Nature's Sunshine Products, Inc.

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 30, 2024. Joining us today are Nature Sunshine CEO Terrence Moorhead, CFO Shane Jones, and General Counsel Nate Brower. Following their remarks, we'll open the call for analyst 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. Please go ahead.

Thank you. Good afternoon. Thanks for joining our conference call to discuss our second quarter 2024 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-ins through August 22nd and via a 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 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, and good afternoon, everyone. I want to thank you for joining today's call to discuss our second quarter results. Today I'll provide some context into our second quarter performance and offer insights into how the business is progressing in the current environment. From there, Shane will take you through our financials in more detail. I'd like to begin by saying that we continue to make progress on our global growth strategies, addressing near-term challenges while driving change and creating new opportunities for the future. In the second quarter, net sales were $110.6 million, down 3% on a local currency basis, driven by continued macroeconomic headwinds in Asia Pacific, a temporary disruption to our North American business, and a tough comparison versus last year, which was one of the strongest quarters in the company's 52-year history. Coming into the quarter, we knew we'd be facing some new challenges as macroeconomic headwinds, foreign exchange, and waning consumer confidence in Asia, especially China, continued to intensify. Similarly, in North America, the macroeconomic environment led consumers to be more careful with their spending as persistent inflation slowed consumer demand. The changing consumer landscape motivated us to further improve our competitiveness, upgrade capabilities, and find new ways to make doing business with Nature Sunshine easier and more attractive. With that as a backdrop, in the second quarter, we made several meaningful changes to the business that we believe will boost our competitiveness and have significant positive impact on our long-term performance. While taking the important step to upgrade capabilities and realign our go-to-market approach has short-term implications, we firmly believe the actions we've taken will help build an important foundation for long-term profitable growth. To that end, we've taken three actions to improve our outlook. First, we upgraded and reimagined our digital platform in North America to strengthen our digital capabilities and mobile-first performance, which led to improved site load speeds, conversion rates, and stability. We also added new digital capabilities like multiple payment methods and the potential to introduce next-gen capabilities like artificial intelligence and machine learning. This is an exciting and challenging migration. Second, we rebalanced our consumer proposition in several key Asia-Pacific markets placing a greater emphasis on consumer-friendly product packs that offer easy and accessible health solutions to drive customer growth and support repeat purchases. And finally, we took the initiative to streamline overhead and improve productivity by reducing over $5 million of annualized expenses in addition to the cost savings that we've previously communicated. I'd like to spend a few minutes briefly discussing each one of these actions in more detail. A closer look at our first action demonstrates our commitment to building a strong digital ecosystem in North America. As I mentioned earlier, in the second quarter, we upgraded our digital platform to improve performance and expand our capabilities. The change represents an important next step as we've now introduced a new mobile-first platform. About 65% of our digital transactions occur on mobile devices, so the move to mobile first is an important leap forward and an important component of our strategy to serve our distributors and customers better. In the first 45 days on the new site, we've already seen a positive impact. Load speeds are three times faster, conversion rates are up 20%, and digital sales increased 22% in the quarter, despite moving to the new platform and the new site. Of course, since we introduced an entirely new digital platform, we expected to see some disruption to orders as the new site recalibrates and realigns with social media platforms and search algorithms, distributors and customers learn how to navigate the new site, and as we address any service issues associated with the launch. In the second quarter, North America's sales were down 3% due to slower consumer spend from persistent macroeconomic pressure and from the expected temporary disruption to the business associated with the digital transformation. While the transformation offers better tools, better support, and a more powerful platform that will make it easier to do business with us, it will take some time for our nutritional health practitioners and specialty retailers to fully adapt to the new system. Based on our experience, our distributors will certainly want to ensure that their customers have an easy, seamless shopping experience and that they're getting the appropriate and accurate credit for their sales that they've generated before they fully commit. With respect to our second action, focused on rebalancing the consumer proposition in Asia Pacific, we added more consumer-friendly product packs to help drive customer growth in an increasingly challenging macroeconomic environment. When combined with our Subscribe and Thrive Autoship Program, the strategy is expected to produce strong, sustainable growth. In the second quarter, we saw exactly what we expected in our top Asian markets like Taiwan and Japan that recently introduced the strategy. Strong growth in new customers and orders, offset by a temporary decrease in average order size, which led to slightly lower sales growth in the short term. As a result, as the team continues to build customers and drive participation in Subscribe and Thrive, we expect to see strong growth in the future. China is a different situation. The widely publicized economic slowdown continued to negatively impact our business as second quarter sales decreased 26% versus prior year on a local currency basis. The current economic environment has put more pressure on Chinese consumers who are still willing to try new products, but are more demanding and more hesitant to place repeat orders. We continue to believe that our digital live streaming model is a powerful tool that's proven to be effective at driving customer acquisition and activation. But in the current economic environment, our consumer proposition faces new challenges. As we continue to move forward, we'll tackle the challenge head on by strengthening sales tools and expanding our live streaming training. Most importantly, we'll also focus on honing and refining our consumer proposition to increase consumer appeal, which will help us expand frequency and reach and restore velocity to our digital live streaming model. This will take some time to fully implement. Overall, Asia Pacific saw second quarter sales decrease 3% in local and constant currency, primarily driven by China. Excluding China, Asia Pacific's second quarter sales were up 4% in local currency. Looking forward, we believe we're taking the appropriate actions needed to deliver strong, sustainable, long-term growth and have a high degree of confidence in the team's ability to execute the strategy. Finally, our third action focused on leveraging the business more effectively. And in the second quarter, we took the initiative to reduce $5 million of annualized expenses. The cost savings are comprehensive and include everything from streamlining fixed overhead to eliminating unproductive expenses. As we move forward, we will continue to leverage SG&A to drive additional efficiencies. In closing, we're pleased with the direction we're taking and continue to be excited about the long-term potential of our omnichannel business. We believe the recent changes we've made will give our consumers a better shopping experience and give our distributors a more powerful set of tools to build their business. Ultimately, that will allow us to attract and retain more customers, drive order growth, and build sustainable, profitable growth to create shareholder value. With that, I'd like to turn the call over to our Chief Financial Officer, Shane Jones. Shane?