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spk01: Good afternoon everyone and thank you for participating in today's conference call to discuss Nature Sunshine's financial results for the second quarter ended June 30th 2021. Joining us today are Nature Sunshine CEO Terence Moorhead, CFO Joseph Batty and Executive Vice President and General Counsel Nathan Brower. Following their remarks we'll open the call for your questions. Before we go further, I'd like to turn the call over to Mr. Brower as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nathan, please go ahead.
spk03: Thank you, Emma. Good afternoon, and thanks to all of you for joining our conference call to discuss our second quarter 2021 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through August 19th and via 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 certain forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will, and other similar expressions. 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 from those implied herein 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 would like to turn the call over to the CEO of Nature Sunshine, Terrence Moorhead. Terrence? Thank you, Nate.
spk06: And good afternoon, everyone, and thank you for being with us on today's call to discuss Our second quarter results. I'm excited to be here with you today to announce our fourth consecutive quarter of record-breaking results. Our historic performance comes as we continue to make progress on our journey to transform our business. Our reported consolidated second quarter net sales came in at $109 million, up 25% or 21% compared to the prior year in local currency. Each of our four operating business units reported strong growth for the quarter, led by Latin America and Europe, which were up 39% and 34%, respectively, in local currency. We also delivered record-breaking results for the bottom line, as adjusted EBITDA increased 38% to $13.4 million. Despite being in the early stages of our business transformations, strong execution and ongoing fine-tuning of our strategies are having an extremely positive impact on our business I'm proud to say that each of our five global growth strategies brand power field energy digital first manufacturing Inc and the right stuff are all building momentum I'll discuss our strategies in more detail later but I want to pause because I'd like to recognize and thank our each of our associates for their continued focus and dedication throughout the pandemic. Their resilience and determination have allowed us to deliver four consecutive record quarters, and I can't thank them enough. Additionally, our award-winning customer service team, which was recently recognized as Customer Service Team of the Year by the American Business Awards, deserves special recognition as they've been a critical point of contact with all of our customers and distributors throughout this journey. And while I'm on the topic, I want to take a moment to recognize our distributors who throughout the pandemic have continued to step up and find new creative ways to deliver record-breaking results while working shoulder to shoulder with us to transform the business. Their efforts and willingness to collaborate have resulted in a record number of new customers helping us make the healing power of nature accessible to more and more people across the globe. Now I'd like to share a few key highlights from each of our OBUs. Starting with North America, we're reporting a 7% increase in local currency net sales for the second quarter, which is a direct result of the launch of the new business model and the positive impact that our global strategies are having on the business. Sales in NSPUS were up 7%, while Canada grew 14% in local currency. The strong performance comes as we continue to make incremental improvements to our new business model to help build momentum and drive customer activation. Also, as mentioned earlier, our distributors have done a great job partnering with us to attract new customers. In the second quarter, we saw 30% customer growth with a significant increase in the number of customers joining our Subscribe and Thrive auto-ship program. Over 35% of our orders now include a Subscribe and Thrive product in North America. We will continue to aggressively expand our Subscribe and Thrive program as we believe it will be a significant driver of long-term growth. Additionally, Our digital marketing initiatives have outperformed expectations and are proving to be an excellent way to attract new customers. Overall, we're ahead of where we thought we'd be at this time, and we're pleased with our progress and look forward to going into the next phase of our new business model. Moving to Asia, we saw sales for the quarter grow 26% in local currency, driven by 12% growth in South Korea, 38% growth in Japan, and 15% growth in China on a local currency basis. South Korea's growth was driven by an increase in auto ship participation, new field incentives, and the successful launch of La Mara, our new skincare line. Additionally, the recent introduction of a new app for distributors in South Korea is helping sellers stay connected with new business building tools, and digital training modules. While South Korea's COVID restrictions remain challenging, our results in the second quarter suggest the business is stabilizing and that we're adapting to the situation. Japan continues its strong performance, delivering a sixth consecutive quarter of growth. The 38% sales increase was driven by strong execution of field fundamentals and steady customer growth. Japan's auto-ship program had a tremendous 24% increase in subscriptions, with many of the new subscribers being millennials. We look forward to even further growth in the second half of the year as we roll out a revamped subscription program in the market. Now looking at China, we continue to deliver solid growth as the business evolves with an improved digital toolkit. During the quarter, we leveraged popular digital programs like TikTok, to drive customer growth by 14%. We will continue to work to expand our digital reach and drive engagement and attract new customers. Finally, in Taiwan, we continue to penetrate the market with a sales increase of 277% on a local currency basis. The growth is attributable to an aggressive focus on field fundamentals and friendly competition between distributors vying for top-tier positioning. Overall, we look forward to driving continued growth across the region. In Europe, we delivered 34% sales growth on a local currency basis. The growth was led by our markets in Central and Eastern Europe, where we built a strong foundation and a proven track record of delivering results. Sales in Russia were up 44% in local currency. This was driven by strong customer growth, up 30%, and digital activation of existing and new customers through improved social media and influencer marketing. In Poland, we once again saw tremendous growth with sales increasing 49% in local currency. This was driven by strong field fundamentals, virtual sales events, and the launch of a new collagen beauty supplement that is selling well above forecast. Looking at Western Europe, sales were relatively flat, down 1% compared to the prior year in local currency. Moving forward, we believe our plan to relaunch the business later this year will create significant growth potential over time. The relaunch will incorporate some of the key elements from our new business model that we launched last year in North America and will focus on rebranding, updating the website, and creating a stronger digital platform. We look forward to sharing more about our progress in Europe in future quarters. Finally, in Latin America, second quarter sales increased 39% in local currency, marking our fourth consecutive quarter of growth in the region. The business has responded tremendously well to our transformation initiatives, and results continue to improve as COVID restrictions taper off. Each market in the region grew double digits compared to the prior year, driven by increased customer activation, improved digital access, and several new product launches. We're pleased with the progress that we've made in Latin America and continue to believe in the medium to long-term potential of these markets. The strong performance across our OBUs demonstrates how our global strategies are improving our ability to attract new customers while improving sales and profitability. Everyone at Nature's Sunshine is dedicated to keeping this momentum going. Moving on, I'd like to share some thoughts about the progress we're making on our five global growth strategies. However, before I do that, I want to give you a quick update on our supply chain, as I know it's an important topic that's on many people's minds. While the challenges presented by the global supply chain crisis are significant, we appear to be managing the situation effectively. So far, We've been able to get ahead of the major issues and minimize the impact to our business and financials. To ensure we stay ahead of the situation, we've committed to investing more aggressively in inventory to help protect our forecasted sales growth, and we're closely working with our OBUs to stay aligned on inventory health. These are certainly challenging times, but fortunately, As a 49-year-old company, we have great long-term relationships with our suppliers and lots of experience as well. We've done a great job so far, and I have confidence that we'll continue to effectively manage our supply chain moving forward. Now I'd like to move on to discuss our progress on our five global growth strategies, and let's start with brand power and our award-winning rebranding. The updates to our packaging and marketing collateral are receiving a strong reception from customers and distributors alike, and I'm pleased to say that the majority of the Nature Sunshine rebranding will be complete for all markets by the end of 2021. Later this year, we'll also be launching a rebranding initiative for our Synergy business that will refresh and reposition the Synergy business for accelerated growth. The end-to-end rebranding will focus on all aspects of the business, and is designed to strengthen our ability to attract and retain new customers. Another important part of our brand power strategy is our force of nature campaign. The campaign has proven to be an effective customer growth driver and is doing an excellent job supporting our digital marketing campaign that I'll discuss a bit later. In summary, we believe our brand power initiatives will continue to drive customer growth. On field energy, the new business model continues to gain momentum in North America and Latin America, and we continue to fine-tune the initiatives and make adjustments to improve effectiveness. As we continue to gather data to understand which initiatives in the model are most effective, we look forward to expanding those initiatives to other markets. One of the new initiatives that is proving its importance and delivering sustainable benefits is Subscribe and Thrive, our new auto-ship program. The number of orders made through Subscribe and Thrive continues to grow, and we believe that there are still meaningful opportunities to increase engagement. As mentioned earlier, the program now represents a significant portion of our orders in North America, creating a substantial recurring revenue stream. Another important initiative that's part of our business model is our affiliate program, which continues to drive growth and is something we're working to more aggressively promote. Our affiliate program consists of enthusiasts that use our products and then share and recommend them to friends, family, and acquaintances through their social media networks. While our health practitioners and retailers continue to be the driving force behind our business, we're pleased by the number of people that have signed up as affiliates and are sharing their newly found passion for our products. Moving to digital first, We continue to make enhancements to our award-winning website to improve the user experience and expand functionality. The new website has improved the shopping experience for our existing customers and is attracting new customers as well. Additionally, we're seeing excellent results from our DTC digital marketing initiatives and will be accelerating our investment in the back half of 2021. One of the most exciting elements of our Digital First strategy is the pending launch of our new personalization initiative that's designed to transform the customer experience. Through personalization, distributors will be able to offer customized solutions with personalized pill packs for their customers based on each customer's individual needs or goals. The pill packs will be conveniently packaged into morning, afternoon, or evening packs and will automatically be shipped to the customer's home each month. Over time, the program will also allow customers to build their own personalized nutrition plans by answering a simple questionnaire. This will give us access to an entirely new group of customers who want to have the best products and program in the market, but also want to choose how they access our brand based on their personal preferences. Over time, we believe personalization will help us build more meaningful relationships with customers and make nature's sunshine a more integral part of their daily lives. We're extremely excited about the new personalization program and we look forward to the launch later this year. Turning to Manufacturing, Inc., our manufacturing and quality teams continue to deliver products with the highest levels of quality and purity available on the market. Moving forward, we plan to upgrade our small batch manufacturing capabilities with new, state-of-the-art, high-speed equipment. The upgrades are expected to help improve productivity, increasing output while reducing costs. Our unique small batch capabilities have been perfected over the last 49 years and are one of the many reasons why Nature's Sunshine products are superior to what's commonly available on the market today. As a result, also remember, small batch processing allows us to more effectively control product and manufacturing integrity while also allowing us to select and work with rare ingredients, of the highest quality, including wild crafted herbs and botanicals that deliver the most potent micronutrients. Unlike other mass marketed and bulk produced products, Nature's Sunshine crafts each product with precision and artisanal attention to detail, delivering the most potent supplements available on the market for results you can feel. Finally, We continue to make progress on building a high-performance organization through our Write Stuff initiatives. In the second quarter, we continued to deliver improved profitability. Operating profit increased 44% to $9.5 million, while operating margins improved 114 basis points. Similarly, adjusted EBITDA increased 38% to deliver a historic $13.4 million for the quarter, and EBITDA margins increased 118 basis points. While we've made excellent progress realigning the business for profitability and growth, we remain committed to delivering continued improvements in the future. As we execute our five global strategies and leverage our strong financial operating foundation, we expect our business will continue to deliver strong results. Additionally, We have a capital allocation plan in place that's designed to complement our operating strategy by effectively putting our capital to work. We're on a journey to transform nature's sunshine, and despite being early in the process, I hope you'll agree that we've made tremendous progress and are building momentum for the business. With that, I'd like to turn the call over to Joe, who will walk you through our second quarter 2021 financial results in more detail. Joe?
spk00: Thank you, Terrence, and good afternoon, everyone. Jumping right into it, net sales in the second quarter increased 25% to a company record of 109 million compared to 87.3 million in the year-ago quarter. This is the fourth consecutive quarter of record net sales. As Terrence mentioned, this increase was primarily driven from execution of our business transformation plans and growth across all our operating business units. Excluding foreign exchange rates, net sales increased 21% in the second quarter of 2021. On an absolute basis, net sales in Asia increased 33% to 43.5 million compared to 32.8 million in the year-ago quarter. This represented a 26% increase on a local currency basis. The increase was primarily attributable to strong growth in Korea, Japan, China, and Taiwan due to execution of field fundamentals, customer growth, and improved digital tools. Net sales in Europe increased 39% on an absolute basis to 21.5 million compared to 15.5 million in the year-ago quarter. This represented a 34% increase on a local currency basis. The increase reflects the success of new product launches, stronger field fundamentals, and customer growth throughout Central and Eastern Europe. North American S sales increased 8% to 37.4 million compared to 34.5 million in the year-ago quarter. This increase is attributed to our business rebranding and rebuilding efforts, success with growth initiatives, and the overall increase in demand for nutritional supplements within the U.S. Net sales in Latin America and other increased 44% to 6.6 million compared to 4.6 million in the prior year period. This represented a 39% increase on a local currency basis. The increase was primarily due to the continued success of our transformation initiatives in Latin America changes in our business model, and the increased market demand for our products. Gross margin improved 30 basis points to 73.9% compared to 73.6% in the prior year period, primarily due to changes in market mix. Volume incentives as a percentage of net sales were 32.5% compared to 33.4% in the year-ago quarter, The decrease is primarily due to changes in market mix reflecting growth in markets where volume incentives or a percentage of net sales are lower than the consolidated average. The growth in NSP China where volume incentives are included in SG&A in the prior year launch of the new business model. Selling general and administrative expenses were 35.6 million compared to 28.5 million in the year-ago quarter. The increase was primarily attributable to higher selling costs from growth in markets with higher variable costs, as well as growth in China. As a percentage of net sales, SG&A expenses were flat at 32.7% for the respective second quarters. Operating income in the second quarter increased 44% to $9.5 million, or 8.7% of net sales, compared to operating income of $6.6 million, or 7.6% of net sales in the year-ago quarter. Gap net income attributable to common shareholders for the quarter increased to $6.5 million, or $0.32 for diluted share, as compared to $5.8 million or $0.29 per diluted share in the year-ago quarter. Adjusted EBITDA is defined in our press release as net income from continuing operations before income taxes, depreciation, amortization, and other income or loss adjusted to exclude share-based compensation and certain noted adjustments increased 38% to $13.4 million in the second quarter as compared to 9.7 million in the year-ago quarter. Turning to liquidity, we had cash and cash equivalents on June 30th of 74.9 million and 3 million of outstanding debt. For the six months ended June 30th, we generated 10.7 million of cash from operations as compared to 14.4 million in the prior year period. The primary difference year over year is due to the pay down of current liabilities. We have a capital allocation plan in place that supports future strategic investments to drive customer acquisition and activation. The investments we are currently making and plan to make as part of our business transformation will modestly increase our costs over the next few quarters, but we expect a long-term benefit of these investments will allow us to sustain our growth and drive further operational improvements for years to come. Another part of our capital allocation plan is returning value to our shareholders. We have a share repurchase plan, and as of June 30th, we repurchased 77,000 shares at an aggregate cost of 1.5 million. As an update, as of July 31st, we have acquired 161,000 shares at a cumulative cost of 3 million. We look forward to continuing to be opportunistic with tools available in our capital allocation plan, ultimately with the clear goal of increasing shareholder value. As Terrence mentioned, we believe our supply chain management efforts overall have been successful. We expect continued growth for the second half of 2021 and beyond. However, supply chain and pandemic related challenges continue and may impact future results. Furthermore, the second half of 2020 represents a tougher comp for the second half of the current year. Lastly, you may have noticed the recent filing of our Form S3. Filing our S3 is a check the box action for us. We see it as completely natural and good corporate governance for us to have an effective filing in place. We will continue to utilize our balance sheet as the first and foremost way to support growth and have no near-term plans to raise capital from the shelf registration. Now I will turn the time back to the operator for Q&A. Operator?
spk01: Thank you, sir. Ladies and gentlemen, to ask a question today, please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, to ask a question, please signal by pressing star 1 on your telephone. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question now from Matt Dane from Titan Capital Management. Please go ahead.
spk05: Thank you. I was hoping to get a little bit more color on what is going on in Korea currently. What is the situation with the shutdowns? Is it starting to open up at all? And what you're seeing around that changing environment currently? Sure. Thanks. Hi, Matt. Good to hear from you.
spk06: Yeah, the business there, they're starting to kind of figure out how to work around things using digital a little bit more, as I had mentioned. The shutdown situation really has affected large meetings. They're still able to have some smaller meetings and kind of personal meetings. So what they're doing kind of largely is utilizing just digital technology when they do want to get people together, so whether it's webcasts, Zoom, et cetera. And then we've just, you know, we're still able to deliver products. So, again, we kind of are seeing things stabilizing a bit from our standpoint, despite the market challenges. But it's fluid over there. Does that answer your question?
spk05: It is helpful, Terrence. I would like a little bit more color. Is it safe to assume that Korea is still running well below last year then? A year ago levels before everything – well, I guess not a year ago, but a couple years ago levels before everything shut down then? Or is it close to – are sales getting closer to normal now at this point?
spk06: Well, like I said, in the quarter, you know, they had 11% growth for the second quarter. I wouldn't call that the new trend line for them, but I do think they've got some stability. And they're just fighting day to day. So –
spk05: Okay, that's helpful.
spk06: Yeah, some questions over there, but I don't think we're seeing what we were, I don't think we're not expecting what we saw, say, in the back half of last year where they were really just flat out struggling.
spk05: Yeah, that's helpful. Also wanted to ask about the skin care line that you touched on. Frankly, I wasn't familiar with that. What more can you tell us about the skin care line? Where have you introduced the opportunity? Just add a little bit more around that, too. That would be great.
spk06: Sure. Lamara is a probiotic-based line, a detox line. There's kind of an anti-pollution element to it. It's largely facial skin care, all-natural luxury positioning, and it's a new segment for, I think, that piece of the business, generating a tremendous amount of excitement. Launched in South Korea first, so they're the first to get it, and then it'll go to Japan, eventually it will come to the U.S. as well. But it's a beautiful line of products that includes a full range of facial skin care products, cleanser, toner, moisturizer. But they're all kind of specialty, very different from anything that we've had before and also what's out on the market. And we're supporting that with some really strong products. a very strong complement of marketing collateral for the teams they use in their marketplace.
spk05: Great. Thank you. I appreciate that. Yeah. Yeah, thank you. Thanks for the call.
spk01: Thank you. As a reminder, ladies and gentlemen, to ask a question, please signal by pressing star 1 on your telephone keypad. We'll now go to our next question from Steven Martin from Slater. Please go ahead.
spk02: Hi, guys. Hey, congratulations on just a phenomenal quarter.
spk06: Thank you. Thank you.
spk02: I don't know what to ask. You put up great numbers. You grew sales. You leveraged expenses. You bought back stock. You paid a special dividend. And you answered my question about the S3. And the previous caller asked a question about Korea. So I know you guys don't like to or haven't been prepared to guide. Can you give us some color, maybe a range, on how you think the back half is going to look versus last year's back half or versus 2019? Sure.
spk06: Do you want to speak to that, Joe? Hey, Steve. How are you?
spk00: And thank you for your comments. We always enjoy hearing from you. Obviously, I addressed that to some degree in my script. And no, you're right. As of yet, we do not give formal guidance. I would say, again, as you go back and reread my comments, we do believe there will be growth in the second half of 2021. as compared to the second half of 2020, but it's a much tougher comp. As we talk about the four consecutive quarters of record growth, obviously two of those were in 2020, the back half of 2020, so it's a much tougher comp. We expect growth, but as we sit here today, we don't anticipate the same level of growth that we experienced in the first half of 2021. And I'll leave it at that.
spk02: Let me ask growth. You know, when you refer to growth, you know, there's top-line growth and then there's operating profit or EBITDA growth. Which growth are we talking about now?
spk00: Well, first off, I'm talking about top-line growth. Yes, net sales. From a bottom-line standpoint, obviously we're very pleased with the growth that we've seen in EBITDA. You know, we... Again, if you want to look at it over a second half, over a second half standpoint, I would say we're certainly targeting growth in EBITDA as well for the second half of 21 versus the second half of 2020. Okay.
spk02: And what about if I ask one more, what about EBITDA margin or operating margin? Because your margin improvement this last quarter was great. What do you expect for the back half? margin improvement as well?
spk00: If your question is in regards to improvement versus the first half of, or the second half of 2020, then, you know, that is what we're targeting, yes. Okay. Okay, but please keep in mind that, as I called out in my comments, that we do, and as Terrence referenced in his comments, we have a number of growth initiatives The personalization initiative, for example, will be launched in the back half of 2021. And there are other initiatives that we've talked about previously that we continue to support and grow. I mean, could we spend a little bit more in the back half of 2021 than we did in 2020 for those types of initiatives? The short answer is yes. But when all is said and done, we clearly expect – You know, pretty solid EBITDA margin in the back half of 2021.
spk02: Okay. Where do you stand, and I ask this periodically, if you look at your cost structure in Utah, where do you stand on that in terms of rationalization or leverage? your ability to leverage out in Utah?
spk00: I believe that we put in a pretty serious effort, initiative, plan to reduce our overhead costs and to drive out some pretty significant expenses, SG&A and otherwise, a few years ago. And obviously, if you look at our EBITDA growth and so forth over the last two, three years, you can clearly see the benefit of that. I would say overall that plan is 90-plus percent complete. The key for us moving forward as far as driving incremental EBITDA growth or operating income growth It's going to come down to the success of our new business model, some of these initiatives that Terrence has been talking about the last few quarters, and top-line sales growth. Top-line sales growth clearly drives an incremental contribution margin, which is north of our overall fully reported operating margin. So the combination of growth and the success of some of these initiatives we talk about surely lend – truly lend themselves to an even more enhanced operating and EBITDA margin going forward long-term. All right.
spk02: I greatly appreciate it, and I'll let you guys go because there's not much else to ask.
spk06: That's great.
spk02: Thanks, Steve. Thank you.
spk06: Good talking to you. Yep.
spk01: Thank you. At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Moorhead for closing remarks.
spk06: Okay, thank you. Hey, we'd like to thank everybody for listening to today's call. We look forward to speaking with you again when we report our third quarter 2021 results in November. But until then, everybody take care, stay safe, and we'll see you soon.
spk04: Bye now. Thanks for joining us.
spk01: Thank you ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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