Richard Strulson - EVP, Chief Compliance Officer Greg Probert - CEO Steve Bunker - CFO.

Mitch Pinheiro - Imperial Capital Nelson Obus - Wynnefield Capital.

Presentation:.

Greetings and welcome to the Nature's Sunshine Products' Second Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to Mr.

Richard Strulson, General Counsel and Chief Compliance Officer for Nature's Sunshine Products. Thank you, Mr. Strulson. You may now begin..

Good afternoon and thanks to all of you for joining our conference call to discuss our second quarter 2015 financial results. This call is available for replay in a live webcast that we posted on our Web site at www.naturessunshine.com in the Investor's section. The press release which was issued this afternoon at approximately 4:00 p.m.

Eastern Time and the information on this call contains certain forward-looking statements, which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties or other factors which may not be under the company's control.

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, performance or achievement of the company may be materially different from the results, performance or other expectations implied by these forward-looking statements.

These factors 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 press release and the information on this call speak only as of today's date and the company disclaims any duty to update the information provided herein and therein. I'll now turn the call over to Greg Probert, Chairman and CEO of Nature's Sunshine Products..

Thanks Rich. Good afternoon everyone and thank you for your participation in today's earnings call. Joining me today is Steve Bunker, our Executive Vice President, CFO and Treasurer. On today's call I will discuss performance of our business segments in detail, as well as update on our sales and profit improvement initiatives.

So first let me begin with some key sales highlights from this quarter. In the second quarter sales of $81.2 million were down 7.7% on a local currency basis. The decrease was primarily driven by $6 million sales decline in our NSP Russia, Central and Eastern Europe segment.

Excluding NSP Russia, Central and Eastern Europe, sales for the remaining business segments decreased by 1.5% year-over-year in local currency. We are encouraged by the fourth consecutive quarter of local currency sales growth, in Synergy Europe, NSP United States and NSP Canada.

Our reduce growth was more than offset by softness in Synergy North America, Synergy South Korea and NSP Latin America. As previously discussed in mid-April we responded to soft sales by initiating a plan to improve earnings for reducing our SG&A cost, through streamline our operations and also initiating price increases.

As a result, we expect to realize approximately $10 million to $15 million of annualized operating income improvement by Q4 of this year. Now, let's turn to our segments. NSP Americas second quarter sales of $45.0 million decreased by 0.3% year-over-year in local currencies and represented 55.5% of total company sales.

NSP U.S., NSP Canada both recorded their fourth consecutive quarters of year-over-year growth of 0.6% and 4.2% in local currency respectively. Our new sales programs continue to gain traction and helped fuel this growth.

We have seen increased adoption of both the IN.FORM sales method, which focuses on building a daily habit of health and weight management, as well as sales stores we have launched for our retail accounts.

Through the end of the second quarter we have certified 1,027 IN.FORM coaches, an increase of over 28% in the first quarter of 2015, with 401 groups currently up and running.

In further support of our NSP North America business, we launched two new products at our National Convention Anaheim, Berberine IR, for glucose metabolism support and CardioxLDL for cholesterol metabolism support and re-launched an updated and extended line of authentic essential oils.

All these products have sold very well throughout the second quarter. In Latin America, sales declined 5.0% year-over-year in local currencies. We continue to face challenges in this region mainly due to lots of key products as a result of changing product registration regulations.

We are working to address this by transitioning our markets to adopt the IN.FORM sales method and at the same time aligning our resources with this initiative.

In May we held our Annual Convention Latin America to support and reengage our distributors in this region, as well as introduce our plan to transition our focus from herbal remedies which must meet stringent regulatory requirements to functional good products from our IN.FORM line.

Synergy's second quarter sales of 28.5 million decreased by 2.4% year-over-year in local currencies and represented 35.1% of total company sales. The decline was primarily driven by our year-over-year sales in North America and Korea which were partially offset by improvements in Europe, Indonesia and Japan.

In Europe the second quarter marked the fourth consecutive quarter of year-over-year growth in local currency of 6.5%, we experienced growth in the majority of our key markets in Europe which continues to be supported by investments we made in sales and marketing resources in the second half of last year.

Our Slim Smart Health Shake and E9 Energy Drink product launches last year also continues to drive sales momentum through new customer acquisitions in addition to price increases we enacted in May. We will continue to focus on utilizing Slim Smart, our Synergy weight metric program to drive growth in both distributors and customers.

In Synergy Japan, sales grew by 30.0% year-over-year in local currency. We continue to see growth driven by new products and implementation of its sales system that certainly our Japanese distributors adopted from our Korean distributors. Sales in South Korea decreased by 10.5% year-over-year in local currency.

The primary cause of decline over the past several quarters has been previously discussed internet advertising restrictions on sites that were used to successfully recruit distributors and customers in this country last year.

To address this, we're taking steps to launch new acquisition programs including a new home health party in the third quarter to find our distributors new tools to grow their business. In regards to the rest of Asia, Indonesia delivered very strong sales growth in the quarter increasing 68.1% year-over-year in local currency.

Growth was again led by new distributor leadership as well as reengagement of the existing leaders in the region. Finally, as part of our previously announced plan to streamline operations and focus on new and more profitable markets we exited the Vietnam market during the second quarter.

Steve will discuss the results of these initiatives in more detail in just a moment. Net sales in Synergy North America continue to be depressed and declined 26.4% year-over-year, primarily as a result of a reduction in distributor recruiting.

To address this, we have implemented various growth initiatives in North America to more effectively support distributor recruiting, training and motivation. Turning now to NSP Russia, Central and Eastern Europe -- net sales of $6.8 million represented 8.4% of total company sales and decreased 47.0% over the prior year.

Ongoing political unrest and conflict coupled with further devaluation of the Russian Ruble and the Ukrainian Hryvnia continues to have significant negative impacts on our financial performance. During the second quarter we experienced considerable net sales declines in Ukraine and Russia and to a lesser extent in other markets across the region.

With regards to the currency devaluation, our product pricing in the region is pegged to the U.S. dollar and the local currency declines have resulted in a sharp increase in the local cost of our products. Throughout this period of instability, we are continuously evaluating options to retain and engage our distributors and customers in this region.

We have shown and will continue to show support to our independent distributors through promotional activities, events, product kits and training.

Our recently introduced product kits, in line with our daily habit of health has been gaining traction, are helping to increase recruiting and drive excitement for the upcoming National Convention with 5000 expected attendees.

New product kits included our digestive system kit, a daily nutrition kit, as well as two new launches in the second quarter for [indiscernible] kit, as well as the children's kit which have all been well received.

Nevertheless, with conditions changing constantly in the high level of uncertainty we do not expect condition to stabilize in the near term. We'll continue to stay the course and remain confident that we are well positioned to reignite growth in the region through our strong partnership with our local partner once the situation steadies.

Turning now to China and new markets -- second quarter net sales for this segment which currently only includes our export business, decreased 24.7% year-over-year to $0.9 million and represented approximately 1.1% of total company sales.

The decrease in net sale was primarily due to transition of NSP Peru which was direct selling market in the second quarter 2014 to an export market in 2015. As such we no longer have any NSP affiliates in the Asia Pacific region. Currently there are no managers or distributors in the China and new market segment.

In regard to China, we continue to make solid progress on our go-to-market strategy with the support of our local joint venture partner Fosun Pharma and our track for our first phase of launch with e-commerce in the second half of 2015.

In addition we have been diligently working towards obtaining our direct selling license, expect to launch our direct selling business in 2016.

Notable achievements related to our go-to-market strategy during the quarter included obtaining regulatory approvals for our e-commerce product as well as finalizing cross border e-commerce logistics and product offerings for all channel. We also successfully completed our negotiations for long term office space in Shanghai.

Under the leadership with Paul Noack, our president of China and new markets, we have assembled a strong and highly experienced team. With this team and the support of our partner Fosun Pharma I remain optimistic that our expansion in China will be a driver growth in future years.

We look forward to updating you on our progress on this very important initiative in the coming quarters. Before I conclude my remarks today I'd like to focus on our capital allocation priorities, which include capital expenditures to drive organic growth, as well as our share repurchase program and importantly cash dividend.

Our goal is to continue to enhance shareholder value and return excess cash to shareholders. During the quarter, we continue to make investments in our Oracle ERP implementation project. This project will provide us with a single integrated software solution to unify our global infrastructure and is on track to go live in January 2017.

Our in plan includes a re-engineering of a new commission engine to replace our current ageing legacy commission engines, as well as Oracle distributor analytics business intelligent tools, which is on track to launch in January of 2016.

This solution will enable us to better understand our distributors offering patterns and needs in a timely manner, as well provide them with better business building tools going forward.

Lastly, we continue our track record returning excess capital to shareholders when the Board approved $0.10 per share regular quarterly cash dividend, as well as complete the share repurchase in the amount of $3.8 million during the six months ended June 30, 2015.

Our regular and special dividends together with our share repurchase program underscores the confidence our Board and Management team have on our growth strategies and build to simultaneously return capital to shareholders.

To conclude, while our second quarter financial results were muted on the whole by softness in several markets, coupled with currency headwinds, we've been making solid progress on our efforts to restore top and bottom line growth to the business.

Many of our most important markets such as NSP, U.S and Synergy Japan are showing growth after years of decline. Our new programs and product development efforts continue to translate into improve engagement among our distributor and customer base.

And as part of our plan initiated in April, we are laser focused on streamlining our operations and realigning our activities on profitable future growth opportunities. With that, I'll turn it over to Steve to review our second quarter financials..

Thanks Greg, and good afternoon everyone. Net sales in the quarter were $81.2 million, down 12.5% from $92.8 million in the same quarter last year. On a local currency basis net sales decreased 7.7% year-over-year.

The decrease was primarily driven by 6.0 million decline in net sales revenues in the NSP Russia, Central and Eastern Europe segment, coupled with 4.5 million unfavorable impact from foreign currency exchange rate fluctuations.

Excluding the net sales revenue decline in NSP Russia, Central and Eastern Europe, net sales for the remaining business segments decreased by 1.5% year-over-year in local currency. Costs of sales were 21.1 million down from 22.8 million in the year ago period.

Cost of sales increased as a percentage of net sales in the second quarter of 2015 by 1.3% to 25.9% as compared to the same period in the prior year.

The year-over-year increase was due to the strengthening of the U.S dollar against the local currencies in many of our foreign markets which has made our product manufactured in the U.S more expensive in those markets, as well as unfavorable changes in inventory reserves.

Gross margin fell 130 basis points to 74.1% compared to 75.4% in the year ago period, primarily as a result of the decline in the revenue and the increase cost of sales percentage during the second quarter.

Volume incentives accounted for 36.4% of net sales in the second quarter, relatively flat compared to 36.9% of net sales in the same period last year. The slight decrease was primarily due to reduced sales in NSP Russia, Central and Eastern Europe which pay higher volume incentives than our global average.

As a reminder, volume incentives are a significant part of our network marketing program and are designed to provide incentive to reach higher product sales levels. Volume incentive vary slightly on a percentage basis by product due to pricing policies and commission plans in place and by the sales mix in our various markets.

Selling, general and administrative expenses were $27.4 million, down $2.5 million or 8.5% compared to $29.9 million in the same period a year ago. Selling, general and administrative expenses as a percent of net sales were 33.7% million in the second quarter, up 1.4% as compared to 32.3% in the prior year quarter.

The increase in SG&A as a percent of net sales was primarily due to the decline in net sales. SG&A in the quarter included restructuring charges of 2.1 million related to our plan to streamline and refocus our activities and by 0.8 million of increased investment in China.

These expenses were offset by reduced management costs in the NSP Russia, Central and Eastern Europe segment from lower net sales; reduced benefit costs, non-recurring professional fees in the prior year related to the strategic alliance with Fosun Pharma and evaluations with the company in an alternative distribution channel that we declined to pursue.

Operating income decreased 45.4% to $3.2 million or 3.9% of net sales from $5.8 million or 6.3% of net sales in the prior year period. The decrease was primarily due to the net sales revenue decline during the quarter. In addition operating income was impacted by the devaluation of foreign currencies relative to the U.S.

dollar which increased our cost of sales as a percent of net sales.

Adjusted EBITDA as defined in our earnings press release as net income from continuing operations before taxes, depreciation, amortization and other income adjusted to exclude share-based compensation expense decreased 36% to $5.1 million in the second quarter as compared to $8 million in the second quarter of 2014.

The effective income tax rate for the second quarter of 2015 was 24.7% compared to 38.2% in the second quarter of 2014. The current quarter's effective tax rate was lower than the U.S. federal statutory tax rate of 35% due to adjustments and valuation allowances on U.S.

foreign tax credits and capital loss carry forwards and was partially offset by the impact of losses in some markets that will not provide immediate tax benefits. Net income from continuing operations for the quarter was $2.4 million or $0.12 per diluted share as compared to $3.6 million or $0.22 per diluted share in the year ago period.

I'd now like to take a minute to elaborate on the progress we've made to improve earnings by reducing costs, improving efficiencies and focusing on new and more profitable markets. In the second quarter we eliminated approximately 100 positions worldwide through both severance and attrition and exited the Vietnam market.

As a result, we incurred non-recurring expenses of approximately 2.1 million, when excluding these charges associated with restructuring plan earnings per diluted common share would have been $0.07 per share higher at $0.19 per share. We expect to incur to up to an additional 500,000 in related non incurring expenses in the subsequent quarter.

Going forward as a result of this plan we currently expect to realize approximately 10 million to 15 million in annualized operating income improvements by the fourth quarter of this year. Moving on to the balance sheet, cash-and-cash equivalents as of June 30, 2015 were $46.2 million, down from $58.7 million at December 31, 2014.

The lower cash balance primarily reflects cash outflows of $3.7 million to pay dividends, $3.8 million to repurchase shares of common stock and $9.4 million to reinvest in our Oracle ERP implementation. Inventory levels at June 30th were up 1.4% from December 31, 2014 levels and we have approximately $112 million in current assets.

As Greg noted earlier, our Board of Directors approved a regular quarterly cash dividend of $0.10 per share payable on September 8, 2015 to shareholders of record as of the close of business on August 25, 2015.

During the three months ended June 30, 2015, we repurchased 73,000 shares of common stock under our 20 million share repurchase program or approximately 0.9 million and for the first six months of 2015, we repurchased 275,000 shares for a total of 3.8 million.

The remaining balance available for repurchasing under the program as of June 30th was 16.2 million. Despite the sales challenges we've been experiencing, we remain pleased with our overall financial position expect to continue to use excess cash to fund our growth activities and return value to our shareholders.

With that, I will turn the call over to the operator for questions.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question is from Mitch Pinheiro of Imperial Capital. Please go ahead..

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Thank you. [Operator Instructions] And the next question is from Nelson Obus of Wynnefield Capital. Please go ahead..

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I would now like to turn the conference back over to Mr. Probert for closing comments..

Thanks again for your support and participating in today's call. We like to remind everyone that next week of September 14th, Steve and I will be in New York City participating in two investor conferences. The B. Riley and Company Retail and Consumer Conference as well as Imperial Capital Global Opportunities conference.

We hope to see many of you there. Have a great day. Thank you. Good bye..

Thank you. Ladies and gentlemen this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..