Isagenix Worldwide Inc. Ratings Affirmed; Outlook Revised To Negative As Operating Performance Falters

  • Due to intensifying competition and declining sales associate activities, operating performance at Isagenix Worldwide Inc. has failed to meet our expectations, and adjusted debt to EBITDA for the last 12 months has risen to the high-3x area.
  • We expect that heightened competition in the multi-level, direct sales, weight loss industry will continue to pressure revenue in 2019, and that Isagenix's performance might suffer.
  • We are affirming all of our ratings on the company, including our 'B+' issuer credit rating.
  • However, we are revising the ratings outlook to negative from stable, indicating that we could lower the ratings over the next 12 months if the company fails to stabilize its operating performance and leverage exceeds 4x.
NEW YORK (S&P Global Ratings) Feb. 14, 2019—S&P Global Ratings today took the 
rating actions listed above. Our outlook revision reflects the risk that 
Isagenix could have difficulties stabilizing its operating performance in 2019 
as it faces intensifying competition for sales representatives and needs to 
increase productivity of its active representatives and add new customers to 
restore sales growth. The company's operating performance fell short of our 
expectations and caused credit metrics to deteriorate significantly. Its LTM 
adjusted leverage increased to the high-3x area as of Sep 30, 2018, which is 
higher than our previous expectations for adjusted leverage under 3x. In 
addition, company cannot pre-pay debt because of a hard-call protection for 12 
months. Thus, Isagenix cannot repay its term loan until later in 2019.  We 
could lower the rating if sales and profit continue to decline, resulting in 
credit metrics to further deteriorate, including leverage exceeding 4x.  
The negative outlook reflects the potential for a lower rating over the next 
12 months if Isagenix does not stabilize its operating performance resulting 
in further deterioration of credit metrics such that leverage exceeds 4x. We 
could lower the ratings if the company cannot increase enrollment and improve 
productivity of its sales associate or if greater competitive pressure for 
sales representatives hinders the company's efforts to stabilize its operating 
performance, resulting in leverage increasing to 4x or more. 

We could revise the outlook to stable if Isagenix increases its member base 
(including sales associates), successfully introduces new products, begins to 
benefit from its upgraded e-commerce platform, and uses its free cash flow for 
debt repayment. Leverage would also need to fall below 3x for us to consider a 
stable outlook.
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