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 second quarter ended June 30, 2026. Joining us today are Nature's Sunshine's Chief Executive Officer, Ken Rumonzi, Chief Accounting Officer, John LaNoy, 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. Nate, please go ahead.

Thank you, Ludi. Good afternoon and thanks for joining our conference call to discuss our second quarter 2026 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-ins through August 20th 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, quarterly reports on Form 10-Q, are earnings released issued today 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'd like to turn the call over to the CEO of Nature's Sunshine, Ken Romanze. Ken?

Thank you, Nate, and good afternoon, everyone. Thank you for joining our second quarter earnings call. I'm pleased to report that we delivered a solid second quarter, growing sales 4% in constant currency, reflecting continued momentum across our key strategic initiatives. Our sales growth was driven by nearly all our geographic regions, led by 5% growth in Asia Pacific, driven by strong consultant engagement. and in North America where digital sales increased 26% fueled by continued momentum with new and returning customers. Growth was supported by continued customer acquisition, expansion of our digital capabilities, increased adoption of our auto ship subscription programs and solid consultant growth. Strong execution, disciplined cost management and ongoing productivity initiatives also drove further gross margin expansion. The second quarter marked the beginning of our investments and our vision for growth. That's our name for our strategic plan to accelerate our longer-term growth rates. These investments include continued expansion of our digital business, enhanced digital tools for our consultant base, deeper penetration of existing markets, and expansion into new markets. We believe these investments, combined with our strong business model and disciplined execution, will lead to sustainable Accelerated Long-Term Growth. I will update you on the progress we have made in developing our vision for growth a bit later in the call after our Chief Accounting Officer, John Lenoy, provides the details of our Q2 performance.

John? Thank you, Ken. Net sales in the second quarter were $117 million, representing our strongest second quarter in company history. This represents a 2% increase versus the year-ago quarter or 4% increase excluding the impact of foreign exchange rates, we experienced growth in all key regions across the globe. Total Asia-Pacific sales grew 1% year-over-year to $53 million or 5% growth on a constant currency basis. While strong, our growth in APAC was lower than we expected. On the one hand, we saw outstanding growth in Japan of 50%. On the other hand, we experienced weakness in China Down 20%, a reversal from its recent growth trend of over 30% over the past year due to a few operational issues. We believe these issues are short-term in nature that we will work through in the second half of the year, but this does not shake our confidence in China's continued long-term growth potential. Excluding China, where we market the Nature's Sunshine brand, our Synergy Eagle system sales in APAC continued strong momentum, growing 11% versus last year. In North America, Q2 sales grew 3% year-over-year to $36 million, bringing sales growth to 6% through the first half of the year. During the quarter, we continued to see strong growth in our digital business, increasing 26% year-over-year. Within digital, new customers were up 26% in the quarter, with auto-ship accounting for 36% of total orders coming through our website. In addition, our social commerce business within digital continued to show strong growth, up 177%, with subscription auto-ship in this channel making up 60% of total social commerce revenue. Continued improvement in this metric is a leading indicator for future growth and profitability since the lifetime value of customers that utilize subscription auto-ship is more than three times higher than other customers. We are also pleased with the continued strength in our European business where Q2 sales increased 4% versus the prior year to 26.7 million These solid results were driven by 12% growth in Eastern Europe. This strength has been fueled by improved product availability as we have worked to ensure appropriate in-stock levels for our key products where we see high demand despite the continued unrest in the region. Turning the gross margin, we increased nearly 200 basis points to 73.7%, the highest gross margin we've seen in our over four years. This improvement represents the benefit of our ongoing initiatives which includes renegotiating logistics contracts, improved manufacturing efficiency, improved sourcing, and more disciplined pricing. We expect gross margins are likely to average around the low to mid 73% range for the remainder of 2026. Volume incentives as a percentage of net sales were 30.6% compared to 29.9% versus a year ago, primarily due to changes in market mix. SG&A expenses during the second quarter were $44.9 million compared to 43.7 million a year ago. As a percentage of net sales, SG&A expenses were 38.4% for the second quarter compared to 38.1% a year ago. The growth in SG&A is a result of our investment to fuel our vision for growth. As discussed last quarter, we expect quarterly SG&A to continue in the range of 45 to 47 million for the remainder of the year as we continue to ramp up these initiatives. Adjusted EBITDA as defined in our earnings release was $11.3 million, up nearly 1% as we begin to implement our strategic, our planned strategic initiatives. Our balance sheet remains clean with cash and cash equivalents of $82.5 million and zero debt. Net cash used by operating activities was $1.1 million compared to cash provided of $6.9 million in the prior year period. We repurchased 113,000 shares for approximately $2.5 million or $22.55 per share during the six months ended June 30th, 2026, leaving 14.8 million remaining in our share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives. Turning to our 2026 outlook, due to recent changes in exchange rates and our slowdown in China, we are lowering our previous guidance to $490 to $500 million in net sales from $500 to $515 million or year-over-year growth of 2% to 4% respectively. In addition, we are lowering our guidance for EBITDA to $48 to $52 million from $50 to $54 million. Overall, we believe the business is well positioned to capitalize on current opportunities in a growing market and remain very optimistic about our ability to continue to unlock substantial growth prospects that we see. The strategic initiatives we've been implementing are working. We are confident in our ability to continue to accelerate growth in sales, profitability, and free cash flow. Now I'll turn the time back over to Ken for some further commentary.

Thank you, John. I'd like to publicly acknowledge John today for his terrific service to Nature's Sunshine, keeping our financial house in order as we operated this past quarter without a chief financial officer. John's deep experience, leadership, and strong relationships throughout our company allowed us to continue seamlessly after Shane Jones' departure in June. As I hope you saw from our press release earlier today, we have appointed Ruth Perkins as Nature's Sunshine's new Chief Financial Officer. Ruth brings a wealth of financial leadership experience from blue-chip consumer product companies such as Ford, Estee Lauder, and PepsiCo. As the financial leader of Estee Lauder's entire $10 billion supply chain and head of PepsiCo's $26 billion North American Beverage Finance Organization, Ruth will bring a tremendous amount of leadership to Nature's Sunshine as we scale our business to achieve our vision for growth. Ruth will be returning to her home state of Utah to join us effective September 1st. We also announced earlier this week that we appointed Janine Weber as our new President of North America, effective August 10th. Janine is a 25-year veteran of the direct selling industry, most recently as President of North America for LifeWave and former Vice President of Sales North America and General Manager of Canada for Rodan and Fields. She was a key player that helped that company to $1 billion in sales, making it at the time the number one skincare company in the United States. Janine's leadership will be critical as we plan to reinvent our direct selling system in North America as part of our vision for growth. We have set long-term goals for our vision for growth to double the size of the company to $1 billion in sales and improve our EBITDA margin to 15% from its currently just north of 10%. There are four key growth drivers of our vision. They are, number one, continued digital channel expansion, two, geographic penetration and geographic expansion, three, superior marketing and product innovation, and lastly, four, mergers and acquisitions. Now, we don't know when that might be, but we are on the lookout for accretive acquisition opportunities that would complement our portfolio and strategic objectives. Our first growth driver is to continue digital expansion. We could not be happier in the growth of our digital business, which is on track to deliver $50 million in sales by the end of this year, just five years after launching it. Our vision for growth includes expanding the digital channels in the U.S., as well as evaluating opportunities outside the U.S. Our second growth driver is deeper geographic penetration and geographic expansion. What I mean by deeper penetration, I'll give you two examples. First, Japan, where we are largely a Tokyo-based business, but have recently opened up a base in the southern Japanese city of Fukuoka, which is driving tremendous growth with plans for another opening in another city in 2027. Secondly, in the United States... We are planning a complete reinvigoration of our direct selling system beginning in early 2027. While we're encouraged by our recent growth in digital channels in the U.S., our direct selling business has been under pressure for quite some time. However, we believe we can have a thriving direct to consumer digital business in addition to a growing and thriving direct selling business. We will share more of our plans for Nature Sunshine in the U.S. in the near future and we are very fortunate to have Janine Weber on board to help lead this effort. Regarding geographic expansion, our launch in Germany is underway earlier this year and we have plans to open a new Asian country through our very strong Eagles Synergy system that operates in Japan, Taiwan and Korea sometime in 2027 pending government approvals. And lastly, while we do sell some Synergy in the United States, we're really treating it as a brand new country for expansion and the only one in the world where we will market both Nature Sunshine and Synergy. These new countries will not be a significant portion of our business in the first year or two of expansion, but they are key components in our vision for growth to $1 billion in sales. Superior marketing and product innovation is our third key growth driver. This fall, we will be launching our new Nature Sunshine consumer campaign called Live on the Bright Side, which beautifully expresses the brand's unique point of difference in this crowded marketplace of nutritional supplements. And our new product pipeline is full, with several new product launches planned for this fall and early 2027. We will share these with you as we get closer to their launch dates. And last but not least, we plan to have M&A help us drive to our billion-dollar goal, but as I mentioned earlier, we cannot predict when we will execute an acquisition. Opportunities are crossing our desk daily, and we will make sure we evaluate and make the right choice. In summary, I could not be happier with the leadership team we have built at Nature Sunshine and with all the opportunities to accelerate our growth. We believe the sun has never shined brighter for Nature Sunshine. We have our sights firmly set on a billion dollars in sales and with our vision for growth strategic plan, we believe we can achieve it. Thank you for your time and attention today and your continued support of Nature Sunshine. I'd now like to call the turn back to the operator for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star, followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press a star, followed by the number two. Your first question comes from the line of Susan Anderson with Canaccord Genuity. Please go ahead.

Hi, good evening. Thanks for taking my questions. Nice job on the quarter. I wanted to ask maybe just how it sounds like the e-commerce business in North America continued to be strong. I guess maybe if you could give some more color just around the core business as well and how it performed. And then I think you guys also had a new launch in Germany. Just curious how that's going. Thanks.

I'm going to talk about core in North America, just total North America.

North America in total, North America was up, which I...

We have two numbers in mind, constant dollars, FX dollars, but 3% in total North America. And our base direct selling business actually has been soft for several years. And so our digital business continues to perform really well. And the major juncture going forward is early next year, we'll be doing a whole new reinvigoration of our direct selling program, including new product, new compensation plan, new incentives, and to really get what is still a very large core business growing as well. So continued digital expansion in the U.S. as well as a reinvigorated direct selling business in one of our largest countries is a big factor in improving our growth rates going forward.

Okay, great.

and regarding Germany we just started in Germany I think we mentioned last time we'll do maybe a million dollars in Germany this year but you know that's where we have to start right it's it's these are not overnight successes they grow over time I know that over a six-year period of time you know Taiwan we always look at Taiwan an example it went from two million dollars to over six you know 65 million dollars in like a five-year time frame but it started it had to start at zero then one then two and then it then it ramps up so We're hoping that Germany can be tens of millions of dollars in size. It's the largest direct selling market in Europe. It's the largest supplement market in Europe. And so we are recruiting leaders as we speak. I think we're bringing on 150 consultants a month there right now. So there was just a big summit meeting in Berlin where 400 people paid their own way to learn about opportunities to join Nature Sunshine as an independent consultant. So We are in the process of ramping up.

Okay, great. And then also maybe if you could give some color just on the brands and products that drove the growth in each region. I guess were there any standouts that you could call out?

So just to make sure everybody knows the detail in our brand makeup. So Nature Sunshine, is our brand in really North America, South America, Latin America, as well as in Europe, Central and Eastern Europe, and China. Synergy is our brand in the rest of Asia, so Taiwan, Korea, and Japan, as well as a little bit of Western Europe, which is a very, very small market for us. So when we talk about APAC growth, most of the growth and most of the business is Synergy in those three countries, Taiwan, Korea, and Japan And Synergy is really, I mean, it's just been, APAC's been on a roll for a long time That system was up 11% in the second quarter, continued strong growth across the countries And it's really core products that have been around for a long time They have a formula, and they just keep replicating and duplicating that formula. And they have recently launched a skincare line, which is contributing to growth and is actually one of the product lines that they're really going to try to make a significant portion of their business going forward. It's right now small single digits as a percentage of total sales, but all of our country managers looking at their long-range plans recently are all of them are gonna try to make it a significant piece of their sales, like 10, 15, even 20% of their sales over kind of a three to five year timeframe. In the nature of Sunshine, I can't really talk about any one specific product. We have so many products, so it's just the amalgamation of all of our products growing. Our biggest kind of product category in North America, both in our direct selling and our digital direct to consumer business, Most of our core business is really gut health. So it's really our gut health products and our gut health systems that are still the top sellers in the Nature Sunshine areas.

Okay, great. You mentioned M&A at the end there. I guess when you think about M&A, if you could maybe just give some thoughts around What type of acquisitions you would be looking to tack on? Do you want to stay within wellness, supplements? Are there certain regions that you're looking at of the world? And then also, are you focused on DTC brands or how should we think about that?

Thanks. So we're very, very clear. That's why we're going to be very, very selective. Number one, we are going to be in the supplement business. it will be something that we can absorb in our supply chain. That is a very critical factor. We have excess capacity in our manufacturing facility, so we will be looking at something that we can fold into our manufacturing facility so that we can generate all the self-manufacturing margin and the synergies that come along with that. We would prefer it to be diversified in terms of our business mix, whether that be more direct-to-consumer even retail or geography while we love our direct selling business we're not looking to add another one but that's not out of the question it really is the product and the product form and a category that we believe and that have growth potential but first and foremost one that we could easily complimentary bring it into our system and that's where we can make the most make it the most accretive from an earning standpoint and value creation standpoint Supplements, self-manufacture, diversification of business and a product in a category that we think have growth potential.

Okay, great. Perfect. Thanks so much. Good luck the rest of the year.

Thanks so much.

And I'm showing no further questions at this time. I would like to hand it back to the management for closing remarks.

We just want to thank everybody for their time and attention and continued support in Nature's Sunshine and look forward to reporting on our vision for our vision for our progress on our vision for growth as we go forward. Thank you, Lindy.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.