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Edited Transcript of NATR.OQ earnings conference call or presentation 9-Nov-20 10:00pm GMT

·39 min read

Q3 2020 Natures Sunshine Products Inc Earnings Call Provo Nov 19, 2020 (Thomson StreetEvents) -- Edited Transcript of Natures Sunshine Products Inc earnings conference call or presentation Monday, November 9, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Joseph W. Baty Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer * Nathan G. Brower Nature's Sunshine Products, Inc. - Executive VP, General Counsel & Secretary * Terrence O. Moorehead Nature's Sunshine Products, Inc. - President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Jurriaan Hofman Robeco Institutional Asset Management B.V. - Equity Analyst * Steven L. Martin Slater Capital Management, L.L.C. - Manager ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, everyone, and thank you for participating in today's conference call to discuss Nature's Sunshine's financial results for the third quarter ended September 30, 2020. Joining us today are Nature's Sunshine's CEO, Terrence Moorehead; CFO, Joseph Baty; and Executive Vice President and General Counsel, Nathan Brower. Following their remarks, we'll open up the call for your 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 questions regarding forward-looking statements. Nathan, please go ahead. -------------------------------------------------------------------------------- Nathan G. Brower, Nature's Sunshine Products, Inc. - Executive VP, General Counsel & Secretary [2] -------------------------------------------------------------------------------- Yes. Thank you. Good afternoon, and thanks to all of you for joining our conference call to discuss our third quarter 2020 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through November 24 and via a live webcast that will be posted in the Investor Relations portion of our website at naturessunshine.com. The information on this call may contain forward-looking statements. These statements are often characterized by terminology 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'd like to turn the call over to the CEO of Nature's Sunshine, Terrence Moorehead. Terrence? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Nate, and good afternoon, everyone, and thank you for joining today's call. I hope you're all well and staying safe as we continue to deal with the ongoing challenges of COVID-19. I'm very pleased to be here with you today to discuss our record-breaking third quarter results, the excellent progress we've made transforming our business and an exciting initiative that we'll be launching in the coming day's months. With me today is our Chief Financial Officer, Joe Baty, who will walk you through our financials in greater detail. But I'm going to kick things off with a brief overview of the business. Before I begin my formal remarks, I will take a moment to put our historical third quarter results in perspective since 2020 has been such an extraordinary year. While the effects of COVID-19 have forced people to adapt and rethink their priorities, our team has continued to successfully transform the business, keeping their spirits high while staying focused on implementing our strategies, achieving our objectives and delivering improved results. At a time when you hear so many people talking about COVID fatigue, our team has worked tirelessly to ensure our transformation initiatives continue to move forward without disruption. Of course, our incredible practitioners and retailers have really made a difference as they continue to partner with us on transforming the business. Now, in the past, you've probably heard my say that that I believe our unique network of herbalists, naturopaths, nutritionists and herbal healers are the best in the industry. And as always, they continue to step up to meet the challenge of the moment. Our customers are counting on us now more than ever, and our incredibly talented and dedicated team of practitioners and retailers continue to deliver. I also want to recognize and thank our shipping, manufacturing and quality teams that, despite the lingering and worsening effects of the pandemic, continue to keep our facilities fully operational and on top of the increased demand for our product. They've shown tremendous resilience, resolve and dedication, and their love for our company is an inspiration to all of us. Clearly, I'm very pleased with our progress and incredibly proud of our team for this flexibility, determination and compassion for the people in our community. Turning to our performance for the third quarter. Net sales increased $11.7 million, up 13.2% versus prior year to just over $100 million, making Q3 of 2020 the largest quarter in the 48-year history of our company. Sales work was driven by strong performance across each of our 4 operating business units and was primarily the result of our ongoing efforts to transform our business combined with improved fundamentals and seasonal sales activity. Specifically, we saw increased demand due to our updated branding, new product launches, the effective use of virtual field events and targeted promotional activity in several markets. Stronger consumer demand drove momentum in NSP US and China, where we saw sales increase by almost 14% and 27% respectively in local currency. The easing of COVID-19-related restrictions in Korean and Latin-American markets allowed us to unleash our sales teams and more effectively drive field fundamentals. And as a result, we saw sales increase by almost 9% and 20% respectively in local currency. We're still in the early stages of our transformation. But as you can see, we're making good progress and aggressively moving the business forward. Operating profit increased 16% in local currency while adjusted EBITDA came in at $9.4 million, up 13% versus prior year on a local currency basis. Our results for the third quarter demonstrate the continued strength and momentum that we're building in the business. Year-to-date sales are up 6% versus prior year in local currency, while operating profit is up 57%. And importantly, we've also delivered a 21% increase in adjusted EBITDA, coming in at almost $29 million. Again, we're very pleased with our progress and continue to believe that over time, the effective implementation of our global strategies will allow us to unleash the tremendous potential that lies within Nature's Sunshine. As I mentioned earlier, we experienced strong performance across all of our OBUs in the third quarter. And I'd like to take some people to provide some details on our progress and share a few highlights on what's happening inside our business around the globe. Starting with North America. We saw revenue increase 10% on a local currency basis as demand for our industry-leading supplements continues to be strong. New customer acquisition and an increase in average order size helped drive growth. In NSP US, we achieved our third executive quarter of strong revenue growth, delivering a 14% increase on a local currency basis. The U.S. business continues to benefit from improved field supplement pandemic fundamentals and stronger fundamentals, while our new branding and messaging positively impacted consumer activation and customer engagement. Importantly, sales across all categories improved as consumers placed a higher priority on their health amidst the pandemic. The momentum we're seeing in the U.S. is encouraging, but we're still in the early stages of our transformation, and there's plenty of room for improvement. Of course, we'll continue to strengthen our capabilities, partner with our practitioners and retailers and introduce new growth opportunities as we continue to roll out the new business model. I'll talk a little bit more about the progress we're making on our transformation and the new business model, but right now I want to move on. Turning to Asia. The easing of COVID-related restrictions throughout the region allowed us to operate more effectively and drive field fundamentals in several key markets. As a result, we saw a 12% increase in revenue on a local currency basis. China continues to lead the region with exceptional growth as revenue increased 27% in local currency versus prior year. The increase was driven by an intensified focus on recruiting, training and motivating distributors. As part of that effort, we introduced new field incentives, refocused training on customer growth and hosted our first large-scale in-person sales event of the year. The event helped generate energy, but it also served as a platform to reinforce the launch of our exciting new repackaging and rebranding and as a way to generate commitment to several new product launches, which included the launch of an exciting new skin care supplement. We also saw some early benefits from our Phase 1 digital initiatives that leveraged our proprietary app along with digital apps like WeChat, TikTok and others to attract and retain new customers. We will continue to make advancements in building our digital platform in this market, and we're just getting started. Overall, we're very pleased with the momentum of our Chinese business, and we continue to be extremely positive on the ongoing potential of the market. We also saw strong performance in Japan, with revenue increasing 22% in local currency. Japan's results were largely driven by the restoration of normal business activities and processes and new product promotions. In Korea, revenue increased 9% in local currency after several quarters of decline due to COVID-19-related restrictions. As you may remember, our Korean business has historically relied on high-touch in-person interactions and motivational experiences to drive the sales team. The closure of our offices and training centers along with the cessation of all large gatherings and travel has obviously impacted our effectiveness. Fortunately, our Korean business is led by an experienced management team that over the past 5 years has successfully built a strong culture of field fundamentals, so we're building on a strong foundation for growth. In response to the current environment, the team has adapted to the new reality, integrating remote work techniques and reimagining field incentives. We've successfully introduced new product and cash-based incentives in lieu of face-to-face meetings, events and experience-based travel incentives. We also benefited from a series of new product launches, including the successful introduction of a new face mask that is the first product to be launched in a new line of skin care products called [Lamara]. The innovative new line of luxury skin care products features a unique combination of natural ingredients from the land and sea to deliver proven anti-aging benefits. Finally, the investments we made in remote ordering allowed us to recapture some of our momentum, but we still need to build a more meaningful digital platform to drive customer growth in the future. In Europe, we achieved a 21% increase in revenue in local currency as a result of continued gains in central and Eastern Europe, with Poland and Russia achieving 64% and 21% growth respectively on a local currency basis. Our success in these markets has been driven by strong field fundamentals, successful new product launches like collagen and immune products like vitamin D3, virtual field events and a strong online presence in Russia. We also generated promising gains in Western Europe, with 5% revenue growth in local currency. In Latin America, our performance dramatically improved as the most challenging lockdown restrictions were lifted across the region. The easing of restrictions and the energy generated by our transformation strategies drove a 20% increase in revenue in local currency. We also benefited from the implementation of our revitalized new product program and the introduction of online ordering capabilities throughout the region. We continue to believe that these changes will drive further improvements in our performance as the markets continue to recover. The trends we're seeing and the momentum we're building are very encouraging, and we are pleased to see consistent revenue growth across all of our OBUs and in all of our key markets. Importantly, we're also seeing strong improvement in our bottom line, which mean that we are both operationally and financially well positioned to continue our momentum and gain market share as we continue to transform our business. Having said that, I'd like to provide an update on our transformation as we've made significant progress since our last update. As a reminder, our 5 global growth strategies, brand power; field energy; digital first; Manufacturing, Inc.; and the right stuff are at the core of our transformation and the relaunch of our company. Our transformation is designed to address developing consumer trends, capture emerging market opportunities and provide exciting new rewards for our practitioners and with our retailers to drive long-term sustainable growth. As we stated last quarter, our initial transformation plans target our North American and Latin American OBUs. We've made solid progress on each of our global strategies this quarter, so I'd like to review some of the highlights with you. In terms of brand power, we continued to roll out our updated branding, packaging and campaign messaging. In September, we formally kicked off our rebranding efforts with a host of new consumer-facing assets, updated imagery, a new website and we will begin testing our Force of Nature digital campaign in the fourth quarter. We're also going to launch a new unboxing experience to enhance the overall consumer experience. Equally important, we've also reengineered our new product development process to ensure that we continue to develop and introduce innovative (inaudible) products in a timely manner. Our ability to leverage the advanced capabilities of the Hughes research center and our R&D team is key point that differentiates Nature's Sunshine from more than 80% of our competitors that serve their products from third party manufacturers to provide net label solutions. In total, our brand power initiatives are designed to help Nature's Sunshine appeal to a much larger audience by increasing awareness, driving activation and reinforcing our position as a leader and pioneer in the industry. As the first company to encapsulate herbs, Nature's Sunshine has always felt a strong calling to share the healing power of nature with as many people as possible. The beauty, power and restorative properties of nature have the ability to unlock our potential in new and exciting ways. And when we embrace the power of nature, we can go places physically, mentally and emotionally that we'd never be able to otherwise. That's the message behind our new branding, and that's the power of Nature's Sunshine. Our almost 50 years of experience has helped us create one of the largest, most effective collections of herbal and natural supplements available today. And our brand power initiatives will continue to expand and evolve as we take our award-winning products to more and more consumers around the world. Moving to field energy. One of our key objectives is to redefine and improve the experience we provide to consumers and distributors. We want to make sure that both groups have high-quality experiences and access to tools and services that are tailored to their specific needs. In September, we launched 2 exciting new consumer-focused programs in North America and Latin America. The first is our premium membership program, and the second is an initiative that we call Subscribe and Thrive. As premium members, customers pay a small annual fee to gain membership status, which grants them savings on all of their product purchases, exclusive promotions and specials, early access to special sales events and free shipping. With Subscribe and Thrive, we were able to enhance customer engagement and retention by offering better value, more convenience and a better experience. The program is designed to encourage repeat purchases that help consumers experience the full therapeutic benefits of our products. We know that when consumers incorporate our supplements into their daily health regimen, they get results and they feel better. That's why we've made Subscribe and Thrive the default purchase option on our new website, offering the most attractive pricing, free shipping and a free 1 year premium membership. To make it even more attractive, we've made sure that it's easy for customers to cancel, pause or change their subscription whenever they like with the simple click of a button. For our distributors, we've introduced a new enhanced business opportunity that aims to provide more flexibility, more options and immediate rewards for driving customer growth. Under the new plan, all of our markets in North America and Latin America operate under a single unified plan that is simpler, easier to understand and creates new earnings opportunities. Distributors now have 4 ways to earn. First, they can earn by selling our products and serving customers. Second, they can identify other qualified health practitioners and experts who are interested in selling our products and serving customers. Third, they can identify qualified practitioners and experts in geographies outside of their own countries who are interested in selling our products and serving customers. And fourth, they can benefit from customers that use our new sharing tools as well as the new affiliate program to share our products with friends, family and other people in their personal or professional networks. With one click, customers can share products from our website to their social media and receive benefits from doing so. These options make it easier for our distributors to share, expand their influence and build their customer base. Another unique benefit for our distributors and affiliates is that they can get paid within about 30 minutes of a customer transaction. Instead of having to wait for a payment until the end of the month, Nature's Sunshine offers immediate rewards. Looking ahead, we will continue to partner with our practitioners and retailers as they make this transition with us. And as a reminder, we've created a 12-month bridge program to provide qualified distributors ample time to learn and integrate the new tools and programs into their business. The implementation of our new business model is a tremendous undertaking, and we are extremely proud of our distributors. And our entire organization is incredibly grateful for their passion and dedication to our vision of sharing the healing power of nature with everyone. Moving on. Our new website combines all of the new features of our new business model with a host of new tools and improved functionality as part of our third strategy, digital first. Ultimately, our goal is to create an improved user experience moving from transactional relationships to more personal lifecycle relationships that offer lasting value. On our new website, customers can make use of our contextual search features, which allow them to browse products by health topic, product category and body system, making it easier to find and purchase the supplements they need. Individuals who share a passion for wellness as well as a strong health-focused presence on the web can also take advantage of our innovative new affiliate marketing program, which allows influencers to use our new web tools to share our products with their social or professional networks and receive monetary rewards for doing so. For the first time, the changes we've made will allow our distributors to have their own fully replicated Nature's Sunshine website combined with new email and social media functionalities that gives them the opportunity to build and grow their own digital business. The new tools allow for greater connectedness with existing and new customers. And over time, they will also give distributors access to much richer data and better insight into purchase behaviors and consumer preferences. As we move forward, we'll continue to expand our digital toolkit and build our virtual community of professionals and advocates who are passionate about sharing the healing power of our products with others. As for Manufacturing, Inc., we continue to strengthen our industry-leading manufacturing by making further enhancements to our product quality and testing capabilities. In the third quarter alone, we upgraded our kosher certification to the highest level; upgraded our TGA certification, which is comparable to pharmaceutical-grade quality standards; and received our ISO 17025 certification, which is served to those often in the highest level of quality testing. These honors round out our industry-leading list of manufacturing certifications that include GMP, which is Good Manufacturing Practices; NSF; GGA, that I just mentioned; kosher; halal; USDA Organic; ISO 9001; and ISO 17025. I mention these certifications because they're an important distinguishing characteristic of Nature's Sunshine and one of the many reasons why our products are more reliable and more effective than the competition, over 80% of whom source their goods from less accredited third-party manufacturers. We're already starting from an advantaged position, with almost 50 years of experience in R&D, sourcing, testing, quality and manufacturing. But we continue to extend our lead, having already built some of the most coveted capabilities in the industry, and will continue to do so as new opportunities present themselves. As we move forward, we will strengthen our focus and commitment to sustainability, delivering clean products in a sustainable manner. We've already made the move to 100% recyclable packaging through our new redesigned bottles, and we'll continue to make similar strides in the future. Finally, our right stuff strategy has allowed us to improve productivity and strengthen organizational effectiveness, as seen through our continued success delivering savings and overhead efficiency. Year-to-date, our actions have delivered 230 basis points of operating margin growth, and has helped increase EBITDA margins of 140 basis points. Of course, what you can't see are the efforts we've taken to build a high-performance organization. You already know about the organizational changes we've made to create reasonable OBUs as well as some of the new talent that we've recruited to help strengthen our leadership capabilities. In 2020, however, we've also launched a unique new management training program to help ensure our team has the necessary leadership skills to transform our business, drive our strategies and capture the opportunities that lie ahead. We're also committed to helping build the next generation of leadership from underrepresented groups in our community by providing a new college scholarship and intern program for minorities. So far, we're very pleased with the progress we've made on our 5 global growth strategies. Clearly, they've helped Nature's Sunshine build strong operational and financial momentum as we move forward to 2021. With the unprecedented risk and uncertainty brought on by COVID-19, we've made maintaining a strong balance sheet a key priority to protect the business as the pandemic continues to escalate. Of course, as we continue to build momentum and strengthen our financial position, the board will continue to evaluate the full range of capital allocation opportunities. But right now, investing in our business and protecting our position are key priorities. We are committed now more than ever to using our expertise, the breadth and quality of our products and our new branding and business model to take our fair share of the growing supplements market. As such, you may see us begin to invest ahead of growth to advance our strategies and improve our ability to capture our fair share of the market. Again, we are incredibly grateful to our distributors, associates and shareholders for their continued support throughout our transition, and we look forward to making continued progress on our transformation over the coming months. With that, I'd like to turn the call over to Joe Baty, our Chief Financial Officer, who will walk you through our financial results for the third quarter in more detail. Joe? -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [4] -------------------------------------------------------------------------------- Thank you, Terrence, and good afternoon, everyone. Net sales in the third quarter increased 13% to a company record of $123 million, compared to $88.5 million in the same quarter last year. This increase was primarily driven by new product development, the easing of COVID restrictions across several key markets and continued execution on our business transformation plans. Net sales in Asia increased 12% on a local currency basis to $38.1 million, compared to $33.7 million in the year ago quarter. The increase was primarily attributable to new brands and product launches as well as the reopening of our Korean market. On a local currency basis, net sales in China increased 27%, Japan sales increased 22% and in South Korea, sales increased 9% as these markets continued to benefit from lifted lockdown restrictions and our recalibrated incentive structures. Net sales in Europe increased 21% year-over-year in local currency to $18 million, compared to $14.6 million in the year ago quarter. The increase reflects strong growth in central and Eastern Europe, including continued strong performance in Russia and Poland. North American net sales increased 10% on a local currency basis to $37.6 million, compared to $34.2 million in the year ago quarter. The various strategic and eCommerce enhancements we have implemented have positioned us well as we continue to capitalize on the strong demand resurgence within the U.S. market. Our growth in this region was also supported by increased new customer acquisition. Net sales in Latin America and other increased 14% in local currency to $6.6 million, compared to $6 million in the year ago quarter, with the increase primarily due to new product launches and the easing of COVID-related restrictions. Gross margin was 72.7% compared to 74.3% in the prior year. The decline was primarily due to certain isolated inventory charges, higher material costs and a delay in the timing of price increases in North America. Volume incentives as a percentage of net sales increased 50 basis points to 34.2%, compared to 33.7% in the same period last year. Selling, general and administrative expenses were $33.3 million, compared to $31.2 million in the prior year. The increase was primarily attributable to higher expenses related to our business model relaunch. As a percentage of net sales, SG&A expenses were 33.2%, compared to 35.2% in the same period in 2019. Excluding the impact of $0.4 million of restructuring expenses in the prior year and $0.1 million this year, SG&A expenses were 33.1% of net sales, compared to 34.8% in the prior year period. Operating income was $5.5 million, or 5.5% of net sales, compared to operating income of $4.7 million, or 5.3% of net sales on the prior year period. Excluding our restructuring-related expenses, we generated $5.6 million of operating income, or 5.6% of net sales for the current quarter, compared to $5.1 million, or 5.8% of sales in the prior year period. Adjusted EBITDA, as found in our press release as net income from continuing operations before income taxes, appreciation, amortization and other income or loss, adjusted to include share-based compensation and certain noted adjustments increased 13% to $9.4 million in the third quarter of 2020 as compared to $8.3 million in the third quarter of 2019. Overall, the increase in EBITDA was driven by the aforementioned record net sales this quarter [forward] through the bottom line. Net income attributable to common shareholders for the quarter was $6.9 million, or $0.34 per diluted share, as compared to $1.3 million, or $0.07 per diluted share in the year ago period. Turning to liquidity. We had cash and cash equivalents on September 30 of $82.3 million and $5.4 million of debt. For the first 9 months of 2020, we generated $26.8 million of cash from operations as compared to using cash of $5.5 million in the comparable prior year period. The increase is primarily due to the significant improvement of net income and the timing of both working capital-related adjustments and certain capital expenditures. While we expect to continue our strength into the fourth quarter, our investments in the next phases of our business transformation may increase our costs and profitability relative to this quarter. Further, we are closely monitoring any resurgence of COVID-19 cases across our geographies and how that may affect our operations, especially in certain international markets, where reopening statuses have fluctuated. Despite these uncertainties, we are confident in our ability to continue executing on our 5 global growth strategies and believe we will continue to drive solid results through the remainder of 2020 and the beginning of 2021. Before opening the call to questions, I wanted to reiterate our pride in our team's strong performance and in the momentum built throughout the year. Now I'll turn the call back to the operator for Q-and-A. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We'll take our first question from Steven Martin with Slater. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [2] -------------------------------------------------------------------------------- You've been great at over the last couple years on the margins and the costs. This was the first quarter where the gross margin and the volume incentives slipped a little. Should we expect that these are new levels of gross margin and volume incentives, or where do we expect them to go in the future? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- We saw some pressure on gross margins from costs going up as a result of just sourcing within the COVID environment. But Joe, you want to talk about some additional factors as well and what to expect going forward? -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [4] -------------------------------------------------------------------------------- Yes. I mean, I would look at it more as a near-term situation, Steve, versus what we expect long term. And in an individual quarter, we can certainly see a little bit of sensitivity or fluctuation on both the gross margin or a volume inventive basis. You referenced both in your question. But from a longer-term perspective, I would say that the 9-month year-to-date margins and expectations are more in line with what we expect. And I would say even from a longer-term standpoint, we expect our gross margin to actually improve. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [6] -------------------------------------------------------------------------------- Right. I would have expected with volume increases with having the first double digit up quarter that you might see some of that into the gross margin. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [7] -------------------------------------------------------------------------------- No, I think you captured it, Joe. It's a temporary flux of short-term -- but we do have pretty aggressive long-term plans and expectations to improve our gross margins. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [8] -------------------------------------------------------------------------------- Okay. And a question I ask you guys every quarter. What inning are we in in the turnaround, at the top line and the cost containment? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [9] -------------------------------------------------------------------------------- I'll take the top line. Steve, we'll split it up, but I'll talk the top line. In terms of top line, we're still early on. We just launched -- as I mentioned, in September, we just launched the bulk of our new business model components. And we'll continue to refine and fine-tune those in an effort to make sure that they work for all the various constituents out there. And we still have a number of things that we haven't even really launched yet that are up on deck, to stick with our baseball analogy here. So we're still early innings with respect to revenue growth. And then on operating growth, Joe, you want to add some comments? -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [10] -------------------------------------------------------------------------------- Yes. As we noted last time, Steve, appreciate the question. And please continue to ask it because it's something that we monitor, and I believe we're very much on top of. But we do believe that we're in the back half of the ballgame. I'm not going to say we're necessarily in the seventh inning stretch yet, at least longer term. But as far as some of our near-term initiatives, what we were looking to accomplish on some of the organization restructuring front, I would say we're well into the ballgame. We still have a little bit of work to do, but we're clearly in the later innings. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [11] -------------------------------------------------------------------------------- So would that translate to -- a lot of the SG&A costs we see going forward, will it in part be a function of the leverage if the top line grows double digit? -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [12] -------------------------------------------------------------------------------- Yes. It certainly will come into play there. One of the things that internally we need to evaluate, especially given this pandemic situation that we've been going through, in which I'm not sure if anyone has a clear line of sight on when it's going to end. But one of the things where we'll have to take a pretty hard look at is postpandemic, whenever that may be, to what extend do we make certain other investments in the business, whether it's an expansion of events, conventions, travel-related costs and so forth. Because for the time being, or in 2020, we can't deny that we've benefited to some degree from the reduction of some of those types of activities on the SG&A side. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [13] -------------------------------------------------------------------------------- Well, all I can say is a 13% top line growth with a reduction in events and conventions is pretty impressive. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [14] -------------------------------------------------------------------------------- Yes. Thank you. -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [15] -------------------------------------------------------------------------------- Yes, it is. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [16] -------------------------------------------------------------------------------- Yes, we're pleased. -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [17] -------------------------------------------------------------------------------- We're pleased. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [18] -------------------------------------------------------------------------------- What about your hemp CBD product line? What can you tell us? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- Yes. So for hemp, we have just launched a -- we will be launching, I should say, a couple of new products. And we will be much more aggressively marketing the product line in the months to come. And there's some stuff that I probably can't talk about it yet because we haven't implemented it, but if you go online, you'll see that we've completely reengineered, and redesigned and reimagined the website. And we have continued to aggressively promote the line. There's some work still to be done to make sure that our pricing is competitive and to make sure that the awareness and all the marketing programs are as powerful as necessary. But again, we've got the best CBD in the marketplace. Our products offer better performance, better quality and better transparency, which is a very powerful sales message. And so now I think, again, that we've got the website in a better position, we'll tighten up our pricing and promotional activity and then we'll soon follow up with some much more aggressive digital activation to help improve awareness and build traction. But we're still really in the early days of hemp. I will say this. The increased focus on immune products in the marketplace overall has shifted people's short-term focus into immune and somewhat away from CBD. You might have seen that. We're seeing that in overall market results. But we're still talking about 30%, 40%, 50% growth. So the opportunity is there, and we're still very bullish on hemp. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [20] -------------------------------------------------------------------------------- All right. Now I'm going to -- this is also a comment we go through every quarter, and I'm going to address this to your board of directors. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Very good. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [22] -------------------------------------------------------------------------------- It's time to do your job. Okay, and you've got $80 million of cash, you've got 20 million shares. Your stock has gone nowhere for a couple of years despite the good work of the current management. And if your board's not prepared to do the right thing, then maybe somebody has to from the outside. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [23] -------------------------------------------------------------------------------- So as I've mentioned, yes, the board is looking at the full range of opportunities. Right now, we are being focused on investing in the business and protecting our position. As you know, we've got one manufacturing location that services 80% of our production around the world, so cash on hand is really important to us right now. But the message is heard, and the board of directors is very focused on the issue. So rest assured. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [24] -------------------------------------------------------------------------------- Well, all I can say is given the improvement in EBITDA with the cash on hand, you're trading at about 3.5x EBITDA. There's probably no investment you can make that has that kind of rate of return. And I'm really going to be disappointed, and I'm not going to be quite as peaceful, if we go through another quarter and I hear the same language about the board explores everything all the time. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [25] -------------------------------------------------------------------------------- Sure, sure. We hear you. Our focus right now is just on keeping the business moving forward and continuing to make tremendous strides on the top and bottom line. -------------------------------------------------------------------------------- Steven L. Martin, Slater Capital Management, L.L.C. - Manager [26] -------------------------------------------------------------------------------- Well, I understand, but that's why I address these comments to your board of directors, who may or may not be on this call, because I think you guys have done the job you were brought in to do. And they have not done the job of a board that understands its fiduciary responsibility to its shareholders. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- (Operator Instructions) And we'll take our next question from Jurriaan Hofman with Robeco. -------------------------------------------------------------------------------- Jurriaan Hofman, Robeco Institutional Asset Management B.V. - Equity Analyst [28] -------------------------------------------------------------------------------- Yes, congratulations on a very good quarter, of course. Maybe first just expanding on the [commission] question, especially just thinking about potential areas of advancement. Is an additional factory in China one of the considerations there? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [29] -------------------------------------------------------------------------------- We actually do have a relatively small facility in China right now that is providing some good production and making good progress. We will be making some moves to expand that as well as expanding some of our R&D capabilities out in the region. -------------------------------------------------------------------------------- Jurriaan Hofman, Robeco Institutional Asset Management B.V. - Equity Analyst [30] -------------------------------------------------------------------------------- Okay. And are inorganic investments playing into your considerations playing into your considerations at all as well? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [31] -------------------------------------------------------------------------------- I'm sorry, could you repeat your question? I couldn't hear you. -------------------------------------------------------------------------------- Jurriaan Hofman, Robeco Institutional Asset Management B.V. - Equity Analyst [32] -------------------------------------------------------------------------------- Inorganic investments, are they part of the considerations, too? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [33] -------------------------------------------------------------------------------- I would say that the board is considering, really, the full range of options that certainly we don't talk about anything that's outside of the normal scope of our business right now. Most of our focus is on building our internal capabilities, building our digital capabilities in particular as well as helping to migrate our business from being solely channel-focused to being much more consumer-focused and life cycle-focused, which really means that we got to get much better and much stronger at things like personalization. So there's a fair amount of investments that we ought to make there that we believe will dramatically improve our competitiveness and also dramatically transform the complexion of our business and from what we're able to do and distance ourselves from the compression, creating new competitive advantage. So right now, those are a couple of the areas that we're looking at internally. Anything else that the board of directors might be considering would be out of bounds for me to talk about in this forum and at this time. -------------------------------------------------------------------------------- Jurriaan Hofman, Robeco Institutional Asset Management B.V. - Equity Analyst [34] -------------------------------------------------------------------------------- Sure, yes. And yes, finally, just what has been your experience? I think you said you had the first in-person sales events again in Asia. So what has been your experience there, and maybe attendance levels versus what you are used to with pre-COVID? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [35] -------------------------------------------------------------------------------- Yes. They actually split the event up, so I think I -- and they just focused on one particular group in the Shanghai area. I think attendance was a little bit higher than in the past. We also had people beaming in to view it remotely. So you get this mix of folks who were there on the ground and people beaming in, but a lot of tremendous energy. I think people felt great being together, and we did it safely. And everybody's okay, which is equally as important. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- We'll take our next question from [Nick Monroe] with Perspective Capital. -------------------------------------------------------------------------------- Unidentified Analyst, [37] -------------------------------------------------------------------------------- Congrats on the quarter. Just a quick question for you. You mentioned the new customers in North America with the digital media advertising. Do you have any comments on the cost of acquisition of those customers and if they're holding on and buying more products? -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [38] -------------------------------------------------------------------------------- Hey, [Nick], could you speak up just a little bit? We're having a little problem hearing you on our end. -------------------------------------------------------------------------------- Unidentified Analyst, [39] -------------------------------------------------------------------------------- Yes, sorry. So you mentioned new customers in North America. Can you talk about the cost of acquisition of those customers? Is that increasing or decreasing as a percent basis? And then, the retention, if they're coming back and buying more than one order. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [40] -------------------------------------------------------------------------------- Yes, absolutely. So right now, the customer growth that we're seeing is really through organic, on-the-ground activity. So it was not through any of our digital activation or digital investment. That has not started yet. And so it really is simply through repositioning the business, talking about things differently, changing our messaging, changing the website. And so from that standpoint, obviously, customers aren't free. But we were not making incremental investments at this point in time to drive those customers into the business. Those are really being driven by our practitioners and retailers and again, partnering with us in whatever work we were doing on the rebranding and product launches, et cetera. So I think that answers your question. In the future, [Nick], we will have some -- we will have more specific investments that we're looking to do as we build out our digital campaigns, the Force of Nature campaign, that is designed to acquire new customers. And with respect to retention, we're still just in the first month or so of the process. Obviously, as we build out our Subscribe and Thrive capabilities, our expectation is that we'll be building more people who are staying with us on an ongoing basis. And by the way, that is the only way they're going to get the therapeutic results from our products or any products, is if they continue to take them. It's like signing up for a gym membership. You can't just go that first week in January. You got to keep going. And so if you really want to get the benefits, Subscribe and Thrive is the way to go. And we've tried to make it as easy and as attractive as possible. So I'd say just give us some time on that one. It's just going to take time for people to understand it, fall in love with it and for us to get enough critical mass because it's not necessarily something we expect everybody to click on the first time through. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- At this time, this concludes our question-and-answer session. And we'd now like to turn the call back over to Mr. Moorehead for closing remarks. -------------------------------------------------------------------------------- Terrence O. Moorehead, Nature's Sunshine Products, Inc. - President, CEO & Director [42] -------------------------------------------------------------------------------- Okay, thank you. And again, I want to thank everybody for listening to today's call. We have a lot going on. We really do look forward to speaking to you again next quarter and to continue on the path to transform our business and build momentum. So again, thank you for your participation. Thanks for your support, and we look forward to talking to you soon. Take care. -------------------------------------------------------------------------------- Joseph W. Baty, Nature's Sunshine Products, Inc. - CFO, Executive VP of Finance & Treasurer [43] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.