Richard Strulson - EVP, General Counsel and Chief Compliance Officer Greg Probert - Chairman and CEO Steve Bunker - EVP, CFO and Treasurer.

Analysts:.

Greetings and welcome to the Nature's Sunshine Products' Third Quarter 2016 Earnings Conference Call. All participants are in a listen-only mode and this conference is being recorded. I would now like to turn the conference over to your host, Mr. Richard Strulson, General Counsel and Chief Compliance Officer of Nature's Sunshine Products. Thank you, Mr.

Strulson. You now have the floor..

Good afternoon, everyone. And thanks to all of you for joining our conference call to discuss our third 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 Eastern Time and the information on this call may contain 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 everyone and thank you for your participation in today's call. In addition to Steve Bunker joining me today, I'm pleased to introduce Joe Baty, who joined Nature Sunshine last week as Executive Vice President and Chief Financial Officer.

Joe brings nearly two decades of experience in the nutritional supplement industry with Schiff Nutrition, including significant public company, CFO experience. I want to take this opportunity to thank Steve for his tremendous contribution to the company over the past 10 plus years.

Steve announced his planned retirement from the company this past March and has allowed us ample time to find his replacement. All of us at Nature Sunshine wish Steve well in his next endeavor.

Turning to third quarter results, I'm pleased to report our ninth consecutive quarter of year-over-year local currency growth in NSP US and Canada along with solid growth across the global - Synergy Global business.

Third quarter net sales $85.4 million were up 7.4% year-over-year with earnings per share of $0.22 compared to $0.08 during the same period a year ago.

Each of our key initiatives contributed to the growth and profit improvement reflected in the quarterly results, I remain confident with our strategy to returning Nature Sunshine to sustainable long-term growth. Notable developments included another quarter of growth in NSP United States and NSP Canada benefitting from significant growth of IN.FORM.

We launched initial phase of online certification process for IN.FORM program which we expect can further enhance the expansion of IN.FORM distributor. Double digit growth of Synergy Worldwide led by 20% year-over-year growth in Asia with further evidence of stability in Europe.

We've launched our Elite Health program in Europe at our Vienna summit during the quarter, enhancing the system that has been a key driver of our growth in Asia and nearly $4 million of preopening product sales to Hong Kong as we continue our investments in preparation of our broader Greater China business opportunities.

Now turning to our segment results. NSP America's third quarter sales of $43.3 million decreased by 2% year-over-year in local currencies and represented 51% of total company sales. The decline reflects the continued pressure in Latin America and offset growth in North America.

NSP US and Canada both achieved modest local currency sales growth of 0.2% and 0.5% respectively as each market is now marking the anniversary of two consecutive years of growth.

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 key metrics posting significant year-over-year growth.

During the quarter we launched the first phase of our online certification program for IN.FORM coaches and added IN.FORM maintenance kit and a purified drink for the program. We expect the online certification is for enhanced adaption of the IN.FORM business model. There are now approximately 2000 coaches certified and 781 groups up and running.

The penetration of IN.FORM has now reached 40% of our US managers and IN.FORM sales rose 44% year-over-year. We had several successful events during Q3 to support the development of IN.FORM with attendance nearly doubling at Inspire Summits as well as strong attendance at breakthrough tour [ph] events and webinars to support the programs.

We have additional activities introductions planned in future quarters to continue to support IN.FORM. Our retail channel experienced a modest decline during the quarter a trend consistent with other publicly traded supplement retailers this quarter.

Online sales however continued to grow, with IN.FORM retailers outperforming retailers not utilizing IN.FORM system we will continue to drive adoption of this enhanced business model. Practitioner channel sales trends remain relatively consistent during the quarter. In Latin America sales decreased 12% year-over-year in local currency.

Challenges with product registration remain the primary pressures across the region. We have continued our focus on transitioning the Latin American markets towards the IN.FORM product program which are classified as fruit products and does have a more favorable regulatory profile than herbal remedies.

For example during the quarter we received pre-approval for IN.FORM protein shakes in Mexico. We also have a clinical study in process relating to Latin American formulation of IN.FORM to support the program's development. As we focus on reintegrating on Latin American formats we have also made targeted efforts to reduce cost in this region.

Turning to Synergy Worldwide, third quarter sales rose 12.7% year-over-year to $31.3 million representing 37% of total company sales. On a local currency basis, sales were up 8%. The strong performance once again led by growth in Synergy Asia.

Korea and Thailand were the most significant drivers of the year-over-year growth, while continue gains in Japan and other key Asian markets. Europe was flat year-over-year for the second consecutive quarter, reflecting a stabilization after prior period decline, while North America declines continued in the single-digits.

The stable results in Europe were in part driven by successful European Summits during Q3, where we introduced the Elite Health program. At this Summit we introduced a limited time offer of Elite Health pure - and saw a positive initial response.

We are now in the process of rolling up the system and products beginning first with Europe to be followed by a launch in key Asian markets including Korea and Japan late this month. Elite Health consolidates multiple regional product strategies into a unified global product offering geared toward detox, weight management and a daily habit of health.

These product categories have been a significant driver of our growth in Asia and have been utilized by distributors in a program format that we are now enhancing and standardizing. We are excited should now be launching our first introduction of this system in Europe.

Our next steps of the rollout of the key product offerings for the program in Europe, followed by introduction in Asia later this month. With this product innovation, new leadership in Europe and good momentum in Synergy Asia, we are excited about our growth opportunities at Synergy.

In NSP Russia, Central and Eastern Europe, net sales rose roughly 2% in both local currency and U.S. dollars to $6.4 million and represent 8% of total company sales. It was a very welcome and overdue utilization of some relative currency stabilization.

Of course this stabilization reflects only the comparison of the prior year as currency devaluation over the past several years, would cause a sharp increase in the local cost of our products remains material. Our efforts to improve a relative priced product since market with targeted discount as of the stabilize sales in the region.

In addition to our pricing efforts we have been active in product launches, offering new product kits throughout the year. During Q4 we are launching a healthier immune to support recruiting and further stabilize results across the region.

We remain pleased with the level of distributor engagement and commitment despite the many geopolitical and macro-economic factors weighing on much of the region over the past few years. We also remain encourages with successes in Poland which again posted double-digit revenue growth.

We posted strong growth in distributors and managers during the quarter. Given our success in this market we are targeting additional new market launches in the region beginning as early in Q4.

Turning now to China and New Markets, third quarter net sales for this segment increased to $4.4 million versus $1.0 million in the prior year period, accounting for 5% of total sales. During the third quarter, we again recorded incremental preopening product sales through Hong Kong that drove the majority of the year-over-year sales increase.

During the quarter we continue to prepare for our broader launch across the Greater China region, including further developments of our infrastructure and progress towards additional product registration. We are making significant investments in China, to continue to work towards obtaining our direct selling license.

In summary I am pleased with the third quarter performance and our key product and market specific strategies for growth. Our NSP business is built on a strong foundation of retailing and practitioner sales in the U.S and the IN.FORM program is still building penetration.

Synergy worldwide growth is being driven by momentum in Asia and Elite Health launch positions us for global growth. With a strong foundation and growth opportunities for us in both NSP and Synergy we have made or we will continue to make significant investments in China that we are confident than we have an attractive long-term growth strategy.

With that I’ll turn the call over to Steve, to review our third quarter financials..

Thanks, Greg, and good afternoon everyone. Net sales in the quarter were $85.4 million up 7.4% from $79.6 million in the same quarter last year. On a local currency basis, net sales grew by 6.1% year-over-year.

As Greg noted, the growth was driven by Synergy Asia, the product sales through Hong Kong and to a lesser extent NSP Russia Gross margin rose 70 basis points to 74.8% from 74.1% in a year ago period. A favorable market mix and manufacturing efficiencies were the primary drivers of the improved gross margin.

Volume incentives accounted for 34.7% of net sales in the third quarter compared to 36.0% of net sales in the same period last year. In dollars, volume incentives increased $1 million to $29.7 million as a result of the higher sales volume.

While the decline in volume incentives as a percentage of sales was driven by changes in segment market mix, including the pre-opening products sales to Hong Kong for which no volume incentives are paid. Selling general and administrative expenses were $29.2 million, up $2.1 million compared to $27.1 million in the same period a year ago.

As a percentage of net sales, selling general and administrative expenses were 34.2% in the third quarter compared to 34.1% in the prior year.

The increase in SG&A was primarily due to $1.5 million of independent service fees related to pre-opening product sales through Hong Kong, and 500,000 of increased investment in China, while other increases and decreased were largely offsetting.

Operating income increased 61.2% to $5.1 million, or 5.9% of net sales from $3.1 million or 3.9% of net sales in the prior year period.

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 increased to $7.1 million in the third quarter as compared to $5.5 million in the third quarter of 2015.

The effective income tax rate for the third quarter of 2016 was 22.4% as compared to 44.4% in the third quarter of 2015. The lower tax rate reflected favorable international tax contingencies during the quarter.

Net income from continuing operations for the quarter was $3.9 million or $0.22 per diluted share, as compared to $2.4 million or $0.08 per diluted share in the year ago period. Turning to the balance sheet, cash and cash equivalents at September 30, 2016 were $40.4 million. During the quarter cash from operations was a use of $1.4 million.

We invested $3.3 million in 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 early 2017 accounted for the majority of our capital investments during the quarter.

Inventory was $48.9 million at the end of the third quarter, as we continue building inventory to support our future channel launch and new product introductions. We have $110.2 million in current assets.

Our Board of Directors approved a regular quarterly cash dividend of $0.10 per share that will be paid on December 05, 2016 to shareholders of record as of the close of business on November 23, 2016.

In summary, we continue to enjoy a healthy cash position and an efficient business model that gives us ample capital resources to execute on our strategy, invest in 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..

Q - :.

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. Have a great day. Thank you..

Thank you, ladies and gentlemen. That does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day..