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 ended December 31st, 2021. Today's call is being recorded. Joining us today are Nature's Sunshine's CEO, Terrence Moorhead, CFO, Joseph Beatty, and Executive Vice President and General Counsel, Nathan Brower. Following the remarks, we'll open the call for your questions. Before we go further, I would 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.

Yeah, thank you. Good afternoon and thanks for joining our conference call to discuss our quarter and full year 2021 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-ins through March 22nd. And a live webcast will be posted in our investor relations portion of our website at 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. Good afternoon, everyone. I appreciate you joining us today, and I'm pleased to share our fourth quarter and full year 2021 results with you. Before I get into the results, I just want to take a moment to share a few thoughts on the situation in Ukraine, as the past two weeks have been a harrowing experience for our friends, partners, and colleagues in the region. We unequivocally support the Ukrainian people's effort to live, grow, and work in a free and peaceful society, and our hearts go out to our distributors, the people of Ukraine, and peace-loving people everywhere as we watch the situation unfold in front of us. This is a very personal issue for us at Nature's Sunshine because we have long-standing personal relationships with people whose lives are directly impacted by what's happening on the ground there. Our Ukrainian distributors and customers have been dedicated to Nature's Sunshine for over 20 years. They're our friends, and they're an important part of Nature's Sunshine's family, and we care for them deeply. As such, it's our time to step up give back and care for them in their time of need. Through our Impact Foundation, Nature Sunshine will be making charitable contributions to ensure that our distributions in the Ukrainian people have the critical life-saving assistance they need during these challenging times. We're working with our management team on the ground and several global partners to do whatever we can to keep our people safe and support the Ukrainian people. Through our resources on the ground, We continue to monitor the situation closely, but the situation is fluid and evolving day to day. Obviously, our first priority is to make sure that our people are safe and healthy, and we'll continue to do whatever we can to help them get through this. Now let me move on to talk about our fourth quarter and full year results for 2021 as the strength and momentum of our business continues to build. The fourth quarter of 2021 was our sixth consecutive quarter of historic, record-breaking net sales and growth. Consolidated fourth quarter net sales came in at $118 million, up 16% year over year, or 17% in local currency. Our Asian, European, and North American operating business units all reported strong growth for the quarter, led by Asia with 36% growth in local currency. We also delivered strong bottom line results as adjusted EBITDA increased significantly to $11.6 million, which is a 55% increase versus prior year. Similarly, for the full year, we reported record sales of $444 million, which represents a 15% increase compared to 2020 and the largest sales in the 50-year history of our company. The increase was driven by growth across all of our OBUs and strong execution of our five global growth strategies. On the bottom line, we increased gross margin 16%, operating income was up 61%, and adjusted EBITDA increased 37% for the year, despite facing some of the most intense supply chain pressures in our 50-year history. Strong results are evidence that we continue to build momentum and that our strategies are working. As a reminder, we're still at the beginning of our journey, having launched our new business model and strategies late in 2020. The new business model has proven to be a powerful customer growth driver that has allowed us to excite and engage new and existing customers. As we move forward, we're committed to improving all aspects of our business, top and bottom line. At this point, I'd be remiss if I didn't briefly pause to recognize and thank our incredible management team for their efforts in delivering our sixth consecutive quarter of record sales, while dealing with the pandemic and the global supply chain crisis. Again, we're still in the early stages of our transformation, but I'm excited to have such a great team here at Nature Sunshine that's on a mission to share the healing power of nature with more and more people across the globe. Now I'd like to share a few of the key highlights from each of our OBUs in the fourth quarter. In Asia, sales for the quarter grew 36% in local currency, driven by 31% growth in Japan and 57% growth in China on a local currency basis. South Korea saw a 6% sales decrease on a local currency basis in the quarter, primarily due to government restrictions related to COVID-19. The launch of targeted incentives to drive order growth, along with the successful launch of several new Lamara products, our new innovative natural skincare line, helped offset some of the challenges posed by the COVID-19 restrictions. Again, in China, we continue to deliver solid double-digit growth with a 57% sales increase in local currency. We continue to leverage our digital toolkit, build omnichannel capabilities, and improve our social media presence using tools like TikTok to drive growth. We're extremely pleased with how our business has progressed in China, and we believe we still have tremendous growth potential in the market. Moving to Japan, we're reporting our eighth consecutive quarter of growth with sales up 31% for the quarter and 37% for the year in local currency. The fourth quarter increase was driven by order growth from strong new customer acquisition. Our Japanese team has been aggressively promoting our subscribe and thrive auto ship program, which now represents 50% of sales. This is an important, not only because customers have the opportunity to more effectively improve their health. It's also important because it supports incremental sales growth. Finally, Taiwan continues to deliver strong breakthrough performance with 329% growth on a local currency basis in the quarter. Our highly motivated team of distributors continue to compete for the top sales position, driving order growth through new customer acquisition. The focus on field fundamentals is paying off as distributors are using a more disciplined approach to build their businesses and manage customer relationships. Overall, we're extremely pleased with the progress we've made in Asia, and we look forward to continued growth in 2022. In North America, sales increased 6% in the fourth quarter, reflecting the positive momentum we've seen since the launch of our new business model and the introduction of our rebranding initiatives, our new digital tools, and our Subscribe and Thrive auto-ship program. During the quarter, we also got a boost from several new holiday campaigns, including Black Friday, Cyber Monday, and a 12 Days of Wellness promotion campaign. Overall, this was the region's strongest quarter of growth for 2021, and our DTC business generated more revenue in the fourth quarter than the second and third quarters combined. By market, NSPUS and Canada were up 7%, driven by an intensified focus on customer growth and increased demand for our nutritional supplements. We're very pleased with NSP's growth in the U.S. and Canada and the positive effects of our initiatives that they're having on our business. Overall, North America has gone through a tremendous amount of transformation in the last year as we've completely relaunched the business with a new business model. We're still in the early days, but we continue to listen to feedback from our customers, practitioners, and retailers to fine tune and improve the customer experience and improve the brand's overall consumer appeal. In Europe, we delivered another quarter of double-digit growth as sales grew 12% on a local currency basis. The growth was led by our markets in Central and Eastern Europe. Poland had the highest sales growth in the region, reporting a 26% increase for the fourth quarter on a local currency basis and a 33% increase in local currency for the full year. The growth was driven by the team's execution of our growth strategies, which led to strong growth in both orders and average order. New product launches like CoQ10 and the grand opening of a new retail store in Warsaw also helped fuel growth for the quarter. Russia increased 16% in local currency for the quarter driven by strong customer growth and the success of our new product packaging. During the quarter, we continued to see expansion into new markets and improved penetration across the business. While we're pleased with the team's accomplishments, our attention is obviously on the current state of affairs. As discussed at the beginning of the call, we're all saddened by what's happening in the region, and the war in the Ukraine weighs heavily on our minds. Our thoughts and best wishes are with the great people of the Ukraine and all of our wonderful partners throughout the region. While the situation is dynamic, the business is obviously impacted by this. Countries are not receiving new shipments, but they do have anywhere from three to five months of inventory on hand based on historical consumption rates. Our CFO, Joe Beatty, will share more insights with you after my remarks, and we'll keep you updated as we learn more. Moving to Western Europe, Sales were down 15% in the fourth quarter and down 6% for the full year on a local currency basis. Remember, we still haven't launched our transformation initiatives in Western Europe, so Q4 results are largely in line with expectations. As we begin to introduce the major tenants of the new business model, we should expect to see positive momentum building across that business. Finally, in Latin America, our business was down 12% in local currency in the fourth quarter driven by government-imposed COVID restrictions and a temporary systems issue that prevented retail sales from being processed in a timely manner. The systems issue is being addressed and will monitor COVID restrictions closely. For the full year, sales increased in LATAM 11% versus prior year in local currency, and the business has responded well to our transformation initiatives. To support the local management team, and ensure that we get our fair share of this large, dynamic growth market, we're pleased to have announced Valen Blackburn as the new head of LATAM. As we intensify our focus on Latin America, we believe Valen's experience and disciplined leadership style will help drive continued progress in the region. The strong performance across our OBUs for the fourth quarter and full year contributed to our historic results and demonstrates the effectiveness of our global strategies in driving sales and profitability. As we look at 2022, we look forward to building on the momentum behind our strategies. With that said, I'd now like to move on to discuss our progress on our five global growth strategies, starting with brand power. I'm pleased to announce that we're already 90% finished with our global repackaging efforts that were a key part of the rebranding initiative. the new packaging and marketing collateral was extremely popular with customers, and distributors around the world gave us high praise for creating something that not only speaks to the authentic spirit of Nature Sunshine, but also brings new life and excitement to the brand. The rebranding has been an important growth driver for the business, and our analysis suggests that the new packaging, branding, and the Force of Nature campaign combined to successfully drive activation among both existing and new customers. Brand building initiatives will continue to be a key part of our growth strategy moving forward. New product launches were also an important component of our brand power strategy. The introduction of health basics like collagen, CoQ10, and vitamin D3 in select markets were important additions to the portfolio. We also diversified the product line to include a new line of clean beauty products under the La Mara brand name. Our R&D and marketing teams worked on the La Mara concept for almost two years, evaluating product profiles, reviewing ingredient stories, and developing a go-to-market strategy. La Mara is distinguished by its clean ingredient story that combines innovative ingredients from the land and sea. It was a very successful launch with strong sales, in South Korea, Japan, and the U.S. On field energy, we continue to fine-tune and improve the effectiveness of important programs like Subscribe and Thrive and our affiliate program. The initial launch of each of these programs delivered significant learnings, and we're in the process of introducing Phase II enhancements designed to improve consumer appeal, user experience, and ease of use. Subscribe and Thrive is a powerful way to drive order growth and increase the lifetime value of customers while helping customers improve their health. In addition to functional and process changes, we're also increasing our promotional efforts to increase awareness and acceptance of the program. Similarly, our focus on affiliates will be strengthened with several Phase II enhancements designed to improve targeting, improve the user experience, and make sharing easier. As part of our ongoing effort to improve field fundamentals, we've also launched a series of training programs and modules to support our distributors. In South Korea, for example, the team launched a new distributor app that provides access to sales training modules, product training and coaching, and business management courses. This type of automation, while not a replacement for face-to-face training, will be particularly helpful as we move forward with a broader array of training options. Turning to digital first, we continue to build our digital capabilities and enhance our digital assets based on market feedback. Our web platform continues to strengthen as we add new capabilities and refine processes, and our plans to launch a new global digital platform are on track and we're making good progress. Importantly, Our test and learn approach to DTC also continues to pay dividends as we build momentum and fine tune our DTC strategy. We've accumulated nearly a year's worth of data on consumer preferences and buying trends. And we've been able to analyze the data to figure out how to strategically allocate resources to maximize performance. As a result and as an example, in the fourth quarter of 2021, we generated more DTC sales in the fourth quarter than in the second and third quarters combined, as I had mentioned. We'll continue to focus on building our DTC business and look forward to seeing our distributors build their DTC businesses as well by leveraging the fully replicated websites and sharing tools that they have at their disposal. Lastly, our new personalization initiative is up and running as a beta test. Since we're still in beta, I will comment on our progress, however, I will say that in a world where consumers are increasingly aware that each person's health needs are unique and different, we're very excited about how our personalization program will help revolutionize the customer experience. Moving to Manufacturing, Inc., our supply chain team produced a record number of units in 2021 while continuing to deliver the highest level of quality and purity available. all during the global supply chain crisis. Fortunately, in anticipation of the challenges resulting from the pandemic, we made a strategic investment in inventory to protect demand and limit our exposure to market volatility. As demand for our products increased, we also invested in equipment upgrades to improve production capacity and throughput. The new state of the art high speed equipment will further upgrade our capabilities, improve productivity, and strengthen the reliability of our supply chain. While many of these changes will impact us more in 2022, we've already seen an 8% boost in capacity at our main Spanish Fork facility. As we move forward, we will continue to upgrade our industry-leading manufacturing capabilities and evaluate and assess our global supply chain footprint. We take great pride in our industry-leading manufacturing capabilities as it's a key component of what makes us unique and is what allows us to expertly craft each product to deliver the best supplements on the market. To that end, despite having to deal with the global supply chain crisis and address unprecedented labor market challenges, the team managed to lead recertification efforts for our industry-leading list of certifications. And in the fourth quarter, they oversaw our ISO 9001, ISO 17025, USDA organic, halal, kosher, and NSF certifications with the highest rating. And as a result, we continue to lead the industry in this area. Finally, our Right Stuff initiatives continue to focus on building a high-performance organization. In the fourth quarter, we delivered another quarter of record-setting results, with operating profit increased 235% to $7.5 million, while operating margins improved 420 basis points. Similarly, adjusted EBITDA increased 55% to $11.6 million for the quarter, and EBITDA margins increased 240 basis points. As we move forward in 2022, we expect to continue to make progress on the business as we execute our five global growth strategies and leverage our strong financial and operational foundation. We're watching conditions closely in Russia and surrounding markets, but I want to stress the importance of our growth strategies across markets. We believe our journey to transform nature's sunshine has just begun. It's our 50th anniversary this year, and we're at a crossroads for carrying the legacy of our founders forward while reimagining nature's sunshine business for the future. The strength of our business continues to improve our financial position, and our capital allocation plans are a key priority. As such, the Board of Directors has authorized us to increase our share buyback program by an additional $30 million. We're pleased with the progress of the business and believe an intensified focus on our five global strategies will continue to move our business in the right direction and will help us gain traction over time. We continue to look for capital allocation opportunities maximize shareholder value in line with the priorities we've previously outlined. Lastly, before I hand it off to Joe, I'd like to share that we will shortly publish our inaugural ESG sustainability report. Caring for the environment is central to what we do and that's why we prioritize reducing our environmental footprint and working with our farmers to support regenerative agricultural practices. Additionally, We're committed to caring for the people who help us take care of our customers. We ensure ethical labor practices throughout our supply chain, provide jobs around the world, and give back to communities globally through our impact foundation. To help us build a leadership position in the area of sustainability and transparency, we've introduced a new global sustainability and transparency team led by one of our most capable experts in this area, Trent McCausland, who was recently appointed Global Vice President, Sustainability and Transparency. We're happy to share our initial ESG report and hope that you'll have a chance to read it. With that, I'd like to turn the call over to Joe, who will walk you through our fourth quarter and full year 2021 financials in more detail. Joe?