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Edited Transcript of NUS earnings conference call or presentation 5-Nov-19 10:00pm GMT

Q3 2019 NU Skin Enterprises Inc Earnings Call

PROVO Dec 10, 2019 (Thomson StreetEvents) -- Edited Transcript of NU Skin Enterprises Inc earnings conference call or presentation Tuesday, November 5, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark H. Lawrence

Nu Skin Enterprises, Inc. - Executive VP & CFO

* Ritch N. Wood

Nu Skin Enterprises, Inc. - CEO & Director

* Ryan S. Napierski

Nu Skin Enterprises, Inc. - President

* Scott Pond

Nu Skin Enterprises, Inc. - VP of IR

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Conference Call Participants

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* Beth N. Kite

Citigroup Inc, Research Division - VP and Analyst

* Douglas Matthai Lane

Lane Research - Principal & Director of Research

* Mark Stiefel Astrachan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Olivia Tong

BofA Merrill Lynch, Research Division - Director

* Stephanie Marie Schiller Wissink

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q3 2019 Nu Skin Enterprises Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Scott Pond, Vice President, Investor Relations. Please go ahead.

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Scott Pond, Nu Skin Enterprises, Inc. - VP of IR [2]

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Thank you, Lori, and good afternoon, everyone. On the call with me today are Ritch Wood, Chief Executive Officer; Ryan Napierski, President; Mark Lawrence, Chief Financial Officer; and Dr. Joe Chang, Chief Scientific Officer.

On today's call, comments will be made that include some forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks.

Also, during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP financial numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor page at ir.nuskin.com for any required reconciliation of non-GAAP numbers. And I'd like to turn now the time to Ritch.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [3]

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Good afternoon, everyone. Thank you, Scott, and thank you all for joining us today. As we announced in our release, third quarter revenue was $589.9 million with earnings per share of $0.79. Despite a lower revenue base, earnings per share came in at the high end of our guidance range as we benefit from a focus on operational efficiency. Our quarterly revenue continued to be impacted by limited sales meetings in Mainland China.

Let me begin, in fact, by providing an update on our business in Mainland China and how we see things progressing there. First, we continue to see tremendous long-term growth potential with high demand for both our products and our opportunity. In our nearly 20 years of operating in China, we have steadily built a strong foundation and invested in the future of this important market.

Our long-term expectation and commitment to the market have not changed during this past year, even though meeting restrictions have extended beyond what we initially anticipated. We expected meeting approvals to increase during the third quarter, although this did not happen primarily because of the celebrations surrounding the 70th anniversary of the founding of the People's Republic of China.

Through September, slightly less than 60% of our sales leaders lived in provinces where meetings were being approved and these meetings' restrictions continued through October. Fortunately, we are experiencing slightly improved meeting approvals in November and we anticipate continued improvements into December.

We are seeing sequential stabilization of our sales leaders and business in Mainland China. However, we anticipate it may take a few quarters to see a rebound in our sales leader numbers. We are pleased that our customer initiatives have been well received and have driven good customer growth. We anticipate a strong launch of our new beauty device product to drive sales leader growth in the second half of 2020.

In October, we hosted our global LIVE! event in Salt Lake City, designed to align and motivate our sales force and introduce our future product road map. These new products include our new and improved Galvanic Spa and accompanying consumable products, which are launching in many of our markets this quarter.

We look forward to several product launches in 2020, including a newly reformulated Tru Face Essence Ultra and new Galvanic gel as well as our first 2 products to leverage our controlled environment agriculture Groviv initiative.

We also announced our next major product launch, an innovative daily-use beauty device that we anticipate will be a strong driver for our business in the second half of 2020. We are excited to add this product to our top-ranked beauty device systems brand. We are pleased with the successful event and the excitement we see throughout our sales force. Our manufacturing segment recorded 18% growth in the quarter, and we continue to see great potential for revenue growth and cost efficiencies in this segment.

I'll now turn the call over to Ryan, who will give some additional detail around our strategy and plan.

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [4]

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Thanks, Ritch, and good afternoon, everyone. Despite the headwinds that Ritch discussed, we remain focused on transforming our business to become the world's leading opportunity platform by empowering our sales leaders to expand their customer base through engaging technology platforms, enabling products and empowering programs to drive long-term sustainable growth. This transformation is vital to the long-term viability of our business as we seek to expand the appeal of our opportunity to a broader array of socially-enabled entrepreneurs in the opportunity economy.

Let me provide a brief update on each pillar of our strategy. The pillar -- the platform pillar is centered around enabling our sales leaders to build their businesses digitally. We accomplished a significant milestone during this quarter as we formally migrated our technology stack to the cloud, which provides us with a more flexible and scalable foundation and gives us access to a broader array of services that will enable us to enhance the use of data, artificial intelligence and other critical digital capabilities. We can now begin to focus our technology investment on customer-facing digital touchpoints to help our sales leaders more effectively reach customers and build a digital business.

Regarding our product strategy, our focus in 2019 was on strengthening our leading beauty device systems brand by improving and extending the Galvanic and LumiSpa franchises. We launched LumiSpa Accent earlier in the year and are currently rolling out the newly improved Galvanic Spa and reformulated Nutriol scalp and hair system, which we believe will extend the life of these important product lines. For 2020, our focus will be on introducing our next new innovative device system, which will further strengthen our position as the world's #1 at-home beauty device systems brand.

The highlight of our product introductions at LIVE! was a brief glimpse of a new innovative daily-use beauty device system that helps restore brightness and bounce to the skin. We are in the process of deploying our Nu Skin launch process, the same process utilized for our LumiSpa release to align our markets and sales leaders around the global preview of this product scheduled for the latter half of 2020. Our beauty device systems brand is our most powerful business driver.

Finally, we're now 1 year into the global rollout of Velocity, our sales compensation program, and continue to optimize it based on local market conditions and needs. As discussed previously, Velocity places increased emphasis on customer acquisition and sales leader productivity by providing a flexible framework to appeal to a broader demographic of entrepreneurs who leverage their social presence to build the business.

While these changes have increased customer acquisition and improved sales leader productivity and quality overall, our reported sales leader numbers have been impacted through the transition period. Nevertheless, we believe that Velocity plays a vital role in better positioning Nu Skin to compete more effectively in the emerging opportunity and sharing economies.

Next, let me provide a bit of color on our -- on each of our market segments. In Mainland China, as Ritch noted, we didn't see the increase we had anticipated in meeting approvals during the quarter. These meetings play a vital role in introducing flagship products as well as training and developing our sales -- our future sales leaders. During this period, we increased the customer acquisition and retention initiatives, including a new customer referral program that is gaining traction.

Additionally, we will continue -- or we will introduce the new Galvanic Spa and Nutriol in the fourth quarter. This will be the first time Nutriol has been available in Mainland China. I was in China last week to attend the prestigious Nu Skin-sponsored Oriental Beauty Valley symposium, which reaffirmed my belief in the long-term growth prospects of this vast consumer marketplace. We'll continue to invest to build a long-term sustainable business there.

In other parts of the world, the Americas/Pacific segment was down 7% in constant currency and was largely impacted by the hyperinflationary environment in Argentina. We are accelerating our focus on the U.S., another key market, where we recently announced our Discover the Best U.S. initiative to be launched in January. This campaign is patterned after successful campaigns we launched last year in Mexico and Colombia to align and motivate our sales force through training, incentives and events which helped generate double-digit growth in both markets this year.

In South Korea, we continue to see signs of stabilization and good potential in this important market. They also continue to be a leader in applying new digital technologies to leverage social platforms like KakaoTalk to grow the business there.

Southeast Asia was down 10% as we were up against a tough comparable due to last year's regional convention. Recent changes to direct selling regulations in Vietnam also contributed to the decline. Nevertheless, we remain optimistic about the region's growth prospects as high-potential markets like Indonesia, which reported up 18% year-over-year, continue to perform well.

In Japan, we are encouraged by 3 consecutive quarters now of constant currency growth driven by enhanced sales leader training and development events and our beauty device systems. Taiwan performed well during the quarter, however, Hong Kong was down double digits as the ongoing social incidents have disrupted business and the economy.

Finally, EMEA was down during the quarter largely due to the slowing in our U.K. market. However, we are seeing healthy growth in high-potential markets like Germany and Austria where social sharing is taking root. Going forward, we will focus on aligning our sales leaders around our product initiatives, Galvanic Spa and Nutriol in Q4 and first half 2020, and our next beauty device systems innovation in the second half.

So in summary, despite the challenges we faced in 2019, we remain confident in the direction of our strategy as we learn and adapt to environmental factors and believe we have the right team and initiatives in place to grow our business going forward. With that, I'll turn the time over to Mark.

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Mark H. Lawrence, Nu Skin Enterprises, Inc. - Executive VP & CFO [5]

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Thanks, Ryan. I will take a few minutes to walk you through our financial results for the third quarter and give an update on our Q4 and 2019 guidance. As a reminder, you can find additional financial information in our release and on the Investors section of our website.

Third quarter revenue came in at $589.9 million compared to $675.3 million in the prior year. The prior year quarter included a significant distributor event in Southeast Asia and a large LumiSpa promotion in Greater China, which did not repeat this year. Our quarterly revenue results were negatively impacted 2% or approximately $12 million by unfavorable foreign currency fluctuations.

Third quarter earnings per share were $0.79 compared to $0.94 in the prior year quarter. Gross margin for the quarter was 76.2% compared to 76.7% in the prior year quarter primarily as a result of our manufacturing segment making up a larger percentage of revenue. Nu Skin gross margin was steady at 78.6% compared to 78.7% in the prior year. And sequentially, overall gross margin improved 90 basis points.

Selling expense as a percent of revenue was 39.3% compared to 40.2% in the prior year. Similar to gross margin, selling expense was impacted by our manufacturing segment. Selling expense for the Nu Skin business was 41.5% compared to 41.8% in the prior year.

General and administrative expense as a percent of revenue was 25.1% compared to 24.5% in the prior year. We anticipate our fourth quarter G&A spend will increase sequentially as we recently hosted our global LIVE! sales event with a spend of approximately $10 million. I am encouraged by the results of our expense management and cost control efforts as evidenced by year-over-year G&A spend reduction of $18 million for the quarter and steady operating margin of 11.8% on reduced revenue.

The other income expense line reflects a $5 million expense compared to a $7 million expense in the prior year. During the quarter, we paid $20.6 million in dividends, reduced our outstanding debt by $42 million and did not repurchase any stock. Our tax rate for the quarter was 32.1% compared to 27.9% in the prior year. Our rate in the prior year benefited from the utilization of foreign tax credits and our decision to permanently reinvest in China.

Our revenue guidance for the fourth quarter is $570 million to $590 million and includes an approximate 2% foreign currency headwind. We project Q4 earnings per share of $0.68 to $0.75, which assumes an estimated tax rate of 31% to 35%. We anticipate providing 2020 guidance when we report our fourth quarter results.

For the full year, we anticipate annual revenues in the $2.41 billion to $2.43 billion range with earnings per share of $3.07 to $3.14. This guidance reflects an approximate 4% negative foreign currency impact for the year. With that, operator, we will now open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from the line of Olivia Tong from Bank of America.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [2]

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First, just on China, if you could give a bit more color on what you're doing in the market right now? Relative to pre-ban how does your meeting count compare? And other metrics that you can share to shine some light on how you're filling up the funnel again?

And then I'm just trying to understand some of the numbers and what leads to such a divergence between sales leaders and customers. You've got the sales leaders still declining on a year-over-year basis at a pace similar to last quarter, but the customer count shot up pretty dramatically. So do you consider one to be a forward indicator while the other is lagging?

And why did it -- I think you mentioned in your prepared remarks, it takes a few quarters to get the sales leaders to turn around. I'd love a little bit more explanation as to why that would be the case. And then I have a follow-up.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [3]

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Great. Thank you, Olivia. I appreciate that question very much. Yes, in China, the meeting progressed throughout the year has really been something that just hasn't changed much at all in Q2. We anticipated that things would get a little bit better, but the provinces that did not allow meetings stayed very consistent. And even in the provinces where meetings were getting approved, they were getting approved at a lesser rate than certainly before the pre-ban time.

That has started to improve. We're encouraged by that because it's our primary opportunity to build the sales force. In the meantime, we've done a number of initiatives to drive the customer base and continue keeping the customer group active. So maybe, Ryan, why don't you give a little bit more detail?

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [4]

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Yes. I think from a couple of quarters ago, we began talking about some customer-related initiatives there that were really focused around customer acquisition and retention that were being executed in China.

We've continued to apply those programs and they continue to build traction in the marketplace. So that's really driving the customer growth that you're seeing there. As well as during a time when sales leaders are not able to focus as much there, they tend to focus directly on growing that customer acquisition activity. So that's really driving the difference.

I think regarding leading and lagging indicators, we do see typically that our pipeline generally flows from customers to prospective sales leaders to sales leaders. And so we're encouraged by the increase in customers, but as Ritch mentioned previously, we need to see those -- the meetings continue to expand in order to train and educate those up and coming sales leaders. So encouraging, but we need to continue to focus and align around getting these meetings up and going as we're able.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [5]

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Let me just add one more thing, Olivia, to that, and that is, as we look at our sales leader number on a sequential basis, we dropped just slightly about 500, so 2.5%, 3% sequentially in our sales leader number, which is the key for us really going forward. Now that we've got the customer base improving, we really need to see that sales leader base improve. And the key to that will be continuing to hold more and more meetings.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [6]

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Got it. So your expectation that the sales leaders are still a little bit challenged, taking a couple of quarters, is that just a function of we've had 2 quarters now, another 2 quarters, and then we're going to start getting -- the comps will start to normalize a bit?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [7]

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Yes. I think as we look at it on a sequential basis, we'll see Q4 be consistent. We would anticipate that things would be fairly consistent there. Q1 is always difficult because of Chinese New Year and typically, we see a seasonal decline in sales leaders in the first quarter. But then as we begin to move towards the back half of the year and a real strong product launch with our new product, we would anticipate to see that sales leader number start to build into the back half of next year.

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Olivia Tong, BofA Merrill Lynch, Research Division - Director [8]

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Got it. Got it. That helps. That's helpful. And then I know it's a quarter early, but as we go into 2020, usually the year after a big distributor event like LIVE!, you tend to see a nice sales acceleration. You've got a lot of new product out there. So can you talk a little bit about the new products and the timing of the rollout? And how we -- should we expect that sales build as the year progresses? Or is there a lot of activity early on and perhaps you start the year off running pretty nicely?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [9]

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Yes. We do like our opportunity to grow the business. So if we go back to 2017, when we held the last LIVE! event, that was also the time that we launched the LumiSpa and it drove really good results in 2018. So we have several product launches in the first half of the year that Ryan can speak to here. And then our big product launch will be the new beauty device in the back half of the year. Ryan, do you want to add some detail?

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [10]

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Yes. I think, Olivia, the key products that we'll be rolling out here, and they've begun in Q4 are around, as I mentioned, the revision to the Galvanic Spa and the Nutriol product lines. The Nutriol is really a restage in -- a restage product, reformulated. We're really excited about that. It's new in China, which we're encouraged about as well. So that will happen really through Q1.

We have a product, 1 of our top 10 sellers in Tru Face Essence Ultra that's coming out as well that will be reformulated that we're encouraged about in Q1 and Q2, depending on the markets. We also have new Galvanic Spa gels coming out in Q2.

So first half, we have quite a bit of product ammunition there. A lot of it is our restages. So again, we're extending the life of those product lines. The incremental growth that we're expecting to see comes from this new device that Ritch is describing. And I think that's a really important one to focus on given Nu Skin and how we typically launch products, new products into market, new innovations to market, similar to the way we launched the LumiSpa product. So back half of 2020 and into early 2021 that we're really focused on.

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Operator [11]

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Your next question comes from the line of Steph Wissink from Jefferies.

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst [12]

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I have a couple of clarification questions and then, Ritch, 1 question for you. For the 2 clarifications, I just want to understand a couple of the comments that you made. You made the note that provinces are approving meetings, but not approving as much. And I'm just wondering if that's in reference to the number of meetings being approved or the size of those meetings being approved?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [13]

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Yes. It really is both the number and size of those meetings. And we anticipate -- we're actually seeing some improvement. So if I were to give an estimate, for example, for November, it's about 75% of the provinces where we're actually getting approvals. So still some restrictions on size and number of meetings. But generally, that's made a nice step forward here into November.

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst [14]

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Okay. Second clarification is you mentioned beauty device systems are the largest part of the beauty business. I'm just wondering if you can help us scale that as a percentage of your sales mix or a percentage of total revenue. Just help us understand how that business is scaling up? And then with respect to the 2020 launch, if you'd expect that to be incremental? Or is that going to be partially cannibalistic to one of your existing offerings?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [15]

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Yes. That's a great question. We're really proud of this beauty device system brand, which Euromonitor actually announced that we were the #1 at-home beauty device system brand this year. That was actually for 2017 and '18.

The brand is made up of 3 key products right now. Our Lumispa, which was the most recent launch; the ageLOC Me; and then the Galvanic Spa, which includes both a body and a face device. This will be a device that complements those. We've been somewhat discrete on what we've explained because we will align our sales force around that as we come out with more detail in next year.

While we anticipate that it will be the primary driver of our business in the second half of the year, which sometimes cannibalizes a little bit the other products that are being used to introduce customers to the business, it really has a different purpose. And so we think it can be really additive to the rest of that device platform. Ryan, do you want to --?

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [16]

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Yes. And we were just confirming, you had asked the percentage of the beauty business. I mean it's roughly 30% of our global revenue if I'm not mistaken. And so it's a big driver for us. And regarding that product specifically, as Ritch mentioned, it's a very complementary positioning to these other devices that are much more like a treatment-driven device.

These are, again, brightens and balances. So really, really well positioned for millennial, Gen Z, Gen X consumers that are looking to -- for that uptake on their skin on a daily basis. So this will be a really interesting and uniquely positioned device that we don't see out there in the marketplace.

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst [17]

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Okay. Great. Just one final one as a follow-up to Olivia's earlier question. Since the ability to hold scaled meetings in China remains restricted into 2020, would you elect to defer some of the product launches you have planned for China? Or are the customer direct initiatives supportive enough to really come behind those new product releases and you would continue to roll out your product program in that market?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [18]

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Yes. I think our restages would fit well whether we're having more meetings or not. They're very customer-focused products, but also ones that our sales force generally knows. So they're upgrades to those products that wouldn't require a lot of new training, for example, on the product.

I think they'll fit well regardless. And then we'd anticipate by the end of next year, we'll be able to hold meetings and be able to train well on the new product launch and really use that as the driver to grow our sales force in the back half of the year.

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [19]

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And maybe just to add to that as well, Steph, the -- we do continue to focus on digital mediums to train and educate our sales force there. We recognize the importance of these meetings and the need as well for the digital capability. So we continue to invest in that. We'll continue to focus there as well as a contingency moving forward.

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Operator [20]

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Your next question comes from the line of Mark Astrachan from Stifel.

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Mark Stiefel Astrachan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [21]

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Two questions. I guess the first one is a bit of a clarification on the commentary about sales leaders versus customers in China. If I'm not mistaken, you'd look -- when you talked about customers being the focus, retention of customers, if you go back to earnings transcripts a few calls ago.

So I guess I'm trying to figure out the correlation between what's going on in China and customers versus sales leaders to now the focus is on sales leaders, customer retention is nice, but it's not a driver of the business. I guess maybe, if you could just clarify that, it'd be helpful, please.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [22]

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Yes. Thanks, Mark. It's always a balance for us. In order to grow the business, we really have to grow both sales leaders and customers. In China, it's been a little unique because of the limitation on meetings. We shifted our focus really around a number of promotions and customer initiatives, retention initiatives on customers and so it's driven that number. And generally, we see a lot higher base of customers to sales leaders than we typically have seen in China.

We think as we start to hold meetings and there's a focus back on driving customer leaders that the 2 will come back into balance somewhat. But I think it's important to say that it's hard to grow the business if you're only growing one side or the other, the customer side or sales leader side. As we saw this last quarter, a good uptick in customers, which helps to stabilize things, but we need the sales force to now bounce back in order to grow the overall business.

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Mark Stiefel Astrachan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [23]

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Okay. I think I get that. And then secondly, on the rest of the business, so if you take a look at your China results and you compare it to some of your public direct selling multilevel peers, your results are basically in line with everybody else's. Obviously, it's weak, we all get that.

But if you look at the rest of your business, I think that's actually really where you missed our numbers and probably the consensus. So excluding Japan, what is going on in the rest of the world? Is it the lack of downline ability to grow in China? I mean is there just some product issues going on? Is there recruitment issues going on? Maybe if you could touch on some details there, that would be helpful.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [24]

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Yes. Let Ryan and I take a shot at that as well. Thanks, Mark, for that question. Last year, in the quarter, we reported 20% growth in the third quarter, so we had a tough comparison coming in. Secondly, we've had some softness throughout the beginning of the year. Some of that may be impacted by the events in China and sort of that feeling throughout some of the world where we have Chinese -- larger Chinese groups.

But at the end of the day, as we look back as a management team, there are areas that we could have done better. Our product launch strategy which was really focused on extending lines at a time when the business softens up was not enough ammunition to drive that sales leader force. And so we saw some softness there at a time where we were transitioning as well with our compensation plan.

I think those 2 things, we look back and we would have done it differently. We would have accelerated some product launches. We do feel good that what we have in the pipeline now can return those businesses to growth. We like what we're seeing, for example, in Japan, certainly, but we're seeing some good sequential trends in our sales leader number, for example, in Korea, which improved nicely sequentially, Southeast Asia improved sequentially. So we're seeing those businesses come back and would anticipate better results as we go into the fourth quarter and especially into next year.

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [25]

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Yes. Mark, the only thing I would add to Ritch's comments are around Velocity and our compensation plans move. I mentioned that in my comments. But this has really been the first full year of transition into the new model.

And while the model, we believe it positions us quite uniquely to transition and play a better role in the opportunity economy, it is a new way of building, in certain respects, to our traditional business. And so while our sales force learns how to and acclimates to that model, we're seeing some of that transition. And I mentioned that focus of -- focusing on productivity versus quantity, so to speak, at the sales leader level, that does require acclimation.

And so we're starting to see like I mentioned, we see good progress in many of our markets around the world. Germany is doing really well, Indonesia is doing really well, Japan is doing really well, Korea is starting to pick up, Latin America is doing well with it, outside of Argentina. So -- but it does take time for that to acclimate. And so that's probably, to Ritch's point, steps, yes products, I think, and then the other one is just transition timing into this. We're just glad to be at kind of the tail end of that transition period now. So --.

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Mark Stiefel Astrachan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [26]

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Okay. And just lastly, if you think about kind of all of it holistically, how do you drive more people into the business at this point, I mean, beyond the blocking and tackling? Like one of your competitors had talked about potentially increasing promotions to try to drive incremental consumers to the business. Is that something you think about, especially ex China, as you talked about some of the things that you could do better?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [27]

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Our promotions are always helpful in terms of driving a short-term blip. But for us, the key has always been major product initiatives and the cadence of the timing and how we launch those.

So we can certainly use promotions in the interim to keep the interest there. But for us, and you go back historically -- and you've followed us, Mark, for a long period of time, so you'll certainly understand -- but our key drivers to our business have always been significant product launches.

And this year, we didn't have a significant product launch. There were restages that we were doing to extend the life of some of these key lines that we felt like had more potential than what we were getting. But next year, we'll add what we think is as big and strong of a product launch as we've had, and that's this MC boost product that has a very wide demographic of people. It has a good product pricing and positioning, so it should apply to a large demographic and that will be our key driver going forward.

We generally start that process about 9 months before we launch the product, where we're starting to train, we'll have qualification events in Q2, allowing early people to purchase possibly in Q3 and then a significant launch in Q4. So it will be our key driver for 2020.

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Operator [28]

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Your next question comes from the line of Doug Lane from Lane Research.

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Douglas Matthai Lane, Lane Research - Principal & Director of Research [29]

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Looking at the sales line, which is obviously the focus here, just top line growth. In the third quarter, you missed the low end of your range by maybe 1 point or so. But if you look at the fourth quarter, at the previous guidance, the fourth quarter was looking to be down something in the mid-single digits and now you're expecting it to be down in the mid-teens. So that's the real delta here.

And I just wonder, where is that 10 percentage point reduction coming from? Is that China? Or how much of that's China versus the rest of the world? Because I'm in the same boat, your China number wasn't that far off of what I was looking for. Some of these other markets that seem to be coming up a bit short.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [30]

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Yes. Certainly, the biggest impact in Q4 is the fact that we didn't see an uptick in sales leaders in Q3 in China, which forced us to bring our China number down specifically for Q4. Again, we see that business stabilizing at this point in time, and we anticipate that we'll stabilize and it can begin to grow from there.

The rest of the markets, likewise, were somewhat soft in Q3. So we also adjusted those markets. Given that we were a little bit softer than expected in Q3, we factor that into the guidance in Q4.

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Douglas Matthai Lane, Lane Research - Principal & Director of Research [31]

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And I don't want to get too specific on it, but would you say it's 50-50 China, non-China? Mostly China? Mostly non-China? Just some sort of characterization there?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [32]

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I'd say it's at least 75% China.

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Mark H. Lawrence, Nu Skin Enterprises, Inc. - Executive VP & CFO [33]

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The other drivers you might consider the situation we're still facing in Hong Kong, and that that should -- we don't believe that situation is going to get significantly better, so you may see some sequential decline there. And then Argentina, which was a really high-growth market for us, continues to struggle with the currency situation and that market is also projected to be down sequentially.

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Douglas Matthai Lane, Lane Research - Principal & Director of Research [34]

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Okay. And just -- we haven't talked much about EMEA. I know it's not huge for you, but it did show a pretty good sequential deceleration. And I wondered if you could just call out a couple of things that are going on in those markets that we should know about?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [35]

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Yes. We had some disruptions, particularly in our U.K. market in the second and third quarters that really offset -- we lost some sales leaders there. And really, primarily our social selling efforts in that market slowed down significantly. So we saw our customer number come down. We saw our sales leader number come down.

At the same time, several other areas in Europe have actually showed pretty good. The challenge was U.K. was our largest market. So we see that starting to stabilize as well. We have strong -- generally strong initiatives in the fourth quarter that should help to bring energy back into the market. It's our largest sort of impact on the market size as we do Christmas and Black Friday promotions and we'll continue those this year and work to offset.

But you're exactly right, that was a disappointing region for the third quarter and we anticipate that stabilizing here in the fourth quarter and then establishing growth next year.

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Operator [36]

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Your next question comes from the line of Beth Kite from Citi.

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Beth N. Kite, Citigroup Inc, Research Division - VP and Analyst [37]

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I want to, if I can, just keep on that prior line of questioning from the 2 folks before me. And just thinking about the third quarter to the fourth quarter, the absolute dollar sales reported in the third and now the guide to the fourth.

Appreciating what you said about China, but can you help us to understand how much Galvanic Spa's restage, I think it was limited, but how much that benefited the fourth -- pardon me, benefited the third quarter? And then is it effectively in all regions, ex China, in the fourth quarter and China's 1Q with the hair launch? Or if you could just help around that whole theme, please, first on Galvanic Spa?

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [38]

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Yes. First of all, with the Galvanic Spa, we only did limited launches in the third quarter, and actually, that's what we'll continue into the fourth quarter with the full launch of that product into next year. So really, we didn't see much of a bump at all in Q3. And because it's a restage, we don't anticipate a lot of incremental revenue from that product in the fourth quarter.

It will help to stabilize and I think our sales force is excited about it. The Nutriol product can be helpful and I think, particularly in China, where it's a new product. But the bulk of that will really be in the first quarter. So I don't anticipate a lot of Galvanic Spa bump in either Q3 or Q4 of this year.

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Beth N. Kite, Citigroup Inc, Research Division - VP and Analyst [39]

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Got it. Perfect. Pardon me, go ahead.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [40]

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Sorry about that, Beth, to speak over you. But I should just mention that in Q2, we actually ran several promotions on the Galvanic Spa to clear out all the inventory of the old products, so we didn't have any transition write-offs. And we actually saw a strong number, a $10 million to $15 million probably net increase in Q2 from the Galvanic Spa and then just limited sales, primarily in the month of September with the new Galvanic. And so it wasn't a super strong quarter for Galvanic because it was mostly sold just in the 1 month.

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Beth N. Kite, Citigroup Inc, Research Division - VP and Analyst [41]

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Perfect. And then, Ryan, if I could just maybe go to you on the commentary that you had around the technology deployment in the cloud launch. What does that mean kind of to end '19 and into 2020 in terms of technology that you plan now to be able to deploy to the reps owing to that element now being complete?

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [42]

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Yes. No. Great, great question, Beth. So yes, 2019 really was our year of going to the cloud. So really taking all of our infrastructure and then lifting it all into the cloud. So we did complete that in the third quarter, which really enables us to shift a greater percentage of our technology spend towards customer-facing, sales leader-facing technologies. So enhancing our web presence, our e-commerce experience, digital tools. That sort of thing.

One example of that, if I don't -- I'm trying to remember, Beth, if you made it out to LIVE! or not, but you may have seen an app that was developed for that. That really has -- it's a really good ecosystem foundation that will enable us to build a more effective app strategy and deployment on. And so really, it's just shifting that percentage of resources.

Of course, there's still a lot of infrastructure work we'll continue to do. But the bulk of that lift and shift was done. Now we're focusing on optimizing in the cloud to accelerate the performance of our infrastructure systems and shift into customer-facing technology in 2020.

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Beth N. Kite, Citigroup Inc, Research Division - VP and Analyst [43]

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Got it. And will that favor any one market or set of markets initially? Or sort of just spread around the world kind of [top line]?

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [44]

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Yes. So one of the real advantages I mentioned, was the scale of our technology. So historically, on an on-premise systems approach, you have to really deploy technology solutions market by market or incident by incident. What the cloud does enable us to do is more rapidly deploy technologies -- or what it will allow us to do is more rapidly deploy technologies across markets more quickly than what we were able to do on the on-prem work.

And so for technology solutions, customer-facing, we anticipate being able to deploy more quickly. Of course, you have translation and business rule modifications, but it's not separate instance builds, which is a positive, which will be an accelerator to technology deployment.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [45]

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And I'd just add one thing, Beth, and that is, we can't under, I think, estimate the importance of technology as we go forward. As we look at our strategy, we believe moving to the cloud and our digital strategy for our sales leaders and really helping them be more effective with their businesses is fundamental to our future success.

So this has been a major initiative. We've got a really talented team that's worked on it. We've had to make substantial shifts in how we're doing technology here, but we really are excited about our ability now to leverage tools that can make our sales force much more effective as we go forward. So it's really a key portion of our strategy and I appreciate the question on it.

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Beth N. Kite, Citigroup Inc, Research Division - VP and Analyst [46]

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Perfect. And if I could ask just 2 more that I think are rather brief. One to Mark, perhaps, or to anyone, I guess. But just seeing no buyback activity this quarter and I would say a pretty good or decent cash amount on your balance sheet with the report today, so where is your thinking as we end this year and into 2020 again on that sort of time line for either buybacks or debt paydown or more reinvesting in the business?

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Mark H. Lawrence, Nu Skin Enterprises, Inc. - Executive VP & CFO [47]

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Yes. That's a great question. Thanks, Beth. As you know, we have a strong history of buying back our stock and returning cash to our shareholders. We can't comment on when we are in or not in the market. But we continue to focus on kind of the 4 priorities for our excess cash: invest to grow our business, which you saw a little bit of that in this quarter. We paid an additional $10 million in capital for the land for our China factory.

So our capital spend this quarter was $23 million against kind of a normal run rate of about $13 million. We paid our $21 million in dividends. We continue to think that's really important to return that cash to the shareholders. And then we paid down our revolver to 0, $42 million of debt paydown. So I think going forward, we're in a prime position to resume our share buybacks when we can.

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Beth N. Kite, Citigroup Inc, Research Division - VP and Analyst [48]

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Wonderful. And if I could ask just one more last one. Brazil and India, is there any update on entering either of those markets?

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Ryan S. Napierski, Nu Skin Enterprises, Inc. - President [49]

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Yes. No. We knew this would come, Beth. We debated whether to put it in the script or not. Yes. No, India and Brazil are both on our horizons. A lot of work going on in India right now, really trying to understand the go-to-market strategy there and how we leverage the strengths of Nu Skin in that market that's really in need of what we have and -- but doing it correctly.

There have been many direct sellers that have had difficulties over years and years of trying to learn it there. We're studying a lot. We're also looking at the new emerging opportunity economy in India that's very vibrant. So we'll be talking more about that, I think, in the coming quarters and maybe Investor Day as well. But that's definitely an active area of focus for us.

Brazil continues to be in the pipeline, but would say that's beyond India due to complexities of the market and operating complexities, financial complexities there. That's still out beyond, but we'll talk more about, I think, shortly.

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Ritch N. Wood, Nu Skin Enterprises, Inc. - CEO & Director [50]

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And thank you all. I think that's all the questions we have. I just want to reiterate that we remain very optimistic about our business. I've served now as the CFO or CEO for the last 17 years, and I can tell you that our company has been successful in managing through a number of challenging business cycles from time to time.

I really feel like we have the right people in place around the world. Our strategy is sound. We've seen things leveling. We believe we're at a base that we can really grow from and we have confidence in our future. So we look forward to good days ahead, and I believe we have a lot of opportunity to both grow the business but also create shareholder value and we really appreciate your time today. Thank you very much.

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Operator [51]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.