如新 (NUS) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2016 NU Skin Enterprises earnings call. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded.

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

Thank you, [Skyler] and good afternoon, everybody. Today in the room with me are Truman Hunt, President and Chief Executive Officer, Ritch Wood, Chief Financial Officer, 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 statement. We believe 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 today's earnings release for any required reconciliation of non-GAAP financial numbers.

I'll now turn it over to Truman.

Thanks, Scott. Good afternoon, everyone. We appreciate you joining us today.

As stated in our press release this afternoon, we exceeded our top and bottom line guidance for the first quarter. Revenue came in at about $472 million, and was negatively impacted 5% by currency fluctuations. And earnings per share were $0.42, excluding the non-cash charge for the Japan customs ruling, which we announced a few weeks ago.

As we noted in our press release, we're also raising our annual guidance. Favorable foreign currency swings have been helpful in recent weeks and we're also encouraged about the growth drivers we have to deploy with ageLOC Youth and ageLOC Me beginning to roll out in the second quarter. We are looking forward to a return to both local and, hopefully as currencies continue to move in our favor, report currency growth in the second quarter.

Now, at first blush, one might look at the first quarter data and argue that it may be a bit difficult for us to post growth for the year, but we're pleased with sales activity in March and April, and we're really pleased with the recent introductions of ageLOC Youth and Me. As we've stated in the past, revenue growth in 2016 hinges largely on the success of these two product launches.

Our management teams have been working hard to prepare for these launch events, and -- that take place primarily in the second and the fourth quarters of the year. The first Q2 product launch began earlier this month, with an LTL introduction of ageLOC Youth in the south Asia-Pacific region, and then this week we began a leader preview of ageLOC Me in the greater China region.

Our China leaders are especially anxious to begin selling this innovative customized skin care system, and we believe this could be a catalyst to jumpstart momentum in this market, which as you know, is important to us. This preview this week went very well, and will be followed by a limited time offer in early June, and a full scale launch of ageLOC Me in the fourth quarter.

Although it's still early, indications are positive that this product has potential to drive good growth in China as well as elsewhere around the world. As you saw in our release, we saw a decline in our sales leader counts, sequentially, in the first quarter. This is largely a result of good activity in Q4, and the lack of any product launches in Q1. But we feel good about the prospect for growth in the sales leader count in the second quarter as the product launches kick in.

I'd like to touch briefly on an issue that we discussed on our call last quarter. As you may remember, we're testing different approaches to launching ageLOC Me in various markets. In South Korea, for example, our initial sales of ageLOC Me were likely muted a bit by a push to secure 12-month product subscriptions. We learned an important lesson there, as we are with the launches that we're doing elsewhere around the world, but we've really been pleased with follow on ordering of the ageLOC Me skin care products in Korea as well as in Europe.

The reorder rate for ageLOC Me is considerably higher than for typical skin care products. We think that ageLOC Me could be similar to other consumer products that feature a device with an accompanying consumable so one could look at products like the Nespresso of Keurig coffee makers, for example, or even our own Galvanic Spa skin treatment device.

Our Galvanic Spa is a one-time device sell but the consumable gels used with the device create a nice follow-on revenue stream. We believe that ageLOC Me is a very revolutionary skin care treatment system. It enables the consumer to enjoy skin care products that literally cannot be put in a jar and to formulate a skin care regimen based on individual needs and desires.

So next week as we meet with our sales leaders from around the world at our annual sales incentive trip, which is something that we always look forward to, we'll be proposing to them an aggressive campaign between now and the time of our fall 2017 global sales convention to penetrate the market with this very novel approach to skin care. We're also really happy with the results of ageLOC Youth.

Sales have been impressive wherever we have launched the project, which now includes the U.S. and southeast Asian markets, and consumers absolutely love the products. Most dietary supplements don't yield a result that a consumer notices. In fact, most Americans take a multi vitamin on a daily basis and don't really know if the product is doing anything for them. But with ageLOC Youth, people notice and feel a difference.

An increase in energy level and healthier joints than, perhaps people have had in years, are common responses, and people are also seeing visible benefits in the mirror. Our studies are showing that consumers of Youth not only feel better but they also look better.

So it turns out that ageLOC Youth, which as you may recall we had code named the mother of all supplements, is also the mother of all skin care supplements. So we really like the two products that are beginning to roll out, and believe they give us good ammunition to drive growth.

Now, before I turn the time over to Ritch, I want to note that we continue to be in a healthy financial position. Our balance sheet remains strong. Inventories are up a bit in connection with the product launches but overall we remain in a good position to use cash to benefit shareholders.

So with that, I'll turn it over to Ritch.

Thank you, Truman. Good afternoon, everyone.

We delivered our first quarter revenue at the top end of guidance with earnings per share, excluding the Japan customs charge, ahead of guidance. In addition, we increased our annual guidance, adjusting for a portion of the recent weakening of the U.S. dollar against foreign currency. Generally the core business is tracking consistent with the guidance we provided in February.

We expect solid sales growth of 6% to 8% in local currency terms in the second quarter, and continue to project local currency growth for the year. Operating margin for the first quarter was 1.7% or 8.4% when excluding charges related to the Japan customs ruling, compared to 12.6% in the same prior-year period. Gross margin was 70.8% or 77.4% when excluding the customs expense versus 80.7% in the first quarter of 2015.

The first quarter gross margin was negatively impacted by higher allocated overhead costs on a lower revenue base, as well as continued pressure from foreign currency fluctuation. However, we anticipate second quarter and 2016 gross margin will normalize and lift back up above 78%.

Selling expenses for the first quarter were 41.5% of sales, compared to 43.1% in the prior year, as discussed in the past, selling expenses are impacted by revenue growth and by the number of sales leadership qualified for incentive trips. Given the lower number of qualifiers, our selling expenses were lower in the first quarter compared to the prior year but mostly consistent sequentially. We've worked to contain our overhead expenses with general and administrative expenses of approximately $130 million in the first quarter or 27.6% of revenue compared to approximately $136 million or 25% of revenue in the prior-year period.

We incurred a loss of $2.9 million in the other income expense line item. Of this total, $2.4 million is from foreign currency losses related to the translation of our balance sheet in our company accounts into U.S. dollars. This foreign currency loss negatively impacted our earnings per share by $0.02. Our income tax rate for the first quarter was 37.3%, compared to 35.6% in the prior-year period.

The current period tax rate was higher due to the low taxable income caused by the previously-referenced customs charge in Japan. For the year, however, we continue to anticipate a tax rate of 35.5% to 36%.

During the quarter we paid $19.8 million of dividend. We purchased $20 million of our stock or approximately 1% of our outstanding shares. And that leaves our authorization at $427 million as of the end of March.

Cash used by operations for the quarter was a loss of $2.7 million. A negative cash from operations was due to a significant shift in accruals made at the end of 2015 and settled or paid out in the first quarter, as well as $10 million increase in our inventory balance during the first quarter related to planned product launches in the second quarter.

The accruals balance at the end of the year related to a high level of selling expenses generated, in part, by the product sales and the product launch in December. The reduction in the selling expense accrual was approximately $30 million from the end of the year to the end of the first quarter. We anticipate cash from operations will be positive and return to historical levels in the second quarter, as well as for the balance of the year.

While foreign currency continues to be a headwind to our reported revenue, when compared to the prior year, the dollar has weakened in recent days and weeks. Our previous guidance anticipated a negative foreign currency impact of 6% to 7% for the year.

As of today, we're adjusting our guidance to reflect a negative currency impact of 4% to 5%, so a 2% adjustment. While it's difficult to project future currency exchange rates and the associated impact to our results, we feel comfortable reflecting a portion of the recent dollar weakness in our updated guidance. As a reference point, my 2016 guidance now reflects a yen rate of [112], a Korean won rate of approximately [1200], and a Chinese RMB rate of $6.55.

So for the second quarter we estimate revenue to be $560 million to $580 million, with earnings per share of $0.75 to $0.79. Our revenue guidance in the second quarter anticipates a negative currency impact of about 4%. For the year, we anticipate revenue to be in the $2.16 to $2.20 billion range, reflecting a negative impact from foreign currency of approximately 4% to 5%, with earnings per share of approximately $2.29 to $2.49 or $2.65 to $2.85 when excluding the $0.36 impact of the Japan customs charge.

With those comments, we'll now open the call up for questions.

Thank you. (Operator Instructions). And our first question comes from the line of John Faucher from JPMorgan. Your line is now open.

Yes, good afternoon, everybody. Truman, you talked a little bit, sort of, some encouraging numbers coming out of March and April, I think, and yet by our calculation, it looks like the Q2 organic guidance is a little bit lower than where it had been before. So, you know, trying to understand that, is that just simply coming off of a lower base than you thought coming out of January/February? Can you just sort of give us a little bit of color in terms of what's more optimistic yet at the same time maybe with the guidance is a little bit softer?

Yes, I'll let Ritch comment specifically on the guidance, but let me just comment on some sales force dynamics. I mean, we're obviously pretty much through the month of April now, and April included our LTL launches of ageLOC Youth in southeast Asia as well as ageLOC Me in greater China, and I think, John, what makes us optimistic for Q2 or at least comfortable with the numbers that we're putting out there is the fact that those events went really well, and so April has been a good month. And just we're off to a good start in Q2. Ritch, do you want to comment specifically on the guidance?

Yes, thanks for that question, John. And basically when we adjusted our guidance in February, we didn't provide any Q2 guidance, so this is the first time we've really established, you know, based on our revised projections, where Q2 is. So for us it doesn't reflect any reduction, it really reflects the core business trending exactly in line with where we thought it was when we revised guidance.

Okay. And then one follow-up. Okay. I guess I thought it was in the last call that you guys said you thought you could do double digits in Q2. So maybe we'll go back and check the transcript on that. And then secondly, as you look at the earnings guidance, it seems like, you know, earnings guidance going up by more than the FX change in the revenue, so what's driving the additional earnings upside relative -- because the top line seems to be an FX change but the bottom line seems a little bit more than that. Thanks.

Yes, good point. We also exceeded our first quarter, you know, a little bit, which gives us a little more confidence as we go forward. So we picked up a few cents on that side of the equation, you know, a few from Q1, and then I believe our -- you know, our margins will be impacted a little bit as well by the increase -- the improvement in the currency picture.

Okay. Thank you.

Thanks, John.

And our next question comes from the line of Tim Ramey from Pivotal Research Group. Your line is now open.

Thanks so much. So I'm -- it's difficult to get the numbers up on the 2Q based on sort of sequential numbers from the 1Q, as you might guess. And the way it seems to work in my model is, you'd actually show year-over-year growth in greater China. Is that a reasonable expectation of what you're talking about? For the 2Q?

Yes we benefit quite a bit, Tim, from the LTLs that will be happening in the second quarter. So we do anticipate a year-over-year growth in greater China, driven by the launch of the ageLOC Me product there.

Okay. And would that will be is true of southeast Asia or more like flattish numbers there? I'm trying to figure out what the levers are and I'm just not quite there.

Southeast Asia will also be up. That's correct. You know, we've got a limited time offer of ageLOC Youth which was in April, so we've had a good chance to see the strength of that launch, and we do anticipate southeast Asia will be up as well year-over-year.

Okay.

Those are the two primary drivers, obviously, to the improvement, coming from those two regions.

Okay. And then just as I think about margins, you know, tell me if this is a reasonable way to think about what's occurred over, say, the last couple years or maybe five-year period. You know, as you pulled on the string, you effectively grew revenues much faster than your costs or your costs weren't catching up because accruals for incentives were pushed into, you know -- were pushed into future periods effectively. And so margins were better than we might have -- what might have been normal.

And now we're kind of on the flip side of that, that spring compressing a little bit. If that's a reasonable way to think about it, you know, where's the equilibrium on that spring? Is it -- you know, it's probably not 15% operating margins, but it's hopefully not 8%, either.

Yes. Yes. Good point. I think -- the way I would look at it is that we have a fairly fixed base of overhead costs, so as you're able to expand your revenue, you know, when you exceed the budgeted revenue and go beyond that, there's quite a high percentage of that additional revenue that drops to the bottom line, so you become quite profitable.

The incentives track in line with revenue, and the faster the revenue growth, you actually see a higher payout in our overall selling expense number, so most of the margin benefit comes through our leveraging the overhead costs. The one other item that's really, you know, impacted us over the last two or three years is just foreign currency as it relates to our gross margin. You know, we've lost a couple percentage points as currencies have moved close to, you know, 20% over the last four years, that's impacted our gross margin.

Sure.

So the two primary things are simply that, our gross margin impacted by currency, together with, you know, losing that leverage as our revenue has come down on our overhead base.

Sounds good. Okay. Thank you.

But I think going forward, just to kind of point to your other question, 15% is probably a great margin when we're back close to the $3 billion range. In the meantime, you know, it's probably, you know, we're projecting 11.5% or so, this year, that's where our model is, and growing from there as the business starts to expand again.

Great. Thanks so much, Ritch.

You bet.

Our next question comes from the line of Olivia Tong from Bank of America. Your line is now open.

Thank you so much. (Inaudible)

Olivia, we're not quite able to hear you.

Oh, can you hear me now?

There you are.

Perfect. Sorry about that. So I just want to go back to the guidance because I'm still having some trouble making the different pieces add up. I guess starting just with Q2, you know, I also remember you saying last quarter that the different events that you have should result in double-digit local currency sales growth in Q2, so I get the top -- it sounds like Q2 of the guidance is coming a little bit lower relative to what you had expected but the full year is obviously flattered by better FX but then on the other hand the distributor numbers were down both sequentially and year-over-year across the board.

So can you help me understand, within your EPS guidance then, how much of that improvement is FX and how much is other stuff, whether it be better, you know, better management of costs, what have you. Thanks.

You bet. I'll have to go back and see, too, what I guided to Q2 but I haven't adjusted my model and it's reflective in our overall year numbers as the business really has trended in the first quarter and then as we expect in the second quarter and forward, very consistent with where it was when we sort of recalibrated the business in February and came out with that guidance.

In terms of the overall operating margin, we're still guiding pretty close to an 11.5% operating margin. I think I've got 11.6% or so in my model. So fairly consistent with where it is. We do pick up some benefit as the currencies, you know, begin to move in our favor. It should help our gross margin line a little bit, particularly. But I really haven't adjusted the margin too much as well. We took up the revenue by about $50 million and that impacts, you know, we picked up about, you know, let's call it $0.16 or so impact in our EPS number.

The other part of that EPS lift came from the fact that we beat our initial guidance in Q1, so I don't know if that reconciles your numbers. But we were $0.04 ahead of the high end of our guidance in Q1, so that pushes into the year, and then we raised another $0.16.

And Olivia, if I could just add to that, as I mentioned in my comments, we anticipated that you might look at the Q1 data and have a hard time concluding that we can put up the number we're talking about for the year, and that's understandable because, you know, the Q1 data was in line with what we guided, but, you know, was below where we ideally would have liked to be.

And so with respect to the sales force dynamics, I guess I would just encourage you to think about two things. One is that our Q4 was probably augmented a little bit by some LTL events in Q4, Q1 had really no sales events in it. And in April is really the kickoff for product launch events around the world. And so there was likely a little lull in the action, frankly, in January and February, and then March picked up, and the launch events have gone really well in April. So we're just seeing a pickup in activity that still leaves us comfortable with the numbers we're putting out there.

Got it. Thank you.

Thanks, Olivia.

Our next question comes from the line of Bill Schmitz from William Blair. Your line is now open.

(Inaudible).

Congratulations.

Thank you.

So I guess my first question is, do you guys have any way of calibrating what your market share is within direct selling in China? Maybe if, you know, you can sort of tell us what sort of growth the direct selling is in China and kind of where you guys fit in. I know it's not an easy number to get but some of that stuff comes out periodically.

Actually, the government puts out numbers for direct selling companies, since we all have to be registered and we all report our revenue numbers. And the industry -- I wish I had the data in front of me, Bill, but the industry continues to trend very well. In fact, China should surpass the U.S. in market size this year for the channel generally and U.S., think in terms of roughly a $35 billion a year or so market.

So direct selling has done extremely well in China since the initiation of the new regulations, and within the channel, there are always companies who are more up or more down than any other particular company, as businesses just trend a little bit differently based on individual factors. There are many companies in the market -- well, many. I guess I would say several companies in the market who are doing better than we are. And that actually gives us great hope for the future and optimism that the market has a lot of potential.

So I think we fall in -- if you look at the top ten direct selling companies in China, we're like in ninth or tenth or so, aren't we, comparatively, with the top companies several times our size, like probably five, six, seven, eight times our size. And yet we're substantial, we're recognized as a global player.

In fact, I recently participated in some trade meetings in Washington D.C. involving Chinese officials, and fortunately within the direct selling community, they have a very favorable opinion of NU Skin Enterprises and we're right there with the other top companies.

Got you. So do you know why you're losing market share or is it just a hangover from what happened with TR90 way back when? You know, because I know it's hard to (inaudible) a bunch of times but do you know where your distributors went when they left NU Skin?

Well, we don't really track where individual distributors go, but I would say, bill, that what we've been through in the past two years is, as directly related to the business interruption that we really experienced in the first quarter of 2014, and what we've been doing since then is just basically stabilizing and recalibrating and putting the business back on track to grow.

And so much more than TR90, it was really, you know, the event with the People's Daily and the fact that we elected to essentially shut down the recruiting process for several months. And then dealt with the ramifications of what we had anticipated to be a very high growth rate and you know all the inventory issues that we had to work through. And so, really, it's been that. I mean, it's much more so than TR90 specifically, wouldn't you say, Ritch?

Yes, I think that's exactly right. This is really our first significant product -- new product launch that we've had since the People's Daily, and those issues hit us in 2014. So it's been two years. Sort of working our way through the inventory challenges we had. And now we feel like we have some ammunition to actually grow the business and I think that's, you know, reflective in Truman's comments earlier about our optimism to see the business turn around in China.

Okay. And then just one last one. I mean, it looks like sequentially distributor numbers were down in every region except for Europe. Is there anything you guys can do, you know, outside of LTL activity to sort of reignite, you know, the network? Because sometimes it feels like I think a lot of these upstart direct selling companies who are much better at social selling and digitized platforms are the ones who really seem to be getting shares.

So are there any big investments you're make on that front that you can talk about right now and then some other initiatives you could possibly use to drive some of that activity in enrollment outside of the LTL process of course?

Yes just one thing real quickly that influences significantly month to month and quarter to quarter trends on sales leaders that is, frankly, a little bit hard for the Street to see, is that, you know, we run the business on a cycle that includes incentives to qualify for trips. And what we're finding is that people work for trips.

And so at the end of December, for example, we had a couple regions whose qualification periods for trips were ending and that likely positively influenced our sales leader count at the end of December, and, you know, there just were no such qualification periods at the end of March that influenced the sales leader numbers. So trips drive activity.

And as you mentioned, digital is becoming a very important part of the business for almost all direct selling companies, and we are very much in the middle of the digital transformation ourselves. And it's frankly one of our top priorities for the year, is to digitize the business and enable people to really do the business through social media and mobile channels. And so we're all over that, and in fact our entire organization is focused on it, and we're very excited about what's coming down the pike.

Okay. Great. Thanks so much, guys.

Thanks.

Thanks, Bill.

Our next question comes from the line of Mark Astrachan from Stifel. Your line is now open.

Yes, thanks. Good afternoon, everybody. I wanted to go back, Ritch, to one thing on the gross margins. So trying to figure out what accounts for the change in the gross margin expectations from what you said in February to tonight.

So, what I'm projecting going forward is about 78% to 78.5% in Q2 through Q4. Q1 was a little bit down for a couple reasons. We have some -- an allocation of overhead that we've talked about in the past that we pull out of G&A and allocate up to cost of sales, and the fact that that number was a little higher combined with the lower revenue number impacted our gross margin for Q1.

Also, another thing that started is that once we started selling ageLOC Me, we have the development asset that begins to amortize as well. So that was about $1.3 million that came through in the first quarter and yet we really hadn't sold a lot of ageLOC Me at the time.

So we'll start to benefit from, you know, the fact that we have sales of that product now, higher sales amount will also show that sort of fixed cost that we're allocating from G&A up into cost of sales. It will make that a smaller percentage. So that's why I'm confident we'll get back, you know, above 78% going forward.

But correct me if I'm wrong, previously you were saying, what, 79.5% to 80% is what I have in my notes, so it sounds like it's still at least a little bit worse than that. Is there something beyond ageLOC Me, which I assume at least was to some extent in the numbers?

I think, Yes, those were numbers we had given, I believe, at the Investor Day that I revised down, you know, when we revised our numbers, seeing the expenses coming in a little bit lower and also impacted by the foreign currency adjustments that we made to bring our numbers down in February. So, Yes, I don't think there's much different, and that's reflected in the fact that our earnings per share are going up, you know. We're really not taking that cost of sales number down from where we recalibrated to.

Okay. And then just a housekeeping item, what are your expectations for ageLOC Me and Youth in the second quarter, and if you could give it by region, that would be helpful.

Yes, we actually haven't broken it down by region. We have obviously some LTLs and then the product is actually selling full time, for example, Youth is now solely available for sale in the Americas. So we haven't actually broken it down but what we have talked about is what we anticipate to get from launch revenue in this year.

I think we talked about, you know, around $150 million that we expected from launches. That number still remains pretty consistent, and there's probably about $80 million to $90 million of that that we would anticipate here in the second quarter, which is the -- you know, part of the reason for the increase from Q1 going to Q2. So there's probably around $80 million to $90 million of launch sales in the second quarter modeling.

Got it. Okay. And then I wanted to go back to the commentary about optimism in the March and April trends per what you said, in the context that sales leaders got worse sequentially and year and year in all regions, and correct me if I'm wrong but I thought sales leaders are recorded at quarter end, so that shouldn't the March end numbers have seen some of the optimism that you're talking about or did all of that come in April?

No, some actually did come at the end of March, an improvement over January and February, a little soft at the beginning of the year, but saw an increase there and obviously we don't have April numbers yet. But what we're seeing in the trend, as Truman talked about with the launch of the product, we believe will build that sales leader number, together with an improvement in our active base as well.

Okay. So do you expect sales leaders to grow in second quarter?

Yes.

Okay. So this should be up or it should just get better sequentially?

No, it will -- it will definitely grow sequentially. Definitely sequentially. And year-over-year, I don't have that number right in front of me but I'd anticipate, since we're growing in local currency, we'll probably see growth in our executive base as well.

Okay. Thank you.

And our next question comes from the line of Beth Kite from Citi. Your line is now open.

Great. Hi, Truman and Ritch. Thanks so much for the time today. I have a couple questions, first on the sales strategy. Given that that kind of caused a big hiccup for me in Korea in December, if you could just talk broadly about, you know, if it's now -- if there's sort of a new plan across all your regions as that launches to offer it one way or a couple ways, still have the 12 months offering for cartridges, et cetera, as a package?

Then secondly, I was wondering, for the U.S. launch of Youth via subscription, if you could just help us to understand how that uptake was in March. And then -- let's see. Two more questions quickly. One, I was wondering if you have an operating cash flow target for 2016 you can share. And then if there's anything new on the SEC investigation. Thanks so much.

All right. So the sales strategy for me, as we have discussed, has varied from market to market, as we have, frankly, been trying to figure out what the best mechanism is. And so, you know, our response to the introduction of ageLOC Me in Korea was softer than what our team had forecasted, but in retrospect, if we look at the number of sales leaders and size of the market, it really wasn't all that disappointing.

It's just that our team had higher expectations than what they hit, and felt that sales had perhaps been muted by the requirement to sign up for a 12-month subscription, which is also understandable, I think. And so we tried that mechanism there. We're trying other mechanisms, as we now introduce it elsewhere, around the world. Japan is trying a discounted coupon approach.

China actually just basically has gone full ticket in April with no ongoing subscription requirement that's really because they can't even enforce one there even we wanted to do one, so we're learning as we go, and just feel like it will, all of these tests will really help us settle in on what will work best. It's possible that the approach will still vary a bit from market to market, just based on local purchasing patterns and whatnot, but we really like what we're seeing because the response to the introductions has been positive, and it's a very sticky product.

So the product is just really well suited to a monthly purchasing pattern, which is unusual for a skin care product because consumers who buy a jar of cream or anything are typically using it at a different rate. And the fact that the doses are measured and the fact that the use of the system is habitual and just becomes engrained in your habit, is really impressive. And so we -- compared to other products we've launched in terms of retention and follow-on odds, the follow-on orders of Me are significantly hire, like two to three times higher than what we've seen in other products. So we think it's a revolutionary approach to skin care.

We are -- continue to test the sales mechanisms to make sure we're maximizing market penetration and figuring out what's best. We have a lot of room, by the way, in the future to, we think, get aggressive on pricing of the device in particular going forward. And would anticipate that as time goes by, as is typically the case, with mechanisms of this nature, perhaps the device price comes down a bit as we reach further levels of penetration in the market, which we're actually excited about trying and ready to do. Did you make a list of the other questions?

Yes, I did. In terms of youth in March in the U.S., you know, I think -- we liked what we saw, it's going to be a great product and continues to sell slightly ahead of what we had forecast in the U.S. So good uptake with both the subscription orders but also what we're seeing here with Youth in the Americas. And then cash flow, I think around $225 million is where I'd recalibrate based on where we came in at Q1. And with the last question was around the SEC.

Oh. Well, as I think everyone is aware, we've previously provided some information on the discussion we've been having with the SEC. At this time, however, we really don't have any update to provide anyone. So there's just nothing that we can report there.

Got it. Thanks so much.

Thank you, Beth. All right, I think there are no further questions in the queue, so with that we just thank you again for joining and as always we'll stand by to answer any further questions that you have. Thanks. Thanks, everyone.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.