Nature’s Sunshine 2014 Sales $366.4 million

March 11, 2015
By Team Business For Home International

Nature's Sunshine, Chairman & CEO, Greg Probert

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, reported its financial results for the fourth quarter and full year ended December 31, 2014, and declared a quarterly cash dividend of $0.10 per share.

Throughout 2014, we made progress against our strategy to address mega-trend health problems through science-based innovation and to drive distributor adoption, leadership and engagement, commented Gregory L. Probert, Chairman and Chief Executive Officer.

However, fourth quarter revenues and operating income were adversely affected by significant sales declines in NSP Russia, Central and Eastern Europe, due to heightened political unrest, armed conflict and local currency devaluations. Operating income from our international businesses was also reduced by the strong dollar.

Positive contributions in the fourth quarter were led by Synergy South Korea, Japan and Europe. Synergy Europe achieved a second consecutive quarter of growth driven by re-engaged leadership and strong execution, and momentum from Synergy's global summit. NSP U.S. and Canada also achieved a second consecutive quarter of net sales growth with new sales programs, increased adoption of IN.FORM and retail sales tools.

Mr. Probert continued, We have made significant progress in the implementation of our multi-brand, multi-channel go-to-market strategy in China in partnership with Fosun Pharma, one of the country's leading vertically integrated pharmaceutical companies. Paul Noack, the former Managing Director of the Asia Pacific Region for Herbalife, is our new President of China and New Markets, and has recruited a new Managing Director of China and other key experienced direct-selling and consumer products executives. We expect to enter the China market in late 2015.

Mr. Probert concluded, Looking ahead, we remain committed to delivering products and programs that drive enhanced distributor adoption and engagement. In that respect, we are pleased to announce that our new research and development center and medical clinic will open this month and will serve as a state of the art innovation center for our team of scientists and Medical and Scientific Advisory Board.

For the Fourth Quarter of 2014:

Net sales revenue decreased 7.1 percent to $86.7 million, compared to $93.3 million in the fourth quarter of 2013. In local currencies, net sales revenue decreased by 4.9 percent. Net sales revenue growth in the Synergy segment was offset by declines in the NSP Russia, Central and Eastern Europe segment. Excluding these declines, the remaining business segments grew by 2.4 percent year-over-year in local currency.
Selling, general and administrative expenses decreased 7.2 percent to $30.6 million, compared to $33.0 million in the fourth quarter of 2013. The decrease was primarily due to a decrease in variable costs in NSP Russia, Central and Eastern Europe coupled with reduced expenses associated with the combination of NSP Japan with Synergy Japan and the transition of NSP United Kingdom to an export market. The reduction in SG&A expenses was partially offset by $1.1 million in start-up costs for the China joint venture.
Operating income decreased 64.4 percent to $0.8 million, compared to $2.3 million in the fourth quarter of 2013. The decrease was primarily due to the decrease in net sales revenue and an increase in cost of sales as a percentage of net sales due to product promotions, the devaluation of foreign currencies relative to the U.S. dollar, and increased importation fees (customs and duties) related to higher transfer prices within some of the Company's foreign markets.
Adjusted EBITDA, defined here as net income from continuing operations before taxes, depreciation, amortization and other income adjusted to exclude share-based compensation expense, decreased 38.7 percent to $2.6 million, compared to $4.3 million in the fourth quarter of 2013.
Net income from continuing operations was $0.9 million, or $0.05 per diluted common share, compared to $1.8 million, or $0.11 per diluted common share in the fourth quarter of 2013.
In November 2014, the Company ceased its operations in Venezuela due to the difficulties and uncertainties related to import controls, difficulties associated with repatriating cash and high inflation. The Company incurred a loss from discontinued operations of $5.0 million, or ($0.25) per diluted common share in the fourth quarter of 2014.
Active Managers worldwide were 13,400 and active Distributors and customers worldwide were 292,600 as of December 31, 2014, compared to 16,400 and 332,400, respectively, in the fourth quarter of 2013. The number of independent Managers, Distributors and customers decreased primarily in Ukraine and Russia. We are continuing to evaluate various options to keep our distributor base in Ukraine and Russia engaged.

For the Full Year of 2014:

Net sales revenue decreased 0.9 percent to $366.4 million, compared to $369.8 million in 2013. In local currencies, net sales revenue decreased by 0.5 percent.
Selling, general and administrative expenses increased 1.3 percent to $119.9 million, compared to $118.4 million in 2013. The increase was primarily related to $2.2 million in start-up costs for the China joint venture and $1.1 million associated with the potential acquisition of a company in an alternative distribution channel. These increases were partially offset by one-time costs incurred in 2013 related to the resignation of the former Chief Executive Officer and a five-year customs audit assessment in the Synergy South Korea market.
Operating income decreased 19.2 percent to $19.0 million, compared to $23.6 million in 2013. The decrease was primarily due to the decrease in net sales revenue, the increase in selling, general and administrative expenses, and an increase in volume incentive expense due to product sales mix between operating segments.
Adjusted EBITDA, defined here as net income from continuing operations before taxes, depreciation, amortization and other income adjusted to exclude share-based compensation expense, decreased 12.8 percent to $27.4 million, compared to $31.4 million in 2013.
Net income from continuing operations was $19.8 million, or $1.12 per diluted common share, compared to $17.7 million, or $1.08 per diluted common share in 2013 primarily as a result of the favorable tax benefit of 3.9 percent in 2014.
In November 2014, the Company ceased its operations in Venezuela due to the difficulties and uncertainties related to import controls, difficulties associated with repatriating cash and high inflation. The Company incurred a loss from discontinued operations of $10.0 million, or ($0.56) per diluted common share in 2014.
Cash and cash equivalents as of December 31, 2014, were $58.7 million, compared to $77.2 million as of December 31, 2013. The Company used cash to pay dividends of $35.2 million, repurchase shares of common stock of $7.5 million, and reinvest in its information technology systems of $20.1 million. These cash outflows were partially offset by the issuance of 2.9 million shares of common stock to Fosun Pharma for aggregate net proceeds of $44.8 million in a private placement transaction.
Shareholders' equity as of December 31, 2014, was $129.0 million, compared to $105.3 million as of December 31, 2013.

NSP Americas Results for the Fourth Quarter of 2014:

Net sales revenue decreased 5.8 percent to $44.2 million, compared to $46.9 million in the fourth quarter of 2013. In local currencies, net sales revenue decreased by 4.4 percent compared to the fourth quarter of 2013. The decrease was primarily driven by the consolidation of NSP Japan and Synergy Japan and the transition of NSP United Kingdom to an export market. The NSP Americas segment no longer has any businesses in Japan and Europe.
NSP United States recorded net sales growth of 2.6 percent, its second consecutive quarter of growth. New sales programs gained traction with increased adoption of IN.FORM which is focused on weight management and building a daily Habit of Health and new retail sales tools. NSP Canada also recorded its second consecutive quarter of net sales growth at 9.6 percent.
Contribution margin, defined as net sales revenue less cost of sales and volume incentive expense, decreased 4.3 percent to $17.9 million, compared to $18.7 million in the fourth quarter of 2013, primarily reflecting lower net sales revenue as a result of the merger of NSP Japan and Synergy Japan and the transition of NSP United Kingdom to an export market.
Active Managers within the segment were approximately 6,600 and active Distributors and customers within the segment were approximately 135,900 as of December 31, 2014, as compared to 7,400 and 148,800, respectively, as of December 31, 2013. Managers were down 10.8 percent, and Distributors and customers were down 8.7 percent compared to the prior year quarter. The decline in the number of Managers was primarily due to combining NSP Japan with Synergy Japan and the transition of NSP United Kingdom to an export market. Excluding Japan and the United Kingdom, Managers were down 1.3 percent and Distributors were down 4.7 percent.

NSP Russia, Central and Eastern Europe Results for the Fourth Quarter of 2014:

Net sales revenue decreased 37.6 percent to $10.6 million, compared to $17.1 million in the fourth quarter of 2013. Net sales in Ukraine continue to be the most heavily affected by the escalation of political unrest, although other markets across the region were also adversely affected. In conjunction with the political unrest, the weakness of the Ukrainian Hryvnia and the Russian Ruble have contributed to lower revenues as the Company's products in the region are priced in U.S. dollars and therefore become more expensive when the local currency declines in value.
Contribution margin decreased 34.1 percent to $3.7 million, compared to $5.6 million in the fourth quarter of 2013, primarily due to lower net sales revenue.
Active Managers within the segment were approximately 3,700 and active Distributors and customers within the segment were approximately 97,900 as of December 31, 2014, as compared to 6,000 and 131,800, respectively, as of December 31, 2013.
As noted above, sales in NSP Russia, Central and Eastern Europe will continue to be adversely affected by the devaluation of the Ukrainian Hryvnia and the Russian Ruble, political unrest in Ukraine and Russia, and sanctions against Russia. As such, the Company does not expect net sales declines to reverse in the near term. The Company is continuing to evaluate various options to keep its Distributor base in Ukraine and Russia engaged.

Synergy WorldWide Results for the Fourth Quarter of 2014:

Net sales revenue increased 8.3 percent to $30.8 million, compared to $28.5 million in the fourth quarter of 2013. In local currencies, net sales revenue increased by 13.0 percent, compared to the fourth quarter of 2013, driven by increased sales in South Korea, Japan, and Europe, partially offset by declines in North America.
The increase in net sales revenue is primarily a result of re-engaged leadership, strong execution and momentum stemming from Synergy's global summit and the launch of Synergy's SLMsmart weight-management program in South Korea and Japan.
Synergy South Korea achieved local currency net sales growth of 4.3 percent. Synergy Europe achieved local currency net sales growth of 23.3 percent, the second consecutive quarter of growth since the fourth quarter of 2013.
Contribution margin decreased 11.8 percent to $9.4 million, compared to $10.7 million in the fourth quarter of 2013, primarily as a result of the increased allocation of manufacturing costs to the Synergy operating segment.
Active Managers within the segment were approximately 3,100 and active Distributors and customers within the segment were approximately 58,800 as of December 31, 2014, as compared to 3,000 and 51,800, respectively, as of December 31, 2013.

China and New Markets Results for the Fourth Quarter of 2014:

Net sales revenue for the Company's export markets increased 22.0 percent to $1.0 million, compared to $0.8 million in the fourth quarter of 2013. The increase was primarily due to the transition of the NSP United Kingdom to an export market, in which the Company sells its products to an independent locally managed entity that has distribution rights for the market. There are presently no Managers or Distributors in the China and New Markets segment.
Contribution margin increased 27.0 percent to $0.4 million, compared to $0.3 million in the fourth quarter of 2013, primarily as a result of the increase in net sales.

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 over 660,000 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 China and New Markets). 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.