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Nu Skin Enterprises, Inc. (NYSE:NUS)
Q3 2018 Earnings Conference Call
Nov. 7, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2018 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 be given at that time. If anyone should require operator assistance during the conference, please press * then 0 on your telephone keypad. As a reminder, today's conference is being recorded. I would now like to turn the call over to Scott Pond, Vice President of Investor Relations. Sir, please begin.

Scott Pond -- Vice President of Investor Relations

Thanks, Mark, and thanks to everyone for joining us today. On the call with me are Ritch Wood, Chief Executive Officer, Ryan Napierski, President, Mark Lawrence, Chief Financial Officer, and Joe Chang, Chief Scientific Officer. During this 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. I'd like to turn the time now over to Ritch.

Ritch Wood -- Chief Executive Officer

Thank you, Scott, and good afternoon everyone. Thank you for joining us today. I'm excited to share with you an update on the encouraging results of our business in the third quarter. As we reported in our earnings release, this was a very strong quarter for us with revenue of $675 million up 20% over the third quarter of last year. This is the fourth consecutive quarter on which we have reported 20% or higher revenue growth. We also delivered strong earnings per share of $0.94 up 24% over the prior-year quarter. As noted in our release, earnings per share included a $0.07 negative impact from a foreign currency translation loss and $0.04 of non-cash expense related to acquisition accounting.

Driving our results was the continued execution of our growth strategy, focused on increasing customer acquisition and retention through engaging platforms, enabling products, and empowering programs. Brian will provide more on the implementation of this strategy in a few moments. I'm especially pleased that we're seeing solid trends in all of our reportable regions, giving us confidence in the strength of our business and our strategy. We drove especially strong growth in mainland China, which grew 31% and South Asia, which was up 21%. Both benefiting from our successful Ageloc Lumispa product offering as well as the success of social sharing initiatives.

We were also encouraged to report modest growth in Japan and we feel that the trends in Korea are improving. These are both very key markets for us. Our Lumispa has become a true franchise player. Revenue from this device accounted for 11% of new skin sales during the quarter and we see this product continuing to be a catalyst for growth. It strengthens our differentiated device platform, which includes also the Galvanic Spa and Ageloc Me. Finally, our Velocity compensation program has now been introduced in the majority of our market and is driving the behaviors we believe will generate long-term growth, specifically, we're seeing accelerated customer acquisition, which is core to our strategy.

Velocity launched in Korea in October and will be fully launched by mid-2019. We continue to move ahead with our vision to establish a powerful business platform. Our manufacturing partners continue to grow and give us the increased capability to bring products to market faster and more efficiently. These partners contributed 26 million to the top line this quarter and we're beginning to see benefits start to flow into our gross margin. I also want to quickly highlight Groviv, our controlled environment agriculture technology company.

In the near future, we will announce our first product that incorporates ingredients grown with Groviv technology. This will signal to our customers that these ingredients came from plants grown in a clean, pure, and sustainable environment without the use of pesticides and using substantially less water and land than what would otherwise be required. We are excited that this technology is developed to a point that it will begin to benefit our Nu Skin customers in the very near-term. Our Q4 year-over-year comparison is impacted by $130 million in Lumispa limited time offer sales in the prior year when we first introduced this product around the world.

However, as Mark will discuss in a few moments, our guidance anticipates local currency revenue growth of 5-8% building on top of the 25% growth we reported in the prior year and a solid indication to the strength of our global business. Assuming this fourth quarter guidance, we anticipate delivering local currency revenue growth of 17-18% for the year. I am very pleased that we have returned our business to strong growth and I believe our future is bright. While currency is causing a bit of a headwind and is having some impact on our overall margins, we see growing strength in the core business, particularly in our customer and sales leader numbers as we execute our growth strategy around the globe. I will now turn the call over to Ryan to provide more detail around our global business and following Ryan's remarks, Mark will then address the specifics regarding our financial results and our guidance.

Ryan Napierski -- President

Thanks, Ritch. Good afternoon, everyone. As Ritch mentioned, we continue to execute our growth strategy centered around our three strategic pillars: engaging platforms, enabling products, and empowering programs. We reported growth in all of our regions as our foundation continues to get stronger with sales leader growth of 14% and customer growth of 9%. This gives us further confidence in the direction of our strategy. Our strategy is enabling us to attract a broader range of both consumers and entrepreneurs, evidenced by a lowering average age of both, which is contributing to our increased performance across markets. We remain focused on each pillar of our growth strategy and continue to make progress as we implement it.

We're engaging platforms, we continue to leverage social media, and focus heavily on social sharing to empower our sales leaders to acquire more customers. Social sharing is being incorporated into our business model in various ways around the world. For example, in China and in Korea, we're leveraging popular social platforms like WeChat and KakaoTalk to facilitate product introductions and sales to customers. And the Americas, Pacific, Southeast Asia, and EMEA regions are focused on utilizing social media to expand our customer reach. Our technology platform plays a fundamental role in accomplishing our vision to become the leading business opportunity platform.

To accelerate our ability to achieve the vision, we recently engaged in interim CTO to evolve our approach to technology, including transitioning ourselves to a customer-centric digital organization and a cloud-first infrastructure. On the enabling product front, Ageloc Lumispa continues to perform well with strong global consumer demand that is driving customer acquisition accounting for 11% of Nu Skin's third-quarter revenue. It is also contributing to a strong sales leader engagement level particularly in mainland China and Southeast Asia. As part of our enabling product strategy, we are focused on driving growth in our existing product lines by restaging and enhancing some of our top-selling brands.

Building on the success of Lumispa device, we're expanding the product line to include new surfaces and cleansers, such as an acne treatment solution. We are also introducing the new Lumispa Accent, a specialized eye treatment attachment and bundling it with Tru Face Ideal Eyes. In the nutrition category, our TR90 body shaping and weight management system generated 22% growth year-over-year with sales of nearly 70 million for the quarter and continues to play a vital role in building our nutrition business. Finally, regarding empowering programs, we continue to roll out Velocity around the world with Japan and Southeast Asia launching in the third quarter.

This compensation enhancement is focused on accelerating rewards to sales leaders on a daily, weekly, and monthly basis providing increased rewards for the sharing of our products and enabling greater flexibility to appeal to a broader entrepreneurial demographic. From a geographic performance perspective, we're again pleased with the positive revenue growth in each of our reported regions around the world. Mainland China continues to execute well on all aspects of our growth strategy resulting in local currency revenue growth of 34% with sales leader growth of 30% and an 11% increase in registered customers. We introduced our new China-specific prebiotic product called Balance exclusively on our WeChat sales platform as well.

Lumispa continues to perform well as part of our beauty device platform in that market. We continue to see strong customer demand for our brand and product and to date have not experienced an adverse impact related to the current macroeconomic issues. Hong Kong and Taiwan posted positive year-over-year growth of 10% in local currency revenue reflecting a strong interest in Lumispa, which also contributed to sales leader and customer growth. The Americas and Pacific grew 20% in local currency or 9% in US dollars. This region is being driven primarily by strong growth in the Pacific and Latin America.

We remain focused on social sharing as a growth driver throughout that region. South Korea was flat in constant currency as the market prepared for the launch of Velocity and the restage of 180, one of our best selling products in the market. We anticipate these initiatives will drive improvements to customers, sales leaders, and revenue in this key market. Southeast Asia continues to perform well with a 24% local currency growth bolstered by 23% in sales leaders and 16% growth in customers. This was primarily driven by strong social sharing efforts, ongoing interest in Lumispa, and the implementation of Velocity in most of our markets.

While market conditions in Japan remain difficult, we're pleased with the modest growth of 2% in local currency revenue as a result of increased customer acquisition from the launch of Velocity. Finally, in EMEA, it grew by 8% in local currency reflecting continued social sharing adoption throughout the region. Our social sharing products there including Power Lips and Insta Glow contributed to 13% customer growth. So to recap, we had another strong quarter in revenue growth across all of our regions driven by our platform product and program strategy and we are still in the early stages of implementing and optimizing this strategy around the world, which will reflect additional improvements across all functions of the business and improved performance in each of our geographies. I absolutely believe the best is yet to come. Mark, we'll turn the time to you.

Mark Lawrence -- Chief Financial Officer

Thanks, Ryan. I will now provide some color around our third quarter results and update our guidance for the fourth quarter and 2018. Additional financial information can be found on the investor section of our website. Our third quarter revenue came in strong at $675.3 million a 20% improvement over the prior year and above the high-end of our guidance, making this our fourth consecutive quarter of revenue growth of 20% or more. Third quarter revenue was negatively impacted 3% by foreign currency fluctuations. Our core Nu Skin business grew 18% on a constant currency basis while our recent acquisitions contributed 5%. Our reported earnings per share were $0.94, an increase of 24% year-over-year or $1.01, a 33% improvement when excluding $0.07 in foreign currency translation losses.

The $0.07 charge is primarily related to the strengthening of the US dollar against the Chinese RMB and highly inflationary accounting in Argentina. Both of these charges are reflected in the other income expense line of our income statement. Our quarterly earnings per share were also negatively impacted $0.04 by a previously announced purchase accounting charge. Excluding the FX and purchase accounting charges, our earnings would have been $1.05. Gross margin for the quarter was 76.7% a 60 basis point sequential improvement. This increase was largely the result of Lumispa manufacturing efficiencies, sales of Lumispa consumables, and the sell-through benefit of product supplied by our acquired manufacturing entities. These benefits were partially offset by a strong US dollar. Our gross margin for the core Nu Skin business was 78.7%, an improvement of 10 basis points over the prior year.

Selling expense as a percent of revenue was 40.2% compared to 41.7% in the prior-year quarter. The decrease was largely due to non-commissionable revenue associated with our manufacturing entities. Core Nu Skin selling expense was 41.8%. General and administrative expenses as a percent of revenue were 24.5% compared to 25.4% in the prior year as we gained leverage on our overhead due to higher revenue. Operating margin for the quarter improved nicely to 11.9% compared to 11.4% in the prior year. The other income expense line reflects a $7 million expense compared to a $1.2 million expense in the prior year due to the foreign currency translation loss mentioned earlier.

During the quarter, we paid $20.3 million in dividends and repurchased $12.4 million of our stock. The tax rate for the quarter was 27.9% compared to 34.1% in the prior-year quarter. Our rate this quarter was positively impacted by the utilization of foreign tax credits. In addition, we saw a benefit from our permanent reinvestment in China mentioned in the second quarter. We continue to monitor the evolving tariffs and trade policies between the United States and other countries. We do not anticipate these tariffs as currently written to have a material financial impact on our business and estimate the impact to be less than $5 million for 2019.

Tariffs and trade policies could have a negative impact on currency exchange rates and economic conditions generally which may affect our results. Our revenue guidance for the fourth quarter is $665 million to $685 million and includes an approximate 4-5% currency headwind. As a reminder, in the fourth quarter of 2017, we held an Ageloc Lumispa limited time offer sales event, which generated $130 million. We project reported Q4 earnings per share of $1.00 to $1.07 or $1.04 to $1.11 when excluding the $0.04 purchase accounting charge. Due to US tax reform, our tax rate is subject to increased variability.

We are projecting our Q4 tax rate in a 32-36% range. Our Q4 guidance is adjusted slightly lower than we previously expected due to a stronger FX impact and higher variability in our tax rate. The fourth quarter gross margin is anticipated to be in line with Q3 benefiting from continued cost efficiencies offset by an anticipated strong Lumispa sales and foreign currency pressure. For 2018, we are now projecting revenue in the $2.66 billion to $2.68 billion range.

This guidance reflects an additional currency headwind of $25 million or an estimated neutral FX impact compared to a 1% currency benefit in our previous guidance. 2018 earnings per share are projected at $3.48 to $3.55 or $3.84 to $3.91 when excluding the projected $0.16 purchase accounting charges for the year and the $0.20 foreign currency translation charges experienced in Q2 and Q3. We expect to provide 2019 revenue and EPS guidance during our Q4 earnings call. With that, I will now open up the call for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press the * and then the number 1 key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the # key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. And our first question comes from the line of Faiza Alwy of Deutsche Bank. Your line is now open.

Faiza Alwy -- Deutsche Bank -- Analyst

Great, thank you. So I guess I wanted to talk a little bit more about China and what your expectation is for the fourth quarter and as we look ahead into next year because the comp is a bit tougher in the fourth quarter. And I know Ryan, you talked about a bunch of new product launches so maybe if you could just address some of the timing of those launches globally and specifically as it relates to China?

Ritch Wood -- Chief Executive Officer

Thank you, Faiza, great to hear from you. Just real quickly and then I'll turn it over to Ryan to speak more specifically. We really like the trends that we're seeing in China and what I'm particularly encouraged by is we're starting to see our customer number increase. We saw a slight increase from Q2 to Q3 and believe that will be important as we go forward and I think we have some really exciting things that the distributors are excited about. So Ryan maybe you can give a little detail on revenue there.

Ryan Napierski -- President

Absolutely, Faiza. As you mentioned, we're moving up against the Lumispa activities of this past year we'll be comparing to those in Q4 and moving forward. As I mentioned previously, we'll be focusing on expanding our brands and the franchises that we have there. And so we have a series of product improvements, including that Accent product that I mentioned as well as the expansion of balance and a few other product initiatives that are scheduled throughout the year and spaced throughout the year to enable us to achieve the goals we have there. We do feel like we have good product ammunition there. On the platform front as well we're really utilizing our technology platform with WeChat. We believe very effectively from a promotion standpoint and so that's helping us to Ritch's point, really to expand our customer base there, which is helpful. So we believe that's going to be a good growth driver for us moving forward.

Faiza Alwy -- Deutsche Bank -- Analyst

Okay. Could you give us the sales number for Lumispa specifically?

Ryan Napierski -- President

For the quarter?

Mark Lawrence -- Chief Financial Officer

Yes, it was about $74 million for the quarter.

Faiza Alwy -- Deutsche Bank -- Analyst

Okay, great, thank you.

Operator

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

Olivia Tong -- Bank of America -- Analyst

Great, thank you. I'm gonna ask you a little bit more about social selling because it seems to be working out quite well for you. What percentage would you say, as a percentage of sales now, and what does the structure of the margins look like relative to some of the larger products that you have out there?

Ritch Wood -- Chief Executive Officer

What we like about social selling is really two things. Number one, it gives us a bigger reach to touch more people, really tells them about our product. And then number two, it will facilitate the sale. The tools that we are in the process of developing, which will fulfill I think those sales, are beginning to roll out. So Ryan mentioned WeChat and China specifically, there's a KakaoTalk program that we're using in Korea. So those are just rolling out as we speak. I think from a percentage of sales it's hard to tell exactly because we have certain products that we deem as social selling products.

We can certainly track what those are. We're seeing more and more, however, for example, our Galvanic Spa that's now being discussed and sold using social media as well as the Lumispa, is probably one of the key drivers. So I don't have a specific number for you but I'd say we continue to see this adoption and more and more people utilizing social selling and we're getting better from our side in providing tools that make it easier.

Ryan Napierski -- President

And maybe just to expand a little bit on what Ritch described there. What we really love about the platform is that it really does apply to a much broader section of our products than previously designed as we went to those lower priced products initially that were highly demonstrable. We are finding that, as Ritch said, the Galvanic Spa, the Lumispa, even Ageloc Me played very well because they're demonstrably different and anything that we can show via social seems to be enhanced. It's really a great platform for us to build the full portfolio is what we're finding.

Olivia Tong -- Bank of America -- Analyst

Got it, thanks. More of your portfolio is shifting toward the everyday lower priced items. I was wondering if you could give us a sense of what percentage of your portfolio now is in the sort of more approachable price point area versus some of the more traditional higher-end items. And as you think about servicing sort of this transitioning from just LTO to more of an LTO plus everyday sort of items. Can you talk about how you guys have changed in order to service both of those components?

Ritch Wood -- Chief Executive Officer

Let me first take a shot and then Mark and Ryan can add here. First of all, I would say we're talking more about some products that we've launched that are lower priced. I don't think they make up a larger percentage of our revenue so to speak. For example, one of the products Ryan highlighted in his discussion was our TR90 weight management program, which continues to grow. It was a really strong driver of the business in Q3 and continues to be very strong particularly in Asia. And so, while we talk a little bit more about some of these products that we're launching that are lower priced, they really are not making up a larger percentage per se of our overall revenue.

The business is still being driven by many of our key brands and really one of the focus in the product portion of our strategy is to reinvigorate these brands that have been out there that haven't had a lot of updating and restaging. One other comment. We restaged, for example, one of our top selling products in Korea is called Nu Skin 180. And we restaged that in the month of October, here just recently over the last couple of weeks. We believe there's a lot of opportunity in our product mix to not just bring new products that are maybe lower priced but really do a better job of telling the story on some of our key products. We're really trying to drive the whole portfolio and not really just focus on let's call it, the lower priced products or the higher products.

Ryan Napierski -- President

I think that really is key, Olivia. As you mentioned, how does it change the company internally? A lot of these lower-priced products act as very good customer acquisition mechanisms and then when they come in they get exposure to the broader portfolio and some of the power brands that we have. I think how it's impacted us internally, we really are focused, as Ritch mentioned, on driving these franchises over time.

And so these Lumispa extensions improvement to some of these core product brands that will be central to our growth strategy moving forward. Continuing to invest in those brands that our customers are seeking, refine them from. And you'll be seeing that a lot more from us, a lot more discussion around that in the coming months and years.

Mark Lawrence -- Chief Financial Officer

And Olivia, I would add -- this is Mark -- core Nu Skin gross margins improved 10 basis points year-over-year. So even with the introduction of some of these socially shareable products and Lumispa making up a bigger piece of our revenue, our core Nu Skin gross margin was able to expand 10 basis points.

Olivia Tong -- Bank of America -- Analyst

Got it. And then if I could just ask one last question -- more housekeeping. In Q4, can you remind us, is there anything sort of one-off in the base period just as we think about modeling Q4, particularly when it comes to the SGNA?

Mark Lawrence -- Chief Financial Officer

No, there shouldn't be anything. The only thing that jumps out specifically would be the $0.04 of purchase accounting, which we've called out during the year.

Operator

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

Tim Ramey -- Pivotal Research -- Analyst

Thanks so much. TR90 growth was impressive and that is sort of a brand reinvorgation story. I think I recall you talking about that going to sort of a lower price per unit just based on not having to buy a three month supply. But is it lower priced overall on sort of a daily use basis? That was a fairly expensive product when I was introduced a few years back.

Ryan Napierski -- President

Great question, Tim, this is Ryan. Yeah, TR90, definitely a big focus for us and the transformation franchise will continue to be. From a daily use perspective, it is a 90-day system. We do allow flexibility, of course, for consumers that come in and want to buy a 30-day versus the 90-day, so there is that flexibility that's built into it.

But as a daily system, it's relatively comparable to other products in the marketplace. We just happen to package it in the 90-day total. That's how it's packaged and how it's set today. Again, future plans will be to enhance that an improve it over time with additional value creation opportunities. But as of now, the flexibility comes through the 90-day system being purchased at 30 days or 60 days or 90-day increments.

Tim Ramey -- Pivotal Research -- Analyst

And one question I'm asking all the MLMs I guess. There is apparently this initiative in China to sort of measure your digital signature for kind of positive social values. I don't know how much you've thought about that. Is activity on WeChat regarding your products viewed positively by the Chinese government? Is this going to be a contributor to the digital signature that any one individual has out there? Are you familiar with this initiative?

Ryan Napierski -- President

Yes, fairly familiar with it. It is an interesting one, isn't it? It's kind of an interesting way to --.

Tim Ramey -- Pivotal Research -- Analyst

Orwellian.

Ryan Napierski -- President

Yeah, social impact. We are familiar with the developments there and the positive thing with respect to WeChat is it is very much a market-supported platform and market valued platform, which is the way the government invests in local businesses there. So our view -- the more that we can work effectively with the local platforms, the more we'll be aligned with kind of these larger movements or the macro movements including this social value one.

I think we feel good about it. We feel good about the partnerships that we have there. Both the customer-facing partnerships as well as we have some very good infrastructure partnerships there that are very dialed into local market activity in the digital social space.

Tim Ramey -- Pivotal Research -- Analyst

Also relative to China, it seems like your piece of innovation may be picking up there. And that's a difficult thing, a long approval processes and so on for new product registrations. Are you finding that your new product registrations are going faster or were these just long lead times that are finally coming to fruition?

Ritch Wood -- Chief Executive Officer

This is really part of the plan, I think Tim, we've operated there for quite a while. We continue to learn as we go but feel like we have a good pipeline of innovation that's now coming to the market on a consistent basis and look forward to having to continue really into 2019. We feel like we've got a really good pipeline that will really engage our customers and keep our sales leaders really excited about new opportunities in the business.

Tim Ramey -- Pivotal Research -- Analyst

Okay. And then finally, we know about the comp with last year and the LTO. Is there any LTO at all in this year's fourth quarter?

Ritch Wood -- Chief Executive Officer

We really don't have any LTO and we're not executing our business using LTOs as we have in the past. The team will be launching new products but they won't be done in an LTO fashion. So for example, the Accent is a new attachment that can be put on the Lumispa, which we think is gonna be really appreciated by our customers for right around the eye area.

And so we will bring that to several of our markets in Q4 -- the majority actually in Q1 and then going forward, for example, mainland China will be next year. We believe that's a better, more consistent way to bring product in the market going forward. While we have some limited sales events, they'll be done differently, and we don't have any significant ones planned for this fourth quarter.

Operator

And our next question comes from the line of Linda Bolton Weiser of D.A. Davidson. Your line is now open.

Linda Bolton Weiser -- D.A. Davidson -- Analyst

Hi. I think you highlighted when you read the numbers off that your constant currency sales growth in Hong Kong, Taiwan was 10%, pretty good. But it was quite a bit higher last quarter. I think it was over 20% and it didn't look like the prior year comparison got much harder. Is there something going on there that made that less robust in terms of the growth? Can you just give a little more color on that?

Ritch Wood -- Chief Executive Officer

Thanks, Linda, for that question. Actually, to speak about Hong Kong and Taiwan, we're very encouraged with these markets. These are markets that were on a pretty steady decline for three or four years as we started to implement our new strategy so we're very encouraged to see those growing. The difference was we had a convention in Q2 -- a regional convention that drove some sales. So that's the difference. It was actually the ticket sales that ended up causing the growth rate to be quite a bit higher than kind of what the core business was doing.

Linda Bolton Weiser -- D.A. Davidson -- Analyst

Okay, thanks. And then, is there any way to give a comparison of what you think you might be planning for 2019 in terms of numbers of products that are launched for social media selling and how that would compare to the number in 2018?

Ritch Wood -- Chief Executive Officer

We look forward to laying out the full 2019 plan at our Q4 release. And actually, we're considering doing an analyst investor day about the same time, probably toward the end of February where we can go into more detail on what the product plan looks like. You will see us speaking to Ryan's strategy around products doing two things. Number one, bringing new product to market but secondly, restaging and bringing new advancement to many of the key brands that we're selling right now, including the Galvanic Spa. So we look forward to rolling that out in detail at the beginning of next year.

Linda Bolton Weiser -- D.A. Davidson -- Analyst

Okay. And then, I think you had talked about working on maybe expanding your outsourced supplier base or something for Lumispa such that it would start to help your growth margin somewhat. Is that already making an effect on the growth margin or is that still something to come?

Mark Lawrence -- Chief Financial Officer

That second supplier will come online in Q4 and we will see an impact and a benefit to the cost of Lumispa in Q4. But overall, margins in Q4 will be expected to be roughly flat against Q3 because Lumispa will make up a larger percentage of our total sales. And it still does -- even with those improvements, it's still slightly below our average product margin portfolio.

Linda Bolton Weiser -- D.A. Davidson -- Analyst

Okay, thanks very much.

Operator

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

Doug Lane -- Lane Research -- Analyst

Thank you, hi. Mark, just starting off on the purchase accounting; the $0.16 this year. I know you said before that it's much smaller next year but does it goes to zero or does it go for maybe $0.04 a quarter to $0.01-0.02 a quarter?

Mark Lawrence -- Chief Financial Officer

It more or less goes away. It's roughly $0.01 a quarter into next year.

Doug Lane -- Lane Research -- Analyst

Okay. And also, I'd like to talk about Velocity and going to daily and weekly compensation to go along with the monthly. How important is that? Do you see the daily and weekly components being half, two-thirds, 10%? How much of that compensation line is gonna go to daily and weekly compensation?

Ritch Wood -- Chief Executive Officer

Let me first speak to the overall strategy here, Doug, because it's really core to understanding what we're trying to accomplish. By going to a very quick reward system, yet reward the behaviors we like. So as soon as somebody sponsors a new customer and that customer purchases a product, they're immediately rewarded with a bonus and it pops up right on their phone. While the overall percentage of payout is probably around a little more than a third, the larger portion is still paid at the end of the month.

It's a way to recognize and give our leaders a chance to get paid much more quickly. The other thing it does is create rewards for a lot more people. We're paying today a lot more people that otherwise probably wouldn't be paid under our system. It's giving a lot more people a chance to earn some income and get excited about the business. Ryan, do you have anything to add to that

Ryan Napierski -- President

No, I think you answered the question, Ritch. But I really do just want to stress the point of the flexibility in addition to the speed of the reward. And for us, as we look at being that world-leading opportunity platform, how do we ensure that we're attractive to entrepreneurs of all kinds?

I think the daily and weekly aspects are additional components to our entrepreneurial offering that we didn't have previously due to that need for quicker income. For us, the financial impact and the shift of the dollars doesn't change. The appeal of the opportunity changes as people are able to access funds for the work that they do in the daily and weekly basis.

Doug Lane -- Lane Research -- Analyst

Okay, got it. That makes sense. Lastly, looking at the fourth quarter with a tough comparison. It's impressive that you're looking to deliver mid to high-single-digit local currency growth on top of that big number. I don't know if you were but certainly, some of were looking for perhaps a down quarter earlier in the year. And I just wondered if you could maybe step back and give us some color on what's come together in the last six or nine months that really gives you confidence in that kind of a growth number on top of the big fourth quarter last year?

Ritch Wood -- Chief Executive Officer

From the beginning of the year, we had forecasted a decline in the fourth quarter that was part of our guidance and then as we've been able to come through the year our revenues continued to trend strong. To me, what gives me confidence that we're gonna have a solid fourth quarter is the fact that our sales leader, our customer number, continues to be very strong.

And LTO acts differently because people purchase a higher amount but it doesn't necessarily move all the core fundamentals of the business. What's gonna drive the growth this year is just core growth in our customer base and our sales leader number that really bodes well as we come into 2019 as well because that core, that base, is continuing to expand.

Operator

And as a reminder, ladies and gentlemen, if you have a question at this time, please press * and then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the # key. And to prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our next question comes from the line of Beth Kite of Citi. Your line is now open.

Beth Kite -- Citi -- Analyst

Terrific. Hi, everyone. I would love to focus a little bit more on Accent. If you can help us to understand some either rough pricing for it or specific just to get a gauge of how it's priced relative to the total Lumispa offering? And then, since it will be in a couple of markets I think you said in the fourth quarter, is the US by chance one of those?

Ryan Napierski -- President

Good question, Beth. You're going to love this product so I won't get into the sales pitch on it exactly but it really is a great targeted product as Ritch just described in one of those key areas; lines and wrinkable areas around the eye. Relative price, and of course it varies by market, will be in the $100 range with the serum as we mentioned the Tru Face product.

As Ritch noted, we have a couple of markets planned in the fourth quarter. They are smaller markets, the US is not one of them. At least not at this point, although there's a lot of demand and buzz for that product. But really, the majority of markets will comes online in Q1-Q2 with that product.

Ritch Wood -- Chief Executive Officer

Beth, I'm gonna add to what Ryan said. Two key things about this product. Number one is we really have a lot of customers around the world who have a Lumispa already bought. This gives them a chance to come back, buy a new attachment that can go with their Lumispa, but we also believe it will be a key product in attracting new customers as well. We're excited to bring it. To Ryan's point, it will roll out as sort of scheduled over the next six months. And the biggest one to mention would be China and that will be the first quarter of next year.

Beth Kite -- Citi -- Analyst

Wonderful. Just jotting all that down. And just in thinking too about Lumispa and its consumables. I believe that came up earlier on the call a bit. I'd love to just chat if we may quickly about consumables for both Lumispa since you're probably approaching a point where some of the gels from the kits have been used.

And if so, what kind of -- I don't know if you call it repurchase rates or just what initial purchases I guess of just the stand-alone gel. What kind of level of activities are you seeing there? And similarly, for me, since it sounds like that continues to be a good product fundamentally. How can you help us understand the cartridges that are being purchased from early device sales of that at this point in time?

Ritch Wood -- Chief Executive Officer

Thanks for that question, too. In the kits that we sold initially, we gave -- depending on which market it was -- two to three cleansers that came with each device. So we knew that that would be -- the cleansers range somewhere between a month and two months depending on how often it's being used. So we're just getting to the point now from a timing perspective where people are starting to run out of their initial surprise and purchase. So we're encouraged about the trends that we're seeing, which is increases in the consumables, and believe that's really key number one, to keeping our customers. Number two, it actually improves our margin because the margin in the consumables is better than the device itself.

Mark Lawrence -- Chief Financial Officer

That's what I was gonna add, Beth. You saw 60 basis point improvement sequentially in gross margin this quarter versus last. And it was really driven by three things. One was the increase in the purchase of consumables, which is really the first quarter where we've been able to see that benefit.

As you know, we've been working on cost efficiencies of Lumispa so that also flowed through into the quarter. And then the sell-through benefit of our manufacturing entities. So you could take that 60 basis point improvement and break it into those three pieces, you'll get an indication of what consumables are doing for our overall gross margin.

Beth Kite -- Citi -- Analyst

Great. And is there any context on Me's cartridges that you could offer?

Ritch Wood -- Chief Executive Officer

Me has just continued to be a real steady product. Where it's having the most success is in China and China does a good job of really building what they refer to -- and we do as well -- is the device platform. And they're basically rotating between putting the spotlight on Me and then it rotates to Galvanic and to Lumispa and they're really selling those as a way to help drive all three together. Cartridge sales continue to be very steady. Not a real push to it. There's quite a bit of focus right now on Lumispa so it's taken a little bit of the shine off Ageloc Me but particularly in China, Ageloc continues to be bought.

Ryan Napierski -- President

The only thing I would add, Beth, regarding Ageloc Me, is around the world Ageloc Me really encapsulates the innovation of Nu Skin. And every market around the world, our leaders, our sales leaders see that our customers see it in that regard.

And so it is a key product for demonstrating that layer of innovation in the marketplace. So China relies heavily on it and is able to move more product as a result of that than some of the others but it's a really key part of our innovation commitment and demonstration to that principle.

Beth Kite -- Citi -- Analyst

Interesting, great. Speaking of China, I was wondering if you could offer us an update on the latest thinking with regard to the new plant that you're looking to go up there?

Ryan Napierski -- President

We did announce we are building a new plant. We have acquired the land for that plant and we anticipate spending somewhere around $50 million over the next couple of years in the development of that plant.

Ritch Wood -- Chief Executive Officer

Or probably four years out or something before it's actually operational. And the spend will be spread across three to four years.

Beth Kite -- Citi -- Analyst

Great. Okay, thank you. And then, Ritch, if we could just in my closing question go back to the initial comments you had about the indoor growing product. Can you help us to understand a little bit more about that? What physically would that product be or what will it go into? Some of the ingredients that you'll be growing.

Ryan Napierski -- President

What we're excited about is really being able to tell the story and have our consumers know about the cleanliness of the ingredient that's going into our product, really being able to control that from the source all the way to the sale. That product -- we've been developing that technology for a little over two years. We're to a point now where we can start actually growing and growing at a scale enough to put the ingredient into our product. We will be talking more and more about this technology as we go forward because we think customers are gonna demand to know about the cleanliness of their product.

They want to make sure there's no pesticide, herbicide use. They're focused on sustainability around the world and want companies that are all so focused on protecting the planet at the same time we're doing our business. We'll be talking much more about that particularly at the analyst investor day. Talking about how that's gonna benefit our next business going forward. We'll have several products and ingredients that will then roll into our products next year with one product that we'll be announcing fairly shortly that we'll roll out soon.

Beth Kite -- Citi -- Analyst

Wonderful. I will wait for that. Thank you all so much.

Operator

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

Steph Wissink -- Jefferies -- Analyst

Thanks, good afternoon everyone. Most of our tactical questions have been asked but I have a couple of bigger picture questions. The first is just on the manufacturing capacity that you own and what kind of utilization you're seeing. I think you mentioned 26 million in sales in the quarter. How should we think about the scalability of that over the next few years to how you think about the growth contribution?

And then, one follow-up question to the overall comment on lowering the average age of the customer. Curious if you can talk a little bit more about that if you're willing to give us some metrics, whether that's a worldwide statement or if you're seeing that in some of your larger markets and maybe a leg in some of your smaller markets. If you could just talk a little bit about the average age of the customer, that would be helpful. Thank you.

Ritch Wood -- Chief Executive Officer

Thank you, Steph. The whole concept behind bringing these manufacturers under the public company umbrella is really to allow us to control, again, a piece of our supply chain. We continue to find manufacturers who are purchased by third parties, it disrupts your supply chain, it really can create challenges. Our ideal is number one, we could get products to market faster. And number two, get the best of innovation and opportunity from these manufacturers. These are really state of the art companies that we've purchased and we're proud of them. They grew, in the quarter, obviously in the prior year we didn't have those numbers in our results.

But those manufacturers grew 45%. Very strong growth. They continue to grow and see great opportunity. They've got plenty of opportunities to scale. Plenty of equipment. Space that we've expanded recently to give them an opportunity to continue to grow. And we see them growing it actually at a very healthy rate, even a little bit higher rate than we see our Nu Skin business growing going forward. Really positive there and we're anxious to see the benefits, they're just starting now to flow through our gross margin. We'll start to see that even more as we go forward. The second question.

Ryan Napierski -- President

I'm happy to talk a little bit, Steph, about that. I think investor day will probably be the right time to talk a little bit more about average age in terms of how we want to position that. And you had asked about metrics. We have some internal metrics but how exactly should talk about that, we'll think through that if that's OK as getting closer to investor day. What we will say is, certainly, the growth strategy focusing on the platform product and program. All three components are critical to attracting a broader entrepreneurial demographic as well as a customer demographic.

So on the platform side, social sharing clearly attracts a broader and younger demographic. On the product side, as we really looked at products, both in anti-aging as well as bringing that down into the -- as we've entered the cleanse and treat arena with Lumispa, a lot of these social sharing products as well. Highly conducive to a younger demographic has helped. And then lastly under the programs pillar, with Velocity being able to offer a daily and weekly type of gig -- for lack of a better term -- for younger entrepreneurs who are having other jobs and are unable to devote as much time. This is able to provide an opportunity for them. So each of the pillars of our strategy is specifically designed to attract that broader demographic. It's really helping us at this point. We'll think more about how to talk about it maybe at investor day, from a metric standpoint.

Steph Wissink -- Jefferies -- Analyst

That's very helpful. And if I could just throw one more in on the interim CTO. We don't usually hear companies talk about interim roles, but if you could just describe a little bit about that individual; background, what they're tasked with, and then their priorities over the next couple of years? How do you expect to really develop a customer-centric model? It's slightly different than what we hear from other social selling companies. So maybe talk a little bit about that, too. Thank you.

Ritch Wood -- Chief Executive Officer

It's a really good question, Steph, because it hurts right to the heart of our strategy. In order for us to accomplish our vision, really become a leading business opportunity where people can really come in and be successful. We feel like this is so core to our success. And in order to get there, it's not just internal people, it's partnerships that we have externally that is gonna be really important. We feel like bringing in some talent that can really help us get speed in terms of making this transition and having a little different perspective was important. So Ryan, why don't you speak because you're driving this.

Ryan Napierski -- President

Absolutely. As Ritch noted, this really is central to our vision on the opportunity platform side. You asked about the interim nature of this. We do have very capable people within the organization. And as we've mentioned in the past, we also have some very good partnerships with leaders in the industry in the digital space as well as the backend space. We felt it was critical to bring in this interim CTO to focus on transformation in three key areas: people, process, and technology. So people; we're talking about the capabilities.

In the process, we're really talking about agile development, as you know. The kind of TDD in some of these methodologies that are applied to digital native organizations. And then on the technology front, really looking as I noted, cloud first. How do we ensure that scalability, reliability, on a global basis? So how to do that. And so this interim role is really focused on that and empowering that. You noted customer-centric organization and how that's a bit different. I do think there's a clear trend to get closer to the customer in any kind of business around the world.

We know historically that companies that were built in kind of the server era or previous eras were built to accommodate infrastructure driven technologies. So heavier backend systems. But with digital native companies that are really focused on providing technologies that improve the customers' lives. That's our focus. It is part of an ongoing process. We've been very focused on it over the past several two to three years. I think this will be a real enhancement to our approach as we brought this new capability in.

Steph Wissink -- Jefferies -- Analyst

Thank you. Very helpful.

Operator

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

Michael Kobrick -- Stifel -- Analyst

Hey, guys, this is Michael Kobrick on for Mark Astrachan. I wanted to start with a quick housekeeping question. The implied tax rate in the guidance for Q4?

Mark Lawrence -- Chief Financial Officer

Yes. We said 32-36%.

Michael Kobrick -- Stifel -- Analyst

Okay, got it. And then, on China and WeChat; I want to get a sense of how that differs compared to social selling opportunities in other geographies, how important, and just kind of what you think about the total opportunity there?

Ryan Napierski -- President

I can talk to that, Michael. WeChat, as you may know -- China has a very unique digital infrastructure in that unlike any other market in the world, due to governmental factors, their technologies play in an ecosystem specifically within WeChat in a very integrated manner. Some liken it to kind of Facebook and PayPal and all of these other vendors all being under the same umbrella.

And that's really what WeChat has, is they have a very integrated platform that enables both communication connection and transaction in a way that's very seamless. For us, it's been a helpful tool because our sales leaders build socially and build through those capabilities in terms of connecting with more customers. The WeChat technology just really is a seamless way for us to connect and transact in a manner that's unique to China and China's technology infrastructure.

Ritch Wood -- Chief Executive Officer

Thank you, Michael, and I think that wraps up all of our calls and all of our questions. We really appreciate everyone joining us today. We look forward to a really strong close of this year and a great 2019. Thank you all.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Duration: 59 minutes

Call participants:

Scott Pond -- Vice President of Investor Relations

Ritch Wood -- Chief Executive Officer

Ryan Napierski -- President

Mark Lawrence -- Chief Financial Officer

Faiza Alwy -- Deutsche Bank -- Analyst

Olivia Tong -- Bank of America -- Analyst

Tim Ramey -- Pivotal Research -- Analyst

Linda Bolton Weiser -- D.A. Davidson -- Analyst

Doug Lane -- Lane Research -- Analyst

Beth Kite -- Citi -- Analyst

Steph Wissink -- Jefferies -- Analyst

Michael Kobrick -- Stifel -- Analyst

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