate plus a margin of 2.00% to either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The Company incurred approximately $1.6 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. Of the $1.6 million of debt issuance costs, approximately $1.1 million was recorded on the Company’s condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.5 million was recognized in interest expense, net within the Company’s condensed consolidated statement of income during the first quarter of 2020.

On February 10, 2021, the Company amended the 2018 Credit Facility which, among other things, reduced the interest rate for borrowings under the 2018 Term Loan B from either the eurocurrency rate plus a margin of 2.75% or the base rate plus a margin of 1.75% to either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The Company incurred approximately $1.1 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. The debt issuance costs were recognized in interest expense, net within the Company’s condensed consolidated statement of income during the first quarter of 2021.

On July 30, 2021, the Company amended the 2018 Credit Facility which, among other things, increased borrowings under the 2018 Term Loan A from $245.0 million to a total of $286.2 million; increased the total available borrowing capacity under the 2018 Revolving Credit Facility from $282.5 million to $330.0 million; reduced the interest rate for borrowings under the 2018 Term Loan A and 2018 Revolving Credit Facility from either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50% to, depending on the Company’s total leverage ratio, either the eurocurrency rate plus a margin of between 1.75% and 2.25% or the base rate plus a margin of between 0.75% and 1.25%; and amended the commitment fee on the undrawn portion of the 2018 Revolving Credit Facility from 0.35% per annum to, depending on the Company’s total leverage ratio, between 0.25% to 0.35% per annum. As a result of the amendment, the applicable margin for the 2018 Term Loan A and 2018 Revolving Credit Facility is currently subject to certain premiums or discounts tied to criteria determined by certain sustainability targets where the applicable margin may increase or decrease up to three basis points. The Company incurred approximately $1.4 million of debt issuance costs in connection with the amendment. For accounting purposes, pursuant to ASC 470, this transaction was accounted for as a modification of the 2018 Credit Facility. Of the $1.4 million of debt issuance costs, approximately $0.8 million was recorded on the Company’s condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.6 million was recognized in interest expense, net within the Company’s condensed consolidated statement of income during the third quarter of 2021.

During the second quarter of 2023, the Company amended the 2018 Credit Facility which, among other things, increased the leverage ratio covenant under both the 2018 Term Loan A and 2018 Revolving Credit Facility. In addition, the 2018 Credit Facility was also amended to transition from LIBOR to the Secured Overnight Financing Rate, or SOFR, in connection with the discontinuation of LIBOR as of June 30, 2023. Following the transition, borrowings utilizing SOFR under the 2018 Credit Facility began using the “Adjusted Term SOFR”, which is the rate per annum equal to Term SOFR plus a rate adjustment based on interest periods of one month, three months, six months and twelve months tenors equaling to approximately 0.11%, 0.26%, 0.43% and 0.72%, respectively. The Company incurred approximately $1.1 million of debt issuance costs in connection with these amendments. For accounting purposes, pursuant to ASC 470, these transactions were accounted for as modifications of the 2018 Credit Facility. Of the $1.1 million of debt issuance costs, approximately $1.0 million was recorded on the Company’s condensed consolidated balance sheet and is being amortized over the life of the 2018 Credit Facility using the effective-interest method, and approximately $0.1 million was recognized in interest expense, net within the Company’s condensed consolidated statement of income during the second quarter of 2023.

Through June 30, 2023, under the 2018 Credit Facility, borrowings under both the 2018 Term Loan A and 2018 Revolving Credit Facility bore interest at, depending on the Company’s total leverage ratio, either the eurocurrency rate plus a margin of between 1.75% and 2.25% or the base rate plus a margin of between 0.75% and 1.25%. Additionally, borrowings under the 2018 Term Loan B bore interest at either the eurocurrency rate plus a margin of 2.50% or the base rate plus a margin of 1.50%. The eurocurrency rate was based on adjusted LIBOR and was subject to a floor of 0.00%. The base rate represented the highest of the Federal Funds Rate plus 0.50%, one-month adjusted LIBOR plus 1.00%, and the prime rate quoted by The Wall Street Journal, and was subject to a floor of 1.00%.

12


 

Beginning July 1, 2023, the borrowings utilizing SOFR under both the 2018 Term Loan A and 2018 Revolving Credit Facility, began bearing interest at, depending on the Company’s total leverage ratio, either the Adjusted Term SOFR plus a margin of between 1.75% and 2.25%, or the base rate plus a margin of between 0.75% and 1.25%. The applicable margin may also be subject to certain premiums or discounts tied to criteria determined by certain sustainability targets, as described above. Borrowings utilizing SOFR under the 2018 Term Loan B began bearing interest at either, the Adjusted Term SOFR plus a margin of 2.50%, or the base rate plus a margin of 1.50%. The Adjusted Term SOFR is also subject to a floor of 0.00%. The base rate represents the highest of the Federal Funds Rate plus 0.50%, one-month Adjusted Term SOFR plus 1.00%, and the prime rate quoted by The Wall Street Journal and continues to be subject to a floor of 1.00%. The transition to Adjusted Term SOFR did not affect the margins previously applied to LIBOR or the base rate, as described further above. The Company will continue to be required to pay a commitment fee on the 2018 Revolving Credit Facility of, depending on the Company’s total leverage ratio, between 0.25% to 0.35% per annum on the undrawn portion of the 2018 Revolving Credit Facility. Interest continues to be due at least quarterly on amounts outstanding under the 2018 Credit Facility.

The 2018 Credit Facility requires the Company to comply with a leverage ratio. The 2018 Credit Facility also contains affirmative and negative covenants customary for financings of this type, including, among other things, limitations or prohibitions on repurchasing common shares, declaring and paying dividends and other distributions, redeeming and repurchasing certain other indebtedness, loans and investments, additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the 2018 Credit Facility contains customary events of default. As of September 30, 2023 and December 31, 2022, the Company was in compliance with its debt covenants under the 2018 Credit Facility.

The 2018 Term Loan A and 2018 Term Loan B are payable in consecutive quarterly installments which began on December 31, 2018. In addition, beginning in 2020, the Company may be required to make mandatory prepayments towards the 2018 Term Loan B based on the Company’s consolidated leverage ratio and annual excess cash flows as defined under the terms of the 2018 Credit Facility. The Company is also permitted to make voluntary prepayments. Amounts outstanding under the 2018 Term Loan A and 2018 Term Loan B may be voluntarily prepaid without premium or penalty, subject to customary breakage fees in connection with the prepayment of a eurocurrency loan. These prepayments, if any, will be applied against remaining quarterly installments owed under the 2018 Term Loan A and 2018 Term Loan B in order of maturity with the remaining principal due upon maturity, unless directed otherwise by the Company. Based on the 2022 consolidated leverage ratio and excess cash flow calculation, both as defined under the terms of the 2018 Credit Facility, the Company will not be required to make a mandatory prepayment in 2023 toward the 2018 Term Loan B.

As of September 30, 2023 and December 31, 2022, the weighted-average interest rate for borrowings under the 2018 Credit Facility was 7.48% and 4.08%, respectively.

During the nine months ended September 30, 2023, the Company borrowed an aggregate amount of $195.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $276.7 million on amounts outstanding under the 2018 Credit Facility, which included $255.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility. During the nine months ended September 30, 2022, the Company borrowed an aggregate amount of $433.0 million under the 2018 Credit Facility, all of which was under the 2018 Revolving Credit Facility, and repaid a total amount of $504.7 million on amounts outstanding under the 2018 Credit Facility, which included $483.0 million of repayments on amounts outstanding under the 2018 Revolving Credit Facility. As of September 30, 2023 and December 31, 2022, the U.S. dollar amount outstanding under the 2018 Credit Facility was $894.0 million and $975.7 million, respectively. Of the $894.0 million outstanding under the 2018 Credit Facility as of September 30, 2023, $241.5 million was outstanding under the 2018 Term Loan A and $652.5 million was outstanding under the 2018 Term Loan B. There were no borrowings outstanding under the 2018 Revolving Credit Facility as of September 30, 2023. Of the $975.7 million outstanding under the 2018 Credit Facility as of December 31, 2022, $257.6 million was outstanding under the 2018 Term Loan A, $658.1 million was outstanding under the 2018 Term Loan B, and $60.0 million was outstanding under the 2018 Revolving Credit Facility. There were no outstanding foreign currency borrowings under the 2018 Credit Facility as of September 30, 2023 and December 31, 2022.

During the three months ended September 30, 2023 and 2022, the Company recognized $19.5 million and $12.6 million, respectively, of interest expense relating to the 2018 Credit Facility, which included less than $0.1 million and $0.1 million, respectively, relating to non-cash interest expense relating to the debt discount and $0.6 million and $0.4 million, respectively, relating to amortization of debt issuance costs. During the nine months ended September 30, 2023 and 2022, the Company recognized $54.7 million and $29.5 million, respectively, of interest expense relating to the 2018 Credit Facility, which included $0.2 million and $0.2 million, respectively, relating to non-cash interest expense relating to the debt discount and $1.6 million and $1.4 million, respectively, relating to amortization of debt issuance costs.

13


 

The fair value of the outstanding borrowings on the 2018 Term Loan A are determined by utilizing over-the-counter market quotes for similar instruments, which are considered Level 2 inputs as described in Note 12, Fair Value Measurements. As of September 30, 2023 and December 31, 2022, the carrying value of the 2018 Term Loan A was $240.8 million and $257.0 million, respectively, and the fair value was approximately $240.4 million and $250.0 million, respectively. The fair value of the outstanding borrowings under the 2018 Term Loan B are determined by utilizing over-the-counter market quotes, which are considered Level 2 inputs as described in Note 12, Fair Value Measurements. As of September 30, 2023 and December 31, 2022, the carrying amount of the 2018 Term Loan B was $649.7 million and $654.3 million, respectively, and the fair value was approximately $649.6 million and $638.8 million, respectively. The fair value of the outstanding borrowings on the 2018 Revolving Credit Facility approximated its carrying value of $60.0 million as of December 31, 2022 due to its variable interest rate which reprices frequently and represents floating market rates.

Convertible Senior Notes due 2024

In March 2018, the Company issued $550.0 million aggregate principal amount of convertible senior notes, or the 2024 Convertible Notes, in a private offering to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2024 Convertible Notes are senior unsecured obligations which rank effectively subordinate to any of the Company’s existing and future secured indebtedness, including amounts outstanding under the 2018 Credit Facility, to the extent of the value of the assets securing such indebtedness. The 2024 Convertible Notes pay interest at a rate of 2.625% per annum payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2018. Unless redeemed, repurchased or converted in accordance with their terms prior to such date, the 2024 Convertible Notes mature on March 15, 2024. Holders of the 2024 Convertible Notes may convert their notes at their option under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending June 30, 2018, if the last reported sale price of the Company’s common shares for at least 20 trading days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price for the 2024 Convertible Notes on each applicable trading day; (ii) during the five business-day period immediately after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of 2024 Convertible Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of the Company’s common shares and the conversion rate for the 2024 Convertible Notes for each such day; (iii) if the Company calls the 2024 Convertible Notes for redemption; or (iv) upon the occurrence of specified corporate events. On and after December 15, 2023, holders may convert their 2024 Convertible Notes at any time, regardless of the foregoing circumstances. In December 2021, the Company made an irrevocable election under the indenture governing the 2024 Convertible Notes to require the principal portion of the 2024 Convertible Notes to be settled in cash and any excess in shares or cash. Upon conversion, the 2024 Convertible Notes will be settled in cash and, if applicable, the Company’s common shares, based on the applicable conversion rate at such time. The 2024 Convertible Notes had an initial conversion rate of 16.0056 common shares per $1,000 principal amount of the 2024 Convertible Notes, or an initial conversion price of approximately $62.48 per common share. The conversion rate is subject to adjustment upon the occurrence of certain events and was 16.0467 common shares per $1,000 principal amount of the 2024 Convertible Notes, or a conversion price of approximately $62.32 per common share, as of September 30, 2023.

In March 2018, prior to the adoption of ASU 2020-06 as described further below, the $550.0 million aggregate principal amount of the 2024 Convertible Notes were initially allocated between long-term debt, or liability component, and additional paid-in capital, or equity component, within the Company’s condensed consolidated balance sheet at $410.1 million and $139.9 million, respectively. The liability component was measured using the nonconvertible debt interest rate. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the 2024 Convertible Notes as a whole. Since the Company must still settle these 2024 Convertible Notes at face value at or prior to maturity, this liability component was being accreted up to its face value prior to the adoption of ASU 2020-06, resulting in additional non-cash interest expense being recognized within the Company’s condensed consolidated statements of income while the 2024 Convertible Notes remain outstanding. Prior to the adoption of ASU 2020-06, the effective-interest rate on the 2024 Convertible Notes was approximately 8.4% per annum. The equity component was not to be remeasured as long as it continued to meet the conditions for equity classification.

The Company incurred approximately $12.9 million of issuance costs during the first quarter of 2018 relating to the issuance of the 2024 Convertible Notes. Of the $12.9 million issuance costs incurred, $9.6 million and $3.3 million were recorded as debt issuance costs and additional paid-in capital, respectively, in proportion to the allocation of the proceeds of the 2024 Convertible Notes prior to the adoption of ASU 2020-06. The $9.6 million of debt issuance costs, which was recorded as an additional debt discount on the Company’s condensed consolidated balance sheet, are being amortized over the contractual term of the 2024 Convertible Notes using the effective-interest method.

As a result of adopting ASU 2020-06, on January 1, 2022, the Company increased long-term debt by approximately $59.1 million, reduced paid-in capital in excess of par value by approximately $136.7 million, and decreased accumulated deficit by approximately $77.6 million within its condensed consolidated balance sheet. In addition, the effective-interest on the 2024 Convertible Notes is approximately 3.1% per annum. See Note 2, Significant Accounting Policies, of the 2022 10-K for further information on the Company’s adoption of ASU 2020-06.

14


 

In December 2022, the Company issued $277.5 million aggregate principal amount of new convertible senior notes due 2028, or the 2028 Convertible Notes as described below, and subsequently used the proceeds, to repurchase $287.5 million of its existing 2024 Convertible Notes from a limited number of holders in privately negotiated transactions for an aggregate purchase price of $274.9 million, which included $1.7 million of accrued interest. For accounting purposes, pursuant to ASC 470, Debt, these transactions were accounted for as an extinguishment of 2024 Convertible Notes and an issuance of new 2028 Convertible Notes. As a result, the Company recognized $286.0 million as a reduction to long-term debt representing the carrying value of the repurchased 2024 Convertible Notes. The $12.8 million difference between the cash paid and carrying value of the repurchased 2024 Convertible Notes was recognized as a gain on the extinguishment of debt and is recorded in other (income) expense, net within the Company’s consolidated statement of income during the fourth quarter of 2022. The accounting impact of the new 2028 Convertible Notes is described in further detail below.

In August 2023, the Company repurchased $65.5 million of its existing 2024 Convertible Notes through open market purchases for an aggregate purchase price of $65.1 million, which included $0.8 million of accrued interest. For accounting purposes, pursuant to ASC 470, Debt, these transactions were accounted for as an extinguishment of the 2024 Convertible Notes. As a result, the Company recognized $65.3 million as a reduction to current portion of long-term debt representing the carrying value of the repurchased 2024 Convertible Notes. The $1.0 million difference between the cash paid and carrying value of the repurchased 2024 Convertible Notes was recognized as a gain on the extinguishment of debt and is recorded in other income, net within the Company’s condensed consolidated statement of income during the third quarter of 2023.

As of September 30, 2023, the remaining outstanding principal on the 2024 Convertible Notes was $197.0 million, the unamortized debt issuance costs were $0.4 million, and the carrying amount was $196.6 million, which was recorded to current portion of long-term debt within the Company’s condensed consolidated balance sheet. As of December 31, 2022, the remaining outstanding principal on the 2024 Convertible Notes was $262.5 million, the unamortized debt issuance costs were $1.3 million, and the carrying amount was $261.2 million, which was recorded to long-term debt within the Company’s condensed consolidated balance sheet. The fair value of the 2024 Convertible Notes was approximately $192.9 million and $243.3 million as of September 30, 2023 and December 31, 2022, respectively, and was determined by utilizing over-the-counter market quotes, which are considered Level 2 inputs as defined in Note 12, Fair Value Measurements.

During the three months ended September 30, 2023 and 2022, the Company recognized $1.9 million and $4.2 million, respectively, of interest expense relating to the 2024 Convertible Notes, which included $0.3 million and $0.6 million, respectively, relating to amortization of debt issuance costs. During the nine months ended September 30, 2023 and 2022, the Company recognized $5.7 million and $12.5 million, respectively, of interest expense relating to the 2024 Convertible Notes, which included $0.8 million and $1.7 million, respectively, relating to amortization of debt issuance costs.<