NU SKIN ENTERPRISES, INC. (NUS)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes, which are included in this
Annual Report on Form 10-K.

Business Overview

Our Products

Nu Skin Enterprises, Inc. develops and distributes a comprehensive line of premium-quality beauty and wellness solutions in nearly 50 markets worldwide. In 2024, our revenue of $1.7
billion was primarily generated by our three primary brands: our beauty brand, Nu Skin; our wellness brand, Pharmanex; and our anti-aging brand, ageLOC. We operate in the direct selling channel, primarily
utilizing person-to-person marketing to promote and sell our products, including through the use of social and digital platforms. In all of our markets besides Mainland China, we refer to members of our independent sales force as “Brand Affiliates”
because their primary role is to promote our brand and products through their personal and social networks.

In addition to our core Nu Skin business, we also explore new areas of synergistic and adjacent growth through our business arm known as Rhyz Inc. Our Rhyz businesses primarily consist of consumer,
technology and manufacturing companies. In 2024, the Rhyz companies generated $286.6 million, or 17% of our 2024 reported revenue (excluding sales to our core Nu Skin business). Rhyz is a key component of our business, and these companies enable us
to reduce our cost of goods, improve lead times, diversify our revenue mix, and create synergies for our owned and partner brands.

Recent Developments

Until January 2025, the Rhyz businesses included MyFavoriteThings, Inc., dba Mavely, a social commerce platform. As previously announced, we sold
this business in January 2025 for total consideration consisting of $230 million in cash, subject to certain adjustments as set forth in the purchase agreement, including post-closing determination of net working capital and other elements of
the purchase price, and a number of shares of the purchaser’s common stock valued by the parties at $20 million. Following the completion of certain payments to other equity holders in Mavely, we expect to retain approximately $201 million of
cash, subject to certain adjustments as set forth in the purchase agreement, and a number of shares of the purchaser’s common stock valued at $10 million. Mavely accounted for $69.6 million of our 2024 reported revenue.

Our Global Operations

In 2024, we generated approximately 30% of our revenue from the United States (consisting of our Nu Skin United States and Rhyz businesses) and the remainder from our international markets. Given the
size of our international operations, our results, as reported in U.S. dollars, are often impacted by foreign-currency fluctuations; in 2024, our revenue was negatively impacted 4% from foreign-currency fluctuations compared to 2023. Our results
also can be impacted by global economic, political, demographic and business trends and conditions.

A Global Network of Customers, Paid Affiliates and Sales Leaders

As of December 31, 2024, we had 831,972 persons who purchased directly from the company during the previous three months (“Customers”). Our Customer numbers include members of our sales force who made
such a purchase, including Paid Affiliates and those who qualify as Sales Leaders, but they do not include consumers who purchase directly from members of our sales force. We believe a significant majority of Customers purchase our products
primarily for personal or family consumption but are not actively pursuing the opportunity to generate supplemental income by actively and consistently marketing and reselling products.

Our revenue is highly influenced by the number and productivity of our Sales Leaders. “Sales Leaders” are our Brand Affiliates, as well as sales employees and independent marketers in Mainland China,
who achieve certain qualification requirements. Our reported Sales Leaders number is the three-month average of our monthly Sales Leaders as of the end of each month of the quarter.

As we continue to focus on customer acquisition and social commerce, we believe our number of Paid Affiliates is an important indicator of consumer purchasing activity in our business. “Paid
Affiliates” are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the previous three months. Paid Affiliates power our social commerce model and are a bridge to attracting new
customers and nurturing relationships and community.

We have been successful in attracting and motivating our sales force by:

Our global sales force helps us to rapidly introduce products and penetrate our markets with modest up-front promotional expense. We rely on our sales force to create consumer demand for our products,
as opposed to a traditional approach of advertising-generated consumer awareness. Our approach is particularly effective with products that benefit from personal education and demonstration. Similar to other companies in our industry, we experience
relatively high turnover among our sales force.

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To enhance customer retention, we have developed product subscription and loyalty programs that provide incentives for consumers to commit to purchase a specific amount of product on a monthly basis.
All purchases under these programs are subject to our standard product payment and return policies. We believe these subscription and loyalty programs have improved consumer retention, have had a stabilizing impact on revenue and have helped
generate recurring sales.

Product Innovation

Our sales force markets and sells our products, and attracts others to the opportunity, based on the distinguishing benefits and innovative characteristics of our products. As a result, we leverage
our scientific expertise and product development resources to introduce innovative beauty, wellness and anti-aging products. Our sales force is increasingly using social media to market and sell our products. To continue to leverage social media,
it is imperative that we develop demonstrable products that are unique and engaging to younger consumers. We strive to strike a balance between the expenses associated with our scientific expertise and sales compensation with a competitive price
point.

Any delays or difficulties in introducing compelling products or attractive initiatives or tools into our markets may have a negative impact on our revenue and our number of Customers, Paid Affiliates
and Sales Leaders.

Our Product Launch Process

Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product introduction
or promotion. We refer to the entire process, beginning with the introductory offering through general availability of the product, as a product launch or our product launch process. The timing of the launch of a particular product often varies from
market to market depending on such factors as customer demand, affiliate brand focus, product registration or other local legal requirements, and product availability in our supply chain.

Sales Leader previews and other product introductions and promotions sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the
quarter and skew year-over-year and sequential comparisons. We believe our product launch process attracts new Customers, Paid Affiliates and Sales Leaders to our business, increases consumer trial, and provides us with important marketing and
forecasting information about our products. Please refer to Item 1A. Risk Factors for more information on risks related to our product launch process.

Income Statement Presentation

We report revenue in nine segments, and we translate revenue from each market’s local currency into U.S. dollars using weighted-average exchange rates. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring products. All revenue associated with a contract is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring the promised
products to the customer, with revenue recognized at shipping point, the point in time the customer obtains control of the products. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by
the customer. In most markets, we offer a return policy that allows our sales force to return unopened and unused product for up to 30 days for a full refund, or 12 months subject to a 10% restocking fee. Reported revenue is net of returns, which
have historically been less than 5% of annual revenue. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded
from net sales.

Cost of sales primarily consists of:

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For markets other than Mainland China, in 2024, we sourced most of our beauty products and wellness products from trusted third-party suppliers and manufacturers. In Mainland China, we operate
manufacturing facilities where we produce the majority of our beauty and wellness products sold in Mainland China. We also produce some products at these facilities that are exported to other markets. In addition, our Rhyz Manufacturing entities in
the United States are producing some of our products. Cost of sales and gross profit, on a consolidated basis, may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party vendors. In
addition, because we purchase a significant amount of our goods in U.S. dollars and recognize revenue in local currencies, our gross margin is subject to exchange rate risks. Because our gross margins vary from product to product and due to higher
pricing in some markets, changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis.

Selling expenses are our most significant expense and are classified as operating expenses. Selling expenses include sales commissions paid to our sales force, special incentives, costs for incentive
trips, cost of sales force conventions and other rewards, as well as salaries, service fees, benefits, bonuses and other labor and unemployment expenses we pay to our sales force in Mainland China. The sales force conventions are held in various
markets worldwide, which we generally expense in the period in which they are incurred. Because our various sales force conventions are not held during each fiscal year, or in the same period each year, their impact on our general and administrative
expenses may vary from year to year and from quarter to quarter. For example, we currently plan to hold a global convention approximately every other year. We held our last in-person global convention in the third quarter of 2024, with an east event
in South Korea and a west event in the United States. These conventions have significant expenses associated with them. Because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods,
year-over-year comparisons have been impacted accordingly. Selling expenses do not include amounts we pay to our sales force based on their personal purchases; rather, such amounts are reflected as reductions to revenue. Our global sales compensation
plan, which we employ in all our markets except Mainland China, is an important factor in our ability to attract and retain our Sales Leaders. Under our global sales compensation plan, Sales Leaders can earn “multi-level” compensation, where they
earn commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained. We do not pay commissions on business portfolios. Fluctuations occur in the amount of commissions
paid as our numbers of Customers and Sales Leaders change from month to month, but the fluctuation in the overall payout as a percentage of revenue tends to be relatively small. Selling expenses as a percentage of revenue typically increase in
connection with a significant product offering, due to growth in the number of Sales Leaders qualifying for increased sales compensation and promotional incentives. From time to time, we make modifications and enhancements to our global sales
compensation plan in an effort to help motivate our sales force and develop leadership characteristics, which can have an impact on selling expenses.

Outside of Mainland China, Brand Affiliates also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up. We do not account for,
nor pay, additional commissions on these mark-ups received by Brand Affiliates. In many markets, we also allow individuals who are not part of our sales force, whom we refer to as “preferred customers,” to buy products directly from us at a
discount. We pay commissions on preferred customer purchases to the referring member of our sales force.

General and administrative expenses include:

Labor expenses are the most significant portion of our general and administrative expenses.

Provision for income taxes depends on the statutory tax rates and the withholding taxes in each of the jurisdictions in which we operate. For example, statutory tax rates in 2024 were approximately
17% in Hong Kong, 20% in Taiwan, 21% in South Korea, 32% in Japan and 25% in Mainland China. We are subject to taxation in the United States at the statutory corporate federal tax rate of 21% in 2024, and we pay taxes in multiple states within the
United States at various tax rates. Our overall effective tax rate was 16.3% for the year ended December 31, 2024, a decrease from the previous fiscal year due to the sale of the Company’s subsidiary Mavely on January 2, 2025.

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Critical Accounting Policies and Estimates

The following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto. Management considers our critical
accounting policies to be accounting for income taxes and accounting for intangible assets. In each of these areas, management makes estimates based on historical results, current trends and future projections.

Income Taxes. We account for income taxes in accordance with the Income Taxes Topic of the Financial Accounting Standards Codification. This Topic
establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. We take an asset and liability approach for financial accounting and
reporting of income taxes. We pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between Nu Skin affiliates around the
world. Deferred tax assets and liabilities are created in this process. As of December 31, 2024, we had net deferred tax assets of $173.9 million. We net these deferred tax assets and deferred tax liabilities by jurisdiction. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized. These deferred tax assets assume sufficient future earnings will exist for their realization and are calculated using anticipated tax
rates. In certain jurisdictions, valuation allowances have been recorded against the deferred tax assets specifically related to use of foreign tax credits for branch income and net operating losses. The valuation allowance assessment requires
estimates as to future operating results. These estimates are made on an ongoing basis based upon the Company's business plans and growth strategies in each market and consequently, future material changes in the valuation allowance are possible.
The valuation allowance reduces the deferred tax assets to an amount that management determined is more-likely-than-not to be realized. When we determine that there is sufficient taxable income to utilize the foreign tax credits or the net
operating losses, the valuation allowances will be released. In the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to
earnings in the period such determination was made. It is reasonably possible that within the next 12 months sufficient negative evidence may exist that will require us to establish additional valuation allowance on our deferred tax assets that we
do not expect to realize.

We evaluate our indefinite reinvestment assertions with respect to foreign earnings for each period. Other than earnings we intend to reinvest indefinitely, we accrue for the U.S. federal and state
income taxes applicable to the earnings. For all foreign earnings, we accrue the applicable foreign income taxes. We intend to utilize the offshore earnings to fund foreign investments, specifically capital expenditures. Undistributed earnings that
we have indefinitely reinvested aggregate to $60.0 million as of December 31, 2024. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.

The company operates in and files income tax returns in the U.S. and numerous foreign jurisdictions, which are subject to examination by tax authorities. Years open to examination
contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions, and tax credits. We account for uncertain tax positions in accordance with
Accounting Standards Codification ("ASC") 740, Income Taxes. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax
position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In 2009, we entered into a voluntary program with the IRS called Compliance Assurance Process (“CAP”).
Under the CAP program, the IRS audits the tax position of the Company to identify and resolve any tax issues that may arise throughout the tax year.  In 2022, the IRS
developed a new phase of CAP called "Bridge Plus." Under Bridge Plus the taxpayer is required to provide book-to-tax reconciliations, credit utilization and other supporting documentation shortly after their audited financial statement is
finalized.  The company was selected for the Bridge Plus phase for the 2023, 2024, and 2025 tax years. As of December 31, 2024, all open tax
years except 2021 have been audited and are effectively closed to further examination. For the tax year 2021, the Company was in the Bridge phase of the CAP program, pursuant to which the IRS did not accept disclosures, did not conduct reviews
and did not provide letters of assurance for the Bridge year. There are limited circumstances that tax years in the Bridge phase will be opened for examination. With a few exceptions, we are no longer subject to state and local income tax
examination by tax authorities for the years before 2021. Foreign jurisdictions have varying lengths of statutes of limitations for income tax examinations. Some statutes are as short as three years and in certain markets may be as long as ten
years. We are currently under examination in certain foreign jurisdictions; however, the outcomes of those reviews are not yet determinable.

Our unrecognized tax benefits are related to multiple foreign and domestic jurisdictions. Due to potential changes in unrecognized tax benefits from the multiple jurisdictions in which we operate, as
well as the expiration of various statutes of limitation, it is reasonably possible that our gross unrecognized tax benefits, net of foreign currency adjustments, may decrease within the next 12 months by a range of approximately $1.0 to $2.0
million.

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At December 31, 2024, we had $25.9 million in unrecognized tax benefits of which $25.9 million, if recognized, would affect the effective tax rate. In comparison, at December 31, 2023, we had $22.0
million in unrecognized tax benefits of which $22.0 million, if recognized, would affect the effective tax rate. We recognized an increase of approximately $0.7 million in interest and penalties expense during the year ended December 31, 2024 and
$0.6 million in interest and penalties during the year ended December 31, 2023. We had approximately $13.7 million, $13.0 million and $12.4 million of accrued interest and penalties related to uncertain tax positions at December 31, 2024, 2023 and
2022, respectively. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

In 2021, as part of the Organization for Economic Co-operation and Development's ("OECD") Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax
("Pillar Two") of 15%. The OECD continues to release additional guidance, including administrative guidance on how Pillar Two rules should be interpreted and applied by jurisdictions as they adopt Pillar Two. A number of countries have utilized the
administrative guidance as a starting point for legislation that went into effect January 1, 2024. The company did not have a tax impact related to Pillar Two in 2024 and based on current enacted legislation, the Company does not anticipate a
material impact related to  Pillar Two  for 2025.

In December 2024, The U.S. Treasury Department and IRS released final and proposed regulations relating to the determination under section 987 of taxable income or loss and foreign currency gain or
loss with respect to a qualified business unit (QBU). The final regulations are effective for tax years beginning after December 31, 2024, with early adoption permitted. We are currently evaluating the impact that this guidance will have on the
disclosures within our consolidated financial statements.

We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We account for such contingent liabilities in accordance with
relevant accounting standards and believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of
limitations; (ii) changes in tax law and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial
results.

Intangible Assets. Acquired intangible assets may represent indefinite-lived assets, determinable-lived intangibles or goodwill. Of these, only the costs of determinable-lived intangibles are
amortized to expense over their estimated life. The value of indefinite-lived intangible assets and residual goodwill is not amortized, but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately from
our impairment testing of indefinite-lived intangibles. We test goodwill for impairment, at least annually, by reviewing the book value compared to the fair value at the reportable unit level. We have the option to perform a qualitative assessment
to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not
required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is
less than its carrying amount, then the amount of the impairment loss, if any, must be measured. We elected to perform the quantitative assessment for fiscal year 2022 and we used the qualitative assessment for fiscal year 2023.

Considerable management judgment and assumptions are used in our goodwill impairment assessment, including with respect to the estimated future cash flows, the earnings multiples used in the market
approach, the discount rate used to discount such estimated future cash flows to their net present value and the reasonableness of the implied control premium relative to our market capitalization. These factors could materially increase or
decrease the fair value of our reporting units and, accordingly, could result in a related impairment charge. Declines in our market capitalization or in our business performance could also result in a material impairment charge in a future period.

During the three months ended March 31, 2024, we determined that the recent decline in our stock price and corresponding decrease in market capitalization were a triggering event that required us to perform a
quantitative impairment analysis. Based on the analysis, we concluded the fair values of all reporting units were in excess of their carrying amounts and no impairment charge was required.  For goodwill, the estimated fair value of the reporting
units exceeded the carrying value by approximately 1% - 7%.

During the three months ended June 30, 2024, we determined that the continued decline in our stock price and corresponding decrease in market capitalization as well as declines in some of our reporting units’ forecasts
were triggering events that required us to perform a quantitative impairment analysis. Based on the analysis, we concluded that the estimated fair value of Americas, Mainland China, Southeast Asia/Pacific, Japan, South Korea, Europe & Africa,
Hong Kong/Taiwan and our BeautyBio reporting units were less than their carrying value of equity as June 30, 2024. As a result, we recorded a non-cash goodwill impairment charge of $130.9 million in the second quarter of 2024.

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

During the three months ended September 30, 2024, we determined that the continued decline in our stock price and corresponding decrease in market capitalization were a triggering event that required us
to perform a quantitative impairment analysis for the Manufacturing and Rhyz Other reporting units. Based on the analysis, we concluded the fair value of the Manufacturing and Rhyz Other reporting units were in excess of their carrying amounts and no
impairment charge was required at that time.

Our revenue and profitability forecasts used in the goodwill impairment assessments considered recent and historical performance, strategic initiatives, industry trends and macroeconomic factors. Assumptions used in
the valuations were similar to those that would be used by market participants performing independent valuations of the business.

Key assumptions developed by management and used in the quantitative analyses:

During 2022, we recognized an impairment charge of $1.7 million associated with determinable-lived intangibles. We did not recognize any impairment charges for goodwill or intangible assets during
2023.

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Results of Operations

The following table sets forth our operating results as a percentage of revenue for the periods indicated:

2024 Compared to 2023

Overview

Revenue in 2024 decreased 12% to $1.73 billion from $1.97 billion in 2023. Our 2024 revenue was negatively impacted 4% from foreign-currency fluctuations. As of the end of the fourth quarter of 2024,
Customers decreased 15%, Paid Affiliates decreased 13% and Sales Leaders decreased 16% compared to the prior year.

The year-over-year decrease in our 2024 revenue was primarily driven by the continued macroeconomic pressures we've been facing in our markets, which have negatively impacted consumer spending and customer acquisition.
The declines in our core Nu Skin segments were partially offset by 32% growth in our Rhyz segments, partially from acquisitions in the second quarter of 2023 as well as organic growth.  In January 2025, we sold one of our Rhyz businesses that
accounted for $69.6 million of our 2024 reported revenue. Rhyz is a key component of our business, and these companies enable us to reduce our cost of goods, improve lead times, diversify our revenue mix, and create
synergies for our owned and partner brands. In the fourth quarter of 2024 we began to introduce enhancements to our sales performance plan, which we believe combines the best of affiliate marketing and leadership incentives to activate our existing
sales force and excite potential new prospects. The plan is placing an enhanced focus on upfront earnings to help attract and retain new affiliates.

Earnings per share in 2024 decreased to $(2.95) from $0.17 in 2023. The decrease in earnings per share was primarily driven by $202.4 million of restructuring and impairment charges, an inventory write-off charge of
$38.8 million as well as the overall decline in revenue, partially offset by the 2023 $65.7 million inventory write-off charge and the $19.8 million restructuring charges. Our earnings per share was also impacted by a decrease in our effective tax
rate for 2024.

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—Americas, Southeast Asia/Pacific, Mainland China, Japan, Europe &
Africa, South Korea, and Hong Kong/Taiwan—and our two Rhyz segments—Manufacturing and Rhyz Other. The Nu Skin Other category includes miscellaneous corporate revenue and related adjustments. The Rhyz Other segment includes other investments by our
Rhyz business arm. Our Europe & Africa segment was previously Europe, Middle East and Africa ("EMEA"), but was changed following the June 2023 closure of the Israel market.

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The following table sets forth revenue for the years ended December 31, 2024 and 2023 for each of our reportable segments (U.S. dollars in thousands):

The tables below set forth summarized financial information for each of our reportable segments for the years ended December 31, 2024 and 2023 (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 16 to the consolidated financial statements contained in this report.

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The following table provides information concerning the number of Customers, Paid Affiliates and Sales Leaders in our core Nu Skin business as of December 31, 2024 and 2023.

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

Americas. The results in our Americas segment reflect a continued decline in momentum in our North America markets, while our Latin America markets continue to be challenged by
macroeconomic issues. In connection with our transformation efforts, we also have experienced disruptions to our subscription sales in North America, which negatively impacted revenue. In addition, our reported revenue reflects a negative impact
from unfavorable foreign currency fluctuations of 10.8% for fiscal year 2024. Our 2024 revenue benefited from new and recent product launches, including our ageLOC WellSpa iO and Nu Skin RenuSpa iO connected devices, which generated approximately $32.5 million in revenue for 2024, and our ageLOC TruFace Peptide Retinol Complex with advanced peptide technology and MYND360, our new brand taking a holistic approach to support cognitive health, which generated a total of approximately $9.6 million of
revenue during the second half of 2024. We introduced our enhancements to the sales performance plan in North America starting in November 2024.

In the second quarter of 2024, we launched our developing market strategy in Argentina, with a revised operating model with a focused product portfolio and modified business model that has enabled us to
reach a broader demographic. During the third and fourth quarters of 2024, our Argentina market revenue, Customers and Sales Leaders all experienced double-digit growth year-over-year. We plan on leveraging our learnings from this strategy throughout
the remainder of Latin America in 2025.

The year-over-year decrease in segment contribution primarily reflects the decline in revenue.

Southeast Asia/Pacific. The decline in revenue, Customers, Paid Affiliates and Sales Leaders for 2024 is partially attributable to slowing momentum from the general macroeconomic factors in the
markets along with price increases that we implemented to address inflation. During the second half of 2024, we began to see year-over-year improvements in many of our markets, but our Indonesia market remains challenging. Our Paid Affiliates were
negatively impacted by a change in eligibility requirements in our Pacific markets for receiving certain rewards within our compensation structure. We estimate the change in eligibility requirements resulted in a reduction of approximately 1,500 Paid
Affiliates for the three months ended December 31, 2024.

The year-over-year decrease in segment contribution is primarily attributable to the decline in revenue.

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

The year-over-year decrease in segment contribution for 2024 primarily reflects lower revenue. In addition, our segment contribution was impacted by a 2.7 percentage point decrease in gross margin for 2024,
attributable to increased sales promotions as well as pressure from the new manufacturing plant that went into operation in the fourth quarter of 2023. Our segment contribution was also impacted by a 1.4 percentage point increase in selling expenses
as a percentage of revenue for 2024, due to increased transitional sales force incentives.

Japan. The decline in revenue is primarily attributable to a 6.7% negative impact from unfavorable foreign-currency fluctuations as well as consumer inflationary pressures which depressed
spending. On a local currency basis, revenue decreased 5.9%.

The year-over-year decline in segment contribution reflects the decreased revenue, partially offset by a 1.3 percentage point decline in general and administrative expenses for 2024 attributable to
savings from our restructuring plan.

Europe & Africa. The reduction in revenue, Customers, Paid Affiliates and Sales Leaders reflects the continued softening of momentum, as well as a continuation of the
macroeconomic factors that have led to a decline in the purchasing power of our customers.  Leveraging our learnings from Argentina, we plan on focusing on a product and pricing strategy aimed towards increasing accessibility and affordability.

The year-over-year increase in segment contribution is primarily attributable to a 2.1 percentage-point increase in gross margin from less sales discounts, as well as a 0.50 percentage-point decrease in
general and administrative expenses as a percent of revenue from cost saving efforts, all partially offset by the decline in revenue.

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South Korea. Our South Korea market was challenged by difficult macroeconomic trends, including inflationary pressures, and our associated price increases which negatively
impacted our revenue, Customers, Paid Affiliates and Sales Leaders for the year ended December 31, 2024.  During the fourth quarter of 2024, we introduced our enhancements to the sales performance plan in
South Korea. Our Paid Affiliates were also negatively impacted by a change in eligibility requirements for receiving certain rewards within our compensation structure. We estimate the change in eligibility requirements resulted in a reduction of
approximately 1,000 Paid Affiliates for the three months ended December 31, 2024.

The year-over-year decrease in segment contribution primarily reflects the decline in revenue.

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

The decline in segment contribution was primarily driven by the decline in revenue.

Manufacturing. Our Manufacturing segment revenue increased 11.0%, primarily driven by our Wasatch Manufacturing entity. During 2024, Wasatch revenue increased approximately 20.6%,
primarily from onboarding new customers and expansion in capabilities.

The decrease in segment contribution for 2024 is primarily from the revenue mix amongst our manufacturing entities as well as product mix, which resulted in less profitability for the periods presented.

Rhyz Other.  The increase in revenue of our Rhyz Other segment was primarily driven by 182.4% growth at our Mavely entity. This entity accounted for $69.6 million and $24.7 million
of our 2024 and 2023 reported revenue, respectively.

The increase in segment contribution for 2024 is primarily from increased profitability at our Mavely entity as it continued to grow.

As previously disclosed, in January 2025, we completed the sale of our Mavely entity for $230 million in cash, subject to certain adjustments as set forth in the purchase agreement,
including post-closing determination of net working capital and other elements of the purchase price, and a number of shares of the purchaser's common stock valued by the parties at $20 million. Following the completion of certain payments to other
equity holders in Mavely, we expect to retain approximately $201 million of cash, subject to certain adjustments as set forth in the purchase agreement, and a number of shares of the purchaser’s common stock valued at $10 million. In the first
quarter of 2025, we expect to record a pre-tax gain on disposition of approximately $170-$190 million, pending the finalization of the valuation.

Consolidated Results

Revenue

Revenue for the year ended December 31, 2024 decreased 12% to $1.73 billion, compared to $1.97 billion in the prior-year period. For a discussion and analysis of this decline in revenue, see
“Overview” and “Segment Results,” above.

Gross profit

Gross profit as a percentage of revenue decreased to 68.2% in 2024, compared to 68.9% in 2023. Gross profit as a percentage of revenue for core Nu Skin increased 1.1 percentage points to
74.3%. Our gross margin was also impacted by the gross margin of our owned manufacturing entities, which as previously disclosed, is significantly lower than the gross margin of our core Nu Skin business. With the year-over-year growth
within our Manufacturing segment, their revenue represented a higher proportion of our overall consolidated revenue for the year ended December 31, 2024 than in the prior-year. In the fourth quarter of 2024, we recorded an incremental inventory
write-off charge of $38.8 million as we continue to accelerate and expand our product portfolio optimization, compared to a $65.7 million charge in 2023.

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Selling expenses

Selling expenses as a percentage of revenue decreased to 37.6% in 2024, compared to 37.7% for 2023. Our core Nu Skin business’s selling expense as a percentage of revenue increased 0.8
percentage points to 41.9% for 2024, compared to 41.1% for 2023. Selling expenses for our core Nu Skin business are driven by the specific performance of our individual Sales Leaders. Given the size of our sales force and the various components
of our compensation and incentive programs, selling expenses as a percentage of revenue typically fluctuate plus or minus approximately 100 basis points from period to period. Our selling expenses are also impacted by the growth within our
Manufacturing segment, which has minimal selling expenses. We expect to see future fluctuations in our selling expenses as a result of growth in the Rhyz segments and varying level of selling expenses by entity. For example, as discussed above,
Manufacturing has minimal selling expenses, and within Rhyz Other, the Mavely business that we sold in January 2025 had selling expenses of approximately 80% of revenue, and the selling expenses of the other two entities in Rhyz Other are
minimal. In the third quarter of 2024, we held our global Nu Skin L!VE event with an east L!VE in South Korea and a west L!VE in the United States.  As a result of these events, we incurred approximately $10.2 million of incremental
expenditures, which contributed to our elevated selling expenses.

General and administrative expenses

General and administrative expenses decreased to $479.0 million in 2024, compared to $546.9 million in 2023. The $67.9 million decrease primarily was from a $48.1 million
reduction in labor expense and $16.0 million reduction in occupancy related expenses, both attributable to our recent restructuring plans, in which we reduced our physical footprint and headcount. As a percentage of
revenue, general and administrative decreased 0.1 percentage points to 27.7% for 2024, compared to 27.8% for 2023.

Restructuring and impairment expenses

2022 restructuring plan. In the third quarter of 2022, we adopted a strategic plan to focus resources on our strategic priorities and optimize future growth and
profitability. The global program included workforce reductions and footprint optimization. Total charges incurred under the program were approximately $53.3 million, with $40.8 million in cash charges of severance and lease termination cost and
approximately $12.5 million of non-cash charges of impairment of fixed assets, acceleration of depreciation and impairment of other intangibles related to our footprint optimization. During 2022, we incurred charges to be settled in cash of $20.1
million in severance charges, $7.4 million in lease termination cost, and $5.2 million in other associated cost, and non-cash charges of $8.2 million in fixed asset impairments, $0.9 million in accelerated depreciation and $1.7 million in impairment
of other intangibles. During 2023, we incurred charges to be settled in cash of $4.0 million in severance charges, $1.9 million in lease termination cost, and $2.2 million in other associated cost, and non-cash charges of $1.7 million in accelerated
depreciation.

2023 restructuring plan. In the fourth quarter of 2023, we adopted another strategic plan to focus resources on our global priorities and optimize future growth and
profitability. The global program includes workforce reductions and fixed asset impairments associated with our consolidation of technology assets. Total charges under the program included approximately $27.9 million in cash charges of severance,
approximately $1.0 million in other cash charges and approximately $38.8 million in non-cash charges, including approximately $36.6 million in fixed asset impairments. We have incurred all expected charges under the 2023 plan and anticipate making
the remaining payments in the first half of 2025. During the fourth quarter of 2023, we incurred charges to be settled in cash of $10.0 million in severance charges.  During 2024, we incurred charges to be settled in cash of $17.9 million in
severance charges and $1.0 million of other associated cost, and non-cash charges of $36.6 million of fixed asset impairments and $2.2 million of other non-cash charges.

Goodwill and intangibles impairment. During the three months ended June 30, 2024, we determined that the continued decline in our stock price and corresponding decrease in
market capitalization as well as declines in some of our reporting units’ forecasts were triggering events that required us to perform a quantitative impairment analysis. When we performed an impairment test during the second quarter of 2024, we
concluded that the estimated fair value of Americas, Mainland China, Southeast Asia/Pacific, Japan, South Korea, Europe & Africa, Hong Kong/Taiwan and our BeautyBio reporting units were less than their carrying value of equity as June 30, 2024.
As a result, we recorded a non-cash goodwill impairment charge of $130.9 million in the second quarter of 2024.  During the fourth quarter of 2024, the continued decline in our BeautyBio reporting unit forecast was a triggering event that required us
to perform a quantitative analysis. As a result, we concluded the estimated fair value of our BeautyBio reporting unit was less than its carrying value and as a result recorded a non-cash goodwill impairment charge of $3.6 million.

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

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Interest expense

Interest expense increased to $26.4 million for 2024, compared to $25.6 million in the prior-year period.  The increase in interest expense was primarily due to increased borrowings on our revolving credit facility
in the first half of 2024 compared to 2023, associated with our June 2023 acquisition of BeautyBio. During January 2025, we made a $115.0 million payment on our term loan using a portion of the proceeds from the Mavely sale; accordingly, we
anticipate that our interest expense will decline in the first quarter of 2025.

Other income (expense), net

Other income (expense), net for 2024 was $2.9 million, compared to $3.9 million in 2023. The decrease in other income for year ended December 31, 2024 primarily reflects an incremental $0.7 million of foreign currency
losses.

Provision for income taxes

Provision (benefit) for income taxes decreased to $(28.5) million in 2024 from $18.0 million in 2023. Our effective tax rate decreased to 16.3% of pre-tax income in 2024 from 67.7% in
2023. The decrease in the effective tax rate for 2024 is primarily due to the company having net loss in 2024 but still paying taxes, primarily in foreign jurisdictions.

For 2025, we currently anticipate that our effective tax rate will be approximately 25-35%. Our actual 2025 effective tax rate could differ materially from this estimate. Our future effective tax
rates could fluctuate significantly, being affected by numerous factors, such as intercompany transactions, changes in our business operations, foreign audits, increases in uncertain tax positions, acquisitions, entry into new markets, the amount
of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have a lower statutory rate and higher than anticipated in jurisdictions where we have a higher statutory rate, losses incurred in jurisdictions, the
inability to realize tax benefits, withholding taxes, changes in foreign currency exchange rates, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation.

Net income (loss)

As a result of the foregoing factors, net income in 2024 decreased to $(146.6) million, compared to $8.6 million in 2023.

2023 Compared to 2022

For a comparison of our operating results for 2023 compared to 2022, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 46 of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2023, as filed with the SEC on February 15, 2024.

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. We generated $111.7 million in cash from operations during
2024, compared to $118.6 million in cash from operations during 2023.

As of December 31, 2024, cash and cash equivalents, including current investments, were $198.0 million compared to $267.8 million as of December 31, 2023. The decrease was
primarily driven by our quarterly debt payments, $85.0 million paid on our revolving credit facility and capital expenditures, as discussed below, partially offset by $111.7 million in cash from operations. Working capital as of December 31, 2024 was $242.0 million compared to $373.0 million as of December 31, 2023. Our decline in working capital is primarily attributable to the decline in cash as discussed above and a
lower inventory balance, partially offset by a decrease in accrued expenses associated with lower employee-related cost and commissions.

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Cash requirements. For 2025, we currently expect that our material cash requirements will include the following:

For 2025 and onward, we currently expect the above material cash requirements will remain. See Note 7 and Note 8 to the consolidated financial statements contained in this report for our future cash
requirements related to our debt principal repayment and our maturities of lease liabilities.

We intend to fund the aforementioned cash requirements with our cash from operations and draw on our revolving credit facility, as needed, to address any short-term funding requirements.

Capital expenditures. Capital expenditures in 2024 totaled $41.6 million. As with 2024, we expect that the capital expenditures in 2025 will be primarily related to:

We estimate that capital expenditures for the uses listed above will total approximately $45-65 million for 2025.

Credit Agreement. On June 14, 2022, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative
agent. The Credit Agreement provides for a $400.0 million term loan facility and a $500.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the
previous credit agreement. Both facilities bear interest at the Secured Overnight Financing Rate ("SOFR"), plus a margin based on our consolidated leverage ratio. The term loan facility amortizes in quarterly
installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the subsequent years after the closing date of the Credit Agreement, with the remainder payable at final maturity. As of December 31, 2024 and
2023, we had $35.0 million and $120.0 million of outstanding borrowings under our revolving credit facility, and $360.0 million and $385.0 million on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $1.4
million and $2.0 million as of December 31, 2024 and 2023, 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. As of December 31, 2024, we were in compliance with all debt covenants under the Credit Agreement. In January 2025, we made a $115.0 million payment on our term loan using a portion of the proceeds from the Mavely sale.

Derivative instruments. As of December 31, 2024, 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. Our interest expense may increase after our interest rate swaps expire in July 2025.

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 2024, we made no repurchases. As of December 31, 2024, $162.4 million was available for repurchases under the plan. Our stock repurchases are used primarily to offset dilution from our equity incentive
plans and for strategic initiatives.

Dividends. In February, May, August and November 2024, our board of directors declared quarterly cash dividends of $0.06 per share. The quarterly cash dividends of $3.0
million were paid on March 6, 2024, June 12, 2024, September 11, 2024 and December 11, 2024 to stockholders of record on February 26, 2024, May 31, 2024, August 30, 2024 and November 29, 2024. In February 2025, our board of directors declared a
quarterly cash dividend of $0.06 per share to be paid on March 5, 2025 to stockholders of record on February 24, 2025. During 2023, we paid quarterly cash dividends of $0.39 per share. The decrease in the quarterly dividend in 2024 preserved
approximately $65.0 million of capital in 2024. Currently, we anticipate that our board of directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments.
However, the continued declaration of dividends is subject to the discretion of our board of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and other relevant
factors.

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Cash from foreign subsidiaries. As of December 31, 2024 and 2023, we held $198.0 million and $267.8 million, respectively, in cash and cash equivalents, including current investments. These
amounts include $154.1 million and $222.4 million as of December 31, 2024 and 2023, respectively, held in our operations outside of the United States. 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 United States 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 December 31, 2024 and 2023, we had $27.4 million and $31.8 million, respectively, in cash denominated in Chinese RMB. We also have
experienced delays in repatriating cash from Argentina. As of December 31, 2024 and 2023, we had $22.4 million and $17.7 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 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.

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.

Contingent Liabilities

Please refer to Note 17 to the consolidated financial statements contained in this report for information regarding our contingent liabilities.

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 product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other
product introduction or promotion. These offerings sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue, Sales Leaders, Paid Affiliates and/or Customers during the
quarter and skew year-over-year and sequential comparisons.

Recent Accounting Pronouncements

A description of new accounting pronouncements is contained in Note 2 to consolidated financial statements contained in this report.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes, which are included in this
Annual Report on Form 10-K.

Business Overview

Our Products

Nu Skin Enterprises, Inc. develops and distributes a comprehensive line of premium-quality beauty and wellness solutions in nearly 50 markets worldwide. In 2023, our revenue of $2.0
billion was primarily generated by our three primary brands: our beauty brand, Nu Skin; our wellness brand, Pharmanex; and our anti-aging brand, ageLOC. We operate in the direct selling channel, primarily
utilizing person-to-person marketing to promote and sell our products, including through the use of social and digital platforms. In all of our markets besides Mainland China, we refer to members of our independent sales force as “Brand Affiliates”
because their primary role is to promote our brand and products through their personal and social networks.

In addition to our core Nu Skin business, we also explore new areas of synergistic and adjacent growth through our business arm known as Rhyz Inc. Our Rhyz businesses primarily consist of consumer,
technology and manufacturing companies. In 2023, the Rhyz companies generated $216.6 million, or 11% of our 2023 reported revenue (excluding sales to our core Nu Skin business). Rhyz is a key component of our business, and we anticipate its
continued growth in the coming years both on an absolute basis and as a percentage of our consolidated revenue. These companies enable us to diversify our revenue mix, serve more customers where they shop, and create synergies for our owned and
partner brands.

Our Global Operations

In 2023, we generated approximately 26% of our revenue from the United States (consisting of our Nu Skin United States and Rhyz businesses) and the remainder from our international markets. Given the
size of our international operations, our results, as reported in U.S. dollars, are often impacted by foreign-currency fluctuations; in 2023, our revenue was negatively impacted 3% from foreign-currency fluctuations compared to 2022. In addition,
our results can be impacted by global economic, political, demographic and business trends and conditions.

A Global Network of Customers, Paid Affiliates and Sales Leaders

As of December 31, 2023, we had 977,039 persons who purchased directly from the company during the previous three months (“Customers”). Our Customer numbers include members of our sales force who made
such a purchase, including Paid Affiliates and those who qualify as Sales Leaders, but they do not include consumers who purchase directly from members of our sales force. We believe a significant majority of Customers purchase our products
primarily for personal or family consumption but are not actively pursuing the opportunity to generate supplemental income by actively and consistently marketing and reselling products.

Our revenue is highly influenced by the number and productivity of our Sales Leaders. “Sales Leaders” are our Brand Affiliates, as well as sales employees and independent marketers in Mainland China,
who achieve certain qualification requirements. Our reported Sales Leaders number is the three-month average of our monthly Sales Leaders as of the end of each month of the quarter.

As we continue to focus on customer acquisition and social commerce, we believe our number of Paid Affiliates is an important indicator of consumer purchasing activity in our business. “Paid
Affiliates” are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the previous three months. Paid Affiliates power our social commerce model and are a bridge to attracting new
customers and nurturing relationships and community.

We have been successful in attracting and motivating our sales force by:

Our global sales force helps us to rapidly introduce products and penetrate our markets with modest up-front promotional expense. We rely on our sales force to create consumer demand for our products,
as opposed to a traditional approach of advertising-generated consumer awareness. Our approach is particularly effective with products that benefit from personal education and demonstration. Similar to other companies in our industry, we experience
relatively high turnover among our sales force.

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To enhance customer retention, we have developed product subscription and loyalty programs that provide incentives for consumers to commit to purchase a specific amount of product on a monthly basis.
All purchases under these programs are subject to our standard product payment and return policies. We believe these subscription and loyalty programs have improved consumer retention, have had a stabilizing impact on revenue and have helped
generate recurring sales.

Product Innovation

Our sales force markets and sells our products, and attracts others to the opportunity, based on the distinguishing benefits and innovative characteristics of our products. As a result, we leverage
our scientific expertise and product development resources to introduce innovative beauty, wellness and anti-aging products. Our sales force is increasingly using social media to market and sell our products. To continue to leverage social media,
it is imperative that we develop demonstrable products that are unique and engaging to younger consumers.

Any delays or difficulties in introducing compelling products or attractive initiatives or tools into our markets may have a negative impact on our revenue and our number of Customers, Paid Affiliates
and Sales Leaders.

Our Product Launch Process

Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product introduction
or promotion. We refer to the entire process, beginning with the introductory offering through general availability of the product, as a product launch or our product launch process. The timing of the launch of a particular product often varies from
market to market depending on such factors as customer demand, product registration or other local legal requirements, and product availability in our supply chain.

Sales Leader previews and other product introductions and promotions sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the
quarter and can skew year-over-year and sequential comparisons. We believe our product launch process attracts new Customers, Paid Affiliates and Sales Leaders to our business, increases consumer trial and provides us with important marketing and
forecasting information about our products. Please refer to Item 1A. Risk Factors for more information on risks related to our product launch process.

Income Statement Presentation

We report revenue in nine segments, and we translate revenue from each market’s local currency into U.S. dollars using weighted-average exchange rates. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring the promised products to the customer, with
revenue recognized at shipping point, the point in time the customer obtains control of the products. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. In most markets, we
offer a return policy that allows our sales force to return unopened and unused product for up to 12 months subject to a 10% restocking fee. Reported revenue is net of returns, which have historically been less than 5% of annual revenue. Sales
taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.

Cost of sales primarily consists of:

For markets other than Mainland China, in 2023, we sourced most of our beauty products and wellness products from trusted third-party suppliers and manufacturers. In Mainland China, we operate
manufacturing facilities where we produce the majority of our beauty and wellness products sold in Mainland China. We also produce some products at these facilities that are exported to other markets. In addition, our Rhyz Manufacturing entities in
the United States are producing some of our products. Cost of sales and gross profit, on a consolidated basis, may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party vendors. In
addition, because we purchase a significant amount of our goods in U.S. dollars and recognize revenue in local currencies, our gross margin is subject to exchange rate risks. Because our gross margins vary from product to product and due to higher
pricing in some markets, changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis.

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Selling expenses are our most significant expense and are classified as operating expenses. Selling expenses include sales commissions paid to our sales force, special incentives, costs for incentive
trips, cost of sales force conventions and other rewards, as well as salaries, service fees, benefits, bonuses and other labor and unemployment expenses we pay to our sales force in Mainland China. The sales force conventions are held in various
markets worldwide, which we generally expense in the period in which they are incurred. Because our various sales force conventions are not held during each fiscal year, or in the same period each year, their impact on our general and administrative
expenses may vary from year to year and from quarter to quarter. For example, we currently plan to hold a global convention approximately every other year. We held our last in-person global convention in October 2019, as our 2021 global convention
was held virtually due to the COVID-19 pandemic. We are currently planning to hold a global convention in 2024 to celebrate our 40th anniversary. In addition, we hold
regional conventions and conventions in our major markets at different times during the year. These conventions have significant expenses associated with them. Because we have not incurred expenses for these conventions during every fiscal year or in
comparable interim periods, year-over-year comparisons have been impacted accordingly. Selling expenses do not include amounts we pay to our sales force based on their personal purchases; rather, such amounts are reflected as reductions to revenue.
Our global sales compensation plan, which we employ in all our markets except Mainland China, is an important factor in our ability to attract and retain our Sales Leaders. Under our global sales compensation plan, Sales Leaders can earn
“multi-level” compensation, where they earn commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained. We do not pay commissions on sales materials. Fluctuations
occur in the amount of commissions paid as our numbers of Customers and Sales Leaders change from month to month, but the fluctuation in the overall payout as a percentage of revenue tends to be relatively small. Selling expenses as a percentage of
revenue typically increase in connection with a significant product offering, due to growth in the number of Sales Leaders qualifying for increased sales compensation and promotional incentives. From time to time, we make modifications and
enhancements to our global sales compensation plan in an effort to help motivate our sales force and develop leadership characteristics, which can have an impact on selling expenses.

Outside of Mainland China, Brand Affiliates also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up. We do not account for,
nor pay, additional commissions on these mark-ups received by Brand Affiliates. In many markets, we also allow individuals who are not part of our sales force, whom we refer to as “preferred customers,” to buy products directly from us at a
discount. We pay commissions on preferred customer purchases to the referring member of our sales force.

General and administrative expenses include:

Labor expenses are the most significant portion of our general and administrative expenses.

Provision for income taxes depends on the statutory tax rates and the withholding taxes in each of the jurisdictions in which we operate. For example, statutory tax rates in 2023 were approximately
17% in Hong Kong, 20% in Taiwan, 21% in South Korea, 32% in Japan and 25% in Mainland China. We are subject to taxation in the United States at the statutory corporate federal tax rate of 21% in 2023, and we pay taxes in multiple states within the
United States at various tax rates. Our overall effective tax rate was 67.7% for the year ended December 31, 2023.

Critical Accounting Policies and Estimates

The following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto. Management considers our critical
accounting policies to be accounting for income taxes and accounting for intangible assets. In each of these areas, management makes estimates based on historical results, current trends and future projections.

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Income Taxes. We account for income taxes in accordance with the Income Taxes Topic of the Financial Accounting Standards Codification. This Topic
establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. We take an asset and liability approach for financial accounting and
reporting of income taxes. We pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between Nu Skin affiliates around the
world. Deferred tax assets and liabilities are created in this process. As of December 31, 2023, we had net deferred tax assets of $105.0 million. We net these deferred tax assets and deferred tax liabilities by jurisdiction. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized. These deferred tax assets assume sufficient future earnings will exist for their realization, and are calculated using anticipated tax
rates. In certain jurisdictions, valuation allowances have been recorded against the deferred tax assets specifically related to use of foreign tax credits, research and development credits and net operating losses. The valuation allowance
assessment requires estimates as to future operating results. These estimates are made on an ongoing basis based upon the Company’s business plans and growth strategies in each market and consequently, future material changes in the valuation
allowance are possible. The valuation allowance reduces the deferred tax assets to an amount that management determined is more-likely-than-not to be realized. When we determine that there is sufficient taxable income to utilize the foreign tax
credits, the research and development credits, or the net operating losses, the valuation allowances will be released. In the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to earnings in the period such determination was made.

We evaluate our indefinite reinvestment assertions with respect to foreign earnings for each period. Other than earnings we intend to reinvest indefinitely, we accrue for the U.S. federal and state
income taxes applicable to the earnings. For all foreign earnings, we accrue the applicable foreign income taxes. We intend to utilize the offshore earnings to fund foreign investments, specifically capital expenditures. Undistributed earnings that
we have indefinitely reinvested aggregate to $60.0 million as of December 31, 2023. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.

The company operates in and files income tax returns in the U.S. and numerous foreign jurisdictions, which are subject to examination by tax authorities. Years open to examination
contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions, and tax credits. We account for uncertain tax positions in accordance with
Accounting Standards Codification (“ASC”) 740, Income Taxes. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax
position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be
recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In 2009, we entered into a voluntary program with the IRS called Compliance Assurance Process (“CAP”).
Under the CAP program, the IRS audits the tax position of the Company to identify and resolve any tax issues that may arise throughout the tax year.  The IRS has developed
a new pilot phase called “Bridge Plus.” Under Bridge Plus the taxpayer is required to provide book-to-tax reconciliations, credit utilization and other supporting documentation shortly after their audited financial statement is finalized.  The company was selected for Bridge Plus for the 2022, 2023 and 2024 tax years. As of December 31, 2023, all open tax years except 2021 have been audited and are effectively closed
to further examination. For the tax year 2021, the Company was in the Bridge phase of the CAP program, pursuant to which the IRS did not accept disclosures, did not conduct reviews and did not provide letters of assurance for the Bridge year.
There are limited circumstances that tax years in the Bridge phase will be opened for examination. With a few exceptions, we are no longer subject to state and local income tax examination by tax authorities for the years before 2020. Foreign
jurisdictions, have varying lengths of statutes of limitations for income tax examinations. Some statutes are as short as three years and in certain markets may be as long as ten years. We are currently under examination in certain foreign
jurisdictions; however, the outcomes of those reviews are not yet determinable.

Our unrecognized tax benefits are related to multiple foreign and domestic jurisdictions. Due to potential changes in unrecognized tax benefits from the multiple jurisdictions in which we operate, as
well as the expiration of various statutes of limitation, it is reasonably possible that our gross unrecognized tax benefits, net of foreign currency adjustments, may increase within the next 12 months by a range of approximately $2.0 to $3.0
million.

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At December 31, 2023, we had $22.0 million in unrecognized tax benefits of which $22.0 million, if recognized, would affect the effective tax rate. In comparison, at December 31, 2022, we had $23.1
million in unrecognized tax benefits of which $23.1 million, if recognized, would affect the effective tax rate. We recognized an increase of approximately $0.6 million in interest and penalties expense during the year ended December 31, 2023 and
$5.7 million in interest and penalties during the year ended December 31, 2022. We had approximately $13.0 million, $12.4 million and $6.7 million of accrued interest and penalties related to uncertain tax positions at December 31, 2023, 2022 and
2021, respectively. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We account for such contingent liabilities in accordance with
relevant accounting standards and believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of
limitations; (ii) changes in tax law and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial
results.

Intangible Assets. Acquired intangible assets may represent indefinite-lived assets, determinable-lived intangibles or goodwill. Of these, only the costs of determinable-lived intangibles are
amortized to expense over their estimated life. The value of indefinite-lived intangible assets and residual goodwill is not amortized, but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately from
our impairment testing of indefinite-lived intangibles. We test goodwill for impairment, at least annually, by reviewing the book value compared to the fair value at the reportable unit level. We have the option to perform a qualitative assessment
to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not
required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a reporting unit is
less than its carrying amount, then the amount of the impairment loss, if any, must be measured. We elected to perform the quantitative assessment for fiscal years 2022 and we used the qualitative assessment for fiscal years 2023 and 2021.

Considerable management judgment and assumptions are used in our goodwill impairment assessment, including with respect to the estimated future cash
flows, the earnings multiples used in the market approach, the discount rate used to discount such estimated future cash flows to their net present value and the reasonableness of the implied control premium relative to our market capitalization.
These factors could materially increase or decrease the fair value of our reporting units and, accordingly, could result in a related impairment charge. Declines in our market capitalization or in our business performance could also result in a
material impairment charge in a future period.

We completed the annual goodwill and indefinite-lived intangible asset impairment testing as of October 1, 2023, and concluded the qualitative assessment indicated that the fair value of the
reporting units exceeded their carrying value and therefore were not at risk for impairment. As of the October 1, 2022 testing date, the fair value of the Manufacturing reporting unit was estimated to be approximately 8% in excess of
its carrying amount, and therefore the reporting unit is considered to be at risk of future impairment. The Manufacturing reporting unit’s fair value remains sensitive to significant unfavorable changes in revenue, gross margin and discount rates
that could negatively impact future analyses.

During 2022, we recognized an impairment charge of $1.7 million associated with determinable-lived intangibles. During 2021, we recognized an impairment charge associated with our exit of the Grow
Tech segment. We did not recognize any impairment charges for goodwill or intangible assets during 2023.

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Results of Operations

The following table sets forth our operating results as a percentage of revenue for the periods indicated:

2023 Compared to 2022

Overview

Revenue in 2023 decreased 12% to $1.97 billion from $2.23 billion in 2022. Our 2023 revenue was negatively impacted 3% from foreign-currency fluctuations. As of the end of the fourth quarter of
2023, Customers decreased 15%, Paid Affiliates decreased 30% and Sales Leaders decreased 10% compared to the prior year.

The year-over-year decrease in our 2023 revenue was primarily driven by the continued macroeconomic pressures we’ve been facing in our markets, which have negatively impacted consumer spending and customer
acquisition. In addition, while we continue to make progress on our long-term vision, we have experienced headwinds from the transformation process. During 2023 we began the launch process of ageLOC TRMe, our new personalized approach to weight management, which generated approximately $87.5 million in revenue in 2023. In the third quarter of 2023, we began the
launch process of our next smart connected device system, ageLOC WellSpa iO, which generated $62.2 million in revenue. The decline in our core Nu Skin segments was partially offset by 41% growth in our
Rhyz segments, partially from acquisitions during the year as well as organic growth.

Earnings per share in 2023 decreased 92% to $0.17 from $2.07 in 2022. The decrease in earnings per share was primarily driven by a third quarter of 2023 inventory write-off charge of $65.7 million, a $19.8 million
restructuring charge and the overall decline in revenue, partially offset by our 2022 $48.5 million restructuring charge and $26.9 million third quarter of 2022 inventory write-off charge. In addition, our Earnings per share was impacted by an
increase in our effective tax rate for 2023.

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—Americas, Mainland China, Southeast Asia/Pacific, South Korea,
Japan, Europe & Africa, and Hong Kong/Taiwan—and our two Rhyz segments—Manufacturing and Rhyz other. The Nu Skin Other category includes miscellaneous corporate revenue and related adjustments. The Rhyz other segment includes other
investments by our Rhyz business arm, which were entered into during 2021 and 2023. Our Europe & Africa segment was previously Europe, Middle East and Africa (“EMEA”), but was changed following the June 2023 closure of the Israel market.

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The following table sets forth revenue for the years ended December 31, 2023 and 2022 for each of our reportable segments (U.S. dollars in thousands):