Calon LochridgeClaire Larson Josh Millheim

Trevor Morgan Jaron Beckwith

Our presentation will examine Nu Skin’s current situation and make

recommendations on how to build the most success from there

Background

ageLOC Spas

ageLOC Resorts

Tiered Membership System

Reflection

Nu Skin is a leader in the anti-aging and supplement industry, generating

large commissions for distributors

$1,158 $1,248 $1,314 $1,518

$1,720

$2,132

$3,177

2007 2008 2009 2010 2011 2012 2013

• Nu Skin dominates both the anti-aging and supplement

industry through innovation and commitment to its business

principals.

• In 2013 Nu Skin was ranked the 8th largest MLM worldwide

according to revenue.

• MLM with 1.1 million distributors worldwide. Their goal is to

create more income for distributors than any other company.

• In 2013 Nu Skin paid $1.48 billion in commissions (47% of

revenue) and commissions and incentives paid to date are over

$11 billion.

The MLM structure that has given Nu Skin so much success has lead to a

negative perception by others

-$15.00

$5.00

$25.00

$45.00

$65.00

$85.00

$105.00

$125.00

$145.00

Nu Skin Stock Prices Last 18 Months

People’s Daily Report

• Nu Skin has battled a negative perception, highlighted

by the People’s Daily Report and the backlash the

followed.

• While revenue has been steadily increasing, it is

expected to drop 19.4% in 2014, further fueling

negative perception and reflecting Nu Skin’s stock

price.

• Both Nu Skin corporate and distributors suffered,

impeding their goal of generating more income for its

distributors than any other company.

• Nu Skin needs to bolster their image and create new

revenue streams to create wealth for distributors and

win back their high stock prices.

$500

$1,500

$2,500

$3,500

2010 2011 2012 2013 2014 2015

Revenues: Past and Forecast

ageLOC Spas

ageLOC Resorts

Tiered Membership System

To improve public perception and generate new streams of revenue, Nu Skin should

develop ageLOC Spas, ageLOC Resorts, and a Tiered Membership System

Capture maximum market share of the Health Spa Industry and improve brand perception by

investing in traditional spas and health spa resorts

Massage Envy10%

Country Ranch3%

Woodhouse Spa2%Golden

Door1%

Other84%

Market Share

Massage Envy10%

Country Ranch3%

Woodhouse Spa2%

Golden Door1%

Nu Skin5%

Other79%

Desired Market Share

• 84% of the health and wellness spa industry comprises

of other companies with less than 1% market share.

• Out of the $15.4 billion industry, $13 billion is and open

market for Nu Skin.

• Leverage anti-aging products and

move into both traditional spas and

large scale health spa resorts.

• Our 5-year goal capture a

projected 5% market share.

• Market share capture will improve

public perception of Nu Skin

Brand.

Nu Skin can save on purchase costs over competitors, this will incentivize Distributors to

invest in the ageLOC Spa franchise.

12.9% 12.9%

43.5% 43.5%

23.4%

3.5%

7.2%

7.2%

8.9%

28.8%

0.0%

10.5%

21.0%

31.5%

42.0%

52.5%

63.0%

73.5%

84.0%

94.5%

Industry Nuskin

Profit

Rent & Utilities

Marketing

Depreciation

Purchases

Wages

Other

Industry Cost Comparison• Nu Skin will supply products reducing product

cost by 85% and increasing profit margin

approximately 20% higher than competitors.

• Identify Lapis or Ruby PIN title Distributors and

offer opportunity to franchise ageLOC spa.

• Charge franchise fee of 35% in exchange for

free product supply from Nu Skin Corporate.

• Offer new spa customers the opportunity to join

the Nu Skin team or register as a customer with

Distributor in their area.

Nu Skin

The ageLOC Spa Entrance Strategy has Nu Skin entering spas in six locations, each with

high Asian population to build initial market share.

• Build 1.7% Market Share with

ageLOC Spa.

• Franchise spas in 3 locations of

historically high Nu Skin activity

(West Coast, Pacific Northwest,

and Southwest).

• Build 3 more spas on the East

Coast in areas where we want

Nu Skin to expand.

• All spas are located in

metropolitan areas with an Asian

population of 10% or greater.

ageLOC Spa

United States Entrance Plan

• ageLOC Resort will capture an additional 3.3% market share to complete five-year goal is to

capture 5% market share of the $15.4 billion health spa industry.

• ageLOC Spa will have positive discounted cash flows (DCF) for owners ($92,388,138) and Nu

Skin ($223,148,008).

• Franchise fees for resorts will be lowered to 20% to adjust for investment and financing.

1.7%

3.3% 5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Spa Resort Total

MARKET SHARE GROWTH

$-

$50,000,000

$100,000,000

$150,000,000

$200,000,000

2014 2015 2016 2017 2018

SPA AND RESORT REVENUE

ageLOC Resort will be a larger scale inclusive resort that will improve brand image, facilitate

sign-up of distributors, and increase revenue.

Note: DCF analysis use an imputed WACC of

7.65% - calculations found in appendix.

The ageLOC Resort Entrance Strategy has Nu Skin simultaneously building two resort locations, one in Los Angels and one in Miami

ageLOC Resort

ageLOC Spa

United State Entrance

Plan• Contract ageLOC Resort in Los

Angeles and Miami.

• Resorts will be offered to

current distributors and

entrepreneurs with Nu Skin

providing the option to finance.

• The resorts are also placed in

areas with 10% or greater Asian

populations.

Implement a Tiered Membership System allowing distributors to opt in to a monthly fee in

exchange for business support.

Level 1 – Business Materials

•Monthly business cards and brochures

Level 2 – Internet Marketing

•Provide website and social media help to distributors

Level 3 – Training

•Free web access/registration to monthly trainings

Level 4 – Lead Generation Consultation

•Monthly support from our new lead generation support team

Level 5 – Scanner

•Monthly lease to the Biophotonic Scanner (with down pmt)

• Leverage existing partnerships to print

and sent monthly supply to subscribers.

Note: Distributors DO NOT have to subscribe to the membership system

• Provide assistance in social media and

current Sound Concepts website (OPS).

• Free on-site sales and business trainings

every month and access to webinars.

• Create a team of strategists to assist

subscribers in generating new leads.

• Provide monthly lease of Nu Skin’s S3

Scanner as a major sales aid.

Breakdown of costs, revenue and profits at five years of implementation for the tiered

membership program.

Note: We estimate that the effect of this plan on distributor success will cause an increase in Nu

Skin’s overall revenue in addition to the revenue brought in by membership fees.

$13,272,000

$27,964,680

$45,634,620

$65,350,620

$-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

2015 2016 2017 2018

Tiered Membership Revenue• Revenues

• Four year projection

• $65 million by 2018

• Margins

• Roughly 77%

• Profits

• Low fixed costs, high margins

• Other Benefits

• Distributor buy-in

• Indirect revenue

• Projections based on a percentage buy in from

selling distributors, based on the numbers from

the 2013 annual report. Number of distributors

grown each year through a linear extrapolation.

Our timeline shows five years of development for Nu Skin, moving from simple implementation

of the tiered membership system into worldwide expansion of the spa/resort program.

Year 1

• Advertise and Educate on the new tiered membership system.

• Develop resources and hire employees when necessary for additional support. Sign on distributors and begin providing service

Years 1-2

• During this time we will identify Lapis/Ruby distributors who would make a good fit as a spa/resort franchiser

• We will also complete research on what services should be offered, the most attractive spa packages, etc.

Years 3-4

• During these years we will build the six spas and two resorts, tracking them closely to examine their performance.

Years 5+

• Assuming the spas/resorts perform well, we will expand the programs world wide, repeating the above processes.

$298.22 $297.06 $321.24

$344.72 $367.06

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

2014 2015 2016 2017 2018

Total Americas Revenue with Proposed Programs

Projected Revenue Spa/Resort Revenue Tiered Membership Revenue

The combination of our different programs has Nu Skin conservatively at 233.21 mm by 2018, primarily

in the US market. This does not take into account added revenue due to more effective distributors.

$13.27

$127.16

$175.37

$233.21

*Note: Nu Skin revenue projections done with a linear percent growth model .Top number represents the

total revenue increase from both the ageLOC Spas/Resorts and the tiered membership plan

Appendix

• Health Spa Industry Data - http://clients1.ibisworld.com.erl.lib.byu.edu/reports/us/industry/ataglance.aspx?entid=4186

• Benchmark: Massage Envy http://www.massageenvyfranchise.com/Portals/0/2014%20FDD%20-%20Item%207%20Table.pdf,

http://www.massageenvyfranchise.com/franchise-cost, http://www.massageenvy.com/real-estate.aspx

• Internet Research: http://www.franchisechatter.com/2011/06/27/massage-envy-spas-average-unit-volume-tops-1m-says-its-

president-dave-crisalli-in-this-exclusive-interview/

• Benchmark: Golden Door -http://clients1.ibisworld.com.erl.lib.byu.edu/reports/us/industry/majorcompanies.aspx?entid=4186,

http://spas.about.com/od/west/p/goldendoor.htm

• Franchising: http://www.fixr.com/costs/build-hotel

• Financial: http://finance.yahoo.com/q/ae?s=NUS+Analyst+Estimates, http://ycharts.com/companies/NUS/revenues_ttm

• Revenue by Brand: file:///C:/Users/CalonFrank/Downloads/Revenue%20by%20Brand.pdf

• Annual Report: http://www.nuskin.com/corpcom/en_US/newsroom.html,

file:///C:/Users/CalonFrank/Downloads/NUS%20annual%20report%20final.pdf

• Demographics:

http://en.wikipedia.org/wiki/Demographics_of_Asian_Americans#mediaviewer/File:AA_Alone_or_in_Combination.jpg

• Land and Cost Analysis: http://www.realtor.com/realestateandhomes-search/Miami_FL/type-land,

http://www.landandfarm.com/search/FL/Miami-land-for-sale/, http://www.fixr.com/cost-estimates/?description=build+pool,

http://www.hwhotels.com/checklist.html

Sources

$2,560.00 $2,550.00

$2,757.57

$2,959.15

$3,150.90

$-

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

2014 2015 2016 2017 2018

Total Revenue with Proposed Programs

Projected Revenue Spa/Resort Revenue Tiered Membership Revenue

$13.27

$233.21

$175.37

$127.16

*Note: Nu Skin revenue projections done with a linear percent growth model .Top number represents the total

revenue increase from both the ageLOC Spas/Resorts and the tiered membership plan

The combination of our different programs has Nu Skin conservatively 233.21 mm by 2018, primarily in

the US market. This does not take into account added revenue due to more effective distributors

Year Revenue Percent Growth

2007 $1,158

2008 $1,248 8%

2009 $1,314 5%

2010 $1,518 16%

2011 $1,720 13%

2012 $2,132 24%

2013 $3,177 49%

2014 $2,560 -19%

2015 $2,550 0%

2016 $2,757.57 8%

2017 $2,959.15 7%

2018 $3,150.90 6%

Revenue projections (based on a percent growth model)

y = -0.0083x + 0.1561

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0 2 4 6 8 10

An exhibit of the calculations that went into the costs and revenues associated with the spa and

resort structure, compared to benchmark.

Benchmark ageLOC Spa ageLOC Resort

Revenue $ 1,463,000,000 $ 261,800,000 $ 508,200,000

Franchise % $ 117,040,000 $ 91,630,000 $ 76,230,000.0

Cost (CoGS) $ 17,837,820.0

Wages $ 636,405,000 $ 113,883,000 $ 221,067,000

Rent $ 105,336,000 $ 18,849,600 $ 36,590,400

Other $ 188,727,000 $ 33,772,200 $ 65,557,800

Net Profit $ 117,040,000 $ 91,630,000 $ 76,230,000

Total $ 167,860,000

Nu Skin/Benchmark Costs and Revenues

Note: Franchise % is bases on a 8% franchise fee for

benchmark (massage envy), a 35% fee for ageLOC

Spa, and a 15% fee for ageLOC Resort

Assumptions regarding revenue growth over five year period and Nu Skin cost percentages

compared to industry data

2014 2015 2016 2017 2018

Spas 0 0 4 6 6

Resort 0 0 1 1 2

Spa Rev $ - $ - $ 61,086,667 $ 91,630,000 $ 91,630,000

Resort Rev $ - $ - $ 38,115,000 $ 38,115,000 $ 76,230,000

Total $ - $ - $ 99,201,667 $ 129,745,000 $ 167,860,000

Spa Cost Breakdown

Category Industry Nuskin

Profit 8.9% 28.8%

Wages 43.5% 43.5%

Purchases 23.4% 3.5%

Depreciation 2.1% 2.1%

Marketing 2.0% 2.0%

Rent & Utilities 7.2% 7.2%

Other 12.9% 12.9%

Total 100.0% 100.0%

Spa/Resort Revenue Growth Assumptions

Note: Industry related data was

taken off IBIS world. Link:

http://clients1.ibisworld.com.erl.lib.by

u.edu/reports/us/industry/ataglance.

aspx?entid=4186

Level 2014 2015 2016 2107 2018

0 Subscribers 1,335,000 1,309,470 1,349,796 1,429,608 1,488,734

Revenue $- $- $- $- $-

1 Subscribers - 12,500 26,339 42,985 61,555

Revenue $- $125,000.00 $263,390.00 $429,850.00 $615,550.00

2 Subscribers 0 6,250.00 13,170.00 21,493.00 30,778.00

Revenue $- $125,000.00 $263,400.00 $429,860.00 $615,560.00

3 Subscribers 0 3,750.00 7,902.00 12,896.00 18,467.00

Revenue $- $562,500.00 $1,185,300.00 $1,934,400.00 $2,770,050.00

4 Subscribers - 2,500 5,268 8,597 12,311

Revenue $- $187,500.00 $395,100.00 $644,775.00 $923,325.00

5 Subscribers 0 530 1,116 1,820 2,607

Revenue $- $106,000.00 $223,200.00 $364,000.00 $521,400.00

Total Rev/Month 1,106,000 2,330,390 3,802,885 5,445,885

Total Distributors 1,335,000 1,403,591 1,517,399 1,614,452

Total Rev/Year 13,272,000 27,964,680 45,634,620 65,350,620

Tiered Membership System yearly breakdown

Year Number of Selling Distributors

2011 41,816

2012 51,790

2013 102,117

2014 102,117

2015 102,117

2016 107,584

2017 117,558

2018 127,532

Number of Selling Distributors projections (based on a linear growth model)

y = 30151x - 6E+07R² = 0.8701

0

20,000

40,000

60,000

80,000

100,000

120,000

2010.5 2011 2011.5 2012 2012.5 2013 2013.5

A breakdown of estimated profit margins associated with the tiered

membership program (appendix).

Level 1:

• 500 business cards: $5

• 300 pamphlets: $20

• Total cost: $25/distributor

• Distributors pay $120/year. (120-25)/120=.79 margin

• This is conservative, as not all distributors will take advantage of full quantity

Level 2

• Incorporates $25 of cost from tier

• Web design team creates templates: $25,000 spread out over 5 years= $5000/25000 subscribers= $.20/year (negligible)

• Domain and Hosting: $15/month*12 months= $180

• Distributor pays 240/year. (240-180-25)/240= .15 margin

Level 3

• Recording quarterly training (negligible)

• Distribution via web page (negligible)

• Distributor pays 900/year. (900-180-25)/900= .77 margin

Level 4

• 30 consultants with expertise in specific regions. Each with salary of $100,000. $3,000,000/15,000 distributors=$200 cost

• Distributor pays 1,800. (1800-200-180-25)/1800= .78 margin

Level 5

• Scanner production and distribution cost= $250

• Distributor pays $2400. (2400-250-200-180-25)/2400= .73 margin

Breakdown of costs, revenue and profits at five years of implementation for

the tiered membership program.

Note: We estimate that the effect of this plan on distributor success will cause an increase in

Nu Skin’s overall revenue in addition to the revenue brought in by membership fees.

Level PerksSubscribers in

2018 Cost Revenue Per Year Profit Margin Net Profit

0 No support1,488,734

$ -- $ --

1 Brochures/business cards61,555

$ 10.00 $7,386,600.00

0.79$5,835,414.00

2 Internet Marketing30,778.00

$ 20.00 $7,386,720.00

0.15$1,108,008.00

3 Training18,467.00

$ 75.00 $33,240,600.00

0.77$25,595,262.00

4Lead Generation

Consultation 12,311 $ 150.00

$11,079,900.00 0.78

$8,642,322.00

5 Scanner2,607

$ 200.00 $6,256,800.00

0.73$4,567,464.00

Total Rev. $65,350,620

Net Profit$45,748,470.00

DCF Analysis of cash flows from the ageLOC resort for Nu Skin and for the owner of the resort

assuming a WACC of 7.65%.

ageLOC Resort (Nu Skin)Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flow $ 51,125,881 $ 53,324,293 $55,617,238 $58,008,779 $60,503,157

Present Value $47,493,499 $46,016,316 $44,585,077 $43,198,354 $41,854,762

Total $223,148,008

ageLOC Resort (Owner)Year 1 Year 2 Year 3 Year 4 Year 5

Cash Flow $ 9,035,796 $ 25,468,206 $26,563,338 $27,705,562 $28,896,901

Present Value $8,393,822 $21,977,844 $21,294,270 $20,631,957 $19,990,245

Total $92,288,138

Cash Flows (Nu Skin)

EBT*(1-T) 66,855,922

Depreciation -

(Capex) -

(Change NWC) (17,837,820)

Cash Flow $ 49,018,102

Cash Flows (Owner)

Earnings 7,901,722

Depreciation 16,516,500

(Capex) (14,845,276)

(Change NWC) $ (537,150)

9,035,796

Initial Outlay (15,382,426)

Analysis of Cash Flows

*Calculations of WACC on next slide

Present Value of Cash Flows

• Nu Skin Cash flows are calculated as shown to the right.

• Owner cash flows in year 1 are netted with initial outlay to

represent the cash flows after investments.

• Owner cash flows in year 2 are assuming no change in NWC

Analysis of land, building and start up costs associated with ageLOC Resort to reach an

estimated initial outlay.

AssumptionsLand Analysis (LA):

Acres Cost Per Acre58.25 $ 319,000 $ 5,476.39 10.41 $ 139,000 $ 13,352.55 35.91 $ 1,250,000 $ 34,809.25 10.29 $ 950,000 $ 92,322.64 20.64 $ 288,000 $ 13,953.49 7.35 $ 825,000 $ 112,244.90 8.23 $ 100,000 $ 12,150.67 6.95 $ 1,389,990 $ 199,998.56 4.27 $ 195,000 $ 45,667.45

16.79 $ 795,000 $ 47,349.61 Average $ 57,732.55 Median $ 45,667.45

Land Analysis (Miami):Acres Cost Per Acre

9.6 $ 225,000 $ 23,437.50 2.00 $ 395,000 $ 197,500.00

10.13 $22,000,000 $ 2,171,767.03 9.68 $ 8,000,000 $ 826,446.28 1.22 $ 4,000,000 $ 3,278,688.52

13.42 $ 395,000 $ 29,433.68 9.02 $ 850,000 $ 94,235.03

10.00 $ 999,999 $ 99,999.90 15.68 $ 1,750,000 $ 111,607.14

Average $ 759,235.01 Median $ 154,553.57

Average Land Costs $ 390,023.19 Median Land Costs $ 92,322.64

Average Median $ 100,110.51

Resort Costs:

Cost per Sq/Ft $ 463

Avg. Room Size (sq/ft.) 420

Number of Rooms 75

Square Footage (Rooms and Lobby) 31,500

Square Footage (Spa) 10,500

Number of Saunas 10

Number of Hot Tubs 5

Number of Pools 3

Cost Per Sauna $ 3,200

Cost Per Hot Tub $ 8,000

Cost Per Pool $ 50,000

Resort Acreage $ 2.5

Investments:

Building (14,595,000.00)

Land (250,276.27)

Pool/Hot Tub/Sauna (222,000)

Spa Equipment $ (315,150.00)

Total Investment $(15,382,426.27)

Initial Outlay = $15,382,426

47%

1%1%1%

50%

Initial Investment Costs

Building

Land

Pool/HotTub/Sauna

Spa Equiptment

Cost of Equity 11.66%Weight of Equity 0.47Beta 1.68

Cost of Debt 6.19%Weight of Debt 0.53RFF 2.35%

ERP 7.89%

WACC 7.65% Tax Rate 34.22%

Computation of Nu Skin’s Weighted Average Cost of Capital (WACC) using market data.

• Nu Skin’s Beta found on Google Finance

• Risk Free Rate set at the rate of a 10-year T-

bill.

• Equity Risk Premium set at the 10-year return

on S&P 500.

• Tax rate calculated as the three-year average

from Nu Skin’s financials

• Cost of Equity determined as

CAPM [RFF+β(ERP-RFF)]

• Cost of Debt calculated as the

median of Nu Skin’s current

outstanding bonds.

• Weight of Equity = Equity/Total

Assets

• Weight of Debt = Debt/Total

Assets.

Amortization SchedulePeriod Cash PMT Interest Income Principle

0 15,382,426 1 $1,758,700 1,176,473.40 582,227.06 14,800,199.21 2 $1,758,700 1,131,943.71 626,756.75 14,173,442.46 3 $1,758,700 1,084,008.31 674,692.15 13,498,750.31 4 $1,758,700 1,032,406.74 726,293.72 12,772,456.59 5 $1,758,700 976,858.60 781,841.86 11,990,614.73 6 $1,758,700 917,062.04 841,638.42 11,148,976.31 7 $1,758,700 852,692.14 906,008.32 10,242,968.00 8 $1,758,700 783,399.13 975,301.33 9,267,666.66 9 $1,758,700 708,806.47 1,049,893.99 8,217,772.67

10 $1,758,700 628,508.84 1,130,191.62 7,087,581.06 11 $1,758,700 542,069.92 1,216,630.54 5,870,950.51 12 $1,758,700 449,020.00 1,309,680.46 4,561,270.06 13 $1,758,700 348,853.48 1,409,846.98 3,151,423.07 14 $1,758,700 241,026.05 1,517,674.41 1,633,748.66 15 $1,758,700 124,951.80 1,633,748.66 (0.00)

Total $15,382,426.27 Present Value $5,092,433.36

Interest 7.65%Payment $1,758,700

Amortization schedule of payments received from ageLOC spa owners, assuming that Nu Skin

offers franchising at a rate equal to WACC.

• Nu Skin can make

an addtional $5

million through

financing.

• This schedule

assumes the

issuance of a 15

year note with

interest due

annually.