Nu Skin Enterprises, Inc. (NUS) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen and welcome to the Q2 2019 Nu Skin Enterprises Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Scott Pond, Vice President of Investor Relations. You may begin.

Thank you, Kyle and good afternoon, everyone. On the call with me today are Ritch Wood, Chief Executive Officer; Ryan Napierski, President; Mark Lawrence, Chief Financial Officer; and Dr. Joe Chang, Chief Scientific Officer. On today's call, comments will be made that include some forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also, during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statement. We believe these non-GAAP financial numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our Investor page at ir.nuskin.com for any required reconciliation of non-GAAP numbers. Now I'd like to turn the time now to Ritch.

Thank you, Scott and good afternoon, everyone. Thank you for joining us today. I understand there was a delay on this side of our wire service from the release today and so just went out recently. We apologize for that late submission. As you saw in our release today and consistent with our pre-release, our second quarter revenue was $623.5 million with earnings per share of $0.83. Our revenue and earnings were lower than previously expected due to primarily softness in China caused by the limitation of sales meetings from a negative consumer sentiment relating to the government's 100-day review of the nutrition and direct sales industry. The government's 100-day review period ended on April 18. However, the restriction on holding sales meetings continued throughout the quarter. These sales meetings are critical for acquiring, training and developing our sales force in China. Furthermore, the significant amount of press associated with the nutrition industry as well as direct selling negatively impacted consumer sentiment. These factors impacted our sales force with Mainland China sales leaders declining 27% against the prior year. On a more positive note, our customer base remains fairly steady benefiting from several consumer initiatives. Toward the end of the second quarter, we began holding limited meetings and the approval of sales meetings has continued to improve into July and now August. During the month of July, for example, locations in which about two-third of our sales leaders where they live and work were open for meeting and that has continued to modestly improve during the month of August. However, both the number and the size of meetings remain restricted compared to the pre-100-day period. Despite this recent disruption, we continue to see great potential in China. It is a vast market with motivated entrepreneurial people who need and appreciate both our products and opportunity. Our local management team has significant experience operating through challenging circumstances and has the confidence of our sales leaders. Several key initiatives including the launch of a new Galvanic Spa and new incentives for sales leader performance will kick-off this quarter and should help strengthen our Mainland business. We are encouraged with the performance of our other segments which performed largely in line with our expectations in the second quarter particularly giving a -- given a difficult comparison as we reported 28% growth in the prior year in connection with our LumiSpa launch. Our manufacturing platform reported second quarter growth of 39% and we continue to see great potential in this area. In the second half of the year, we will focus our attention on several key global product initiatives including the release of a new and improved Galvanic Spa, historically our top-selling product. In October, we will be holding our Biannual Global Sales Leader Event which we call LIVE, where we will be hosting our sales leaders from around the world. We are confident that we have the right strategy focused on customer growth and driven by engaging platforms, enabling products, and empowering programs. I'll now turn the call over to Ryan who will give some additional detail around our strategy and plans for the rest of the year and then Mark will take us through the financials. Ryan?

Thanks Ritch. Good afternoon everyone. Let me first begin by reiterating comment -- Ritch's comments that we remain confident in our growth strategy as we adapt to changing environmental factors. We continue to focus on empowering sales leaders to grow their businesses by acquiring and retaining customers through engaging platforms, enabling products, and empowering programs. I also want to address some of the steps we are taking in response to the situation in China and the progress we are making in executing our overall growth strategy. First, regarding China. We are encouraged with our increasing ability to hold meetings which facilitates the building and training of our salesforce. In fact I was in Shanghai three weeks ago for our company's largest ever Mainland China sales event with more than 20,000 enthusiastic sales leaders in attendance. Their enthusiasm gives me confidence for our future in China. China remains our top priority as we continue to work to strengthen our business in the second half. We have three specific initiatives to accomplish this goal. First, the launch of our new a d-improved Galvanic Spa together with our new ageLOC Nutrial hair and scalp treatment system. Second, new business incentives intended to improve sales leader productivity; and third, initiatives focused on customer acquisition and retention including a new customer referral program. Next, let me mention a few of the highlights in our other regions. The Americas-specific segment generally performed as expected, but was negatively impacted by the hyper-inflationary environment in Argentina. The Pacific, Mexico, and Peru generated strong results and we look forward to the Discover the Best U.S. initiative in our home market which is a multifaceted campaign consisting of several platform, product, and program initiatives to energize our business in this critical market. We executed a similar campaign last year in Mexico where we have seen a -- where we have experienced improved performance. In South Korea, we continue to see signs of stabilization and an opportunity to return this market to growth with new product introductions and enhancements to our velocity sales compensation program. Southeast Asia generally performed as expected while comparing against the 31% growth in the prior year. We're seeing some good performance from several markets including high potential growth markets of Vietnam and Indonesia. In Japan, we are encouraged by two consecutive quarters of constant-currency growth as sales leaders align around our growth strategy, driven by Velocity and our beauty device systems. Taiwan performed well during the quarter with Hong Kong's comparisons impacted by significant sales from the prior year's Greater China convention which was held in the market. In addition, Hong Kong continues to face an unsettled political environment. Finally, EMEA performed well driving 5% constant currency growth. Globally, we continue to make progress in executing the various elements of our growth strategy. Regarding our engaging platforms, we will complete our technology migration to the cloud by the end of Q3. This gives us an agile and scalable technology infrastructure, enabling us to adapt and innovate more quickly and provide our customers with a better digital experience. It's also an important step in transforming our company into a more customer-obsessed, global and digital organization. With our enabling products as many of you know, we recently were named by Euromonitor as the world's number one at-home beauty device systems brand and we're working to further strengthen this position. To this end, we're excited about the introduction of our new-and-improved Galvanic Spa, one of our most successful customer acquisition devices. We believe this enhanced spa along with our new ageLOC Nutrial scalp and hair system will help fuel momentum in our business around the world. Beginning at Live! At our Live! Event in October, we will introduce several new products focused on empowering our sales leaders with a greater portfolio of socially shareable products. These introductions will roll out globally over the next several quarters. For example, you've heard us talk about our controlled environment agriculture initiative which includes in-door growing technology developed to provide seed-to-solution ingredients. We believe this technology will disrupt the nutrition and personal care industries as consumers increasingly demand clean, pure and sustainably-sourced products in an increasingly polluted and under-resourced planet. At LIVE! we're excited to introduce our first two products that leverage this vision and technology, a GreenShake and a facemask. Finally, regarding empowering programs, we continue to focus on optimizing Velocity, our enhanced sales compensation plan to drive sales-leader creation and productivity around the world. Velocity is designed to optimize sales-leader performance based on an individual market needs to promote a more flexible, fast and fulfilling business and attract and reward a broader range of entrepreneurs. We are seeing improvements in key metrics including customer acquisition, the number of people earning a commission and potential sales leaders in qualification. Additionally, we're in the early stages of rolling out an enhanced consumer loyalty program to further strengthen customer retention which began in Q2 in Taiwan and will roll out globally throughout 2020. In summary, we remain confident in our growth strategy as we learn and adapt to environmental factors and believe we have the right team and initiatives in place to grow our business. And with that I'll turn the time over to Mark.

Thanks Ryan. I will take a few minutes to walk you through our financial results for the second quarter and give an update on our Q3 and 2019 guidance. As a reminder, you can find additional financial information in our release and on the Investors section of our website. Second quarter revenue came in at $623.5 million, compared to $704.2 million in the prior year. The previous year period included a LumiSpa introduction which drove sales growth of 28%. Our quarterly revenue results were negatively impacted 4% or approximately $31 million by unfavorable foreign currency fluctuations. Second quarter earnings per share were $0.83 compared to $0.90 in the prior year quarter. Gross margin for the quarter was 75.3% compared to 76.1% in the prior year quarter. Our margin was negatively impacted by unfavorable foreign currency and an increased percentage of manufacturing platform revenue. Nu Skin gross margins remain steady at 77.8% due to our continued focus on product costs. We anticipate our overall gross margin to be approximately 76% to 76.5% for the balance of the year. Selling expense as a percent of revenue was 39.4% compared to 38.7% in the prior year. Selling expense for the Nu Skin business was 41.5%. General and administrative expense as a percent of revenue improved 160 basis points to 24% as we continue to drive expense efficiencies. We anticipate our G&A spend will increase in the fourth quarter when we host our global LIVE! sales event. I am pleased with the results of our efforts to find efficiencies in our business model as evidenced by a slightly improved operating margin of 11.9% for the quarter even with our reduced revenue. The other income/expense line reflects a $3.3 million expense, compared to an $11.2 million expense due largely to an $8.4 million foreign currency translation loss in the prior year. During the quarter, we paid $20.6 million in dividends and did not repurchase any stock. Our tax rate for the quarter was 34.6% compared to 28.8%. Our rate in the prior year benefited from our decision to permanently reinvest funds in China for our new manufacturing facility. Our revenue guidance for the third quarter is $595 million to $615 million and includes an approximate 2% foreign currency headwind. We project Q3 earnings per share of $0.74 to $0.81. For 2019, consistent with the guidance provided on July 16, we anticipate annual revenue in the $2.48 billion to $2.52 billion range with earnings per share of $3.20 to $3.35, which reflects our current outlook in China. This guidance also reflects the stronger U.S. dollar of 3% to 4% negative foreign currency impact for the year. With that, we will now open up the call for questions.

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

Thank you. Hi. So I guess, I just wanted to go back to China a little bit. Sort of, where do things stand currently? And what -- are you able to do meetings now? And what are you embedding in your 3Q and fiscal 2019 guidance for China?

Yes. Thanks, Faiza. We were able to start holding some limited meetings towards the end of the second quarter. And then throughout July as I mentioned in my script about two-thirds of areas where our sales leaders live and work were able to actually begin holding meetings. Some of those meetings are restricted based on the size that is being approved at the meeting. But nevertheless, we're able to start holding those meetings. And actually it's a little better than that here in August. And hopefully we'll see that continue as we go forward. We are kicking off some initiatives beginning actually in August with some promotion initiatives and so forth with the sales force. What we've embedded in the guidance is essentially a slightly lower Q3 versus Q2 in China and then coming back a little bit in the Q4 timeframe as we start meetings -- begin to get our promotions kicking in get our sales force back working.

Okay. And can you share, sort of, what the sales trajectory was maybe June versus July in China?

Yes, I mean, generally we don't go month by month, but that would be all factored into the way we guide. And again, I think we've tried to be careful in saying that we believe Q3 may be a little bit lower than Q2 and then we anticipate Q4 a little bit stronger. Q4 stronger than Q3 is normally a sequential trend that we see anyway, but we do anticipate our sales force going back to work and driving the activity.

Okay. And so -- and what's the timing of the new Galvanic Spa? And do you think that's going to be that's --is that a global rollout? And are you going to be able to start selling the product in China by the end of the year?

Yes, we absolutely will. It kicks off in China actually with our team get the chance to get the new product this month and then there will be qualified sales leader purchase in September and then the full rollout in the fourth quarter. Most of the markets will have some sort of a preview in the month of September on a limited basis with the full rollout happening in the fourth quarter and that's pretty much global in nature.

Okay. Okay. And then just -- our guidance range for 4Q with the implied range seems pretty wide. So are there -- could we talk a little bit about what's some of the puts and takes are perhaps beyond China? Or is it primarily just factoring in some uncertainty in China?

I think the biggest uncertainty is China for sure. The rest of the business really has performed essentially with where we anticipated. When we gave our guidance at the beginning of this year most of our stronger product initiatives were back half-loaded. So the Galvanic Spa, our LIVE event those things were all in the fourth quarter generally or the second half. So I mean we have a $40 million guidance range, which really reflects $20 million in Q3 and $20 million in Q4, which is our standard guidance that we've given. So we really haven't built in anything into the guidance out of our ordinary process.

Okay. Thank you.

You bet. Thank you.

Your next question comes from the line of Steph Wissink from Jefferies. Your line is now open.

Thank you. Good afternoon, everyone. I'd like to focus on the customer growth. It's actually quite impressive even in the context of what's happening in China. So if you could just go through some of the initiatives or the activations that you've put in place year-to-date and then what you expect on customer growth in terms of momentum in the back half that would be helpful.

Yes, yes. Let me speak, Steph, a little bit to that. Yes, we are happy with the direction of our customer growth. As Ritch mentioned previously, very intensive focus of the company around customer acquisition and retention. So Velocity continues to drive a good amount of customer acquisition. That customer growth, as I mentioned briefly, is happening through a series of initiatives, including some repeat order campaigns. China has been very successful or effective in deploying these customer-retention initiatives during this difficult period that's went well to their customer growth. But we're also engaging similar practices around the customer in other markets as well. So those are kind of the two key reasons for growth in customers at this point.

Okay. So we can assume a continuation of customer growth into the back half? And how should we think about the rebuild of the pipeline of leaders, particularly in China, but even generally across some of the Americas and other Asian regions or Asian country?

Let me comment first and then Ryan can add some detail to that. Our biennial event, so very two years we hold our LIVE event. And if you go back to 2017, that was really a catalyst for us being able to energize the sales force around the world, both with the event, but primarily with our product rollout. We anticipate the same happening this year. We've got strong product initiatives. Our Galvanic Spa has been our top-selling product for a number of years, but it hasn't actually been updated for about 10 years. So we look forward to the rollout of the new spa and also have some additional products that come with it, that we think will be well received. These products have not been available in China. It's our Nutriol Hair Product. Although, some of the other markets around the world have had the product that's a new-and-improved formulation. So we think those will be good for customer. We continue to focus on social-sharing opportunities, because that's been a strong driver of customer growth as well. And then finally, I would say, our focus around Velocity to both drive sales leader productivity but also sales leader growth as we like the direction there and we'll continue to focus on that in the back half of the year.

Okay. That's great. Last one, Mark for you. It's just on the manufacturing. I think I caught the number of 39% in the quarter. Can you talk a little bit about that vertical manufacturing? And your comments on the cloud migration by the end of Q3, how that allows you to really drive an acceleration in your product development pipeline? And then, just remind us what the overall financial impact is for 2019, if there's any change in your revised guidance for the impact or the benefit from the manufacturing verticalization?

Great. Thank you, Steph. Great question. We really acquired the manufacturing entities for a couple of reasons. The first one was, again, as we mentioned, to speed up our path to developing new products. Both of these manufacturing entities are in close proximity to our global headquarters and enable our scientists here to go on site do small batch testing, et cetera. But what's been really exciting about these manufacturing entities is, they've been able to tap into other fast-growing verticals outside of our direct core Nu Skin business that has really driven their growth. All of their growth that is reported are sales outside of sales to Nu Skin. So those sales to Nu Skin are eliminated. Where we see the benefit of sales to Nu Skin is in our gross margin line. And that's one of the things that benefited our gross margin in the quarter.

Okay. Thank you.

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

Hi. This is actually Jackie Roth on for Olivia Tong. I wanted to first go back to China quickly two questions. You mentioned some promotional strategies that you're implementing in August. So just if you could give a bit more detail on those? And then in terms of the timing, you mentioned you're expecting a bit worse in China in Q3 and then some improvement in Q4. And is that just based on the meeting restrictions being lifted? Or are you also seeing some improvement in terms of the negative media sentiment there? So now that was something you also called out?

Yeah. I'll speak to the first one regarding the promotional strategies. So specifically in China, as I previously mentioned, we have multiple customer acquisition and retention initiatives that are in place and that will continue to drive in the quarter. We have the new product introductions that we mentioned before with Galvanic Spa and ageLOC Nutrial, which is a new category entrant in -- entrants in China in hair care something we don't do today in that market. So that's helpful. Additionally, on the sales leader side, we have several promotions or initiatives planned to support sales leader productivity growth from August forward. So this is really geared at supporting our sales leaders and our qualifying sales leaders in that market to grow their business and this is a series of linked incentives that facilitate or enable the growth to happen through sales leaders in a kind of effectively -- in effective manner. So those are the promotional elements.

Yeah. Let me just comment on the sort of the forecast and what we see in China. We do anticipate or built into our guidance a slight decline in Q3 to Q2. So where do we get that? And what's made us come up with that forecast? Essentially we're able to begin holding meetings right towards the end of Q2 and then a little bit more into Q3, which we see continuing to improve here as we get into August. We think that will definitely help. We also see the promotions continuing to help. However, we've been real cautious. I mean the fact that we were a long period of time without holding meetings puts -- slows the business down, especially as it relates to being able to train and acquire new sales leaders. The sentiment generally I think overall has improved somewhat as it relates particularly to the nutrition industry and also to direct selling. There have been more positive media, I would say in the last month or so. And we feel like that will also help consumer sentiment. So yeah, we see all those things and try and monitor them as we forecast out what we think the business will do, but overall, we are really optimistic about China. This is a great market and frankly, we've been through several of these ups and downs in our history. And our management team is well versed in how to work with our sales leaders and get them back to work and put the right incentives in place to get people committed and back working. So that's what we built into our forecast.

Okay. Thank you. That's helpful. And then if I could just ask one more about in terms of the Galvanic Spa and ageLOC Nutrial, just sort of if you could give a sense of how these are different versus -- how meaningful the difference, I guess, is from the original versions and then how you are thinking about pricing these based on the initial versions because it seems like the strategy has been skewing more towards – more approachable price points for your product. So is that something that we might see with these three launches?

The Galvanic Spa has a completely new user interface, which we think will be well received. It has been our top-selling product for about 10 years. And we really see it as something that our customers and our sales leaders are very, very familiar with. They like that. The Nutrial product has been available in certain markets. Those markets are getting a new-and-improved formulation. Some of the markets China specifically has never sold the Galvanic – or the Nutrial product. So that will be a brand-new product. And the pricing will be similar. The new user interface from the Galvanic will be similar to where the old was.

Okay. Thank you.

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

Hi. Thanks. Good afternoon, everybody. Can we talk a little bit more about the Groviv initiatives? I know Ryan, you touched on them a GreenShake and a facemask at the LIVE! event. So it sounds like the GreenShake is nutrition-oriented. The facemask is beauty-oriented. So what's the branding going to be on these? Are they going to go into Pharmanex and Nu Skin brands? Or will Groviv have its own brand?

Yeah. It's a great question Doug. Thanks for that. We're excited about our progress and we're finally to a point where we're starting to release products that have been developed utilizing this technology around in-door growing. So these will be our first two, one in the nutrition, one in the personal care. They'll be under a Pharmanex and a Nu Skin brand but it'll have a Groviv inside sort of certification. So giving creams to the fact that the ingredients were grown in a completely pure environment. And these will be our first products. We look for many more as we go forward both products where we're including ingredients that are CEA or a controlled-environment agriculture development, but also brand new products as well. And those will be developed and announced as we get a little bit closer.

Now will these be premium-priced given the growing technology here?

Not necessarily. We have a GreenShake already. This will be an updated version of that, but the pricing will be similar on that product. This is a new facemask, but it will be priced competitively with other facemasks that we sell.

Okay. Thanks. That's helpful. And just lastly in your model in China obviously you rely on meetings and that's where you've been hamstrung if you will with this 100-day review period and the fall-out from. Is there anything you can do in China to modify your models so you're less reliant on these permitted meetings?

Yeah. It's a great question. And we've really focused a lot of energy and attention around the customer first and foremost around building a strong customer, base promoting to the customer. It's been helpful I think. We feel – as we look around the industry we actually feel like we faired fairly well and then quite well over the last two quarters. We look forward to now getting our sales leaders back going. I would say about 80% Ryan can confirm of our transactions are actually done over WeChat and mobile device. So we've leveraged that technology and gotten better and better over the last few years, and we'll continue to look at that as ways where we can communicate and promote the business and be able to carry on even when meetings are somewhat restricted.

Okay. Thank you.

Thank you.

[Operator Instructions] Your next question comes from the line of Beth Kite from Citi. Your line is now open.

Wonderful. Hi everyone. With respect to some of the conversations so far around China, one of the things I think was a strength in the first quarter even through the investigation was the concept of pivoting to skin care, maybe sort of less face-to-face interaction and some more e-commerce like buying if you will. Was it the situation that you just kind of got is a little bit of snowball effect by the second quarter then with the meetings kind of catching up to you? Was there still some of the offset of skin care being stronger in the second quarter? And I guess big picture and it's a little bit of what we were talking about earlier with respect to -- is the nutrition category is the negative press maybe lifting? Might you see that category being a little stronger for you maybe in a 12-month horizon? And then related to that TR90 has been so strong I believe in China last year. Is that a storyline that maybe won't repeat here in '19, but maybe might come back into 2020 and build us again with respect to China?

Yes. I think there's a lot of questions there that Ryan and I can both tag team on. But first and foremost, in China the biggest impact really was the fact that our sales leader number came down. And while we are able to continue to promote to customers and keep our customer number fairly strong, the sales leader number coming down really impacted our overall sales. And that was primarily impacted by the lack of not being able to hold meetings and not being able to drive that number up. So, I think it will definitely be helped as we start holding meetings and so forth. We've stayed focused on our beauty device platform there which we think is really strong and continues to do quite well. TR90 as well, we've held off on promoting nutrition during that period of time as we felt like that was prudent. But we'll promote and actually have some nutrition supplements that we'll be looking at in the back half of the year in China as well. So, yes overall we'll promote both sides of the business. The business is getting back to a more normal pace, but we have to reenergize the sales force and get them growing again. That'll be the key area of focus both with promotions and our product launches.

Great. Okay. And then sorry, I didn't ask Ryan had anything to say. The other question I have there two more just quickly on product. For the Galvanic Spa, do you envision because of the extent of the changes that current owners if you will of Galvanic Spa will sort will be upsold if you will to the newer version? Do you think the newer version will be appealing to both current customers and to a whole new slate of new customers? And if so why?

Yes. Beth and by the way didn't mean to be too silent. Ritch was just very good. There's nothing else I have to add. On the Galvanic Spa, so we've upgraded the spa once before with our ageLOC technology and the gels and we did see an accelerated repurchase rate of the device which is fantastic. So yes, we do expect our existing Galvanic user base to expand through repurchase. I think as Ritch mentioned, the enhanced user interface is much more user friendly, intuitive in the way it's built. So we're excited. I think it will appeal to even broader segment of our customer base getting to millennial and Gen Z, which we're excited about as well. The other thing we really like about it is that it really is designed in a manner that's consistent with the LumiSpa franchise and so it really just strengthens that beauty device system's platform that Ritch is describing. So we think that there will be a greater correlation of purchasing across LumiSpa and Galvanic Spa users as a result of that as well.

Excellent. You actually led me into my final question, which was on LumiSpa and Accent in particular. Understanding the second quarter had its challenges in many markets especially China, but how did Accent perform in the full quarter? Were you pleased with it? Do you need to re-tweak or tweak any of the sale strategies around it? Or how are you feeling about it and I guess the LumiSpa franchise in total?

Yeah. That's where I would start Beth that we really are pleased with the LumiSpa franchise. There are so much more we can continue to do with that franchise that continues to be a major seller. Accent is really an extension of that. And now with the role that it played, it's a very specific as you know; a very specific treatment around the eye area and so that does tend to be a more narrow segment that's worried around Crows' line and those sorts of things around the eyes. But as far as building on the franchise of LumiSpa it fulfilled that role and we'll continue to build upon it because we see it as being a key pillar of that beauty device system platform as we go.

Excellent, all right. That’s it for me. Thanks so much.

Thank you, Beth.

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

Thanks. Good afternoon everybody.

Hi, Mark.

I wanted to ask about your expectations for 3Q again. What's embedded in the guidance? Is China going to be marginally worse sequentially for the rest of the world? Are the any key regions there that may be more impacted? It sounds like there might be a little bit weaker sequentially. And any particular reason for that?

I think generally Q2 is a stronger quarter normally than Q3 from -- just from kind of the way the year plays out each year. Overall you'll notice that our guidance is slightly below our Q3 and the primary factor there is China. So the rest of the world would anticipate being mostly even from Q2 to Q3. And feel like the business in most of the other regions is doing well sequentially yet trended pretty well from Q1 to Q2 both in terms of customers and sales leaders as well as revenue. And so there's nothing planned that would cause us to really change our guidance or look at things too differently. We do begin the Galvanic Spa. There'll be some markets that will start to sell that on a limited basis in the third quarter. That should help a little bit mostly in September. And then we have, obviously, our LIVE! event and a lot of product activity in the fourth quarter.

Got it. Okay. And then just lastly on the productivity -- the sales leader productivity, anything in particular there that drove the weakness beyond the trends in China? Like it seems like a little worse across some of the regions as well. So maybe any sort of detail there if you have it please?

I would just comment that as we've rolled out Velocity, one of the focuses on the Velocity compensation structure is to increase the productivity of sales leaders. And the requirement for them to build why is not as in-depth as it was previously. So for example, in Europe, where we rolled out Velocity in kind of the end of the first quarter, we saw a decline in the sales force and yet strengthening in the customer base. So we've seen that happen in a few markets as we've changed their compensation structure, but generally outside of that not a lot of change. We do see -- I think what we anticipate is with the stronger customer base per sales leader. We would anticipate the retention of sales leaders to continue to improve and that was really one of the focuses around the Velocity changes that we made.

Okay. Thank you.

You bet. Thank you.

I think that is the last question. We really appreciate everybody joining us. We look forward to a good back half of the year. I was disappointed certainly with the results that we presented here in the second quarter. But as I look overall at the business, I'm encouraged at our profitability. I'm excited about the Live! event and the product ammunition we have in the back half of the year. We've really made some good progress on technology, which is going to start to play a key role as we go forward in speeding up and helping our sales leaders' team more effective. So, generally we're anticipating a continued opportunity to prove ourselves going forward. We'd invite any of you who would be interested to come to LIVE!, and certainly reach out to Scott Pond if you have interest and then we can look at getting you here than. But we do anticipate a really good back half of the year, and thank you for your time and attention today.

This concludes today's conference call. Thank you and have a great day.