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, 2022. Joining us today are Nature's Sunshine's CEO, Terrence Moorhead, CFO, Shane Jones, and General Counsel, Nate Brower. Following their 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. Nate, please go ahead.

Thank you. Good afternoon, and thanks for joining our conference call to discuss our fourth quarter and full year 2022 financial results. I'd like to remind everyone that this call is available for replay by telephonic dial-in through March 29th and by way of live webcast that will be posted in the investor relations portion of our website at ir.naturesunshine.com. The information on this call contains forward-looking statements. These statements are often characterized by terminology 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's Sunshine, Terrence Moorhead. Terrence?

Thank you, Nate, and good afternoon, everyone. I want to thank you for joining today's call to discuss our fourth quarter and full year results. On the call with me is our new Chief Financial Officer, Shane Jones, and I'd like to take a moment to officially welcome Shane to Nature's Sunshine and say what a pleasure it is to have him as part of our management team. Shane joined the company in December and brings over 25 years of experience, having previously served as the chief financial officer at well-known companies such as West Marine, 1-800-CONTACTS, and Backcountry.com. In his role as CFO, Shane will be working closely with our management team to improve performance and drive sustainable, profitable growth across the business. He's already added significant value as we continue to take steps to mitigate external costs, pressures, drive efficiency, and build financial resilience into the business. Today, I'll provide some context to our fourth quarter and full year 2022 results. and give some details on how we believe the business continues to develop. Shane will then take you through the specifics of our financials in more detail. Turning to the fourth quarter, we continue to recalibrate and adjust to the changing macroeconomic environment and shifts in consumer behavior, but saw several encouraging signs in the quarter. First, Asia Pacific continued to deliver strong results as we've done a good job diversifying our portfolio in the region. We've contemporized the business and built strong field fundamentals that continue to create new opportunities for incremental growth. Second, our business in Central and Eastern Europe continued to show signs of stabilizing as we rewired operating practices to address the new reality on the ground and expanded our footprint to include a few new markets that helped partially offset the unique risks of doing business in that part of the world. Third, our digital initiatives continued to demonstrate strong potential to drive new customer acquisition, and the integration of our Amazon business into our internal processes is expected to enhance our focus and improve performance moving forward. And finally, the product stockout issues that slowed our business in the first half of 2022 appear to be returning to pre-COVID levels as we saw product availability improve across the board. At the same time, macroeconomic and geopolitical headwinds continued to negatively impact both our top and bottom line business dynamic in the fourth quarter. Despite the external headwinds, we were still able to move our key initiatives forward and deliver resilient results. Consolidated fourth quarter net sales on a reported basis came in at $103 million or $110 million when removing the impact of foreign exchange, which is a 6% decrease versus prior year. You'll remember, Last year's fourth quarter was the largest quarter in the company's history, with each of our operating business units delivering strong growth. Clearly, we're operating in an extremely challenging external environment, but we believe the underlying fundamentals and strength of our brand remain firmly intact, and that the steps we've taken to create a more diverse consumer-focused portfolio will build momentum as the external headwinds subside. Looking at the full year, we reported net sales of $422 million, making 2022 our second best year in the company's history. When you adjust for the impact of foreign exchange, our 2022 sales were $445 million, which is up slightly versus prior year. Again, a tremendous accomplishment given the unprecedented headwinds we faced. To be specific, foreign exchange wiped away about $23 million in sales for the year. A closer look shows that Asia Pacific drove our performance in the fourth quarter, as well as the full year, led by Japan and Taiwan. On a constant currency basis, Asia was up 5% in the fourth quarter and 16% for the full year. The growth was fueled by our investment in field activation that helped drive order growth and counteract the residual effects of China's zero COVID policy. It's worth noting that while China was a drag on the quarter, sales momentum increased each month as the country started to reopen. We're hopeful this trend continues, but the situation is fluid. Looking forward to 2023, we believe a continued focus on targeted new product introductions, next-generation branding, and sustained investment in field activation will allow us to continue to drive profitable growth in Asia in 2023. Our business in Europe continues to be resilient, with sales for the quarter and full year performing better than expected due to the incredible resolve of our team in Central and Eastern Europe. For the fourth quarter sales were down 17% and we're down 10% for the full year and constant currency versus last year's historic results macroeconomic and geopolitical challenges saw consumer spending declined sharply negatively impacting orders and average order. Fortunately, our investment in customer growth helps support geographic penetration in new markets like Turkey and the Baltic states, partially filling the gap from lost sales in Ukraine. As we move into 2023, we believe continued stability in Central and Eastern Europe combined with strong execution of our field fundamentals will create opportunities for us to deliver modest growth in the region. In North America, orders remained relatively flat versus prior year, but the business continued to be challenged by average order declines from customers who bought about one less unit on average per order. This is consistent with the broader market where we saw consumers offsetting inflationary pressures by purchasing smaller quantities, delaying purchases, or trading down to cheaper brands. As a result, fourth quarter sales were down 14 percent while full year sales were down 11 percent our investment in digital activation continued to gain traction driving new customer acquisition and adding new members to our subscribe and thrive auto ship program which now represents about 26 percent of sales and continued to increase versus prior year we continue to see encouraging signs from our digital business as we move forward We believe there's an opportunity to stabilize the North American business in the latter half of 2023 by continuing to expand our digital footprint, bringing our Amazon business in-house, and by increasing the number of nutrition health practitioners recommending our products, thus extending our leadership position as the number one nutrition health practitioner brand. The fourth quarter also saw continued pressure on gross margins, with 180 basis points of lost margin from inflation and foreign exchange that negatively impacted cost of goods. Last quarter, I invited our new supply chain leader, Martin Gonzalez, to walk you through our plans to improve gross margin with a series of initiatives designed to streamline our operations and drive out costs. Since then, we've made significant progress on our $10 to $12 million gross savings targets. we've identified the specific savings initiative and have moved into the execution phase of the plan. It's important to note, however, that the benefit of these actions won't start being reflected in our results until the end of 2023, with the material impact coming in 2024. The structural changes we're making to our product line and supply chain operations will provide significant improvements to gross margin. But many of the initiatives involve redesigning processes and revamping sourcing relationships. Doing this requires time and resources to redesign workflows, reformulate products, test them, cycle through old inventory by selling off legacy products, and then selling the reformulated products into the market. Again, this is an end-to-end restructuring of our supply chain, so it requires time and resources to do it right. In the end, the results will be significant and meaningful. In the meantime, we're planning strategic price increases in Asia Pacific, Europe, LATAM, and North America to help offset the impact of inflationary headwinds and improve profitability. In challenging times like these, we believe it's more important than ever to stay focused, keep moving forward, and lean into our strategies, and that's exactly what we're going to do. as we move into 2023 we're focused on restoring growth and building positive momentum delivering low to mid single digit revenue growth for the year to achieve this we've streamlined our global strategies to focus on three key priorities brand power strategies will focus on creating more powerful new products to fuel customer growth Field Energy will focus on attracting a new generation of digitally enabled distributors, retailers, and nutrition health practitioners. And Digital First will focus on building customer acquisition and retention capabilities around the globe. In closing, I want to reiterate our steadfast commitment to successfully navigating this unique period of the market uncertainty. And I want to leave you with a few takeaways. First, The underlying fundamentals of our business are solid, and our ability to drive customer activation remains well intact. Second, we have a strong balance sheet with the appropriate level of cash and liquidity to fund our strategies and key initiatives. And third, we're fighting back against the external macroeconomic environment with a roadmap that improves gross margins and overall profitability to make us more valuable and more competitive in the future. With that, I'd like to turn the call over to Shane.