Nature's Sunshine Products, Inc.

as revenue increased 27% in local currency versus prior year. The increase was driven by an intensified focus on recruiting, training, and motivating distributors. As part of that effort, we introduced new field incentives, refocused training on customer growth, and hosted our first large-scale in-person sales event of the year. The event helped generate energy, but it also served as a platform to reinforce the launch of our exciting new repackaging and rebranding, and as a way to generate commitment to several new product launches, which included the launch of an exciting new skincare supplement. We also saw some early benefits from our Phase 1 digital initiatives that leveraged our proprietary app, along with digital apps like WeChat, TikTok, and others, to attract and retain new customers. We will continue to make advancements in building our digital platform in this market and are just getting started. Overall, we're very pleased with the momentum of our Chinese business, and we continue to be extremely positive on the ongoing potential of the market. We also saw strong performance in Japan, with revenue increasing 22% in local currency. Japan's results were largely driven by the restoration of normal business activities and processes and new product promotions. In Korea, revenue increased 9% in local currency after several quarters of decline due to COVID-19-related restrictions. As you may remember, our Korean business has historically relied on high-touch, in-person interactions and motivational experiences to drive the sales teams. The closure of our offices and training centers, along with the cessation of all large gatherings and travel, has obviously impacted our effectiveness. Fortunately, our Korean business is led by an experienced management team that, over the past five years, has successfully built a strong culture of field fundamentals, so we're building on a strong foundation to drive growth. In response to the current environment, the team has adapted to the new realities, integrating remote work techniques and reimagining field incentives. We successfully introduced new product and cash-based incentives in lieu of face-to-face meetings, events, and experience-based travel incentives. We also benefited from a series of new product launches, including the successful introduction of a new face mask that is the first product to be launched in a new line of skincare products called La Mara. The innovative new line of luxury skincare products features an updated combination and a unique combination of natural ingredients from the land and sea to deliver proven anti-aging benefits. Finally, the investments we made in remote ordering allowed us to recapture some of our momentum, but we still need to build a more meaningful digital platform to drive customer growth in the future. In Europe, we achieved a 21% increase in revenue in local currency as a result of continued gains in Central and Eastern Europe, with Poland and Russia achieving 64% and 21% growth, respectively, on a local currency basis. Our success in these markets has been driven by strong field fundamentals, successful new product launches, like collagen and immune products like vitamin D3, virtual field events, and a strong online presence in Russia. We also generated promising gains in Western Europe with 5% revenue growth in local currency. In Latin America, our performance dramatically improved as the most challenging lockdown restrictions were lifted across the region. The easing of restrictions and the energy generated by our transformation strategies drove a 20% increase in revenue in local currency. We also benefited from the implementation of our revitalized new product program and the introduction of online ordering capabilities throughout the region. We continue to believe that these changes will drive further improvements in our performance as the markets continue to recover. The trends we're seeing and the momentum we're building are very encouraging, and we are pleased to see consistent revenue growth across all of our OBUs and in all of our key markets. Importantly, we're also seeing strong improvement in our bottom line, which means that we are both operationally and financially well-positioned to continue our momentum and gain market share as we continue to transform our business. Having said that, I'd like to provide an update on our transformation as we've made significant progress since our last update. As a reminder, our five global growth strategies, brand power, field energy, digital first, manufacturing ink, and the right stuff are at the core of our transformation and the relaunch of our company. Our transformation is designed to address evolving consumer trends, capture emerging market opportunities, and provide exciting new rewards for our practitioners and retailers to drive long-term sustainable growth. As we stated last quarter, our initial transformation plans target our North American and Latin American overviews. We've made solid progress on each of our global strategies this quarter, so I'd like to review some of the highlights with you. In terms of brand power, we continue to roll out our updated branding, packaging, and campaign messaging. In September, we formally kicked off our rebranding efforts with a host of new consumer-facing assets, updated imagery, a new website, and we will begin testing our Force of Nature digital campaign in the fourth quarter. We're also going to launch a new unboxing experience to enhance the overall consumer experience. Equally important, we've also re-engineered our new product development process to ensure that we continue to develop and introduce innovative on-trend products in a timely manner. Our ability to leverage the advanced capabilities of the Hughes Research Center and our R&D team is a key point that differentiates Nature's sunshine from more than 80% of our competitors that source their products from third-party manufacturers who provide wet label solutions. In total, our brand power initiatives are designed to help Nature's Sunshine appeal to a much larger audience by increasing awareness, driving activation, and reinforcing our position as a leader and pioneer in the industry. As the first company to encapsulate herbs, Nature Sunshine has always felt a strong calling to share the healing power of nature with as many people as possible. The beauty, power, and restorative properties of nature have the ability to unlock our potential in new and exciting ways. And when we embrace the power of nature, we can go places physically, mentally, and emotionally that we'd never be able to otherwise. That's the message behind our new branding, and that's the power of Nature's Sunshine. Our almost 50 years of experience have helped us create one of the largest, most effective collections of herbal and natural supplements available today, and our brand power initiatives will continue to expand and evolve as we take our award-winning products to more and more consumers around the world. Moving to field energy... One of our key objectives is to redefine and improve the experience we provide to consumers and distributors. We want to make sure that both groups have high-quality experiences and access to tools and services that are tailored to their specific needs. In September, we launched two exciting new consumer-focused programs in North America and Latin America. The first is our premium membership program, And the second is an initiative that we call Subscribe and Thrive. As premium members, customers pay a small annual fee to gain membership status, which grants them savings on all of their product purchases, exclusive promotions and specials, early access to special sales events, and free shipping. With Subscribe and Thrive, we're able to enhance customer engagement and retention by offering better value, more convenience, and a better experience. The program is designed to encourage repeat purchases and help consumers experience the full therapeutic benefits of our products. We know that when consumers incorporate our supplements into their daily health regimen, they get results and they feel better. That's why we've made Subscribe and Thrive the default purchase option on our new website, offering the most attractive pricing, free shipping, and a free one-year premium membership. To make it even more attractive, we've made sure that it's easy for customers to cancel, pause, or change their subscription whenever they like with a simple click of a button. For our distributors, we've introduced a new enhanced business opportunity called It aims to provide more flexibility, more options, and immediate rewards for driving customer growth. Under the new plan, all of our markets in North America and Latin America operate under a single, unified plan that is simpler, easier to understand, and creates new earnings opportunities. Distributors now have four ways to earn. First, They can earn by selling our products and serving customers. Second, they can identify other qualified health practitioners and experts who are interested in selling our products and serving customers. Third, they can identify qualified practitioners and experts in geography outside of their own country who are interested in selling our products. and serving customers. And fourth, they can benefit from customers that use our new sharing tools as well as our new affiliate program to share our products with friends, family, and other people in their personal or professional networks. With one click, customers can share products from our website to their social media and receive benefits from doing so. These options make it easier for our distributors to share, expand their influence, and build their customer base. Another unique benefit for our distributors and affiliates is that they can get paid within about 30 minutes of a customer transaction. Instead of having to wait for a payment until the end of the month, Nature's Sunshine offers immediate rewards. Looking ahead, we will continue to partner with our practitioners and retailers as they make this transition with us. And as a reminder, we've created a 12-month bridge program to provide qualified distributors ample time to learn and integrate the new tools and programs into their business. The implementation of our new business model is a tremendous undertaking, and we are extremely proud of our distributors, And our entire organization is incredibly grateful for their passion and dedication to our vision of sharing the healing power of nature with everyone. Moving on, our new website combines all of the features of our new business model with a host of new tools and improved functionality as part of our third strategy, Digital First. Ultimately, our goal is to create and improve user experience, moving from transactional relationships to more personal lifecycle relationships that offer lasting value. On our new website, customers can make use of our contextual search features, which allow them to browse products by health topic, product category, or body system, making it easier to find and purchase the supplements they need. Individuals who share a passion for wellness and who have a strong health-focused presence on the web can also take advantage of our innovative new affiliate marketing program, which allows influencers to use our new web tools to share our products with their social or professional networks and receive monetary rewards for doing so. For the first time, the changes we've made will allow our distributors to have their own fully replicated Nature Sunshine website, combined with new email and social media functionality, it gives them the opportunity to build and grow their own digital business. The new tools allow for greater connectedness with existing and new customers, and over time, they will also give distributors access to much richer data and better insight into purchase behaviors and consumer preferences. As we move forward, we'll continue to expand our digital toolkit and build our virtual community of professionals and advocates who are passionate about sharing the healing power of our products with others. As for Manufacturing Inc., we continue to strengthen our industry-leading manufacturing by making further enhancements to our product quality and testing capabilities. In the third quarter alone, we upgraded our kosher certification to the highest level updated our TGA certification, which is comparable to pharmaceutical-grade quality standards, and received our ISO 17025 certification, which is reserved for those offering the highest level of quality testing. These honors round out our industry-leading list of manufacturing certifications that include GMP, which is Good Manufacturing Practices, NSF, TGA, that I just mentioned, COSR, Halal, USDA Organic, ISO 9001, and ISO 17025. I mention these certifications because they're an important distinguishing characteristic of Nature's Sunshine and one of the many reasons why our products are more reliable and more effective than the competition, over 80% of whom source their goods from less accredited third-party manufacturers. We're already starting from an advantaged position with almost 50 years of experience in R&D, sourcing, testing, quality, and manufacturing. But we continue to extend our lead, having already built some of the most coveted capabilities in the industry, and will continue to do so as new opportunities present themselves. As we move forward... We will strengthen our focus and commitment to sustainability, delivering clean products in a sustainable manner. We've already made the move to 100% recyclable packaging for our new redesigned bottles and will continue to make similar strides in the future. Finally, our Right Stuff strategy has allowed us to improve productivity and strengthen organizational effectiveness, a theme to our continued success delivering savings and overhead efficiency. Year to date, our actions have delivered 230 basis points of operating margin growth and have helped increase EBITDA margins 140 basis points. Of course, what you can't see are the efforts we've taken to build a high-performance organization. You already know about the organizational changes we've made to create regional OBUs, as well as some of the new talent that we've recruited to help strengthen our leadership capabilities. In 2020, however, we've also launched a unique new management training program to help ensure our team has the necessary leadership skills to transform our business, drive our strategies, and capture the opportunities that lie ahead. We're also committed to helping build the next generation of leadership from underrepresented groups in our community by providing a new college scholarship and intern program for minorities. So far, we're very pleased with the progress we've made on our five global growth strategies. Clearly, they've helped Mesa Sunshine build strong operational and financial momentum as we move forward to 2021. With the unprecedented risk and uncertainty brought on by COVID-19, we've made maintaining a strong balance sheet a key priority to protect the business as the pandemic continues to escalate. Of course, as we continue to build momentum and strengthen our financial position, the Board will continue to evaluate the full range of capital allocation opportunities. But right now, investing in our business and protecting our position are key priorities. We're committed now more than ever to using our expertise, the breadth and quality of our products, and our new branding and business model to take our fair share of the growing supplements market. As such, you may see us begin to invest ahead of growth to advance our strategies and improve our ability to capture our fair share of the market. Again, We are incredibly grateful to our distributors, associates, and shareholders for their continued support throughout our transition, and we look forward to making continued progress on our transformation over the coming months. With that, I'd like to turn the call over to Joe Beatty, our Chief Financial Officer, who will walk you through our financial results for the third quarter in more detail. Joe?

Thank you, Terrence, and good afternoon, everyone. Net sales in the third quarter increased 13% to a company record of $100.3 million compared to $88.5 million in the same quarter last year. This increase was primarily driven by new product development, the easing of COVID restrictions across several key markets, and continued execution on our business transformation plans. Net sales in Asia increased 12% on a local currency basis to $38.1 million, compared to $33.7 million in the year-ago quarter. The increase was primarily attributable to new brand and product launches, as well as the reopening of our Korea market. On a local currency basis, net sales in China increased 27%, Japan sales increased 22%, And in South Korea, sales increased 9% as these markets continued to benefit from lifted lockdown restrictions and our recalibrated incentive structures. Net sales in Europe increased 21% year-over-year in local currency to $18 million, compared to $14.6 million in the year-ago quarter. The increase reflects strong growth in Central and Eastern Europe, including continued strong performance in Russia and Poland. North American net sales increased 10% on a local currency basis to $37.6 million, compared to $34.2 million in the year-ago quarter. The various strategic and e-commerce enhancements we have implemented have positioned us well as we continue to capitalize on the strong demand resurgence within the U.S. market. Our growth in this region was also supported by increased new customer acquisition. Net sales in Latin America and other increased 14% in local currency to $6.6 million, compared to $6 million a year ago quarter, with the increase primarily due to new product launches and the easing of COVID-related restrictions. Gross margins Gross margin was 72.7% compared to 74.3% in the prior year. The decline was primarily due to certain isolated inventory charges, higher material costs, and a delay in the timing of price increases for North America. Volume incentives as a percentage of net sales increased 50 basis points to 34.2% compared to 33.7%. in the same period last year. Selling, general, and administrative expenses were $33.3 million compared to $31.2 million in the prior year. The increase was primarily attributable to higher expenses related to our business model relaunch. As a percentage of mass sales, SG&A expenses were 33.2% compared to 35.2% in the same period in 2019. Excluding the impact of $0.4 million of restructuring expenses in the prior year and $0.1 million this year, SG&A expenses were 33.1% of net sales compared to 34.8% in the prior year period. Operating income was $5.5 million, or 5.5% of net sales, compared to operating income of 4.7 million, or 5.3% of net sales in the prior year period. Excluding the restructuring-related expenses, we generated 5.6 million of operating income, or 5.6% of net sales for the current quarter, compared to 5.1 million, or 5.8% of sales in the prior year period. Adjusting the DA, as defined in our press release, as net income from continuing operations before income taxes, appreciation, amortization, and other income or loss adjusted to exclude share-based compensation and certain noted adjustments increased 13% to $9.4 million in the third quarter of 2020 as compared to $8.3 million in the third quarter of 2019. Overall, the increase in EBITDA was driven by the aforementioned record net sales this quarter flowing through the bottom line. Net income attributable to common shareholders for the quarter was $6.9 million, or $0.34 per diluted share, as compared to $1.3 million, or $0.07 per diluted share, in the year-ago period. Turning to liquidity. We had cash and cash equivalents on September 30th of 82.3 million with 5.4 million of debt. For the first nine months of 2020, we generated 26.8 million of cash from operations as compared to using cash with 5.5 million in the comparable prior year period. The increase is primarily due to the significant improvement in net income and the timing of both working capital-related adjustments and certain capital expenditures. While we expect to continue our strength into the fourth quarter, our investments in the next phases of our business transformation may increase our costs and profitability relative to this quarter. Further, we are closely monitoring any resurgence of COVID-19 cases across our geographies and how that may affect our operations, especially in certain international markets where reopening statuses have fluctuated. Despite these uncertainties, we are confident in our ability to continue executing on our five global growth strategies and believe we will continue to drive solid results through the remainder of 2020 and the beginning of 2021. Before opening the call to questions, I wanted to reiterate our pride in our team's strong performance and in the momentum built throughout the year. Now I'll turn the time back over to the operator for Q&A. Operator?

Thank you. If you would like to ask a question on the phone lines today, you can press star 1 on your telephone keypad. If you are on a speakerphone, please make sure your mute option is turned off to allow your signal to reach our equipment. Once again, everyone, that is star 1 on your telephone. And we'll pause for a moment. We'll take our first question from Steven Martin with Slater. Please go ahead.