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What changed in NU SKIN ENTERPRISES, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NU SKIN ENTERPRISES, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+434 added−393 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-16)

Top changes in NU SKIN ENTERPRISES, INC.'s 2023 10-K

434 paragraphs added · 393 removed · 309 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

66 edited+15 added−19 removed108 unchanged
Biggest changeYear Ended December 31, (U.S. dollars in millions) 2022 2021 2020 Nu Skin Americas $ 508.5 23 % $ 547.8 20 % $ 453.0 18 % Mainland China 360.4 16 568.8 21 625.5 24 Southeast Asia/Pacific 344.4 16 336.7 13 361.6 14 South Korea 268.7 12 354.3 13 326.5 13 Japan 224.9 10 266.2 10 273.7 10 EMEA 204.3 9 283.2 11 230.2 9 Hong Kong/Taiwan 157.2 7 162.6 6 161.1 6 Other 4.0 — 3.5 — 1.0 — Total Nu Skin 2,072.4 93 2,523.1 94 2,432.6 94 Manufacturing 149.5 7 172.1 6 149.3 6 Rhyz other 3.8 — 0.5 — — — Total Rhyz Investments 153.3 7 172.6 6 149.3 6 Total $ 2,225.7 100 % $ 2,695.7 100 % $ 2,581.9 100 % Additional comparative revenue and related financial information is presented in Note 15 to the consolidated financial statements contained in this report.
Biggest changeYear Ended December 31, (U.S. dollars in millions) 2023 2022 2021 Nu Skin Americas $ 398.2 20 % $ 508.5 23 % $ 547.8 20 % Mainland China 298.1 15 360.4 16 568.8 21 Southeast Asia/Pacific 267.2 14 344.4 16 336.7 13 South Korea 236.1 12 268.7 12 354.3 13 Japan 207.8 10 224.9 10 266.2 10 Europe & Africa 192.4 10 204.3 9 283.2 11 Hong Kong/Taiwan 153.6 8 157.2 7 162.6 6 Other (0.9 ) — 4.0 — 3.5 — Total Nu Skin 1,752.5 89 2,072.4 93 2,523.1 94 Rhyz Manufacturing 181.4 9 149.5 7 172.1 6 Rhyz other 35.2 2 % 3.8 — 0.5 — Total Rhyz 216.6 11 153.3 7 172.6 6 Total $ 1,969.1 100 % $ 2,225.7 100 % $ 2,695.7 100 % Additional comparative revenue and related financial information is presented in Note 15 to the consolidated financial statements contained in this report.
For example, the government’s scrutiny of activities within the health products and direct selling industries has been at higher levels since 2019, following negative media coverage about the healthcare-related product claims made by another direct selling company in Mainland China.
For example, the government’s scrutiny of activities within the health products and direct selling industries has been at higher levels since 2019, following negative media coverage about healthcare-related product claims made by another direct selling company in Mainland China.
Product Regulations Our beauty and wellness products and related promotional and marketing activities are subject to extensive government regulation by numerous federal, state and local government agencies and authorities, including the United States Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the Department of Agriculture, United States and State Attorneys General and other state regulatory agencies in the United States, as well as the State Administration for Market Regulation in Mainland China, the Food and Drug Administration in Taiwan, the Ministry of Food and Drug Safety in South Korea, the Ministry of Health, Labour and Welfare in Japan and similar government agencies in all other markets in which we operate.
Product Regulations Our beauty and wellness products and related promotional and marketing activities are subject to extensive government regulation by numerous federal, state, and local government agencies and authorities, including the United States Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the Department of Agriculture, United States and State Attorneys General, and state regulatory agencies in the United States, as well as the State Administration for Market Regulation in Mainland China, the Food and Drug Administration in Taiwan, the Ministry of Food and Drug Safety in South Korea, the Ministry of Health, Labour and Welfare in Japan, and similar government agencies in all other markets in which we operate.
We aspire to be a global community where every employee, entrepreneur and consumer knows and feels they belong.” We have established employee resource groups to help ensure that under-represented populations feel welcome at Nu Skin, including people of color, LGBTQIA+ individuals and women.
We aspire to be a global community where every employee, entrepreneur, and consumer knows and feels they belong.” We have established employee resource groups to help ensure that under-represented populations feel welcome at Nu Skin, including people of color, women and LGBTQIA+ individuals.
The laws and regulations in our current markets generally: ● impose requirements related to order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers; ● require us, or our sales force, to register with government agencies; ● impose limits on the amount of sales compensation we can pay; ● impose reporting requirements; and ● require that our sales force is compensated for sales of products and not for recruiting others. 8 Table of Contents The laws and regulations governing direct selling may be modified or reinterpreted from time to time, which may cause us to modify our sales compensation and business models.
The laws and regulations in our current markets generally: ● impose requirements related to order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers; ● require us, or our sales force, to register with government agencies; ● impose limits on the amount and type of sales compensation we can pay; ● impose reporting requirements; and ● require that our sales force is compensated for sales of products and not for recruiting others. 8 Table of Contents The laws and regulations governing direct selling may be modified or reinterpreted from time to time, which may cause us to modify our sales compensation and business models.
We make available, free of charge on our Investor Relations website, ir.nuskin.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
We make available, free of charge on our Investor Relations website, ir.nuskin.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).
Our employees’ health and well-being is an essential component of our human capital management strategy. We established “The Best You” wellness program in the United States to improve the quality of each employee’s physical, emotional, intellectual and financial wellness by encouraging and incentivizing healthy lifestyle practices through health screenings, prevention programs and education.
Employee Health and Well-Being. Our employees’ health and well-being is an essential component of our human capital management strategy. We established “The Best You” wellness program in the United States to improve the quality of each employee’s physical, emotional, intellectual and financial wellness by encouraging and incentivizing healthy lifestyle practices through health screenings, prevention programs and education.
Lund worked as an attorney in private practice prior to joining our company as Vice President and General Counsel. He received a B.A. degree from Brigham Young University and a J.D. degree from Brigham Young University’s J. Reuben Clark Law School. Ryan S. Napierski has served as our Company’s President since 2017 and as our CEO since September 2021.
Lund worked as an attorney in private practice prior to joining our company as Vice President and General Counsel. He received a B.A. degree from Brigham Young University and a J.D. degree from Brigham Young University’s J. Reuben Clark Law School. Ryan S. Napierski has served as our Company’s President since 2017 and as our CEO since 2021.
The product registration process for some categories of beauty products in Mainland China takes from three to six months to complete under the latest regulations governing cosmetics. Certain cosmetics are categorized as “special cosmetics” and carry a more unpredictable process and timing frequently in excess of two years.
The product registration process for some categories of beauty products in Mainland China takes from three to six months to complete under the latest regulations governing cosmetics. Certain cosmetics are categorized as “special cosmetics” and carry a more unpredictable process and approval timing frequently in excess of two years.
Clark has served as our Executive Vice President and General Counsel since August 2021. Mr. Clark joined our company in 2015 as Assistant General Counsel and later served as Vice President and Deputy General Counsel before beginning his current role. Prior to joining our company, he was a litigation attorney in private practice in Salt Lake City, Utah.
Clark has served as our Executive Vice President and General Counsel since 2021. Mr. Clark joined our company in 2015 as Assistant General Counsel and later served as Vice President and Deputy General Counsel before beginning his current role. Prior to joining our company, he was a litigation attorney in private practice in Salt Lake City, Utah.
We are committed to our Diversity, Equity and Inclusion vision statement: “We believe we are a force for good as we seek, develop and empower diverse individuals and perspectives.
We are committed to our Diversity, Equity and Inclusion vision statement: “We are a force for good as we seek, develop, and empower diverse individuals and perspectives.
Under applicable direct selling regulations in Mainland China, our Pharmanex BioPhotonic Scanner , ageLOC LumiSpa , ageLOC Galvanic Facial Spa and ageLOC Body Spa systems are registered as “health care equipment” or “household appliances,” which enables us to market and sell them through our direct sales channel in that market.
Under applicable direct selling regulations in Mainland China, our Pharmanex BioPhotonic Scanner , ageLOC LumiSpa , ageLOC Galvanic Facial Spa , ageLOC WellSpa iO and ageLOC Body Spa systems are registered as “health care equipment” or “household appliances,” which enables us to market and sell them through our direct sales channel in that market.
Our beauty products are subject to various laws and regulations that regulate cosmetic and personal care products and set forth regulations that, among other things, determine whether a product can be marketed as a “cosmetic” or requires further approval as an OTC drug.
Our beauty products are subject to various laws and regulations that regulate cosmetic and personal care products and set forth regulations that, among other things, determine whether a product can be marketed as a “cosmetic” or requires further submissions as an OTC drug.
We have been required to register our ageLOC Galvanic Facial Spa and ageLOC Body Spa systems as medical devices in a few markets, and we also have received clearance from the FDA to market our Nu Skin Facial Spa for over-the-counter use.
We have been required to register our ageLOC Galvanic Facial Spa and ageLOC Body Spa systems as medical devices in a few markets, and we also have received clearance from the FDA to market our Nu Skin Facial Spa and our Nu Skin RenuSpa iO devices for over-the-counter use.
All of our full- and part-time employees are responsible for upholding the Nu Skin Code of Conduct and for striving to perpetuate the Nu Skin Way, our global culture aspiration, which includes the following principles: ● A force for good ● Direct and decisive ● Accountable and empowered ● Exceptional ● Bold innovators ● Fast speed ● Customer obsessed ● One global team Hiring, Engagement, Development and Retention.
All of our full- and part-time employees are responsible for upholding the Nu Skin Code of Conduct and for striving to perpetuate the Nu Skin Way, our global culture aspiration, which includes the following principles: ● A force for good ● Direct and decisive ● Accountable and empowered ● Exceptional ● Bold innovators ● Fast speed ● Customer obsessed ● One global team 15 Table of Contents Hiring, Engagement, Development and Retention.
Risk Factors for more information on risks related to our product launch process. 7 Table of Contents GEOGRAPHIC REGIONS We currently sell and distribute our Nu Skin business’s products in approximately 50 markets.
Risk Factors for more information on risks related to our product launch process. 7 Table of Contents GEOGRAPHIC REGIONS We currently sell and distribute our Nu Skin business’s products in nearly 50 markets.
Lund previously served as Vice Chairman of our board of directors from 2006 to 2012 and as President, Chief Executive Officer and a member of our board of directors from 1996, when we went public, until 2003. Mr.
Lund has served as Executive Chairman of our board of directors since 2012. Mr. Lund previously served as Vice Chairman of our board of directors from 2006 to 2012 and as President, Chief Executive Officer and a member of our board of directors from 1996, when we went public, until 2003. Mr.
The contents of our website shall not be deemed to be incorporated herein by reference. We have adopted a Code of Conduct that applies to all of our employees, officers and directors, including those of our subsidiaries. Our Code of Conduct is available in the “Corporate Governance” section of our Investor Relations website at ir.nuskin.com.
The contents of our website shall not be deemed to be incorporated herein by reference. We have adopted a Code of Conduct that applies to all of our employees, officers and directors, including those of our subsidiaries. Our Code of Conduct is available in the “Governance” section of our Investor Relations website at ir.nuskin.com.
From time to time, efforts are made by some individuals or groups to repeal DSHEA. If this were to happen, significant burdens would be imposed on our product development, and the costs of running our business would increase significantly. 11 Table of Contents Regulation of Wellness Products Globally.
From time to time, efforts are made by some individuals or groups to repeal DSHEA. If this were to happen, significant burdens would be imposed on our product development, and the costs of running our business would increase significantly. Regulation of Wellness Products Globally.
Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so.
Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the FTC’s prior administrative cases on this topic, and they could incur significant civil penalties if they or their representatives fail to do so.
We cannot be sure that the FTC, or comparable foreign agencies, will not question our advertising or other operations in the future. In recent years, the FTC has initiated numerous investigations of and actions against companies that sell dietary supplements and cosmetic products.
We cannot be sure that the FTC, or comparable foreign agencies, will not question our advertising or other operations in the future. 13 Table of Contents In recent years, the FTC has initiated numerous investigations of and actions against companies that sell dietary supplements and cosmetic products.
We have divided our markets into seven segments: Mainland China; South Korea; Southeast Asia/Pacific, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Australia, New Zealand and other markets; Americas, which includes Canada, Latin America and the United States; Japan; Hong Kong/Taiwan, which also includes Macau; and Europe, Middle East and Africa (“EMEA”), which includes markets in Europe as well as Israel and South Africa.
We have divided our markets into seven segments: Mainland China; South Korea; Southeast Asia/Pacific, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Australia, New Zealand and other markets; Americas, which includes Canada, Latin America and the United States; Japan; Hong Kong/Taiwan, which also includes Macau; and Europe & Africa, which includes markets in Europe as well as South Africa.
We have implemented various measures to comply with these limits. In some markets, regulations applicable to the activities of our Sales Leaders may affect our business because we are, or regulators may assert that we are, responsible for our Sales Leaders’ conduct.
We have implemented various measures to comply with these limits. 9 Table of Contents In some markets, regulations applicable to the activities of our Sales Leaders may affect our business because we are, or regulators may assert that we are, responsible for our Sales Leaders’ conduct.
In general, the regulatory environment is becoming more complex with increasingly stricter regulations each year. Manufacturing Process. In 2008, and as subsequently updated under the regulations implementing the FSMA, the FDA established regulations to require current “good manufacturing practices” for dietary supplements and food products in the United States.
In general, the regulatory environment is becoming more complex with increasingly stricter regulations each year. 12 Table of Contents Manufacturing Process. In 2008, and as subsequently updated under the regulations implementing the FSMA, the FDA established regulations to require current “good manufacturing practices” for dietary supplements and food products in the United States.
The labeling of these products is subject to the requirements of the FDCA and the Fair Packaging and Labeling Act and other FDA regulations. 10 Table of Contents Regulation of Beauty Products in Other Markets. The other markets in which we operate have similar regulations.
The labeling of these products is subject to the requirements of the FDCA and the Fair Packaging and Labeling Act and other FDA regulations. Regulation of Beauty Products in Other Markets. The other markets in which we operate have similar regulations.
Any amendments or waivers (including implicit waivers) regarding the Code of Conduct requiring disclosure under applicable SEC rules or NYSE listing standards will be disclosed in the same section of our website. INFORMATION ABOUT OUR EXECUTIVE OFFICERS Our executive officers as of February 14, 2023 are as follows: Name Age Position Steven J.
Any amendments or waivers (including implicit waivers) regarding the Code of Conduct requiring disclosure under applicable SEC rules or NYSE listing standards will be disclosed in the same section of our website. 16 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Our executive officers as of February 14, 2024 are as follows: Name Age Position Steven J.
Our Rhyz strategic investment arm also includes two additional segments: Manufacturing and Rhyz other. The following table sets forth the revenue for each of the segments and the Other category for the last three years.
Our Rhyz business arm also includes two additional segments: Manufacturing and Rhyz other. The following table sets forth the revenue for each of the segments and the Other category for the last three years.
These conditions have made it more difficult for us to fill some job positions and retain employees. We address this issue by building a strong employer brand, allowing remote work options to reach potential employees in other locations, and providing competitive compensation and benefits. Developing our employees and keeping them engaged is crucial.
These conditions have made it more difficult for us to fill some job positions and retain employees. We address this issue by building a strong employer brand, allowing remote work options to reach potential employees in other locations, and providing competitive compensation and benefits.
For example, during 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make.
For example, during 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat, cure or prevent COVID-19 and/or about the earnings that people who suffered the loss of a job or income could make.
Risk Factors f or more information on the regulatory risks associated with our device products. COMPETITION Products The markets for our products are highly competitive.
Risk Factors f or more information on the regulatory risks associated with our device products. 14 Table of Contents COMPETITION Products The markets for our products are highly competitive.
He received a B.S. degree from Southern Utah University and a J.D. degree from the University of Utah. Steven K. Hatchett joined our company in 2018 and served as Senior Vice President of Global Manufacturing until January 2021, when he began serving as Senior Vice President of Global Products.
He received a B.S. degree from Southern Utah University and a J.D. degree from the University of Utah. Steven K. Hatchett joined our company in 2018 and served as Senior Vice President of Global Manufacturing until 2021, when he began serving as Senior Vice President of Global Products. He became Executive Vice President and Chief Product Officer in 2022.
In addition, during 2021 the FTC announced that it is initiating a review of its Business Opportunity Rule, which imposes certain obligations on business opportunity sellers in their dealings with prospective buyers; the FTC issued a request for public comment on this rule in November 2022. Currently, multi-level marketing companies are exempted from this rule.
In addition, during 2021 the FTC announced that it is initiating a review of its Business Opportunity Rule, which imposes certain obligations on business opportunity sellers in their dealings with prospective buyers; the FTC issued a request for public comment on this rule in November 2022. Currently, multi-level marketing companies have been deemed not covered by this rule.
In South Korea, all “functional” cosmetics are required to either undergo examination by or be reported to the Ministry of Food and Drug Safety. The sale of cosmetic products is regulated in the European Union (the “EU”) under the EU Cosmetics Directive, which requires a uniform application for foreign companies making beauty product sales.
In South Korea, all “functional” cosmetics are required to either undergo examination by or be reported to the Ministry of Food and Drug Safety. The sale of cosmetic products is regulated in the European Union (the “EU”) under the EU Cosmetics Regulation, which requires a uniform application for foreign companies placing finished beauty products on the EU market.
In addition, the FDA permits companies to use FDA-approved full and qualified health claims for products containing specific ingredients that meet stated requirements. 12 Table of Contents A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading.
In addition, the FDA permits companies to use FDA-approved full and qualified health claims for products containing specific ingredients that meet stated requirements. A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. The FDA has issued guidance defining a manufacturer’s obligations to substantiate structure/function claims.
These regulations vary from market to market and affect whether our products are required to be registered as medical devices, the claims that can be made with respect to these products, who can use them, and where they can be used. Our connected devices are subject to specific testing, certification, and/or registration governing the connectivity to mobile devices.
These regulations vary from market to market and affect whether our products are required to be registered as medical devices, the claims that can be made with respect to these products, who can use them, and where they can be used.
In some cases it has taken us four years or longer to obtain product registrations. A pre-market process has been established for a minority of “health foods,” which allows products with only basic nutritional ingredients (some vitamins and minerals) to be notified rather than registered. We market both “health foods” and “general foods” in Mainland China.
In some cases it has taken us four years or longer to obtain product registrations. A pre-market process has been established for a minority of “health foods,” which allows products with only basic nutritional ingredients (some vitamins and minerals) to undergo a simplified approval process rather than the full registration process.
Our global sales compensation plan and our Mainland China business model, including our related know-how, processes and systems, play a significant role in helping us to attract and incentivize our sales force.
However, these efforts do not eliminate the significant risks associated with operating in Mainland China. Our global sales compensation plan and our Mainland China business model, including our related know-how, processes and systems, play a significant role in helping us to attract and incentivize our sales force.
From time to time, we receive information from consumer centers in certain prefectures about the number of general inquiries and complaints about us and our Brand Affiliates, and we also sometimes receive warnings to reduce such complaints.
From time to time, we receive information from consumer centers in certain prefectures about the number of general inquiries and complaints about us and our Brand Affiliates, and we also sometimes receive warnings to reduce such complaints. Based on this information, we continually evaluate and enhance our Brand Affiliate compliance, education and training efforts in Japan.
In 2014, our Nu Skin Facial Spa was cleared for marketing through the 510(k) process with the FDA as a medical device with cosmetic benefit. Medical devices are highly regulated by the FDA. Manufacturers of medical devices must register and list their products with the FDA annually, whether they are located domestically or overseas.
More recently, our RenuSpa iO device was cleared for marketing through the FDA’s 510(k) process. Medical devices are highly regulated by the FDA. Manufacturers of medical devices must register and list their products with the FDA annually, whether they are located domestically or overseas.
We have been subject to regulatory inquiries in the United States, Japan and other markets with respect to the status of the Pharmanex BioPhotonic Scanner as a non-medical device.
We have registered ageLOC Boost as a medical device in Thailand, and we are seeking medical device registration in Thailand for Nu Skin WellSpa iO . We have been subject to regulatory inquiries in the United States, Japan and other markets with respect to the status of the Pharmanex BioPhotonic Scanner as a non-medical device.
Working with management, our Board’s committees oversee and receive reports on matters including culture, compensation, benefits, key talent succession planning, employee engagement, and DEI.
Our Board’s committees engage with our senior management and head of Human Resources regarding human capital management on a regular basis. Working with management, our Board’s committees oversee and receive reports on matters including culture, compensation, benefits, key talent succession planning, employee engagement, and DEI.
We compete in these markets by emphasizing the innovation, value and premium quality of our products and the reach, convenience and customer servicing of our distribution system. Direct Selling We compete with other direct selling companies, some of which have a longer operating history, and greater visibility, name recognition and financial resources than we do.
Our competitors include a broad array of marketers of beauty and wellness products and pharmaceutical companies, many of which have longer operating histories and greater name recognition and financial resources than we do. We compete in these markets by emphasizing the innovation, value and premium quality of our products and the reach, convenience and customer servicing of our distribution system.
The labeling of cosmetic products is subject to the requirements of the Federal Food, Drug, and Cosmetic Act (“FDCA”), the Fair Packaging and Labeling Act and other FDA regulations.
The labeling of cosmetic products is subject to the requirements of the Federal Food, Drug, and Cosmetic Act (“FDCA”), the Fair Packaging and Labeling Act and other FDA regulations. In 2024, the FDA will begin implementation of portions of the Modernization of Cosmetics Regulation Act of 2022 (“MoCRA”).
Because the majority of our wellness products are regulated under DSHEA, we are generally not required to obtain regulatory approval prior to introducing a dietary supplement into the United States market. Prior to marketing a product, we are obligated to notify the FDA of any structure/function claims that we intend to make about the product in any product-related materials.
Because the majority of our wellness products are regulated under DSHEA, we are generally not required to obtain regulatory approval prior to introducing a dietary supplement into the United States market.
He became Executive Vice President and Chief Product Officer in January 2022. From 2015 to 2018, he served as CEO of a nutritional supplement manufacturer that our company acquired in 2018, at which time he began serving as president until December 2020.
From 2015 to 2018, he served as CEO of a nutritional supplement manufacturer that our company acquired in 2018, at which time he began serving as president until December 2020. Previously, he served as vice president of manufacturing and product innovation at Forever Living Products, and as CEO and president at Cornerstone Research and Development. 17 Table of Contents
We believe that our relationship with our employees is good, and we do not foresee a shortage in qualified personnel necessary to operate our business. Our human capital objectives include the following: Culture.
Although we have statutory employee representation obligations in certain markets, our employees are generally not represented by labor unions except where expressly required by law. We believe that our relationship with our employees is good, and we do not foresee a shortage in qualified personnel necessary to operate our business. Our human capital objectives include the following: Culture.
Napierski has a Bachelor’s degree in business, a Master of Business Administration degree from Duke University and a Master’s degree in international business from Goethe Universitat in Germany. Connie Tang has served as our Executive Vice President, Chief Global Growth and Customer Experience Officer since April 2021.
Napierski has a Bachelor’s degree in business, a Master of Business Administration degree from Duke University and a Master’s degree in international business from Goethe Universitat in Germany. James D. Thomas has served as our Chief Financial Officer since July 2023.
There is some risk associated with the common practice in Mainland China of marketing a product as a “general food” while seeking “health food” classification.
We market both “health foods” and “general foods” in Mainland China. There is some risk associated with the common practice in Mainland China of marketing a product as a “general food” without any health food claims while applying to the authorities for “health food” classification.
Drug products not conforming to monograph requirements require an approved New Drug Application (“NDA”) before marketing may begin.
OTC drug products may be marketed if they conform to the requirements of an FDA-established OTC drug monograph that is applicable to that drug. Drug products not conforming to monograph requirements require an approved New Drug Application (“NDA”) before marketing may begin.
Our employees also receive free product benefits, including our wellness products. Employees at our corporate headquarters also have access to an on-site gym, as well as our employee assistance program, which includes free counseling services. Our Board’s committees engage with our senior management and head of Human Resources regarding human capital management on a regular basis.
Our employees also receive free product benefits, including our wellness products. Employees at our corporate headquarters also have access to an on-site gym, as well as our employee assistance program, which includes free counseling services. Employees in our global markets also receive benefits and other services focused on maintaining health and well-being.
Nu Skin also made the Forbes magazine list of America’s Best Employers for 2022. In addition to our employees, our human capital resources also include our sales force. For information about our sales force, see Item 1. Business—“Distribution Channel.” AVAILABLE INFORMATION Our website address is www.nuskin.com.
In addition, each year, our management reports to the Compensation and Human Capital Committee on management’s annual assessment of risks related to our compensation policies and practices. In addition to our employees, our human capital resources also include our sales force. For information about our sales force, see Item 1. Business—“Distribution Channel.” AVAILABLE INFORMATION Our website address is www.nuskin.com.
In recent years, the FDA has issued warning letters to many cosmetic companies alleging improper structure/function claims regarding their cosmetic products, including, for example, product claims regarding gene activity, cellular rejuvenation, and rebuilding collagen. Cosmetic companies confront difficulty in determining whether a claim would be considered by the FDA to be an improper structure/function claim.
It is possible that cosmetic product ingredients now commonly in use may be restricted or prohibited in the future as more is learned about such ingredients. In recent years, the FDA has issued warning letters to many cosmetic companies alleging improper structure/function claims regarding their cosmetic products, including, for example, product claims regarding gene activity, cellular rejuvenation, and rebuilding collagen.
In addition, plaintiffs’ lawyers have filed class action lawsuits against some of our competitors after our competitors received these FDA warning letters. There can be no assurance that we will not be subject to government actions or lawsuits, which could harm our business.
In addition, plaintiffs’ lawyers have filed class action lawsuits against some of our competitors after our competitors received these FDA warning letters.
Leading global direct selling companies include Amway, Natura Cosmeticos and Herbalife. We also compete with local direct selling companies in the markets in which we operate.
Direct Selling We compete with other direct selling companies, some of which have a longer operating history, and greater visibility, name recognition and financial resources than we do. Leading global direct selling companies include Amway, Natura & Co and Herbalife. We also compete with local direct selling companies in the markets in which we operate.
However, we cannot assure that actions of our sales force will not violate local laws or regulations or our policies. Please refer to Item 1A. Risk Factors for more information on regulatory and other risks associated with our business.
We have implemented policies that are designed to comply with these regulations and inform our sales force regarding the types of activities that are not permitted. However, we cannot assure that actions of our sales force will not violate local laws or regulations or our policies. Please refer to Item 1A.
The FTC could initiate an enforcement action to the extent the FTC determines that our advertising or promotional practices are deceptive or contrary to the requirements of the consent decrees. 13 Table of Contents Regulation of Medical Devices.
The FTC could initiate an enforcement action to the extent the FTC determines that our advertising or promotional practices are deceptive or contrary to the requirements of the consent decrees. Regulation of Medical Devices. In 2014, our Nu Skin Facial Spa device was cleared for marketing through the 510(k) process with the FDA as a medical device with cosmetic benefit.
We also incorporate DEI practices into our hiring process. We conduct training to create awareness of unintentional biases that may be present in the hiring process.
We also incorporate DEI practices into our hiring process. We conduct training to create awareness of unintentional biases that may be present in the hiring process. We work to ensure the wording of our job postings is inclusive and utilize multiple broad-based candidate search engines to expand our talent pools and increase our access to diverse candidates.
A number of states have passed legislation that more clearly distinguishes between illegal pyramid schemes and legitimate multi-level marketing business models. Recent settlements between the FTC and other direct selling companies and guidance from the FTC have addressed inappropriate earnings and lifestyle claims, problematic compensation structures and the importance of focusing on consumers.
A number of states have passed legislation that more clearly distinguishes between illegal pyramid schemes and legitimate multi-level marketing business models.
Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA.
Prior to marketing a product, we are obligated to notify the FDA of any structure/function claims that we intend to make about the product in any product-related materials. 11 Table of Contents Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA.
Some markets, including Mainland China and Vietnam, also prohibit or restrict participation of overseas personnel or foreigners in direct selling activities. We have implemented policies that are designed to comply with these regulations and inform our sales force regarding the types of activities that are not permitted.
Our sales force is required to comply with work authorization and other local legal requirements prior to working in a market. Some markets, including Mainland China and Vietnam, also prohibit or restrict participation of overseas personnel or foreigners in direct selling activities.
Also during 2021, the FTC sent a notice to more than 1,100 companies, including us and two of our subsidiaries (Pharmanex, LLC and Big Planet, Inc.), that outlined several practices that the FTC determined to be unfair or deceptive in prior administrative cases. These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials.
If this changes or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force and our revenue. Also during 2021, the FTC sent a notice to more than 1,100 companies, including us, that outlined several practices that the FTC determined to be unfair or deceptive in prior administrative cases.
Certain products, such as sunscreens and acne treatments, are classified as over-the-counter (“OTC”) drugs (and cosmetics, depending on claims) and have specific ingredient, labeling and manufacturing requirements. OTC drug products may be marketed if they conform to the requirements of an FDA-established OTC drug monograph that is applicable to that drug.
There can be no assurance that we will not be subject to government actions or lawsuits, which could harm our business. 10 Table of Contents Certain products, such as sunscreens and acne treatments, are classified as over-the-counter (“OTC”) drugs (and cosmetics, depending on claims) and have specific ingredient, labeling and manufacturing requirements.
We compete with these companies to attract and retain our sales force and consumers based on the strength of our product offerings, sales compensation, multiple business opportunities, management and international operations. 14 Table of Contents HUMAN CAPITAL RESOURCES As of December 31, 2022, we had approximately 3,800 full- and part-time employees worldwide.
We compete with these companies to attract and retain our sales force and consumers based on the strength of our product offerings, sales compensation, multiple business opportunities, management and international operations. RHYZ COMPANIES 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.
Clark 40 Executive Vice President and General Counsel Steven K. Hatchett 51 Executive Vice President and Chief Product Officer Steven J. Lund has served as Executive Chairman of our board of directors since 2012. Mr.
Lund 70 Executive Chairman of the Board Ryan S. Napierski 50 President and Chief Executive Officer James D. Thomas 45 Executive Vice President and Chief Financial Officer Chayce D. Clark 41 Executive Vice President and General Counsel Steven K. Hatchett 52 Executive Vice President and Chief Product Officer Steven J.
The penalties could be up to $46,517 per violation, and there is some ambiguity in how a “violation” would be defined for these purposes. In addition, during 2022, the FTC issued an Advanced Notice of Proposed Rulemaking (“ANPR”) indicating that it is considering proposing a rule regarding earnings claims.
In addition, during 2022, the FTC issued an Advanced Notice of Proposed Rulemaking (“ANPR”) indicating that it is considering proposing a rule regarding earnings claims. The ANPR also suggested, among other things, that the FTC would likely not consider a disclaimer (such as “results not typical”) to be sufficient to correct a misleading impression from an atypical earnings claim.
The ANPR also suggested, among other things, that the FTC might not consider a disclaimer (such as “results not typical”) to be sufficient to correct a misleading impression from an atypical earnings claim. For more information about these matters, other regulatory actions, and their potential impact on our business, see Item 1A.
For more information about these matters, other regulatory actions, and their potential impact on our business, see Item 1A.
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However, these efforts do not eliminate the significant risks associated with operating in Mainland China. Furthermore, we believe the regulatory environment in Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms.
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During the past several years, settlements and other judicial orders between the FTC and other direct selling companies and guidance from the FTC have addressed inappropriate earnings and lifestyle claims, problematic compensation structures and the importance of focusing on consumers.
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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.
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These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so.
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If this exemption is eliminated or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force and our revenue.
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Risk Factors for more information on regulatory and other risks associated with our business.
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Based on this information, we continually evaluate and enhance our Brand Affiliate compliance, education and training efforts in Japan. 9 Table of Contents Our sales force is required to comply with work authorization and other local legal requirements prior to working in a market.
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This implementation will create a greater burden for cosmetic manufacturer facility registration and audits, mandate product notification for cosmetics, and mandate the reporting of serious adverse events to the FDA. Rollout of MoCRA is expected to continue for the coming years.
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It is possible that cosmetic product ingredients now commonly in use that are the product of certain scientific advancements or production processes may be restricted or prohibited in the future as more is learned about such ingredients.
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Failure to correctly interpret and comply with the new requirements could lead to government actions against us and the associated impairment to our business.
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The FDA has issued guidance defining a manufacturer’s obligations to substantiate structure/function claims.
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Cosmetic companies confront difficulty in determining whether a claim would be considered by the FDA to be an improper structure/function claim.
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We have registered ageLOC Boost as a medical device in Thailand, and we are seeking medical device registration in the United States and Thailand for the new connected body device that we plan to begin launching during 2023.
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In addition, during 2023, the FTC sent notices of penalty offense to nearly 700 companies, including us, regarding the requirement of sufficient substantiation for product claims.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSimilarly, a failure to adhere to the payment card industry’s data security standards could cause us to incur penalties from payment card associations, termination of our ability to accept credit or debit card payments, litigation and adverse publicity, any of which could have a material adverse effect on our business and financial condition.
Biggest changeWe could face fines, investigations, lawsuits or other legal action if our sales force violates, or is perceived to violate, applicable laws and regulations, and our reputation and brand could be negatively impacted. ● Payment card industry data security standards—A failure to adhere to the payment card industry’s data security standards could cause us to incur penalties from payment card associations, termination of our ability to accept credit or debit card payments, litigation and adverse publicity, any of which could have a material adverse effect on our business and financial condition. ● Artificial intelligence (“AI”)—If we introduce AI technologies into new or existing offerings or back-office functions, it may result in new or expanded risks and liabilities due to enhanced governmental or regulatory scrutiny, litigation, compliance issues, ethical concerns, and data privacy and security risks, all of which could adversely affect our business, reputation, and financial results.
Human Capital Risks ● If we are unable to retain our existing sales force and recruit additional people to join our sales force, our revenue may not increase and may even decline. ● We depend on our key personnel and Sales Leaders, and the loss of the services provided by any of our executive officers, other key employees or key Sales Leaders could harm our business and results of operations. 18 Table of Contents Risks Associated with Our Manufacturing and Operations ● Production difficulties, quality control problems, inaccurate forecasting, shortages in ingredients, and reliance on our suppliers could harm our business. ● The loss of or a disruption in our manufacturing, supply chain and distribution operations, or significant expenses or violations incurred by such operations, could adversely affect our business. ● Our business could be negatively impacted if we fail to execute our product launch process or ongoing product sales due to difficulty in forecasting or increased pressure on our supply chain, information systems and management. ● If we are unable to effectively manage our growth in certain markets, our operations could be harmed. ● System failures, capacity constraints and other information technology difficulties could harm our business. ● Any acquired companies or future acquisitions may expose us to additional risks.
Human Capital Risks ● If we are unable to retain our existing sales force and recruit additional people to join our sales force, our revenue may not increase and may even decline. ● We depend on our key personnel and Sales Leaders, and the loss of the services provided by any of our executive officers, other key employees or key Sales Leaders could harm our business and results of operations. 18 Table of Contents Risks Associated with Our Manufacturing and Operations ● Production difficulties, quality control problems, inaccurate forecasting, shortages in ingredients, and reliance on our suppliers could harm our business. ● The loss of or a disruption in our manufacturing, supply chain and distribution operations, or significant expenses or violations incurred by such operations, could adversely affect our business. ● Our business could be negatively impacted if we fail to execute our product launch process or ongoing product sales due to difficulty in forecasting or increased pressure on our supply chain, information systems and management. ● If we are unable to effectively manage our growth in certain markets, our business and operations could be harmed. ● System failures, capacity constraints and other information technology difficulties could harm our business. ● Any acquired companies or future acquisitions may expose us to additional risks.
To increase our revenue, we must increase the number of and/or the productivity of our sales force. We must also expand our outreach and outbound efforts to attract, connect and nurture new customers for a wider consumer base who purchase products and whom we can foster along a consumer journey to promote retention and higher lifetime value.
To increase our revenue, we must increase the number of and/or the sales productivity of our sales force. We must also expand our outreach and outbound efforts to attract, connect and nurture new customers for a wider consumer base who purchase products and whom we can foster along a consumer journey to promote retention and higher lifetime value.
The prospect of new data privacy laws and ambiguity regarding the interpretation of existing laws has resulted in significant uncertainty and compliance costs.
The prospect of new data privacy laws and ambiguity regarding the interpretation of new and existing laws has resulted in significant uncertainty and compliance costs.
These risks are heightened as we work with third-party providers, including providers of mobile and cloud technologies, and as our sales force uses social media, as the providers and social media platforms could be vulnerable to the same types of breaches and other risks.
These risks are heightened as we work with third-party providers, including providers of mobile and cloud technologies, and as our sales force uses social media, as our third-party providers and the social media platforms could be vulnerable to the same types of breaches and other risks.
Product Legal and Regulatory Risks ● Regulations governing our products, including the formulation, registration, pre-approval, marketing and sale of our products, could harm our business. ● Government regulations and private party actions relating to the marketing and advertising of our products and services may restrict, inhibit or delay our ability to sell our products and harm our business. ● Our operations could be harmed if we fail to comply with Good Manufacturing Practices. ● If our current or any future device products are determined to be medical devices in a particular geographic market, or if our sales force uses these products for medical purposes or makes improper medical claims, our ability to continue to market and distribute such devices could be harmed, and we could face legal or regulatory actions. ● We may incur product liability claims that could harm our business.
Product Legal and Regulatory Risks ● Regulations governing our products, including the formulation, registration, pre-approval, marketing and sale of our products, could harm our business. ● Government regulations and private party actions relating to the marketing and advertising of our products and services may restrict, inhibit or delay our ability to sell our products and harm our business. ● Our operations could be harmed if we or our vendors fail to comply with Good Manufacturing Practices. ● If our current or any future device products are determined to be medical devices in a particular geographic market, or if our sales force uses these products for medical purposes or makes improper medical claims, our ability to continue to market and distribute such devices could be harmed, and we could face legal or regulatory actions. ● We may incur product liability claims that could harm our business.
International Risks ● Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks. ● We are subject to financial risks as a result of our international operations, including exposure to foreign-currency fluctuations, currency controls and inflation in foreign markets, all of which could impact our financial position and results of operations. ● Potential changes to tariff and import/export regulations, and ongoing trade disputes between the United States and other jurisdictions may have a negative effect on global economic conditions and our business, financial results and financial condition.
International Risks ● Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks. ● We are subject to financial risks as a result of our international operations, including exposure to foreign-currency fluctuations, currency controls and inflation in foreign markets, all of which could impact our financial position and results of operations. ● Potential changes to tariff and import/export regulations, and trade disputes between the United States and other jurisdictions may have a negative effect on global economic conditions and our business, financial results and financial condition.
The laws and regulations in our current markets often: ● impose requirements related to sign-up, order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers; ● require us, or our sales force, to register with government agencies; ● impose limits on the amount of sales compensation we can pay; ● impose reporting requirements; and ● require that our sales force is compensated for selling products and not for recruiting others.
The laws and regulations in our current markets often: ● impose requirements related to sign-up, order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers; ● require us, or our sales force, to register with government agencies; ● impose limits on the amount and type of sales compensation we can pay; ● impose reporting requirements; and ● require that our sales force is compensated for selling products and not for recruiting others.
Our operations could be harmed if we fail to comply with Good Manufacturing Practices. Across our markets, there are regulations on a diverse range of Good Manufacturing Practices that apply to us and to our vendors covering product categories such as dietary supplements, cosmetics, foods, over-the-counter drugs and medical devices.
Our operations could be harmed if we or our vendors fail to comply with Good Manufacturing Practices. Across our markets, there are regulations on a diverse range of Good Manufacturing Practices that apply to us and to our vendors covering product categories such as dietary supplements, cosmetics, foods, over-the-counter drugs and medical devices.
We dedicate time and resources to internal investigations of any allegation that we are not or may not be in compliance with anti-corruption laws. Such allegations, even if untrue, may result in a government investigation by a foreign or U.S. regulator, including the U.S. Department of Justice and the Securities and Exchange Commission (“SEC”).
We dedicate time and resources to internal investigations of any allegation that we are not or may not be in compliance with anti-corruption laws. Such allegations, even if untrue, may result in a government investigation by a foreign or U.S. regulator, including the U.S. Department of Justice and the Securities and Exchange Commission.
We have filed patent and trademark applications globally to protect our intellectual property rights in our new technologies; however, there can be no assurance that our patent and trademark applications will be approved and issue, that any patents and trademarks issued will adequately protect our intellectual property, or that such patents and trademarks will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable.
We have filed patent and trademark applications globally to protect our intellectual property rights in our new technologies; however, there can be no assurance that our patent and trademark applications will be approved and issued, that any patents and trademarks issued will adequately protect our intellectual property, or that such patents and trademarks will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable.
We may also face challenges retaining our sales force as the population of our markets transitions to a younger, millennial/Gen Z demographic, with its associated new and different dynamics of connection through social media platforms, gratification and loyalty behaviors, particularly as this segment becomes a greater share of our revenue.
We also face challenges retaining our sales force as the population of our markets transitions to a younger, millennial/Gen Z demographic, with its associated new and different dynamics of connection through social media platforms, gratification and loyalty behaviors, particularly as this segment becomes a greater share of our revenue.
Foreign Corrupt Practices Act (the “FCPA”). The FCPA and the anti-corruption laws of other jurisdictions where we operate generally prohibit companies and their agents or intermediaries from making improper payments for the purpose of obtaining or retaining business, and they require companies to maintain accurate books and records and internal accounting controls.
Foreign Corrupt Practices Act (the “FCPA”). The FCPA and the anti-corruption laws of other jurisdictions where we operate generally prohibit companies and their agents or intermediaries from making improper payments for the purpose of obtaining or retaining business, and they require companies to maintain books and records and internal accounting controls.
Acquisition activity, which we have engaged in and which we may continue to engage in, may also heighten these risks, as the systems of the companies we acquire are not under our control prior to the acquisitions and it may take time to evaluate these systems and implement appropriate modifications to them.
Acquisition activity, which we have engaged in and which we plan to continue to engage in, may also heighten these risks, as the systems of the companies we acquire are not under our control prior to the acquisitions and it may take time to evaluate these systems and implement appropriate modifications to them.
Difficult economic conditions, such as high unemployment levels, inflation, or recession, have in the past, and could continue to, adversely affect our business by causing a decline in demand for our products, particularly if the economic conditions are prolonged or worsen.
Difficult economic conditions, such as high unemployment levels, inflation, deflation, or recession, have in the past, and could continue to, adversely affect our business by causing a decline in demand for our products, particularly if the economic conditions are prolonged or worsen.
The loss of, or disruption or damage to, any of our facilities or centers or those of our third-party manufacturers could have a material adverse effect on our business, reputation, results of operations and financial condition. 30 Table of Contents We have experienced, and may continue to experience, disruptions to the transportation channels used in our supply chain and distribution operations, including increased airport and shipping port congestion, a lack of transportation capacity, increased fuel expenses, import or export controls or delays, and labor disputes or shortages.
The loss of, or disruption or damage to, any of our facilities or centers or those of our third-party manufacturers could have a material adverse effect on our business, reputation, results of operations and financial condition. 31 Table of Contents We have experienced, and may continue to experience, disruptions to the transportation channels used in our supply chain and distribution operations, including increased airport and shipping port congestion, a lack of transportation capacity, increased fuel expenses, import or export controls or delays, and labor disputes or shortages.
This would occur if a jurisdiction classifies our sales force as our employees rather than as independent contractors, or if a jurisdiction expands the categories of personnel to whom these tax obligations apply. ● The laws and interpretations regarding “independent contractor” status in certain jurisdictions, including the United States, continue to evolve, and in some cases, authorities have sought to apply these laws unfavorably against gig economy, platform and direct selling companies.
This would occur if a jurisdiction classifies our sales force as our employees rather than as independent contractors, or if a jurisdiction expands the categories of personnel to whom these tax obligations apply. ● The laws and interpretations regarding “independent contractor” status in certain jurisdictions, including the United States and the European Union, continue to evolve, and in some cases, authorities have sought to apply these laws unfavorably against gig economy, platform and direct selling companies.
In addition, if our sales force attempts to import or export products from one market to another in violation of our policy, makes medical claims regarding our products, or uses our products to perform medical diagnoses or other activities limited to licensed professionals or approved medical devices (in markets where the product is not approved), it could negatively impact our ability to market or sell these products and subject us to legal or regulatory actions.
In addition, if, in violation of our policies, our sales force attempts to import or export products from one market to another, makes medical claims regarding our products, or uses our products to perform medical diagnoses or other activities limited to licensed professionals or approved medical devices (in markets where the product is not approved), it could negatively impact our ability to market or sell these products and subject us to legal or regulatory actions.
If our business, products and initiatives do not drive growth and/our productivity in Sales Leaders, Paid Affiliates and Customers, our operating results could be further harmed.
If our business, products and initiatives do not drive growth and/or sales productivity in Sales Leaders, Paid Affiliates and Customers, our operating results could be further harmed.
Government-imposed restrictions and public hesitance regarding in-person gatherings, travel and visiting public places have reduced our sales force’s ability to hold sales meetings, resulted in cancellations of key sales leader events and incentive trips, and required us to temporarily close our walk-in and fulfillment locations in some markets where we have such properties.
Government-imposed restrictions and public hesitance regarding in-person gatherings, travel and visiting public places reduced our sales force’s ability to hold sales meetings, resulted in cancellations of key sales leader events and incentive trips, and required us to temporarily close our walk-in and fulfillment locations in some markets where we had such properties.
A significant deterioration in our results of operations, whether as a result of prevailing economic, financial and industry conditions, COVID-19, or other causes, could impact our ability to comply with our financial covenants and debt service and amortization obligations, which could result in an event of default under the terms of our credit facility.
A significant deterioration in our results of operations, whether as a result of prevailing economic, financial and industry conditions, or other causes, could impact our ability to comply with our debt covenants and debt service and amortization obligations, which could result in an event of default under the terms of our credit facility.
Additional social media platforms’ adoption of similar or stricter policies could significantly hamper our sales force’s ability to promote our products and attract consumers, which could cause our revenue to decline. Our reputation could also be harmed if our sales force violates any social media platform’s policies.
Additional social media platforms’ adoption of similar or stricter policies could significantly hamper our sales force’s ability to promote our products and attract consumers, which could cause our revenue to decline. Our reputation could also be harmed if our sales force violates any social media platform’s community guidelines.
Our sales force is required to comply with work authorization and other local legal requirements prior to working in a market. Some markets, including Mainland China and Vietnam, also prohibit or restrict participation of foreigners in direct selling activities.
Our sales force is required to comply with our residency and work authorization policies and other local legal requirements prior to working in a market. Some markets, including Mainland China and Vietnam, also prohibit or restrict participation of foreigners in direct selling activities.
In addition to tariffs, any actions taken by the United States or by foreign countries to further implement trade policy changes, including limiting foreign investment or trade, increasing regulatory scrutiny, or other actions that impact our ability to obtain necessary licenses or approvals could negatively impact our business.
In addition to tariffs, any actions taken by the United States or by foreign countries to further implement trade policy changes, including limiting foreign investment or trade, increasing regulatory requirements, or other actions that impact our ability to obtain necessary licenses or approvals could negatively impact our business.
The number and productivity of our sales force is negatively impacted by several additional factors, including: ● any adverse publicity or negative public perception regarding us, our products or ingredients, our distribution channel, or our industry or competitors; ● lack of interest in, dissatisfaction with, or the technical failure of, our products or digital tools; ● lack of compelling products or income opportunities, including through our sales compensation plans and incentive trips and other offerings; ● negative sales force reaction to changes in our sales compensation plans or to our failure to make changes that would be necessary to keep our compensation competitive with the market; ● interactions with our company, including our actions to enforce our policies and procedures and the quality of our customer service; ● any regulatory actions or charges against us or others in our industry, as well as regulatory changes that impact product formulations and sales viability; ● general economic, business, public health and geopolitical conditions, including employment levels, employment trends such as the gig and sharing economies, pandemics or other conditions that curtail person-to-person interactions, and the ongoing conflict in Russia and Ukraine which has caused distraction to our sales force; ● changes in the policies of social media platforms used to prospect or recruit potential consumers and sales force participants; ● recruiting efforts of our competitors and changes in consumer-loyalty trends; ● potential saturation or maturity levels in a given market, which could negatively impact our ability to attract and retain our sales force in such market ; ● growing gig economy competition which may draw away potential product sellers, affiliates, and influencers; ● our sales force’s increased use of social sharing channels, which may enable them to more easily engage their consumers and sales network in other opportunities; ● lack of sufficient tools to create customer interest in our products and to manage and build a personalized business; and ● our and our sales force’s ability to implement social commerce and other selling platforms that appeal to consumers. 29 Table of Contents We depend on our key personnel and Sales Leaders, and the loss of the services provided by any of our executive officers, other key employees or key Sales Leaders could harm our business and results of operations.
The number and productivity of our sales force is negatively impacted by several additional factors, including: ● any adverse publicity or negative public perception regarding us, our products or ingredients, our distribution channel, or our industry or competitors; ● lack of interest in, dissatisfaction with, or the technical failure of, our products or digital tools; ● lack of compelling products or income opportunities, including through our sales compensation plans and incentive trips and other offerings; ● negative sales force reaction to changes in our sales compensation plans or to our failure to make changes that would be necessary to keep our compensation competitive with the market; ● interactions with our company, including our actions to enforce our policies and procedures and the quality of our customer service; ● any regulatory actions or charges against us or others in our industry, as well as regulatory changes that impact product formulations and sales viability; ● general economic, business, public health and geopolitical conditions, including employment levels, employment trends such as the gig and sharing economies and affiliate marketing, pandemics or other conditions that curtail person-to-person interactions, and the ongoing conflicts in Russia/Ukraine and Israel/Hamas which have caused distraction to our sales force; ● changes in the policies of social media platforms used to prospect or recruit potential consumers and sales force participants; ● recruiting efforts of our competitors and changes in consumer-loyalty trends; ● potential saturation or maturity levels in a given market, which could negatively impact our ability to attract and retain our sales force in such market ; ● growing gig economy competition which may draw away potential product sellers, affiliates, and influencers; ● our sales force’s increased use of social sharing channels, which may enable them to more easily engage their consumers and sales network in other opportunities; ● lack of sufficient tools to create customer interest in our products and to manage and build a personalized business; and ● our and our sales force’s ability to implement social commerce and other selling platforms that appeal to consumers. 30 Table of Contents We depend on our key personnel and Sales Leaders, and the loss of the services provided by any of our executive officers, other key employees or key Sales Leaders could harm our business and results of operations.
Any of these eventualities could have a material negative impact on our business, sales force, consumer development and revenue. In addition, in our more mature markets, one of the challenges we face is keeping Sales Leaders with established businesses and high-income levels motivated and actively engaged in business building activities and in developing new Sales Leaders.
Any of these eventualities could have a material negative impact on our business, sales force, consumer development and revenue. 26 Table of Contents In addition, in our more mature markets, one of the challenges we face is keeping Sales Leaders with established businesses and high-income levels motivated and actively engaged in business building activities and in developing new Sales Leaders.
It is difficult to predict future fluctuations and the effect these fluctuations may have upon future reported results or our overall financial condition. 28 Table of Contents Potential changes to tariff and import/export regulations, and ongoing trade disputes between the United States and other jurisdictions may have a negative effect on global economic conditions and our business, financial results and financial condition.
It is difficult to predict future fluctuations and the effect these fluctuations may have upon future reported results or our overall financial condition. 29 Table of Contents Potential changes to tariff and import/export regulations, and trade disputes between the United States and other jurisdictions may have a negative effect on global economic conditions and our business, financial results and financial condition.
Similarly, we face the risk that we could fail to make changes to our compensation plans that would be necessary to keep our compensation competitive with the market and allow us to attract new opportunity seekers or segments of opportunity seekers, which could have a negative impact on our sales force.
Similarly, we face the risk that we could fail to make changes to our compensation plans that would be necessary to keep our compensation competitive with the market, compliant with changing regulations, and allow us to attract new opportunity seekers or segments of opportunity seekers, which could have a negative impact on our sales force.
In addition, the laws of certain foreign markets where we have significant business, including markets such as Mainland China, do not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our patents and trademarks may be substantial or even not practical.
In addition, the laws of certain foreign markets where we have significant business, including markets such as Mainland China, do not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our patents and trademarks may be substantial.
Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business. 39 Table of Contents Risks Related to Our Common Stock The market price of our Class A common stock is subject to significant fluctuations due to a number of factors that are beyond our control.
Any such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business. Risks Related to Our Common Stock The market price of our Class A common stock is subject to significant fluctuations due to a number of factors that are beyond our control.
We collect, transmit and/or store large volumes of company, employee, sales force and guest data, including payment card information, personally identifiable information and other personal information, for business purposes, including for transactional and promotional purposes, and our various information technology systems enter, process, summarize and report such data.
We collect, transmit and/or store large volumes of company, employee, sales force, customer and guest data, including payment card information, personally identifiable information, health-related data and other personal information, for business purposes, including for transactional and promotional purposes, and our various information technology systems enter, process, summarize, report and transmit such data.
Although we take measures to protect the security, integrity and confidentiality of our data systems, we experience cyber attacks of varying degrees and types on a regular basis. Our infrastructure may be vulnerable to these attacks, and in some cases it could take time to discover them.
Although we take measures to protect the security, integrity, accessibility and confidentiality of our data systems, we experience cyberattacks of varying degrees and types on a regular basis. Our infrastructure may be vulnerable to these attacks, and in some cases it could take time to discover them.
Social media platforms have, and could in the future, decided to prohibit, block or decrease the prominence of our sales force’s content for any reason. For example, due to concerns with multi-level marketing, the TikTok and WhatsApp Business platforms’ policies prohibit content related to multi-level marketing.
Social media platforms have, and could in the future, decided to prohibit, block or decrease the prominence of our sales force’s content for any reason. For example, due to concerns with multi-level marketing, the TikTok and WhatsApp Business platforms’ community guidelines prohibit content related to multi-level marketing.
Potential factors affecting the attractiveness of our products, platforms, business opportunities and other initiatives include, among other things, shifting consumer demands, perceived product quality and value, similarities to other products, product exclusivity or effectiveness, growth of the gig economy, disruption of retail commerce and e-commerce by social commerce, demographic trends, the strength of our brand and public image, growth of connected commerce, sustainability factors, DEI initiatives, economic success in our business opportunity, the quality and accuracy of the data we use in running our business, our technology infrastructure and capabilities, restrictions in social or digital media for sharing products and attracting consumers, adverse media attention and regulatory restrictions on claims.
Potential factors affecting the attractiveness of our products, platforms, business opportunities and other initiatives include, among other things, shifting consumer demands, perceived product quality and value, similarities to other products, product exclusivity or effectiveness, growth of the gig economy, disruption of retail commerce and e-commerce by social commerce, demographic trends, the strength of our brand and public image, growth of connected commerce, sustainability factors, DEI initiatives, economic competitiveness of our business opportunity in the marketplace, perceived ability of potential affiliates to succeed in our business opportunity, the quality and accuracy of the data we use in running our business, our technology infrastructure and capabilities, restrictions in social or digital media for sharing products and attracting consumers, adverse media attention and regulatory restrictions on claims.
For example, the COVID-19 pandemic has continued to result in several disruptions and delays, as well as quantity limits and price increases, in our global transportation channels. In addition, our manufacturing facilities are subject to numerous regulations, including labor regulations and environmental regulations that govern the storage, discharge, handling, emission, generation, manufacture, use and disposal of chemicals and other materials.
For example, the COVID-19 pandemic resulted in several disruptions and delays, as well as quantity limits and price increases, in our global transportation channels. In addition, our manufacturing facilities are subject to numerous regulations, including labor regulations and environmental regulations that govern the storage, discharge, handling, emission, generation, manufacture, use and disposal of chemicals and other materials.
Some initiatives may have unanticipated negative impacts on our sales force , particularly changes to our sales compensation plans, incentive rewards, and recognition practices. The introduction of a new product or key initiative can also negatively impact other product lines to the extent our Sales Leaders focus their efforts on the new product or initiative.
Some initiatives have had, and could continue to have, unanticipated negative impacts on our sales force , particularly changes to our sales compensation plans, incentive rewards, and recognition practices. The introduction of a new product or key initiative can also negatively impact other product lines to the extent our Sales Leaders focus their efforts on the new product or initiative.
We are subject to financial risks as a result of our international operations, including exposure to foreign-currency fluctuations, currency controls and inflation in foreign markets, all of which could impact our financial position and results of operations. In 2022, approximately 76% of our sales occurred in markets outside of the United States in each market’s respective local currency.
We are subject to financial risks as a result of our international operations, including exposure to foreign-currency fluctuations, currency controls and inflation in foreign markets, all of which could impact our financial position and results of operations. In 2023, approximately 74% of our sales occurred in markets outside of the United States in each market’s respective local currency.
If this exemption is eliminated or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force and our revenue. In addition, markets where we currently do business could change their laws or regulations to prohibit direct selling.
If this changes or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force and our revenue. In addition, markets where we currently do business could change their laws or regulations to prohibit direct selling.
Although we continually take steps to control product diversion, this activity continues to be a challenge, and we believe that changes to our global sales compensation plan or increased use of online channels for conducting sales transactions have and may continue to lead to increased product diversion.
Although we continually take steps to control product diversion, this activity continues to be a challenge, and we believe that changes to our global sales compensation plan, divergence of product pricing across markets, or increased use of online channels for conducting sales transactions have and may continue to lead to increased product diversion.
Our failure to successfully complete the integration of any acquired business, or a failure to adjust our fixed costs quickly enough or sufficiently to adapt to rapidly changing market conditions, could have a material adverse effect on our business, financial condition and operating results.
Our failure to successfully complete the integration of any acquired business, a failure to adjust our fixed costs quickly enough or sufficiently to adapt to rapidly changing market conditions, or any other of the risks discussed above could have a material adverse effect on our business, financial condition and operating results.
Our or our third-party providers’ systems may be damaged or disrupted by fires, floods, earthquakes or other natural disasters, human error, telecommunications failures, power loss, physical or electronic break-ins, computer viruses, cyber attacks, changes in our information technology systems or organization, and other events. We have, and may in the future, experienced system failures and outages.
Our or our third-party providers’ systems may be damaged or disrupted by fires, floods, earthquakes or other natural disasters, human error, telecommunications failures, power loss, physical or electronic break-ins, computer viruses, cyberattacks, changes in our information technology systems or organization, and other events. We have experienced system failures, outages and cyberattacks, and we may experience them in the future.
For example, we believe inflation had a negative impact on our 2022 sales by curbing the discretionary spending of our consumers. Inflation also has increased the cost of our inventory and shipping expenses. Higher interest rates have increased our interest expense, as our credit facility entails variable-rate interest. We believe these conditions could continue in 2023.
For example, we believe inflation had a negative impact on our 2022 and 2023 sales by curbing the discretionary spending of our consumers. Inflation also has increased the cost of our inventory and shipping expenses. Higher interest rates have increased our interest expense, as our credit facility entails variable-rate interest.
Risks Associated with Taxes, Customs and Debt ● We are subject to changes in tax and customs laws, changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, which could have a material and adverse impact on our effective tax rate, operating results, cash flows and financial condition. ● Government authorities may question our tax or customs positions or change their laws in a manner that could increase our effective tax rate or otherwise harm our business. ● A decline in our business could adversely affect our financial position and liquidity.
Risks Associated with Taxes, Customs and Debt ● We are subject to changes in tax and customs laws, changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, which could have a material and adverse impact on our effective tax rate, operating results, cash flows and financial condition. ● Government authorities may question our tax or customs positions or change their laws in a manner that could increase our effective tax rate or otherwise harm our business. ● A decline in our business could adversely affect our financial position and liquidity, and our debt covenants could limit our ability to pursue transactions or other opportunities that could be beneficial to our business.
In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release, misuse or disclosure of data could result in theft, loss, or fraudulent or unlawful use of company, employee, sales force or guest data.
A breached or compromised data system or the intentional, inadvertent or negligent release, misuse or disclosure of data could result in theft, loss, or fraudulent or unlawful use of company, employee, sales force, customer or guest data.
If we are required to make changes or if the FTC seeks to enforce similar measures in the industry, either through rulemaking or an enforcement action against our company, our business could be harmed. We could also be subject to challenges by private parties in civil actions.
If we are required to make changes or if the FTC seeks to enforce similar measures in the industry, either through rulemaking or an enforcement action against our company, our business could be harmed. 20 Table of Contents From time to time, we also are subject to challenges by private parties in civil actions.
What constitutes such reliable scientific substantiation can vary widely from market to market and there is no assurance that the research and development efforts that we undertake to support our claims will be deemed adequate for any particular product or claim.
These regulatory authorities typically require adequate and reliable scientific substantiation to support any marketing claims. What constitutes such reliable scientific substantiation can vary widely from market to market and there is no assurance that the research and development efforts that we undertake to support our claims will be deemed adequate for any particular product or claim.
For example, during 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have lost income could make.
For example, during 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat, cure or prevent COVID-19 and/or about the earnings that people who suffered the loss of a job or income could make.
As of December 31, 2022, approximately 356 Sales Leaders occupied the highest levels under our global sales compensation plan, and in Mainland China approximately 103 key Sales Leaders were playing a significant role in managing, training and servicing our sales force in that market and driving sales .
As of December 31, 2023, approximately 294 Sales Leaders occupied the highest levels under our global sales compensation plan, and in Mainland China approximately 98 key Sales Leaders were playing a significant role in managing, training and servicing our sales force in that market and driving sales .
Our failure, or our third-party providers’ failure, to achieve or maintain system capacity could significantly reduce our ability to fulfill orders and could harm our business, reputation, revenue and financial condition. Any acquired companies or future acquisitions may expose us to additional risks.
Our failure, or our third-party providers’ failure, to achieve or maintain system capacity could significantly reduce our ability to process orders and could harm our business, reputation, revenue and financial condition. 33 Table of Contents Any acquired companies or future acquisitions may expose us to additional risks.
Although we take measures (1) to maintain legal separation between our cross-border e-commerce entity and our direct selling entity; and (2) to ensure the products sold on our cross-border e-commerce platform are for consumers’ personal consumption only, our business in Mainland China could be negatively impacted if regulatory authorities elect to attribute these cross-border e-commerce sales activities and related product claims, or the accompanying actions of our sales force, to our direct selling business, and make a determination they are in violation of direct selling or other applicable laws. 24 Table of Contents Our Mainland China business also has an e-commerce platform in which it sells products directly to customers.
Although we take measures (1) to maintain legal separation between our cross-border e-commerce entity and our direct selling entity; and (2) to ensure the products sold on our cross-border e-commerce platform are for consumers’ personal consumption only, our business in Mainland China could be negatively impacted if regulatory authorities elect to attribute these cross-border e-commerce sales activities and related product claims, or the accompanying actions of our sales force, to our direct selling business, and make a determination they are in violation of direct selling, customs or other applicable laws.
In Europe, for example, we are unable to market supplements that contain ingredients that were not marketed in Europe prior to May 1997 (“novel foods”) without going through an extensive registration and pre-market approval process. The FDA currently does not have a pre-market approval system for cosmetics. However, cosmetic products may become subject to more extensive regulation in the future.
In Europe, for example, we are unable to market supplements that contain ingredients that were not marketed in Europe prior to May 1997 (“novel foods”) without going through an extensive registration and pre-market approval process. The FDA currently does not have a pre-market approval system for cosmetics.
If media or regulatory scrutiny of our business in Mainland China results in significant delays in obtaining licenses elsewhere in Mainland China, or if the current processes for obtaining approvals are delayed further for any reason or are changed or interpreted differently than currently understood, our ability to receive direct selling licenses in Mainland China and our growth prospects in this market could be negatively impacted.
If media or regulatory scrutiny of our business in Mainland China results in significant delays in obtaining licenses elsewhere in Mainland China, or if the current processes for obtaining approvals are delayed further for any reason or are changed or interpreted differently than currently understood, our ability to receive direct selling licenses in Mainland China and our growth prospects in this market could be negatively impacted. 25 Table of Contents If we are not able to register products for sale in Mainland China, our business could be harmed.
The process for obtaining product permits and licenses may require extended periods of time that may prevent us from launching new product initiatives in Mainland China on the same timelines as other markets around the world.
We face lengthy timelines with respect to product registrations in Mainland China. The process for obtaining product permits and licenses may require extended periods of time that may prevent us from launching new product initiatives in Mainland China on the same timelines as other markets around the world.
During 2021, the FTC announced that it is initiating a review of its Business Opportunity Rule, which imposes certain obligations on business opportunity sellers in their dealings with prospective buyers; the FTC issued a request for public comment on this rule in November 2022. Currently, multi-level marketing companies are exempted from this rule.
During 2021, the FTC announced that it is initiating a review of its Business Opportunity Rule, which imposes certain obligations on business opportunity sellers in their dealings with prospective buyers; the FTC issued a request for public comment on this rule in November 2022. Currently, multi-level marketing companies have been deemed not covered by this rule.
Risks Associated with Market Conditions and Competition ● Our markets are intensely competitive, and market conditions and the strengths of competitors may harm our business. ● Adverse publicity concerning our business, marketing plan, products or people could harm our business and reputation. ● Inability of products, platforms, business opportunities and other initiatives to gain or maintain sales force and market acceptance could harm our business. ● Product diversion may have a negative impact on our business.
Risks Associated with Market Conditions and Competition ● Inability of products, platforms, business opportunities and other initiatives to gain or maintain sales force and market acceptance could harm our business, and trends among older and younger generations of customers contribute to this risk. ● Difficult economic conditions could harm our business. ● Our markets are intensely competitive, and market conditions and the strengths of competitors may harm our business. ● Adverse publicity concerning our business, marketing plan, products or people could harm our business and reputation. ● Product diversion may have a negative impact on our business.
Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products. Any of these results may adversely affect our financial condition.
Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products.
Through this entity, the U.S. subsidiary sells our ageLOC Meta product, which is neither registered for retail sale in Mainland China nor registered specifically as a direct selling product and, therefore, can only be sold to local consumers for their personal consumption and cannot be sold through the direct selling channel.
Through this entity, the U.S. subsidiary sells ageLOC Meta , ageLOC Youth and certain other products, which are neither registered for retail sale in Mainland China nor registered specifically as direct selling products and, therefore, can only be sold to local consumers for their personal consumption and cannot be sold through the direct selling channel.
Given the nature of our operations, lack of clarity on applicable legal requirements and standards, and our continuous need to recruit and retain consumers and members of our sales force, we are particularly vulnerable to adverse publicity.
Growth in our sales force and consumers and our results of operations can be particularly impacted by adverse publicity. Given the nature of our operations, lack of clarity on applicable legal requirements and standards, and our continuous need to recruit and retain consumers and members of our sales force, we are particularly vulnerable to adverse publicity.
For example: ● During 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make. ● In 2021, the FTC sent a notice to more than 1,100 companies, including us and two of our subsidiaries (Pharmanex, LLC and Big Planet, Inc.), that outlined several practices that the FTC determined to be unfair or deceptive in prior administrative cases.
For example: ● During 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat, cure or prevent COVID-19 and/or about the earnings that people who suffered the loss of a job or income could make. ● In 2021, the FTC sent a notice to more than 1,100 companies, including us, that outlined several practices that the FTC determined to be unfair or deceptive in prior administrative cases.
At any particular time, we may be in various stages of assessment, discussion and/or negotiation with regard to one or more potential acquisitions or investments, not all of which will be consummated. Acquisitions involve numerous risks and uncertainties and may be of businesses in which we lack operational or market experience.
At any particular time, we may be in various stages of assessment, discussion and/or negotiation with regard to one or more potential acquisitions or investments, not all of which will be consummated. Acquisitions involve numerous risks and uncertainties, and some of our past acquisition targets have been in industries in which we lack operational or market experience.
Furthermore, any mitigation process could take several days or more, thus resulting in a loss of revenue, loss of confidence of our sales force and harm to our reputation.
Furthermore, any mitigation process could take several days or more, resulting in a loss of revenue, loss of ability to track and timely pay sales compensation to our sales force, loss of confidence of our sales force and harm to our reputation.
As of December 31, 2022, we had $33.4 million in cash denominated in Chinese RMB, and our intercompany receivable with our Argentina subsidiary was $14.9 million. In addition, high levels of inflation and currency devaluations in any of our markets could negatively impact our balance sheet and results of operations.
As of December 31, 2023, we had $31.8 million in cash denominated in Chinese RMB, and our intercompany receivable with our Argentina subsidiary was $17.7 million. In addition, high levels of inflation and currency devaluations in any of our markets could negatively impact our balance sheet and results of operations.
However, developments in these matters could warrant an additional accrual and expense, and the ultimate outcome could be materially different from our accruals, which could materially impact our effective tax rate or our overall tax or customs expense. A decline in our business could adversely affect our financial position and liquidity.
However, developments in these matters could warrant an additional accrual and expense, and the ultimate outcome could be materially different from our accruals, which could materially impact our effective tax rate and/or our overall tax or customs expense.
These laws and regulations can, and often do, have several impacts on our business, including but not limited to: ● delays, or altogether prohibitions, in introducing or selling a product or ingredient in one or more markets; ● d elays and expenses associated with the registration and approval process for a product; ● limitations on our ability to import products into a market; ● delays and expenses associated with compliance, such as record keeping, documentation of the properties of certain products, labeling, and scientific substantiation; ● limitations on the claims we can make regarding our products; and ● product reformulations, or the recall or discontinuation of certain products that cannot be reformulated to comply with new regulations.
These laws and regulations can, and often do, have several impacts on our business, including but not limited to: ● delays, or altogether prohibitions, in introducing or selling a product or ingredient in one or more markets; ● d elays and expenses associated with the registration and approval process for a product; ● limitations on our ability to import products into a market; ● delays and expenses associated with compliance, such as record keeping, documentation of the properties of certain products, labeling, and scientific substantiation; ● limitations on the claims we can make regarding our products; and ● product reformulations, or the recall or discontinuation of certain products that cannot be reformulated to comply with new regulations. 34 Table of Contents We have observed a general increase in regulatory activity and activism in the United States and across many markets globally where we operate, and the regulatory landscape is becoming more complex with increasingly strict requirements.
Although we monitor regulatory developments in this area, any actual or perceived failure by us to comply with these requirements could subject us to significant penalties, lawsuits and negative publicity and require changes to our business practices.
Any actual or perceived failure by us to comply with these requirements could subject us to significant penalties, lawsuits and negative publicity and require changes to our business practices.
Our past acquisitions have, and future acquisitions could, entailed numerous risks, including: ● difficulties in integrating acquired operations or products; ● the difficulties of imposing financial and operating controls on the acquired companies and their management and the potential costs of doing so; ● the potential loss of key employees, customers, suppliers or distributors from acquired businesses and disruption to our direct selling channel; ● diversion of management’s attention from our core business; ● the failure to achieve the strategic objectives of these acquisitions; ● increased fixed costs; ● the failure of the acquired businesses to achieve the results we have projected in either the near or long term; ● the assumption of unexpected liabilities, including litigation risks; ● adverse effects on existing business relationships with our suppliers, sales force or consumers; and ● risks associated with entering markets or industries in which we have limited or no prior experience, including limited expertise in running the business, developing the technology, and selling and servicing the products.
Our past acquisitions have, and future acquisitions could, entailed numerous risks, including: ● difficulties in integrating acquired operations or products; ● the difficulties of imposing financial and operating controls on the acquired companies and their management and the potential costs of doing so; ● the potential loss of key employees, customers, suppliers or distributors from acquired businesses; ● disruption to our direct selling channel; ● diversion of management’s and other employees’ attention from our core business; ● the failure to achieve the strategic objectives of these acquisitions; ● increased fixed costs; ● financing structures that dilute the interests of our stockholders and/or result in an increase in our indebtedness; ● the failure of the acquired businesses to achieve the results we have projected in either the near or long term; ● the assumption of unexpected liabilities, including litigation risks or compliance issues not discovered during pre-acquisition diligence; ● adverse effects on existing business relationships with our suppliers, sales force or consumers; ● the risk of being unable to protect intellectual property related to newly acquired technologies; and ● risks associated with entering markets or industries in which we have limited or no prior experience, including limited expertise in running the business, developing the technology, and selling and servicing the products.
If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and adversely affect our financial condition. 38 Table of Contents Data Security and Privacy Risks Cyber security risks and the failure to maintain the integrity of company, employee, sales force or guest data could expose us to data loss, litigation, liability and harm to our reputation.
If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and adversely affect our financial condition. 40 Table of Contents Data Security and Privacy Risks Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations, and the integrity of company, employee, sales force, customer or guest data could expose us to litigation, liability, substantial negative financial consequences and harm to our reputation.
Due to the person-to-person nature of direct selling, our results of operations have been, and will likely continue to be, harmed if the fear of a communicable and rapidly spreading disease or other crises such as natural disasters result in travel restrictions or cause people to avoid group meetings or gatherings or interaction with other people.
Due to the person-to-person nature of direct selling, our results of operations have been, and likely will in the future be, harmed if the fear of a communicable and rapidly spreading disease, or another type of crisis such as a natural disaster, results in travel restrictions or causes people to avoid group meetings, gatherings or interactions with other people.
However, we cannot be certain that our efforts will successfully prevent regulatory actions against us, including fines, suspensions or other sanctions, or that the company and the direct selling industry will not receive further negative media attention, all of which could harm our business.
However, we cannot be certain that our efforts will successfully prevent regulatory actions against us, including fines, suspensions or other sanctions, or that the company and the direct selling industry will not receive further negative media attention, all of which could harm our business. 21 Table of Contents Except in Mainland China, members of our sales force are not employees and act independently of us.
In addition, as our sales force increasingly uses social media to promote our business opportunity and products, this increases the burden on us to monitor compliance of such activities and increases the risk that such social media content could contain problematic claims in violation of our policies and applicable regulations.
In addition, as our sales force increasingly uses social media and our digital tools to promote our business opportunity and products, this increases the burden on us to monitor compliance of such activities, and it increases the risk that such social media content or digital content (such as statements made on social media or within the chat feature of our apps) could contain claims that violate our policies and/or applicable regulations.
For example, from 2019 until January 2023, w e were in litigation with a dairy farmer who claimed he was a general partner in our former indoor-growing business and related businesses. He also sought damages exceeding $250 million.
Other parties in the transactions or potential transactions, or other parties involved in the businesses themselves, could bring claims against us. For example, from 2019 until January 2023, w e were in litigation with a dairy farmer who claimed he was a general partner in our former indoor-growing business and related businesses. He also sought damages exceeding $250 million.
Moreover, many of our products rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all. From time to time, we become aware of potential violations of our intellectual property rights.
Additionally, we cannot guarantee that our intellectual property rights will be respected and not infringed by third parties. Moreover, many of our products rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all.
Any significant decline in our operating results could adversely affect our financial position and liquidity. Under the terms of our credit facility, we are required to maintain certain interest coverage and leverage ratios. In addition, our outstanding borrowings under our credit facility and related term loan impose debt service and amortization requirements.
Under the terms of our credit facility, we are required to maintain certain interest coverage and leverage ratios. In addition, our outstanding borrowings under our credit facility and related term loan impose debt service and amortization requirements.
Although we take steps to educate our sales force on proper claims, if members of our sales force make improper claims, or if regulators determine we are making any improper claims, this could lead to an FTC investigation and could harm our business.
The defendants were permanently barred from engaging in multi-level marketing programs. Although we take steps to educate our sales force on proper claims, if members of our sales force make improper claims, or if regulators determine we are making any improper claims, this could lead to an FTC investigation and could harm our business.
These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so.
Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the FTC’s prior administrative cases on this topic, and they could incur significant civil penalties if they or their representatives fail to do so.
Likewise, if we are unable to anticipate changes in the gig and sharing economies and adapt our business opportunity accordingly, our ability to capture growth trends in the social commerce marketplace could be materially adversely affected. 26 Table of Contents In addition, our ability to develop and introduce new products could be impacted by, among other things, government regulations, changing policies in social media and other communications platforms, the inability to attract and retain qualified staff, the termination of third-party research and collaborative arrangements, intellectual property of competitors that may limit our ability to offer innovative products or that challenge our own intellectual property, problems related to manufacturing or quality control, and difficulties in anticipating changes in consumer tastes and buying preferences.
In addition, our ability to develop and introduce new products could be impacted by, among other things, government regulations, changing policies in social media and other communications platforms, the inability to attract and retain qualified staff, the termination of third-party research and collaborative arrangements, intellectual property of competitors that may limit our ability to offer innovative products or that challenge our own intellectual property, problems related to manufacturing or quality control, and difficulties in anticipating changes in consumer tastes and buying preferences.
For example, during 2018, Argentina was designated as a highly inflationary economy under U.S. generally accepted accounting principles; accordingly, beginning with the third quarter of 2018, we began to apply highly inflationary accounting for our Argentina operations, which has resulted in additional foreign-currency charges.
For example, during 2018, Argentina was designated as a highly inflationary economy under U.S. generally accepted accounting principles; accordingly, we began to apply highly inflationary accounting for our Argentina operations, which has resulted in additional foreign-currency charges. Other markets may be designated as highly inflationary economies in the future, which could result in further foreign-currency charges.
From time to time, we announce certain initiatives and goals in these areas. We could fail, or be perceived to fail, in our achievement of such initiatives or goals or in meeting stakeholders’ expectations, or we could fail in accurately reporting our progress on such initiatives, goals and expectations.
We could fail, or be perceived to fail, in our achievement of such initiatives or goals or in meeting stakeholders’ expectations, or we could fail in complying with laws or accurately reporting our progress on such initiatives, goals and expectations.
We believe the regulatory environment in Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms. 23 Table of Contents The government’s scrutiny of activities within the health products and direct selling industries has been at higher levels since 2019, when the government conducted a 100-day campaign to review and inspect the health products and direct selling industries following negative media coverage generated by the healthcare-related product claims made by another direct selling company in Mainland China.
The government’s scrutiny of activities within the health products and direct selling industries has been at higher levels since 2019, when the government conducted a 100-day campaign to review and inspect the health products and direct selling industries following negative media coverage generated by healthcare-related product claims made by another direct selling company in Mainland China.
Other markets may be designated as highly inflationary economies in the future, which could result in further foreign-currency charges. Although we may engage in transactions intended to reduce our exposure to foreign-currency fluctuations, there can be no assurance that these transactions will be effective. Complex global political and economic dynamics can affect exchange rate fluctuations.
Although we may engage in transactions intended to reduce our exposure to foreign-currency fluctuations, there can be no assurance that these transactions will be effective. Complex global political and economic dynamics can affect exchange rate fluctuations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeResearch and Development Centers We operate research and development centers in Provo, Utah and Shanghai, China. Manufacturing Facilities We operate manufacturing facilities in Mainland China, and two of the companies in our Rhyz strategic investment arm (Manufacturing segment) operate manufacturing facilities in Provo, Utah, Draper, Utah and West Valley City, Utah.
Biggest changeResearch and Development Centers We operate research and development centers in Provo, Utah and Shanghai, China. 43 Table of Contents Manufacturing Facilities We operate manufacturing facilities in Mainland China, and two of our Rhyz companies (Manufacturing segment) operate manufacturing facilities in Provo, Utah, Draper, Utah and West Valley City, Utah.
We own the above properties, except we lease the manufacturing facilities in Provo, Utah and West Valley City, Utah, certain of the manufacturing facilities in China, and the land for our facilities in Shanghai, China. 40 Table of Contents
We own the above properties, except we lease the manufacturing facilities in Provo, Utah and West Valley City, Utah, certain of the manufacturing facilities in China, and the land for our facilities in Shanghai, China.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Nu Skin Enterprises, Inc., the S&P 500 Index, and the S&P MidCap 400 Consumer Staples Index Measured Period Nu Skin S&P 500 Index S&P MidCap 400 Consumer Staples Index December 31, 2017 100.00 100.00 100.00 December 31, 2018 91.68 95.62 92.85 December 31, 2019 63.25 125.72 102.93 December 31, 2020 87.78 148.85 125.81 December 31, 2021 83.97 191.58 138.49 December 31, 2022 72.27 156.88 137.43 The stock performance graph above shall not be deemed to be “soliciting material” or to be “filed” with the U.S.
Biggest changeCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Nu Skin Enterprises, Inc., the S&P 500 Index, the S&P SmallCap 600 Consumer Staples Index, and the S&P MidCap 400 Consumer Staples Index Measured Period Nu Skin S&P 500 Index S&P MidCap 400 Consumer Staples Index S&P SmallCap 600 Consumer Staples Index December 31, 2018 100.00 100.00 100.00 100.00 December 31, 2019 68.99 131.49 110.85 116.91 December 31, 2020 95.75 155.68 135.49 129.93 December 31, 2021 91.60 200.37 149.15 167.35 December 31, 2022 78.83 164.08 148.00 156.52 December 31, 2023 38.56 207.21 171.24 179.98 The stock performance graph above shall not be deemed to be “soliciting material” or to be “filed” with the U.S.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our Class A common stock is listed on the New York Stock Exchange and trades under the symbol “NUS.” The approximate number of holders of record of our Class A common stock as of January 31, 2023 was 221.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our Class A common stock is listed on the New York Stock Exchange and trades under the symbol “NUS.” The approximate number of holders of record of our Class A common stock as of January 31, 2024 was 210.
Purchases of Equity Securities by the Issuer (a) (b) (c) (d) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (1) October 1 – 31, 2022 283,592 $ 35.28 283,592 $ 175.4 November 1 – 30, 2022 — — — $ 175.4 December 1 – 31, 2022 — — — $ 175.4 Total 283,592 $ 35.28 283,592 (1) In August 2018, we announced that our board of directors approved a stock repurchase plan.
Purchases of Equity Securities by the Issuer (a) (b) (c) (d) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (1) October 1 – 31, 2023 — $ — — $ 162.4 November 1 – 30, 2023 — — — $ 162.4 December 1 – 31, 2023 — — — $ 162.4 Total — $ — — (1) In August 2018, we announced that our board of directors approved a stock repurchase plan.
Recent Sales of Unregistered Securities None. 42 Table of Contents Stock Performance Graph The following graph shows the changes in value over the five-year period ended December 31, 2022 of an assumed $100 investment in our Class A common stock, the S&P MidCap 400 Consumer Staples Index and the S&P 500 Index.
Recent Sales of Unregistered Securities None. 44 Table of Contents Stock Performance Graph The following graph shows the changes in value over the five-year period ended December 31, 2023 of an assumed $100 investment in our Class A common stock, the S&P SmallCap 600 Consumer Staples Index (the “SmallCap Index”) and the S&P 500 Index.
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The stock performance graph in our Annual Report on Form 10-K for the 2022 fiscal year included the S&P MidCap 400 Consumer Staples Index (the “MidCap Index”). We have determined to begin including the SmallCap Index rather than the MidCap Index because we believe the SmallCap Index is better reflective of our current market cap.
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As required by SEC rules, we include the MidCap Index in the graph below because we included it for the immediately preceding fiscal year.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

79 edited+50 added−39 removed71 unchanged
Biggest changeThree Months Ended December 31, Customers 2022 2021 Change Americas 299,287 336,564 (11 )% Mainland China 202,933 315,418 (36 )% Southeast Asia/Pacific 141,183 169,601 (17 )% South Korea 123,749 146,354 (15 )% Japan 119,152 122,813 (3 )% EMEA 197,917 210,414 (6 )% Hong Kong/Taiwan 62,903 66,395 (5 )% Total 1,147,124 1,367,559 (16 )% Three Months Ended December 31, Paid Affiliates 2022 2021 Change Americas 42,633 49,328 (14 )% Mainland China 23,436 30,546 (23 )% Southeast Asia/Pacific 38,653 44,050 (12 )% South Korea 45,058 52,036 (13 )% Japan 38,021 38,428 (1 )% EMEA 31,869 36,482 (13 )% Hong Kong/Taiwan 17,286 20,155 (14 )% Total 236,956 271,025 (13 )% Three Months Ended December 31, Sales Leaders 2022 2021 Change Americas 9,594 10,879 (12 )% Mainland China (1) 12,359 18,207 (32 )% Southeast Asia/Pacific 6,999 8,800 (20 )% South Korea 6,094 8,224 (26 )% Japan 5,936 5,864 1 % EMEA 4,740 5,743 (17 )% Hong Kong/Taiwan 3,015 3,666 (18 )% Total 48,737 61,383 (21 )% (1) The December 31, 2022 number reflects a modified Sales Leader definition.
Biggest changeThree Months Ended December 31, 2023 2022 Change Customers Americas 231,183 299,287 (23 )% Mainland China 207,276 202,933 2 % Southeast Asia/Pacific 106,471 141,183 (25 )% South Korea 103,151 123,749 (17 )% Japan 113,670 119,152 (5 )% Europe & Africa 163,178 197,917 (18 )% Hong Kong/Taiwan 52,110 62,903 (17 )% Total Customers 977,039 1,147,124 (15 )% Paid Affiliates Americas 31,910 42,633 (25 )% Mainland China 25,889 23,436 10 % Southeast Asia/Pacific 34,404 38,653 (11 )% South Korea (1) 22,166 45,058 (51 )% Japan (1) 22,417 38,021 (41 )% Europe & Africa (1) 18,888 31,869 (41 )% Hong Kong/Taiwan (1) 11,212 17,286 (35 )% Total Paid Affiliates 166,886 236,956 (30 )% Sales Leaders Americas 7,126 9,594 (26 )% Mainland China 11,296 12,359 (9 )% Southeast Asia/Pacific 6,418 6,999 (8 )% South Korea 5,249 6,094 (14 )% Japan 7,086 5,936 19 % Europe & Africa 3,968 4,740 (16 )% Hong Kong/Taiwan 2,916 3,015 (3 )% Total Sales Leaders 44,059 48,737 (10 )% (1) The December 31, 2023 number is affected by a change in eligibility requirements for receiving certain rewards within our compensation structure, to more narrowly focus on those affiliates who are actively building a consumer base.
“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.
“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.
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.
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.
See “Non-GAAP Financial Measures,” below. 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.
See “Non-GAAP Financial Measures,” below. The table below sets forth segment contribution for the years ended December 31, 2023 and 2022 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.
Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings. 55 Table of Contents 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.
Accordingly, we have accrued the necessary withholding taxes related to the non-U.S. earnings. 58 Table of Contents 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.
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.
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.
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. 45 Table of Contents Selling expenses are our most significant expense and are classified as operating expenses.
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. 47 Table of Contents Selling expenses are our most significant expense and are classified as operating expenses.
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.
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.
In each of these areas, management makes estimates based on historical results, current trends and future projections. 46 Table of Contents Income Taxes . We account for income taxes in accordance with the Income Taxes Topic of the Financial Accounting Standards Codification .
In each of these areas, management makes estimates based on historical results, current trends and future projections. 48 Table of Contents Income Taxes . We account for income taxes in accordance with the Income Taxes Topic of the Financial Accounting Standards Codification .
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. 47 Table of Contents Intangible Assets .
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 .
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.
Similar to other companies in our industry, we experience relatively high turnover among our sales force. 46 Table of Contents 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.
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.
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 also anticipate paying quarterly cash dividends throughout 2023, approximating $19-20 million per quarter depending on the number of shares outstanding as of record date. Additional details about our dividends and term loan are provided below. For 2024 and onward, we currently expect the above material cash requirements will remain.
We also anticipate paying quarterly cash dividends throughout 2024, approximating $ 3 million per quarter depending on the number of shares outstanding as of record date. Additional details about our dividends and term loan are provided below. For 2024 and onward, we currently expect the above material cash requirements will remain.
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.
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.
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.
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.
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.
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, 2023 and 2022, we had $31.8 million and $33.4 million, respectively, in cash denominated in Chinese RMB.
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 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.
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.
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.
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.
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.
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.
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.
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.
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 2023, we repurchased approximately 0.6 million shares of our Class A common stock under the plan for $13.0 million.
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.
As of December 31, 2023, cash and cash equivalents, including current investments, were $267.8 million compared to $278.5 million as of December 31, 2022.
As discussed in more detail below, our capital expenditures are expected to be $75-95 million for 2023. ● Cash requirements for financing activities. In 2023 we are obligated to make a total of $15.0 million in quarterly principal payments plus the associated interest on our term loan.
As discussed in more detail below, our capital expenditures are expected to be $ 40 - 60 million for 2024. ● Cash requirements for financing activities. In 2024 we are obligated to make a total of $25.0 million in quarterly principal payments plus the associated interest on our term loan.
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 experienced delays in repatriating cash from Argentina. As of December 31, 2023 and 2022, we had $17.7 million and $14.9 million, respectively, in intercompany receivable with our Argentina subsidiary.
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.
Our core Nu Skin business’s selling expense as a percentage of revenue decreased 1.2 percentage points to 41.1% for 2023, compared to 42.3% for 2022. Selling expenses for our core Nu Skin business are driven by the specific performance of our individual Sales Leaders.
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”).
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”).
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.
As of December 31, 2023 and 2022, we held $267.8 million and $278.5 million, respectively, in cash and cash equivalents, including current investments. These amounts include $213.7 million and $223.0 million as of December 31, 2023 and 2022, respectively, held in our operations outside of the United States.
We generated $108.1 million in cash from operations during 2022, compared to $141.6 million in cash from operations during 2021.
We generated $118.6 million in cash from operations during 2023, compared to $108.1 million in cash from operations during 2022.
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.
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. 49 Table of Contents 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.
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.
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. 56 Table of Contents Net income As a result of the foregoing factors, net income in 2023 decreased to $8.6 million, compared to $104.8 million in 2022. 2022 Compared to 2021 For a comparison of our operating results for 2022 compared to 2021, see Item 7.
Results of Operations The following table sets forth our operating results as a percentage of revenue for the periods indicated: Year Ended December 31, 2022 2021 2020 Revenue 100.0 % 100.0 % 100.0 % Cost of sales 28.3 25.0 25.5 Gross profit 71.7 75.0 74.5 Operating expenses: Selling expenses 39.5 40.1 39.8 General and administrative expenses 25.0 24.3 24.7 Restructuring and impairment expenses 2.2 2.0 — Total operating expenses 66.7 66.3 64.5 Operating income 5.0 8.7 10.0 Other income (expense), net (1.0 ) (0.1 ) (0.1 ) Income before provision for income taxes 4.0 8.6 9.9 Provision (benefit) for income taxes (0.7 ) 3.1 2.5 Net income 4.7 % 5.5 % 7.4 % 2022 Compared to 2021 Overview Revenue in 2022 decreased 17% to $2.23 billion from $2.70 billion in 2021.
We did not recognize any impairment charges for goodwill or intangible assets during 2023. 50 Table of Contents Results of Operations The following table sets forth our operating results as a percentage of revenue for the periods indicated: Year Ended December 31, 2023 2022 2021 Revenue 100.0 % 100.0 % 100.0 % Cost of sales 31.1 28.3 25.0 Gross profit 68.9 71.7 75.0 Operating expenses: Selling expenses 37.7 39.5 40.1 General and administrative expenses 27.8 25.0 24.3 Restructuring and impairment expenses 1.0 2.2 2.0 Total operating expenses 66.5 66.7 66.3 Operating income 2.4 5.0 8.7 Other income (expense), net (1.1 ) (1.0 ) (0.1 ) Income before provision for income taxes 1.3 4.0 8.6 Provision (benefit) for income taxes 0.9 (0.7 ) 3.1 Net income 0.4 % 4.7 % 5.5 % 2023 Compared to 2022 Overview Revenue in 2023 decreased 12% to $1.97 billion from $2.23 billion in 2022.
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, 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.
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 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.
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.
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.
On average, we purchase our inventory approximately three to six months prior to sale. While our actual cash usage may vary based on the timing of payments, we currently expect these approximate percentages and payment practices to continue in 2023. In addition, we expect our 2023 lease payments will be approximately $29.9 million. ● Cash requirements for investing activities.
While our actual cash usage may vary based on the timing of payments, we currently expect these approximate percentages and payment practices to continue in 2024. In addition, we expect our 2024 lease payments will be approximately $27.2 million. ● Cash requirements for investing activities.
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.
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.
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.
In February 2024, our board of directors declared a reduced quarterly cash dividend of $ 0.06 per share to be paid on March 6, 2024 to stockholders of record on February 26, 2024.
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.
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.
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.
Other income ( expense ) , net Other income (expense), net for 2023 was $(21.7) million, compared to $(21.9) million in 2022.
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.
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.
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.
As of December 31, 2023, 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.
Our operating expenses typically total approximately 85%-90% of our revenue, with compensation to our sales force constituting 40%-43% of our core Nu Skin revenue. These compensation expenses consist primarily of commission payments, which we generally pay to our sales force within approximately one to two months of the sale. Inventory purchases have historically constituted approximately 15%-20% of our revenue.
These compensation expenses consist primarily of commission payments, which we generally pay to our sales force within approximately one to two months of the sale. Inventory purchases have historically constituted approximately 15%-20% of our revenue. On average, we purchase our inventory approximately three to six months prior to sale.
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 .
As of December 31, 2023, $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, July and October 2023, our board of directors declared quarterly cash dividends of $0.39 per share.
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: ● the expansion and upgrade of facilities in our various markets; ● purchases and expenditures for computer systems and equipment, software, and application development; and ● a new manufacturing plant in Mainland China.
Capital expenditures . Capital expenditures in 2023 totaled $58.5 million. W e expect that our capital expenditures in 2024 will be primarily related to: ● Rhyz plant expansion to increase capacity and capabilities; ● purchases and expenditures for computer systems and equipment, software, and application development; and ● the expansion and upgrade of facilities in our various markets.
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.
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.
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.
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 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.
As a percentage of revenue, general and administrative increased 2.8 percentage points to 27.8% for 2023, compared to 25.0% for 2022. Restructuring and impairment expenses 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.
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.
As of December 31, 2023 and 2022, we had $ 120.0 million and $10.0 million of outstanding borrowings under our revolving credit facility, and $ 385.0 million and $395.0 million on our term loan facility.
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.
The carrying value of the debt also reflects debt issuance costs of $ 2.0 million and $2.5 million as of December 31, 2023 and 2022, 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.
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.
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 is also impacted by the growth within our Manufacturing segment, which has minimal selling expenses.
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.
Consolidated Results Revenue Revenue for the year ended December 31, 2023 decreased 12% to $1.97 billion, compared to $2.23 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 68.9% in 2023, compared to 71.7% in 2022.
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.
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 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.
Both facilities bear interest at the Secured Overnight Financing Rate (“SOFR”) , plus a margin based on our consolidated leverage ratio.
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.
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.
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): Constant Year Ended December 31, Currency 2022 2021 Change Change (1) Nu Skin Americas $ 508,537 $ 547,755 (7 )% (5 )% Mainland China 360,389 568,774 (37 )% (35 )% Southeast Asia/Pacific 344,411 336,651 2 % 7 % South Korea 268,707 354,252 (24 )% (15 )% Japan 224,896 266,216 (16 )% — EMEA 204,275 283,200 (28 )% (19 )% Hong Kong/ Taiwan 157,197 162,611 (3 )% 1 % Other 3,959 3,653 8 % 8 % Total Nu Skin 2,072,371 2,523,112 (18 )% (12 )% Rhyz Investments Manufacturing 149,458 172,120 (13 )% (13 )% Rhyz Other 3,830 437 776 % 776 % Total Rhyz Investments 153,288 172,557 (11 )% (11 )% Total $ 2,225,659 $ 2,695,669 (17 )% (12 )% (1) Constant-currency revenue change is a non-GAAP financial measure.
Our Europe & Africa segment was previously Europe, Middle East and Africa (“EMEA”), but was changed following the June 2023 closure of the Israel market. 51 Table of Contents 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): Constant Year Ended December 31, Currency 2023 2022 Change Change (1) Nu Skin Americas $ 398,222 $ 508,537 (22 )% (18 )% Mainland China 298,079 360,389 (17 )% (13 )% Southeast Asia/Pacific 267,206 344,411 (22 )% (21 )% South Korea 236,099 268,707 (12 )% (11 )% Japan 207,833 224,896 (8 )% (1 )% Europe & Africa 192,352 204,275 (6 )% (8 )% Hong Kong/ Taiwan 153,589 157,197 (2 )% 1 % Other (858 ) 3,959 (122 )% (122 )% Total Nu Skin 1,752,522 2,072,371 (15 )% (13 )% Rhyz Manufacturing 181,395 149,458 21 % 21 % Rhyz Other 35,214 3,830 819 % 819 % Total Rhyz 216,609 153,288 41 % 41 % Total $ 1,969,131 $ 2,225,659 (12 )% (9 )% (1) Constant-currency revenue change is a non-GAAP financial measure.
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.
Gross profit as a percentage of revenue for core Nu Skin decreased 2.2 percentage points to 73.2%, primarily driven by our third quarter of 2023 strategic decision to re-balance and narrow our product portfolio, which resulted in an incremental $65.7 million inventory write-off, compared to an incremental $26.9 million write-off in the third quarter of 2022.
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. 53 Table of Contents 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.
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 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.
We estimate that capital expenditures for the uses listed above will total approximately $40- 60 million for 2024. The construction of the new manufacturing plant in Mainland China was substantially completed during 2023; production began in the fourth quarter of 2023.
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.
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 .
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.
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.
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.
As of December 31, 2023, we had spent approximately $53.9 million on this project, including $9.2 million in 2023. 57 Table of Contents 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.
See “Mainland China,” below. 50 Table of Contents 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.
The decline in revenue, Customers, Paid Affiliates and Sales Leaders in our Americas segment for the fiscal year 2023 is attributable to the continued decline in momentum in our North America markets, while our Latin America markets continue to be challenged by macroeconomic issues.
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.
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.
We believe these subscription and loyalty programs have improved consumer retention, have had a stabilizing impact on revenue and have helped generate recurring sales. 44 Table of Contents 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.
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.
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 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).
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 .
The year-over-year decrease in segment contribution for fiscal year 2023 primarily reflects a decrease in revenue, partially offset by a 0.8 percentage point improvement in gross margin from a favorable sales mix as well as decreased production promotions and discounts during the year. Southeast Asia/Pacific .
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.
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.
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.
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.
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.
The year-over-year decrease in segment contribution is primarily attributable to the decline in revenue, along with a 1.7 percentage point decline in gross margin due to product mix, and a 1.0 percentage point increase in selling expenses as a percent of revenue from incremental cost associated with our Sales Leader growth program, which is aimed at channel development efforts.
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.
In addition, in the first half of 2022 we launched ageLOC Meta (locally referred to as ageLOC Reset in our Southeast Asia markets), which generated $48.1 million in revenue for fiscal year 2022, respectively, compared to $22.2 million for fiscal year 2023.
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.
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 40 th anniversary. In addition, we hold regional conventions and conventions in our major markets at different times during the year.
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.
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.
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 decrease in other expense for year ended December 31, 2023 reflects a $7.2 million decline in foreign currency losses and a $9.3 million unrealized investment loss recorded in 2022 related to a controlled environment agriculture company that we invested in, partially offset by a $ 12.1 million increase in interest expense and a $4.0 million decline in contingent consideration that was recorded in 2022 in connection with a previous acquisition.
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.
The increase in cash flow from operations primarily reflects higher payout of our accruals in 2022, attributable to our 2021 restructuring and higher commission charges incurred during the fourth quarter of 2021, partially offset by a lower net income in 2023.
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%.
Provision for income taxes Provision (benefit) for income taxes increased to $18.0 million in 2023 from $(15.8) million in 2022. Our effective tax rate increased to 67.7% of pre-tax income in 2023 from (17.8)% in 2022. The increase in the effective tax rate for 2023 is primarily due to the restructuring charges that affected our U.S. earnings.
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 .
The year-over-year decline in segment contribution reflects the decline in revenue, partially offset by a slight 1.4 percentage point improvement in gross margin due to favorable sales mix and price increase. 54 Table of Contents Hong Kong/Taiwan . Our Hong Kong/Taiwan segment revenue decreased 2% for fiscal year 2023. Our revenue was negatively impacted 3% from unfavorable foreign-currency fluctuations.
Year Ended December 31, 2022 2021 Change Nu Skin Americas $ 110,522 $ 116,265 (5 )% Mainland China 72,362 151,645 (52 )% Southeast Asia/Pacific 85,827 81,779 5 % South Korea 81,804 114,034 (28 )% Japan 54,976 67,511 (19 )% EMEA 21,446 41,988 (49 )% Hong Kong/Taiwan 35,253 37,330 (6 )% Total Nu Skin 462,190 610,552 (24 )% Rhyz Investments Manufacturing 3,570 18,346 (81 )% Rhyz Other (6,180 ) (1,813 ) (241 )% Total Rhyz Investments (2,610 ) 16,533 (116 )% 49 Table of Contents 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.
Year Ended December 31, 2023 2022 Change Nu Skin Americas $ 78,943 $ 97,298 (19 )% Mainland China 62,259 72,362 (14 )% Southeast Asia/Pacific 47,743 75,902 (37 )% South Korea 74,091 78,811 (6 )% Japan 54,076 51,620 5 % Europe & Africa 18,592 15,959 16 % Hong Kong/Taiwan 40,582 32,584 25 % Total Nu Skin 376,286 424,536 (11 )% Rhyz Manufacturing 12,321 3,570 245 % Rhyz Other (20,564 ) (6,180 ) (233 )% Total Rhyz (8,243 ) (2,610 ) 216 % 52 Table of Contents 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, 2023 and 2022. ● “Customers” are persons who have purchased directly from the Company during the three months ended as of the date indicated.
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. 48 Table of Contents Segment Results We report our business in nine segments to reflect our current management approach.
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.
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 segment contribution benefited from a 2.0 percentage point improvement in gross margin from cost saving initiatives to reduce freight and overhead cost, a 2.1 percentage point decrease in selling expenses as a percentage of revenue from lower incentive trip accruals, and a 1.7 percentage point decrease in general and administrative expenses from cost savings in occupancy and labor resulting primarily from our 2022 restructuring plan.
Removed
All purchases under these programs are subject to our standard product payment and return policies.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−0 removed7 unchanged
Biggest changeFollowing are the weighted-average currency exchange rates of U.S. $1 into local currency for each of our international or foreign markets in which revenue exceeded U.S. $5.0 million for at least one of the quarters listed: 2022 2021 4 th Quarter 3 rd Quarter 2 nd Quarter 1 st Quarter 4 th Quarter 3 rd Quarter 2 nd Quarter 1 st Quarter Argentina 162.6 136.8 118.6 107.0 100.5 97.4 93.9 88.8 Australia 1.5 1.5 1.4 1.4 1.4 1.4 1.3 1.3 Canada 1.4 1.3 1.3 1.3 1.3 1.3 1.2 1.3 Colombia 4,826.4 4,379.4 3,929.8 3,891.6 3,882.7 3,840.4 3,690.7 3,560.4 Chile 915.8 930.6 840.9 809.1 827.4 773.6 716.8 724.0 Eurozone countries 1.0 1.0 0.9 0.9 0.9 0.8 0.8 0.8 Hong Kong 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 Indonesia 15,553 14,933 14,536 14,344 14,274 14,373 14,393 14,202 Japan 140.8 138.1 129.5 116.2 113.6 110.1 109.5 106.0 Mainland China 7.1 6.8 6.6 6.3 6.4 6.5 6.5 6.5 Malaysia 4.6 4.5 4.3 4.2 4.2 4.2 4.1 4.1 Mexico 19.7 20.2 20.0 20.5 20.7 20.0 20.0 20.4 Philippines 57.2 56.3 52.7 51.6 50.4 50.2 48.2 48.3 Singapore 1.4 1.4 1.4 1.4 1.4 1.4 1.3 1.3 South Africa 17.6 17.0 15.5 15.2 15.4 14.6 14.1 15.0 South Korea 1,358.2 1,342.2 1,262.1 1,206.2 1,183.8 1,159.7 1,121.2 1,115.3 Taiwan 31.1 30.4 29.4 28.0 27.8 27.9 28.0 28.1 Thailand 36.2 36.4 34.5 33.0 33.3 32.9 31.4 30.3 Vietnam 24,303 23,463 23,081 22,770 22,780 22,889 23,041 23,052 Interest Rate Risk We are exposed to risks related to fluctuations in interest rates on our outstanding variable rate debt.
Biggest changeFollowing are the weighted-average currency exchange rates of U.S. $1 into local currency for each of our international or foreign markets in which revenue exceeded U.S. $5.0 million for at least one of the quarters listed: 2023 2022 4 th Quarter 3 rd Quarter 2 nd Quarter 1 st Quarter 4 th Quarter 3 rd Quarter 2 nd Quarter 1 st Quarter Argentina 429.5 295.7 232.9 190.2 162.6 136.8 118.6 107.0 Australia 1.5 1.5 1.5 1.5 1.5 1.5 1.4 1.4 Canada 1.4 1.3 1.3 1.4 1.4 1.3 1.3 1.3 Chile 896.1 847.7 800.2 810.3 915.8 930.6 840.9 809.1 Eurozone countries 0.9 0.9 0.9 0.9 1.0 1.0 0.9 0.9 Hong Kong 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 Indonesia 15,605 15,229 14,885 15,235 15,553 14,933 14,536 14,344 Japan 147.6 144.8 137.4 132.4 140.8 138.1 129.5 116.2 Mainland China 7.2 7.2 7.0 6.9 7.1 6.8 6.6 6.3 Malaysia 4.7 4.6 4.5 4.4 4.6 4.5 4.3 4.2 Mexico 17.5 17.1 17.6 18.7 19.7 20.2 20.0 20.5 Philippines 56.0 56.0 55.6 54.8 57.2 56.3 52.7 51.6 Singapore 1.4 1.3 1.3 1.3 1.4 1.4 1.4 1.4 South Korea 1,321.1 1,316.6 1,314.5 1,283.0 1,358.2 1,342.2 1,262.1 1,206.2 Taiwan 31.7 31.8 30.7 30.4 31.1 30.4 29.4 28.0 Thailand 35.6 35.2 34.4 34.0 36.2 36.4 34.5 33.0 Vietnam 24,374 23,926 23,478 23,587 24,303 23,463 23,081 22,770 Interest Rate Risk We are exposed to risks related to fluctuations in interest rates on our outstanding variable rate debt.
We do not use derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results. As of December 31, 2022, and 2021, we did not hold non-designated mark-to-market forward derivative contracts to hedge foreign-denominated intercompany positions or third-party foreign debt.
We do not use derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results. As of December 31, 2023, and 2022, we did not hold non-designated mark-to-market forward derivative contracts to hedge foreign-denominated intercompany positions or third-party foreign debt.
As of December 31, 2022 and 2021, we did not hold any forward contracts designated as foreign-currency cash flow hedges. We continue to evaluate our foreign currency hedging policy.
As of December 31, 2023 and 2022, we did not hold any forward contracts designated as foreign-currency cash flow hedges. We continue to evaluate our foreign currency hedging policy.
For additional information about our market risk see Note 14 to the consolidated financial statements contained in this report. 57 Table of Contents
For additional information about our market risk see Note 14 to the consolidated financial statements contained in this report. 60 Table of Contents
Net sales of Argentina were less than 2% of our consolidated net sales for 2022, 2021 and 2020. 56 Table of Contents We may seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts and through intercompany loans of foreign currency.
Net sales of Argentina were less than 2% of our consolidated net sales for 2023, 2022 and 2021. 59 Table of Contents We may seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts and through intercompany loans of foreign currency.
As of December 31, 2022, our Argentina subsidiary had a small net peso monetary position.
As of December 31, 2023, our Argentina subsidiary had a small net peso monetary position.
As of December 31, 2022, we had $402.5 million outstanding on the term loan, net of unamortized debt issuance cost and outstanding borrowings on our revolving credit facility. Our four interest rate swaps reduce our exposure to interest rate risk on our term loan by $200.0 million as of December 31, 2022.
As of December 31, 2023, we had $503.0 million outstanding on the term loan, net of unamortized debt issuance cost and outstanding borrowings on our revolving credit facility. Our four interest rate swaps reduce our exposure to interest rate risk on our term loan by $200.0 million as of December 31, 2023.
As a result, the total variable debt of $202.5 million was exposed to market risks as of December 31, 2022. A hypothetical one percentage point increase (decrease) in interest rates on our variable rate debt would increase (decrease) our annual interest expense by approximately $2.0 million.
As a result, the total variable debt of $303.0 million was exposed to market risks as of December 31, 2023. A hypothetical one percentage point increase (decrease) in interest rates on our variable rate debt would increase (decrease) our annual interest expense by approximately $3.0 million.

Other NUS 10-K year-over-year comparisons