Good day, ladies and gentlemen and welcome to the Nu Skin Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Scott Pond, Head of Investor Relations. Sir, please go ahead.

Thank you, Liz and thanks everyone for joining us. On the call with me today are Ritch Wood, Chief Executive Officer; Ryan Napierski, President and Mark Lawrence, Chief Financial Officer. During this call, comments will be made that includes some forward-looking statements. These statements involve risks and uncertainty, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also, during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP financial numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our Investor Relations page at ir.nuskin.com for any required reconciliation of non-GAAP numbers. I'll now turn the time over to Ritch.

Thank you Scott. And good afternoon, everyone. Thank you for joining us today. As you read in our press release Q4 was a very strong quarter. With revenue up 25%, solid profit margin and positive earnings per share growth. Our revenue for the quarter $666.2 million which was boosted by strong sales of our limited offering of ageLOC LumiSpa. Earnings per share for the quarter was $0.33 or $1.20 when excluding a non-cash tax reform impact that Mark will address in a few minutes. For the year we returned the business to growth with revenue up 3% to $2.28 billion and earnings per share of $2.36 or $3.23 when excluding this tax reform impact. I most encourage however with the growth in our customer base which has been a focus for us all year long and was up 8% over the prior year. I'm confident that straight in this key metric positions us well for future growth. Our vision is simple, to become the world's leading opportunity platform by empowering our people to improve lives. Over the past year, we've talked with you about our strategy to grow the business to our focused effort to expand our customer base. We've identified three key components of this strategy that are best summed up in what we refer to as our three key strategies. Platform, products and programs. After laying the groundwork for this strategy throughout 2017, we're now beginning to deliver and execute on the plan and while many of the initiatives associated with our goal strategy are in their early phases I'm pleased to report solid growth on all three fronts, which Ryan will address in more detail in a moment. For example our focus on utilizing social selling programs to increase outreach and expand our customer acquisition contributed to…

Thanks Ritch and good afternoon, everyone. As Ritch mentioned we're making good progress as we begin to execute on the three pillars of our growth strategy. All focused around empowering our sales leaders to accelerate customer acquisition. Specifically I'll provide you with an update on our engaging platforms, enabling products and empowering programs. As we begun to see or implement this strategy in 2017 especially during the fourth quarter, we're encouraged by improvements in several of our key growth metrics, most notably with customers growing by 8% year-over-year and sales leaders growing by 33%. While we're pleased with these results today, we recognized this is just the beginning and we've much more work to do. On the platform front, we've continued to make progress in our use of social platforms to help our sales leaders to acquire new customers. Our growth strategy is centered around customer acquisition and we view social selling and creating a positive customer experience as key platform accelerators for our business. In 2018, we will continue to focus on developing platform technologies to enhance our sales leaders' ability to build socially enabled business. As our sales leaders become more adept at using social media effectively some of our markets including Japan and South Korea are still in the early stages of adopting social selling. In 2018, both of these markets will be focused on implementing social selling, training [ph] and tools to better empower our sales leaders to acquire more customers. Our product strategy is gaining momentum as well. We previewed LumiSpa to our sales force at our global LIVE! event in October last year. LumiSpa was a strong contributor to the healthy results generated in nearly all of our markets during the quarter. With Mainland China, the Americas, EMEA and South Asia Pacific all up…

Thanks Ryan. Let me walk through some of our fourth quarter and annual highlights and provide initial guidance for 2018. As a reminder we've provided additional financial information in our release and on our IR website including GAAP reconciliation tables. Fourth quarter revenue was up 25.4% at $666.2 million benefited by a strong LumiSpa introduction. Annual revenue was $2.28 billion, a 3.2% improvement over the prior year with a negative foreign currency impact of less than 1%. Our fourth quarter earnings per share were $1.20 or $0.33 when including the impact of US tax reform which I will touch on momentarily. This compares to $0.69 in the prior year quarter which included in negative $0.10 impact related to the enactment of the 987 tax regulation. Earnings per share for the year were $3.23 or $2.36 when including the tax reform impacts. Let me highlight a few items on the income statement. During the fourth quarter, LumiSpa sales accounted for approximately 20% of our total sales. In alignment with our focus on driving customer acquisition we priced LumiSpa such that it carries a slightly lower product margin and commission rate than our average product portfolio. LumiSpa was also introduced with a sharing bonus that has recorded as a rebate when it is purchased for personal use. These factors reduce both revenue and selling expense. Quarterly gross margin moved to 77.7% and selling expense as a percent of revenue was 39.8%. our operating margin improved to 14.9% from 11.4%. During the quarter, we paid $19 million of dividend and repurchase $23.9 million of our stock. Finishing the year in a net cash positive position. Our remaining share repurchase authorization is $128 million. We announced in a separate release that we increased our quarterly dividend for the 17th consecutive year. With recent tax…

[Operator Instructions] our first question comes from the line of Faiza Alwy with Deutsche Bank. Your line is now open.

I guess my first question, as you saw a lot of growth in the sales leader but the actives or the customers grew 8%. Can you talk about what drove the increase in sales leaders and why that didn't translate into actives?

Faiza, thank you for that question. Yes we're really encouraged with both numbers and particularly the fact that we've seen improvement in our customer number. The sales leader number was impacted significantly by the LumiSpa launch. So those who were able to participate in the launch or the preview we call it, where people who qualify as an executive and so there is a strong push in the fourth quarter for people to qualify, so they could actually participate in this spot launch. So going forward now we would anticipate that will build up the customer number as the product actually rolled out and becomes fully available.

Okay, great. And then just if you could comment a little bit on your outlook by region for 2018 and if there is any other sort of LTOs planned or anything else that we should keep in mind. And any other comments you can make on the quarterly cadence beyond Q1 with respect to organic growth and margins.

Yes that's great. Mark can comment a little bit more the breakdown of the revenue. But let me just mention couple things I think they're important. First of all we don't have any planned LTO activity in 2018. So while the limits file a rollout in the first half of year, we don't anticipate any spikes in the revenue. We will be comparing against a real strong Q4 in 2017 where we had $100 million approximately of net benefit we'd estimate from the LumiSpa launch. The quarters will play out more consistent in 2018 than they have in 2017 with the LTO. Mark, do you want to give some [indiscernible]?

The only thing I'd add is just, echo what Ritch said around Q4. We won't have the $100 million LTO Q4. As you look out the rest of the quarters, you would expect us to have nice year-over-year growth in Q2 and Q3. Q2 is generally a stronger quarter for us and then Q4 is where we'll face the challenge in quarter as we compare it year-over-year.

Okay and anything else on the regional outlook?

We didn't give that detail specifically. But what would anticipate –basically where the trends are going today. We see China continuing to be strong offset a little bit by Taiwan and Hong Kong but you're showing improvements but a little soft. Japan and Korea continue to be a little soft. So - don't anticipate a lot of growth in 2018 around those markets. Where we see really strong indicators would be in the Americas region, some good indicators in the South Asia region which will provide much of the growth that we built in for 2018.

Okay and then just one last from me. I know you talked about this accounting change with respect to revenue recognition for fiscal 2018, is that included in your guidance or does the guidance exclude that at this point?

Yes, it's included in our guidance. You do see that we're forecasting sales expense to be up over where we ended in Q4. I think that is just the mix shift of how many people buy our product for personal use, which generally is higher in a quarter where we introduced the product.

Okay, thank you.

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

I guess let's start a little bit the acquisitions because you typically had a very asset light business. I'm curious why you chose to acquire manufacturing partners and a packaging company because other than markets like China where law is dictated, you haven't typically done there. One; has your view changed in some ways or is a manufacturing and packaging just for you or others too like is there because you mentioned there was a revenue component now. And I'll start there. Thanks.

Thanks Olivia. The manufacturing partners that we acquired was actually held in minority interest in both of these companies for a period of time, so we know them well. they manufacture for other company. in fact we make up approximately 20% or so of their volume, but we believe it gives us some competitive advantage in terms of getting the product to market. The other thing I would mention that we didn't highlight very much on the call yet is our ability to utilize our indoor growing capability. This is something we've mentioned likely particular to our sales people, but we believe if an opportunity eventually to really differentiate ourselves growing ingredients in an indoor environment where we can guarantee it's purity you know in a very efficient way. So while that's in the early going we believe that adds to this ability to have ingredient that we produced and then manufacture and control all the way through our customers. So you'll hear more about us talking about this indoor growing capability. As we get closer to the end of the year. I think at this point in time our goal is to have somewhere between five and 10 ingredients that we're producing using this indoor growing technology by the end of the year in our Nu Skin product.

Got it. And then you mentioned there - your 20% of the volume, the other 80% will you be continuing that business selling to others?

Absolutely, yes absolutely.

Got it. Okay and then in terms of gross margin obviously LumiSpa gross margin dilutive these acquisitions also gross margin dilutive. And so far looking relative to where peaked, you were down about 600 basis point, I mean is that an okay business model going forward for you in terms of the impact that your business - the change that you've made and the gross margin impact that they've had. Are you comfortable with the fact that the gross margins have come down as much and what are you - and can you talk about some of the offsets that you're making in order to get margin improvement when we get to the operating margin line?

Let me speak to the bigger picture and then Mark can add any details that he feels like. Over the course of time, the last several years have been a few things that have brought the margin down. Certainly there's been a lot of headwind from currency. We also went through an accounting probably I think three years ago or so, where some of our commission expense actually gets booked up as a contra revenue and so that adjusting a little bit as well and then finally, I think the message I would say, the focus we have is really on our contribution margin, which is the difference between I'll say less cost of sales and commission expense. So as we adjust a little bit and how we pay that commission expense maybe we share some of that sharing bonus which Mark has mentioned in his scripts, which has been some of that is booked up as a contra revenue as opposed to down, our selling expense line. I think that these things move a little bit, where we're focused is on that contribution margin. I believe we continue to have a very healthy contribution margins somewhere 37% to 36% to 38% and that's a healthy area where we can be have a strong overall operating margin.

I think the only I would add is that, we are focused on customer acquisitions and you'll see us be a little bit more aggressive in our pricing of our products and that comes with some impact to gross margin. I think we're comfortable with that strategy, I think it's the right strategy for us to go after customers around the world and give them products in a range that they find affordable and attractive. And then you'll also see that from an operating margin perspective. For the year we're expanding our operating margins from a guidance perspective. We will grow operating margin this year.

Got it and then just lastly a little bit more housekeeping. I mean I realized majority of your business is done overseas, but why doesn't your tax rate move off a little bit further off of that 35% and then also that 34%, 35% full year outlook on tax, is that inclusive of the 42% that you're looking for in Q1. Thanks.

That's a great question. With US tax reform there's a lot of confusion about this subject. The issue that we face is that the vast majority of our revenue and all of our profit, virtually all of our profit is overseas. Therefore we're subject to the tax rates in those markets. You take a country like China for example has a tax rate of 25%, but when we return our cash we pay withholding tax of 10%, so the net impact is a 35% tax rate. our average international rate is about 34%, that's really what impacts us. Where we can get better at that tax rate, is as we grow our US office. The acquisitions will help, but they are very, very small at this point.

Got it and I'm sorry one last question in terms of the accounting changes, the revenue recognition changes. Can you just tell us how much that impacts the top line and how it flows through to P&L? thanks. Sorry this is my last one.

So with the product introduction of LumiSpa we thought about $12 million more rebate this quarter than what we saw in prior year and that rebate was booked as a contra revenue, so it's a revenue down by that amount.

And then next year, how much of an impact does that have in your 2018 outlook?

The impact won't be as severe into next year because we won't have a big product introduction on our LTO and what we see is that personal consumptions goes up during those periods. And that personal consumption what causes it to be a rebate versus a selling expense.

I think generally it runs around 2% to 3% is what we would anticipate and this quarter was a little bit higher ran closer to 4% to 5%. So I think going forward in the guidance that Mark has given is built into be more consistent in the sort of [indiscernible].

Got it. Thank you.

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

Drilled out a little bit on the tax rate, the last questionnaire asked if that 42% was in the first quarter was in the full year number. And I assume it is, since you normally give guidance on a GAAP basis?

Yes Tim. Thanks for the question. It is included in my 34%, 35% range.

Okay, but we sort of expect you'll call that out in the first quarter. is that a fair expense?

Yes, that's correct. We have to give an estimate now because we haven't finalized on what the exact amount will be, which is why I gave that 40% to 42% range, that number could fluctuate depending on where we finally settle, but we'll be able to give you that exact number once it's finalized in Q1 earnings.

And similar I guess probably to USANA's situation. The challenge for you is to probably shift cost to your non-US market. Which you can do in a variety of ways I assume by licensing the brand names or other strategies you didn't talk about that at all, as something that you might do in 2018. But is that on the to-do list?

Yes. I would say everything is on to-do list with regard to tax. With the tax reform there is a couple of things that we're working through. The law is out, but all of the clarifications from the IRS are continuing to trickle out and I suspect that they'll trickle throughout the course of the year as how we are supposed to interpret the law and how that law applies to us. As those come out, our rate may or may not fluctuate depending on how we often interpret that. and we're actively going through as we receive those guidance's looking at our tax planning strategy and understanding what we might need to change.

Okay and the Mark as you were going through some of the outlook projections and percentages you were fast. I think you said operating margin of 11% to 12%. It wouldn't necessarily be up from 2017. I calculate the operating margin is 12%, did I get that wrong or?

Yes, either I misspoke but the answer for operating margin is 12% to 12.4% is our forward guidance.

Okay, I just you were going fast. And again your guidance includes no share repurchase for 2018 as well.

Yes, I think share repurchase will be in line with what we've done in the past. We're going to be - hope to be again I'll just speak to kind of our intensity to use [ph] cash next year. obviously our first focus is going to be on operating the business; the second focus is going pay our dividend which I announced that we did increase our dividend for the 17th year in a row. Third, we're going to buy back shares and we're going to be in the market to buyback those shares and we look to be in that 1% to 2% range that we have been for the last couple of periods.

Terrific. Thank you.

Our next question comes from the line of Doug Lane with Lane Research. Your line is now open.

Just want to go back to the China sales leader number. I know Ryan touched on it, in his comments. But with I mean almost doubling year-over-year it sort of gets into situation where you wonder really how sticky those new sales leaders are, so can you talk about really what drove that growth. I guess it was all the LumiSpa but just mechanically how do people come into it and how much of a deceleration do you expect in the first couple of quarters as that sort of fades into the distance.

Great question, Doug. Maybe to try to provide a little more clarity on that as you know from years passed. The product introduction these previews or LTO's tend to stick to really drive the sales leader number up, and then they settle within the coming quarter and we would expect that to happen in our own models. We do expect the settling to be moderate, but still up fairly well in Q1 on a year-over-year basis. So I mean the trends are healthy it just was an abnormal jump so to speak in that Q4. So it will settle but we expect a good Q1 settling.

Let me just add one additional thought. The customer number was 10% up year-over-year and I think as we look at things. Those two generally are going to settle together, we're encouraged with the 10% up, if we can continue to drive that number that's going to sustain a larger sales leader number going forward, but I think you kind of keep your eye on both of those. Watch what happens to both of them. They'll tend to settle in alignment with each other. So now we really move our focus as Ryan mentioned in this call script to really drive that - successfully drive the customer number up which will allow us to sustain and retain more of those sales leaders.

And maybe Doug just by way of going back to the discussion earlier. As we look to LumiSpa rolling out and actually launching in the first half of this year that will be a good contributor to the customer, the customer growth as well - is to really stabilize or to enforce the sales leader growth that we'll retain.

So I mean to your point, Ritch the customer number should go up, as the sales leader number comes down, just as the product gets put through the system. So we should see those numbers maybe not converged but move closer in the first two or three quarters of this year, than the fourth quarter of course one of the tough comparison.

Yes that's well said and I think, there is a couple difference that we've executed this past year that I should highlight. Number one, we sized our limited offerings model. So in the past we've had $200 million to $300 million LTOs. Secondly we've closed the gap between the time we did the preview and the time we're actually rolling the product out. We believe that will help sustain the customer number and hopefully sustain the sales leader number better going forward. So again this is a little bit of new initiative that we're kicking off, we monitor very closely as we go forward. But our intent is really to grow that customer number and through doing that, we anticipate that we'll be able retain more of our sales leadership.

Okay and just one last thing, I was noticing on the balance sheet. The working capital numbers looked really good considering the kind of growth that you're posting that the receivables and inventory turns heading in the right direction. So there's a lot of cross currents with the tax rate and the acquisitions and what have you, but is it safe to say that the underlying business performed just about as you expected in the fourth quarter and the whole rollout of the LumiSpa here in 2018 is pretty much on target.

And this is Mark. I would say yes, the quarter performed very much in line with where we guided and with what we expected to happen in the quarter.

Yes and really the whole year, Doug. We're encouraged with the way things trended throughout the year. I got to tell you, last year when we started the first quarter 2017 we were coming off a very soft Q4 and so we've, it feel like we were starting the year with not a lot of wind in our back. We feel differently as we come into this year and hope that sensed in the optimism of how we feel about the business today, but we finished the year with a lot of encouraging and excitement amongst our sales leaders. So at this point in time we want to build on that and execute our plan. We're really in execution phase this year as oppose to trying to develop the momentum, which is where we are at, a year ago.

Okay, thank you.

Our next question comes from the line of Beth Kite with Citi. Your line is now open.

I was wondering if we could, I want to talk a little bit more about China. Obviously north of 50% growth was strong, can you help us understand how much of that was LumiSpa and if any other from existing products contributed in a meaningful way, this past quarter.

Yes, let me add the first comment and then ask Ryan to contribute anything else about China. We've seen throughout the year really good response to our business incentives and lot of excitement that was building for LumiSpa, we knew it was going to be a strong launch and so, we frankly were doing all we could to build as many units as we felt like they could sustain. There was quite a limitation on what the sales leaders were able to purchase, so we feel like there is still good demand in the market, but clearly the jump in sales leaders shows that there was lot of excitement around the LumiSpa well around just a normal business incentive that we had in place, which were not necessarily different than what we've had in the past but continue to get traction with our sales force. Ryan what would you add?

To your point Ritch and maybe one other point to add, that you've highlighted on previous call is ageLOC Me and what we call the beauty device platform that continues to be very strong ageLOC Me, Galvanic Spa and now LumiSpa together make a very good trio, a combination. So throughout 2017 ageLOC Me was very strong contributor to innovation and now putting LumiSpa together with that and Galvanic Spa just continue to be really positive for the business in China.

Got it. And then are you able to share whether LumiSpa will be a 1Q or 2Q event in China?

Yes. We certainly can so, it's both. The answer to that. In China specifically it will go probably in April, so it will be a 2Q. most of the other markets will be in the first quarter and then majority closer to the end of the first quarter as oppose to the beginning.

Got it, perfect. And then to a couple other countries for South Korea and Japan, I look at those numbers and they look thoroughly weak on a year-over-year basis. Maybe not so much I'm just looking here sequentially, but what else about LumiSpa here just - I know you talked about maybe some social selling I believe potentially picking up in those markets and then some training, but sort of what's your degree of focus on those markets at this point because on a growth rate basis they surely pulled results down in the fourth quarter.

Yes, let me take the first shot and then Ryan will add to this. No doubt those are two markets that were concerning for us as well. they've been challenged throughout the year. we like the response actually we got to LumiSpa both market filled out as the LumiSpa that we had built and we hear real good feedback about the demand that the markets are feeling, so we expect that to be a key contributor to help and improve the business. But the focus really will be on customer acquisition as we go forward. So Ryan maybe you can address what we're doing there.

Yes absolutely and Beth, just to reaffirm our commitment to getting the customer growth there and working really with social selling to enable that growth. We watch the competitive landscape closely in both markets and the environmental factors and we believe the social selling will enable us to improve our customer acquisition and state some of the declines there. Certainly both markets are very strong personal care markets, beauty markets and so we'll continue to focus on it. But we expect the social selling together with LumiSpa this coming year will be very helpful for us.

Perfect. And maybe that's a nice entrée then into my next question which is for those markets or others were you're enhancing your social selling portfolio or sort of focusing [indiscernible] some markets. Which products became alive and that we saw here in the US in the kind of November, December months. Can you talk to us beyond Powerlips because I think we talked about in the past, but what other wants or maybe upside surprises and or you're encouraged by that you're going to take to other markets this year.

Yes, absolutely Beth. Yes there were several as you noted that we're anxiously waiting Powerlips of course being one that is going to markets quickly in fact in Q4 we had a little bit of that activity in the Americas. Also we have a product Dr. Dana which is that nail product you may recall that will be rolling out in various markets throughout the year. they're all sequenced and staged according to the local market launch plans throughout the four quarters. And so we have Dr. Dana that we're looking forward to, we have a Tru Face Essence product extension that got very good reviews at LIVE! as well. we also have called AP 24 Smile Pop which is a complementary product or line extension to AP 24 which is become a very strong social selling product that also will be again sequenced across the market at various times through the year. so a lot of good ammunition there to really further the social business.

Perfect and one more if I may. I think one of your alluded to Velocity and the test, the pilot phase in Australia and I think New Zealand maybe and then it gone well recently since it started in December. What metrics are you using to assess that you would speak to say it's tracking in a positive direction where it's creating positive results so far.

Let me first of all speak to the vision around Velocity. We really believe that we can increase the quickest of how fast we pay people. So really when people share products we're paying quickly on a daily basis, when they start to build a group of customers we reward them on a weekly basis and then so for the monthly, it's really about around billing sales leaders. And what we believe will happen as it will increase as we reward people more quickly, it will increase the behaviors, finding new customers and so forth. So that's the vision Ryan, maybe you can speak to what we think.

Yes and precisely that Beth to the metrics that you're asking, what do watch? Exactly as Ritch talked about our daily pay mechanism. We're focused on watching the recruiting or the customer acquisition metric and so we've tracked that very closely, we're very optimistic and specifics about what we're seeing there. We also look at progressing our sales force. So on the consumer side and the sales force, how do they move through and progress into sales leadership and so we watch the progression metrics as well as the productivity metrics per sales leader. Fortunately at this stage, all three metrics, these three key metrics are all faring favorably. Obviously very early in the stage of the test.

And then I'll just add as the final thing, we do very closely as work with our sales leaders there. So we're getting feedback from them on how they're feeling, what they're hearing and monitoring as we go and so far we're getting good feedback from our leaders there and obviously say very close to them and as we prepare to roll this into the next market. We'll begin doing more and more training, working closely with our sales leaders in the other markets and make sure we're prepared and ready and this is going to be successful. We'll make sure that it's successful to roll it out.

Excellent, thanks so much for your time.

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

I wanted to ask a few housekeeping questions. I guess first back to previous question. I guess I'm trying to understand what happened in 4Q to gross margin and selling expenses. If I recall from the last earnings call you talked about, it seems both of those metrics being up sequentially and they obviously turned out to be different. So I guess LumiSpa was a little bit stronger than your anticipated, how much of that made a difference and sort of what else happened there?

Thanks Mark. This is Mark. I'll go back to the way we expect of sharing bonus to behave in a normal quarter and the way it behaved during a product introduction quarter. In a product introduction quarter a higher percentage of our sales are purchased for personal use and when that happens the expense of the sharing bonus gets rebated back to the person who bought the product, so it shows up in our books as a contra revenue. If it's not bought for personal use what will happen is, we'll see an increase in revenue and we'll see an increase in selling expense and so we thought the opposite impacted that this last quarter which it why it behaved a little differently then what we'll see in the future.

And just to quantify that, our rebate amount was about $12 million higher this quarter than it was a year ago. Well that impacted both the revenue numbers as well as showing a lower selling [indiscernible].

So you were surprised that more folks bought it for their own consumption then to resell it, I guess?

I wouldn't say we're surprised. Clearly this is the first time we're introducing a sharing bonus to product. We've had other similar mechanisms that sort of proven out that this is way we believe we can drive customer acquisition, but it's the first time we've really rolled product out with the sharing bonus. So I don't know that we're surprised at all, if essentially business performed as we would have expected. But it shows up in our number is being lower selling expense and little bit lower revenue than in normal periods.

Got it. Okay and then sort of related to I guess and thinking about social selling or the move to that direction. I was under the impression that sales would get a benefit from the change where your recognizing gross as opposed to net sales in certain cases, is that the case and if so, what was the impact to sales going forward?

I think generally with social selling it doesn't impact us too much necessarily until we start rolling out our velocity compensation plan and pieces of that enhanced plan. So as we begin rolling out social selling products that have sharing bonuses attached to them, then you're right. It impacts revenue. Revenue is a little bit higher and then our selling expense would be a little bit higher as both products are sold to customers.

And lastly and maybe most important for us is the contribution dollars are the same, whether it comes back in a rebate or whether it shows up in higher revenue and higher selling expense. Contribution dollars are neutral and that's really what we're measuring our business on, as we make these shifts.

Got it. Is there any the Velocity sales in your 2018 sales guidance?

Most of the Velocity impact it's latter part of 2018, we don't have - it will start to roll out later in the year but we have not built in significant impact for our financial this year.

Got it. Okay so there is some, but not a lot. And then just lastly, on the acquisitions are they gross margin accretive in the sense that you're sort of vertically integrating?

No, it will. We get a little bit for the small piece of revenue that it is generated for products that are built [ph] for Nu Skin, but for the most part it's about 1% negative impact for our gross margin, by the time we add the third party businesses - are doing.

Got it. Okay. Thank you.

[Operator Instructions] we have a follow-up from the line of Tim Ramey with Pivotal Research Group. Your line is now open.

Just on gross margin again, it might be too hard to do on the fly but I wonder if you can kind of give us a bridge on margin from 2017 to 2018. If we're going to end up slightly down presumably FX is positive, you just mentioned that the acquisitions might be about 1% negative and the change in the selling - accounting will be negative. How should be - is there quick and easy way to kind of give us a bridge on that?

Yes, I can start. So at the highest level our gross margin for 2017 was 78% and we guided 77% to 78%. We think we'll have a negative impact of roughly one point due to the acquisitions and we'll get a little bit of benefit from FX. That's the most simple bridge that I can give you.

Okay and then, there were kind of two numbers given on 4Q LumiSpa. Mark, I think you mentioned 20% of sales might have been rounding, but that was true about the $133 million. Ritch gave us $100 million, is there any more granularity you can give us on what LumiSpa meant in the fourth quarter?

Yes, you're right in the range. We kind of estimate the benefit to be about $100 million which would basically include some cannibalization of the sales of that product, that took away from ageLOC Me or some other products that are similar. So we estimate a net benefit probably in revenue from the quarter, but around $100 million with the growth numbers you mentioned close to 130.

Got it and then just curious Herbalife has made some noise about these China growth payments sort of tax credit or rebate from municipalities that have to be reinvested in China. I assume that got your attention as well. Is there anything that's a foot in your world where that might come to pass as well?

That will just highlight the importance of China to our overall success and the fact that we're aggressively investing in our own business in China. There's different ways to go about it but probably the biggest investment that we'll be looking at over the next three to four years is from additional manufacturing capacity that we're in the process of putting in place right now and there's different ways to go about obviously investing in the market and getting benefit from doing that. so those are things that we've done in the past and we'll continue to do going forward.

Thanks Ritch.

Thank you Tim. And thanks to all of you for joining us today. You can see that we're very optimistic about where we're going. We feel like we enter this year with a lot of energy and excitement coming out of fourth quarter that was very strong. It was the high point for our year. we feel like we have good ammunition. We're focused on strategy and it's clear to us that we're going after customers and growing our customer base. So we look forward to a great year and appreciate you taking time with us today. Thank you very much.

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