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| | ITEM 1A. | | 19 |
| | ITEM 1B. | | 45 |
| | ITEM 1C. | CYBERSECURITY | 45 |
| | ITEM 2. | | 46 |
| | ITEM 3. | | 46 |
| | ITEM 4. | | 46 |
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| | ITEM 5. | | 47 |
| | ITEM 6. | | 48 |
| | ITEM 7. | | 49 |
| | ITEM 7A. | | 64 |
| | ITEM 8. | | 65 |
| | ITEM 9. | | 101 |
| | ITEM 9A. | | 101 |
| | ITEM 9B. | | 101 |
| | ITEM 9C. | | 101 |
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| | ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 102 |
| | ITEM 11. | EXECUTIVE COMPENSATION | 102 |
| | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 102 |
| | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 102 |
| | ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 102 |
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| | ITEM 15. | | 102 |
| | ITEM 16. | | 104 |
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FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K, IN PARTICULAR “ITEM 1. BUSINESS” AND “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT REPRESENT OUR CURRENT EXPECTATIONS AND BELIEFS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT ARE "FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF FEDERAL AND STATE SECURITIES LAWS AND INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS OF MANAGEMENT'S EXPECTATIONS REGARDING OUR PERFORMANCE, INITIATIVES, STRATEGIES, PRODUCTS, INGREDIENTS, PRODUCT INTRODUCTIONS AND OFFERINGS, PRODUCT SOURCING, GROWTH, ACQUISITIONS AND ACQUIRED COMPANIES’ PERFORMANCE, GROWTH OF OUR RHYZ BUSINESSES, GLOBAL ECONOMIC CONDITIONS, OPPORTUNITIES AND RISKS; STATEMENTS OF PROJECTIONS REGARDING FUTURE SALES, EXPENSES, OPERATING RESULTS, TAXES AND DUTIES, CAPITAL EXPENDITURES, SOURCES AND USES OF CASH, FOREIGN-CURRENCY FLUCTUATIONS OR DEVALUATIONS, REPATRIATION OF UNDISTRIBUTED EARNINGS, AND OTHER FINANCIAL ITEMS; STATEMENTS OF MANAGEMENT'S EXPECTATIONS, PLANS AND BELIEFS REGARDING OUR MARKETS, SALES FORCE, SALES COMPENSATION PLAN AND CUSTOMER BASE; STATEMENTS REGARDING THE PAYMENT OF FUTURE DIVIDENDS AND STOCK REPURCHASES; STATEMENTS REGARDING THE OUTCOME OF LITIGATION, AUDITS, INVESTIGATIONS AND OTHER LEGAL MATTERS, INCLUDING GOVERNMENT POLICIES AND REGULATIONS IN MAINLAND CHINA; ACCOUNTING ESTIMATES AND ASSUMPTIONS; STATEMENTS OF BELIEF; AND STATEMENTS OF ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. IN SOME CASES, YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "BELIEVE," "EXPECT," "PROJECT," "ANTICIPATE," "ESTIMATE," "COMMIT," "INTEND," "PLAN," "TARGETS," "LIKELY," "WILL," "WOULD," "COULD," "MAY," "MIGHT," THE NEGATIVE OF THESE WORDS AND OTHER SIMILAR WORDS. WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW. WE CAUTION AND ADVISE READERS THAT THESE STATEMENTS ARE BASED ON ASSUMPTIONS THAT MAY NOT BE REALIZED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS AND BELIEFS CONTAINED HEREIN. FOR A SUMMARY OF THESE RISKS, SEE ITEM 1A. RISK FACTORS.
In this Annual Report on Form 10-K, references to “dollars” and “$” are to U.S. dollars.
Nu Skin, Pharmanex and ageLOC are our trademarks. The italicized product names used in this Annual Report on Form 10-K are product names and also, in certain cases, our trademarks.
Nu Skin Enterprises, Inc. develops and distributes a comprehensive line of premium-quality beauty and wellness solutions in nearly 50 markets worldwide. In 2024, our revenue of $1.7 billion was primarily generated by our three primary brands: our beauty brand, Nu Skin; our wellness brand, Pharmanex; and our anti-aging brand, ageLOC. We operate in the direct selling channel, primarily utilizing person-to-person marketing to promote and sell our products, including through the use of social and digital platforms.
In 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., which we formed in 2018. Our Rhyz businesses primarily consist of consumer, technology and manufacturing companies. In 2024, the Rhyz companies generated $286.6 million, or 17%, of our 2024 reported revenue (excluding sales to our core Nu Skin business). As discussed further in “Rhyz Companies,” below, in January 2025 we sold one of our Rhyz businesses that accounted for $69.6 million of our 2024 reported revenue. Rhyz is a key component of our business, and these companies enable us to reduce our cost of goods, improve lead times, diversify our revenue mix, and create synergies for our owned and partner brands.
In 2024, we generated approximately 30% of our revenue from the United States (consisting of our Nu Skin United States and Rhyz businesses) and the remainder from our international markets. Given the size of our international operations, our results, as reported in U.S. dollars, are often impacted by foreign-currency fluctuations; in 2024, our revenue was negatively impacted 4% from foreign-currency fluctuations compared to 2023. Our results also can be impacted by global economic, political, demographic and business trends and conditions.
Our operations are subject to various laws and regulations globally, particularly with respect to our product categories and our distribution channel. See Item 1A. Risk Factors for a more detailed description of the risks associated with our business.
We offer a branded, award-winning and differentiated product portfolio. We believe our innovative approach to product development, clinical substantiation and distribution provides us with a competitive advantage in beauty and wellness products and direct selling. We believe that our acquired and licensed technologies, manufacturing and innovation facilities, research collaborations and in-house research expertise enable us to introduce innovative, proprietary products. We seek to offer products that are demonstrable and well suited for social sharing. Sustainability is also an important part of our product strategy; we take sustainability into account as we formulate our products, and we have an ongoing initiative to innovate our packaging so it is recycled, recyclable, reusable, reduced or renewable.
During the past several years, we have generated success in our business with innovative beauty devices. Devices are an important part of our strategy. We launched our first connected beauty device, ageLOC LumiSpa iO, in the second half of 2022 and continuing into 2023. In the second half of 2023 and continuing into 2024, we launched ageLOC WellSpa iO (not sold in the United States), a connected device focused on holistic wellness and beauty, as well as a similar, FDA-cleared device, Nu Skin RenuSpa iO, in the United States. When connected to our mobile application, these connected devices gather data to provide varying levels of insights into consumer behavior, with the goal of enabling us to provide more personalized experiences for our consumers. Please refer to “Distribution Channel” below for additional information about our connected devices and our business strategy that they fit into.
During 2023, we launched our ageLOC TRMe personalized weight wellness line of products in several markets, which became our top-selling brand in 2024. In 2024, we began launching our proprietary ageLOC Tru Face Peptide Retinol Complex, as well as MYND360, a holistic approach to cognitive health and performance.
Product Categories
We have two primary product categories: beauty products and wellness products. We develop and distribute innovative, premium-quality products in these two categories primarily under our Nu Skin and Pharmanex brands, respectively. We also develop and distribute products under our ageLOC brand, which features innovative, premium-quality anti-aging products in both the beauty and wellness categories and in many cases is co-branded with our Nu Skin and Pharmanex products. Most of our innovative devices are ageLOC beauty products; however, ageLOC WellSpa iO and Nu Skin RenuSpa iO span both the beauty and wellness categories.
Presented below are the U.S. dollar amounts and associated revenue percentages from the sale of beauty and wellness products, as well as our Rhyz companies, for the last three years. This table should be read in conjunction with the information presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, which discusses the factors impacting revenue trends and the costs associated with generating the aggregate revenue presented.
Revenue by Product Category
(U.S. dollars in millions)
| | | Year Ended December 31, | |
| Product Category | | 2024 | | | 2023 | | | 2022 | |
Beauty(1) | | $ | 681.8 | | | | 39.4 | % | | $ | 858.6 | | | | 43.6 | % | | $ | 1,069.7 | | | | 48.1 | % |
Wellness(1) | | | 757.2 | | | | 43.7 | % | | | 886.1 | | | | 45.0 | % | | | 992.3 | | | | 44.6 | % |
Other(2) | | | 293.1 | | | | 16.9 | % | | | 224.4 | | | | 11.4 | % | | | 163.7 | | | | 7.3 | % |
| | | $ | 1,732.1 | | | | 100.0 | % | | $ | 1,969.1 | | | | 100.0 | % | | $ | 2,225.7 | | | | 100.0 | % |
| | (1) | Includes sales of beauty and wellness products in our core Nu Skin business. The beauty category includes $268 million, $342 million and $440 million in sales of devices and related consumables for the years ended December 31, 2024, 2023 and 2022, respectively. For purposes of this table, sales of ageLOC WellSpa iO and Nu Skin RenuSpa iO are included in the beauty category, together with our other devices, though these products span both the beauty and wellness categories. |
| (2) | Other includes the external revenue from our Rhyz companies along with a limited number of other products and services, including household products and technology services. |
Beauty Products. Our strategy for our beauty products category is to leverage our distribution channel to strengthen Nu Skin’s position as an innovative leader in the masstige and premium beauty markets. Our products in this category include our innovative skin care devices, cosmetics and other personal care products. We are committed to continuously improving and evolving our product formulations to develop and incorporate innovative and proven ingredients. We formulate many of the products in our beauty category with ingredients that are scientifically proven to provide visible results. In 2024, our top-selling product lines by revenue in this category were our ageLOC LumiSpa cleansers and devices and ageLOC TruFace. Our ageLOC beauty products accounted for 43% of our beauty product category revenue and 17% of our total revenue in 2024.
Wellness Products. Our strategy for our wellness category is to continue to introduce innovative, substantiated nutritional supplements based on research and development and quality manufacturing. Direct selling has proven to be an effective method of marketing our high-quality wellness products because our sales force can personally educate consumers on the quality and benefits of our products, differentiating them from our competitors’ offerings. In 2024, our top-selling product lines by revenue in this category were ageLOC TRME, LifePak and Beauty Focus. Our ageLOC wellness products accounted for 46% of our wellness product category revenue and 20% of our total revenue in 2024.
Product Development
We are committed to developing and marketing innovative products. We have several products in development, including next-generation skin care products, nutritional supplements and devices. In our research and product development, we leverage the three disciplines of science, technology and sourcing to create innovative products that address consumer needs.
Our research and product development activities include:
| ● | Global consumer research to identify needs and insights and refine product concepts; |
| ● | Internal research, product development, clinical validation, regulatory due diligence and quality testing; |
| ● | Joint research projects, collaborations and clinical studies; and |
| ● | Identification and assessment of technologies for potential licensing arrangements. |
We maintain research and product development facilities in the United States and Mainland China. We also contract with third parties for clinical studies and collaborate on basic research projects with researchers from universities and other research institutions in the United States, Europe, Australia and Asia, whose staffs include scientists with basic research expertise in, among others, natural product chemistry, biochemistry, dermatology, nutrition, pharmacology and clinical studies.
We also work to identify and assess innovative technologies developed by third parties for potential licensing, supply or acquisition arrangements. Because of the nature of our distribution channel, which allows us to provide a high level of product information on a person-to-person basis, we often have third parties who are interested in licensing innovative technologies to us to incorporate into our products and commercialize through our distribution channel. Licensing arrangements allow us to leverage the research activities of third parties that have provided demonstrated technologies, clinical support and/or proprietary innovation, without all of the upfront costs and uncertainty associated with internal development. We have also invested in acquisitions to supplement our research capabilities and to acquire technologies.
Our trademarks are registered in the United States and in markets where we operate, and we consider trademark protection to be very important to our business. Our major trademarks include Nu Skin®, our fountain logos, Pharmanex®, ageLOC®, our ageLOC logos, LifePak®, Galvanic Spa® (registered outside of the United States), TRME®, Epoch®, LumiSpa®, Nutricentials®, WellSpa iO® (registered outside of the United States), ageLOC Boost® (registered outside of the United States) and MYND360™ (registration pending in the United States). In addition, a number of our products, including our facial spas, ageLOC WellSpa iO, Nu Skin RenuSpa iO, ageLOC Body Spa, LumiSpa, ageLOC Boost, TRME and Pharmanex BioPhotonic Scanner, are based on proprietary technologies and designs, some of which utilize patented technologies and/or technologies licensed from third parties. We also rely on patent and trade secret protection to protect our proprietary technology and other proprietary information for some of our ageLOC products and other products.
For markets other than Mainland China, in 2024, we sourced most of our beauty and wellness products from trusted third-party suppliers and manufacturers, and approximately 22% from our manufacturing subsidiaries. Our manufacturing entities also provide a cost of goods sold benefit and help us to maintain a more consistent supply source. In Mainland China, we operate manufacturing facilities where we produce the majority of our beauty and wellness products sold in Mainland China. We also produce some products at these facilities that are exported to other markets.
In 2024, one of our manufacturing subsidiaries and none of our third-party suppliers accounted for more than 10% of our product purchases. We procure some of our products and ingredients from single vendors that may own or control the product formulations, ingredients, or other intellectual property rights associated with the products or ingredients. While we generally maintain good relationships with our suppliers, in the event we become unable to source any products or ingredients from our current suppliers, we believe that we would be able to locate alternative vendors, use substitute ingredients, or develop and manufacture alternative products and source them from other suppliers, as applicable. Please refer to Item 1A. Risk Factors for a discussion of risks and uncertainties associated with our supplier relationships and with the sourcing of raw materials and ingredients.
Our manufacturing subsidiaries are owned by our Rhyz business arm. We plan to continue making strategic acquisitions going forward, as we believe these acquired companies allow us to diversify and vertically integrate our business. We also leverage their expertise to enhance our innovation, sustainability, speed to market and supply chain capabilities. In addition to the products and services provided to our core Nu Skin business, our Rhyz companies continue to operate outside of our core Nu Skin business, generating $286.6 million in revenue from sales to external customers in 2024.
Our Nu Skin business operates in the direct selling channel, primarily utilizing person-to-person marketing to promote and sell our products. We believe that direct selling, which has traditionally relied on face-to-face, word-of-mouth marketing, is currently being impacted by the convergence of social commerce, influencer and affiliate marketing, the growing gig economy and expanding product marketplaces. These macroeconomic shifts have also disrupted traditional advertising and retail business practices, as well as e-commerce generally, in favor of socially enabled and direct-to-consumer models. The COVID-19 pandemic further accelerated disruption across many industries by causing migration to remote work, gig engagement and online shopping.
We endeavor to transform and adapt our business to these trends by helping our sales force to become more socially enabled and empowered to grow their businesses online. In addition, we are developing more robust approaches to help our sales force attract and develop affiliate marketers. We are currently working through a significant digital transformation in our business to achieve these objectives. This transformation involves the development of new and enhanced digital tools for our Sales Leaders and consumers, including new digital apps and an improved website design and e-commerce functionality. Our products also have served an important role in our social commerce strategy as we have developed products that are shareable and demonstrable on social media platforms. Products continue to play an important role as we transform to a more digital and socially enabled business; in particular, we believe that connected devices will provide data on consumer behaviors and needs that will engender a more personalized experience for our consumers and create improved brand loyalty. We also are exploring ways to attract affiliates and consumers through third-party product marketplace partnerships, influencer partnerships and paid search initiatives, as well as enhancing our sales compensation plan in ways that we believe will allow us to better compete in the rapidly expanding affiliate gig and sharing economies.
Our digital transformation has required significant expenditures, and it will continue to require significant expenditures over the next several years. Our digital transformation, affiliate marketing and social sharing also present certain risks and challenges to our business, and some social media platforms impose restrictions or prohibitions on content related to multi-level marketing. For further information, see Item 1A. Risk Factors.
We believe our direct selling distribution channel is an effective vehicle to distribute our products because:
| ● | our sales force has rapid reach to potential customers through their social networks and the social networks of those to whom they are connected; |
| ● | our sales force can personally educate and share company content with consumers about our products, which we believe is more effective for differentiating our products than using traditional mass-media advertising; |
| ● | our distribution channel allows for personalized product demonstrations and trial by potential consumers; |
| ● | our distribution channel allows our sales force to provide personal testimonials of product efficacy; |
| ● | as compared to other distribution methods, our sales force has the opportunity to provide consumers higher levels of personalized service based on consumers’ needs, including through providing personalized purchasing offers, discounts and regimens; |
| ● | as compared to other distribution methods, our sales force knows their customers and can foster loyalty through data-driven customer-relationship management and our subscription program; |
| ● | prospecting for customers via social networks (both offline and online) allows affiliates and the company to attract a potentially wider audience of customers who would not typically seek out similar products in a standard retail or e-commerce marketplace; and |
| ● | flexible and targeted compensation structures allow affiliates and the company to quickly enhance focus on specific products based on geographic, demographic, and seasonal needs and opportunities, as well as specific segments of customers, affiliate marketers and business builders. |
While our person-to-person marketing philosophy remains consistent globally, various aspects of our business may differ from market to market, including product mix and pricing, customer type mix, the manner and tools used to engage potential customers, social media and third-party platforms, compensation and rewards structure, the manner and tools used to engage potential affiliates (including programs and incentives), potential influencer partnership structures, access to distribution outlets or product stores, the manner of getting products to consumers, product claims, branding and product formulations. In addition, in Mainland China we have implemented a business model that, unlike the business model we use in our other markets, utilizes retail stores, sales employees, independent direct sellers and independent marketers to market and sell our products.
Given that members of our sales force are independent contractors in most markets, we do not control or direct their business decisions or promotional efforts. We do, however, require that our sales force abide by policies and procedures that require them to act in an ethical and consumer-protective manner and in compliance with applicable laws and regulations. As a member of direct selling associations globally, we promote and abide by the industry’s codes of ethics and consumer-protective standards to support and protect those who sell and purchase our products through the direct selling channel.
In all of our markets besides Mainland China, we refer to members of our independent sales force as “Brand Affiliates” because their primary role is to promote our brand and sell products through their personal and social networks.
Consumer Group and Sales Network
Our Nu Skin business’s distribution channel is composed of two primary groups: our consumer group—individuals who buy our products primarily for personal or family consumption and share products with friends and family; and our sales network—individuals who personally buy, use and resell products, and who also attract new consumers, and recruit, train and develop new sellers. We strive to develop and grow both our consumer group and our sales network. Our strategy for growing our consumer group is to offer high-quality, personalized, innovative products that provide demonstrable benefits. Our strategy for growing our sales network is to provide a business opportunity for those persons who demonstrate the desire and ability to develop both a consumer group and a team of sellers, including through sales compensation, incentives and recognition.
To monitor the growth trends in our consumer group, we track the number of persons who purchased directly from the company during the previous three months (“Customers”). Our Customer numbers include members of our sales force who made such a purchase, including Paid Affiliates and those who qualify as Sales Leaders (each as defined below), but they do not include consumers who purchase directly from members of our sales force. We believe a significant majority of Customers purchase our products primarily for personal or family consumption but are not actively pursuing the opportunity we offer to generate supplemental income by actively and consistently marketing and reselling products.
To monitor the growth in our sales network, we track the number of Paid Affiliates and Sales Leaders, which are defined as follows:
| ● | “Paid Affiliates” are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the previous three months. As we continue to focus on customer acquisition, our Paid Affiliates, who primarily share products, are a bridge to attracting new customers and nurturing relationships and community. Paid Affiliates power our social commerce model and are an important indicator of consumer purchasing activity in our business. |
| ● | “Sales Leaders” are the three-month average of our monthly Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who achieved certain qualification requirements as of the end of each month of the quarter. |
The following chart sets forth information concerning our Customers, Paid Affiliates and Sales Leaders for the last three years.
Total Number of Customers, Paid Affiliates and Sales Leaders by Region
| | | Three Months Ended December 31, | |
| | | 2024 | | | 2023 | | | 2022 | |
| Customers | | | | | | | | | |
| Americas | | | 227,556 | | | | 231,183 | | | | 299,287 | |
| Southeast Asia/Pacific | | | 82,956 | | | | 106,471 | | | | 141,183 | |
| Mainland China | | | 150,731 | | | | 207,276 | | | | 202,933 | |
| Japan | | | 110,069 | | | | 113,670 | | | | 119,152 | |
| Europe & Africa | | | 133,306 | | | | 163,178 | | | | 197,917 | |
| South Korea | | | 81,301 | | | | 103,151 | | | | 123,749 | |
| Hong Kong/Taiwan | | | 46,053 | | | | 52,110 | | | | 62,903 | |
| Total Customers | | | 831,972 | | | | 977,039 | | | | 1,147,124 | |
Paid Affiliates
| Americas | | | 28,361 | | | | 31,910 | | | | 42,633 | |
Southeast Asia/Pacific(1) | | | 26,310 | | | | 34,404 | | | | 38,653 | |
| Mainland China | | | 22,125 | | | | 25,889 | | | | 23,436 | |
| Japan | | | 22,318 | | | | 22,417 | | | | 38,021 | |
| Europe & Africa | | | 16,860 | | | | 18,888 | | | | 31,869 | |
South Korea(1) | | | 17,939 | | | | 22,166 | | | | 45,058 | |
| Hong Kong/Taiwan | | | 10,961 | | | | 11,212 | | | | 17,286 | |
| Total Paid Affiliates | | | 144,874 | | | | 166,886 | | | | 236,956 | |
Sales Leaders
| Americas | | | 6,778 | | | | 7,126 | | | | 9,594 | |
| Southeast Asia/Pacific | | | 5,288 | | | | 6,418 | | | | 6,999 | |
| Mainland China | | | 8,969 | | | | 11,296 | | | | 12,359 | |
| Japan | | | 6,780 | | | | 7,086 | | | | 5,936 | |
| Europe & Africa | | | 3,343 | | | | 3,968 | | | | 4,740 | |
| South Korea | | | 3,343 | | | | 5,249 | | | | 6,094 | |
| Hong Kong/Taiwan | | | 2,411 | | | | 2,916 | | | | 3,015 | |
| Total Sales Leaders | | | 36,912 | | | | 44,059 | | | | 48,737 | |
| (1) | The December 31, 2024 number is affected by a change in eligibility requirements for receiving certain awards within our compensation structure, to more narrowly focus on those affiliates who are actively building a consumer base. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—"Southeast Asia/Pacific," and "South Korea," for more information. |
Global Direct Selling Channel
Outside of Mainland China, individuals can elect to participate in our business as follows:
| ● | “Brand Affiliate-Direct Consumers”—Individuals who purchase products directly from a Brand Affiliate at a price established by the Brand Affiliate. |
| ● | “Company-Direct Consumers”—Individuals who purchase products directly from the company. These consumers are typically referred by a Brand Affiliate and may purchase at retail price or at a discount. These individuals do not have the right to build a Nu Skin business by reselling products or by recruiting others. |
| ● | “Basic Brand Affiliates”—Brand Affiliates who purchase products for personal or family use or for resale to other consumers. These individuals are eligible to receive certain compensation under our global sales compensation plan by selling product, and/or when an affiliate they recruited sells product to a consumer, but they are not eligible for other compensation unless they elect to qualify as a Sales Leader. We consider these individuals to be part of our consumer group, as we believe a significant majority of these Brand Affiliates are purchasing products for personal use and not actively building a sales network or consumer base. |
| ● | “Sales Leaders and Qualifiers”—Brand Affiliates who have qualified or are trying to qualify as a Sales Leader. These Brand Affiliates have elected to pursue the business opportunity as a Sales Leader and are actively attracting consumers and building a sales network under our global sales compensation plan. These Sales Leaders and Qualifiers constitute our sales network. |
To become a Brand Affiliate, an individual signs a Brand Affiliate agreement and receives access to a business portfolio, which is free in most markets. In some markets, we charge a small fee for the business portfolio. The business portfolio generally consists of documentation concerning the business, including copies of the sales compensation plan, Brand Affiliate policies and procedures, product catalog and other documentation, but it does not include products. There are no requirements to purchase products to become a Brand Affiliate, and no commissions are paid on any purchase of a business portfolio.
We offer a generous product return policy, which also includes returns of business support materials. In most markets, we offer a return policy that allows our Brand Affiliates to return unopened and unused items for up to 30 days for a full refund, or 12 months subject to a 10% restocking fee. Brand Affiliates are not required to terminate their accounts to return product. Actual returns have historically been less than 5% of annual revenue. We believe our generous return policy minimizes the financial risks associated with being a Brand Affiliate.
In addition to our product return policy, we strive to be as protective of our customers as possible. We seek to ensure that those who use our products or participate in our business opportunity are treated fairly and are not misled by inappropriate product or earnings claims.
There are two fundamental ways in which our Brand Affiliates can earn money:
| ● | through retail markups on resales of products purchased from the company; and |
| ● | through sales compensation earned on the sale of products under our global sales compensation plan. |
We believe that our global sales compensation plan is among the most generous in the direct selling industry and is one of our competitive advantages. Our Brand Affiliates can receive sales compensation for product sales from the company to their own consumer groups. Likewise, our Sales Leaders can receive sales compensation under our global sales compensation plan for product sales from the company to their own consumer groups, as well as for product sales from the company to other Sales Leaders and their consumer groups. This type of sales compensation is often referred to as “multi-level” compensation. Our sales force is not required to recruit or sponsor other Brand Affiliates, and we do not pay any sales compensation for recruiting or sponsoring. While all of our Brand Affiliates can sponsor other Brand Affiliates at any time, our Sales Leaders and those in qualification to become Sales Leaders are those who generally are the most active in sponsoring other Brand Affiliates. Pursuant to our global sales compensation plan, we pay consolidated sales compensation in a Sales Leader’s home market, in local currency, for product sales in the Sales Leader’s own consumer group and for product sales made in the Sales Leader’s team of Sales Leaders across all geographic markets.
Mainland China Business Model
Because of restrictions on direct selling and multi-level commissions in Mainland China, we have implemented a business model for that market that is different from the business model we use in our other markets. We have structured our business model in Mainland China based on several factors: the guidance we have received from government officials, our interpretation of applicable regulations, our understanding of the practices of other international direct selling companies operating in Mainland China, and our understanding as to how regulators are interpreting and enforcing the regulations. The regulatory environment in Mainland China continues to be challenging and restrictive. We will evaluate potential changes to the structure of our sales compensation in Mainland China to address the evolving commercial environment and, as the need arises, the evolving regulatory environment. Any such changes could have a negative impact on our sales in that market.
In Mainland China, we utilize sales employees to sell products through our retail stores, website and digital platforms; independent direct sellers, who can sell away from our stores where we have a direct selling license and a service center and can also sell through our website and digital platforms; and independent marketers, who are licensed business owners authorized to sell our products at their own approved premises or through our stores, website and digital platforms. (As used in the foregoing sentence, our digital platforms include not only those owned or run by our company but also a platform operated by a third party on which we have registered a flagship store.) We rely on our sales employees, independent direct sellers and independent marketers to attract new consumers, promote repeat purchases, and educate our sales force about our products, culture and policies through training meetings.
Our sales employees, independent direct sellers and independent marketers in Mainland China do not participate in our global sales compensation plan but are instead compensated according to a separate compensation model established for Mainland China, which is separate and different from our global compensation plan. Independent direct sellers and sales employees who have not achieved certain qualification requirements receive monthly bonuses based on their monthly product sales. Sales employees who achieve qualification requirements and independent marketers earn (1) monthly bonuses based on their monthly product sales and other bonuses based on various performance metrics; and (2) a salary (for sales employees, consisting of position pay and performance pay) or a service fee (for independent marketers). The salary or service fee and position/title are reviewed and adjusted quarterly based on their performance relative to other sales leaders, taking into account such factors as the sales productivity of the Sales Leader him/herself and of the sales force that such Sales Leader trains, collaborates with, supports and services. We utilize our global system to track and assess the sales productivity of each Sales Leader him/herself and the sales force that such Sales Leader trains, collaborates with, supports and services in setting his/her salary or service fee and in connection with the evaluation of their position/title. We generally compensate our Mainland China Sales Leaders at a level that is competitive with other direct selling companies in the market and comparable to the compensation of our Sales Leaders globally.
Operating in Mainland China entails certain risks and uncertainties to our business, as discussed further in Item 1. Business—“Regulation” and Item 1A. Risk Factors. We endeavor to mitigate these risks and uncertainties through various measures, including by seeking to understand and obey laws and regulations, training our employees and sales force, engaging in dialogue with government officials to better understand their goals and explain our plans, and cooperating in inquiries and other matters of interest to regulators. 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. We have strategically developed and refined our global sales compensation plan and our Mainland China business model to distinguish the business opportunity that we offer from those of other companies and to seek to provide us with a competitive advantage.
Sales Incentives, Meetings, Recognition and Training
An important part of our distribution channel is motivating our Sales Leaders and recognizing their achievements. We hold regular meetings and events globally to recognize Sales Leaders who have achieved various levels of success in our business. These meetings, which may be held either virtually or in-person, also allow the company and key Sales Leaders to provide training to other Sales Leaders. We utilize a variety of sales incentives such as incentive trips to motivate Sales Leaders. In addition to rewarding performance, incentive trips provide Sales Leaders and the company opportunities to share best practices, set goals, generate alignment of Sales Leaders around key initiatives, and provide a high level of motivation and team building.
Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product introduction or promotion. We refer to the entire process, beginning with the introductory offering through general availability of the product, as a product launch or our product launch process. The timing of the launch of a particular product often varies from market to market depending on such factors as customer demand, affiliate brand focus, product registration or other local legal requirements, and product availability in our supply chain.
Sales Leader previews and other product introductions and promotions sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the quarter and skew year-over-year and sequential comparisons. We believe our product launch process attracts new Customers, Paid Affiliates and Sales Leaders to our business, increases consumer trial, and provides us with important marketing and forecasting information about our products. Please refer to Item 1A. Risk Factors for more information on risks related to our product launch process.
We currently sell and distribute our Nu Skin business’s products in nearly 50 markets. We have divided these 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. 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.
| | | Year Ended December 31, | |
| (U.S. dollars in millions) | | 2024 | | | 2023 | | | 2022 | |
| Nu Skin | | | | | | | | | | | | | | | | | | |
| Americas | | $ | 322.5 | | | | 19 | % | | $ | 398.2 | | | | 20 | % | | $ | 508.5 | | | | 23 | % |
| Southeast Asia/Pacific | | | 244.8 | | | | 14 | | | | 267.2 | | | | 14 | | | | 344.4 | | | | 16 | |
| Mainland China | | | 235.2 | | | | 14 | | | | 298.1 | | | | 15 | | | | 360.4 | | | | 16 | |
| Japan | | | 181.6 | | | | 10 | | | | 207.8 | | | | 10 | | | | 224.9 | | | | 10 | |
| Europe & Africa | | | 164.2 | | | | 9 | | | | 192.4 | | | | 10 | | | | 204.3 | | | | 9 | |
| South Korea | | | 163.7 | | | | 9 | | | | 236.1 | | | | 12 | | | | 268.7 | | | | 12 | |
| Hong Kong/Taiwan | | | 130.6 | | | | 8 | | | | 153.6 | | | | 8 | | | | 157.2 | | | | 7 | |
| Other | | | 2.9 | | | | — | | | | (0.9 | ) | | | — | | | | 4.0 | | | | — | |
| Total Nu Skin | | | 1,445.5 | | | | 83 | | | | 1,752.5 | | | | 89 | | | | 2,072.4 | | | | 93 | |
| Rhyz | | | | | | | | | | | | | | | | | | | | | | | | |
| Manufacturing | | | 201.4 | | | | 12 | | | | 181.4 | | | | 9 | | | | 149.5 | | | | 7 | |
| Rhyz Other | | | 85.2 | | | | 5 | % | | | 35.2 | | | | 2 | % | | | 3.8 | | | | — | |
| Total Rhyz | | | 286.6 | | | | 17 | | | | 216.6 | | | | 11 | | | | 153.3 | | | | 7 | |
| Total | | $ | 1,732.1 | | | | 100 | % | | $ | 1,969.1 | | | | 100 | % | | $ | 2,225.7 | | | | 100 | % |
Additional comparative revenue and related financial information is presented in Note 16 to the consolidated financial statements contained in this report.
Our business is subject to various laws and regulations globally, particularly with respect to our direct selling business models and our product categories. In addition, as a United States entity operating through subsidiaries in foreign jurisdictions, we are subject to foreign exchange control, transfer pricing and customs laws that regulate the flow of funds between us and our subsidiaries and for product purchases, management services and contractual obligations, such as the payment of sales commissions. As is the case with most companies in our industry, we receive inquiries from time to time from government regulatory authorities regarding the nature of our business and other issues, such as compliance with local direct selling, transfer pricing, customs, taxation, foreign exchange control, securities and other laws.
Direct Selling Regulations
Direct selling is regulated by various national, state and local government agencies in the United States and foreign markets. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, including “pyramid” schemes, which compensate participants primarily for recruiting additional participants without significant emphasis on product sales to consumers. 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. |
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. In almost all of our markets, regulations are subject to discretionary interpretation by regulators and judicial authorities. There is often ambiguity and uncertainty with respect to the state of direct selling and anti-pyramiding laws and regulations. In the United States, for example, federal law provides law enforcement agencies, such as the Federal Trade Commission (“FTC”), broad latitude in policing unfair or deceptive trade practices, but does not provide a bright-line test for identifying a pyramid scheme. A number of states have passed legislation that more clearly distinguishes between illegal pyramid schemes and legitimate multi-level marketing business models. 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. In addition, in 2025, the FTC issued a Notice of Proposed Rulemaking (“NPR”) and an Advanced Notice of Proposed Rulemaking (“ANPR”) regarding potential rules governing earnings claims for multi-level marketers. The NPR proposes to prohibit multi-level marketers from making deceptive earnings claims, and it would require them to have written substantiation to back up any earnings claims and make that substantiation available to consumers upon request. The ANPR indicates that the FTC is considering additional restrictions on earnings claims and recruiting by multi-level marketers. For more information about these matters, other regulatory actions, and their potential impact on our business, see Item 1A. Risk Factors—“Challenges to the form of our network marketing system or to our business practices have harmed and could continue to harm our business” and “Direct selling laws and regulations vary globally, are subject to interpretation or change, and may prohibit or severely restrict direct selling and cause our revenue and profitability to decline.”
The regulatory environment in Mainland China is particularly complex and continues to evolve. Mainland China’s direct selling and anti-pyramiding regulations contain various restrictions, including a prohibition on the payment of multi-level compensation. The regulations are subject to discretionary interpretation by state, provincial and local regulators as well as local customs and practices. Regulators continue to act cautiously as they monitor the development of direct selling in Mainland China. To expand our direct selling model into additional provinces in Mainland China, we currently must obtain a series of approvals from the local Department of Commerce in such provinces, the Shanghai Municipal Commission of Commerce (our supervisory authority), as well as the Ministry of Commerce, PRC (“MOFCOM”), which is the national governmental authority overseeing direct selling. In the course of obtaining these approvals, the respective authorities under MOFCOM must also consult and seek opinions on our business operations from the Ministry of Public Security and the Administration for Market Regulation at both provincial and state levels. Government authorities have not been issuing new licenses for direct selling since 2019.
Our operations in Mainland China are subject to significant government and media scrutiny and investigations. At times, investigations and other regulatory actions have limited our ability to conduct business 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, when the government conducted a 100-day campaign to review and inspect the health products and direct selling industries following negative media coverage about healthcare-related product claims made by another direct selling company in Mainland China. During this time, we have been receiving and addressing an increased number of government reviews, inspections, and inquiries and consumer complaints in Mainland China; our ability to hold certain business meetings has been limited; and negative media coverage has spread to include additional companies, including ours. Another example occurred in 2014. In response to media and government scrutiny of our Mainland China business in 2014, we voluntarily took a number of actions in Mainland China, including temporarily suspending our business meetings, temporarily suspending acceptance of applications for any new sales representatives, and extending our product refund and return policies. These voluntary measures and the adverse publicity had a significant negative impact on our business. We face a risk that future investigations and other regulatory actions may result in fines, revocation of licenses or other significant sanctions.
Several markets, including Mainland China, South Korea, Indonesia and Vietnam, impose limits on the amount of sales compensation we can pay to our sales force. For example, under regulations in Mainland China, direct selling companies may pay independent direct sellers in Mainland China up to a maximum 30% of the revenue they generate through their own sales of products to consumers. Additionally, in South Korea, local regulations limit sales compensation to 35% of the total price of goods or services supplied in South Korea. 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. In these markets, regulators may request or require that we take steps to ensure that our Sales Leaders comply with local regulations. For example, in Japan, we have taken steps to comply with strict requirements regarding how Brand Affiliates approach prospective customers. 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.
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. 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 ensure 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.
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. In the United States, the FDA, in particular, regulates the formulation, manufacture and labeling of over-the-counter (“OTC”) drugs, cosmetics, dietary supplements, foods and medical devices such as those that we distribute.
Regulation of Beauty Products in the United States. 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. In the United States, the regulation of cosmetic content and labeling is under the primary jurisdiction of the FDA. Cosmetics are not subject to pre-market approval by the FDA, but their ingredients and their label and labeling content are regulated by the FDA, and those who sell cosmetics have the burden to ensure that they are safe for use as directed and not adulterated or misbranded. 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 began implementing portions of the Modernization of Cosmetics Regulation Act of 2022 (“MoCRA”). This implementation creates a greater burden for cosmetic manufacturer facility registration and audits, mandates product notifications for cosmetics, and mandates the reporting of serious adverse events to the FDA. Rollout of MoCRA is expected to continue for the coming years. Failure to correctly interpret and comply with the new requirements could lead to government actions against us and the associated impairment to our business.
The FDCA defines cosmetics by their intended use, as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body . . . for cleansing, beautifying, promoting attractiveness, or altering the appearance . . . .” Among the products included in this definition are skin moisturizers, perfumes, lipsticks, fingernail polishes, eye and facial makeup preparations, shampoos, permanent waves, hair colors, toothpastes and deodorants, as well as material intended for use as a component of a cosmetic product. A product may be considered a drug if it is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, or is intended to affect the structure or any function of the body (“structure/function claims”). A product’s intended use can be inferred from marketing or product claims, and regulators may consider the marketing claims of our sales force. Structure/function claims are generally prohibited for cosmetic products as are disease prevention and treatment claims. The FDA prohibits certain ingredients from being included in cosmetic products. 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. Cosmetic companies confront difficulty in determining whether a claim would be considered by the FDA to be an improper structure/function claim. Given this difficulty, and our research and product development focus on the sources of aging and the influence of certain ingredients on gene expression, there is a risk that we could receive a warning letter, be required to modify our product claims, or take other actions to satisfy the FDA if the FDA determines any of our marketing materials contain improper structure/function claims for our cosmetic products. 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.
Certain products, such as sunscreens and acne treatments, are classified as 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. Drug products not conforming to monograph requirements require an approved New Drug Application (“NDA”) before marketing may begin. Under these provisions, if the agency were to find that a product or ingredient of one of our OTC drug products is not generally recognized as safe and effective or is not included in a final monograph that is applicable to one of our OTC drug products, we may be required to reformulate or cease marketing that product until it is the subject of an approved NDA or until the time, if ever, that the monograph is amended to include such product. 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. In Mainland China, beauty products, other than devices, are placed into one of two categories, “special-purpose cosmetics” and “general cosmetics.” Products in both categories require adequate substantiation of efficacy, which must be made available to authorities prior to marketing a product and which can be reviewed and enforced upon at any time thereafter. The product registration process for some categories of beauty products in Mainland China takes 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. In Japan, the Ministry of Health, Labour and Welfare regulates the sale and distribution of cosmetics and requires us to have an import business license and to register each beauty product imported into Japan. In Taiwan, all “medicated” cosmetic products require registration. 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 European market. Similar regulations in any of our markets may limit our ability to import products or utilize key ingredients or technologies globally and may delay product launches while the registration and approval process is pending. Changing regulations may require us to stop selling, discontinue, or reformulate and re-register products in order to sell those products.
Regulation of Wellness Products in the United States. Our wellness products are also subject to applicable regulations of government agencies in the markets in which we operate. In the United States, we generally market our wellness products as conventional foods or dietary supplements. The FDA has jurisdiction over this regulatory area. The FDA imposes specific requirements for the labels and labeling of food and dietary supplements, including the requirements of the Food Allergen Labeling and Consumer Protection Act of 2004, which mandates declaration of the presence of major food allergens. In addition, the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 contains requirements with regard to the sale and importation of food products in the United States.
The FDA Food Safety Modernization Act (“FSMA”), which was signed into law in 2011, also increased the FDA’s authority with respect to food safety and made significant changes to the FDCA with respect to strengthening the U.S. food safety system. It enables the FDA to focus more on preventing food safety problems rather than primarily reacting to problems after they occur. The law also provides the FDA with enforcement authority designed to achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain problems when they do occur. The law also gives the FDA important tools to hold imported foods to the same standards as domestic foods and directs the FDA to build an integrated national food safety system in partnership with state and local authorities. The FDA is actively enforcing FSMA requirements, subjecting food and nutritional supplements to increased regulatory scrutiny. Pursuant to FSMA, the FDA is authorized, among other things, to order mandatory recalls, issue “administrative detention” orders, and revoke manufacturing facility registrations (effectively preventing the operation of a food or dietary supplement manufacturing facility), and importers of foods and nutritional supplements are subject to Foreign Supplier Verification Program requirements.
The FDA regulates dietary supplements principally under the Dietary Supplement Health and Education Act of 1994 (“DSHEA”). DSHEA formally defines what may be sold as a dietary supplement, defines statements of nutritional support and the conditions under which they may lawfully be used, and includes provisions that permit the FDA to regulate manufacturing practices and labeling claims applicable to dietary supplements. Because most of our wellness products are regulated under DSHEA, we generally are not required to obtain regulatory approval prior to introducing a dietary supplement into the United States market. We are, however, obligated to notify the FDA, prior to marketing a product, of any structure/function claims that we intend to make about the product in any product-related materials.
Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a “new” dietary ingredient (i.e., a dietary ingredient that was not marketed in the United States before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without having been “chemically altered.” The enforcement of the term “chemically altered” has and continues to evolve within the FDA. As such, an ingredient that is deemed today not to be “chemically altered” may be viewed otherwise in the future, which could lead to our being required to reformulate or cease marketing the product until such time that we can find a suitable replacement. A new dietary ingredient notification must provide the FDA with evidence of a “history of use or other evidence of safety” which establishes that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the new dietary ingredient can be marketed. Under DSHEA, the FDA may seek to remove from the market any new dietary ingredient that the FDA determines to be unsafe. In addition, the FDA may also deem a dietary supplement an unapproved drug where the marketing claims made in connection with the sale or promotion of the product effectively place it in the drug category.
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. In our foreign markets, nutritional supplements are generally regulated by similar government agencies, such as the Mainland China State Administration for Market Regulation; the South Korea Ministry of Food and Drug Safety; the Japan Ministry of Health, Labour and Welfare; and the Taiwan Department of Health. We typically market our wellness products in international markets as foods, health foods, dietary supplements, food supplements or other similar categorizations under applicable regulatory regimes. With few exceptions, in the event a product or ingredient is classified as a drug or pharmaceutical product in any market, we will generally not be able to distribute that product in that market through our distribution channel because of pre-market approvals and strict regulations applicable to drug and pharmaceutical products. Mainland China also has highly restrictive nutritional supplement product regulations. A vast majority of products marketed as “health foods” are subject to extensive laboratory and clinical analysis by government authorities, and the product registration process in Mainland China takes a minimum of two years and may be substantially longer. 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. 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. If government officials feel the categorization of our products is inconsistent with product claims, form of delivery, ingredients or function, this could end or limit our ability to market such products in Mainland China in their current form. In addition, we are not permitted to market or sell “general foods” through our direct sales channel in Mainland China and any efforts by our independent direct sellers to do so could result in negative publicity, fines and other government sanctions being imposed against us.
The markets in which we operate all have varied regulations that distinguish foods and nutritional supplements from “pharmaceutical products.” Because of the varied regulations, some products or ingredients that are recognized as a “food” in certain markets may be treated as a “pharmaceutical” in other markets. In Japan, for example, if a specified ingredient is not listed as a “food” by the Ministry of Health and Welfare, we must either modify the product to eliminate or substitute that ingredient, or petition the government to treat such ingredient as a food. We experience similar issues in our other markets. This is particularly a challenge in Europe, where regulations often still differ from member state to member state, despite EU regulations designed to harmonize the laws of EU member states. Recent activity to harmonize national laws governing maximum vitamin and mineral levels could restrict our ability to continue using the current formulations of our products. With markets in the Association of Southeast Asian Nations (“ASEAN”), certain member states have amended some of their requirements in anticipation of the harmonization of ASEAN supplement regulations, even though these changes may not be identical to the eventual ASEAN requirements nor consistent with other member states. As a result, we often must modify the ingredients and/or the levels of ingredients in our products for certain markets or create unique formulations for multiple markets. In some circumstances, the regulations in foreign markets may require us to obtain regulatory approval prior to introduction of a new product or limit our use of certain ingredients altogether.
Because of negative publicity associated with some adulterated or misbranded supplements, including pharmaceutical drugs marketed as dietary supplements, there has been an increased movement in the United States and other markets to expand the regulation of dietary supplements, which could lead to additional restrictions or requirements in the future. In general, the regulatory environment is becoming more complex with increasingly stricter regulations each year.
Manufacturing Process. In 2007, 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 regulations ensure that dietary supplements and food products are produced in a quality manner, do not contain contaminants or impurities above pre-established levels, and are accurately labeled. The regulations include requirements for establishing quality control procedures for us and our vendors and suppliers, designing and constructing manufacturing plants, and testing ingredients and finished products throughout our supply chain. The regulations also include requirements for record keeping and handling consumer product complaints. If dietary supplements or food products contain contaminants or allergens or do not contain the type or quantity of dietary ingredient they are represented to contain, the FDA would consider those products to be adulterated or misbranded. Our business is subject to additional FDA regulations, such as new dietary ingredient regulations and adverse event reporting regulations that require us to document and track adverse events and report serious adverse events that involve hospitalization, permanent impairment or death associated with consumers’ use of certain of our products. Compliance with these regulations has increased, and may further increase, the cost of manufacturing and selling certain of our products as we incur internal costs, oversee and inspect more aspects of third-party manufacturing and work with our vendors to assure they are in compliance and maintain accurate recordkeeping to establish controls. Failure to comply with good manufacturing practices could also result in product recalls.
Advertising and Product Claims. Most of our major markets also regulate advertising and product claims regarding the efficacy and quality of products and require adequate and reliable scientific substantiation of all claims. In most of our foreign markets, we are typically not able to make any “medicinal” claims with respect to our wellness products. In some cases, such regulations may limit our ability to inform consumers of some of the benefits our products offer.
In the United States, the FDA generally prohibits disease diagnosis, prevention and treatment claims when made for a dietary supplement. DSHEA, however, permits substantiated, truthful and non-misleading “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-approval. Such statements may describe how a particular dietary ingredient affects the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect the structure, function or well-being of the body, but such statements may not state that a dietary supplement will reduce the risk or incidence of a disease unless such claim has been reviewed and approved by the FDA. 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. Such statements, when used in labeling, must also be submitted to the FDA no later than 30 days after first marketing the product with the statement that they possess the necessary evidence and must be accompanied by an FDA mandated label disclaimer that “This statement has not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease.” There can be no assurance, however, that the FDA or FTC will not determine that a particular statement of nutritional support that we want to use is an unacceptable disease claim or an unauthorized nutrient-disease relationship claim otherwise permitted with FDA approval as a “health claim” or that such claims have competent and reliable scientific evidence. Such a determination might prevent the use of such a claim or result in additional FDA enforcement.
From time to time, there are unfavorable media reports regarding dietary supplements, which call for the repeal or amendment of DSHEA. Individuals or groups that are opposed to supplements or question their safety or efficacy attempt, from time to time, to use these media reports to propose legislation intended to amend or repeal DSHEA. Some of the legislative proposals may include variations on premarket approval, enhanced premarket safety or substantiation required and changing the definition of a “dietary ingredient” to remove either botanicals or selected classes of ingredients now treated as dietary ingredients.
Most of the other markets in which we operate have not adopted legislation like DSHEA, and we may be subject to more restrictive limitations on the claims we can make about our products in these markets. For example, in Japan, our nutritional supplements are marketed as food products, which significantly limits our ability to make claims regarding these products. If marketing materials produced or used by us or our sales force globally make claims that exceed the scope of allowed claims for nutritional supplements, the FDA or other regulatory authorities could deem our products to be unapproved drugs. In Mainland China, we also face significant restrictions on our ability to make product claims regarding the efficacy of our products. Violations, alleged violations, or negative media attention related to our compliance with these restrictions could harm consumers’ perception of our business and products and could negatively impact the registration, licensing status and sales of our products.
The FTC, which exercises primary jurisdiction over the advertising of all of our products in the United States, has instituted enforcement actions against dietary supplement, food, and cosmetic companies for, among other things, deceptive advertising and lack of adequate scientific substantiation for claims. We also face limitations on our use of the scientific experts who have helped us develop and test some of our products. In the United States, for example, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising may restrict marketing to those results obtained by a “typical” consumer and require disclosure of any material connections between an endorser and the company or products they are endorsing. In Mainland China, some media outlets have questioned the nature and extent of our connections with our Scientific Advisory Board and others who have helped in developing our scientific approach or testing our products. This negative publicity could harm consumers’ perception of our business and our products, which could negatively impact our revenue. 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. The FTC may enforce compliance with the law in a variety of ways, both administratively and judicially, using compulsory process, cease and desist orders, and injunctions. FTC enforcement can result in consent decrees or orders requiring, among other things, injunctive provisions, corrective advertising, consumer redress, and such other relief as the agency deems necessary to protect the public. Violation of these consent decrees or orders could result in substantial financial or other penalties. The FTC also sends warning letters as it monitors companies’ activities. 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. 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. No assurance can be given that the FTC will not question our advertising or other operations in the United States in the future. Any action in the future by the FTC could materially and adversely affect our ability to successfully market our products in the United States.
In connection with investigations that occurred in the 1990s of certain alleged unsubstantiated product and earnings claims made by our Brand Affiliates, we entered into two consent decrees with the FTC and various agreements with state regulatory agencies. The consent decrees require us to, among other things, supplement our procedures to enforce our policies, not allow our Brand Affiliates to make earnings representations without making certain average earnings disclosures and not allow our Brand Affiliates to make unsubstantiated product claims. 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. 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. Foreign jurisdictions may take note of the fact that we have registered a medical device in the United States and require us to register in their market as well. The FDA has broad regulatory powers in the areas of clinical testing, manufacturing and labeling of medical devices. Medical devices must be labeled in accordance with the FDA’s general device labeling requirements and whatever particular label requirements the FDA may designate for that type of device.
In addition, medical device manufacturers must adhere to certain “good manufacturing practices” in accordance with the FDA’s Quality System Regulation, which regulates the manufacture of medical devices, prescribes record-keeping procedures and provides for the routine inspection of facilities for compliance with such regulations. If in connection with these inspections, the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures, it may issue observations that would necessitate prompt corrective action. If the FDA inspection observations are not addressed and/or corrective action taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action. Failure to respond timely to FDA inspection observations, a warning letter or other notice of noncompliance and to promptly come into compliance could result in the FDA bringing enforcement action against us, which could include the shutdown of our production facilities, denial of importation rights to the United States for products manufactured in overseas locations and criminal and civil fines.
Our Pharmanex BioPhotonic Scanner and our current and future device products may be subject to the regulations of various health, consumer-protection and other government authorities around the world. 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. The interpretation of the line between medical devices and non-medical devices in each country is subjective and varied, as well as subject to change based on industry precedent, influence from the medical device sector, and other factors. Our connected devices are subject to specific testing, certification, and/or registration governing the connectivity to mobile devices. 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. We have registered ageLOC Boost and Nu Skin WellSpa iO as medical devices in Thailand. 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. Any determination that medical device clearance is required for one of our products, in a market where we currently market and sell such product as a cosmetic or non-medical device, could require us to expend significant time and resources in order to meet the additional stringent standards imposed on medical device companies or prevent us from marketing the product.
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. The process for registering products for the direct sales channel in Mainland China is subject to delays. However, this process and registration requirement do not apply to all of our sales channels in Mainland China; although our independent direct sellers are prohibited from earning commissions by selling products that are not so registered, sales by our sales employees or independent marketers are not subject to this requirement. Please refer to Item 1A. Risk Factors for more information on the regulatory risks associated with our device products.
The markets for our products are highly competitive. 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 personal touch our sales force provides is a key differentiator in our approach to sharing products with and retaining consumers.
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. 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.
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, which are reported in two segments, primarily consist of the following consumer, technology and manufacturing companies:
Rhyz Manufacturing Segment:
| ● | Elevate Nutraceuticals LLC, dba Elevate Health Sciences—a manufacturer of private-label dietary supplements. |
| ● | Ingredient Innovations International Company, dba 3i Solutions—a manufacturing technology company, making ingredients more bioavailable and shelf stable across food, beverage, supplements and personal care products. |
| ● | L&W Holdings, Inc., dba CasePak—a packaging company that consults with product developers to design and develop custom packaging. |
| ● | Wasatch Product Development, LLC—a developer and manufacturer of personal care products, dietary supplements and functional foods. |
| ● | Beauty Biosciences LLC—a beauty company that sells its products through digital and retail channels. |
| ● | LifeDNA, Inc.—a DNA assessment and recommendation technology company that we believe holds potential for our broader personalization strategy. |
Until January 2025, the Rhyz Other segment additionally included MyFavoriteThings, Inc., dba Mavely, a social commerce platform. As previously announced, we sold this business in January 2025. Mavely accounted for $69.6 million of our 2024 reported revenue.
In 2024, the Rhyz companies generated $286.6 million, or 17%, of our 2024 reported revenue (excluding sales to our core Nu Skin business). Rhyz is a key component of our business, and these companies enable us to reduce our cost of goods, improve lead times, diversify our revenue mix, and create synergies for our owned and partner brands.
As of December 31, 2024, we had approximately 3,100 full- and part-time employees worldwide. This does not include approximately 8,200 sales employees in our Mainland China operations. 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 priorities include the following:
Capability—Hiring, Engagement, Development and Retention. We seek to hire and retain employees with the talents and capabilities to succeed at our company. The level of competition for qualified employees is high, owing to employment market trends both internationally and in Utah, where our corporate headquarters are located. These conditions have made it difficult 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. In addition, our hiring and retention efforts must be consistent with our overall business size and strategy. During 2024, we engaged in restructuring initiatives, in which we canceled some open job positions and reduced our employee headcount to enable us to operate more efficiently.
Developing our employees and keeping them engaged is crucial. We pursue these objectives by providing leadership training, encouraging managers to conduct one-on-one meetings with employees, holding town hall meetings to promote dialogue between management and employees, and reinforcing the Nu Skin Way to maintain an invigorating and attractive culture. We conduct a global employee experience survey every six months to obtain our employees’ feedback, which helps to guide our human capital initiatives and to maintain robust employee engagement.
Culture—A High-Performance and High-Engagement Work Environment. All of our full- and part-time employees are responsible for upholding the Nu Skin Code of Conduct and for striving to follow the Nu Skin Way, our global culture aspiration, which includes the following principles:
● A force for good ● Accountable and empowered ● Bold innovators ● Customer obsessed | ● Direct and decisive ● Exceptional ● Fast speed ● One global team |
Inclusion. We believe an inclusive work environment allows us to benefit from unique perspectives and provides vitality, creativity, new ideas and growth. We are committed to being a force for good as we seek, develop, and empower diverse individuals and perspectives. 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. Our Healthy Workplace Policy also aims to cultivate a culture of mutual respect and to provide all employees a work environment free from harassment, discrimination and unprofessional behavior. Our employees receive training on their responsibility in this important area, and we make a Healthy Workplace Hotline available for employees to report concerns anonymously.
We also incorporate inclusion 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.
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. 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.
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 and inclusion, compensation, benefits, key talent succession planning and employee engagement. 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.”
Our website address is www.nuskin.com. 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").
We also use our Investor Relations website, ir.nuskin.com, as a channel of distribution of additional Company information that may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts. 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. In addition, stockholders may obtain a copy, free of charge, by making a written request to Investor Relations, Nu Skin Enterprises, Inc., 75 West Center Street, Provo, Utah 84601. 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, 2025 are as follows:
| Name | | Age | | Position |
| Steven J. Lund | | 71 | | Executive Chairman of the Board |
| Ryan S. Napierski | | 51 | | President and Chief Executive Officer |
| James D. Thomas | | 46 | | Executive Vice President and Chief Financial Officer |
| Chayce D. Clark | | 42 | | Executive Vice President and General Counsel |
| Steven K. Hatchett | | 53 | | Executive Vice President and Chief Product Officer |
| Justin S. Keisel | | 51 | | Executive Vice President and President of Global Sales |
Steven J. 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. Lund is a trustee of the Nu Skin Force for Good Foundation, a charitable organization that our company established to help encourage and drive philanthropic efforts for our company, sales force and employees to enrich the lives of others. Mr. 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. Previously, he served as President of Global Sales and Operations from 2015 to 2017. Prior to serving in that position, he served as both President of our North Asia region since 2014 and President of Nu Skin Japan since 2010. Mr. Napierski has fulfilled multiple leadership positions for Nu Skin since joining our company in 1995, including Vice President of Business Development for Nu Skin EMEA and General Manager of the United Kingdom. Mr. 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 2023. He previously served as our Senior Vice President and Chief Accounting Officer from 2019 until 2023 and as Vice President of Finance and Accounting from 2017 until 2019. Since joining Nu Skin in 2010, he also has served as Corporate Controller and as an Internal Auditor. Before joining Nu Skin, he worked as an assistant controller of another publicly reporting company and served in the assurance practice at PricewaterhouseCoopers LLP. Mr. Thomas holds B.S. and Master of Accounting degrees from Utah State University.
Chayce D. 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. 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. From 2015 to 2018, he served as CEO of Elevate Health Sciences, 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.
Justin S. Keisel has served as our Executive Vice President and President of Global Sales since March 2024. Mr. Keisel first joined our company in 1998, where for 14 years he primarily worked in roles supporting growth in our North Asia and Southeast Asia markets. In 2012, Mr. Keisel accepted an offer to work for Rodan + Fields, where he held several positions from 2012 to 2019, serving most recently as vice president of global programs and field development from 2017 to 2019. Mr. Keisel returned to our company in 2019 as General Manager of our United States and Canada markets and served in that position until 2021, when he was promoted to President of our Americas region, the position he held until his March 2024 promotion. Mr. Keisel holds B.S. and M.B.A. degrees from Brigham Young University.
Risk Factor Summary
We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained after this summary for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks include the following:
Risks Associated with Direct Selling and Our Sales Force
| ● | Challenges to the form of our network marketing system or to our business practices have harmed and could continue to harm our business. |
| ● | Direct selling laws and regulations vary globally, are subject to interpretation or change, and may prohibit or severely restrict direct selling and cause our revenue and profitability to decline. |
| ● | Improper sales force actions could harm our business. |
| ● | Social media platforms’ decisions to prohibit, block or decrease the prominence of our sales force’s content could harm our business. |
| ● | If our business practices or policies or the actions of our sales force are deemed to be in violation of applicable local regulations regarding foreigners, then we could be sanctioned and/or required to change our business model, which could significantly harm our business. |
| ● | Our sales compensation plans or other incentives could be viewed negatively by some of our sales force, could be restricted by government regulators, and could fail to achieve desired long-term results and have a negative impact on revenue. |
| ● | Limits on the amount of sales compensation we pay could inhibit our ability to attract and retain our sales force, negatively impact our revenue and cause regulatory risks. |
| ● | We may be held responsible for certain taxes, assessments and other requirements relating to the activities of our sales force, which could harm our financial condition and operating results. |
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. |
Risks Associated with Our Operations in Mainland China
| ● | Our operations in Mainland China are subject to significant government scrutiny, and we could be subject to fines or other penalties. |
| ● | If direct selling regulations in Mainland China are modified, interpreted or enforced in a manner that results in negative changes to our business model or the imposition of a range of potential penalties, our business could be significantly negatively impacted. |
| ● | Our ability to expand our business in Mainland China could be negatively impacted if we are unable to obtain additional necessary national and local government approvals in Mainland China. |
| ● | If we are not able to register products for sale in Mainland China, our business could be harmed. |
Risks Associated with Epidemics and Other Widespread Crises
| ● | Epidemics and other crises have negatively impacted our business and may do so in the future. |
| ● | 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. |
| ● | 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. |
| ● | 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. |
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. |
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. |
Legal, Regulatory and Compliance Risks
| ● | We may become involved in legal proceedings and other matters that could adversely affect our operations or financial results. |
| ● | Non-compliance or alleged non-compliance with anti-corruption laws could harm our business. |
| ● | A failure of our internal controls over financial reporting or our regulatory compliance efforts could harm our stock price and our financial and operating results or could result in fines or penalties. |
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. |
Intellectual Property Risks
| ● | We may be subject to claims of infringement on the intellectual property rights or trade secrets of others, resulting in costly litigation. |
| ● | If we are unable to protect our intellectual property rights or our proprietary information and know-how, our ability to compete could be negatively impacted and the value of our products could be adversely affected. |
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. |
| ● | The unauthorized access, use, theft or destruction of our information systems or of data that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues. |
| ● | Our business could be negatively impacted by corporate citizenship and sustainability matters. |
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 face a number of substantial risks. Our business, financial condition or results of operations could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, which should be considered together with the other items in this Annual Report on Form 10-K, including Item 1. Business and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Risks Associated with Direct Selling and Our Sales Force
Challenges to the form of our network marketing system or to our business practices have harmed and could continue to harm our business.
We have been, and may be in the future, subject to challenges and inquiries by government regulators regarding the form of our network marketing system. Legal and regulatory requirements concerning the direct selling industry generally do not include “bright line” rules and are inherently fact-based and subject to interpretation. As a result, regulators and courts have discretion in their application of these laws and regulations, and the enforcement or interpretation of these laws and regulations by government agencies or courts can change.
During the past several years, settlements and other judicial orders between the U.S. Federal Trade Commission (“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. These developments have created ambiguity as to the proper interpretation of the law and related court decisions. The FTC has been active and aggressive in its enforcement activities, taking action in some cases to require other multi-level marketing companies to cease engaging in multi-level marketing or to modify their business models. Any adverse rulings or legal actions could impact our business if direct selling laws or anti-pyramid laws are interpreted more narrowly or in a manner that results in additional burdens or restrictions on direct selling companies. For example:
| ● | 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. 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. |
| ● | In 2024, the FTC issued guidance concerning multi-level marketing. The guidance indicates an increasingly restrictive view of multi-level marketing, compensation structures, earnings claims and a company’s protection from liability for claims made by members of its sales force. |
| ● | In 2025, the FTC issued a Notice of Proposed Rulemaking (“NPR”) and an Advanced Notice of Proposed Rulemaking (“ANPR”) regarding potential rules governing earnings claims for multi-level marketers. The NPR proposes to prohibit multi-level marketers from making deceptive earnings claims, and it would require them to have written substantiation to back up any earnings claims and make that substantiation available to consumers upon request. The ANPR indicates that the FTC is considering additional restrictions on earnings claims and recruiting by multi-level marketers. |
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 FTC’s increased scrutiny of earnings claims, as reflected in the NPR and ANPR, could lead to more FTC actions regarding improper claims, as well as new industry standards or new rules that could potentially limit our ability, and the ability of our sales force, to make earnings claims, which could harm our ability to grow our sales force.
In addition, any FTC proposed rules, guidance or enforcement actions could lead to new industry standards or new rules, or they could limit the levels in the network for which payments can be made, any of which could impact our business and require us to amend our global sales compensation plan. With a majority of our revenue in the United States coming from sales to retail customers and preferred customers, we believe that we can demonstrate consumer demand for our products, but this may not be sufficient under the FTC’s increasingly restrictive view of multi-level marketing and we continue to monitor developments to assess whether we should make any changes to our business or global sales compensation plan. If we are required to make changes due to either rulemaking or an enforcement action against our company, our business could be harmed.
From time to time, we also are subject to challenges by private parties in civil actions. We are aware of civil actions against other direct-selling companies in the United States that have resulted in significant settlements, and any civil actions against us could similarly result in significant settlements. Allegations directed at us and our competitors regarding the legality of multi-level marketing in various markets and adverse media reports have also created intense public scrutiny of us and our industry. Consumer protection groups and organizations (such as the Better Business Bureau and Truth in Advertising) also generate media and regulatory scrutiny of companies in our industry through regulatory referrals and other channels of publicity. All of these actions and any future scrutiny of us or our industry could generate negative publicity or further regulatory actions that could result in fines, restrict our ability to conduct our business in our various markets, enter into new markets, motivate our sales force and attract consumers.
Direct selling laws and regulations vary globally, are subject to interpretation or change, and may prohibit or severely restrict direct selling and cause our revenue and profitability to decline.
Various government agencies throughout the world regulate direct sales practices. Laws and regulations in the United States, Japan, South Korea, Vietnam and Mainland China are particularly stringent and subject to broad discretion in enforcement by regulators. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as “pyramid schemes,” that compensate participants primarily for recruiting additional participants without significant emphasis on product sales to consumers. 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. |
Complying with these widely varying and sometimes inconsistent rules and regulations can be difficult, time-consuming and expensive, and requires significant resources. The laws and regulations governing direct selling are modified from time to time, and like other direct selling companies, we are subject from time to time to government inquiries and investigations in our various markets related to our direct selling activities. This can require us to make changes to our business model and aspects of our sales compensation plan in the markets impacted by such changes and investigations. For example, in 2025, the FTC issued a Notice of Proposed Rulemaking (“NPR”) and an Advanced Notice of Proposed Rulemaking (“ANPR”) regarding potential rules governing earnings claims for multi-level marketers. The NPR proposes to prohibit multi-level marketers from making deceptive earnings claims, and it would require them to have written substantiation to back up any earnings claims and make that substantiation available to consumers upon request. The ANPR indicates that the FTC is considering additional restrictions on earnings claims and recruiting by multi-level marketers. In addition, markets where we currently do business could change their laws or regulations to prohibit direct selling. If we are unable to obtain necessary licenses and certifications within required deadlines or continue business in existing markets or commence operations in new markets because of these laws, our revenue and profitability may decline. Any delay could negatively impact our revenue.
Improper sales force actions could harm our business.
Sales force activities that violate applicable laws, regulations or policies, or that are alleged to do so, have harmed our business and reputation and resulted in government or third-party actions against us, and they could do so in the future.
For example, in 2014, allegations were made by various media outlets that certain of our sales representatives in Mainland China failed to adequately follow and enforce our policies and regulations. This adverse publicity, as well as a government review and actions that we voluntarily took to address the situation, resulted in a significant negative impact on our revenue and the number of Sales Leaders and Customers in the region. Similar or more extreme actions by government agencies in Mainland China or other markets in the future could have a significant adverse impact on our business and results of operations.
The direct selling industry in Japan continues to experience regulatory and media scrutiny, and other direct selling companies have been suspended from sponsoring activities. Japan imposes strict requirements regarding how Brand Affiliates approach prospective customers. 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. 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.
Except in Mainland China, members of our sales force are not employees and act independently of us. The most significant area of risk for such activities relates to improper product claims and claims regarding the business opportunity of joining our sales force. For example, 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. 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.
We implement strict policies and procedures to help ensure our sales force complies with legal requirements. However, given the size of our sales force, we experience problems from time to time. For example, product claims made by some of our sales force in 1990 and 1991 led to a FTC investigation that resulted in our entering into two consent agreements with the FTC and various agreements with state regulatory agencies. In addition, rulings by the South Korean Fair Trade Commission and by judicial authorities against us and other companies in South Korea indicate that, if our sales force engages in criminal activity, we may be held liable or penalized for failure to supervise them adequately. Our sales force may attempt to anticipate which markets we will open in the future and begin marketing and sponsoring activities in markets where we are not qualified to conduct business. We could face fines, suspensions or other legal action if our sales force violates applicable laws and regulations, and our reputation and brand could be negatively impacted.
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, due to the borderless nature of social media, a claim that is allowed in one market may ultimately reach another market where it is not allowed.
Social media platforms’ decisions to prohibit, block or decrease the prominence of our sales force’s content could harm our business.
Social media platforms have decided, and could in the future decide, to prohibit, block or decrease the prominence of our sales force’s content for any reason, which harms our business, particularly as our business is becoming increasingly dependent on social commerce. For example, due to concerns with multi-level marketing, the TikTok and WhatsApp Business platforms’ community guidelines prohibit content related to multi-level marketing. In addition, Pinterest and Facebook prohibit ads that promote multi-level marketing opportunities, and Pinterest has also imposed restrictions on weight loss products, claims and photos. Moreover, some social marketplace platforms reduce visibility of product offers or posts based on pricing, degree of brand awareness or other factors that could apply to our products. 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.
If our business practices or policies or the actions of our sales force are deemed to be in violation of applicable local regulations regarding foreigners, then we could be sanctioned and/or required to change our business model, which could significantly harm our business.
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. 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. If our business practices or policies or the actions of our sales force are deemed to be in violation of applicable regulations as they may be interpreted or enforced, then we could be sanctioned and/or required to change our business model, which could result in adverse publicity and significantly harm our business.
Our sales compensation plans or other incentives could be viewed negatively by some of our sales force, could be restricted by government regulators, and could fail to achieve desired long-term results and have a negative impact on revenue.
Our sales compensation includes some components that differ from market to market. We modify components of our sales compensation from time to time to keep our sales compensation plans and business models competitive and attractive to our existing sales force and people interested in joining our sales force, to address changing market dynamics, to provide incentives to our sales force that we believe will help grow our business, to conform to local regulations and to address other business needs. Because of the size of our sales force and the complexity of our sales compensation plans, it is difficult to predict how such changes will be viewed by our sales force and whether such changes will achieve their desired results. It also is difficult to predict how such changes may impact our ability to attract a larger potential target market of opportunity seekers. Certain changes we have made to our global sales compensation plan in the past, which were successful in several markets, did not achieve anticipated results in certain other markets, were not viewed positively by some segments of our sales force, and negatively impacted our business. 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.
Limits on the amount of sales compensation we pay could inhibit our ability to attract and retain our sales force, negatively impact our revenue and cause regulatory risks.
Several markets, including Mainland China, South Korea, Indonesia and Vietnam, impose limits on the amount of sales compensation we can pay to our sales force. For example, under regulations in Mainland China, direct selling companies may pay independent direct sellers in Mainland China up to a maximum 30% of the revenue they generate through their own sales of products to consumers. Additionally, in South Korea, local regulations limit sales compensation to 35% of the total price of goods or services supplied in South Korea. These regulations may limit the incentive for people to join our sales force and may reduce our ability to differentiate ourselves from our competitors in attracting and retaining our sales force.
In addition, we have been required to modify our sales compensation plan in certain markets, including South Korea and Vietnam, from time to time to remain in compliance with applicable sales compensation limits. Because sales compensation, as a percentage of revenue, can fluctuate as sales force productivity fluctuates, we may be required to make further changes to stay within applicable sales compensation limits or may be at risk of exceeding them. In addition, which revenues and expenses are within the scope of these regulations is not always clear, and interpretation and enforcement of these laws are subject to change, which could require us to make further changes or result in non-compliance with these regulations. Any failure to keep sales compensation within legal limits in Mainland China, South Korea, Indonesia, Vietnam or any other market that imposes a sales compensation limit could result in fines or other sanctions, including suspensions.
We may be held responsible for certain taxes, assessments and other requirements relating to the activities of our sales force, which could harm our financial condition and operating results.
We are subject to the risk in some jurisdictions of being responsible for social security taxes, withholding or other taxes, minimum wage laws, and related assessments and penalties with respect to our sales force. 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. For example, in March 2024, a regulation of the U.S. Department of Labor went into effect that alters the employee vs. independent contractor analysis under the Fair Labor Standards Act in a way that could potentially cause more workers to be classified as employees. In addition, the European Union’s Platform Work Directive, which was adopted in 2024, directs EU member states to implement national laws by December 2026 regulating the classification of platform workers and setting a rebuttable presumption of employment in certain scenarios. There may be differences in how the various EU member states implement this directive. |
| ● | Some jurisdictions have, without challenging the “independent contractor” status, taken the position that direct sellers must nonetheless pay certain taxes with respect to payments to their sales force. |
In the event that local laws and regulations, or the interpretation of local laws and regulations, require us to treat members of our sales force as employees rather than independent contractors (or to comply with similar requirements regardless of whether our sales force is classified as employees), this could harm our financial condition and operating results. This risk increases as our sales force increases its use of social sharing, as several jurisdictions’ regulations protect in-person or in-home sales demonstrations from creating an employment relationship but are less protective of online demonstrations. If our Brand Affiliates were deemed to be employees rather than independent contractors, we would also face the risk of increased liability for their actions.
Our Sales Leaders could also face similar risks with respect to the Brand Affiliates in their sales organizations who may claim they are employees of the Sales Leader rather than independent contractors or independent business owners, which could impact their sales operations or lead them to cease their participation in 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.
Over the past several years, the environment for direct selling has become increasingly difficult due to customer trends, increased competition from other affiliate marketing and gig economy businesses, and a stricter regulatory environment across many of our markets. Our ability to improve our financial performance largely depends on our ability to anticipate and/or react in a timely and effective manner to changes in consumer spending patterns and preferences regarding products, platforms, and business opportunities in the affiliate gig and sharing economy. Our operating results have been and could be adversely affected if our business opportunities, platforms, products and other initiatives do not generate sufficient enthusiasm and economic benefit to retain our existing consumers and sales force or to attract new consumers and sales force members.
Factors affecting the attractiveness of our business opportunities, platforms, products 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, diversity and inclusion initiatives, economic competitiveness of our business opportunity in the marketplace, perceived ability of potential affiliates to succeed in our business opportunity, accepted methods of selling products to customers in the affiliate and member-based platform environment, 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. If we are unable to anticipate or adapt to changes in consumer preferences and trends, our business, financial condition and operating results could be materially adversely affected. Likewise, if we are unable to anticipate or adapt to changes in the affiliate marketing, gig and sharing economies, our ability to capture growth trends in the social commerce marketplace could be materially adversely affected.
To adapt our business to current macroeconomic trends, we are taking the following actions, all of which entail risks:
| ● | We have begun to roll out an enhanced sales compensation structure that incorporates additional features that may appeal to prospective affiliates in the rapidly expanding gig and sharing economies. However, the need to develop affiliate sales teams to take full advantage of our sales compensation plans or other incentives may be viewed negatively by such prospective affiliates who are familiar with other gig and sharing opportunities. In addition, even if the changes to our sales compensation structure are successful in attracting such prospective affiliates, the changes might at the same time be viewed negatively by current and long-time members of our sales force who have already developed affiliate sales teams. We plan to continually evaluate potential changes to our sales compensation structure to address the evolving commercial environment, and any such changes could have a negative impact on our revenue. |
| ● | We are exploring new channels for generating revenue and attracting affiliates and consumers through third-party product marketplace partnerships, influencer partnerships and paid search initiatives. However, there is no assurance that these initiatives will be successful, and an inability to own and grow our brand through multiple channels could harm our business. In addition, these omni-channel activities may create perceptions of channel conflict with and amongst our affiliate sales force and, thus, have an adverse effect on revenue. |
| ● | We are currently working through a significant digital transformation in our business. This transformation involves the development of new and enhanced digital tools for our Sales Leaders and consumers, including new digital apps and an improved website design and e-commerce functionality, as well as new products, including connected devices. Our digital transformation has required significant expenditures, and it will continue to require significant expenditures over the next several years. We face the risk that we will ultimately be unable to develop these items, that their development will be more costly or take longer than anticipated, or that the applications and platforms we have and will develop will not meet the expectations of our sales force and/or consumers. Any of these eventualities could have a material negative impact on our business, sales force, consumer development and revenue. |
| ● | We are currently pursuing an initiative to optimize the size of our product portfolio, which includes the discontinuation of some products. If we are unable to transition existing customers to a similar or alternative product, or we are unable to anticipate changes in consumer and sales force preferences and trends, or the discontinuation of products causes increased customer attrition, our business, financial condition and operating results could be materially adversely affected. |
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. 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. It is possible that, over time, increasing negative perceptions about business opportunities that involve multi-level compensation programs, particularly as affiliate marketing programs gain greater prominence in the gig economy, could develop and increase among these younger demographics, which would be detrimental to our business if we are unable to adapt and offer similar opportunities and rewards while still differentiating our business. In addition, as affiliate marketing programs gain greater market share, our competition for participants from our target market becomes more intense. Moreover, when sales through social sharing do not generate repeat purchases or subscriptions at the same rate as other sales, this creates revenue volatility and/or declines. Many in the younger demographic are particularly savvy with social sharing across multiple business opportunity platforms. Some of our initiatives have not generated lasting excitement and engagement among our sales force in the long term, and at times, our initiatives have not sufficiently generated sales force activity and productivity or motivated Sales Leaders to remain engaged in business building and developing new Sales Leaders. These outcomes could recur in the future. 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.
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. Our operating results could be adversely impacted if our products fail to gain or maintain sales force and market acceptance or if our successful new products undercut the sales of our other products. In addition, if any of our products fails to deliver on consumer or sales force expectations, we could see an increase in product returns.
Difficult economic conditions could harm our business.
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. In addition, economic conditions may adversely impact access to capital for us and our suppliers, may decrease the ability of our sales force and consumers to obtain or maintain credit cards, may cause governments to increase their regulatory enforcement activity to alleviate budget shortfalls, and may otherwise adversely impact our operations and overall financial condition. 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; moreover, our interest rate swap arrangements are currently scheduled to expire in July 2025, at which time our interest expense could further increase. In addition, the economy in Mainland China continued to be challenging during 2024, including with deflationary pressures, capital markets, and tangible asset markets. All of these conditions could continue in 2025.
Our markets are intensely competitive, and market conditions and the strengths of competitors may harm our business.
The markets for our products are intensely competitive. The success of our products is dependent on our ability to anticipate and respond to market trends and changes in consumer preferences and to maintain a product offering and pipeline that is relevant and priced accessibly to consumers. Our products compete directly with branded, premium retail products and with the products of other direct selling companies, and many of our competitors have much greater name recognition and financial resources than we have, which may give them a competitive advantage. Because of regulatory restrictions concerning claims about the efficacy of beauty and wellness products, we may have difficulty differentiating our products from our competitors’ products, and competing products entering the beauty and wellness market could harm our revenue. In addition, our business may be negatively impacted if we fail to adequately adapt to trends in consumer behavior and technologies to meet consumers’ needs and demands and reach a wider audience or if we fail to provide a competitive product price to value proposition to consumers.
In addition, the emergence and increased adoption of artificial intelligence (“AI”) could cause us to fall behind competitively. In the rapidly evolving landscape of e-commerce and digital enterprises, AI technologies are playing a pivotal role in enhancing customer experiences through personalized recommendations, streamlined purchasing processes and targeted marketing strategies. Automation through AI also could streamline supply chain management, inventory tracking and order fulfillment, leading to increased efficiencies and cost effectiveness. As AI technologies become integral to improving operational efficiency, customer engagement and decision-making processes, our competitiveness and reputation could be harmed if we are unable to adopt and utilize these technologies as quickly or efficiently as our competition.
We also compete with other direct selling companies, affiliate marketing companies and gig economy companies to attract and retain our sales force and consumers. Some of these competitors have longer operating histories and greater visibility, name recognition and financial resources than we do. Some of our competitors have also adopted and could continue to adopt some of our successful business strategies, including our global sales compensation plan. Moreover, certain companies in the affiliate marketing and gig economy are growing rapidly and enable seamless product sharing via social media platforms. In some of our markets, these social media platforms are integrated into product marketplaces to enable even faster affiliation of product offerings to potential customers. These companies have disrupted and continue to disrupt the traditional direct selling space. Consequently, to successfully compete in this industry, and attract and retain our sales force and consumers, we must ensure that our business opportunities and sales compensation plans are financially rewarding and innovative. Successfully marketing our sales compensation plan in a way that differentiates it from our competitors could become more difficult as the FTC increases its scrutiny of earnings claims. Likewise, continued tightening of social media platform policies could limit our sales force’s ability to differentiate our products and business opportunities. Although we believe we have significant competitive advantages, we cannot assure that we will be able to continue to successfully compete in this industry.
Adverse publicity concerning our business, marketing plan, products or people could harm our business and reputation.
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. Specifically, we are susceptible to adverse publicity concerning:
| ● | suspicions about the legality and ethics of network marketing; |
| ● | media or regulatory scrutiny regarding our business and our business models, including in Mainland China; |
| ● | the safety or effectiveness of our or our competitors’ products or the ingredients in such products; |
| ● | inquiries, investigations, fines, legal actions, or mandatory or voluntary product recalls involving us, our competitors, our business models or our respective products; |
| ● | the actions of our current or former sales force and employees, including any allegations that our sales force or employees have overstated or made false product claims or earnings representations, or engaged in unethical or illegal activity; |
| ● | misperceptions about the types and magnitude of economic benefits offered at different levels of sales engagement in our business; and |
| ● | public, governmental or media perceptions of the direct selling, beauty product, or wellness product industries generally. |
These issues have previously resulted in negative publicity and have harmed our business.
Critics of our industry, consumer protection groups, short sellers and other individuals have in the past and may in the future utilize the internet, social media, the media and other means to publish criticisms of the industry, our company and our competitors, or make allegations regarding our business and operations, or the business and operations of our competitors. In some cases, such adverse publicity or allegations can lead to government and regulatory scrutiny. We continue to see adverse publicity regarding our company and the direct selling and wellness industries. We or others in our industry may receive similar negative publicity or allegations in the future, and it may harm our business and reputation. Furthermore, the use of social media by our sales force and by critics can increase the reach of negative publicity. For example, if a member of our sales force makes an improper claim about our products or business opportunity on social media, or if a critic of our company posts negative information about our company on social media, it has the potential to be disseminated widely and noticed by the media or regulators.
Product diversion may have a negative impact on our business.
We see our products being sold through online marketplace sites and other distribution channels in certain markets. 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. Product diversion causes confusion regarding our distribution channels and negatively impacts the ability of our sales force to sell our products. It also creates a negative impression regarding the viability of the business opportunity for our sales force, which can harm our ability to recruit new people to join our sales force. Product diversion may also cause brand erosion and negatively impact the brand value perception. Product diversion schemes may also involve illegal importation, investment or other activities and harm our brand if gray market or counterfeit goods are passed off as our own. If we are unable to effectively address this issue or if diversion increases, our business could be harmed.
Risks Associated with Our Operations in Mainland China
Our operations in Mainland China are subject to significant government scrutiny, and we could be subject to fines or other penalties.
Our operations in Mainland China are subject to significant regulatory scrutiny. The legal system in Mainland China provides government authorities broad latitude to conduct investigations, and many Chinese regulations, including those governing our business, are subject to significant interpretation, which may vary from jurisdiction to jurisdiction. Because of significant government concerns in Mainland China regarding improper direct selling activities, government regulators closely scrutinize activities of direct selling companies and activities that resemble direct selling. The government in Mainland China continues to inspect and review companies in the direct selling industry on a regular basis. We believe the regulatory environment in Mainland China continues to be challenging and restrictive.
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. Since 2019, we have been receiving and addressing an increased number of government reviews, inspections, and inquiries and consumer complaints in Mainland China; our ability to hold certain business meetings has been limited; and negative media coverage has spread to include additional companies, including ours.
Government regulators frequently make inquiries into our business activities and investigate complaints from consumers and others regarding our business. Some of these inquiries and investigations in the past have resulted in the payment of fines by us or members of our sales force, interruption of sales activities and warnings. Any determination by government regulators in these inquiries or investigations that our operations or activities, or the activities of our sales force, are not in compliance with applicable regulations could result in substantial fines, extended interruptions of business, and termination of necessary licenses and permits, including our direct selling and other licenses, all of which could harm our business.
We train our sales force in Mainland China on how our Mainland China business model differs from our global business model. However, Sales Leaders in Mainland China may attend regional and global events or interact with Sales Leaders from other markets. Although our global model and Mainland China business model differ, mistakes may be made as to how those working in Mainland China should promote the business in Mainland China. These mistakes by our sales force, or allegations of such mistakes, have led, and may in the future lead, to government reviews and investigations of our operations in Mainland China, as well as adverse publicity, reputational harm and adjustments or interruptions to our operations, all of which has and could in the future have a significant negative impact on our revenue and the number of Sales Leaders and Customers in the region.
If direct selling regulations in Mainland China are modified, interpreted or enforced in a manner that results in negative changes to our business model or the imposition of a range of potential penalties, our business could be significantly negatively impacted.
The government of Mainland China has adopted direct selling and anti-pyramiding regulations that impose significant restrictions and limitations on businesses in our industry. Most notably, the regulations prohibit multi-level compensation, which is the basis of how we compensate our sales force outside of Mainland China. The regulations also prohibit overseas personnel from participating in direct selling in Mainland China. We have structured our business model in Mainland China based on several factors: the guidance we have received from government officials, our interpretation of applicable regulations, our understanding of the practices of other international direct selling companies operating in Mainland China, and our understanding as to how regulators are interpreting and enforcing the regulations. The regulatory environment in Mainland China continues to be challenging and restrictive. We will evaluate potential changes to the structure of our sales compensation in Mainland China to address the evolving commercial environment and, as the need arises, the evolving regulatory environment. Any such changes could have a negative impact on our sales in that market.
Members of our sales force in Mainland China do not participate in our global sales compensation plan but are instead compensated according to a separate compensation model. We generally compensate our Sales Leaders in Mainland China at a level that is competitive with other direct selling companies in the market and comparable to the compensation of our Sales Leaders globally.
Other than our direct selling subsidiary, we also have a separate subsidiary in Mainland China that is a registered independent entity that engages in cross-border e-commerce, through which one of our U.S. subsidiaries can sell a limited selection of products to consumers in Mainland China for their personal consumption. Cross-border e-commerce is separated from the direct selling sales channel in Mainland China. Our Sales Leaders can contract with the China entity, promote this cross-border e-commerce platform to introduce consumers to place orders on this platform, and receive limited compensation in return. Through this entity, the U.S. subsidiary sells ageLOC Meta, ageLOC Youth and certain other overseas 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, cannot be sold through the direct selling channel, and cannot be resold. We also plan to begin selling additional overseas products through this channel. 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.
Our Mainland China business also has an e-commerce platform in which it sells products directly to customers. We permit members of our sales force to promote this e-commerce platform and refer customers to it, in addition to their participation in our direct selling business, and they receive compensation based on our sales on this platform to customers they have referred. Although we take measures to segregate this e-commerce business from our direct selling business as appropriate, it is possible that our business in Mainland China could be negatively impacted if regulatory authorities determine that these e-commerce sales activities and compensation are inconsistent with the direct selling laws.
The nature of the political, regulatory and legal systems in Mainland China gives regulatory agencies at both the local and central levels of government broad discretion to interpret and enforce regulations as they deem appropriate to promote social stability. We face a risk that regulators may change the way in which they currently interpret and enforce the direct selling regulations, or that such regulations may be modified. If our business practices are deemed to be in violation of applicable regulations as they may be interpreted or enforced, in particular our use of the sales productivity of a Sales Leader him/herself and of the sales force that such Sales Leader trains, collaborates with, supports and services in setting his/her salary or service fee and determining their position/title on a quarterly basis, then we could be sanctioned, required to change our business model, and/or have our direct selling license revoked, any of which could significantly harm our business.
Our ability to expand our business in Mainland China could be negatively impacted if we are unable to obtain additional necessary national and local government approvals in Mainland China.
To expand our direct selling model into additional provinces in Mainland China, we currently must obtain a series of approvals from district, city, provincial and national government agencies with respect to each province in which we wish to expand. Government authorities have not been issuing new licenses since the beginning of the 100-day action in 2019. When the process for obtaining government approvals to conduct direct selling is operational, it often evolves and is lengthy, as we are required to work with a large number of provincial, city, district and national government authorities. The complexity of the approval process as well as the government’s continued cautious approach as direct selling develops in Mainland China makes it difficult to predict the timeline for obtaining these approvals. Furthermore, any media or regulatory scrutiny of our business in Mainland China could increase the time and difficulty we may face in obtaining additional licenses. 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 we are not able to register products for sale in Mainland China, our business could be harmed.
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. For example, a vast majority of products marketed in Mainland China as “health foods” are subject to extensive laboratory and clinical analysis by government authorities, and with a few exceptions, the product registration process in Mainland China takes a minimum of two years and may be substantially longer. 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. If government officials feel the categorization of our products is inconsistent with product claims, form of delivery, ingredients or function, we could be prohibited or limited in marketing such products in Mainland China in their current form.
As we expand our direct selling channel, we face additional product marketing restrictions compared to our retail store channel. Under applicable direct selling regulations in Mainland China, we can only register products for direct selling if we manufacture them and if they fall within categories that are authorized for direct selling, such as cosmetics, cleaning supplies, health foods, healthcare devices, small kitchen utensils and household appliances. Products that are not registered for direct selling are prohibited from being marketed or sold through our direct sales channel. The process for registering products for the direct sales channel in Mainland China is subject to delays; in fact, government authorities have not been processing new registrations for direct selling since the beginning of the 100-day action in 2019. Any marketing or sale of non-direct selling products by our independent direct sellers could result in negative publicity, fines and other government sanctions being imposed against us, including if a product is initially classified as a direct selling product but is later re-classified.
Risks Associated with Epidemics and Other Widespread Crises
Epidemics and other crises have negatively impacted our business and may do so in the future.
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.
The outbreak of COVID-19 in 2020 and ensuing pandemic resulted in significant contraction of economies around the world and interrupted global supply chains as many governments issued stay-at-home orders to combat COVID-19. 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. Our supply chain and logistics also incurred some interruptions and cost impacts, such as difficulties in obtaining some ingredients and in shipping products in some markets. All of these factors and other events related to COVID-19 negatively impacted our sales and operations and could repeat in the event of future epidemics or other crises.
In addition, during a widespread crisis, regulators are vigilant for companies that may be exploiting the crisis to the detriment of consumers. 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. 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, it could lead to an investigation and could harm our business and reputation.
International Risks
Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks.
Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is exposed to risks associated with our international operations, including:
| ● | the possibility that a government might ban or severely restrict our sales compensation and business models; |
| ● | the possibility that local civil unrest, political instability, or changes in diplomatic or trade relationships might disrupt our supply chain or other operations in one or more markets—for example, the ongoing conflict in Russia and Ukraine has caused distraction to our sales force; |
| ● | the lack of well-established or reliable legal systems in certain areas where we operate; |
| ● | the presence of high inflation in the economies of international markets in which we operate; |
| ● | the possibility that a government authority might impose legal, tax, customs, or other financial burdens on us or our sales force, due, for example, to the structure of our operations in various markets; |
| ● | the possibility that a government authority might challenge the status of our sales force as independent contractors or impose employment or social taxes on our sales force; and |
| ● | the possibility that governments may impose currency remittance restrictions limiting our ability to repatriate cash. |
It is unpredictable what impact, if any, the recent change in political administrations in the United States will have on the above risks. If actions by the United States or other jurisdictions cause any of the above risks to materialize, our financial position and results of operations could be negatively affected.
There has been an increasing level of tension in U.S.-China relations over the last several years. Given the significant size of our China business, our business could be harmed if relations continue to deteriorate or additional sanctions or restrictions are imposed by either government. In addition, there have been adverse public reaction and media attention to statements made by representatives of other businesses related to these issues that have adversely affected business. We could similarly face adverse public or media attention, and potentially increased regulatory scrutiny, as a result of increased trade or political tensions or any statements or actions by employees or our sales force that generate publicity with respect to these issues.
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 2024, approximately 70% of our sales occurred in markets outside of the United States in each market’s respective local currency. Foreign-currency fluctuations affect our financial position and results of operations. We purchase inventory primarily in the United States in U.S. dollars. In preparing our financial statements, we translate revenue and expenses in our markets outside the United States from their local currencies into U.S. dollars using weighted-average exchange rates. If the U.S. dollar strengthens relative to local currencies, our reported revenue, gross profit and net income will likely be reduced. Foreign-currency fluctuations also cause losses and gains resulting from translation of foreign-currency-denominated balances on our balance sheet.
We also face the risk of currency controls. If foreign governments restrict transfers of cash out of their country and control exchange rates, we may be limited as to the timing and amount of cash we can repatriate and may not be able to repatriate cash at beneficial exchange rates, which could have a material adverse effect on our financial position, results of operations or cash flows. We typically fund the cash requirements of our operations in the United States through intercompany dividends, intercompany loans and intercompany charges for products, use of intangible property, and corporate services. However, some markets impose government-approval or other requirements for the repatriation of dividends. For example, in Mainland China, we are unable to repatriate cash from current operations in the form of dividends until we file the necessary statutory financial statements for the relevant period. We also have experienced delays in repatriating cash from Argentina. As of December 31, 2024, we had $27.4 million in cash denominated in Chinese RMB, and our intercompany receivable with our Argentina subsidiary was $22.4 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. Gains and losses resulting from the remeasurement of non-U.S. dollar monetary assets and liabilities of our subsidiaries operating in highly inflationary economies are recorded in our net earnings. 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.
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. For example, the implementation of tariffs, border taxes or other measures related to the level of trade between the United States and other markets could impact the value of the U.S. dollar. It is difficult to predict future fluctuations and the effect these fluctuations may have upon future reported results or our overall financial condition.
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 United States and other foreign jurisdictions may change customs regulations or tariff rates that are applied to our imports or exports at any time. Tariff changes are difficult to predict and may cause us material short-term or long-term cost fluctuations. The new political administration in the United States has signaled an intention to use tariffs more robustly in pursuing government policy and has already implemented some new tariffs. When increases are made to U.S. duty rates or tariffs, reciprocal action by other countries sometimes occurs, and any such increases could impact the price of our products and cause a decline in the demand for our products. We rely on the use of Free Trade Agreements, where available, that may experience alterations, suspensions or cancellations, which could increase our customs expense or otherwise harm our business. In addition to duties and 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. These actions are unpredictable, and any of them could also have a material adverse effect on global economic conditions and the stability of global financial markets, significantly reduce global trade, restrict our access to suppliers or customers, and have a material adverse effect on our business, financial condition and results of operations.
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.
Our products are primarily marketed by our sales force, and we depend on them to generate virtually all of our revenue. Our sales force may terminate their services at any time, and like most direct selling companies, we experience high turnover among our sales force from year to year. People who join our company to purchase our products for personal consumption or for short-term income goals frequently only stay with us for a short time or are less consistent in their participation. Sales Leaders who have committed time and effort to build a sales organization will generally stay for longer periods. 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.
We have experienced fluctuations in Sales Leaders, Paid Affiliates and Customers in the past and will likely continue to experience such fluctuations in the future. For example, our Customers in Mainland China declined 27% from December 31, 2023 to December 31, 2024, and during the two-year period from December 31, 2022 to December 31, 2024, our global Customers, Paid Affiliates and Sales Leaders declined 27%, 39% and 24%, respectively. 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.
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 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 and product marketplaces 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. |
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.
Our success depends to a significant degree upon the continued contributions of our senior and regional management, many of whom would be difficult to replace. Our senior and regional management employees may voluntarily terminate their employment with us at any time, and it is not uncommon for employees of direct-selling companies, including employees of our company, to terminate their employment and begin working for another direct-selling company. In addition, we need to continue to attract and develop qualified management personnel to sustain growth in our markets. Attracting and retaining qualified personnel has been an increased challenge during the current competitive employment environment. In addition, there has been downward pressure on our employees’ incentive compensation in recent years, and our recent restructurings have in some cases caused employees to take on additional responsibilities, both of which have presented challenges to our employee morale and could lead to employee attrition. If we are not able to successfully retain existing personnel and identify, hire and integrate new personnel, our business and growth prospects could be harmed.
The success of our business also depends on our key Sales Leaders. For the three months ended December 31, 2024, we had approximately 36,912 Sales Leaders. As of December 31, 2024, approximately 253 Sales Leaders occupied the highest levels under our global sales compensation plan, and in Mainland China approximately 72 key Sales Leaders were playing a significant role in managing, training and servicing our sales force in that market and driving sales. We rely on these Sales Leaders (or other sales force members that they train, collaborate with, support and service) for a substantial majority of our revenue. As a result, the loss of a high-level or key Sales Leader or a group of leading Sales Leaders, whether by their own choice or through disciplinary actions by us for violations of our policies and procedures, could negatively impact our growth and our revenue.
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.
Production difficulties, quality control problems, inaccurate forecasting, and our reliance on third-party suppliers to manufacture and deliver products that meet our specifications in a timely manner have harmed our business and could do so in the future. Occasionally, we have experienced production difficulties with respect to our products, including the availability of labor, raw materials, components, packaging, and products that do not meet our specifications and quality control standards. These production difficulties and quality problems have in the past resulted, and could in the future result, in stock outages or shortages in our markets with respect to such products, harm our sales, or create inventory write-downs for unusable products.
In addition, we and manufacturers in our supply chain acquire ingredients, components, products and packaging from third-party suppliers and manufacturers. A loss of any of these suppliers and any difficulties in finding or transitioning to alternative suppliers could harm our business. In addition, we obtain some products and ingredients from sole suppliers that own or control the product formulations, ingredients or other intellectual property rights associated with such products. We also license the right to distribute some of our products from third parties. In the event we are unable to maintain or renew our contracts with any of these suppliers, manufacturers or other third parties, we may need to discontinue some products or develop substitute products, which could harm our revenue. In addition, if we experience supply shortages, price increases or regulatory impediments with respect to the raw materials, ingredients, components or packaging we use for our products, we may need to seek alternative supplies or suppliers and may experience difficulties in finding replacements that are comparable in quality and price. For example, some of our products, including ageLOC Meta and ageLOC Youth (Youthspan or Y-Span in some markets), incorporate unique natural ingredients that may only be harvested once per year and/or may have limited global supplies. If demand exceeds forecasts, we may have difficulties in obtaining additional supplies to meet the excess demand until the next growing season. If we are unable to successfully respond to such issues, our business could be harmed.
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.
As a company engaged in manufacturing, distribution, and research and development on a global scale, we are subject to the risks inherent in such activities, including industrial accidents, climate or environmental events, fires, floods, earthquakes, labor shortages, strikes and other labor or industrial disputes, disruptions in logistics or information systems, loss or impairment of key manufacturing or distribution sites, import and export restrictions or delays, product quality control, safety, licensing requirements and other regulatory or government issues, as well as natural disasters, pandemics, border disputes, global uncertainties, acts of terrorism, and other external or macroeconomic factors over which we have no control. For example, the long-term impacts of climate change, whether involving physical risks (such as extreme weather conditions, drought, or rising sea levels) or transition risks (such as regulatory or technology changes) may be widespread and unpredictable. Certain impacts of physical risk may include temperature changes that increase the heating and cooling costs at our facilities; extreme weather patterns that affect the production or sourcing of certain components; flooding and storms that damage or destroy our buildings and inventory; and heat and extreme weather events that cause long-term disruption or threats to the habitability of our customers’ communities. These risks may be heightened if we consolidate certain of our manufacturing, distribution, or supply facilities or if we are unable to successfully enhance our disaster recovery planning. These risks also increase as we pursue our current strategy of acquiring manufacturing companies and thereby conducting more of our manufacturing in-house. 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. Also, if we are unable to maximize our production output (whether through internal or external customer orders) in our owned manufacturing facilities, this could increase our manufacturing variance and harm our business.
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. Disruptions in our container shipments may result in increased costs, including the additional use of air freight to meet demand. Congestion to ports can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs and reduction in our profitability. 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. We will also likely become subject to new regulations in these areas, which could require substantial expenditures. Violations of existing or new requirements could result in financial penalties and other enforcement actions and could require us to halt one or more portions of our operations until a violation is cured. The costs of curing incidents of non-compliance, resolving enforcement actions or private-party actions that might be initiated against us, or of satisfying new legal requirements could have a material adverse effect on our business, financial condition, or results of operations.
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.
Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product introduction or promotion. These offerings sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the quarter and skew year-over-year and sequential comparisons. These offerings may also increase our product return rate. We have, and may in the future, experienced difficulty effectively managing growth associated with these offerings and may face increased risk of improper sales force activities and related government scrutiny.
In addition, the size and condensed schedule of these product offerings increase pressure on our supply chain and order processing systems. We have failed, and may in the future fail, to appropriately scale our system capacity and operations in response to unanticipated changes in demand for our existing products or to the demand for new products, which reduces our sales force’s confidence in our business and could harm our reputation and profitability.
As our sales force increases its use of social platforms to interact with customers, our business results could be adversely affected if our implementation of new platforms and processes to support our sales force is delayed. In addition, we are dependent on third parties for testing and delivery of portions of these and other of our information system platforms. Unanticipated changes or system failures by third parties could harm our ability to meet the expectations of our sales force, thus resulting in harm to our revenue, reputation and sales force confidence in our systems.
If we do not accurately forecast sales levels in each market for product launches or ongoing product sales, obtain sufficient ingredients, components or packaging, or produce a sufficient supply to meet demand, we may incur higher expedited shipping costs and we may temporarily run out of stock of certain products, which could negatively impact the enthusiasm of our sales force and consumers. Conversely, if demand does not meet our expectations for a product launch or ongoing product sales or if we change our planned launch strategies or initiatives, we could incur inventory write-downs. For example, during the third quarter of 2023, we made the strategic decision to re-balance and narrow our product portfolio, which resulted in an incremental $65.7 million inventory write-off. We incurred an additional inventory write-off of $38.8 million during the fourth quarter of 2024. Each of these issues has impacted us in the past, and they could again occur with our ongoing or future product offerings. If we fail to effectively forecast product demand in the product launch process or for ongoing product sales, our reputation and profitability also could be negatively impacted.
If we are unable to effectively manage our growth in certain markets, our business and operations could be harmed.
At times, we can experience significant growth in one or more of our markets. For example, during 2020 we experienced significant growth in some of the markets in the Americas and Europe. Growth can strain our ability to effectively manage our operations, as it requires us to expand our management team, labor force, technology bandwidth and capabilities, and manufacturing operations. Insufficient management execution to support growth could result in, among other things, product delays or shortages, decreases in product quality, service level challenges, operating mistakes and errors, inadequate customer service, inappropriate claims or promotions by our sales force, and governmental inquires and investigations, all of which could harm our revenue and ability to generate sustained growth and result in unanticipated expenses. In addition, we need to continue to attract and develop qualified management personnel to sustain growth. If we are not able to successfully retain existing personnel and identify, hire and integrate new personnel, our business and growth prospects could be harmed.
In addition, to the extent we expand into new markets, our efforts might not be successful in driving growth. New markets may have competitive conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than our existing markets. We may have difficulty attracting Brand Affiliates to our business opportunity due to our lack of name recognition, growing competition in the affiliate gig and sharing economies, or other reasons, and it may be difficult to find and retain qualified employees and vendors. We also might be unable to successfully navigate the risks inherent in international operations, such as differing legal and regulatory requirements that may apply to our products and/or operations, including those that pertain to privacy and data protection, direct selling, employment and intellectual property. If we do not successfully execute plans to enter new markets, these new markets may not generate growth and may be unprofitable, causing our business, financial condition or results of operations to be adversely affected.
System failures, capacity constraints and other information technology difficulties could harm our business.
Our business operations, spanning across global markets and involving intricate sales compensation systems, heavily depend on a variety of interconnected technology platforms. These include our websites, mobile apps, cloud services, data centers, databases, and networks. These systems are critical for accepting and processing orders, managing our sales force and customer support, calculating and distributing compensation, running corporate and regional operations, generating accurate financial reports, and other aspects of our business. Ensuring their functionality and reliability is essential for maintaining our reputation, sustaining operations, and supporting our sales force and customer base.
We are actively modernizing our e-commerce platform to adapt to emerging trends in online retail, social media integration, and hybrid marketing strategies. To support this transformation, we have partnered with Infosys Limited as our primary managed services provider, leveraging their expertise to enhance operational efficiency and deliver results through our digital channels. While these initiatives are designed to strengthen our competitive position, they come with inherent risks tied to implementation complexity and dependency on third parties.
Our systems, as well as those managed by third-party providers, are exposed to potential disruptions from events such as fires, floods, earthquakes or other natural disasters, human error, physical break-ins, computer viruses, cyberattacks, power outages, system malfunctions and other events. Despite investing in preventive measures like redundancies, enhanced security, and disaster recovery plans, we have experienced system failures, outages, cyberattacks and other disruptions, and we will likely experience them in the future. Any prolonged system disruption could harm our ability to operate effectively, damage our reputation, or lead to financial losses.
The shift to cloud-based and outsourced solutions further heightens our reliance on third-party providers, including Amazon Web Services for core computing needs and Infosys Limited for managed services and digital channel operations. Disruptions in these partnerships or challenges in transitioning services could delay critical business processes and increase operational costs.
Our digital transformation efforts, though critical for our future growth, require significant investment and come with the risk of unforeseen challenges. For example, in 2018, we incurred substantial costs, including $49 million in asset impairments and $22 million in severance-related expenses, as we overhauled outdated technology systems. We have incurred additional asset impairments, most recently in the fourth quarter of 2024 when we wrote down $29 million of information technology assets. As we continue to re-architect legacy systems and roll out new tools, we face the possibility of further costs, delays, or disruptions.
Moreover, our growing business places additional demands on our technology infrastructure, particularly our e-commerce channels. Despite ongoing investments to expand and upgrade our systems, any inability to handle increased traffic or transaction volumes could impede order processing, impact customer satisfaction, and harm our financial performance.
In summary, while we are committed to evolving and enhancing our technology systems, these initiatives involve considerable risks. Any failure to address these challenges effectively could disrupt our operations, erode stakeholder confidence, and adversely affect our financial results.
Any acquired companies or future acquisitions may expose us to additional risks.
We have acquired certain businesses, and we plan to continue to do so in the future as we encounter acquisition prospects that would complement our current product offerings, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities. 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. Our past acquisitions have entailed, and future acquisitions could entail, numerous risks, including:
| ● | difficulties in integrating acquired operations, employees 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; |
| ● | 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. |
The expansion of our Rhyz business into new businesses has been viewed negatively by some of our Sales Leaders as these new companies sell products that are similar to those of our core business and are viewed as using our resources for non-core businesses. These perspectives of our Sales Leaders could have a material negative impact on the number or productivity of our Sales Leaders and result in a reduction in our revenue.
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. In addition, there can be no assurance that we will be able to identify suitable acquisition candidates, consummate acquisitions on favorable terms or realize the anticipated benefits of an acquisition.
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.
Our products are subject to extensive government regulation by numerous federal, state, and local government agencies and authorities. Many of these laws and regulations involve a high level of subjectivity, are subject to interpretation, and vary significantly from market to market. These laws and regulations can, and often do, have several impacts on our business, including but not limited to:
| ● | delays in, or altogether prohibitions on, introducing or selling a product or ingredient in one or more markets; |
| ● | delays 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. |
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. In particular, the requirements are impacting the ingredients we can include in our products, the accepted quantities of those ingredients, and the quality and characterization of the ingredients. Global regulators have in recent years become overall more restrictive on the accepted levels of active ingredients that we can use in our product, in some cases banning them outright. They have also become more restrictive on permitted contaminant levels in ingredients and, in many cases, have forced complete removal of such contaminants. In certain cases, such as regarding some pesticides which are virtually ubiquitous in nature, it has proven difficult to comply with the requirements. Further, many of the restrictions regarding ingredient quality are not directly applicable to our products, leaving the possibility that our interpretation of compliance may not match that of the enforcing authorities. Often there is a lack of an equivalent active ingredient present in the marketplace. In other cases, the removal or reduction of a technical ingredient, such as various types of parabens, leads to a significant change to the character of the product that may make it no longer desirable or safe to the consumer. If this trend in new regulations continues, we may find it necessary to alter some of the ways we have traditionally marketed our products in order to stay in compliance with a changing regulatory landscape and this could add to the costs of our operations and/or have an adverse impact on our business.
Many laws and regulations govern the registration, pre-market approval or other aspects of regulatory oversight of our products. For example, in the United States, some legislators and industry critics have pushed for years to increase regulatory authority by the FDA over nutritional supplements. In 2011, the FDA proposed draft guidance to clarify the FDA’s interpretation of the dietary ingredient notification requirements, and in 2016, the FDA issued revised draft guidance that superseded the 2011 version. In April 2024, the FDA issued new draft guidance replacing and expanding on the 2016 revised guidance. This draft guidance is not yet final but indicates that the FDA is expanding its definition of what is considered a “new dietary ingredient”. While still in flux, if enacted as proposed, this guidance could impose new and significant regulatory barriers for our nutritional supplement products or unique ingredients, which could delay or inhibit our ability to formulate, introduce and sell nutritional supplements as we have in the past. Similarly, from time to time, efforts are made by some individuals or groups to repeal the Dietary Supplement Health and Education Act of 1994 (“DSHEA”), the U.S. law that provides a separate body of regulations for dietary supplements as compared to drugs. Such a repeal would result in significant burdens to our product development, and the costs of running our business would increase significantly. We face similar pressures in our other markets, which continue to set restrictions on ingredients and their acceptable maximum levels, as well as on ingredient characterization, quality and levels. 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, even beyond the requirements mandated by the recently enacted Modernization of Cosmetics Regulation Act of 2022. These events could interrupt the marketing and sale of our products, severely damage our brand reputation and image in the marketplace, increase the cost of our products, cause us to fail to meet customer expectations or cause us to be unable to deliver merchandise in sufficient quantities or of sufficient quality to our stores, any of which could result in lost sales.
Our operations could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute our products or impose additional burdens or requirements on us in order to continue selling our products. In addition, the adoption of new regulations or changes in the interpretations and enforcement of existing regulations may result in significant compliance costs or discontinuation of product sales and may impair the marketability of our products, resulting in significant loss of net sales. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business. If new or existing laws and regulations restrict, inhibit or delay our ability to introduce or market our products or limit the claims we are able to make regarding our products, this could have a material adverse effect on our business, financial condition, and operating results. If we fail to comply with the laws and regulations governing our products, we could face enforcement action, and we could be fined or forced to alter or stop selling our products.
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.
Government authorities regulate advertising and product claims regarding the efficacy and benefits of our products. 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. If we are unable to show adequate and reliable scientific substantiation for our product claims, or if our marketing materials or the marketing materials of our sales force make claims that exceed the scope of allowed claims for dietary supplements, cosmetics or devices that we offer, the FDA or other regulatory authorities could take enforcement action requiring us to revise our marketing materials, amend our claims or stop selling certain products, which could harm our business.
For example, 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. There is a degree of subjectivity in determining whether a claim is an improper structure/function claim. Given this subjectivity and our research and development focus on the sources of aging and the influence of certain ingredients on gene expression, there is a risk that we could receive a warning letter, be required to modify our product claims or take other actions to satisfy the FDA if the FDA determines any of our marketing materials include improper structure/function claims for our cosmetic products. 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 class action lawsuits, which could harm our business.
In the United States, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) require disclosure of material connections between an endorser and the company they are endorsing, and they generally do not allow marketing using atypical results. Our sales force has historically used testimonials and “before and after” photos to market and sell some of our popular products such as our spa devices and ageLOC Transformation anti-aging skin care system. We intend to continue to use testimonials for our popular products, including weight management products and beauty products. In highly regulated and scrutinized product categories such as weight management, if we or our sales force fails to comply with the Guides or makes improper product claims, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our marketing materials. 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. 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.
Additionally, state statutes throughout the United States create private rights of action for individuals claiming harm from false or misleading marketing claims that can lead to the assertion or filing of class action lawsuits. There can be no assurance that we will not be subject to class action lawsuits asserting false or misleading marketing claims, which could harm our business.
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. The Good Manufacturing Practices impose stringent requirements on a variety of topics, including vendor qualifications, ingredient identification, manufacturing controls and record keeping. Ingredient identification requirements, which often require us to confirm the levels, identity and potency of ingredients listed on our product labels within a narrow range, are particularly burdensome and difficult for us because our products contain many different ingredients. Additionally, certain Good Manufacturing Practices obligate us to track and periodically report adverse events to government agencies. Compliance with these increasing regulations may further increase the cost of manufacturing certain of our products as we work with our vendors to assure they are qualified and in compliance. In addition, our operations could be harmed if regulatory authorities determine that we or our vendors are not in compliance with these regulations or if public reporting of adverse events harms our reputation for quality and safety. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain products, including public withdrawals, seizures and recalls. For example, we have had product recalls in the United States based on labeling issues. Problems associated with product recalls could be exacerbated due to the global nature of our business because a recall in one jurisdiction could lead to recalls in other jurisdictions. In addition, these risks associated with noncompliance could increase as we acquire businesses, including our current and future Rhyz businesses.
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.
One of our strategies is to market unique and innovative products that allow our sales force to distinguish our products. As we pursue this strategy with our current and future device products, there is a risk that regulatory authorities in our markets could determine that these products must receive clearance or be registered as medical devices. Such a determination could restrict our ability to import or sell the product in such market until registration or clearance is obtained. The process for obtaining such registrations and clearances could require us to provide documentation concerning product manufacturing and clinical utility; to make design, specification and manufacturing process modifications to meet standards imposed on medical device companies; and to modify our marketing claims regarding the registered product.
While we have not been required to register our device products as medical devices in most markets, we have registered some of them in some markets, including ageLOC Boost and Nu Skin Wellspa iO in Thailand and our ageLOC Galvanic Facial Spa and ageLOC Body Spa systems in Indonesia, Thailand, Peru and Colombia. We also sought and received clearance from the United States Food and Drug Administration to market our Nu Skin Facial Spa device and, more recently, our Nu Skin RenuSpa iO device for over-the-counter use.
In some cases, challenges can arise even after we have completed the required registration/clearance process or determined that a product does not need registration/clearance. This could occur if a jurisdiction changes its laws or interpretations thereof, for example. 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.
Because medical device regulations vary widely from market to market, registration or clearance in one market does not preclude challenges or delays in obtaining registration or clearance in other markets, nor does it preclude other markets from requiring us to make additional modifications or provide additional documentation as conditions to granting clearance. Furthermore, in some cases, registration or clearance to sell a product in one market may be used as precedent for requiring similar approval for the product in another market, or for similar products in the same market. These additional requirements could increase the cost associated with manufacturing and selling these products as non-medical devices in such markets.
Any of the above factors could have a material negative impact on our ability to sell products and could negatively affect our financial results.
We may incur product liability claims that could harm our business.
We sell a variety of different products for human consumption and use, including cosmetics, dietary supplements, conventional foods, OTC drugs and devices. Our cosmetics and conventional foods, as well as some of our dietary supplements, are not generally subject to pre-market approval or registration processes so we cannot rely upon a government safety panel to qualify or approve our products for use, and some ingredients may not have long histories of human consumption or use. We rely upon published and unpublished safety information including clinical studies on ingredients used in our products and conduct our own clinical and safety studies on some key ingredients and products, but not all products. A product may be safe for the general population when consumed or used as directed but could cause an adverse reaction for some individuals, such as a person who has a health condition or allergies or who is taking a prescription medication. While we include what we believe are adequate instructions and warnings and we have historically had low numbers of reported reactions, previously unknown adverse reactions could occur. If we discover that our products are causing adverse reactions, or if we determine that any of our employees have not properly handled reports of adverse reactions, we could suffer further adverse publicity or government sanctions.
As a result of the type of products that we sell, we may be subject to various product liability claims, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects. Consumer protection laws and regulations governing our business continue to expand, and in some states such as California, class-action lawsuits based on increasingly novel theories of liability are expanding. Product liability claims could increase our costs, cause negative publicity, and adversely affect our business and financial results. As we continue to offer an increasing number of new products through large product offerings our product liability risk may increase.
If our sales force or employees provide improper advice regarding our products or our products’ use or safety, we may be subject to additional product liability.
We have generally elected to self-insure our product liability risks. We periodically evaluate whether we can and should obtain product liability insurance. Based upon our current approach to product liability risk management, if any of our products are found to cause any injury or damage or we become subject to product liability claims, we will be subject to the full amount of liability associated with any injuries or damages. This liability could be substantial and may exceed our existing reserves and harm our business.
Legal, Regulatory and Compliance Risks
We may become involved in legal proceedings and other matters that could adversely affect our operations or financial results.
We have been, and regularly are, a party to litigation, government inquiries or investigations, audits or other legal matters. These legal proceedings can include, among other things, claims alleging violation of the federal securities laws or state corporate laws, or claims related to employment matters, contracts, intellectual property, fair-competition/anti-trust laws, our products, business opportunity or advertising, defamation, negligence, data breaches, privacy compliance, or other matters. Claims have been brought by regulators, investors, members of our sales force, consumers, employees, and other private parties and in some cases have been brought as class action lawsuits.
Our increased activity during the past several years with acquisitions, divestments and other investment-related activities introduces an additional area of litigation risk, and we have had litigation and threats of litigation related to these matters. 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, we 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. Although we ultimately reached a settlement agreement with him in January 2023, there can be no assurance that the resolution of future cases will be favorable to us.
In general, litigation claims, regulatory actions or other legal matters are expensive and time consuming and can result in settlements, adverse rulings or damages that could significantly affect financial results and the conduct of our business. It is not possible to predict the final resolution of any legal proceeding to which we may become party, and the impact of these matters on our business, results of operations and financial condition could be material.
Non-compliance or alleged non-compliance with anti-corruption laws could harm our business.
Our international operations are subject to various anti-corruption laws in the jurisdictions where we operate, including principally the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA prohibits companies and their agents or intermediaries from offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise for the purpose of obtaining or retaining business. The FCPA also requires public companies to make and keep books and records, which, in reasonable detail, accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. Significant international regulation of our industry and accordingly our business operations requires our employees, agents, and intermediaries to interact frequently with public officials, including officials of non-U.S. governments, in some highly regulated jurisdictions, including Mainland China. We dedicate time and resources to internal investigations of any allegation that we are not or may not be in compliance with the FCPA or other applicable international 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. Our corporate policies require all employees, agents and intermediaries to comply with the FCPA and other applicable anti-corruption laws, including the FCPA’s books-and-records and internal-accounting-controls requirements. Any regulatory determination, however, that our operations or activities are not in compliance with existing anti-corruption laws or regulations could result in the imposition of substantial fines and other penalties from U.S. or other regulatory entities.
Although we have implemented anti-corruption policies, controls and training globally to maintain an adequate system of books and records and internal accounting controls, we have in the past and may in the future have regulatory investigations and penalties. We cannot guarantee that our compliance efforts will prevent future investigations, fines or penalties under the FCPA or other anti-corruption laws.
Additionally, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing or new laws might be administered or interpreted. Alleged or actual violations of any such existing or future laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others) may result in criminal or civil sanctions or reputational harm, which could have a material adverse effect on our business, financial condition and results of operations.
A failure of our internal controls over financial reporting or our regulatory compliance efforts could harm our stock price and our financial and operating results or could result in fines or penalties.
We have implemented internal controls to help ensure the completeness and accuracy of our financial reporting and to detect and prevent fraudulent actions within our financial and accounting processes. We have also implemented compliance policies and programs to help ensure that our employees and sales force comply with applicable laws and regulations. Our internal audit team regularly audits our internal controls and various aspects of our business and compliance program, and we regularly assess the effectiveness of our internal controls. There can be no assurance, however, that our internal or external assessments and audits will identify all fraud, misstatements in our financial reporting, and significant deficiencies or material weaknesses in our internal controls. Material weaknesses have in the past resulted in, and may in the future result in, a material misstatement of our financial results, requiring us to restate our financial statements.
From time to time, we initiate investigations into our business operations to improve our regulatory compliance efforts or based on the results of our internal and external audits or on complaints, questions or allegations made by employees or other parties regarding our business practices and operations. In addition, our business and operations may be investigated by applicable government authorities. In the event any of these investigations identify material violations of applicable laws by our employees, sales force or affiliates, we could be subject to adverse publicity, fines, penalties or loss of licenses or permits.
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.
As a U.S. company doing business globally, we are subject to applicable tax and customs laws, including those relating to intercompany pricing regulations and transactions between our corporate entities in the jurisdictions in which we do business, as well as customs valuation and classification, income taxes, value-added taxes, withholding taxes, payroll taxes, and other applicable taxes. Tax and customs laws, regulations, administrative practices and interpretations in each jurisdiction are subject to change, with or without notice, due to economic, political or other conditions. For example, in 2022, the United States enacted the Inflation Reduction Act, which imposes a 1% excise tax on stock repurchases, subject to certain adjustments or exceptions. Changes in the law or in authorities’ interpretation of the law can materially increase our tax or customs expense and our effective tax rate.
Due to the numerous jurisdictions in which our subsidiaries are organized and changes in laws and their interpretations, significant judgment is required in evaluating and estimating our provision for income taxes. Our future effective tax rates could be affected by numerous factors, such as intercompany transactions, changes in our business operations, acquisitions and dispositions, entry into new markets, the amount of our earnings and where earned, losses incurred, the inability to realize tax benefits, changes in foreign currency exchange rates, changes in our stock price, uncertain tax positions, allocation and apportionment of state taxes, changes in our deferred tax assets and liabilities and changes in their valuation. In addition, U.S. and foreign governments may enact tax laws or enter into tax treaties that could result in further changes to global taxation and may materially affect our operating results 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.
Despite our best efforts to be aware of and comply with tax and customs laws, including changes to and interpretations thereof, local authorities can and sometimes do question our tax and customs positions. We are regularly subject to tax and customs audits, investigations, inquiries or other tax controversies by tax and customs authorities around the world regarding income taxes, customs valuation and classification, transfer pricing, value-added taxes, withholding taxes, payroll taxes, and other applicable taxes. The ultimate resolution of these matters can take several years, and the outcome is uncertain and can include additional taxes/customs duties, the payment of back taxes/customs duties, interest and penalties. We reserve in our consolidated financial statements amounts that we believe are in accordance with U.S. GAAP, and we regularly assess the likelihood of an adverse outcome in these matters to determine the adequacy of our accruals and adjust them as appropriate. 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.
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.
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. 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. An event of default under our credit facility could result in an inability to access funding under the agreement and cause all outstanding amounts to become immediately due and payable, which would have a material adverse effect on our financial condition and liquidity. In addition, even if we do not default, our debt covenants could impose limitations on our ability to pursue transactions or other opportunities that could be beneficial to our business.
Intellectual Property Risks
We may be subject to claims of infringement on the intellectual property rights or trade secrets of others, resulting in costly litigation.
In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. In particular, there has been an increase in the filing of suits alleging infringement of intellectual property rights, which pressure defendants into entering into settlement arrangements quickly to dispose of such suits, regardless of their merit. Other companies or individuals may allege that we, or our sales force, consumers, licensees or other parties indemnified by us, infringe on their intellectual property rights. Even if we believe that such claims are without merit, defending such intellectual property litigation can be costly, distract management’s attention and resources, and the outcome is inherently uncertain. 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.
As a result of claims against us regarding suspected infringement, our technologies may be subject to injunction, we may be required to pay damages, or we may have to seek a license to continue certain practices (which may not be available on reasonable terms, if at all), all of which may significantly increase our operating expenses or may require us to restrict our business activities and limit our ability to deliver our products and services and/or certain features, integrations, and capabilities of our platform. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense and/or cause us to alter our products or services, which could negatively affect our business.
We employ individuals who were previously employed at other beauty or wellness product companies, including our competitors or potential competitors. To the extent that our employees are involved in research areas that are similar to those in which they were involved with their former employers, we may be subject to claims that such employees have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the former employers. Litigation may be necessary to defend against such claims.
If we are unable to protect our intellectual property rights or our proprietary information and know-how, our ability to compete could be negatively impacted and the value of our products could be adversely affected.
The market for our products depends to a significant extent upon the value associated with our product innovations and our brand equity. We rely upon patent, copyright, trademark, and trade secret laws in the United States and other markets, and non-disclosure, confidentiality, and other types of agreements with our employees, sales force, customers, suppliers and other parties, to establish, maintain and enforce our intellectual property rights. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented, or misappropriated, or such intellectual property rights may not be sufficient to permit us to provide competitive advantages, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. 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. In some cases it may not even be practical to seek to register our intellectual property for various reasons, including costs and enforceability. 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. 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.
From time to time, we become aware of potential violations of our intellectual property rights. For example, we are aware of the use of and attempts to obtain trademark registrations for “Nu Skin” or phonetically similar marks and of some products that may infringe on our intellectual property related to the ageLOC LumiSpa device. To enforce and protect our intellectual property rights, we may initiate actions against third parties to protect our intellectual property, such as patent, copyright, and trademark infringement lawsuits or interference proceedings, and seek indemnification by contract or otherwise. Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns, and we may ultimately fail to prevail or recover on any indemnification claim. Litigation also puts our patents and trademarks at risk of being invalidated or interpreted narrowly and our patent and trademark applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may adversely affect our financial condition or diminish our investments in this area.
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our employees, consultants, scientific advisors and third parties. Our employees may leave to work for competitors. Our sales force members may seek other opportunities. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our current or former employees, sales force, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. 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.
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.
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, biometric information 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. The various mobile applications, connected beauty and wellness devices, and other connected tools that we have developed or are developing also collect data. The integrity and protection of this data is critical to our business.
We are subject to various security and privacy regulations in the markets where we do business, as well as requirements imposed by the payment card industry. For example, the General Data Protection Regulation, which went into effect in the European Union in 2018, imposes increased data protection regulations, the violation of which could result in fines of up to 4% of annual consolidated revenue. Many other U.S. states and foreign jurisdictions have similarly enacted security and privacy regulations. This includes the California Privacy Rights Act (“CPRA”), which took effect January 1, 2023 and expands the California Consumer Privacy Act (“CCPA”) of 2020. Other data privacy or data protection laws or regulations have been adopted or are under consideration in many other jurisdictions. We anticipate that federal, state and international regulators will continue to enact legislation related to data protection and privacy. These laws may impose restrictions on our ability to gather and/or transfer personal data, provide individuals with additional rights around their personal data, and place downstream obligations on our Brand Affiliates or other business partners relating to their use of information we provide. Many other jurisdictions, including California and Mainland China, have increased enforcement of laws and regulations that have recently taken effect. In addition, the FTC has taken an increasingly active approach to enforcing data privacy in the U.S. and has launched investigations and taken action against several large private companies over their data privacy practices in the past year. We believe these trends will continue.
In the United States, congressional committees have held preliminary hearings about the advisability of a federal data privacy law, but it is uncertain whether the federal government will adopt such a law and whether it would preempt state data privacy laws. Efforts have been made in recent years at the federal level to establish a comprehensive privacy regime including many of the concepts found in other state and federal privacy bills and laws, such as consent requirements for entities providing services to the public that collect, store, process, use or otherwise control sensitive personal information. 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.
In addition to laws specifically governing privacy and data security, in some cases, federal and state regulators and state attorneys general and administrative agencies have interpreted more general consumer protection laws to impose standards for the online collection, use, dissemination and security of data. Plaintiffs' counsels have also put forward a number of novel theories suing companies on the basis of their collection and use of information under existing privacy-adjacent laws. For example, there has been a recent increase in class action and individual litigation applying the provisions of the California Invasion of Privacy Act, enacted in 1967, to the use of common website technology. Although we monitor regulatory developments in this area, laws may be implemented, interpreted, or enforced in a non-uniform or inconsistent way across jurisdictions, and we may not be aware of every development that impacts our business. 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. The costs of complying with existing or new data privacy or data protection laws and regulations may limit our ability to gather personal information needed to provide our products and services, delay or impede the development of new products and services, or negatively impact the use of or demand for our products and services, any of which could harm our business. In particular, maintaining compliance with these and other evolving regulations and requirements around the world has required changes to our information system architecture, data transfer and data storage processes. For example, data privacy laws in Mainland China, the European Union and other jurisdictions place restrictions on the cross-border transmission of personal data, which could impede our ability to perform many business functions, including calculating and paying compensation to our sales force, absent significant changes to our information system architecture. In 2023, the European Union adopted a new adequacy decision for the E.U.-U.S. Data Privacy Framework. However, activist groups have already indicated an intent to challenge this new framework. Because of these challenges, there is constant uncertainty regarding the legal basis for data transfers to the United States from the European Union. This may result in the eventual interruption of such transfers and therefore the interruption of business functions that rely on these transfers. Changing our information system architecture and data transfer and storage processes is difficult and expensive. Investigations by the regulators of data security or protection laws across jurisdictions could also result in the payment of fines, reputational harm and an inability to continue doing business in certain jurisdictions. Class actions or other private actions by affected individuals in some jurisdictions could also result in significant monetary or reputational damage.
The following additional factors also cause risks related to the use of data:
| ● | Sales force—We share certain data with our sales force. We 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. |
| ● | Consumer health data regulations—In addition to state comprehensive privacy laws, several states (Washington, Nevada and Connecticut) have passed targeted legislation regulating “consumer health information,” generally defined as personal information linked or reasonably linkable to a consumer that identifies their past, present, or future physical or mental health status. This broad definition likely imposes restrictions on our ability to gather this data. These new laws appear to require additional privacy policies and specific consents from consumers; compliance with these new laws may require significant time and effort. If found to be in violation of these laws, we may face regulatory scrutiny and fines. The cost of assessing and bringing company practices into compliance with these new laws can be significant and the risk of legal claims in the event of a non-compliance is increasing. For example, Washington’s “My Health, My Data” law creates a private right of action for non-compliance. |
| ● | 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. For example, the use of AI technologies could lead to unintended consequences, such as accuracy issues, cybersecurity and data privacy risks, unintended biases, and discriminatory outputs, which could impact our ability to protect our data, intellectual property, and client information, or could expose us to intellectual property claims by third parties. In addition to these risks, several U.S. and international jurisdictions have passed laws regulating the use of AI technologies. For example, the European Union’s Artificial Intelligence Act has provided a regulatory landscape that private businesses will need to navigate with caution. The scale of penalties for non-compliance could be up to €35 million or 7% of global turnover. We anticipate we will only see an increase in regulation in this area, which may impact our ability to use AI technologies into our new or existing offerings or back-office functions, and new regulations may require reconstruction of technologies already in use. |
The unauthorized access, use, theft or destruction of our information systems or of data that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues.
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. 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. Although we use best efforts to detect and investigate all cyberattacks and data security incidents, it may be difficult to determine its scope of impact. Our infrastructure may be vulnerable to these attacks, and in some cases it could take time to discover attacks and determine their impact. Our security measures may also be breached due to employee error or malfeasance, system errors or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose confidential information to gain access to our systems, our data, or our users’ or customers’ data. Any such breach or unauthorized access could result in the unauthorized disclosure, misuse or loss of sensitive information and lead to significant legal and financial exposure, regulatory inquiries or investigations, loss of confidence by our sales force and customers, disruption of our operations, damage to our reputation, and costs associated with remediating the incident. The cost of investigation and response, including providing required breach notification obligations to individuals, regulators, and other third parties may be significant. The risk of legal claims in the event of a security breach is increasing. A successful assertion of one or more large claims against us in the event of a data breach may exceed available insurance coverage or lead to increases in premiums or required deductibles. A data breach could also lead to a lack of consumer trust and negatively affect our reputation. These risks are likely to increase as we continue to expand operations and process increasing amounts of personal information, proprietary data and sensitive data.
In addition, should a threat-actor successfully breach our systems to a significant extent, they could disable our systems or take our systems offline via ransomware, and such actions could stop or significantly impair our ability to conduct business, including processing orders and tracking and timely paying sales compensation to our sales force. Additionally, threat-actors regularly extort money from victims as a condition to returning the victim’s systems to operation and/or to not releasing stolen data to the public.
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. These risks also are heightened as a result of our recent restructurings, which affected several functions at our company, including our information technology and information security functions. 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.
Sustainability Risks
Our business could be negatively impacted by corporate citizenship and sustainability matters.
There are increased and increasing expectations and focus from certain investors, Brand Affiliates, consumers, employees, regulators and other stakeholders concerning corporate citizenship and sustainability matters, including environmental, social and governance matters; packaging; responsible sourcing; and diversity, equity and inclusion matters. For example, the European Union’s Packaging and Packaging Waste Regulation, which was adopted in December 2024, with some of its provisions becoming effective beginning in August 2026, regulates what kind of packaging can be placed on the EU market, as well as packaging waste management and prevention measures. Packaging not meeting the standards will no longer be allowed on the EU market.
In addition, some jurisdictions, including California and the European Union, have enacted laws requiring public disclosure of information in sustainability-related areas, and 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 complying with laws or accurately reporting our progress on such initiatives, goals and expectations. Moreover, the standards by which corporate citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions. The standards or assumptions could change over time. In addition, we could be criticized for the scope of our initiatives or goals or perceived as not acting responsibly in connection with these matters, such as with our carbon footprint, recyclability of our packaging, ingredients used in our products or the sourcing of such ingredients. 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.
Our Class A common stock closed at $42.88 per share on January 31, 2023 and closed at $6.55 per share on January 31, 2025. During this two-year period, our common stock traded as low as $5.95 per share and as high as $45.55 per share. Many factors, including some we may be unable to control, could cause the market price of our Class A common stock to fall. Some of these factors include:
| ● | fluctuations in our operating results; |
| ● | government investigations of our business; |
| ● | trends or adverse publicity related to our business, products, industry or competitors; |
| ● | the sale of shares of Class A common stock by significant stockholders; |
| ● | demand, and general trends in the market, for our products; |
| ● | acquisitions by us or our competitors; |
| ● | economic or currency exchange issues in markets in which we operate; |
| ● | changes in estimates of our operating performance or changes in recommendations by securities analysts; |
| ● | speculative trading, including short selling and options trading, as well as stockholder activism and takeover activity, all of which may be more likely after a stock price decline such as ours in recent years; and |
| ● | general economic, business, regulatory and political conditions. |
Broad market fluctuations could also lower the market price of our Class A common stock regardless of our actual operating performance.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
