NU SKIN ENTERPRISES, INC. (NUS) FY 2022 MD&A

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 approximately 50 markets worldwide. In 2022, our revenue of
$2.2 billion was primarily generated by our three primary brands: our beauty products brand, Nu Skin; our wellness products 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 growth and opportunity through our strategic investment arm known as Rhyz Inc. Rhyz investments include beauty and wellness
product manufacturing companies and other investments. In 2022, the Rhyz companies generated $153.3 million, or 7%, of our 2022 reported revenue (excluding sales to our core Nu Skin business).

Our Global Operations

In 2022, we generated approximately 24% of our revenue from the United States and approximately 16% from Mainland China. Given the size of our international operations, our results, as reported in
U.S. dollars, are often impacted by foreign-currency fluctuations; in 2022, our revenue was negatively impacted 5% from foreign-currency fluctuations compared to 2021. 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, 2022, we had 1,147,124 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, and 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.

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.

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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 2022, 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 2018 and 2020 we acquired a total of four
companies in the United States that 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 held our global convention in October 2019 and will have another global convention in the fall of 2024, as we currently plan to hold a global
convention approximately every other year. Our 2021 global convention was held virtually due to the ongoing pandemic. 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. For example, in the fourth quarter of 2017, we began to implement significant enhancements to our global sales compensation plan, which we have now
rolled out across all markets other than Mainland China. One of the changes is a new bonus program for our sales force, which has an increasing effect on our selling expenses as a percentage of revenue.

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 2022 were approximately
17% in Hong Kong, 20% in Taiwan, 25% 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 2022, and we pay taxes in multiple states within
the United States at various tax rates. Our overall effective tax rate was (17.8)% for the year ended December 31, 2022.

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, 2022, we had net deferred tax assets of $89.3 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, 2022. 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.  As of December 31, 2022, tax years through 2020 have been audited and are effectively closed to further examination. For
tax years 2021 and 2022, the Company is in the Bridge phase of the CAP program, pursuant to which the IRS will not accept disclosures, will not conduct reviews and will not provide letters of assurance for the Bridge years. There are limited
circumstances that tax years in the Bridge phase will be opened for examination. We have applied for the CAP program for tax year 2023 and are currently waiting on approval from the IRS. With a few exceptions, we are no longer subject to state
and local income tax examination by tax authorities for the years before 2019. 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.

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. In comparison, at December 31, 2021, we had $15.1
million in unrecognized tax benefits of which $15.1 million, if recognized, would affect the effective tax rate. We recognized an increase of approximately $5.7 million in interest and penalties expense during the year ended December 31, 2022 and
$1.6 million in interest and penalties during the year ended December 31, 2021. We had approximately $12.4 million, $6.7 million and $5.1 million of accrued interest and penalties related to uncertain tax positions at December 31, 2022, 2021 and
2020, 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.

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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 2020 and we used the qualitative assessment for fiscal
years 2021. Considerable management judgment is necessary to measure fair value.

We completed the annual goodwill and indefinite-lived intangible asset impairment testing as of October 1, 2022, and concluded that the fair
value of the reporting units were determined to be in excess of its carrying amounts and no goodwill impairment charge was required. 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.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there
can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment tests will prove to be an accurate prediction of the future.  Although the Manufacturing reporting unit showed strong revenue growth in fiscal
year 2020 and 2021, the fair value of the reporting unit in the current year was negatively impacted by an increase in the discount rate due to the current interest rate
environment, and lower near-term revenue projections. Current projections used for the Manufacturing reporting unit reflect revenue growth attributable to the continued expansion of capacity, continued intercompany sales to Nu Skin,
and the recent acquisition of new customers. While historical performance and current expectations have resulted in fair values of the Manufacturing reporting unit in excess of carrying values, if the assumptions are not realized an
impairment charge may be recorded in the future.

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 2020.

Results of Operations

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

2022 Compared to 2021

Overview

Revenue in 2022 decreased 17% to $2.23 billion from $2.70 billion in 2021. Our 2022 revenue was negatively impacted 5% from foreign-currency fluctuations. As of the end of the fourth quarter of
2022, Customers decreased  16%, Paid Affiliates decreased 13% and Sales Leaders decreased 21% compared to the prior year.

Our 2022 revenue was softer than anticipated primarily driven by continuation of COVID-related factors in Mainland China, South Korea and Hong Kong; distractions in EMEA related to the ongoing conflict in Russia
and Ukraine; and the general global economic downturn pressures and associated inflation being felt in our global markets.  In the second half of 2022, we began launching our first connected beauty device, ageLOC

LumiSpa iO, which generated approximately $42.1 million in revenue.

Earnings per share in 2022 decreased 28% to $2.07 from $2.86 in 2021. The decrease in earnings per share was primarily attributable to our decline in revenue and an increase in the costs associated with our
restructuring plans in 2022 as compared to 2021, partially offset by benefits from a tax method change, which enabled the utilization of foreign tax credits.

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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, EMEA and Hong Kong/Taiwan—and our two Rhyz Investment 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 strategic investment arm, which were entered into during 2021.

The following table sets forth revenue for the years ended December 31, 2022 and 2021 for each of our reportable segments (U.S. dollars in thousands):

The table below sets forth segment contribution for the years ended December 31, 2022 and 2021 for each of our reportable segments (U.S. dollars in thousands). Segment contribution excludes certain
intercompany charges, specifically royalties, license fees, transfer pricing and other miscellaneous items. We use segment contribution to measure the portion of profitability that the segment managers have the ability to control for their
respective segments. For additional information regarding our segments and the calculation of segment contribution, see Note 15 to the consolidated financial statements contained in this report.

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The following tables provide information concerning the number of Customers, Paid Affiliates and Sales Leaders in our core Nu Skin business as of December 31, 2022 and 2021. During the first quarter of 2022, in
connection with the introduction of the new metric Paid Affiliates, we reviewed how we currently present Sales Leaders and adjusted that metric’s definition to what we believe provides a better insight into the trends of our business. The
definition of our Customer metric remained unchanged. We have recast the 2021 Sales Leaders to the new definition.

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

Americas. Our Americas segment continued to be challenged by macroeconomic issues in our Latin America markets, which drove the decline in revenue, Customers, Paid
Affiliates and Sales Leaders for fiscal year 2022. Our U.S. market revenue increased 4% for the year, on top of 32% revenue growth in 2021, due to continued social selling momentum and subscription enrollment. During the back half of 2022, we
launched ageLOC LumiSpa iO, which generated approximately $20.8 million of revenue.

The year-over-year decline in segment contribution primarily reflects the decline in revenue, along with a 1.3 percentage point decrease in gross margin, from increased sales discounts and
promotions during the year, partially offset by a 2.0 percentage point decrease in selling expenses from sales mix, as our products have differing commission percentages assigned to them.

Mainland China. Our Mainland China market continued to be challenged during 2022, with continued pressures from COVID-related lockdowns and other factors, which negatively
impacted our selling and promotional activities. We anticipate the constraints will continue throughout the first half of 2023. As a result of the economic headwinds in the market we made some modifications to the compensation plan during the
third quarter of 2022, which provides leaders more flexible requirements to maintain their business.  Our Mainland China Sales Leaders number as of December 31, 2022 reflects these modified requirements. We believe the regulatory environment in
Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms. We currently plan to implement certain changes to the structure of our sales compensation in Mainland China due to the evolving
commercial and regulatory environment. These changes could have a negative impact on our sales in that market.

The year-over-year decrease in segment contribution primarily reflects lower revenue in 2022, a 2.7 percentage point decrease in gross margin from increased product promotions and
discounts during the year, and an increase in general and administrative expenses as a percentage of revenue due to the fixed nature of these expenses on lower revenue.

Southeast Asia/Pacific. Our Southeast Asia/Pacific segment revenue increased 2% for 2022, including a 5% negative impact from unfavorable foreign-currency fluctuations. Our revenue benefited from the launch of ageLOC Meta (locally referred to as ageLOC Reset in the Southeast Asia markets), which generated $48.1 million in revenue for 2022, compared to $15.6 million during the fourth quarter of 2021 launch. Our decline in Sales Leaders was
partially driven by our fourth quarter 2021 launch of ageLOC Meta, which led to higher Sales Leaders for 2021. Our product promotions and launches
were focused on re-energizing our existing Sales Leaders, which led to a decline in our Customers and Paid Affiliates.

The year-over-year increase in segment contribution for 2022 primarily reflects the increase in revenue

South Korea. Our South Korea market was challenged from a 2022 price increase to address the inflationary pressures, along with continued COVID-related disruptions during the first half of
2022, resulting in a decline of revenue, Customers, Paid Affiliates, and Sales Leaders.  Our 2021 results also benefited from the fourth quarter launch of ageLOC Meta, which contributed $29 million in
revenue compared to $19.7 million for the full year 2022. Our 2022 revenue declined 24%, including a 9% negative impact from unfavorable foreign-currency fluctuations.

The year-over-year decrease in segment contribution primarily reflects the decline in revenue, along with a 1.0 percentage point increase in selling expenses as a percent of revenue primarily
attributable to a regional sales force convention that was held in 2022.

Japan. The decline in revenue is primarily attributable to a 16% negative impact from unfavorable foreign-currency fluctuations. On a local currency basis, revenue increased less than 1%.

The year-over-year decrease in segment contribution is primarily attributable to the decline in reported revenue, along with a decline in gross margin from product mix.

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EMEA. The continued softening of momentum in our EMEA segment was driven by distractions to our sales force from the ongoing geopolitical Russia/Ukraine conflict, along with inflationary
pressures driven by the sharp increase in energy cost in EMEA, which led to a decline in revenue, Customers, Paid Affiliates and Sales Leaders.  Our reported revenue was also negatively impacted 9% by unfavorable foreign-currency fluctuations.
During 2022, we suspended business operations in Ukraine and closed our market in Russia.  The Russia and Ukraine markets have historically accounted for less than 1% of our consolidated revenue.

The year-over-year decline in segment contribution primarily reflects the decreased revenue for 2022, along with a 2.5 percentage point decrease in gross margin, attributable to a more unfavorable
product mix and increased air freight expense in 2022, associated with our launch of Beauty Focus Collagen +.

Hong Kong/Taiwan. Our Hong Kong/Taiwan segment reported a 3% decline in revenue for 2022, with a 4% negative impact from unfavorable foreign-currency fluctuations.  The increase in
constant-currency revenue is primarily attributable to growth in our Taiwan market from social selling.

The year-over-year decrease in segment contribution is primarily attributable to the decline in reported revenue, along with a 1.6 percentage point decrease in gross margin.

Manufacturing. Our Manufacturing segment revenue declined 13% for 2022, primarily due to our customers rebalancing their inventory from higher levels in 2021, reducing demand in 2022.

The decline in segment contribution is attributable to lower revenue, the mix of revenue between our manufacturing entities with differing profitability levels and increases in obsolete inventory.

Consolidated Results

Revenue

Revenue for the year ended December 31, 2022 decreased 17% to $2.23 billion, compared to $2.70 billion in the prior-year period. For a discussion and analysis of this increase in revenue, see
“Overview” and “Segment Results,” above.

Gross profit

Gross profit as a percentage of revenue decreased to 71.7% in 2022, compared to 75.0% in 2021. Gross profit as a percentage of revenue for core Nu Skin decreased 2.8 percentage points to
75.4%, primarily driven by our strategic decision to align our inventory on hand with our future sales and promotional plans, which resulted in an incremental $26.9 million write-off, and is recorded in our Corporate and other category.
Our Nu Skin gross margin was also negatively impacted by increased sales promotion and a shift in our geographical revenue mix, as our markets have differing gross margins.

Selling expenses

Selling expenses as a percentage of revenue decreased to 39.5% in 2022, compared to 40.1% for 2021. Our core Nu Skin business’s selling expense as a percentage of revenue decreased 0.5 percentage
points to 42.3% for 2022, compared to 42.8% for 2021. 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.

General and administrative expenses

General and administrative expenses decreased to $555.8 million in 2022, compared to $654.4 million in 2021. The $98.6 million decrease primarily reflects an approximately
$50.0 million decrease to labor expenses from lower employee performance incentive compensation and savings realized from our 2022 restructuring plan, as well as the impact from the fourth quarter 2021 exit of the Grow Tech segment, which
incurred $25.3 million in general and administrative expenses in 2021. As a percentage of revenue, general and administrative increased 0.7 percentage points to 25.0% for 2022,
compared to 24.3% for 2021.

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Restructuring and impairment expenses

In the fourth quarter of 2021, we adopted a restructuring program. We determined to exit our Grow Tech segment, as a strategic shift to better align our resources on key strategic initiatives to
achieve the future growth objectives and priorities of the core Nu Skin business. As a result of the restructuring program, we recorded $51.9 million in restructuring and impairment charges in 2021, consisting primarily of a non-cash charge of
$38.5 million for impairment of goodwill, intangibles and fixed assets, and $20.0 million of cash charges, including $6.5 million for employee severance and $13.5 million for other related cash charges associated with our restructuring. During
2022, we incurred $5 million in incremental cash charges associated with the exit activities and legal settlements. The restructuring charges were recorded in our previous Grow Tech segment, which has been recast to Corporate & Other.

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 includes workforce reductions and footprint
optimization. We estimate total charges under the program will approximate $50–$55 million, with $40–$45 million in cash charges of severance and lease termination cost and approximately $10 million of non-cash charges of impairment of fixed assets
and other intangibles related to the footprint optimization. We expect to substantially complete the program during the first half of 2023. 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.

Other income (expense), net

Other income (expense), net for 2022 was $(21.9) million of expense, compared to $(1.5) million of expense in 2021. The increase in other expense for 2022 is attributable to a $9.3 million unrealized investment loss
for 2022 related to a controlled environment agriculture company we invested in as part of our previous Grow Tech segment, a $1.8 million increase in interest expense from the higher interest rates during the back half of 2022, and a $1.2 million
increase in foreign currency losses from the strengthening of the U.S. dollar. The increase in expense also reflects a $18.1 million unrealized investment gain in 2021, which was partially offset by a $10.7 million loss on asset disposal in 2021.

Provision for income taxes

Provision (benefit) for income taxes decreased to $(15.8) million in 2022 from $85.2 million in 2021. Our effective tax rate decreased to (17.8)% of pre-tax income in 2022 from 36.6%
in 2021. The decrease in the effective tax rate for 2022 is primarily due to the release of valuation allowance on foreign tax credits.

For 2023, we currently anticipate that our effective tax rate will be approximately 18-26%. Our actual 2023 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

As a result of the foregoing factors, net income in 2022 decreased to $104.8 million, compared to $147.3 million in 2021.

2021 Compared to 2020

For a comparison of our operating results for 2021 compared to 2020, 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, 2021, as filed with the SEC on February 16, 2022.

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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 $108.1 million in
cash from operations during 2022, compared to $141.6 million in cash from operations during 2021. The decrease in cash flow from operations primarily reflects higher payout of expenses associated with our 2021 and 2022 restructuring
programs, partially offset by an approximate $40.3 million decline in inventory during 2022, compared to an increase in the prior year, as we continue to optimize inventory levels.

As of December 31, 2022, cash and cash equivalents, including current investments, were $278.5 million compared to $354.8 million as of December 31, 2021. The decrease in cash and cash equivalents
during the year primarily reflects our quarterly dividend payments, repurchases of our stock, the purchases of property and equipment, and payment on liabilities associated with our 2021 and  2022 restructuring programs. Working capital as of
December 31, 2022 was $400.6 million compared to $343.3 million as of December 31, 2021. The increase in working capital is attributable to our second quarter debt modification, which for 2022 resulted in a net $27.5 million of incremental
borrowings, while shifting $82.5 million from current to long-term debt.

Cash requirements. For 2023, we currently expect that our material cash requirements will include the following:

For 2024 and onward, we currently expect the above material cash requirements will remain.  See Note 6 and Note 7 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 2022 totaled $59.1 million. As with 2022, we expect that the capital expenditures in 2023 will be primarily related to:

We estimate that capital expenditures for the uses listed above will total approximately $75–95 million for 2023. We are currently expecting to complete construction of our new manufacturing plant
in Mainland China in the first half of 2023. As of December 31, 2022, we have spent approximately $50.7 million on this project, including $13.4 million in 2022, and expect that our expenditures for this project will total approximately $54-56
million, including approximately $3-5 million during 2023.

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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, 2022, we
had $10.0 million of outstanding borrowings under our revolving credit facility, and $395.0 million on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $2.5 million as of December 31, 2022, 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, 2022, we were in compliance with all
debt covenants under the Credit Agreement.

Modification of previous credit agreement. On June 14, 2022, we repaid our outstanding debt under our previous credit agreement, dated as of April 18, 2018, with several financial institutions as lenders and
Bank of America, N.A., as administrative agent. We had indebtedness of $70.0 million on our revolver as of December 31, 2021, and $307.5 million on our term loan as of December 31, 2021.

Derivative instruments. As of December 31, 2022, we had four interest rate swaps, with a total notional principal amount of $200 million and a maturity date of July 31, 2025. We entered into these interest
rate swap arrangements during the third quarter of 2020 to hedge the variable cash flows associated with our variable-rate debt under the Credit Agreement.

Stock repurchase plan. In 2018, our board of directors approved a stock repurchase plan authorizing us to repurchase up to $500.0 million of our outstanding shares of Class A common stock on
the open market or in private transactions. During 2022, we repurchased approximately 1.7 million shares of our Class A common stock under the plan for $70.0 million. As of December 31, 2022, $175.4 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. We paid quarterly cash dividends of $0.385 per share in March, June, September and December of 2022, for a total of $19.3 million, $19.4 million, $19.3 million
and $19.0 million, respectively. In February 2023, our board of directors declared a quarterly cash dividend of $0.39 per share to be paid on March 8, 2023 to stockholders of record on February 27, 2023. Currently, we anticipate that our board of
directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments. However, the continued declaration of dividends is subject to the discretion of our board
of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and other relevant factors.

Cash from foreign subsidiaries. As of December 31, 2022 and 2021, we held $278.5 million and $354.8 million, respectively, in cash and cash equivalents, including current investments. These
amounts include $223.0 million and $274.9 million as of December 31, 2022 and 2021, 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, 2022 and 2021, we had $33.4 million and $50.3 million, respectively, in cash denominated in Chinese RMB. We
also have experienced delays in repatriating cash from Argentina. As of December 31, 2022 and 2021, we had $14.9 million and $11.3 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.

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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 16 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 can 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.