Richard Strulson – Executive Vice President, General Counsel and Chief Compliance Officer Greg Probert – Chairman and Chief Executive Officer Steve Bunker – Executive Vice President, Chief Financial Officer and Treasurer.

Analysts:.

Greetings and welcome to the Nature's Sunshine Product's Second Quarter 2016 Earnings Conference Call. All participants are in a listen-only mode and this conference is being recorded. Due to time constraint, there will be no opportunity for a question-and-answer period today. I would now like to turn the conference over to your host, Mr.

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

Thank you. Good afternoon, everyone. And thanks to all of you for joining our conference call to discuss our second quarter 2016 financial results. This call is available for replay in a live webcast that we posted on our website at www.naturessunshine.com in the Investors section.

The press release which was issued this afternoon at approximately 4:05 pm 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 within 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 everybody and thank you for your participation in today's call. Joining me today is Steve Bunker, our Executive Vice President, CFO and Treasurer. I'm pleased to report our second quarter results which reflect our eight consecutive quarter of year-over-year local currency growth in NSP, U.S.

and Canada, along with accelerated growth rate across the Synergy global business. Net sales of $89.4 million were up 10% year-over-year or 11.5% on a local currency basis, an improvement from the 1.3% local currency growth during Q1.

The results illustrate the continued progress we have made towards returning Nature’s Sunshine to sustainable long-term growth and building upon our opportunities in new market.

Global developments included sustained strong execution in NSP United States and NSP Canada, which continue to be driven by our stable foundation in retail, practitioners and informed coaches.

Robust growth at Synergy WorldWide including further acceleration in Asia, improvement to roughly flat growth in Europe, both reflecting, our recent business model and process improvement, and $4.4 million of incremental pre-opening product sales through Hong Kong as we prepare our broader Greater China business initiatives.

Now turning to our segment results. NSP America's second quarter sales of $44.7 million increased by 0.7% year-over-year in local currencies and represented 50% of total company sales. NSP U.S. and NSP Canada both achieved their eight consecutive quarters of year-over-year local currency growth of 2.1% and 0.8% respectively.

Our IN.FORM business model which is focused on both weight management and building a daily habit of health continues to be the primary driver of growth in the region. With all key metrics we measure, to support the growth of IN.FORM performing well. We achieved record IN.FORM certifications during the quarter.

Through the end of the second quarter, we had a total of 1876 coaches certified, the majority of which are practitioners and 610 groups up and running. Both totals reflect significant growth from the first quarter 2016.

Our strong development of IN.FORM during the quarter reflected a successful launch at convention in April exceeding our expectations for both new certifications and re-certifications. As we discussed last quarter, during convention we launched a new improved and clinically studied IN.FORM program.

The new IN.FORM program have significantly clinical data support efficacy and should build upon our successes thus far. Through date, practitioners and retailers have driven the majority of adoption, but we anticipate that simplification of the new IN.FORM kit can broaden success of this key program.

We have data that demonstrates that those practitioners and retailers utilizing IN.FORM are significantly outperforming those that are not. This evidence combined with an improved solution sold as a kit and developed for ease-of-use by all distributors and customers adds to our confidence for further growth.

Sales of products related to the IN.FORM line grew 50% year-over-year during the quarter. Our retail channel again performed well during the second quarter driven by strength in both brick-and-mortar and online sales. We continue to see strong performance among retailers utilizing IN.FORM and increased our focus on getting more retailer store to find.

We are also testing a new CRM to improve our sales efforts. We continue to focus on our line of authentic essential oils, launching two new products during our Annual Convention. We also launched Eleven Elevated a new probiotic which saw a high level of penetration among managers and strong convention sales.

In Latin America sales decreased 5.3% year-over-year in local currency. Latin America continues to face challenges with product registrations and availability.

However, we remain focused on transitioning our Latin America markets toward the IN.FORM program, which are classified as food products and thus have a more favorable regulatory profile than herbal remedies.

During the quarter, we continued to make progress with the necessary re-formulations and product registration to support IN.FORM in Mexico and across the rest of Latin America. We have launched our line of authentic essential oils in Mexico with good performance there in Q2.

While the challenging changing product environment registration regulations create significant headwinds in this region due to the loss of several key products, we are optimistic that IN.FORM and our line of essential oils will be well received.

Turning to Synergy Worldwide, second quarter sales were a record $33.0 million, an increase by 17.9% year-over-year in local currencies and represented 37% of total company sales.

On top of posting the highest revenue quarter in the Company's history, the year-over-year growth rate further accelerated when compared to Q1 with all regions showing improved trend. The increase was primarily driven by growth in Synergy Asia, including Korea, Japan, Thailand and Malaysia.

Europe was roughly flat, down 1% in local currency and up 1% as reported. North America declines continued but are at more modest pace. Our patent pending ProAgri-9 formula continues to be a top selling product in all major Synergy markets and was a meaningful contributor to the quarter.

We are nearing the rollout of our Elite Health program, which will be introduced in Europe and Asia later this fall. Elite Health streamlines multiple product categories into a more cohesive sales method with a unified global product offering geared toward detox, weight management and a daily habit of health.

We now look to update this Rest of Asia and Europe and ultimately North America. Turning first to South Korea, net sales increased by 36% year-over-year in local currency marking a further acceleration of growth. Our new distribution acquisition and recognition programs continued to yield results with measurable improvements and right advancement.

Synergy Japan posted 13.4% year-over-year growth in local currency. The growth was driven by further support for the implementation of the sales system adopted from our Korean distributors and our focus on right advancement efforts.

Indonesia, Thailand and Malaysia, all posted local currency growth in the quarter, highlighted by 56% gain in Thailand, and 78% growth in Malaysia. We continue to prepare for the impending launch with the Elite Health system later this fall.

In Europe, sales decreased by 1% year-over-year in local currency, but the near past performance versus the prior year is an improvement from the prior three quarters.

We are pleased to see the market stabilizing, with the September launch of Elite Health approaching and new leadership in the European region, we see an opportunity to return to growth. Net sales in Synergy North America, which represents 3% of company sales declined 5.5% year-over-year.

We remain focused on initiative to bolster distributor recruiting and training and motivation to ensure we have proper commitment from our leaders in the region to support the impending launch of Elite Health system next year.

Turning now to NSP Russia, Central and Eastern Europe, net sales of $6.3 million decreased 7.4% versus the prior year in local currency and represented 7% of total Company sales. The net sales decline moderated somewhat from Q1. However, the trends remain consistent with geopolitical and macroeconomic factors, weighing on much of the region.

We have taken some action to respond to the currency devaluation Russian ruble and Ukrainian hryvnia which has a sharp increase in the local cost of our product given our pricing in the region is paid to the U.S. dollar and we are focused on maintaining distributors.

In an effort to increase recruiting, we are launching the anti-allergy kit, following the health liver kit launch last quarter. Despite the challenges, the market remains profitable, our distributor leadership remains committed to the Company and we have long-term confidence in this market. Everyone continues to perform well.

We are registering 63.3% year-over-year growth in local currency, and we are targeting opportunities to expand. Turning now to China and New Markets. Second quarter net sales for the segment, which historically only included our wholesale business, increased $5.4 million versus $0.9 million in the prior year.

This accounted for approximately 6% of total company sales. During the second quarter, we reported incremental pre-opening product sales through Hong Kong of $4.4 million, which drove the growth during the quarter. We are pleased with the continued progress in building the foundation of our China strategy.

We are making significant investments in China, continue to work towards obtaining our direct selling license in the relative near-term. We have accelerated some hiring plans in China as we prepared for direct selling, and are confident with the Team and the foundation we have built for the significant opportunity.

We are progressing upon our long-term and prudently measure development in one of the largest direct-selling markets in the world, and look forward to keeping you updated on our progress in China over the coming quarters and years. In summary, I'm very pleased with the second quarter performance.

We've continued to position ourselves for long-term sustainable growth, and our second quarter reflect these efforts. Our NSP business is built on a strong foundation of retailing and practitioner sales in the U.S. and is well positioned for growth with IN.FORM.

Our Synergy WorldWide operations are seeing accelerated growth and our Elite Heath product launch positions us for global success. And we are confident that we're well positioned to capitalize upon the long-term potential of the China market. With that, I’ll turn the call over to Steve to review our second quarter financials..

Thanks, Greg, and good afternoon everyone. Net sales in the quarter were $89.4 million up 10% from $81.2 million in the same quarter last year. On a local currency basis, net sales grew by 11.5% year-over-year. As Greg noted, the growth was driven by Synergy Asia, $4.4 million of incremental pre-opening product sales to Hong Kong and NSP North America.

This more than overcame a $1.2 million unfavorable impact from foreign currency exchange rate fluctuations and a $500,000 decline in the NSP Russia, Central and Eastern Europe segment. Gross margin rose 10 basis points to 74.2% from 74.1% in the year ago period. Favorable country and product mix offset the pressure from the strengthening of the U.S.

dollar against the local currencies in many of our foreign markets. Volume incentives accounted for 34.5% of net sales in the second quarter compared to 36.4% of net sales in the same period last year. In dollars, volume incentives increased $1.2 million to $30.8 million as a result of the higher sales volume.

Decline in volume incentives as a percentage of sales was driven by changes in segment market mix, primarily the pre-opening products to Hong Kong for which no volume incentives are paid. Selling general and administrative expenses were $31.2 million up $3.9 million compared to $27.4 million in the same period a year ago.

As a percentage of net sales, selling general and administrative expenses were 35% in the second quarter up from 33.7% in the prior year quarter.

The increase in SG&A was primarily due to $2 million of independent service fees related to pre-opening product sales through Hong Kong, $1.8 million off increased investment in China and the reduced capitalization of 800,000 o internal labor cost related to our ERP implementation project.

These increases were partially offset by $2.1 million of non-reoccurring restructuring charges in the same quarter of the prior year. Operating income increased $33.4% to $4.2 million, or $4.8% of net sales from $3.2 million or 3.9% of net sales in the prior year period. The increase was primarily due revenue growth and the margin mix already noted.

Adjusted EBITDA as defined in our earnings press release is net income from continuing operations before taxes, depreciation, amortization, and other income adjusted to exclude share based compensation expense increased to $6.2 million in the second quarter as compared to $5.1 million in the first quarter of 2015.

The effective income tax rate for the second quarter of 2016 was 34.7% as compared to 24.7% in the second quarter of 2015. Net income from continuing operations for the quarter was $2.4 million or $0.14 per diluted share, as compared to $2.4 million or $0.12 per diluted share in the year ago period.

Turning to the balance sheet, cash and cash equivalents at March 31, 2016 were $41.4 million. During the quarter we generated cash from operations of $3.6 million, invested $3.3 million of capital expenditures and utilized $1.9 million to pay dividends.

The investment to support our Oracle ERP implementation which remains on track to go live In January 2017 accounted for the majority of our capital investments during the quarter. Inventory was $45.0 million at the end of the second quarter, as we continue building inventory to support our future channel launch and new product introductions.

We have approximately $109 million in current assets. Our Board of Directors approved a regular quarterly cash dividend of $0.10 per share that will be paid on September 02, 2016 to shareholders of record as of the close of business on August 23, 2016.

In some way, we continue to enjoy a strong cash position and an efficient business model that gives us ample capital resources to execute on our strategy, and if that's a new business opportunities, while simultaneously returning value to our shareholders. With that, I will turn the call back over to Greg, for his concluding remarks..

Thank you again for your support and for participating in today's call. If you have any follow-up questions, please do not hesitate to reach out to us. We will be presenting at B. Riley & Company's Conference in New York Citi on September 13. Hope to see, many of you there. Have a great day..

Ladies and gentlemen. That does conclude our teleconference for today. We thank you for your time and participation and you may disconnect your lines at this time. Have a wonderful rest of the day..

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