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Steiner Leisure (NASDAQ:STNR)

Q4 2013 Earnings Call

February 20, 2014 11:00 am ET

Executives

Clive E. Warshaw - Chairman

Leonard I. Fluxman - Chief Executive Officer, President and Director

Stephen B. Lazarus - Chief Financial Officer and Executive Vice President

Analysts

Steven M. Wieczynski - Stifel, Nicolaus & Company, Incorporated, Research Division

Daniel Hofkin - William Blair & Company L.L.C., Research Division

Assia Georgieva

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

Operator

Welcome, and thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point.

No I'll turn the meeting over to Mr. Clive Warshaw. Sir, you may proceed. Thank you.

Clive E. Warshaw

Good morning, ladies and gentlemen, and welcome to our earnings call for the fourth quarter of 2013. I'd now like to hand you over to Leonard Fluxman.

Leonard I. Fluxman

Thank you, Clive. Good morning, everyone. Thank you for joining us this morning to Steiner Leisure's 2013 Fourth Quarter Earnings Call. With me, you already heard from Clive Warshaw, our Chairman; and Stephen Lazarus, our CFO.

Before we get into results and my comments about the current operating environments, I'd like to remind you that during this call, we may make forward-looking statements within the meaning of the federal securities laws. These statements reflect our current views about future events and do not guarantee future performance and are subject to risks and uncertainties, which may cause our actual results to differ materially from those expressed in or implied by such forward-looking statements. Examples of these risks are described in our Form 10-K for 2012 and our other SEC filings.

I'll commence this call, as usual, with an overview of the business and results of the quarter, followed by an analysis of the performance by division. I'll then hand you over to Stephen Lazarus, our CFO, to give you the breakdown on specific balance sheet items, debt, cash on hand, our stock repurchase summary to-date, CapEx during the quarter, and other pertinent balance sheet data. We will also address guidance for the first quarter and for the full year 2014 and turn it over for our regular Q&A session.

Total revenues for the fourth quarter increased 4.7% quarter-over-quarter, $221 million, delivering $0.88 of earnings per share. Gross profit decreased 2.5% quarter-over-quarter. Service margins declined 310 basis points quarter-over-quarter, primarily attributable to the expected drag on earnings from the opening of new Ideal Image centers this year and lower cash sales in Ideal Image.

Product margins increased 140 basis points quarter-over-quarter, primarily attributable to the continued rollout of products in our Ideal Image network, complemented in part by new and exciting product innovation released to market by Elemis.

Moving to our cruise ships spa division. Total revenues decreased 1.4% quarter-over-quarter, negatively impacted by events such as unscheduled dry docks, as well as continued negative sentiments by the media focusing on the cruise industry. This resulted in deeper discounting by the cruise lines and has delivered a weaker passenger, which negatively impacted spend on board our spas.

Average weekly revenue on all ships declined 1.7% quarter-over-quarter, representing a better result relative to our first quarter on both a 1- and 2-year basis. Average weekly revenues from spa ships declined 2.7% quarter-over-quarter, with non-spa ships flat quarter-over-quarter. Gross revenue per staff per day decreased by 5%, and revenue per staff per day on spa ships declined 5.3% and non-spa ships declining 3.47%.

Turning to land-based spa operations. Revenues for the land-based spa operation divisions are down 5% quarter-over-quarter. Our average weekly revenue in land-based spas decreased 3.3% quarter-over-quarter.

Third-party products division. Our products brand, Elemis and Bliss, delivered revenue growth of 4% quarter-over-quarter, driven by continued strong sell-through in our third-party retail channels due in large part to the launch of new and exciting products in these channels.

On to the education division. Revenues increased by 10% quarter-over-quarter. At December 31, our populations were down 5% with the poorest, unexpected October starts. Our starts year-to-date were up 3% versus 1 year ago, reflecting an improvement in the segment from last year, which hopefully, indicates that we're experiencing a more stabilized segment as we continue to turn the corner to healthier population growth in 2014.

Our third campus in Texas, Arlington, has now opened and we have commenced enrolling pending DOE approval for Title IV, which should be imminent as we now have all the states' licensure approvals in place.

Finally, and turning to our laser hair removal division, Ideal Image. This quarter, GAAP revenue increased by 33% quarter-over-quarter and 42% year-over-year, and cash revenue was $42.9 million, an increase of 17% versus the prior year. Average weekly sales in our centers on a GAAP basis increased 1% quarter-over-quarter. Cash sales generated in the quarter increased the deferred revenue balance to $110 million, an increase of 22% from the beginning of the year.

In conclusion, the take-aways from the fourth quarter were school segment continuing its path to recovery, steady maritime performance despite deeper discounting in the fourth quarter, which is mostly a shorter period except for the Christmas and New Year periods. These and product sales through Ideal Image another channels with more favorable margins.

And while in Ideal Image, we continue to face lead challenges. In lead flow generation, leads were down in the fourth quarter, impacting cash sales negatively. Despite lead flow being down, our conversion rates remained very strong and so once we improve our lead flow generation from a new marketing initiative, which we have now placed into market in February following the results of the pilot testing conducted by our new marketing company, we believe cash sales will ultimately improve.

Consequently, we have decided to slow the pace of new Ideal Center openings in 2014 to focus on new marketing initiatives to drive the core laser hair removal business, improve cash sales in existing centers, as well as integrating and rolling out our new services such as skin tightening, botox, fungus and tattoo removal, into existing and new centers during the first half of 2014, all of which should enhance our overall EBITDA results for each of the centers in a positive manner.

I will now hand the call over to Stephen, who will go through some of the other balance sheet items, cash on hand, share repurchase activity in the quarter, as well as provide guidance for the first quarter and the full year 2014. Thank you, Stephen.

Stephen B. Lazarus

Thank you, Leonard. Good morning, ladies and gentlemen. Firstly, as usual, I'll provide some details in the fourth quarter 2013 covering depreciation, capital spending, cash and our share repurchases and then move on to 2014. Depreciation and amortization for the fourth quarter of 2013 was $6.2 million, broken down as $908,000 below the line depreciation and $226,000 below the line amortization. Above the line depreciation was $5.1 million. 2013 full year depreciation and amortization was $21 million.

Capital spending in the fourth quarter was $12.9 million, taking 2013 capital spending to $34.1 million. Cash and investments at December 31 was $75.3 million, and the outstanding on our term loan at December 31 was $93.1 million, with 0 owing on our revolving line of credit. $60 million is therefore available on our line of credit.

During the quarter, we made an additional unscheduled principal payment of $10 million on our term loan. Due at the end of each quarter of 2014 will be an amount of $3,058,000 and interest rate on this loan for 2014 is anticipated to be LIBOR plus 1.75%.

Since our last conference call, we repurchased 80,000 shares for $4.4 million. In total, for 2013, we repurchased 128,000 shares for $6.7 million. Remaining from our February 2013 repurchase plan authorization is $91 million. Total shareholders' equity as of December 31 was $401.2 million.

Moving then on to our 2014 assumptions and guidance. Our estimates of the non-cash equity expense for 2014 for restricted and performance share units is an expense of $9.7 million. Depreciation and amortization is estimated as follows: Q1 is $6.1 million; Q2 is $6.4 million; Q3 is $6.9 million; Q4 is $6.8 million for the full year at $26.2 million. 2014 capital spending is forecast as follows: Q1 is $4 million; Q2 is $11 million; Q3 is $10 million; and Q4 is $6 million, with the full year at $31 million.

Cruise ships on average for 2014 are a total of 145; Q1 is 153; Q2, 143; Q3, 145; and Q4, 141. The breakout of that is spa ships in total, 108 for the year. On average, Q1, 114; Q2, 106; Q3, 107; and Q4 105.

Non-spa ships in total on average 37. Q1 is 38; Q2, 36; Q3, 38; Q4, 36. New cruise ship introduction expected include Norwegian Cruise Line's Royal Getaway, Princess Cruise Lines' Regal Princess, and Costa Cruise Lines' Costa Diadema. Average land-based spas for 2014 are 65 in total. Q1 is 64; Q2, 66; Q3, 65; and Q4, 65.

We anticipate currently opening 10 additional Ideal Image locations in late 2014. Start-up capital per location is expected to average $700,000. The new locations that we opened in 2012 on average generated positive GAAP income after 9 months, positive cash income after 2 months, breakeven GAAP income after 21 months and breakeven cash income after 2 months.

Average Ideal Image locations for 2014, therefore, in total are 115. Q1 is 109; Q2, 112; Q3, 117; and Q4, 120. Our assumption on the number of weighted average diluted shares outstanding for 2014 is 14.9 million shares.

Moving then on to the 2014 guidance. For the first quarter, we expect revenue to be in the range of $200 million to $210 million, with Q1 earnings per share forecast at $0.40 to $0.45, negatively impacting Q1 or the Ideal Image locations opened in 2013 that have not yet generated positive GAAP income and 1 new center that was due to open in late 2013 but was delayed to 2014 January. Combined, these locations have a negative impact in Q1 of $0.23.

Q1 also reflects the fact that we have not yet seen the positive impact of the new initiatives at Ideal Image, including, for example, the changes in marketing, which we anticipate will ultimately positively impact lead flow and result in higher cash sales, as well as the impact of adding new services at existing locations, which should lead to improved four-wall margins.

Full year 2014 guidance has revenue at $860 million to $880 million, with resulting earnings per share guidance at $3.10 to $3.30. In December 2013, we announced an expected negative $0.24 impact from the nonrenewal of the Celebrity cruise contract on 2014 results. After taking this into account, our 2014 guidance at the high-end actually provides for a 6% increase in EPS versus 2013.

We will now move on to Q&A. Derick, if you could please open the call to questions. Thank you.

Question-and-Answer Session

Operator

We'll now begin the question-and-answer session. [Operator Instructions] And our first question is coming from Steve Wieczynksi from Stifel.

Steven M. Wieczynski - Stifel, Nicolaus & Company, Incorporated, Research Division

So Leonard, I guess, first of all, with the service margin that was a good bit weaker. I know you blamed or you said a lot of that was due to Ideal. But I guess, as we look to 2014, 2015, and you start to slow down that progression of Ideal openings, how should we be thinking about that margin going forward?

Stephen B. Lazarus

I think until we ratchet the sales -- the cash sales back, following the anticipated results from better marketing initiatives that we deployed on February. I think service margins are going to be slightly depressed in the first 6 months, with the opportunity clearly given the numbers that we said for the full year for improvement, both from the new service we've introducing now in the first half of the year, as well as an improvement in the core business itself.

Steven M. Wieczynski - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And so what -- so then, could you dig a little bit more into just your overall outlook for the cruise division this year? I know you said there's been a lot of discounting going on, but just maybe how you think about not so much really the first quarter but as we get more into to the second and third quarter. Do you expect some improvement there?

Stephen B. Lazarus

I think of that -- listen closely to how late season has started and certainly gone off to a robust start. I think most of the travel agents reports said it looks good. The cruise lines have been reporting that initially out-of-way season, pave-way season look positively. We're kind of getting into the back end of late season right now. I think some of the comments we've heard from recently reported cruise lines sort of expectations that the second quarter, third quarter are not as far booked as possible. Sofitel Luxury is looking like it's booked deeper than mass [ph] and that's probably because of air [ph] having to book at well in advance over waiting for the last minute. So I think it certainly has got off to a good start. I think the Caribbean is still getting to face a tremendous amount of discounting because of overcapacity issues. And so I think, we're certainly going to see those challenges here in the first half of the year until we see most of the ships redeployed to Europe, the Mediterranean and Alaska, where the opportunity for better yields are possible.

Steven M. Wieczynski - Stifel, Nicolaus & Company, Incorporated, Research Division

So it's safe to say that your guidance assumes not much -- I think what I hear you saying is you're hoping for some recovery and some better results, but your guidance does not really assume much of that.

Stephen B. Lazarus

Exactly.

Steven M. Wieczynski - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then last question, real quick. I guess the question we get a lot is going to be around Celebrity and the loss of that contract. Maybe you want to address that a little bit more. The thing that we could still hear is could there be further contract losses? And is it something over time that this competitor starts to continue to erode price for you guys?

Stephen B. Lazarus

It's a bump in the road. We haven't lost a contract in a tremendous amount of time. It's a surprising move from our perspective, given the lack of experience and platform that they have taking on such a big platform in Celebrity. But clearly, their brand strength might be stronger than their absolute experience in operational expertise. I think we're going to have to wait and see how transforms itself. People have left us and have come back and sometimes our brand in and of itself cannot produce the same level of result as we produce year-over-year for the cruise lines. And I think that you can't discount that for a second for Steiner. We have an integrated, very deep platform. We trained way more than any other competitors out there, and our bench is very, very deep. We're going to have to see how they deploy here very quickly across 9 or 10 ships in a lot of different regions, down as far as Europe and Asia. It's not going to be easy for them. And certainly, we've left Celebrity -- very similar to how we left NCL back in 2000, with the highest revenue that we've ever gotten. And so one would expect that Celebrity has demanded the same guarantees that they demanded from us. And if they can't exceed the numbers that we've placed on the board in prior years, then those guarantees are going to impact their margins and cash flow very negatively. So they're not known for retailing at the core of their business and if you don't retail on-board then you can't produce the same results because it's just hard to get more services in. And I doubt very much whether they could do more services and can they beat the retail benchmark that we set in the industry for the last 15, 20 years. I doubt it very much, because that's not sort of their philosophy. So we know the only way that you can maximize revenues on each cruise every single week is a combination of strong service and a strong retail compliment because that's the only way you can increase the top line. I think that's going to be a challenge. And we do it well, we've done it well for many, many years. NCL is a contract that comes up 12/31 2014, we'll start looking into that. Will we lose any contracts? I don't know. I think we're trying to make sure that we protect our market share as well as we can. We'll continue to do that by continuing to execute as we've done before. And unfortunately, we can't prevent people making decisions based on the choice of the brand versus the [ph] fees and sort of the history that we bring to the table. Those are the choices that they're going to make and those are hard to combat

Operator

And our next question is coming from Daniel Hofkin of William Blair & Company.

Daniel Hofkin - William Blair & Company L.L.C., Research Division

I have a question back to Ideal Image for a minute. Regarding same-store sales trends, I know you don't report it yet. Are you still planning to start reporting that in the current quarter? The first quarter?

Leonard I. Fluxman

We haven't made a final determination, Dan, as to whether it will be the first quarter or at some point during the year, but we do plan at some point during the year to start reporting it. We just have to specify when the most appropriate time will be based upon the traction that we get from some of the programs that we're working on.

Daniel Hofkin - William Blair & Company L.L.C., Research Division

Okay. Can you discuss, though, qualitatively -- I mean, obviously, your average weekly revenues are going to be negatively impacted by the number of less mature centers. It would be helpful for all of us I think to have some sense kind of how the centers are performing. I mean, obviously, they're softer than you might have expected, 6 or 9 months ago. But just how that -- some sort of a like-for-like or age-adjusted measure has trended in recent months.

Leonard I. Fluxman

Look, the reality is over the last sort -- since probably July of last year, there have been challenges in lead generation which has directly impacted cash sales to the downside, hence, the work had began and the decision ultimately to move to a new marketing company. So the trend has been lower. We are hopeful. And remember, the new marketing company only really took over 20 days ago, so at the beginning of Feb. It really hasn't been that long. So we do feel that they've had some good initiatives in place and lots of ideas, we need to get that traction and as we go forward and ultimately hope to see it improve. But same-store sales for the year were pretty much flat with a stronger first half offset by some declines in the second half.

Daniel Hofkin - William Blair & Company L.L.C., Research Division

Okay. And then regarding -- back to the cruise category. Do you think -- have you seen any indications that suggest just in early discussions with whether it's Norwegian or what have you that there could be kind of a blowback that you're hinting might be a possibility? Anything to suggest that there's indirect impact from what happened with Celebrity?

Leonard I. Fluxman

Yes, I don't think we can see that right now. We're very early into the discussions with any of the cruise lines that are up for a renewal. We've actually had some positive call-outs for one of our other brands, but that's something we'll announce later if and when that comes to fruition. This is typically the time that we would start talking to a contract that's coming up for renewal at year end. So we're right on time. And we know and have had feedback that NCL really is part of the Mandara brand. They like it, it's very well entrenched into their ships both in terms of the hardware and software. And we anticipate that Mandara will continue on there. Anywhere else right now, there's nothing really up as major that we feel could be a fallout from Celebrity. But look, we can't deny the fact that Celebrity is a bump in the road, but they got to prove themselves. And what does proving themselves mean? Does it mean in and of itself a brand can drive higher ticket deals? We've never seen that in the past when they've gone on board any of the other cruise lines such as Cunard or the others. So what does it really bring? Does it bring an aspirational guest? And how much of a ship aspirational spa goes with you? So clearly, there are some initiatives that they strongly believe in. We have to respect it. And at the end of the day, it's basically what are they going to -- what are the results going to look like. I think from an operational perspective, one has to remember that we were highly integrated, both from an IT perspective, prebooking respective. All of these were very highly integrated initiatives that we work with these cruise lines over a long period of time. None of those platforms exist in our competitors. So it's a long way to go, it's early days. And when people are prepared to take risks, as I've said for brands, then, clearly, they're going to make those decisions and do what they need to do. And hopefully, they're protected by moving guarantees and they're done with us.

Daniel Hofkin - William Blair & Company L.L.C., Research Division

Okay. And then, lastly, just housekeeping wise. Was the -- the no more than $0.24, impact. Was that an annualized number or is that the number just within 2014, given that it sounds like you get a partial year still with them?

Stephen B. Lazarus

Just now, 2014.

Leonard I. Fluxman

2014.

Daniel Hofkin - William Blair & Company L.L.C., Research Division

So it's not an annualized number?

Leonard I. Fluxman

Correct.

Daniel Hofkin - William Blair & Company L.L.C., Research Division

So it would be a little bit larger than that if you were to look at it on a full year basis.

Leonard I. Fluxman

Correct.

Operator

And the next question is coming from Assia Georgieva of Infinity Research.

Assia Georgieva

I wanted to go back to Celebrity a little bit. And I know we spent a lot of time talking about the transition process. Would you be able, Leonard, to provide a little more detail as to how effectively you are able to operate, given that the ships are being, I guess, in some stage of transition. And I imagine it's very difficult, so I just wondered if you could sort of give us a sense as to some of the challenges that you have currently on board Celebrity during this process and how that handover is actually happening.

Leonard I. Fluxman

Assia, listen, it's clearly not an easy environment. One of these things trickle on board the ships and the hotel management is aware of the changes, levels of cooperation, levels of marketing initiatives. All of these things are negatively impacted. I've had assurances from several of Celebrity's executive management that they will work cohesively with us up until the point that we disembark, and sometimes it works, sometimes it doesn't. I'm quite sure they're going try and support everything we're doing. With that being said, it's very tough for our employees knowing that this chapter has come to an end after a very, very long partnership with Celebrity, which has been a good one. So these are tough times. Certainly, the last couple of weeks are going to be the toughest. Certainly, they've allowed Canyon Ranch folks on board, et cetera. So it makes it very uneasy for our staff. We will remove all of our staff and have already designated where most of them will go, either back on vacation or on to other ships and so we'll mitigate as much of the cost as possible in moving them around. But, yes, it's not an easy period of time. We were asked to extend the amount of time in order for Canyon Ranch to get ready because they couldn't get ready within the first 90 days, which is somewhat surprising to us. But nevertheless, we have agreed to work with Celebrity to work to a date that they can get geared up and we've allowed for a little longer. And so I think at the -- by the end of, I would say, by April 20, we we'll be off all the ships.

Assia Georgieva

And some of the staff, which I assume are probably some of your very well qualified staff, given the Celebrity premium brand, they might be able to go on a couple of the new boats, et cetera? Because it would be awful also lose experienced people.

Leonard I. Fluxman

I've moved all my best staff already long before I wanted them forced [ph] by anybody. So all our superstars our entrenched elsewhere. We want to protect those best and we want to place all of our other staff where we have open slots as opposed to taking new people. So I think our operations teams have done an amazing job of repositioning in the logistics being enormous, but they have done an outstanding job of gearing down and taking staff off and making sure that staff either gets a break and moves on afterwards to something that they want to take on and certainly placing the best of the best where we need them.

Assia Georgieva

And given the difficulties during this transition period, are you able to quantify, in any way, the impact to your Q1 EPS expectation?

Leonard I. Fluxman

Now, it's tough just because we really don't know how the loss has been -- I mean, we still have February -- and were not in the half year. It's very difficult to see how it's going to trend out this year.

Assia Georgieva

Okay, okay, understood. Can I ask a couple of questions more related to the school division. This was a very nice revenue increase of 10%. The Arlington campus, obviously, is not a contributor yet. Could you discuss any specific factors that have been helping or is it just the continuation of the recovery process?

Leonard I. Fluxman

It's more of the latter. Arlington, as I -- we got all our state licensure and accrediting body licensures in place. We're starting enrollment [ph] -- what we're just waiting for is DOE so that will probably kick in, in the back end quarter. I'd imagine we'd file our first start. If we can do before that, we will do it, but I doubt if it's for first quarter. But I think this is more of the same, focus on improving and growing populations. Growing populations is ultimately what delivers growth. And that's really what we have to keep focusing on. The skills to performed nicely in the fourth quarter here. We got a new model and could achieve a fully implemented in 2013, that's contributing to healthier operating margins and we just have to continue doing more of the same.

Assia Georgieva

And going back to the sort of more of the operational margin questions. We should expect the decline in service margins primarily because of Ideal Image or is Celebrity also part of the mix? How should we understand the decline?

Stephen B. Lazarus

It's Ideal. I mean, Celebrity was taken out of our guidance.

Assia Georgieva

Okay. And last question, real quick. Are you able to buy back shares more aggressively? And when can you start after today's call?

Leonard I. Fluxman

We have always said we will be in the market opportunistically in the open market on a basis -- certainly if it's accretive, we will do so.

Assia Georgieva

Well, it seems the current stock price is accretive.

Leonard I. Fluxman

Okay.

Assia Georgieva

Any stocks based on your calculations?

Stephen B. Lazarus

I'm not going to give you a number, Assia, of what I can buy in the open market. I mean, the stocks, as you know, is pretty quickly traded. And it's problem. We do what we can do and we'll do.

Operator

And our next question is coming from Mr. George Kelly of Craig-Hallum.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

A couple of questions. First, to start on Ideal Image. Wondering if there's anything you can -- beyond your sort of internal marketing, is there any competitive changes that made it harder to get leads?

Stephen B. Lazarus

Yes, Craig, I think. It's a market. Is a competitive intensity growing? Possibly. But we have to remember our brand is very well known. We have very, very high standards of trading from our providers. Typically, they're far superior to anything out there, even if you go to -- I'm telling you dorm's [ph] office because that's all we focus on. And so we're excellent at what we do, and obviously, people getting to know that will eventually come to Ideal Image not only for laser hair removal, but some of these new services that we're implementing here in the first half. So I'm not worried about the competitive intensity because your brand and what you stand for, the experience, our centers, the medical environment, the back office, the people experience, all of it suggest that we will overcome any of the intensity that potentially is there. I think the switch-up in our marketing in some of the new states that we operate in, some of the more mature markets, all of that has to be tested and reviewed, because for about 10 years, what we've been doing is job create. And job created [ph] today is not a single media that you can use throughout the nation. Yes, we're looking at most sophisticated digital methods. We're looking at enhancing INCM [ph] and a bunch of other initiatives that will follow on, and yes, through the year with some of the strategic advice that we've got from our new marketing company. All of which is very exciting.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

Okay, that's helpful. And then, I think for the first quarter, you called out that there's a $0.23 impact fom the stores that opened in 2013, is that right?

Leonard I. Fluxman

Yes.

Stephen B. Lazarus

Yes.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

What's the -- what's your expectation for the full year? What do you have baked in the full year guidance related to Ideal Image?

Leonard I. Fluxman

Let me come back to you with that, George. I don't have that number with me.

Stephen B. Lazarus

George, just going back, just as a follow-on or conclusion to my remarks and some of my recent remarks that I made in the beginning. The strongest part of Ideal right now, which is the most encouraging part, is our conversion is still very strong. And that means when somebody is scheduled and they showed up, we're getting the sale. So once the new marketing initiatives get traction and the lead flow starts to improve, given that that part of the funnel is still very strong, suggest that the lead flow, when fixed, will still convert at a very high rate. So that's where the focus is on right now.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

Okay, okay. And then products continued to grow in a very difficult comp in this quarter and you still posted growth and margins are ramping. And wondering if you could sort of paint the picture of what your expectations as you look a couple of years out. How much bigger can products get? And what's the kind of -- where's the growth going to come from? Is it new products or new geographies? I know you're launching in Asia, I believe, sometime this year or in to China. So if you could just talk broadly about products for the next couple of years.

Leonard I. Fluxman

Yes. So look, it's a great category because we're so young. As I said before, I know this is in a very, it's still small, but growing nicely at a strong clip here in the United States. This is [ph] the opportunity to grow internationally because it's very well entrenched here in the U.S. But they are certainly -- it will certainly come from a combination of both geography growth into countries we're not in. But some of these countries, as you well know, are difficult to enter, certainly China is one of them. Brazil, being another one, and that countered with, obviously, foreign exchange exposure. We have to wait until, but we certainly like the geographical expansion throughout distributorship channel. We think that's an opportunity. But more importantly is we have the -- the innovation pipeline has remained strong. The contribution from our innovation pipeline this year has been enormous. And we expect the same this year because it's exciting, we've seen it. But and it's like anything. If that pipeline stays strong then we're hopeful our products will remain strong. And so should the sell-through, then part of that. So our focus is really on innovation, strengthening the pipeline, bringing products to market that the consumer is looking for, increasing efficacy where possible, focusing on antiaging categories because that's definitely the best category with the highest price points. All of that will drive margins in the future years.

George A. Kelly - Craig-Hallum Capital Group LLC, Research Division

And will you be investing in any of your other brands beyond Elemis and Bliss or ramping investments, I guess?

Leonard I. Fluxman

Yes, we actually have just redone and relaunched -- we're relaunching here in the first quarter that therapy which we haven't touched in about 10 years and a new product line that is absolutely fabulous. We're placing it on board the ship channel, exclusively right now. I think it's so good that it could go beyond that channel. We're not sure when we'll do that because we want to make sure that we grow strongly the elements and this channel as well as we've done so far. We're not diluting that. But we think -- our new repackaged, reformulated therapy, definitely is a product that we would be more than confident today to take into market channels.

Operator

And right now, there are no questions in queue. [Operator Instructions]

Leonard I. Fluxman

All right, thanks, everybody, for joining us on our first -- on our fourth quarter call. We look forward to speaking with you after our first quarter has been finalized. Thank you, again.

Operator

Thank you, and that concludes today's conference. Thank you for participating. You may now disconnect.

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