如新 (NUS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 Nu Skin earnings conference call. My name is Jasmine, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to you host, Mr. Scott Pond, Director of Investor Relations. You may proceed, sir.

Thank you, Jasmine.

Good morning, everyone, and we appreciate you joining us on this morning's call. With us today are Truman Hunt, President and Chief Executive Officer; Ritch Wood, Chief Financial Officer; Dan Chard, President of Global Sales and Operations; and Joe Chang, Chief Scientific Officer.

Just a reminder, during this call comments may be made that include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during this 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 our investor portion of the website for a reconciliation of these non-GAAP numbers.

With that, I'll turn the call over to Truman.

Thanks, Scott, and good morning everyone. Thanks for joining us. I hope you are weathering the winter storms well.

As we anticipated, we are pleased to report this morning a solid fourth quarter, and even more pleased to have posted a record year for Nu Skin Enterprises in virtually every respect. In the fourth quarter, we posted our first ever $400 million revenue quarter, with revenue coming in at $401.2 million. This is a 6% year-over-year improvement, which includes a 3% foreign currency benefit. As you know, the fourth quarter of 2010 was the first quarter in which we began to lap the quarters where we experienced large promotional volume in connection with the launch of ageLOC Transformation, our flagship ageLOC skin care system, which we introduced in the fourth quarter of '09. So, we are pleased to generate growth with a tough year-over-year comparison.

And on the bottom line, fourth quarter earnings increased to better than expected 23% to $0.58 per share compared to $0.47 in the prior year. I'll take a moment to comment on market-to-market results here in a minute, but first, for the year, we generated record revenue of $1.54 billion, which is a solid 15% improvement over '09, including a 5% positive currency impact. Earnings for the year were $2.11, a 51% increase over 2009, or 41% when excluding restructuring charges. So, we feel very good about these results in a world that remains filled with significant economic challenges.

And just as importantly, we are pleased with the positive impact we are making in the lives of Nu Skin distributors and consumers around the world. In 2010, we generated very solid growth in both active and executive level distributors, and we also paid out a record level of sales commissions, nearly $650 million to those sales leaders. While we are proud of the quality of our product line, we are even more proud of the incredibly impressive group of people who comprise the Nu Skin family globally, both in the field as well as our corporate offices, and we are all pleased to have logged a record year and to have performed above plan and above expectations. We expect to repeat this solid performance in 2011, and are reiterating today the guidance we provided in our investor day conference in November.

Now, while results on a market-to-market basis seldom finish exactly as planned, we remain confident that 2011 will be another record year. I want to just touch on five of the key factors that will contribute to our success in 2011. The first is our innovative ageLOC anti-aging platform and pipeline. We continue to believe, and science continues to confirm, that the future of anti-aging technologies lies within the human genome. Our proprietary ability to identify and to then reset groups of age-related genes to more youthful activity levels continues to be well received in the marketplace, and is increasingly validated scientifically.

During 2010, I think it's impressive to note that our scientists were invited to give more than 20 presentations at 11 different academic conferences around the world on the genetic bases of aging, and the identification of nutritional interventions that target the appearance of aging and promote healthy life span. We are in the very early days of scientific discoveries on this front, and have a long way to go in taking this message to consumers around the world.

As I mentioned, 2010 record results were driven by a very successful global rollout of the ageLOC Transformation skin care system. Transformation generated about $220 million of revenue in 2010, which is really a remarkable number for the first year of sales, and when you add the Galvanic Spa and related gels, ageLOC skin care revenue for the year was approximately $470 million, or 30% of our total revenue. That is an impressive result and reflects the market's positive response to the launch of ageLOC skin care.

In 2011, we are now infusing ageLOC science into our nutritional product offering. As you know, over 40% of our revenue is in the nutrition category. And, in fact, in the fourth quarter of 2010, sales of our flagship nutrition product LifePak increased 6%, despite the fact that the bright lights have really been focused on the skin care side of our business. So, we are optimistic that the introduction of ageLOC into our Pharmanex product line will enable us to sustain growth in 2011, despite difficult year-over-year comps in the first half of the year.

The second factor weighing in our favor is our increasingly compelling business opportunity. In 2010, we saw an 8.3% increase in the number of executive level distributors, and a 5% increase in the number of active distributors. These results are a good indicator of the overall health of our business, and provide further confidence in our ability to continue to generate growth in 2011.

Third factor that I want to cite for our continued success and our ability to sustain growth is the healthy growth that we are seeing particularly in emerging markets. Our geographic mix is shifting. And emerging markets are becoming a much more significant component of our business. We are enjoying particularly robust growth in greater China and southeast Asia and in South Korea, although that market isn't typically classified as an emerging market. The scale of these businesses in these emerging markets and the high growth rates we are seeing there will enable us to offset slower growth rates in more mature markets.

In Japan, the fourth quarter presented a difficult year-over-year comp as a result of the launch of ageLOC Future Serum in the prior year. In the fourth quarter of 2009, we posted very strong revenue as a result of that launch, and for the full year of 2010, however, Japan's decline improved to 4 .4%, after being down 5.6% in 2009. So, good incremental improvement for the year. And at our investor day presentation in November, we projected an improved 2% decline in Japan for 2011, with year-over-year results being even by the fourth quarter. We are seeing positive trends in Japan with our active level -- our active distributor count as well as our executive level count, which has improved sequentially now two quarters in his a row, and which we think bodes very well for a solid start at the beginning of the year. So, we continue to believe that our projection for Japan that we provided at our investor day is realistic.

Similarly, the US faced a tough comp in the fourth quarter with the launch of ageLOC Transformation at our global convention, which was held in the US in the fourth quarter of '09. The launch of ageLOC Vitality in the US was in September of 2010 and improved results in the US for the third quarter that didn't fully offset a tough year-over-year comp in the fourth quarter.

Now, we're very please with unit sales of Vitality. In fact, in the fourth quarter in the US, Vitality was our largest Pharmanex unit mover, but the price point for Vitality is $50, compared to a price point of about $270 for ageLOC Transformation. So, that is a difficult gap to offset through the launch of this new product. But while the US is probably our toughest battleground in 2011, we expect the US to build strength throughout the year in anticipation of the global convention in October, which will lead to a very significant second half and will provide a nice benefit to US results in the fourth quarter in particular.

The fourth factor positively impacting our business is our continued efforts to operate more efficiently. In the fourth quarter, our operating margin improved to 14.7%, which is a 90 basis point improvement, and for the year our operating margin improved 200 basis points, to 14.1%. We expect to make continued improvement to operating margin in 2011, by at least another 30 to 50 basis points, despite the expenses associated with our global convention in 2011, which we didn't have in 2010.

So, this leads to a final factor that I want to cite in support of our plan to sustain growth. You'll recall that in 2007, we initiated a performance-based incentive plan that had options vest on the achievement of $1.50 and then $2.00 of EPS. And at that time, we were coming off an EPS level of about $0.75, so that goal seemed like a bit of a stretch. But our team rallied around the objective and achieved the $2.00 level 2 years ahead of plan. Our Board has recently issued a new management performance-based incentive to a broader group of managers that will have similar equity incentives vest at $3.00, $3.50 and $4.00 of EPS, achieved by the year 2015. So, our sites are set on a new target. We have a plan in place to achieve that goal. We feel it's realistic, and our team is enthusiastically going about executing against our plan.

So, although comparisons are tough in the first half of the year, we would anticipate revenue growth will accelerate as we enter the back half of 2011 as we prepare to launch our new convention initiatives at the global convention in the fourth quarter.

So, with that, Ritch will provide some details on the numbers.

Good morning, everyone.

I am very pleased with the way the quarter closed, and we completed an incredible year for our Company. We continue to make strong improvements in all areas of our income statement and our balance sheet. We have a very aligned and motivated management team, who are really consistently delivering on target, and creating sustainable long-term earnings growth, which is our goal as the Company.

Truman discussed the management incentive that we have in place, and I would just like to make note the expense associated with this incentive is the same as the percentage of sales as the prior expense to get to $2.00 per share. So, shareholders will not experience an increase in our overhead related to this program. And I can tell you our management team is thinking like shareholders. They are united in this objective to reach $4.00 per share within five years or less.

Here's a bit of color related to our financial statement. Sales for the quarter were solid, coming in right where we had anticipated, and I'm also pleased with the distributor growth, which will continue to drive the Business as we head here into 2011. Our subscription business continues to grow, accounting for 55% of the business during the fourth quarter. The Company's operating margin for the quarter, as Truman mentioned, was 14.7%. That represents a 90 basis point improvement over the prior year, and for 2010, our operating margin pushed above 14%, which exceeded our guidance for the year and finished at 14.1%.

The improvements are coming primarily from efficiencies within our general and administrative expenses as we continue to leverage our revenue growth and become more and more effective in operating our business. We have made steady improvements in our profitability over the last few years, and expect that to continue moving into 2011, and we reiterate our guidance of 30 to 50 basis point improvements scheduled for 2011.

Our gross margin for the quarter was stable with the prior year, right around 82.3% and we see that gross margin remaining consistent as we move into 2011. We guided to the range of 82 to 82.3% as well. And selling expenses for the quarter were 42.1% compared to 41.6% for the fourth quarter of 2009. You'll recall that in the fourth quarter of 2009 we held our global convention, and at this event we sell multiple sales aids and non-commissionable products, including convention attendance fees and these items do not generate commissions. And, therefore the percentage was lower than historical rates in the prior year. We expect, however, as we move into 2011 selling expenses to remain in the 42% to 42.5% range.

G&A expenses for the quarter as a percent of revenue were 25.5%. That is really the best level we've ever achieved. It is a 160 basis point improvement over 2009, and on an annual basis our G&A came in at 26.1%. Also a 160 basis point improvement over 2009. We see G&A in the 25.2% to 25.7% range in 2011.

Our tax rate from the quarter was 34.3%. That was compared to 37.8% in the prior year. We believe there are opportunities for us to continue to lower our tax rate as we go forward, and will continue to seek for these opportunities, including moving certain supply chain functions and so forth to regions where we can benefit from a tax rate perspective, such as southeast Asia and Europe; however, we have not built these savings into the 2011 model. We'll kind of talk about those as we are able to achieve them throughout the year.

Cash from operations grew from $134 million in 2009 to $205 million in 2010, just a result of higher operating margin with more revenue. Our cash balance at year end was $230 million, and our debt was $161 million. In addition, we improved in nearly every possible metric during the year, including inventory turns, return on assets, return on invested capital, cash flow returns, et cetera.

During the quarter we paid $7.8 million of dividends. We repurchased $9.5 million of our outstanding shares. And we continue to believe both stock repurchases and dividends are a good use of cash, and an efficient way to return cash to shareholders, so would expect to continue to remain consistent in these two aspects as we move into 2011. Note that today we announced an 8% increase in our dividend, and that is our tenth consecutive annual increase, representing an increase every year since we initiated the dividend in 2001. And at the end of the year, our stock repurchase authorization was approximately $153 million.

We reiterate today our 2011 annual guidance, which we recently provided at our annual investor day. That's revenue of $1.6 billion to $1.63 billion, and earnings per share of $2.25 to $2.35. So, for the first quarter of 2011, we estimate revenue of $380 million to $390 million with earnings in the $0.50 to $0.53 range, and this quarterly guidance assumes a 2% to 3% positive foreign currency impact. That is consistent, by the way, with what we said two months ago as well. We expect our tax rate in the first quarter to be approximately 37%, also consistent with our historical rates.

So, with that overview, we'll open it up now for questions.

(Operator Instructions) Doug Lane, Jefferies & Co.

Ritch, what do you plan to do with the cash on the balance sheet that is building there? Are you going to contemplate a special dividend or accelerate the stock buyback? It just seems to be growing pretty much every year now.

Yes it is. That is a great problem for us to have, as our margins have improved. Clearly, we generate a lot more cash. Generally, I think, Doug, we'll continue to do what we've always done, and that is buy stock back. Certainly, that will be at an accelerated rate from where we have been in the past because we have more cash. We'll continue to raise our dividend. We do have some capital requirements that we have talked about; the building of a new building here. We are contemplating other opportunities to continue to build efficiency as we go forward, but generally I think you can expect us to do what we've done in the past, and that is stock repurchase and dividend.

But not really contemplating a special dividend, per se?

Not at this point in time.

Okay. Truman, you mentioned some initiatives around the global convention. Of course, we expect some new product activity. Can you update us, to the extent that you can, on what kind of new product activity you anticipate in October, and what the timing would be on the broader rollout of the new products?

We have a few things in store, one of which we described in some detail at our investor day presentation in November. As you know, we launched the Vitality product in the US and Japan in the third and fourth quarter of 2010. Those products obviously have yet to roll out in the rest of the world, and we'll start doing so in the fourth quarter of 2011. So, it will also complement Vitality with a new, nutritional component that is yet to be named, that will roll out in the fourth quarter and into the first half of 2012 globally. And we are also working on a couple of other things, Doug, that we haven't announced yet. But all of it adds up to what we think is going to be the largest convention we've ever experienced, both in terms of attendance and in sales.

So, between now and October, are there any more new product launches? Or is Vitality staying in the US and Japan for the time being? How does it play out first, second, third quarter of 2011?

There are some product launches on a market-to-market basis, but the next big roll out that really changes the landscape from an opportunity perspective is convention.

Okay, and just one last question. The Japan down [minus 8%], and I get it was a tough comparison, but it seemed like a little bit more than maybe I was thinking of. Did Japan perform as expected in the fourth quarter?

Yes, at first blush, I suppose one could look at that Japan top-line number and be a little bit disappointed. But when you really dig into it, and recognize that they had a huge fourth quarter in '09, where they went positive, up about 1.5% on a year-over-year basis. So, going up against a tough comp, and just to tell you the truth, Doug, Japan is not the market we are most worried about right now. The underlying trends are positive. The executive count there has improved sequentially the last couple of quarters, which hasn't happened in 10 years. The underlying business metrics are good. They are also off to a good start here at the beginning of 2011. So, Japan we feel is on track to post a year consistent with how we guided, roughly down slightly, and going flat to slightly up by the end of the year.

Okay. That's helpful. Thanks.

Yes.

Olivia Tong, Bank of America Merrill Lynch.

Perhaps with the differences within region, Japan, US, et cetera, and much better growth in emerging markets, could you give us an update by region? You broke it out at the analyst day. Perhaps you could update that a little bit on growth ranges by region?

You bet. Just a second, and I'll call that up real quick. But starting with the US, we guided to a 5% to 8% growth rate. And that is obviously going to be impacted by a real strong back half of the year, with fourth quarter. Just calling up the rest of them right now. The North Asia region, we guided Japan to be down 2% for the year, with Korea being quite strong, probably in the 15% to 20% growth rate, which is really actually commendable coming off a huge year this last year in Korea, particular. For Europe, Middle East and Africa, we guided at a plus 10% to 15% range.

Greater China, plus 2% to 5%, and that is reflective of growth in mainland China of about 15%, and then slight growth in Taiwan, offset by a decline in Hong Kong because of the convention that we had last year where we launched the Transformation. And by the way, that growth number in China is looking to be very, very conservative, as we finished the year really strong and continue into this year extremely strong. So, mainland China has probably some good upside it to it.

And then South Asia Pacific, we guided to grow around 10%. That is a bit of a slow down from where they were, as well. There is probably some conservatism in that number. We had a very substantial launch of the Transformation last year, so we brought our growth expectation down a little bit. Again, as we started out this year, we would anticipate Southeast Asia being ahead of that guidance as well.

So, I think all in all we feel really good about our guidance. One of the questions I think that people will ask is why didn't we up our guidance for this year? And we just provided this two months ago, and I think the business performed in the fourth quarter just right where we would have expected it to. And so it doesn't seem prudent to us to change our guidance at this point in time, but we'll watch that as we go throughout the year. We should, especially, have a very, very strong back half of the year, with, as Truman mentioned, the new product launches and the global convention in the fourth quarter.

Okay. That is very helpful. On the US, did that come in below expectations? I know you have obviously had the convention last year. But even if you x out to the non-US distributors there, you still had probably a high single-digit decline, and again of course, the ageLOC sales to US distributors as well. But was that surprising, the magnitude of the decline in Q4 for you?

I think it is fair to say, Olivia, that the US is probably our toughest battleground right now. And we have experienced a little bit of softness in distributor numbers here in the US, but fortunately, on the positive side of things, we have an incredible group of field leaders in the US that are very engaged. We have a great pipeline here of ammunition that we are going to be using throughout the year. And as Ritch indicated, we expect to see some strength as we approach the second half, and particularly the fourth quarter is going to be huge in the US.

Okay. And then on the dividend, you clearly raised it this morning, but earnings grew by 40% or so this year. Was there thought to raising the dividend higher? Clearly, you have a lot of cash on the balance sheet, and earnings were pretty strong this year.

Well, I think, certainly we go through that exercise with our Board in evaluating how we should utilize our cash, and I think for us it's important to raise it every year. We've actually, the last two years, accelerated from the pace that we were at previously. It is still quite conservative, and that is reflective of some capital projects we are doing here with our headquarters and others that are being considered right now, which would improve our balance sheet and our income statement going forward. So, yes, there is certainly that opportunity as we move forward. We continue to generate higher earnings, and it gives us the opportunity to raise the dividend at a higher rate going forward.

Okay. Thanks a bunch.

Thanks.

Bill Schmitz, Deutsche Bank.

What were the actual ageLOC sales this quarter, both of Vitality and the Transformation?

The Vitality sales were about $23 million; Transformation was about $47 million.

Okay, great. Is there any change to the launch calendar, either in the back half of the year or next year in terms of when the new vitamin launch, the ageLOC Inside is going to come out?

No, no real change to the launch calendar. It is a fourth quarter introduction with a fourth quarter, first quarter and second quarter rollout around the world.

Great, that is helpful. On the US, obviously there was the convention last year, which impacted the year-over-year comparisons on the sales line --

Right.

-- but there was a pretty big fall off in the executive distributor ranks. What explains that?

Well, I think it's a reflection of the toughness of the battleground here in the US, Bill. It is the world's toughest market right now for us, and I think for everyone else. And we're just doing our best to line up the ammunition we need to turn that number around.

Do you think it's macro or is it competitive?

I think there are macro aspects of this. I really don't think it is a reflection of any competitive factors. I think it's the world's most mature market from a direct-selling perspective. I think consumers here, and those interested in business opportunity in this market are a tough audience. I think that a lot of them have tried various direct-selling opportunities, and those who have tried and failed are skeptical. I just think it is a tough environment.

Okay. Has there been any change in the subscription sales in the US, or even globally?

No, actually just continued increases. We are 55% for the fourth quarter, and the US remains close to 70%. So, yes, nothing's really changed there. I think we don't feel pessimistic about the US business at all. We feel like there is great opportunity. We do see just a little bit of a breather -- taking a little bit of a breather as we came into the year end.

Okay. One last one, I promise. When can you start buying back stock again. What is the post print? How many days typically do you have to wait?

We are actually in the market based on program selling that we initiate in the quiet period. And then three days after the earnings release, then we can come into the market outside of that program.

Okay. What is your aggressive price point on the repurchase?

Well, we are in the market today.

Okay.

These are all good prices, and especially based on the level of cash that we are sitting on today.

Sounds great. Thanks so much, guys.

Thanks, Bill.

Timothy Ramey, DA Davidson.

Truman, you said Japan was not the market you are most worried about. I infer that the market you are most worried about is the US; is that right?

The US is the one that we are working the hardest on, yes.

Okay. Korea was stunning, really. It surpassed the US in 2010, to be the number-two market for the Corporation.

That's correct.

And it is not intuitively obvious to me why that has been such a fertile opportunity for you. Can you flush that out in any way?

Yes, it's a very interesting dynamic there, Tim. It's also a tough market, actually, from a direct-selling perspective. Our industry's been up and down really over the last 10 years. We happen to have just a very capable general manager in the market, Luke Yoo, who now is overseeing all of North Asia including Japan. He's relocated to Tokyo. And frankly, when Luke Yoo looks me in the eye, and with fire in the belly, tells me that he is going to turn the market around, that is partly why I don't lose a lot of sleep over Japan right now. He's just done a terrific job of executing the business in a very intelligent fashion.

Our growth rate is way outpacing the growth of the direct-selling industry in the market. We just enjoy a momentum there that is very encouraging. Our largest competitors in the market are still significantly larger than we are, and so we feel like we have a lot of room to grow. When we look at our 2015 and our 2020 models, and plug in how big we think Korea can be, I mean, it can be a big market. Potentially, Korea is a north of $500 million, and maybe even approaching a $1 billion market.

Okay. Just one follow-up, if I could. Ritch, I was somewhat surprised at the ratio of Vitality sales to Transformation, with Vitality being a little stronger than I would have thought relative to Transformation. Is that mix of product about what you were expecting? Or how is that playing out?

I think Vitality, actually, we are very encouraged with, particularly the unit sales, but I think it's reflective of the fact that there is a substantial size of our distributor population who love to sell nutrition products. And we really haven't had much in the way of new nutrition products over the last couple of years, so this has given a new opportunity for people to go back to work. We think it is going to be a great product to generate $23 million in the fourth quarter, with sales really just in Japan and the US, is very encouraging to us and something that bodes well I think as we launch this product globally.

Terrific. A great quarter.

Mark Astrachan, Stifel Nicolaus.

Wondering if you could talk a bit more about distributor productivity given that the executive distributor growth remains pretty solid, while sales growth has decelerated a little bit. Obviously, some of that is tougher comparisons, but just curious overall how you think about that spread at least where we are right now. And then talk about whether it has anything to do with some of the repeat order rates on the Transformation products, call it over the last three or four quarters.

Let me have Dan Chard answer that question, Mark.

Hi, Mark.As you know, we are following very closely what we believe are the key indicators for the health of our recruiting and our retention rates. We are pleased across the board globally on our improvement in both of those areas, both the rate of our sponsoring, as well as our ability to retain those new distributors and customers who come in. We do think that's having a positive impact on the product sales that you have heard referenced as well.

Mark, maybe just one more thing that could help as you analyze the business. The executive-level distributor count generally tracks very consistent with the organic growth of the business. So, in the fourth quarter here, our executive count was up 8.3%. You'll notice last year, when we had the global convention, our growth rate in executives wasn't as high as our sales growth rate. That's because we had these sort of pipeline fill as we launch the new products. We track that in our average monthly volume for our executives. Those are the numbers that have come down a little bit in the fourth quarter because we didn't have the big launch of product like we did in the prior year. So, average monthly volume will be down a little bit when we don't have the big product launch. But outside of that, we are very encouraged with our executive numbers; they continue to move in the right direction, hitting virtually all-time highs for us here. And that's what gives us a high level of confidence as we move forward into 2011.

That is helpful. And just following up on that, in terms of what the average order size is, are you seeing any changes there? It sounds like you are not.

Outside of the launch of the product, we are really not. In fact, it is probably positive around the world. It is just that we didn't have the substantial purchases that were made, both in Japan as we launched the Serum last year in the fourth quarter, and the Transformation here in the US at our global convention. But outside of those two things, average order size is holding very, very nicely.

Great, thanks, everyone.

John Faucher, JPMorgan.

Thanks.Thatcher is actually a new one, I haven't heard that one before.So, I get a lot of Focker these days, but Thatcher, not really.I wanted to talk a little bit about something you mentioned before, which is sort of the sales of the Vitality product versus the Transformation product in terms of how much overlap do you see between the different sales forces? Are people mostly focused on selling the nutrition versus the skin care? Can that end up improving the productivity as you get more selling both? And then you talked about the subscription numbers going up, so I'm assuming that means the repeat on Vitality looks pretty solid?

As you'll recall, John, one of the things that distinguishes us in the direct-selling industry is the fact that we have a higher percentage of our sales force that is male in gender, with about 60% female, 40% male, which is different than maybe a lot of direct-selling companies. And I think it's fairly intuitive that the males in our world probably have a harder time doing a Galvanic Spa demonstration on anyone's face, whether male or female, than perhaps our female sales leaders do. And so, that audience in particular, that tends to skew nutrition oriented, is very enthusiastic about our focus now of turning ageLOC science loose in the nutrition category. So, Vitality did get off to a good start. The unit movement is very positive. It is just at a low price point that appeals to a broader market, but repeat purchases of Vitality are very positive so far.

Yes, and it is just really early to analyze how much of those repeat purchases will continue and so forth. But I think we are getting better and better at driving subscription as a core fundamental piece of our business. For example, in the fourth quarter there was limited, somewhat limited purchasing as it related to Vitality. So, you would have to sign up on a subscription order or introduce new customers to the Business to be able to buy it. We are using those new product launches as a way to drive both the stability, as well as the new and key business metrics of our Business.

Great, thanks.

Bret Jordan, Avondale Partners.

A couple of questions that might have been asked already, but just to give us the delta, pricing the product launch for the fourth quarter, nutritional versus the Vitality product. What is the premium to be seen in the fourth quarter?

The product that will launch in the fourth quarter will have a, roughly a $100 price point.

Okay. All right. And then as sort of an update on capital projects between the headquarters and anything else, if you look at CapEx for 2011, where it is going to go?

Yes, we have guided to a $50 million CapEx budget for 2011, which we should be right at that range. The headquarters here in Provo is moving forward nicely; would expect demolition to happen the end of April, groundbreaking to happen in June, and the building will be complete in 2013. We are also considering a couple other opportunities that we could really, we think could help accelerate our business, but also help us from an overhead standpoint in getting more and more effective and efficient. We have not announced that to our distributor force yet, so we won't mention it now. It will not impact in any significant way our capital expense projects for this year, for 2011. But could add a little bit in 2012, but could be quite an exciting thing to help generate growth in our business. So, we'll talk about that as we get a little bit closer, and once we have announced it to our sales force.

Okay, and then just back to the first question again. At $100, is the gross margin materially different than the current blended average, or do you pick up margin at that price point?

No, it will be consistent with where we're at today.

Okay, great, thank you.

Scott Van Winkle, Canaccord Genuity.

Thanks. Truman, you made a comment about how the business is shifting towards the emerging markets, given the strong growth there. Is there any impact on either management or distributor focus in mature markets as a result of that shift?

Yes. That's a good question. I mean in 2010, if you break out our geographic profile, we would have been under 20% of sales in emerging markets, and by 2015 that will double, if not more so. What I'm seeing, Scott, is that the US leaders are tending to focus on the US right now. I think that Asian leaders, especially Chinese speakers, are extremely enthusiastic about China, and are spending, I think, an increasing amount of time in that market, particularly leaders out of Hong Kong. We'll be opening Argentina later this year that is attracting some US leaders. But I really think that globally, leaders are tending to stay at home with the exception of China.

And from the management standpoint, corporate, is there any disproportionate effort in some markets rather than others, beyond the conversation about a little more effort on the US currently, as a result of growth expectations going forward?

We are looking to add fuel to the fire in the markets that are growing most rapidly, and particularly China. There is just so much upside there. And we really haven't talked in a very bullish fashion about China for many years because we haven't had a good reason to. And at this point in time, I think it's fair to say that Andrew Fan's crouching-tiger analogy that he used a couple of years ago as we reset the business in China, and really reformatted everything beginning in 2007; that tiger is now in springing mode, and we are looking to add fuel to that fire because of the enormity of the upside there.

Just one more thing to add, Scott. As a management team, I think we are trying to be very proactive in projecting out where those emerging markets are going to be, and trying to take advantage of opportunities that are going to be presented because of that. For example, we are looking at moving some of our supply chain functions into Southeast Asia to support that region, but also take advantage of some Asian agreements that can lower duty rates. We are looking for opportunities to bring our tax rate down by utilizing profits coming out of those emerging markets. So, there is certainly a lot of opportunities. And I would say we do spend a disproportionate amount of time forecasting out, and trying to understand how to manage the business in the future, as opposed to just focused on what's happening today.

And lastly, on the topic of China. What is the next thing we in the investment community should expect to hear beyond what quarterly revenue and earnings are? Any corporate events, market openings, change in the business, things of that nature?

That is really the key factor, is just continuing the momentum that we enjoy there now. But we are evaluating a couple of different options for, as I indicated, adding some fuel to the fire, and we may have something to say about that in the course of the next quarter to two quarters.

Timothy Ramey, DA Davidson.

Thanks for the follow-up. Ritch, two questions. I think you said you are exploring the tax benefits, but not counting on that. What tax rate is implicit in your guidance?

37%. So, we haven't felt any improvement in, and in fact, we have had in the past some FIN 48 reserves that have rolled off, which have brought our tax rate down a little bit in the past couple of years. Those have kind of run their course now. We don't expect those to be happening as much as they did in the past. So, I really haven't built in any potential savings, but there is a chance to bring the rate down at least 1%, possibly more, as we go forward, depending on how fast we can get there. That is the question, and that is why I haven't built it into this year.

Does the changing geographic mix have -- I think that generally has a positive skew to rate, does it not? It certainly can, Tim, if we leave the profits offshore. That's the key.In the past, we have always brought the cash back here, and utilized it to buy back stock, to pay down debt, to pay dividends. As we go forward and as we have greater cash balances, as we invest in these emerging markets, that cash does stay offshore. And so, you can take advantage of some of the benefits that way. Okay. In our can detail, the other comprehensive income had a nice improvement in the comprehensive loss there, about $9.5 million. Is there anything in particular that drove that?

No, really nothing. No hedging or different programs or anything like that. Yes, it was primarily a shift between our deferred tax asset account, which is up higher on the balance sheet, and the OCI account.

Okay, thank you.

And at this time, there are no further questions.

Great. Let me just conclude by saying that I think that our record confirms over the past several years that we are doing things right at Nu Skin Enterprises. And I would argue that our growth is sustainable, and is primarily a result of favorable market trends, strong product pipeline, our proven ability to convert innovation to revenue. I think we have demonstrated a commitment to operational efficiency. We have significant upside in the emerging markets, and we have an aligned and incented management team. So, all of that have adds up to give us a lot of confidence that 2011 will be another record year, and we look forward to your participation in it. Thank you for joining us today.

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