Scott Pond - Director-Investor Relations Truman Hunt - President, Chief Executive Officer & Director Ritch N. Wood - Chief Financial Officer.

Timothy S. Ramey - Pivotal Research Group LLC Frank Camma - Sidoti & Co. LLC Olivia Tong - Bank of America Merrill Lynch Bill Schmitz - Deutsche Bank Securities, Inc. Beth N. Kite - Citigroup Global Markets, Inc. (Broker) Claire Chamberlin - Stifel, Nicolaus & Co., Inc..

Good day, ladies and gentlemen, and welcome to the Nu Skin Enterprises Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would like to introduce your host for today's conference, Mr. Scott Pond, Head of Investor Relations. Sir, you may begin..

Thank you, Bria, and good afternoon, everybody. We appreciate you joining us. On the call with me today are Truman Hunt, President and Chief Executive Officer; Ritch Wood, Chief Financial Officer; Ryan Napierski, President of Global Sales and Operations; and Joe Chang, Chief Scientific Officer.

During the call, comments will be made that include 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 that these non-GAAP financial numbers assist management and investors in evaluating and comparing period-to-period results in a more meaningful and consistent manner.

Please refer to the Investor Relations page of our corporate website at ir.nuskin.com for any required reconciliation for non-GAAP financial numbers. And I'll now turn it over to Truman..

Good afternoon, everyone. Thank you for joining us. As noted in our release this afternoon, our second quarter revenue came in above guidance, at just over $600 million. This represents year-over-year revenue growth of 10% in constant currency and 7% reported. Earnings per share improved from $0.75 last year to $0.79 for the second quarter of this year.

Currency fluctuations were, again, a major factor, obviously impacting the top-line and also costing us $0.13 of earnings per share in translation expense in the quarter.

All-in-all, we had a good quarter and perhaps the best news is that we expect a healthy momentum of our business to continue and the currency headwind to lessen, allowing us to raise our annual guidance for the remainder of the year. Our new product initiatives and our strong product portfolio are driving good sales activity and good results.

For example, in April, we introduced our ageLOC Youth nutritional product in South Asia Pacific. This introduction allowed us to drive local currency revenue growth of 42% in that region. We also saw a return to growth in our sales leaders.

South Asia will benefit in the second half of this year from both an LTO of ageLOC Me, as well as a full launch of ageLOC Youth. In Greater China, we held a Leader Preview of ageLOC Me, early in the second quarter, followed by a broader LTO of the product in conjunction with our regional convention in June.

This helped to drive 24% local currency growth in that region with significant double-digit gains in both the sales leaders and actives. It appears to us that China is getting back on track and continues to hold great potential.

In the second half of the year, we'll focus on the full-time launch of ageLOC Me and in addition to our global product initiatives, we've also been working on products specifically for the China market. For example this fall, we will introduce an air filter for home use in Mainland China. As you know air quality is a major concern throughout China.

And while we expect this new product category to be initially a small percent of our revenue, it's consistent with our healthy living emphasis. And to tap China's potential, the air filter is a reflection of our conclusion, that some measure of localized product development is important.

Looking at North Asia, revenue was down slightly in the second quarter. However, the region came to life in July, with a very successful LTO launch of ageLOC Youth in South Korea. We very quickly sold through about 500,000 units of ageLOC Youth in this LTO, which bodes well for a strong Q3 in North Asia.

The only region that came in softer than anticipated in Q2 was the Americas, where we had initially planned to push ageLOC Me quite heavily in the second quarter, but we've slowed the introduction in the U.S. a bit and pushed it in later into the year, to avoid pricing comparisons with Asian markets, that have already introduced the product.

So, we're hopeful that a push of ageLOC Me in the second half of the year will generate energy in the U.S. So far, our sales leaders here seem to be enthusiastic about its prospects here in our home market.

The Americas sales leader and active counts are also reflective of some turbulence in Latin America, particular in Venezuela, where we're in the process of winding down our operations.

Looking to the third quarter, as I mentioned, we've started off the quarter very well, due to the LTO of ageLOC Youth in South Korea, and we're generating good momentum in South Asia and Mainland China as well. Europe is also doing quite well.

Social media initiatives there are driving the business, and these will begin to rollout elsewhere around the world in the second half of the year. Our goal with our digital initiatives is to enable sales leaders to easily conduct and manage their businesses through social media outlets.

This represents a significant investment for us and we really like what we're seeing in pockets of the world where our sales leaders are leveraging social media platforms very effectively. Now, before passing the microphone to Ritch, I wanted to comment briefly on a topic that, I'm sure will be the subject of a question or two in any event.

And that is how we would expect the recent FTC settlement to impact our business. First, I would like to remind everyone that this consent order is a private settlement between two parties and it's not a judicial decree, nor is it a new set of FTC rules.

However, and that said, it obviously is a framework that the direct selling industry will look to generally, as it continues to support and protect the interests of independent direct sellers and their consumers.

At Nu Skin, we have always focused on the best interest of consumers and our sales leaders and believe that we're well-positioned based on our reading of the FTC settlement. Let me just give you a few examples. First, we continue to build strong consumer demand for our products.

I'd like to know that we started this segment many of our consumers as preferred customers several years ago. In fact, a majority of our U.S. sales volume comes from that preferred customer group that does not participate in any way in the business opportunity. I'd also like to add to that, that in the first half of this year, more than 85% of our U.S.

sales volume came from people, who do not participate in the multilevel portion of our compensation plan. So I think you would likely agree with me that, those numbers are reflective of a consumer-base business.

Second, we remain committed to being transparent and we go to great lengths to make sure that those who are considering becoming part of our sales force to have a full and accurate understanding about the Nu Skin business opportunity. In fact, since 1991 we published average income data in a form agreed to by the FTC.

Third, we're committed to being consumer protective and we practiced a very liberal product return policy, should sales leaders or consumers choose to return product. And finally, we have never allowed our sales leaders to open retail store locations.

So, our sales leaders typically don't make substantial investments in brick-and-mortar as they initiate and conduct their businesses. In our effort to support and protect the interests of independent sellers and their customers, we continually evaluate our practices and improve where ever we can to be more consumer-protective.

We want all those who associated with Nu Skin to have a good experience with us. So, all-in-all, we feel good about the direction of the business, we're seeing upticks in actives and sales leaders in most of our regions, this should bode well for the second half of the year.

Currencies appeared to be a little less problematic in the second half than they have been for some time now. And our financial profile is also improving. We are really pleased to close recently a transaction with Ping An Securities. Many in the U.S. may not be familiar with Ping An.

They are one of the largest insurance companies in the world, and we're delighted to welcome them as an investor. We are also pleased to be welcoming a representative of Ping An Securities to our board.

They have provided the capital we need to be in the market buying stock and of course, we're happy to swap out public shareholders with a shareholder who is anxious to add value to our business globally, but especially in Mainland China, where they're based.

I think it's safe to say that they would not have made such a substantial investment, if they weren't comfortable with our business there and excited about the prospects for the market. So, with that, I'm going to turn the microphone over to Ritch..

Good afternoon, everyone. Thank you, Truman. We delivered solid revenue results, ahead of our guidance and above the prior year, with 10% local currency revenue growth in the second quarter.

We benefited from good execution of our limited time offering product launch strategy in South Asia and in greater China, with about $106 million in LTO sales in the second quarter. Earnings came in very strong, particularly when excluding the foreign currency translation expense of $11.1 million, which reduced reported EPS by $0.13 in the quarter.

So, excluding this FX translation charge, earnings per share in the quarter would have been $0.92. Operating margin for the second quarter was 13.3%, compared to 12.8% in the same prior year period.

Gross margin was 78.7% versus 80.3% in the second quarter of 2015, but stronger dollar continues to negatively impact our gross margin against the prior year, although this impact is lessening as exchange rates are getting closer to prior year rate. Selling expenses for the second quarter were 41.4%, compared to 42% – 42.7% in the prior-year.

Selling expenses are impacted by the number of sales leadership qualified for promotional trips and given the lower number of qualifiers, compared to the prior year, our selling expenses were lower this year in the second quarter, but mostly consistent sequentially.

General and administrative expenses were 24.0% of revenue in the second quarter, compared to approximately 24.8% in the prior year period. As mentioned above we incurred a loss of $11.1 million in the other income expense line item of the income statement.

The foreign currency charge was primarily related to the strengthening of the Japanese yen in the quarter, wherein we marked our yen denominated liabilities to the quarter close rate of ¥103.2 per $1 from the rate of ¥112.6 approximately at the end of March.

Our income tax rate for the second quarter was 35%, compared to 35.3% in the prior year period. During the quarter, we paid $19.9 million of dividends. We repurchased $4.3 million of our stock at an average price of $38.65 per share, pursuant to a share trading plan.

At the end of the quarter, $423 million remained in our authorized share repurchase balance. So while we're unable to comment on when and why we're in or out of the market purchasing shares. We plan to repurchase $210 million of stock during the balance of the year, this represents the full amount of the proceeds from the convertible note.

As it relates to the convertible note, we will incur additional expense of approximately $3.7 million per quarter going forward. This is made up of cash interest payments of about $2.5 million per quarter plus non-cash amortization of $1.2 million per quarter related to the capitalized transaction fees and the computed option value.

We anticipate that the impact to earnings per share of this additional expense will be offset by the accretion generated by the share repurchases once they are completed.

Cash provided by operations for the quarter was very strong at a $138.6 million, solid net income together with positive shifts in the inventory and other balance sheet account contributed to this strong operating cash flow. For the third quarter, we project revenue to be $560 million to $580 million with earnings per share of $0.80 to $0.84.

Our revenue guidance in the third quarter anticipates a negative foreign currency impact of 1% to 2%.

For the year, we anticipate revenue to be in the $2.2 billion to $2.24 billion range reflecting a negative impact from foreign currency of approximately 2% to 3% with earnings per share of approximately $2.44 to $2.54 or $2.80 to $2.90 when excluding the $0.36 impact of the Japan customs charge taken in the first quarter of this year.

With that summary, we'll now open the call up for questions..

Our first question comes from the line of Tim Ramey from Pivotal Research. You may begin..

Hi. Good afternoon, and congratulations on a great quarter..

Thanks, Tim..

I'm wondering, I kind of expected a little more share repurchase in the 2Q and it sounds like you have employed a 10b5 program or something, so you don't necessarily control the timing of the share repurchases, is that correct?.

Yeah, it's really. We really can't comment on when and why we're in and out of the market other than our intention really is to use the full amount of the $210 million that we took in from the note, over the balance of the year. Yeah, in the second quarter we just weren't in the market for virtually the whole quarter..

Presumably you can tell me if its 10b5 or not though, correct?.

Yeah. That was 10b5, those shares were purchased at the beginning of the quarter under a 10b5 plan..

That $210 million plan is or is not under a 10b5..

It is not..

Okay, terrific. And then the impact on FX that's a re-measurement that occurs every quarter. I believe on your balance sheet. And so we could have further impacts going out through the rest of the year.

You have thoughts on that or hedging transactions that give you more clarity about that's a large, that's a large item, and let's know little bit more about what to expect?.

Yeah, you're exactly right in terms of this marking at the end of the quarter and essentially it's our balance sheet account. Primarily in this case it's the yen-denominated debt that we have and the yen strengthened significantly particular towards the end of the quarter.

So, the benefit we picked up at the quarter was the yen rate for the quarter was ¥‎107 almost ¥‎108 and yes, we mark-to-market the debt and our other liabilities that one of three.

So, you know the two don't match up exactly, as we go forward then you pick up the benefit on the revenue side, but obviously, we'll continue to mark at the end of the quarter, it's hard to project where the rates will be, but that line item shows up in other income expense, we can kind of exclude it from operations and see where the true operations perform..

Sure.

And just to be clear, that would have been a benefit to operating during the quarter, strengthening of the yen, correct?.

There was a slight benefit to that, Tim. Most of the strengthening took place right towards the end of the quarter. So like I said, the average rate for which we exchange the revenue was at about ¥‎108 for the quarter..

Okay. And just one more, before I pass it on. Thank you. I'd like to comment that Ping An is anxious to add value to the company in China.

And I'd love to hear a little bit more about how you think – was that just reputationally street cred? How does that actually come to beat?.

It's really been fun to get to know Ping An and we're really delighted with their representatives, Simon Shen, who's joining our board of directors here I believe as of today, very high-quality guy and knows the U.S. market well, and also knows Greater China, obviously.

One of the interesting things about Ping An is that, they conduct their business largely through a broad network of individual insurance salespeople. And so, they see similarities between what they do and what we do.

And they're actually anxious to help on a number of fronts operationally from a government relations perspective, from a promotional perspective. They have essentially invited us into their offices and said anyway we can help, we're happy to do so.

So we're really just delighted to welcome them to our shareholder list and into our boardroom as well and I think we have really a wonderful partner there..

Terrific. Thank you..

Our next question comes from the line of Frank Camma with Sidoti. Your line is now open..

Good afternoon, guys..

Hi, Frank..

Hey, could you give us a little more color on South Korea in particular, Truman you mentioned that you had a really successful July with the Youth product, did you say a 500,000 units?.

500,000 units, yeah..

Units.

Now, a unit is a bottle of ageLOC Youth?.

That's correct. Yeah..

And that's like you're selling that for almost 150 to 200 (20:32) somewhere in that range?.

No, it's more like in the 125 (20:38) range..

Okay, okay. All right.

So, I was just wondering could you talk a little bit about the ageLOC Me product, how the follow-up has been specifically in that market, I mean, obviously initially it didn't do well but can you talk about sort of ongoing sales there? And how like the launch of ageLOC Youth may have or may have not impacted that?.

Absolutely. Yeah, we launched ageLOC Me earlier in the year and you may recall, Frank, that the program that we used required a consumer to sign up for an automatic delivery program each month of the renewal cartridges. And we felt that, that probably slowed down initial sales of ageLOC Me at the time.

The good news is that we've obviously had really a high percentages of conversion and follow-on purchasing of the monthly consumables, which is a great thing. And we're also getting really good feedback on the product itself, consumers are really happy with it.

So we – honestly, we were a little bit surprised, how quickly, however the attention shifted to the ageLOC Youth product and the sales force just got behind it and obviously, had a very successful introduction of that product.

However, as we go into the year and the dust settles on both ageLOC Youth and ageLOC Me, we expect the spotlight to return back to ageLOC Me a little bit in the fourth quarter, where we are planning some additional promotions and a little more aggressive marketing push.

And we think that both of these products ageLOC Youth and ageLOC Me will play a material role going forward..

Okay.

And now just sort of a broader question on the two products, I mean, I would have thought ageLOC Me would have been from the sales force perspective, overall a little more exciting product, but it doesn't sound like based on your commentary, it sounds like almost ageLOC Youth is, initially at least, playing out better, is that a fair assumption or is it just too soon to tell?.

Yeah. I think subjectively and this is just my personal opinion. If we went back a year in time and you asked me, which of these two products who I think is going to perhaps be the successiest (22:56) of the two. I probably would have said ageLOC Me, because it really is a unique disruptive way to deliver high-quality skincare in the marketplace.

And it's getting great reviews and great results. I don't think we have the pricing quite right and the consumer offer quite right. So that's another reason why we delayed the launch in the U.S. a little bit to see if we can find the right formula. And we're going to be a little bit more aggressive in the U.S.

on the pricing front than we've been in Asian markets. So we wanted the dust to settle a little bit on Asian introductions. And we really feel, and we've even done recent consumer testing on ageLOC Me concept again, and they really like it.

It's just entirely a question of putting the product together in a package at the right price point that trips the consumer into a purchase decision. And we think that the product really is disruptive and has great potential..

Okay. Great. Thanks, guys..

Our next question comes from Olivia Tong with Bank of America. You may begin..

Great. Thank you. First I want to touch on the performance in China, following the LTO, obviously, it's been a while since you saw some growth.

So, I wanted to understand a little bit better what do you think in terms of the flow through of that, particularly in the second half? And then, with that, you talked about some of the encouraging numbers, but it looks like your Q3 sales outlook at least assumed sort of a flattish year-over-year, so it doesn't seem like there is a whole lot of flow through, so that's my first question, if you could just kind of talk through that please? Thanks..

Yeah. Just a little more color on the LTO itself. This is the LTO of ageLOC Me kind of the initial introduction to sales leaders in the market.

And in this case between initial, an initial introduction to the leaders in June or in April and a broader launch to sales leaders in June, we moved a 120,000 units of ageLOC Me, which is we think an encouraging number. The actives and the sales leader count trended up nicely in connection with the launch.

And so those two dynamics Olivia, give us quite a bit of comfort that there's definitely some energy in the market. And that's why we've continued to see since the LTO launch in June or so.

Anything to add to that, Ritch?.

Yeah. I just move on to your second piece of the question, which was the numbers Q3 over Q3. If you remember last year in Q3, we had a very successful LTO of ageLOC Youth in Southeast Asia, which was about $47 million. So, as we comp up against that, that's why the comparisons look a little bit different than what they look like in Q2..

Got it. Thanks.

And then, can you just give – clarify the price, your discussion around being more aggressive on pricing in the U.S.? So, I assume that, you launched the product in Asian markets now, I feel pretty good about that performance and you think that you can price more when it comes to the Americas? First, is that the right way to think about it? And then, if your distributors know that, why wouldn't they sort of pre-buy now ahead of that?.

Well, I think if I understand your question correctly there, Olivia, when I say price more aggressively, I don't mean price higher. I mean, price lower in the Americas market. So typically, the Asian markets command a premium.

Japan, South Korea and China have all been premium price point markets, as have Southeast Asian markets like Singapore, for example. And we've tried slightly different price points in almost everywhere. We've launched the products around the world with a slightly different consumer proposition.

In Korea, for example, requiring a subscription, not doing that in other markets.

So, between all of these elements of how we price and what the consumer proposition is, we just want to get it right in the United States, and that's why we push back heavy promotion of the product until later into this year because I think in the United States, we're going to see a more aggressive consumer proposition, meaning in the slightly lower price point..

Got it. So, I guess then the flip side of that is why wouldn't the markets where you've already launched it, why wouldn't they just wait until it launches in the U.S. And I recognized that you can't just buy in the U.S.

and ship it over, what have you as easily, but just help me understand that dynamic?.

Well, I mean the – the launches were already programmed obviously in all of those markets. And so we didn't want to – for example in Q2 in China, where we had a very good response to the product, we didn't want to derail those plans, while we wait to do something in the United States. And in each of those instances, we're learning something too.

So we're kind of tweaking the approach modifying the price point a bit, trying to figure out what works in the various markets and we've learned from each of those launches something that we will embed in the launch in the United States..

Okay. Got it.

Then moving on to – sort of the – the actives and leader numbers, can you help me understand how is, say, South Asia revenue up as much as it was, but actives were down and leaders were only up a fair bit less than sales? And then with active still down in most markets outside of China and flat sequentially, what hat do you think in terms of the opportunity as you sort of rollout more of these products, I mean do you expect the rep numbers to come up with that or are you – or had – would you have expected that those numbers in terms of the reps already would have started to get better?.

I'll take a shot at that one, Olivia. Thanks for that question. I think particularly with South East Asia, we saw the LTO was strong in terms of revenue and drove a small uptick in our executive number particularly. There was a 14% improvement sequentially in our executive number. But we haven't seen a strong of a move in the active number.

So certainly our focus as we go forward here and prepare to roll the product out in the fourth quarter would be a focus on driving new active customers to support the growth and the sales leaders. I think generally we saw a nice uptick in sales leaders, particularly around the globe with the exception of the Americas sequentially particularly.

And again, now our focus, as we actually start to make the product available, will be to see that active number now follow as well. So, yeah, that's our focus as well, they've got a lineup over time. Generally, we do see the executive number, the sales leader number being a leaning (30:18) indicator.

When we kick-off our product LTO like this as there are a number of leaders trying to get in and start to understand the business and then as they bring in customers you see the active base follow along that growth that we see in the executive base..

And I'm sorry to belabor this, but just correct me if I'm wrong, usually when you see that sales increase, the leaders and the actives typically move in similar fashion, so is it just – there are just – the people are buying more of it, I mean is that a productivity number, I'm just trying to understand the delta and the growth between the leaders and – between leaders and sales?.

Yeah, it really is a productivity number. So we'll see in a LTO that the average purchase go up as people are buying that product and reselling it. And then as they develop longer on they'll bring and the product becomes fully available for sale. You'll see the active customers coming into the business..

Got it. Thanks, so much..

Yep..

Our next question comes from the line of Bill Schmitz with Deutsche Bank. You may begin..

Hey, guys, good afternoon..

Hi, Bill..

Hey, Bill..

Hey.

Can you just remind us what the launch counter is by markets for the back half of the year by quarter?.

Yeah, do you want to?.

You bet. Let me run through that real quickly. In Americans, we'll have the ageLOC Me product coming available in the fourth quarter, China will have an air purifier that will either be the end of Q3 or into Q4, that date hasn't been mailed exactly.

And the ageLOC Me product will be available either right towards the end of the year or the beginning of the first quarter of 2017. That's in all of Greater China by the way.

Southeast Asia has the ageLOC Youth product that will become fully available in the fourth quarter, and the ageLOC Me product will be limited time offerings through their Expo arrangements that they have in the fourth quarter..

Okay. Great. Thanks. And then, sorry (32:25).

Let me just finish up with Korea, which will have the full launch of the ageLOC Youth and Japan will have an LTO of the ageLOC Youth in the fourth quarter, that pretty much wraps up the world..

Okay. Great, thanks.

And then, like as you look at the share repurchase, why – because it's generally a ton of cash, so are you just going to square (32:44) the rest of the cash flow generated by the business and it's like piled up on the balance sheet, because it sounds like you have this big authorization, but you're only going to buy back the amount that the Ping An investment amount..

It doesn't mean exactly that we won't use the other cash on the balance sheet, I think our commitment has been that we'll take that cash that we brought in for certain and definitely we'll use that in share repurchases as part of our agreement really with the transaction, and then beyond that we'll see how things are trading and what the business is doing trending wise, but certainly we've always been of the opinion that stock repurchase is a good use of our cash and we've always used excess cash to repurchase shares.

So, we're not saying we're not using other cash to buy back shares. I think the point is, we're going to focus on that $210 million first..

Okay. And then, from a CapEx perspective, you don't like – I know the two headquarters are done.

I think you're mostly done building boutiques in China, unless I'm wrong, so what are the big CapEx requirements kind of this year or next, if there are any?.

Yeah. We've really slowed down our CapEx. So, last year and this year, we're right around $60 million. And, this year the big expense relates to our digital initiative, where we're putting a lot of energy around, putting systems and plans in place to really allow our sales leaders to be way more effective using their mobile devices.

So, this year a big junk of that $60 million is going towards our digital initiative..

Okay. Great.

And, then just lastly, do you think actives and executives will be up sequentially in China? And then is there anything you guys have put in place to try to maintain retention?.

As we try and forecast out, I've been really cautious, Bill, about anticipating too much growth. We saw a really nice uptick in executives, particularly in Greater China. 45% sequential move, obviously, if that holds on we're going to have a very, very strong third quarter as well.

We do anticipate after an LTO that we see some consolidation of the numbers. And that's essentially, what I have reflected into my Q3 guidance. So, Q3 very similar to Q2, we'll have much less LTO revenue in Q3 than we had in Q2, but at the end of the day, we will have a larger base of executives.

So, I factored in some growth in the executive number, I don't known in terms of actually being up sequentially and seeing growth in both of those. I haven't been aggressive in my forecast with those numbers..

Okay, great. Thanks so much..

Yeah..

Our next question comes from Beth Kite with Citi. Your line is open. You may begin..

Maybe we jump to the next question, operator..

Oh, I'm sorry. I'm here..

Hi, Beth..

Good morning, Ritch. Oh hi, I apologize. So, I had a couple of more questions, just to round out on the new products this year. So, I believe you spoke of $106 million in the second quarter from the new products.

Do you have a full year number that you could share with us, and also how that may break up between the ageLOC Me device, the cartridges and then ageLOC Youth?.

Yeah, high-level. Beth, I can give you those numbers. We did $106 million, so there wasn't anything in the first quarter. The third quarter is only the LTO of the Korean product and most of that has actually sold now and close to $50 million in that LTO. In the fourth quarter, we'll have a number of launches.

We don't anticipate any of them to be of real significant size. We do believe they'll be good to grow the business, but a lot times we're just making that product available. So maybe just another, let's call it, $20 million in the fourth quarter. So, in total for the year, somewhere around $170 million to $180 million..

Perfect. Okay. And then – not to get too far ahead of ourselves, but I think you're trying to get yourself out of kind boom bust of launch cycles. So to that end, I think in 2017, you'd previously spoken about two new products.

One on the skincare side and one on the Pharmanex side, so are both of those still in the queue? Are they earlier in the year or later in the year, will you do the same kind of concept for this year, one product in each region and then, flipping it?.

Yeah. We're actually, really excited about both of these products. And you're right, I mean, we're trying to keep our sales force focused on the ammunition that they have available to them today. Frankly, it's hard for us not to continually talk about what's coming down the pipe, because we're really excited about it.

The skincare concept is a new device that essentially follows on the heels of our very successful Galvanic Spa product, that has been a huge hit for us, over the last several years. And the nutrition product is also a very compelling concept that we're making great progress on.

Both of those products will be ready to launch at the end of 2017, we have our every other year, global sales convention in October of 2017, and we wanted to be ready with both products at that time. Whether or not we pull the trigger on them at the same time, or stagger the launches over the following years, yet to be determined.

But I think in likelihood, we stagger the launch of those two products. And the rollout of those may look something like the rollout of ageLOC Me and ageLOC Youth over the 2015-2016 timeframe. But we're very optimistic about both of them and in fact, I really believe that our skincare product is going to be our best skincare concept ever.

I mean, I really like it a lot. It appeals to both men and women. It's usable in the shower, very convenient and we're really excited about it..

Excellent. Thank you.

Ritch, are you able to give us a guidance or data point for operating cash flow for the full year?.

For a which number you're asking about, sorry?.

Operating cash flow?.

Oh. Yeah. I mean, I think, initially we talked about $240 million for the year will probably end up pretty close to that. So we're at about $135 million right now. Generally, I would think that next two quarters would run around $80 million a quarter.

So we could end up closer to $280 million, or what is that $300 million, almost $300 million for the year. So normally it's about $80 million a quarter and based on my guidance that would be pretty close I think..

Okay. And then I'm back to the P&L, so the G&A was $144 million, this quarter up from $130 million last.

Can you help us think about what we should do for the third quarters and fourth quarters? Are there any kind of outsized events, so conventions would affect one quarter or another, or is this $144 million kind of high as well and will go lower in the next two?.

I think, it will be fairly similar in the next two quarters. We did have a Greater China and Southeast Asia, sorry Greater China and Korean convention in June of the second quarter. We had a Southeast Asia conference in the third quarter and we have an America's conference in the fourth quarter.

I think, we had $6 million or $7 million in the second quarter and it will be maybe a couple million less than that in each of the next two quarters. So, it will depend a little bit on the revenue and where that comes in, but it will probably mostly consistent with where it ended in Q2..

Perfect.

And the last one, anything new on the SEC investigation?.

Yeah. We have nothing to update today on the SEC investigation, Beth..

Perfect. Thank you so much..

Our next question comes from Tim Ramey with Pivotal Research. You may begin..

Thanks so much. On the nutrition products in your answer or – in your answer to that question, that 2017 products, it wasn't clear to me whether you were talking about the rollout in 4Q 2016 at the convention or 4Q 2017.

Can you clarify that for me, please?.

Yeah, the nutrition concept that I was talking about earlier in the call Tim, is for rollout at the end of 2017, or potentially..

Okay.

So the Galvanic Spa like product?.

Right, and the spa like product is in that same timeframe..

Okay.

So, most of 2017 would have much new product activity?.

Not new product launch activity, but in our product launch process, we will start firing up the sales force in preparation for the fall launches earlier in the year. And that's essentially how we maintain enthusiasm is by aligning our sales leaders for what's upcoming.

And I think that the ammunition we have in the second half of 2017 is really compelling. So I think it will drive a lot of good activity. And plus a lot of the rollouts and launches of ageLOC Me and ageLOC Youth are really kind of still very much midstream... So in the U.S. for example, ageLOC Me will just essentially start in Q4, so late this year.

So they'll really just be getting into it the first of next year and really probably won't want to be distracted by other major products initiatives in any event..

Great.

And Ritch, did you have a thought yet on CapEx for 2017, should it drop lower than that $60 million level or any thoughts there?.

Yeah, we're in the process right now of gathering all our requests from around the world, but I think it'll be fairly close to $60 million. I don't think it'll deviate too far from that..

Perfect. Thank you..

You bet..

Our next question comes from Mark Astrachan with Stifel. You may begin..

Hi, everyone. This is actually Claire Chamberlin on for Mark Astrachan.

Just wanted to get a bit more clarity on how much of your business uses auto shipment? And also will this change it all following the FTC ruling? I know you said it was – it wasn't a rule, it was specific to (43:50), but just wanted to get a sense of how that would be trending? And then also, can you give us any sort of sense of how much of the sales are internal product consumption versus sales to external customers? Thanks..

Yeah. So, let me take the last question first. In terms of sales, our revenue generated from consumers versus sales leaders. So as I indicated earlier in my comments, in the United States a majority of our revenue and I actually looked at this week.

So let's take the first two quarters of 2016 specifically and the numbers always fluctuate a little bit from quarter-to-quarter.

But in the United States in the first half of the year, 55%, 56% of our total sales volume was generated by preferred customers, and another 30% of our sales volume was generated by those who are technically called distributors but who do not participate in the multi-level portion of our compensation plan. So essentially our consumers.

So as we see it, Claire, in the first half of the year, more than 85% of our sales generated were to consumers as opposed to those who fall into the sales leader category and who are participating in the business opportunity.

With respect to auto ship, auto ship has played an important part of our business now for the past many years, and in most of our markets has been an increasing percentage of sales as we try to tied loyalty programs together that look a lot like loyalty programs for other consumer product companies.

We don't feel like the intent of the FTC is to put an absolute prohibition on subscription purchases. Subscription purchases are not uncommon on many business platforms and in many consumer product environments. So we believe that their concern is having too close to the tie between a subscription and sales force qualification requirements.

And so in our case, we do not require sales leaders to be on subscription for example to qualify for commissions. And we give them liberal opportunities to cancel or change their subscription if they are on a subscription program.

And keep in mind too that I think that the FTC's concern in the other case was auto ship programs to sales leaders and not auto ship programs for those who are consumers or preferred customers not participating in the compensation plan.

So in our case, with 55% of our volume coming from a preferred customer segment, that is not the profile of a business that we think the FTC is concerned about..

Thanks. One more question actually on China.

What was the underlying sales growth, excluding LTOs for the quarter?.

Yeah. Really the way the LTO looks and we've sized down the LTO quite a bit now. You'll remember back in 2014 or 2013, the last big LTO we did was well beyond $300 million. So this one we did in two different promotions one was in April and one was in June.

And so those numbers really become part of their monthly purchases as opposed to a one-off large purchase that we normally see. So in total, it was about $72 million of sales of the ageLOC Me device during the second quarter..

Thanks very much..

All right. Thank you for joining us on the call today, everyone. Good things happening here at Nu Skin Enterprises and we hope that you all have a great end of summer. We look forward to speaking you in another couple of months and providing further updates on our business. Thanks so much..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day..