如新 (NUS) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NU Skin Enterprises second-quarter earnings conference call.

(Operator Instructions)

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 filing 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 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 will 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 to $0.79 for the second quarter of this year. Currency fluctuations were again a major factor, obviously impacting top line, and also costing us $0.13 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 the healthy momentum of 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 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 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 have also been working on products specifically for a 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 100,000 units of ageLOC Youth in this LTO, which bodies 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 have slowed introduction in the US a bit, and pushed it 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 US.

So far, our sales leaders here seem to be enthusiastic about its prospects here on our home market. The Americas sales leader and active accounts are also reflective of some turbulence in Latin America, particularly Venezuela, where we are in the process of winding down our operations.

Looking to the third quarter, as I mentioned, we have started off the quarter very well, due to the LTO of ageLOC Youth in South Korea. And we are 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 roll out 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 Rich, I want to comment briefly on a topic that I am 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 is not a judicial decree, nor is it a new set of FTC rules. However, 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 interests of consumers and our sales leaders, and believe that we are 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 note that we started the segment, many of our consumers as preferred customers, several years ago. In fact, a majority of our US 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 US sales volume came from people who do not participate in the multi-level portion of our compensation plan. So I think you would likely agree with me that those numbers are reflective of a consumer-based business.

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

Third, we are committed to being consumer-protected, and we practice 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 wherever we can to be more consumer-protected. We want all those who associate with NU Skin to have a good experience with us.

So all in all, we feel good about the direction of the business. We are seeing upticks in actives and sales leaders in most of our regions. This should bode well for the second half of the year. Currencies appear to be a little less problematic in the second half, and have been for some time now.

And our financial profile is also improving. We were really pleased to close recently a transaction with Ping An Securities. Many in the US 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, that provided the capital we needed 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 am going to turn the microphone over to Rich.

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. The 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 rates.

Selling expenses for the second quarter were 41.4%, compared to 42.7% in the prior year. Selling expenses are impacted by the number of sales leaders who qualify 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 liability to the quarter closed rate of 103.2 yen per dollar, 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 our 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 noncash 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 $138.6 million. Solid net income, together with positive shifts in inventory and other balance sheet accounts, 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.

(Operator Instructions)

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

Yes, we really can't comment on when and why we are 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. In the second quarter, we just weren't in the market for virtually the whole quarter.

Presumably, you can tell me if it is a 10b5 or not, though, correct?

Yes, that was 10b5. Those shares were purchased at the beginning of the quarter under a 10b5 plan.

But the $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 item. And I would love to know a little bit more about what to expect.

Yes, you are exactly right in terms of this marking at the end of the quarter, and essentially it's our balance sheet accounts. Primarily in this case, it's the yen-denominated debt that we have, and the yen, you know, strengthened significantly, particularly toward the end of the quarter. So you know, the benefit we picked up at the quarter was -- the yen rate for the quarter was 1.07, almost 1.08. And we mark-to-market the debt and our other liabilities at 1.03, so 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 you know that line item shows up in other income expense. So you 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, the 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 exchanged the revenue was about 108 for the quarter.

Okay. And just one more before I pass it on. Thank you. I liked your 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 -- is that just reputationally, street cred? How does that actually come to be?

You know, it's really been fun to get to know Ping An, and we're really delighted with their representative, Simon [Chen], who is joining our Board of Directors here, I believe, as of today. Very high-quality guy, and knows the US 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: any way we can help, we're happy to do so. We're really just delighted to welcome them to our shareholder list, and into our Board room as well, and think we have really a wonderful partner there.

Terrific, thank you.

Yes.

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

Good afternoon, guys.

Hi, Frank.

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

500,000 units, yes.

Units. And now, a unit is a bottle of ageLOC Youth?

That's correct, yes.

And you are selling that for almost, what, about [$]150 to $200? Somewhere in that range?

No, it's more like in the $125 range.

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

Absolutely. Yes, we launched 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 renewable cartridges. And we felt that, that probably slowed down initial sales of ageLOC Me at the time.

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

So honestly, we were a little bit surprised how quickly, however, the attention shifted to the Youth product, and the salesforce just got behind it and obviously had a very successful introduction to that product. However, as we go into the year and the dust settles on both Youth and Me, we expect the spotlight to return back to 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, Youth and Me, will play a material role going forward.

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

I think subjectively -- and this is just my personal opinion -- if we went back a year in time, and you asked which of these two products do I think is going to perhaps be the sexiest of the two? I probably would have said Me, because it really is a unique, disruptive way to deliver high-quality skin care 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 US a little bit, to see if we can't find the right formula. And we're going to be a little bit more aggressive in the US on the pricing front than we have been in Asia markets. So we wanted the dust to settle a little bit on the Asian introductions.

And we really feel -- and we have 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.

Yes.

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 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 Q3 sales outlook, at least, assumes a flattish year over year. 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.

Yes, just a little more color on the LTO itself. This is the LTO of ageLOC Me, the initial introduction to sales leaders in the market. In this case, between an initial introduction to leaders in April and a broader launch to sales leaders in June, we moved 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 is definitely some energy in the market. And that's what we've continued to see since the LTO launch in June or so. Anything to add to that, Rich?

Yes, I would just move onto your second piece of the question, which was the numbers Q3 over Q3. If you'll 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 looked like in Q2.

Got it, thanks. And then can you just clarify the price -- your discussion around being more aggressive on price in the US? I assume that you launched the product in Asian markets now, feel pretty good about that performance, and you think 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 Asia markets command a premium. You know, Japan, South Korea and China have all been premium price-point markets, as have Southeast Asian markets, like Singapore, for example.

And we have tried slightly different price points in almost everywhere we have launched the product 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 pushed 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 a slightly lower price point.

Got it. So I guess then the flip side of that is, why wouldn't the markets where you have already launched it, why wouldn't they just wait until it launches in the US? And I recognize that you can't just buy in the US and ship it over, or what have you, as easily. But just help me understand that dynamic?

Well, I mean 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 are learning something too. So we are kind of tweaking the approach, modifying the price point a bit, trying to figure out what works in the various markets. And we have learned from each of those launches something that we will embed in the launch in the United States.

Okay, got it. Then moving onto sort of 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 only up a fair bit less than sales? And then was active still down in most markets outside of China, and [flash] sequentially?

What do you think in terms of the opportunity as you sort of roll out more of these products? Do you expect the rep numbers to come up with that, or are you -- would you have expected that those numbers in terms of reps already would have started to get better?

I will take a shot at that one, Olivia. Thanks for that question. I think particularly with Southeast Asia, we saw the LTO was strong in terms of revenue, and drove a small uptick in our executive number particularly. There is a 14% improvement sequentially in our executive number, but we haven't seen as strong as 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 in the sales leaders. I think generally, we saw 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 yes, that's our focus as well. They've got to line up over time. Generally, we do see the executive number, the sales leader number, being a leading indicator when we kick off a 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.

I am sorry to belabor this, but correct me if I am wrong. Usually when you see that big of a sales increase, the leaders and the actives typically move in similar fashion. So is it just, you know, there are just -- that people are buying more of it? Is that a productivity number? I am just trying to understand the delta in the growth between leaders and sales.

Yes, it really is a productivity number. We will see in an 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 will see the active customers coming into the business.

Got it. Thanks so much.

Yes.

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

Hi, guys. Good afternoon.

Hi, Bill.

Can you just remind us what the launch calendar is by market for the back half of the year, by quarter?

You bet. Let me run through that real quickly. In the Americas, 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 nailed exactly. And the 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 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 --

Let me finish up with Korea, which will have 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 as you look at the share repurchase, why -- because you generate a ton of cash. So are you just going to squirrel the rest of the cash flow generated by the business, and just like pile it up on the balance sheet? Because it sounds like you have this big authorization, but you are only going to buy back the amount that -- the Ping An investment amount?

You know, 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 will use that in share repurchase as part of our agreement, really, with the transaction. And then beyond that, we'll see how things are trading and what business is doing trending-wise.

But certainly, we have always been of the opinion that stock repurchase is a good use of our cash, and we have 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, you know, we're going to focus on that $210 million first.

Okay. And then from a CapEx perspective, the two headquarters are done, I think you are mostly done building boutiques in China, unless I am wrong. So what are the big CapEx requirements this year and next, if there are any?

Yes, we really slowed down our CapEx. So last year and this year were around $60 million. And this year, the big expense relates to our digital initiative, where we are putting a lot of energy around, you know, putting systems and plans in place to really allow our sales leaders to be way more effective using, you know, their mobile devices. So this year, a big chunk 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 is there anything you guys have put in place to try to maintain retention?

You know, as we try and forecast out, I have been really cautious, Bill, about, you know, 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 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 will 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 know in terms of actually being up sequentially and seeing growth in both of those. You know, I haven't been aggressive in my forecast with those numbers.

Okay, great. Thanks so much.

You bet.

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.

Oh, hi, Beth.

Oh, hi. I apologize. So I had a couple 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 might break out between the Me device, the cartridges, and then Youth?

Yes, 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 you know, close to $50 million in that LTO.

In the fourth quarter, we will have a number of launches. We don't anticipate any of them to be of real significant size. We do believe they will be, you know, good to grow the business, but a lot of times, we are 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 are trying to get yourself out of boom/bust of launch cycles. So to that end, I think in 2017, you had previously spoken about two new products, one on the skin care 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 of this year, one product in each region and then flipping it?

Yes, we're actually really excited about both of these products. And you're right, I mean, we are trying to keep our salesforce focused on the ammunition that they have available to them today. But frankly, it's hard for us not to continually talk about what's coming down the pike, because we are really excited about it.

The skin care 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 want 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 year, is yet to be determined. But I think in all 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 are very optimistic about both of them. In fact, I really believe that our skin care product is going to be our best skin care concept ever. I really like it a lot. It appeals to both men and women. It's useable in the shower, very convenient. And we're really excited about it.

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

For which number are you asking about? Sorry.

Operating cash flow?

Oh, yes, I mean, I think initially we talked about $240 million for the year. We'll probably end up pretty close to that. So we are 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, you know, closer to $280 million. Or what is that? $300 million? Almost $300 million for the year. Normally, it's about $80 million a quarter. And based on my guidance, that would be pretty close, I think.

Okay. When [are on fact] in the P&L? So the G&A was 144 in dollars this quarter, up from 130 last. Can you help us think about what we should do for the third and fourth quarters? Are there any kind of outsized events or conventions that affect one quarter or another? Or is this 144 kind of high as well, and will go lower 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, Great China and Korean convention in June of the second quarter. We had a Southeast Asia conference in the third quarter, and we have an Americas 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 be mostly consistent with where it ended in Q2.

Perfect. And the last one. Anything new on the SEC investigation?

Yes, we have nothing to update today on the SEC investigation, Beth.

Perfect. Thank you so much.

Yes.

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

Thanks so much. On the nutrition products, in your answer to that question, the 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?

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

Okay. So the (multiple speakers) spotlight product?

Right. And the spotlight product is in that same timeframe.

Okay. So most of 2017 won't have much new product activity?

Not new product launch activity, but in our product launch process, we will start firing up the salesforce in preparation for the fall launches earlier in the year. And you know, 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, you know a lot of the rollouts and launches of Me and Youth are really kind of still very much midstream. So in the US, for example, Me will just essentially start in Q4. So late this year. So they will really just be getting into it the first of next year, and really probably won't want to be distracted by other major product initiatives, in any event.

Great. And Rich, did you have a thought yet on CapEx for 2017? Should it drop lower than that $60 million level? Or any thoughts there?

We are in the process right now of gathering all our requests from around the world. But I think it will be fairly close to $60 million. I don't think it will deviate too far from that.

Terrific, 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 shipments? And also, will this change at all following the FTC ruling? I know you said it wasn't a rule, it was specific to Herbalife. I 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.

Yes, 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, 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, are 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 under 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 tie 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 of a tie between a subscription and salesforce 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, you know with 55% of our volume coming from a preferred customer segment, you know, that is not the profile of a business that we think the FTC is concerned about.

Thanks. And one more question, actually, on China. What was the underlying sales growth excluding LTOs for the quarter?

Really, the way the LTO looks -- and we have sized down the LTO quite a bit now. You will 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 to you in another couple 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.