Greetings. Welcome to the Nature's Sunshine Products First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Strulson, General Counsel for Nature's Sunshine Products. Thank you, Mr. Strulson, you may begin.

Thank you. Good afternoon, everyone, and thanks to all of you for joining our conference call to discuss our first quarter 2014 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. With us today are Greg Probert, Chairman and CEO; Wynne Roberts, President and COO; and Steve Bunker, Executive Vice President, CFO and Treasurer. The press release, which was issued this afternoon at approximately 4:00 p.m. Eastern time, and the information on this call 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 under the company's control. Forward-looking statements may cause the actual results, performance or achievement of the company to 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 will now turn the call over to Greg Probert, Chairman and CEO of Nature's Sunshine Products.

Thanks, Rich, and good afternoon, everybody. Thank you for joining us today. Kicking things off, 2014 is off to a strong start, with record-setting sales at Synergy WorldWide and continued progress in implementing growth initiatives across our NSP businesses. Our success in Synergy WorldWide was led by South Korea through a combination of product programs and promotions, as well as through our global convention. Offsetting this growth, after a strong start to the year in January, the geopolitical situation in Russia and Ukraine caused a substantial decline in sales in February and March. Within NSP North America, we made significant strides repositioning this business for growth, with new products and programs, distributor, engagement tools and more effective operations. More on this to come, but first, I'll recap a few financial highlights for the quarter. Continued growth in Synergy WorldWide was partially offset by declines across our industry lines of business, resulting in a slight 0.3% increase in net sales revenue on a local currency basis. More importantly, we continue to drive positive momentum in both our Synergy and NSP businesses. Synergy WorldWide delivered its third consecutive record-setting sales quarter, and Q1 also marked the return to growth for Synergy Japan, following our decision to merge our Japanese Synergy and NSP businesses at the start of the year. With respect to NSP Russia, Central and Eastern Europe, despite a robust start for the year with double-digit sales growth in January, the political unrest in Russia and Ukraine severely impacted overall performance in the quarter. Despite the anticipated severity of the situation, we remain committed to our presence in this region, and in fact we made several advancements in the quarter to support our position in the region. Most notably, we entered into a new long-term contract with our Russian general dealers.…

Thank you, Greg, and good afternoon, everybody. To reiterate, we were pleased with our first quarter net sales growth of 0.3% on a local currency basis, particularly given the turbulence experienced in Russia and Ukraine during the quarter. Net sales growth was fueled by record sales synergy, which more than offset the declines experienced across our NSP businesses. In NSP Americas, net sales were $50.7 million or 53% of total company sales. In local currencies, segment net sales decreased by 3.1% from the same quarter a year ago. Relative strength experienced in Latin America, in particular Venezuela, was offset by a decline in the U.S. Also impacting year-over-year comparability for this business unit was the consolidation of our NSP Japan business into our Synergy Japan business on January 1 of this year. For the first quarter of 2013, we had recorded a revenue of $0.9 million for NSP Japan. NSP U.S., which remains our largest market at 39% of total company sales, recorded a net sales decline of 3.7%. While weather undoubtedly impacted retailers and consultants in certain states, it is difficult to quantify the full impact. As we have stated previously, we are building towards a sustainable return to growth in our U.S. business. We are continuing with targeted investments in sales and marketing personnel, the launch of new products, including the strengthening of our weight management category, coupled with sales and marketing support programs and materials. While it will take time for these programs to make a sustainable impact on sales, we are encouraged by the early adoption by our distributors and customers alike. We have been focused on building products and programs that make it easier for our managers to attract new customers and distributors to Nature's Sunshine. AnxiousLess, our situational anxiety product, achieved $0.6 million sales…

Thanks, Wynne. Good afternoon, everyone. Net sales in the quarter were $95.8 million, down slightly 0.8% from $96.5 million in the same quarter last year. On a local currency basis, net sales increased 0.3% year-over-year. Cost of sales was $23.1 million, down 5.5% from $24.4 million in the year-ago period. The slight net sales decline was more than offset by the decrease in cost of sales resulting in a 120-basis-point improvement in gross margin to 75.9% versus 74.7% in the year-ago period. This marks our third consecutive quarter of sequential margin improvement. As we've explained previously, volume incentives are a significant part of our network marketing program and are designed to provide incentive to reach higher product sales levels. Volume incentives vary slightly on a percentage basis by product due to pricing policies and commission plans in place, and by the sales mix in our various markets. Volume incentives accounted for 37.3% of net sales in the first quarter, up 1% from 36.3% of net sales relative in the same period a year ago. Selling, general and administrative expenses were $29.8 million or 31.1% of net sales, down 1.2% from $30.1 million or 31.2% of net sales in the same period a year ago. Selling, general and administrative expenses decreased due to $1.4 million of one-time severance costs in the acceleration of stock option expense incurred related to the resignation of our former Chief Executive Officer that were incurred in 2013, which were partially offset by $1 million of increased compensation, health insurance and other benefit costs as a result of our incremental investment in sales, marketing, science and product development, personnel and programs in 2014. As a result, operating income increased 3.3% to $7.2 million or 7.5% of net sales from $6.9 million or 7.2% of net sales in…

[Operator Instructions] Our first question comes from the line of Brian Hollenden of Sidoti & Company.

You repatriated about $21.5 million in foreign cash, yet overall, on the company wide, Nature's Sunshine had a tax benefit of $3.6 million. Can you walk us through that a little bit closer?

Yes, Brian. With respect to the repatriation of cash, we have set up a business structure from an international standpoint that allows us to efficiently manage our international operations. Through that process, we were able to free up some foreign tax credits that previously had a valuation allowance applied to them. As a result, we were able to repatriate the cash, and the result of that was a tax benefit on our financial statements in this quarter.

Okay, great. And then switching direction a little bit. Companywide, the company's active managers were, in headcount, down about 6% and active distributors down over a little bit about 3%, yet revenue on a constant-currency basis was up 0.3%. Overall, was that due to pricing or was it more due to a shift in mix? Can you just talk about that?

I'll take that, Brian. It's really around the mix of how our business moved around the business. It wasn't as a result of significant pricing action. So one thing, for example, we saw relative declines in Southeast Asia and Indonesia and Thailand, which has, in terms of number of distributors significantly in the Synergy business, was proportionately more than the value of the business decline, because their average order size and so on and average productivity is much lower than the rest of the business. In the NSP business, we saw -- part of the drop in the NSP business was the fact that we no longer have NSP distributors in Japan, and that accounted for nearly 1,000 drop for example. So it really -- it's a complex response because it's partly due to mix as it ends up from business unit to business unit, as well as, depends on the region of the world, the momentum of our business and the average productivity of the distributors in those parts of the world. So not a very clear answer, I'm afraid, but it's a -- there's a lot of moving parts to be able to give you a definitive response on that.

Okay. And then switching up, just one last question and then I'll get back into the queue. Can you quantify for us a little bit, on a monthly basis, the impact the situation in Ukraine had on top line?

Yes, I can tell you. I mean, Ukraine was the biggest impact. Across the board in the quarter, the decline that we saw in Russia, Ukraine and Belarus was $1.1 million. That was the dip. Now, of that, $1.3 million of the debt was Ukraine, and we saw some positive benefit in the quarter in Belarus and markets like Mongolia or Moldova. So the Ukraine impact alone was $1.3 million negative and that accelerated through the quarter because one of the things we saw in Q1 was that, as Greg referenced on the call and I referenced in my prepared remarks, we had a double-digit growth in the region in Q1 -- sorry in January, I beg your pardon. And then the dip really started in February and accelerated in March, with Ukraine being the biggest impact.

Our next question is from the line of Nelson Obus from Wynnefield Capital.

[indiscernible] last gentleman's question. Shareholders are obviously following the company and your attempt in initiatives, which seem to be well underway to add a significant component of growth, so -- to the company. So as we monitored it, how much attention should we put to the number of distributors and managers on a quarter-to-quarter basis? Can you give us some insight into that? Because sometimes, you're tossing off on productive people and it can be a little confusing. So is it an important metric for us to keep an eye on going forward?

That's a great question, Nelson, because long term, it will be, but we're going through a transition in business methods. And what you'll see is where our business methods, for example -- and also transitioning the mix of our business market to market. And so for example, you will have seen in Russia and Ukraine and Belarus, with the momentum that we had been building for 5 quarters and into January, the distributor numbers, after a period of sustained growth, were starting to tie very well with the growth numbers in the business. In the Synergy business, that's less obvious because we've seen a change in the mix of markets and the average order size in the markets. So I think what you'll see is in coming quarters, those numbers in Synergy will become more indicative as we get more stability in the mix of markets and the average order size. In the NSP APE business right now, we're in the early stages of a transition, and you were at our convention, Nelson, you've seen in more detail, many of the programs that we've launched, and I think we're still going through a change as distributors adopt the new business methods right now and start to experience success with them. So I still think it will be a couple of quarters, at least, before we see a correlation in distributor numbers and revenue numbers.

That's very helpful. Just a quick follow-up mini question for Steve. If you read the press release, [indiscernible] obviously, you gave us a lot of noise in the quarter, but there were some clear benchmarks you provided in regard to operating income as well as EBITDA. Now, you didn't do that in terms of earnings per share, is that because that calculation would just be too complicated to put in there?

I'm not sure I understand the question, Nelson. I mean the...

The operating income was the operating income. You took the -- start with the idea it was a noisy quarter, right? EBITDA was the EBITDA and the operating income was the operating income, but sometimes when there's a lot of noise, companies are able to provide an earnings number as though the noise wasn't in there -- earnings per share number. And I saw that was lacking and I just wondered was that -- this is a little nitty but was it just because it's too complicated in terms of all the noise that took place in the quarter, do you understand the question?

Yes, certainly. We had -- from the operating income which was up over the year-ago period a year ago, that was a positive. But we then had the Venezuela situation, which was a one-time expense in other income of about $845,000 and the tax benefit, so it's something that we could quantify, we just haven't -- we just didn't do that in the release.

Yes, I'm not sure [indiscernible] necessary but because you have the other benchmarks, but I just thought I'd ask about it. Hopefully, in future quarters, you won't have as much noise.

[Operator Instructions] The next question is from the line of Gregg Hillman with First Wilshire.

First of all, Greg, can you talk about the AnxiousLess in terms of its ability to pool new distributors into the company that have never really been involved with Nature's before? And what's your take on that?

Well, I think the take is, as we talked about, I think, a little bit last quarter is a couple of things. One, it's a very unique product that you can't get anywhere else. I think that gives our distributors something very interesting to talk about. It's a feel product so you take it and you can feel the effects, fairly rapidly, generally within 30 minutes after you take it. So again, those type of products generally do a lot better as recruiting products. And I think also, it's interesting just to talk about, I think, where NSP's going in terms of science-based, innovative products that have clinicals behind them and strong science behind them. So I think it's sort of the first product like that, that we've given since Matt Tripp joined us as our Chief Scientific Officer. So I think it's a combination of all those things, and I think the real proof is, to me, that not only is it a great recruiting tool but the fact that we have an 80% repurchase rate, that we penetrated 90 plus percent of our manager base. It's not getting the first sale. To me, it's always getting the second sale that's important. So I think the fact that you get that second sale is what drives success stories, and that makes it easier to recruit the next round.

Okay. That's good. I noticed that product GNC Lumiday, I think it's being advertised on the radio out here in Los Angeles. They say it's their largest selling mood enhancing product now, which is, I guess, analogous to AnxiousLess, but seems to have more St. John's Wort and other stuff on it.

Yes, I think the actives are different. Obviously, [indiscernible]

I think I imagined AnxiousLess is a better product, or that's what I'm supposing anyways and...

I have to agree with you, Gregg.

Okay. The other thing I wanted to ask you about was Mexico. I know that was supposed to be a target for growth. What's going on in Mexico right now?

So I think one of the things we've said in the last couple of earnings calls, Gregg, was that we had -- as we went into 2013, we were following several years of decline, and that the recovery in Mexico was going to be a while before it was sustainable in terms of double-digit growth. We saw it return to flat in the second quarter, we saw 7% growth in the third quarter, I think it was 25% in Q4, and what we had done a huge amount last year to launch a new weight management program, new Solstic Energy program, both of which were used for recruiting, and we'd also, if you like, significantly enhanced the promotional dollars that we had put into Mexico to re-kickstart the country and demonstrate our commitment to the country. So now as we sort of ease back, the Q4 though, a lot of promotion around a vacation prize as well as a convention. So as we ease back into a normal business momentum now, it's not surprising to me that we see a lot more of the flattening of the business for a while. And I expect to still see some bumps in Mexico before we get to that sustained level. We've had a pretty sustained period of weak results there and we're going to see a few bumps before we have sustained growth there.

Did you ever say publicly what the sales level was in Mexico or is it something that's...

What, sorry?

What were the sales levels? How important Mexico is, or is that proprietary?

We have not disclosed the level of Mexico sales, just the business unit sales. So that's not been something that we've disclosed at this point.

But suffice it to say, the overall levels are not significant in the overall performance of the company at this stage. We think the potential in Mexico can be very significant, but the overall levels are not significant right now.

Okay. And then finally, just on Synergy. Do you think there's a chance that could really accelerate and go up to like become a 20% grower again? Synergy, do you think will stay in like the low teens, single-digit growth?

Obviously, Greg, we're aiming to build it to a very strong and higher growth momentum that it is today. I think one of the challenges with any business as you know in this sector is that we want to build sustained growth in a number of markets to be able to deliver the levels you're talking about. And that's what we're working towards. We do believe it is feasible to do that, and that we have very high expectations for the Synergy business. But I won't predict at this stage, when we'd get to that level.

Our next question comes from the line of Alec Jaslow with Midtown Partners.

My question was about some of the weakness in the U.S. and Japan. If you could possibly give us some color on what, why, some of the reasons you're having trouble there? And maybe the strategy to improve that going forward?

So let's start with Japan. We operated 2 businesses in Japan until January 1 this year. We operated NSP Japan, which is a relatively small business, and we operated Synergy Japan. Both businesses had been in decline for some time and we were actually losing operating -- running an operating loss there. So as part of our strategic plan last year, and as part of our operating plan for 2014, we developed a plan to merge those 2 entities to operate under the banner of Synergy Worldwide. So we have now one entity operating in Japan under the banner of Synergy. That did 2 things for us: it enabled us to consolidate obviously, to yield operating efficiencies, but it also enabled us to have a business model in Japan that was consistent with our business model for the rest of Asia, which, several years ago were a result of a merger between Synergy and NSP Japan businesses. And I think what we've seen, just in the first quarter alone as reported in the Synergy comments earlier that I made, that we've seen Japan in the first quarter return to growth. There's been a very well-executed integration of the 2 businesses, and we're starting to see the market return to moderate growth right now. So that's the Japan business. And relative to -- and I'll talk about NSP U.S. primarily, which is obviously a large business unit for us. We are not -- our business in NSP U.S. is not a typical network marketing business, it's a business that our typical distributor, which we call managers, are either passionate or product experts in the natural health field. They operate largely in a 1:1 consultancy type of mode with customers, and have been much more focused actually on product sales rather than…

Okay. That's helpful. Do you have any -- did you disclose the percentage of weight loss products that make up your revenue or -- I'd be curious because I know it's a big area for a lot of direct selling companies.

Yes, we do. We do it in our K. I think what you'd see across the business unit is that you'll see weight management in Synergy, weight management in NSP and weight management in Russia is going up. I talked in my prepared remarks -- and one of the issues for us with weight management, if you look at our strategy with weight management, it's not about becoming -- making Synergy or Nature's Sunshine a weight management company, it is about broadening our field. So in Synergy, we were primarily a cardiovascular-based business, we now have broadened that to address the other megatrend, obesity, which is connected with cardiovascular and the cause of cardiovascular. So we've got a broader demographic appeal to linked megatrends and great products that address both. In the NSP business, we got the Transformational Habit of Health concept, with weight management as a gate -- as an entry gateway into our Transformational Habit of Health, which is -- and the IN.FORM business method around that. And then in Russia, Central and Eastern Europe, we launched weight management again under the Transformational Habit of Health concept. And we've seen -- it's early stages for us, but we've seen very positive momentum in all 3 business units in each of those sectors. And you'll see in the Synergy business, for example, in the K, you'll see that weight management moved in the quarter from $450,000 last year to one point -- nearly $2 million this year.

That concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.