Nature’s Sunshine Products Reports First Quarter 2018 Financial Results
Published: May 11, 2018

Nature’s Sunshine Products Reports First Quarter 2018 Financial Results

EPS of $0.03 

Revenue of $87.32M (+ 5.1% Y/Y)

  • First quarter net sales increased 5.1 percent to $87.3 million year-over-year
  • Net Income of $0.5 million attributable to common shareholders, or $0.03 per diluted common share during the first quarter
  • First quarter Adjusted EBITDA of $4.0 million

LEHI, Utah, May 10, 2018 (GLOBE NEWSWIRE) -- Nature’s Sunshine Products, Inc. (Nasdaq:NATR), a leading natural health and wellness company engaged in the manufacture and direct selling of nutritional and personal care products, today reported its financial results for the first quarter ended March 31, 2018.

Management Commentary

“We continued to generate good consolidated year over year growth, driven by Synergy Asia Pacific, NSP Russia, Central and Eastern Europe and a moderated rate of growth in NSP China. We have also seen sales stabilize in NSP Americas over the last few quarters following the disruption from last April’s ERP implementation,” commented Gregory L. Probert, Chairman and Chief Executive Officer. “Despite growth in NSP China, we did encounter some weakness during the first quarter that may continue over the coming quarters. The challenge relates to maintaining engagement of distributor leadership during these early stages of the Company’s development in China. Given we are still in the first year operating with a direct selling license, our Chinabusiness is dependent upon the level of activity of a limited number of distributor leaders. While we have recently had success attracting additional leaders, we need to continue broadening the leadership ranks to create more consistency in activity levels and volume from quarter to quarter. We remain confident in our long-term growth opportunity in China despite our expectation for limited or even elusive sequential volume growth in the near-term.”

First Quarter 2018 Financial Highlights

  Net Sales by Operating Segment
  Three Months 
Ended
March 31,
2018
  Three Months 
Ended
March 31, 
2017
  Percent
Change
  Impact of
Currency 
Exchange
 
Percent
Change 
Excluding
Impact of
Currency
NSP Americas:                  
NSP North America $ 35,605     $ 38,046     (6.4 )%   $ 128     (6.8 )%
NSP Latin America 6,267     6,599     (5.0 )%   128     (7.0 )%
  41,872     44,645     (6.2 )%   256     (6.8 )%
                   
NSP Russia, Central and Eastern Europe   9,551       8,446     13.1 %     236     10.3 %
                   
Synergy WorldWide:                  
Synergy Asia Pacific 23,707     18,781     26.2 %   1,531     18.1 %
Synergy Europe 5,656     5,925     (4.5 )%   754     (17.3 )%
Synergy North America 2,454     2,607     5.9 %       (5.9 )%
  31,817     27,313     16.5 %   2,285     8.1 %
                   
NSP China   4,102       2,694     52.3 %     264     42.5 %
                   
  $ 87,342     $ 83,098     5.1 %   $ 3,041     1.4 %


Net sales of $87.3 million increased 5.1 percent compared to $83.1 million in the first quarter of 2017. On a local currency basis, net sales increased 1.4 percent compared to 2017. Growth was primarily related to continued growth in Synergy Asia Pacific, NSP Russia, Central and Eastern Europe and NSP China, offset by a $2.8 million decline in nets sales in NSP Americas. Net sales were also positively impacted by $3.0 million of favorable foreign currency exchange rate fluctuations.

Gross margin, as a percentage of net sales, increased to 74.0 percent from 73.9 percent in the first quarter of 2017. The modest increase in gross margin as compared to the prior year was primarily driven by changes in market mix.

Volume incentives, as a percentage of net sales, increased to 35.9 percent from 34.9 percent in the first quarter of 2017.  The increase in volume incentives as a percent of net sales is primarily due to changes in promotional activity and market mix, including growth in markets where volume incentives as a percentage of net sales are higher, partially offset by growth in NSP China where sales commissions to independent service providers are included in selling, general and administrative expenses.

Selling, general and administrative (SG&A) expenses increased by approximately $2.1 million to $32.4 million for the first quarter of 2018. The increase in SG&A is primarily related to increased depreciation related to the Company’s Oracle ERP system implemented in April 2017. As a percentage of net sales, selling, general and administrative expenses were 37.1 percent, compared to 36.5 percent for the same period in 2017.

Operating income in the first quarter of 2018 was $0.9 million or 1.0 percent as a percentage of net sales, as compared to operating income of $2.1 million or 2.5 percent as a percentage of net sales, in the first quarter of 2017. 

Other income, net, in the first quarter of 2018 decreased to $0.7 million compared to $1.3 million in the first quarter of 2017.  The effective income tax rate was 79.5 percent in the first quarter of 2018 compared to 44.0 percent in the first quarter of 2017.

Net income available to common shareholders was $0.5 million, or $0.03 per diluted common share, compared to $2.2 million, or $0.11 per diluted common share, in 2017. The net loss attributable to NSP China was $0.8 million, or $0.04 per diluted common share for the three months ended March 31, 2018, compared to $1.5 million, or $0.08 per diluted common share for the first quarter of 2017.

Adjusted EBITDA was $4.0 million, compared to $4.3 million in 2017. Adjusted EBITDA, which is a non-GAAP financial measure, is defined here as net income from continuing operations before taxes, depreciation, amortization and other income/loss adjusted to exclude share-based compensation expense. A reconciliation of Net Income to Adjusted EBITDA is provided in the attached financial tables.

Balance Sheet and Cash Flow

Net cash provided by operating activities was $3.7 million for the first quarter of 2018, compared to $0.8 million provided by operating activities for the prior year period. Capital expenditures during the first quarter of 2018 totaled $0.5 million compared to $2.7 million in the first quarter of 2017. The Company ended the first quarter of 2018 with cash and cash equivalents of $42.3 million.

Active Distributors and Customers by Segment (1)

    2018   2017
    Distributors
& Customers
  Managers   Distributors
& Customers
  Managers
NSP Americas   107,700     6,500     123,500     7,300  
NSP Russia, Central and Eastern Europe   69,100     3,500     64,700     3,100  
Synergy WorldWide   47,300     3,700     46,100     4,500  
Total   224,100     13,700     234,300     14,900  

(1) Active Distributors and customers include Nature’s Sunshine Products’ independent Distributors and customers who have purchased products directly from the Company for resale and/or personal consumption during the previous three months ended as of the date indicated.  Total Manager, Distributors and Customers, which includes those who have made a purchase in the last twelve months, was approximately 491,000 as of March 31, 2018.

In China, the Company does not sell its products through Managers and Distributors, but rather through independent service providers who are compensated for marketing, sales support, and other services.

Conference Call

Nature’s Sunshine Products will host a conference call to discuss its first quarter 2018 results on Thursday, May 10, 2018 at 5:30 PM Eastern Time. The toll-free dial-in number for callers in the U.S. and Canada is 1-877-423-9813, conference ID: 13679461. International callers can dial 1-201-689-8573, conference ID: 13679461. A replay will be available from May 10, 2018 at 8:30 PM Eastern Time through May 24, 2018 at 11:59 PM Eastern Time by dialing 1-844-512-2921 (U.S. and Canada) or 1-412-317-6671 (International), replay PIN: 13679461. The call will also be webcast live and will be available on the Investors section of Nature’s Sunshine Products’ website at www.naturessunshine.com for 90 days.

About Nature’s Sunshine Products

Nature’s Sunshine Products (NASDAQ:NATR), a leading natural health and wellness company, markets and distributes nutritional and personal care products through a global direct sales force of approximately 491,000 independent Managers, Distributors and Customers in more than 40 countries.  Nature’s Sunshine manufactures most of its products through its own state-of-the-art facilities to ensure its products continue to set the standard for the highest quality, safety and efficacy on the market today. The Company has four reportable business segments that are divided based on the characteristics of their Distributor base, similarities in compensation plans, as well as the internal organization of NSP’s officers and their responsibilities (NSP Americas; NSP Russia, Central and Eastern Europe; Synergy WorldWide; and NSP China). The Company also supports health and wellness for children around the world through its partnership with the Sunshine Heroes Foundation. Additional information about the Company can be obtained at its website, www.naturessunshine.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements regarding the Company’s future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to the Company’s objectives, plans, strategies and financial results. All statements (other than statements of historical fact) that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, including the following.

  • changes in laws and regulations, or their interpretation, applicable to direct selling or the nutritional supplement industry may prohibit or restrict the Company's ability to sell its products in some markets or require the Company to make changes to its business model in some markets;
  • extensive government regulations to which the Company's products, business practices and manufacturing activities are subject;
  • legal challenges to the Company's direct selling program or to the classification of its independent distributors;
  • effect of complex legal and regulatory requirements, particularly in Chinaand South Korea;
  • impact of anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;
  • its ability to attract and retain independent distributors;
  • the loss of one or more key independent distributors who have a significant sales network;
  • the full implementation of its joint venture for operations in China with Fosun Industrial Co., Ltd.;
  • registration of products for sale in China, or difficulty or increased cost of importing products into China;
  • cyber security threats and exposure to data loss;
  • reliance on information technology infrastructure;
  • the effect of fluctuating foreign exchange rates;
  • liabilities and obligations arising from improper activity by its independent distributors;
  • its relationship with, and its inability to control the actions of, its independent distributors, and other third parties with whom it does business;
  • changes to its independent distributor compensation plans;
  • geopolitical issues and conflicts;
  • negative consequences resulting from difficult economic conditions, including the availability of liquidity or the willingness of its customers to purchase products;
  • risks associated with the manufacturing of the Company's products;
  • uncertainties relating to the application of transfer pricing, duties, value-added taxes, and other tax regulations, and changes thereto;
  • changes in tax laws, treaties or regulations, or their interpretation, including the impact of the Tax Cuts and Jobs Act;
  • availability and integrity of raw materials;
  • the competitive nature of its business and the nutritional supplement industry;
  • negative publicity related to its products, ingredients, or direct selling organization and the nutritional supplement industry;
  • product liability claims;
  • the sufficiency of trademarks and other intellectual property rights; and
  • reliance on third-parties to distribute its products and provide support services to independent distributors.

These and other risks and uncertainties that could cause actual results to differ from predicted results are more fully detailed under the caption “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports filed on Forms 10-Q.

All forward-looking statements speak only as of the date of this press release and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this press release. Except as is required by law, the Company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this press release.

Non-GAAP Financial Measures

The Company has included information which has not been prepared in accordance with generally accepted accounting principles (GAAP), such as information concerning Adjusted EBITDA and net sales excluding the impact of foreign currency exchange fluctuations.  Management utilizes the non-GAAP measure Adjusted EBITDA in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to fund its business. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, U.S. GAAP net income as an indicator of the Company’s operating performance.  Moreover, Adjusted EBITDA, as presented by the Company, may not be comparable to similarly titled measures reported by other companies.

In addition, the Company believes presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of its foreign operations from period to period. Net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.

Other companies may use the same or similarly named measures, but exclude different items, which may not provide investors with a comparable view of Nature’s Sunshine Products’ performance in relation to other companies. The Company has included a reconciliation of Net Income to Adjusted EBITDA, the most comparable GAAP measure, in the attached financial tables.

           

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share information)
(Unaudited)
 
    Three Months Ended March 31,
    2018   2017
Net sales   $ 87,342     $ 83,098  
Cost of sales   (22,713 )   (21,728 )
Gross profit   64,629     61,370  
         
Operating expenses:        
Volume incentives   31,362     28,983  
Selling, general and administrative   32,386     30,336  
Operating income   881     2,051  
Other income, net   740     1,275  
Income before provision for income taxes   1,621     3,326  
Provision for income taxes   1,288     1,463  
Net income   333     1,863  
Net loss attributable to noncontrolling interests   (165 )   (297 )
Net income attributable to common shareholders   $ 498     $ 2,160  
         
Basic and diluted net income per common share:        
         
Basic earnings per share attributable to common shareholders   $ 0.03     $ 0.11  
         
Diluted earnings per share attributable to common shareholders   $ 0.03     $ 0.11  
         
Weighted average basic common shares outstanding   19,010     18,845  
Weighted average diluted common shares outstanding   19,353     19,260  

 

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
 
    March 31,
2018
  December 31, 
2017
Assets        
Current assets:        
Cash and cash equivalents   $ 42,303     $ 42,910  
Accounts receivable, net of allowance for doubtful accounts of $440 and $395, respectively   8,259     8,888  
Assets held for sale   998     998  
Inventories   43,655     44,047  
Prepaid expenses and other   5,693     5,666  
Total current assets   100,908     102,509  
             
Property, plant and equipment, net   67,094     69,106  
Investment securities - trading   1,753     1,980  
Intangible assets, net   686     709  
Deferred income tax assets   8,354     8,283  
Other assets   12,755     12,608  
    $ 191,550     $ 195,195  
         
Liabilities and Shareholders’ Equity        
Current liabilities:        
Accounts payable   $ 5,143     $ 4,215  
Accrued volume incentives and service fees   20,064     18,774  
Accrued liabilities   24,594     24,980  
Deferred revenue   2,279     3,348  
Income taxes payable   1,598     1,834  
Related party note payable   1,013     506  
Total current liabilities   54,691     53,657  
             
Revolving credit facility   7,725     13,181  
Liability related to unrecognized tax benefits   4,715     4,633  
Deferred compensation payable   1,753     1,980  
Long-term deferred income tax liability   783     770  
Other liabilities   872     1,242  
Total liabilities   70,539     75,463  
         
Shareholders’ equity:        
Common stock, no par value; 50,000 shares authorized, 19,046 and 18,919 shares issued and outstanding, respectively   131,830     131,525  
Retained deficit   (720 )   (2,072 )
Noncontrolling interests   246     411  
Accumulated other comprehensive loss   (10,345 )   (10,132 )
Total shareholders’ equity   121,011     119,732  
    $ 191,550     $ 195,195  

 

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
  Three Months Ended
March 31,
  2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 333     $ 1,863  
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for doubtful accounts 46     (22 )
Depreciation and amortization 2,601     1,451  
Share-based compensation expense 543     778  
Gain on sale of property and equipment     (16 )
Deferred income taxes (46 )   263  
Purchase of trading investment securities (50 )   (266 )
Proceeds from sale of trading investment securities 265     33  
Realized and unrealized (gains) losses on investments 23     (49 )
Foreign exchange gains (967 )   (1,303 )
Changes in assets and liabilities:      
Accounts receivable 683     (926 )
Inventories 856     (850 )
Prepaid expenses and other current assets 18     (186 )
Other assets 27     88  
Accounts payable 957     346  
Accrued volume incentives and service fees 1,062     2,471  
Accrued liabilities (1,148 )   (3,466 )
Deferred revenue (1,069 )   293  
Income taxes payable (261 )   (70 )
Liability related to unrecognized tax positions 68     59  
Deferred compensation payable (227 )   283  
Net cash provided by operating activities 3,714     774  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property, plant and equipment (489 )   (2,711 )
Proceeds from sale of property, plant and equipment     522  
Net cash used in investing activities (489 )   (2,189 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Payments of cash dividends     (1,886 )
Principal payments on new revolving credit facility (5,456 )    
Net borrowings on previous revolving credit facility     3,341  
Proceeds from borrowings on related party note 500      
Net proceeds from exercise of stock options (238 )    
Payment of withholding taxes related to the vesting of restricted stock units     (512 )
Net cash (used in) provided by financing activities (5,194 )   943  
Effect of exchange rates on cash and cash equivalents 1,362     1,248  
Net increase (decrease) in cash and cash equivalents (607 )   776  
Cash and cash equivalents at beginning of the period 42,910     32,284  
Cash and cash equivalents at end of the period $ 42,303     $ 33,060  

 

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
 (Amounts in thousands)
(Unaudited)
 
    Three Months Ended March 31,
    2018   2017
         
Net income   $ 333     $ 1,863  
Adjustments:        
Depreciation and amortization   2,601     1,451  
Share-based compensation expense   543     778  
Other income, net*   (740 )   (1,275 )
Provision for income taxes   1,288     1,463  
Adjusted EBITDA   $ 4,025     $ 4,280  


* Other income, net is primarily comprised of foreign exchange gains and losses, interest income, and interest expense.

Contact:

   Scott Van Winkle                                 
   Managing Director, ICR                                 
   (617) 956-6736
   scott.vanwinkle@icrinc.com

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Source: Nature's Sunshine Products, Inc. 2018 GlobeNewswire, Inc.