Nature's Sunshine Products, Inc.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Nature's Sunshine's financial results for the fourth quarter and full year in December 31st, 2020. Joining us today are Nature's Sunshine CEO Terence Moorhead, CFO Joseph Beatty, and General Counsel Nate Brower. Following their remarks, we'll open the call for questions. Before we go further, I would like to turn the call over to Mr. Brower. As you reach the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995, it provides important cautions regarding forward-looking statements. Nate, please go ahead.

Thank you. Good afternoon, and thanks to all of you for joining our conference call to discuss our fourth quarter in full-year 2020 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through March 24th. and via a live webcast that will be posted on the investor relations portion of our website at www.naturesunshine.com. The information on this call may contain forward-looking statements. Such statements are often characterized by words such as believe, hope, may, anticipate, expect, or will. Forward-looking statements are not guarantees of future performance and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially include, but are not limited to, those factors disclosed in the company's annual report on Form 10-K, under the caption, Risk Factors and Other Reports Filed with the Securities and Exchange Commission. The information on this call speaks only as of today's date and the company disclaims any duty to update the information provided herein. Now I will turn the call over to the CEO of Nature Sunshine, Terrence Morehead. Terrence? Thank you, Nate, and good afternoon, everyone, and thank you for joining today's call.

I hope you've all continued to stay safe and well during the ongoing challenges of the pandemic. 2020 was certainly a challenging year marked by unprecedented change from COVID-19, but our management teams around the world were able to rise to the challenge as our fourth quarter results closed out the year strong, resulting in what we believe to be a transformational period for our company. During the fourth quarter, we saw net sales reach their highest level in the company's 48-year history, as performance eclipsed the record that we set last quarter. In addition, we drove absolute growth across all four of our operating business units for the second straight quarter, and we generated record-breaking net sales growth and bottom line improvements for the full year. All of this was made possible by our unwavering commitment to our vision that drives us to share the healing power of nature with everyone. Throughout 2020, our management team showed incredible resolve to transform our business and bring our business to life, while our practitioners and retailers showed incredible stamina and determination to deliver the highest quality natural products to our customers. That combination and that partnership helped make 2020 a tremendous success. Throughout the second half of the year, we benefited from improved field fundamentals and the strength of our recently revamped business model. In the fourth quarter, Net sales increased 11% to $101.7 million, reflecting strong sales practices, growth in new customer acquisition, and continued positive response to our new branding and product launches. We maintained our momentum in markets that experienced strong growth last quarter, such as NSP US and China, which grew 7% and 24% respectively in local currency. In addition, we continued to see strong momentum from our transformation initiatives in LATAM, which grew 21% in local currency, and our product introductions in Central and Eastern Europe, which contributed to Europe's overall growth of 35% in local currency. While we saw significant improvements in net income during the fourth quarter, driven by a favorable tax rate from the release of valuation allowances, Our adjusted EBITDA reflects several seasonal initiatives and key strategic investments to support ongoing growth. I'll provide a more comprehensive overview of the fourth quarter results and our upcoming plans shortly. But first, I'd like to provide some additional detail on the performance of each of our OVUs. Let me start with North America, where we saw continued positive momentum throughout the region as sales increased 6% overall. In NSC-US, sales increased for the fourth consecutive quarter, delivering growth of 7%. We continue to benefit from improved sales fundamentals as well as increases in new customer activation and engagement driven by positive consumer responses to our new branding and messaging. With consumers continuing to place a high priority on their health, we believe we are well positioned to attract customers and address their needs. To help navigate the early stages of our transformation and identify potential areas for improvement, we continue to partner with our incredible practitioners and retailers. This helps ensure that we continue to enhance the business model and fully integrate the new initiatives into our distributors' daily routines. I'll talk about our progress on the transformation a bit later in the call, but for now, I'll summarize by saying that we're very pleased with the rollout and the overall reception to the plan so far. Moving to Asia, while our sales increased by 2% on an absolute level, we experienced a slight year-over-year decline in local currency due to reinstated lockdowns across our second largest market, South Korea. While we grew in Korea in its third quarter, the new restrictions constrained our ability to maintain the positive momentum into the fourth quarter as sales fell by 23% due to the market's strong reliance on in-person gatherings and events. In the months ahead, we'll continue to focus on the health and safety of our South Korean distributors as we develop new initiatives that will allow customers to more easily access the products they desire. Excluding South Korea, Asia's sales increased 18% in local currency. In China and Japan, we continue to see strong growth as both markets delivered significant increases in orders, new customers, and average order spend. China's fourth quarter sales grew 24% on a local currency basis, while sales in Japan increased 30% in local currency. We're also starting to see robust growth in one of our smaller strategic markets, Taiwan, which experienced 200% growth in local currency during the fourth quarter. And we expect to see continued strong growth in this market as it begins to rescale. In Europe, we saw growth of 35% led by continued strength in Central and Eastern Europe. Strong field fundamentals and targeted new product launches fueled our performance in both Russia and Poland, and we look forward to officially launching our rebranding initiatives in the second half of 2021. Despite the recent social unrest in Russia, our performance remained strong as sales in the fourth quarter grew 37% in local currency. Poland continues to deliver explosive growth, with fourth quarter sales increasing 64% versus prior year in local currency. In Western Europe, we struggled for most of the year to deal with the crushing effects of COVID-19. However, in the fourth quarter, we were able to deliver 13% growth in local currency sales, driven by strong progress in the UK, which was up 32%, and Italy, which was up 47%. Moving forward, there is still some uncertainty with respect to the impact of the pandemic, so we anticipate a gradual recovery for Western Europe. Finally, in Latin America, we continue to see strong growth from our revamped go-to-market strategy. In the fourth quarter, sales increased 21% versus prior year in local currency. The rollout and implementation of the new business model is still underway, but we saw a strong improvement in new customer growth throughout the quarter. Of course, meaningful improvement to our field fundamentals will take time, but the increased amount of field contact, improved communication, and the move to a single compensation plan appears to be having a positive impact on Salesforce productivity. At the same time, the introduction of new digital capabilities seems to be helping to drive new customer growth. Overall, we're pleased with how customers and distributors have responded to the transformation, and we expect to experience continued growth as we move forward over the long term. Our performance across our four OVUs demonstrates that our transformation initiatives are gaining momentum. Over the course of 2020, we saw momentum build as the team focused on implementing our global growth strategies. For the full year, 2020 sales grew 6% to a record of $385 million in sales, which is the highest sales in the company's history. Operating profits also increased 33%, delivering $21 million, while adjusted EBITDA increased 16% to $36 million. We're very pleased and encouraged by the favorable response we've received from our customers and distributors to our revamped business model, the new branding, and the new website. We still have a lot of work to do. but we've made tremendous progress and are deeply grateful for the amount of flexibility and adaptability our distributors have shown. And we're very fortunate to have such incredibly skilled and savvy partners as we navigate through this transition together. The changes we've implemented have only just begun to unlock the power of Nature Sunshine, and there are still many new exciting elements of our plan to come. and I look forward to sharing those plans with you sometime in the future. For now, however, I'd like to give you a brief update on our progress on our five global growth strategies. I'll begin with brand power, where our updated packaging and branding are already receiving strong praise from our customers and distributors around the globe. Our new, clean, modern design highlights the potency and effectiveness of our products, while positioning nature's sunshine as a clear choice for consumers looking for quality products that deliver significant health benefits. In the fourth quarter, we also began testing our new force of nature, the marketing campaign, and I'm pleased to announce that the initial results have exciting implications for the business. The test campaign exceeded our expectations as the results revealed a high level of customer engagement that surpassed our initial objectives and industry benchmarks. It's still early to come to any final conclusions, but based on the results we've seen so far, we feel confident that our new branding will effectively support our customer growth initiatives moving forward. In summary, We continue to see strong consumer response to our initial marketing efforts and believes that our performance based products industry leading quality and unique branding truly distinguishes nature sunshine from the competition. Trying to feel better, this is the area where we've experienced the greatest challenges do the pandemic around the globe. All of our markets have been forced to adapt and build new, flexible capabilities to augment our field fundamentals. The introduction of new, updated sales tools has been key, but we've also had to rely more heavily on new digital tools to keep our teams connected and productive in a remote work environment. The increased number of Zoom polls, webinars, and video conferences has helped us reach a broader group of distributors, including those that might normally fall through the cracks. As a result, we're working more closely with our distributors to find new ways to drive customer growth and improve activation. The launch of our new business model was designed to support these efforts and more, and we continue to make excellent progress in our two key launch markets, North America and Latin America. It's still early days, but we're seeing success in both OVUs and believe that we're laying a strong foundation for the future. One of the areas where we're seeing increased participation is in the number of customers signing up for Subscribe and Thrive. Remember, Subscribe and Thrive is our new auto-ship program and it's the most cost-effective way to purchase our products. Subscribe and Thrive customers receive our best prices, a complimentary one-year premium membership that offers them exclusive savings on all of their purchases, and they get free shipping. After just a few months, Subscribe and Thrive already represents about 25% of our monthly orders, and we continue to see steady growth in the number of people joining the program each month. The program not only helps people save time and money, it also helps contribute to their health since our products become more effective when used over time. The new business model also introduced the new affiliate program, which continued to gain momentum in the fourth quarter. Since the launch of the program in September, we've seen a 300% increase in the number of people joining the program. The new affiliates continue to join the company each month and are sharing our products with friends and acquaintances through their social media networks. This has helped introduce our brand to an entirely new group of consumers supported by influencer recommendations. Amidst all of this, our incredible distributors continue to lead the way as we continue to transform the business. As you've heard me say before, I believe we have some of the most skilled, dedicated, and talented practitioners and retailers in the industry. Their passion for herbs, natural products, and sharing the healing power of nature make them an invaluable partner in the transformation of our business, and we're committed to their success. Our industry-leading bridge program offers our distributors what we refer to as a passport to success. and reflects our unwavering commitment to ensuring that each and every one of our distributors has the time and support needed to adapt to the new system, build confidence, and create a plan to drive growth in their business. Moving on to our digital first initiatives, the fourth quarter launch of our new website ushered in a new era for Nature's Sunshine. The new digital platform has played a key role in the relaunch of our business over the past two quarters by introducing customers and distributors to a more powerful online toolkit that more effectively helps them search for and share our products. Ongoing enhancements to the platform will focus on improving and strengthening the user experience as we continue to strengthen subscribe and thrive functionality, Google search parameters, and our website content in areas like product ratings, customer reviews, and sourcing transparency. We're also building our database marketing capabilities and are developing strategic partnerships with several top tier database marketing platforms. This will allow us to more effectively target and serve customers while enhancing the level of engagement in future marketing campaigns. We look forward to continuing the comprehensive rollout of our digital transformation in 2021. Turning to Manufacturing, Inc., a recent study by the Nutrition Business Journal showed that 85% of Americans say that they trust independent, third-party certification organizations when evaluating brands. At Nature's Sunshine, we take tremendous pride in the vast number of product certifications that we have. Our industry-leading list of certifications and accreditations truly distinguishes our company from the competition. In the fourth quarter of 2020, we continued to increase our lead over the competition by gaining our ISO 9001 recertification for quality processes, securing our ISO 17025 certification for testing excellence, and receiving an A1 TTA rating which is the highest rating available from TGA, which is similar to pharmaceutical grade certification. Again, we take pride in our rigorous quality controls, meticulous testing, and precise manufacturing standards. The fact that we keep these processes largely in-house distinguishes us from the more than 85% of competitors who outsource their products to less accredited third-party manufacturers that lack the science, quality, testing, controls, and manufacturing capabilities that Nature's Sunshine has developed over the past 49 years. Going forward, our excellence in product quality, reliability, and testing will form the foundation for our increased commitment to sustainability and transparency. We've already made the move to 100% recyclable bottles and have implemented a supplier code of conduct agreement with all of our suppliers to ensure that they are in compliance with all of our sustainability goals and objectives. We're also working to enhance and expand our ESG efforts and we'll share additional updates on that in the future. As a company committed to its vision of sharing the healing power of nature, we are proud to take on this challenge and to lead the industry in this area. Lastly, on our Right Stuff initiatives, we continue to benefit from our revamped organization structure as evidenced by the team's improved ability to drive transformational change throughout the pandemic. 2020 represented the largest transformation in the company's history, and it has impacted every single area of the business. Without the increased level of focus, attention to detail, and collaboration, we would not have been able to deliver the historic year of growth while significantly increasing profit. For the full year, again, operating profit increased 33%, while operating margins increased 110 basis points. Despite COVID related increases in cost of goods sold, one time restructuring charges, incremental incentives for driving growth, and several strategic investments designed to build momentum and drive future growth where we invested ahead of sales, as we talked about last quarter. In the future, we expect to see continued improvements to profitability as our streamlined organization and operational efficiencies are designed to improve productivity across the business. We continue to be pleased with the progress we've made on our five global growth strategies and are proud of our financial success in 2020. Despite the economic and operating challenges posed by the pandemic, our improved productivity and effectiveness have strengthened the financial health of the company and created significant long-term growth potential. As we announced earlier today, our record-breaking financial performance has put us in a position to return a meaningful amount of capital to our shareholders through a special dividend in the amount of $1 per share, as well as a $15 million share buyback authorization. While Bill will walk you through the details of these shortly, I want to walk you through our capital allocation strategy, which prioritizes three areas as we move forward. Our first priority is maintaining our financial strength and stability. Obviously, we want to make certain that we have sufficient cash reserves on hand to meet our financial obligations. From there, our next priority is to invest in incremental growth in the form of organic opportunities that will take our business to the next level, or strategic M&A transactions that expand our capabilities or accelerate market penetration. And finally, our third priority is to allocate funds to future dividend or share repurchase programs as opportunities arise. Overall, however, at this point, Our main focus is on supporting and driving growth. With that, I'd like to turn the call over to Joe, who will walk you through our fourth quarter and full-year financial results and our strategic priorities for 2021 in more detail. Joe?