Nu Skin Enterprises, Inc. (NUS) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Nu Skin Enterprises Earnings Conference Call. My name is Sarah, and I'll be your operator for today. [Operator Instructions] And as a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Scott Pond, Director of Investor Relations. Please proceed, sir.

Thanks, Sarah. Good morning, everybody. We appreciate you being on the call with us. With me in the room today are Truman Hunt, President and Chief Executive Officer; Ritch Wood, Chief Financial Officer; and Dan Chard, President of Global Sales and Operations. Just a reminder, 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. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of these risks. And with that, I'll turn the time over to Truman.

Thanks, Scott, and good morning, everyone. Thank you for joining us on today's call. As you saw in our earnings release this morning, our third quarter revenue came in at $639 million, the top end of our guidance. And earnings per share were $1.12, which was ahead of our expectations. Overall, I would characterize our third quarter performance as solid against our expectations. As you know, we're going up against difficult comparisons in the back half of 2014 as we lap the launch of our TR90 Weight Management System last year. In the third quarter of last year, I would remind you that we generated about $203 million of revenue from the limited time launch of TR90. And in the fourth quarter of last year, we generated $350 million of TR90 revenue. We're also facing some currency headwind, which cost us about 3% of sales or about $23 million versus last year's third quarter. Those factors as well as the disruption of our -- to our China business earlier this year contributed to the year-over-year revenue decline as well as to the number of active and sales leader accounts that we reported this morning. Given these factors, it makes sense to look at our business on a sequential basis to understand how the business is trending. While our sights are set squarely on returning to growth in 2015, we guided this morning to fourth quarter revenue of $590 million to $610 million. This guidance will likely seem conservative to some, so I'd like to deconstruct our revenue base just a bit to help you better understand the trends in the business. As you know, our revenue is impacted by the volume we generate in our product launch process. Our product launches are typically very good business drivers as our sales force builds enthusiasm and interest among sales organizations as well as consumers. Our revenue line in each quarter of 2014 includes LTO volume. So in the first quarter of 2014, we generated about $33 million of LTO sales, then in the second quarter, $76 million in LTO sales, and in the third quarter, $81 million of LTO sales. In the fourth quarter of 2014, there will be only about $10 million to $15 million in LTO sales volume for new products. So while we have a number of typical seasonal promotions in virtually every market around the world in the fourth quarter, there's no significant LTO volume planned to offset the LTO volume generated over the past several quarters. Consequently, what we'll see in the fourth quarter this year is reflective of what we would characterize as our core business level. And if we take out the level of LTO volume from our top line over the first 3 quarters and then look at Q4 guidance sequentially, what you'll see is stabilization of the core revenue level and even slight sequential improvement. This is obviously what we're hoping for and what we're working hard to achieve. The next 2 quarters are a transition time for us. We're encouraged with signs of growth in the early sales leader pipeline in China, but we're still ramping up our marketing and promotional activities there. In August, we started to hold larger sales meetings again and we're seeing the number of participants in those sales meetings in China increase on a monthly basis, which is also encouraging to us, obviously. And while we also remain hopeful about the prospects for direct selling generally in China, the industry continues to grow in size and in influence. After a year with some unforeseen challenges, we're reestablishing trust with regulators and taking this time to train our sales leaders on promoting the business in a healthy, sustainable fashion. Fortunately, nothing we've experienced in China this past year alters our optimism for the potential of China in the future. Let me make just a few brief comments on other markets as well. The Americas is doing well on a local currency basis, with strong growth particularly in Latin America. This has been a long-term project for us and frankly, our success there is being driven by a strong group of sales leaders who have reached critical mass in size and who are just making it happen there. Obviously, the devaluation of currency in Venezuela is a big issue for us as well as anyone else doing business in that market. South Korea continues to do well. Japan trends improved in the quarter on a sequential basis, and we expect Q4 will be stronger sequentially in Japan. And Southeast Asia remained steady with strength in markets like Indonesia and Thailand. The EMEA region has been soft this year, but the decline there is largely related to business dynamics in Eastern Europe. So looking forward to next year, we recently held a global sales leader focus group to review with our top sales leaders our product launch plans for 2015 and 2016. Our Pharmanex and Nu Skin initiatives are meeting with healthy levels of enthusiasm. In both categories, we'll introduce products that represent the most time and resources we've ever invested in new product initiatives. On the Skin Care front, we'll introduce a device that makes a skin care regimen as customizable as possible. And we think that consumers will like what they see. When we survey consumers to ask what each individual would like in a skin care regimen, our research reveals that skin care marketers would literally have to put hundreds of alternatives on the shelves to satisfy what people want on an individual basis. No skin care company in the world has the ability to meet this need until now. We believe our ageLOC Me skin care system has the potential to revolutionize the skin care world, as consumers will finally be able to select what they're after in a system and have a device that makes compliance with the skin care regimen very simple. On the Nutrition front, our new product which we've referred to for many years as the mother of all supplements and is now codenamed "YOUTHSPAN," incorporates the best science in anti-aging developed over the past 30 years. It will become the core product in our daily nutrition regimen. And as you know, our LifePak product has long been a top-seller for us, so we believe that "YOUTHSPAN" has great potential. Now Ritch is going to speak to our improving financial profile in a moment, but we were pleased to get our refinancing completed recently. Our new debt structure is long-term in nature and eliminates the covenant restrictions that have limited the extent to which we can use capital to repurchase shares. Since June, we have been generating positive levels of operating cash flow on a monthly basis, exclusive of a tax payment made during the third quarter. And we expect to see positive transitions in cash and inventory levels going forward. So overall, we view this quarter and the next as an important transition period for Nu Skin Enterprises. Fundamentally, the business is solid, and we continue to prepare ourselves for what we believe will be a return to growth in 2015. Now we've had a couple of questions this morning on a news story of a potential SEC inquiry, so we want to provide a response to this issue to the extent that we can. As we've previously discussed on many occasions throughout the year, the company's Audit Committee initiated a voluntary review of our China business last January in response to media and government inquiries there. At the SEC's request, we have communicated with the SEC a few times during the course of the year on a voluntary basis to report on the status of this internal review. To our knowledge, the SEC has not opened a formal investigation nor made any request for the production of documents. As always, we're committed to maintaining an open and a transparent dialogue with the SEC and with all regulatory agencies, both here and abroad. We look forward to sharing our outlook and optimism for the next year at our upcoming Annual Investor Day conference here in Provo on December 12. And with that, I'll turn the microphone over to Ritch.

Good morning, everyone. Thank you, Truman. The third quarter, as Truman mentioned, was solid for us. The business performed in line with our guidance and our expectation. Year-over-year sales for the quarter were down 30% due to the significant LTO in the prior year. However, on a constant currency basis, sales in Q3 were slightly ahead of sales in Q2. We see the core business beginning to improve, although this transition will take some time. The catalyst in 2015 will be our product introductions slated today for the back half of next year. Our overall operating margin was very strong at 16.4%. Gross margin was 82.9%. That's down 170 basis points from the prior year which benefited significantly from our LTO in the prior year. Sequentially, gross margin was down slightly when excluding the inventory write-off in the previous quarter as a result of some promotional sales and pressure from a stronger dollar. We anticipate gross margin to be in the 82.5% to 83% range in the fourth quarter. Selling expenses for the quarter declined to 41.2% of sales. Selling expenses were positively impacted in the third quarter of 2014 by a reduction in estimates of the number of sales leaders qualifying for incentive trips and other promotional incentives based on results through the third quarter. We currently expect selling expenses as a percentage of revenue to return to approximately 43.5% to 44% in the fourth quarter. General and administrative expenses for the quarter as a percent of revenue were 25.3% compared to 17.9% in the prior year period. While we've been able to maintain our overhead spend, lower revenue pushed the percentage higher in the current period. We incurred a small gain of $1.1 million in other income expense compared to $0.5 million gain in the prior year. Our income tax rate for the third quarter was 35.6% compared to 34.3% in the prior year, and our tax rate is projected to be 38% in the fourth quarter, slightly higher due to the Venezuela currency adjustment. During the quarter, we paid $20.5 million of dividends. We had no stock repurchases, so that continues to leave our remaining authorization at $370 million. In October, we also completed our refinancing of our debt structure. We're pleased with this new structure for several reasons. Let me just mention those: first, the new debt structure includes a 5-year revolving line of credit compared to our previous 364-day revolver in addition to the 5-year term loan; second, we have a group of banks we believe will be great partners for us as we go forward; third, we have simplified our covenant package which allows us more flexibility in using our cash to benefit shareholders; and finally, we paid off all the prudential notes in the outstanding lines of credit at the time of the refinance. I'd also like to provide some color on questions that have been common in the past several weeks here with shareholders. First, cash from operations. As stated in the earnings release this morning, we generated $33.6 million of cash provided by operations for the quarter. As part of this computation, in August, we made a final tax payment relating to 2013 income in the amount of $49.2 million, reducing our cash provided by operations by this amount in the month of August in the quarter. Excluding this payment, cash from operations for the quarter would have been above $80 million. We generated approximately $25 million of cash provided from operations, each month, June, July, September and excluding the tax payment, August, as well. And we anticipate positive cash from operations going forward and we have our balance sheet now working in favor -- in our favor as opposed to working against us. Secondly, inventory moved in a positive direction by approximately $20 million in the quarter. We're making headway with our global inventory balances and we anticipate that we'll continue to see positive reductions in the inventory balances of approximately $20 million or more each quarter in the next several quarters. Third, we borrowed $300 million at the time of our debt refinance. We used approximately $185 million to retire our outstanding debt and associated fees at the time. The balance will be used according to our stated priorities for uses of cash: first, invest back in the growth of the business; and secondly, drive shareholder value. And then finally, relating to our fourth quarter guidance. We're estimating the dollar will continue to be strong throughout the balance of the quarter and this year. For example, we estimate the yen to be approximately JPY 115 to the dollar and the euro remaining about where it's trading today. The strengthening of the dollar has had a significant impact on our guidance as well as our sequential and year-over-year comparisons. Also, we do not have significant LTO plans in the fourth quarter, as Truman mentioned earlier in his remarks. So if we compare the fourth quarter to our third quarter sales, we lose about $30 million because of foreign currency fluctuations and about $60 million or so in comparable LTO sales. These 2 headwinds are offset by what we expect to see as an improving core business in the fourth quarter. Note that our earnings per share guidance also reflects the $0.08 impact, EPS impact, from the prepayment fee associated with the refinancing of our debt. We look forward to sharing our detailed 2015 plans to rekindle growth in our business at our Investor Day on December 12 and we invite all of you who can make it to come here. We'd love to host you here in Provo at our new headquarters. And with that, we'll go ahead and open up this call for questions.

[Operator Instructions] We do have our first question here. It's coming from John Faucher from JPMorgan. John A. Faucher - JP Morgan Chase & Co, Research Division: Two follow-ups on some of the comments you made here. Ritch, first off, can you talk about -- so I understand the payment of the debt. Did you take on additional debt? And can you talk about where you're sitting from sort of a cash balance standpoint and then sort of how you feel about your access to the cash internationally? And then following up on the selling expense comment. As you look to regain momentum, does having a lower selling expense means you're obviously paying out less than total commission dollars, which makes sense because the revenue is down, but are you going to have problems with recruiting, et cetera, if your commission rates are actually lower? So if you could talk about sort of actual commission rates versus simply the LTO impact longer term.

You bet, John. In terms of the payment of our debt and so forth, you'll notice at the end of the third quarter, we had about $20 million or so in cash above the debt amount, so a net cash of about $20 million. We expect cash from operations in October to be positive. And so at the time that we borrowed $300 million, we paid off about $185 million. The excess there just goes into our cash balances. So we're currently sitting on ammunition that we can use in a lot of different ways to drive growth in our business and shareholder value. We don't have significant challenges getting our money from overseas. Venezuela, I would say, is the only real problem in terms of getting cash out of the international market and back to the U.S. As it relates to selling expense, our core selling expense really runs right around 44%. And that's core selling expense plus our general amounts that we allocate towards selling incentives such as trips and recognition, promotion events, things like that. As the business grows, as our sales grow, that number increases because we have more people who are qualifying for the selling incentives and so forth. And as the business slows a little bit, that number comes back down. So it allows us to really maintain our profit margins as we go up and down in the business. But would expect it to go back towards 44%, and that's on the high end of people in our industry. It's a very compelling opportunity for people to come in and earn a good level of income. So I think that would summarize my comments on those questions.

Our next question comes from Tim Ramey from Pivotal Research Group.

Ritch, I wanted to press a little harder on the cash question. Is it possible to say a lot of moving pieces, the debt paydown, I think you may have paid down the Japanese and Korean notes subsequent to the refinance. And so I guess in theory that leaves you with well over $100 million in cash now. First of all, why did you draw that on 10/10? And second, am I right that over $100 million in cash effectively from the refinance transaction is correct?

Yes, yes. It -- good questions, Tim. I think generally, we like to keep a balance of around $200 million of cash, just because it's scattered around the world, that's about 1 month of sales. So by doing this debt refinance, we essentially are sitting on somewhere between $100-plus million of excess cash that we have right now. Why did we borrow it on October 10? Just to have flexibility and to be prepared for whatever we need to. And I think in terms of going forward, as we've stated, we'll use that to drive growth in our business and to drive value for shareholders.

Terrific. And just a further elaboration on the inventory picture. I mean, it was high at, gosh, over 300 days of inventory. At the end of the 3Q, you mentioned that you worked some of that down. How would you think that would trend out over the next several quarters as we progress and move into some of this more aggressive selling?

Generally, I anticipate that it'll go down by $20 million to $25 million a quarter, at least through the second quarter of next year. In the third quarter, we'll build inventory a little bit for LTOs that are planned in the back half of the year. But I think you'll see real nice progress. And frankly, we're encouraged with the way things are going. We believe we've got a good handle. We've spent a lot of time ensuring we're doing all we can to move the inventory. The positive here is that, as we mentioned earlier, the balance sheet is working for us now in terms of driving cash, and we'll have positive cash from operations coming from the inventory balance every quarter here going forward. We don't anticipate any large write-offs. We believe we've taken a significant amount of the risk that we viewed in the inventory balances back in the second quarter when we took that $50 million write-off.

And just a final one on China. I've got you modeled sequentially down for the fourth quarter in Mainland China. I think you almost have to do that to get to your sales guidance. Does it strike you, I mean, and I think it'll be down year-over-year in the first quarter. Do those statements sound correct to you?

Yes. I think generally, I think it could -- it will be down slightly, but just a slight amount. I mean, we don't see -- and it's primarily due to the fact that we had an LTO in July. So in the fourth quarter, we don't have any planned LTOs and even then, my modeling has us in Mainland China only down about maybe 2% or so in the fourth quarter. So we actually see the business quite stable. We see the pipeline of sales leaders filling. It's slower than we would have hoped, I think, 3 months ago when we gave our guidance, but we believe it's steady. And as we mentioned in our call, we believe we have a good probability of growing the business in the future here, especially even in 2015. So yes, we're not disappointed in terms of our potential in China at all.

The next question comes from Olivia Tong from Merrill Lynch.

Wanted to ask a follow-up question on cash because while cash flow from operations turned positive this quarter, and I know you've got that -- the tax, the 2013 tax hit in there, but this is the third quarter now where your cash flow isn't covering your CapEx and dividend. And obviously, your dividend was set when the earnings outlook was quite a bit different than it is today. So can you talk about your plans with respect to how you return value to shareholders as you referenced in your press release and earlier in your prepared remarks and more specifically, your commitment to your current dividend?

Well, we certainly have ammunition now, as we talked about and in response to Tim's question, in terms of having cash and also flexibility with our covenant. Secondly, we'd expect our cash from operations to go positive, and actually, be benefited by our balance sheet going forward. We had to recoup somewhere around $400 million or so of sort of negative working capital throughout the first half of the year. Those issues are now behind us so our cash from operations will be positive. Our dividend level is, we believe, in line with where we can be and should be going forward. And the CapEx number continues to include some sort of finalization of our buildings here in Provo and in China, most of those are done now, but we do continue to invest back in the business. We think continuing to revamp some stores in China and build new stores is important to our future there, so we'll continue to invest there as well as in computer systems and so forth to help us with CRM initiatives we have in place. So we're certainly not stopping investment back in the business because we believe there's a lot of opportunity to grow as we go forward. And cash from operations will exceed dividend and CapEx in the fourth quarter and going forward.

Got it. Did you guys give a CapEx number for this quarter?

No. It'll probably be between $15 million and $20 million in the fourth quarter.

Okay. I'm sorry, for Q3, the actual for Q3?

It was $20 million, $21 million, I believe.

Got it. Okay. And then on the -- I was just curious on, Ritch, returns levels. Have they changed in any way, the returns from the distributors to back to you guys?

Yes. Actually, they're coming down slightly. It was about 3.5% in the second quarter and 3% in the third quarter. So yes, the trend there is positive.

Got it. Okay. And then just lastly, on the comment around local currency sales outlook for 2015, seeing some -- seeing year-over-year growth in 2015. Can you talk about some of the puts and takes that is driving that by region? Or how much is coming from new products versus base business? Just a little bit more color on how you get to that growth -- how you get to your growth algorithm in 2015.

Yes, it's largely, Olivia, a function of the fact that we have relatively easy comps in the second half of next year at a moment in time when we have good ammunition to use in our product launch pipeline. So we're optimistic, as we indicated, about both the Pharmanex and the Nu Skin product development initiatives that will be in play next year. First quarter is still a tough comp on a year-over-year basis, but after that, the comps become easier. And we obviously don't know where currencies are headed, but feel like the business is stabilizing in China to the point where we can potentially generate growth there. And really, in every other region around the world, our growth outlook is relatively positive for next year.

The next question comes from Bill Schmitz from Deutsche Bank.

Just to make it super simple, can you just tell us how much cash is exactly on the balance sheet right now and what the leverage ratio is? And maybe like a range for a cash flow from operations, guide for the fourth quarter?

$320,475,204. I don't know what it is today. I don't know exactly what it is, but it's over $300 million. We continue to be -- have more cash than we do debt today. And like I said, I think the fourth quarter, the last 4 months, with that 1 exception in August, we generated between $25 million and $28 million of cash from operations every single month. That'll be consistent going forward as well. So let's assume we generate $70 million to $80 million of cash from operations. We'll probably use somewhere around $40 million to pay our dividend and to invest back in capital expenses. So we'll add somewhere between $30 million and $40 million to our cash balance. That can be used to generate shareholder value. We can use that to buy back shares. We have -- so both flexibility as well as ammunition and generally support from our board. So we'll just analyze the best way to use that as we always have, as we manage this business. We've tried to be prudent and at the same time, use our balance sheet to benefit shareholders in the long term. We're not as focused on the 1 quarter as we are looking out and watching where we think the business is going. We're very optimistic about that, so.

Okay. And then this might be, like, too granular, but can we kind of deconstruct the inventory a little bit? So starting with $369 million, how much of that is still TR90? How much is Galvanic Spa? And then how much is more like the normalized, I think it's like $200 million to $250 million you need to run the business.

Yes, yes. There's 3 primary products that have caused our inventory balance to be higher. It's the TR90 product. And you know earlier that we took a write-off against that, so we probably have somewhere between $30 million and $40 million remaining globally in our TR90 inventory. We also have TFEU, which is the product that we just did an LTO with in China, as well as South Korea and Japan, is coming up this quarter. So a brand-new product, a good product, we probably have somewhere around $30 million to $40 million of that product as well. And then finally -- that had been all built up for these LTOs that we're doing. And finally, the Galvanic Spa, which has a long lead time and is our top-selling product around the world as well, but we had a lot of POs in place trying to keep up with the growth of the business last year. Those have pretty much played through today, but we have a high balance, probably a little over $70 million of inventory in the Galvanic Spas. Fortunately, that product doesn't have a shelf life on it. We use it. It's our top-selling product. And as we've scaled down the supply now, we're making headway on that balance as well. But generally, those 3 products bring us down below that sort of $250 million level that you mentioned, Bill. And those are the 3 products that we'll see, as we roll them out and continue to sell them, continue to come down. But it's moving in the right direction. I'm actually very positive about where our inventory balances are going.

Okay, great. And then if you take a stab at how much the Hong Kong protests impacted sales both in Mainland China and Hong Kong, because I know there are a lot of visa restrictions for people traveling from China to Hong Kong, just kind of across the border during that period.

Yes. We haven't heard from our team there, Bill, that the protests have had a material impact on sales.

Okay. Great. And then just lastly, as a kind of -- and this has always been a sort of concern of mine, is like, at some point, I hope we can focus on the fundamentals instead of all this extracurricular stuff. I'm still just curious like where all these lost executive distributors have gone and why they haven't come back. Like are they frustrated? Did they lose money? And I know you can kind of fast-track them, but they're not coming back as fast as I would have hoped. So can you just talk a little bit more about that? And then maybe just like the credibility of the guidance you're getting from the Chinese management team? Because as I look at the fourth quarter guide, tell me if I'm wrong, but even in local currency, it's a little bit lighter than kind of what you guys talked about in the third quarter.

Yes. So let me just phrase it a different way that I think might get to your question, Bill, because I've asked our team, too, the question of whether what we've gone through in the course of this last year with the regulatory scrutiny, the media scrutiny and whatnot, has damaged our brand to the point where we can't recover. Or has the scrutiny that the industry has been under there somehow negatively damaged the environment to the point where direct selling generally will suffer. And we don't think that that's the case. I mean, what we're hearing from our team is that our brand is vibrant. We were able to quickly resolve the media and government inquiries that direct selling continues to do very well. We note that many of our competitors are doing even much better than we've done over the course of the last few years. So we're not -- we don't believe that anything that's happened there has negatively impacted China's prospects, in our view, that it will become the world's largest market for direct selling in the not-too-distant future. We're as anxious as anyone to recoup the executives and the active accounts that we've lost. And it's really just a question, we think, of stabilizing our core leadership base, which our numbers are showing to a great degree as you look sequentially from -- as you wash out LTO volume and look sequentially at the revenue line from Q2 to Q3 and now into Q4. And giving them a renewed reason to believe, based on the prospects of healthy business initiatives coming down the pike next year and in 2016. So we're hopeful that the tide is turning and that as we ramp up our ability to promote the business and hold meetings. And let me also just mention that we actually didn't -- and we actually weren't able to let sales leaders conduct their own promotional meetings in scale until August of this year, so into the third quarter. And August, September, October, we saw nice upticks in numbers of meetings and numbers of participants in those meetings. And so as that continues to blossom and as our sales leaders do what they do, we expect to see some recovery in the active number and in the sales leader number as well.

Okay. Just the question about the local currency guidance for the fourth quarter, I mean has that change markedly? Because it seems it's a little bit lower than you guys last kind of talked about it.

Yes. Basically, it's a reduction of about $60 million from where we were, just a little, 3, 4 months ago. $30 million of that is currency and the other $30 million is really a reduction in our Greater China expectations for the fourth quarter. And just the fact of the matter is it's taken us longer to see that business turn than what we had anticipated earlier.

And just to add a little more color to that, Bill. I would also say that we've been a little bit surprised that the disruption in China has been disruptive in Hong Kong and Taiwan as well. I mean, we had thought that those businesses were perhaps less linked than they ended up being, and so the disruption in China has ended up being disruptive in Hong Kong and Taiwan as well. And that accounts for a little bit of the softness there in Q4 as well.

Great. And I know I'm being that guy, but 1 last one. How much stock can you buy a day based on the restrictions in place? Do you know?

Well, the restrictions are 25% essentially of your trading volume over -- and there's a look-back period. So based on our volumes, that's a lot of stock you can buy every day.

And when does the window open to buy back?

That's really dependent on a lot of things, but generally, after all the information is disseminated into the market.

Next question comes from Frank Camma from Sidoti. Frank A. Camma - Sidoti & Company, Inc.: Just wondering if you could let us in on what you've learned from the TR90 experience here. I mean, obviously, it was a really well-accepted product by your sales team and it's kind of, obviously, not had good sell-through this year. And just wondering what you learned there, and perhaps, that helps you going forward or how you can reposition that product.

Yes, we've learned a lot, Frank, not only with respect to the product category, but with respect to the way we launched it. TR90 is going to be a product that we anticipate will do north of $200 million a year in sales going forward and hopefully, even grow from that level. So it's difficult to call it a miss because it's going to be a meaningful contributor to our results. But we have learned some things. It's a category that requires a high level of handholding with consumers, and our sales force probably didn't expect that to some degree. And so some markets have done better with it than others. The U.S., for example, is a market where TR90 has become very much a part of the product story and is very well adopted into the way the distributors are doing business. But our product message is a little bit different than what consumers are used to hearing too, Frank. So really, the benchmark for a weight loss product tends to be the bathroom scale. And our message is that it's not about weight loss, but it's about fat loss. And sometimes, people have to age a bit and when you cross the 50 threshold and realize that muscle evaporates overnight, the retention of muscle becomes a lot more meaningful than perhaps when you're in your 20s. And so our product message is a little bit more complicated than just maximize weight loss, but that message is now getting through to our sales force as well as to consumers. So we're not pessimistic about the product. We -- with respect to launch process, you'll recall that we launched it in a 3-month package. The price point was relatively high. And if we had to do it over again, we would probably break that down into a 1-month package because people like to have the opportunity to try it before making a 3-month commitment. So there are lots of takeaways from the TR90 launch this year, and we'll be better because of it; we'll actually be a lot better both in terms of how we communicate products and how we launch them. Frank A. Camma - Sidoti & Company, Inc.: Okay. Great. The other question is just on guidance here. So the guidance you're giving, Ritch, includes the impact of the $0.08. So we can normalize for that and add that back to -- if we were to look, for example, this -- okay. So...

Yes. That'll just be a onetime deal. Frank A. Camma - Sidoti & Company, Inc.: Onetime charge. So then if I run it through a model and I'm coming up with an operating margin somewhere to get to your number, somewhere in the mid-13%, call it, to high 13%. And that's obviously pretty well below your -- where you've been for quite some time. Is that just -- obviously, some of that is a currency effect, but is that also kind of the impact of the lower sales having on the G&A line, the negative operating leverage there? Is that...

Yes, a little bit. There's also -- we have a couple conventions this fourth quarter in Japan and then in the U.S. that add a little bit to our G&A number. But yes, you're generally right on where I have my model.

And our next question comes from Scott Van Winkle from Canaccord Genuity.

A question on the LTO, the $80 million you referred to in Q3 and then coming down in Q4 and kind of seeing what the business looks like in kind of a normal course. With that $80 million in Q3, can you give us a breakout of where that was, China and Korea, I believe, but kind of how much in each market?

China and Korea is exactly right, $60 million in Greater China and $20 million approximately in Korea.

And the Q4 LTO was in Japan?

Correct.

So if I pull $60 million out of Mainland China in Q3, for you to be down sequentially, I mean, x LTO, it sounds like you think China is going to be up sequentially if we exclude the LTO?

Yes, it will be.

Yes, that's the point, Scott. If you look at the core business, Q2 to Q3 to Q4, the picture is decent.

Okay. And that doesn't really correlate with the executive-level sales leaders. What's the difference? Is it -- have you gotten down to kind of the productive sales force at this point, a more productive sales force? I'm wondering how we see the -- I've been watching the executive level number as the real key indicator for China to turn positive on a sequential basis, but it would sound like it's going to happen on revenue without the distributor number.

Well, you're exactly right in staying focused on our executives as the key number, executives and actives. The leading indicator will generally be those new people who are qualifying to become sales leaders. They then become sales leaders. They're the ones who build your active base. And so we're looking at the same things you are. We're encouraged, as Truman mentioned in his script, about the pipeline that's filling. You'll remember that we only started accepting applications in the month of May this year after being shut down for 4 months. And so that pipeline takes a little while to fill because it's a 4- to 6-month period of time before people qualify to become a sales leader in China. So it takes a little while to fill that pipeline and turn that number back going into a positive direction. But that will be the key to the business turning in China.

Great. And Truman, you talked about being surprised how Hong Kong and Taiwan were kind of linked to Mainland China. Why is that the case? I would assume that they were just very separate. Obviously, the compensation plan is different, et cetera, et cetera. Why is there connection? I mean, is there crossover of Hong Kong and Taiwan leaders that kind of built the Mainland China business?

Well, there's some of that. But I would characterize it more as just enthusiasm in the Greater China community for the prospect of growth in Mainland China. And the businesses really do operate distinctly. Our compensation model is different in Hong Kong and Taiwan, obviously, than it is in the Mainland. But those communities are relatively tightknit in many ways, and we think it was just the prospect and the optimism for -- the prospect of developing business in Mainland China that took a little bit of the air out of the bubble in Hong Kong and Taiwan.

And then, Ritch, the Galvanic Spa inventory of $70 million, could you give us a reference? What would that have been a year ago?

Probably half that. I don't have the number right off, but it grew a lot towards the end of the year and then particularly this year. Those POs that we had in place, generally, there's a fairly long lead time, so we had quite a bit of spa inventory continuing to come in through the first half of the year. It was really just in the second part of the third quarter where our supply and demand went the other direction. And we actually -- our demand now is ahead of where our supply -- we've been able to bring our supply down. So it's moving in the right direction, you'll actually see improvements even better here as we go into the fourth quarter.

Listen, we appreciate everyone joining us on the call this morning. And as we mentioned a couple of times already, we're looking forward to our Annual Investor Day on December 12. We are eagerly awaiting as many of you as possible to come out and letting us show you our new facility, which houses our R&D efforts and our scientist team. And at that meeting on the 12th, we're going to go into some detail on our product launch plans for 2015 and 2016 and give you an update on the rollout of these initiatives over the course of the next couple of years, which we're optimistic about. So we hope you'll all find excuses to come to Utah and ski that weekend and join us for our December 12 Investor Day meeting. And thanks for joining us today.