Greetings, and welcome to the Nature's Sunshine Products Third 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, Mr. Richard Strulson, General Counsel and Chief Compliance Officer for Nature's Sunshine Products. Thank you, Mr. Strulson, you may begin.

Thanks. Good afternoon, everyone, and thanks to all of you for joining our conference call to discuss our third 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 in 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. 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, performance or achievement of the company may be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include but are not limited to those factors disclosed in the company's Annual Report on Form 10-K under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The press release and the information on this call speak only as of today's date, and the company disclaims any duty to update the information provided herein and therein. I will now turn the call over to Greg Probert, Chairman and CEO of Nature's Sunshine Products. Greg?

Thanks, Rich. And good afternoon, everyone. Thank you for joining us today. The second half of 2014 is off to a strong start highlighted by another record-setting quarter at Synergy and a return to growth within NSP United States and Canada. Our transformation to a multibrand multichannel organization continues to take form. As you'll hear, our science-based product and sales strategies continue to gain traction and drive strong distributor adoption, leadership and engagement across the globe. Touching on a few financial highlights for the quarter. Net sales were up 3.2% on a local currency basis as continued strength in Synergy allowed us to absorb broader declines in NSP Russia, Central and Eastern Europe. Once again, Synergy delivered a record-setting quarter, posting its fifth consecutive quarter of record sales. South Korea and Japan continue to lead the way, delivering year-over-year growth of 60% and 33% in local currency, respectively. Strong distributor leadership in these key markets, combined with sustained momentum since last year's global summit and the launch of the SLMsmart weight management program continue to be strong producers [ph] of growth. Importantly, we had a strong quarter in Synergy Europe, delivering our first quarter of year-over-year growth in over a year. Performance in the market benefited from the September launch of SLMsmart and a strong prelaunch campaign. We look forward to building upon this positive momentum to deliver more balanced regional growth across our synergy business. Turning to our NSP lines of business. I am pleased to report that the third quarter marked a return to growth for NSP North America. NSP United States and Canada posted net sales growth in local currencies for the first time since the second quarter of 2013 and the first quarter of 2012, respectively. Growth in the U.S. was supported by progress in key…

Thank you, Greg. And good afternoon, everybody. We're very pleased with our third quarter net sales growth of 3.2% year-over-year on a local currency basis despite the continued declines of our NSP Russia, Central and Eastern European business, which negatively impacts our net sales growth. Excluding these declines in Russia, Central and Eastern Europe, year-over-year growth would've been 6.7% overall. Once again, leading net sales growth during the quarter was Synergy WorldWide, which achieved its fifth consecutive quarter of record-setting sales, led by strength in South Korea and Japan and a return to growth in Europe. Synergy's performance more than offset the declines experienced across our NSP businesses. Net sales in NSP Americas, Asia Pacific, Europe were $48.4 million or 51% of total company sales. In local currencies, segment net sales decreased by 1.6% from the same quarter a year ago. The decline was primarily driven by combining our NSP Japan business with our Synergy Japan business in the first quarter of this year as well as the transition of our NSP U.K. business to an export market -- wholesale model on April 1 of this year. For the third quarter of 2013, we had recorded revenue of $2 million for the NSP Japan and NSP U.K. markets. NSP U.S., which remains our largest market at 39% of total company sales, recorded a net sales increase of 0.7%, marking its first quarter of growth since the second quarter of 2013. We continue to see our new sales programs gaining traction, with increased adoption of the IN.FORM business method, which is focused on weight management and the building of a daily habit of health. In addition, our retail productivity tools help support sales for those distributors who have stores. Our annual leaders conference, held in Salt Lake City in August, featured…

Thanks, Wynne. And good afternoon, everyone. Net sales in the quarter were $94.9 million, up 2.6% from $92.5 million in the same quarter last year. On a local currency basis, net sales increased 3.2% year-over-year. Cost of sales was $23.3 million, down 1.4% from $23.7 million in the year ago period. The decrease in cost of sales was primarily due to changes in product mix between markets, lower raw material cost as well as lower in-market distribution cost, partially offset by the impact of product discounting. Increasing cost of sales for the quarter resulted in a 100-basis points increase in gross margin of 75.4% versus 74.4% in the year ago period. 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 commissioned plans in place and by the sales mix in our various markets. Volume incentives accounted for 37.4% of net sales in the third quarter, up 4.5% compared to the same period last year. The increase was primarily due to net sales increases in markets such as South Korea and Japan that pay a higher sales commission in our Synergy WorldWide segment. Selling, general and administrative expenses were $33.5 million or 35.3% of net sales, which increased 18.8% from $28.2 million or 30.4% of net sales in the same period a year ago. The increase in selling, general and administrative expenses was primarily related to an impairment charge of $2.9 million for our Venezuelan fixed assets, $0.8 million of onetime restructuring cost in certain markets, $0.6 million of increased health insurance and other benefit costs and $0.4 million in startup cost for the China joint venture. Excluding…

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

So is there any additional cost to exit Venezuela in the fourth quarter or going forward? Can you kind of quantify the future cost?

Yes. I think the cost to exit Venezuela in the fourth quarter are estimated to be between $600,000 and $800,000. And they should be incurred in the fourth quarter.

And then are there any plans to exit any other region that you can talk about or?

Not of this stage. No -- excuse me, Bryan. This is Wynne. The -- one of the things we did talk about I think on the call, we are pursuing the conversion of our Peru market to an export market in the same way that we did in the U.K. earlier this year. But apart from that, no.

Okay. And then turning to the balance sheet. I noticed that PP&E for the quarter ended at about $45 million, up about 40-some percent from year end. Can you just give us a little more color what that's related to? I mean, how much of that is related to the Fosun JV?

Yes, Brian. We've spent -- in the first 9 months of the year, about $19.9 million in capital expenditures, and about a little over $15 million is related to our ERP project with the remaining expenditures due to manufacturing and capital maintenance kind of items and those type of things. We have -- we have funded the joint venture in China. But there have been no capital expenditures recorded related to that -- to the joint venture at this point.

Okay, great. And then if I could just ask one more question and I'll jump back into the queue. Turning to Synergy. Sales up 27-plus percent, and distributors were up about 11%. Just wondering if you can quantify that. I mean, that difference, did that come from pricing? Or does that come from increased productivity? Can you just kind of walk through that gain?

Sure. I think -- we've talked about this on prior calls as well, Brian. I think one of the issues that you'll see -- it's a mix of the business between different markets. So one of the things that we've seen this year is a strong growth, as you know, in Japan and Korea. And as those businesses grow and the cost of our products in those markets and the average sales price in those markets offset slowing businesses in Southeast Asia -- smaller businesses in Southeast Asia. Likewise, as Europe returns to growth, same thing as the North Asia markets of Japan and Korea. So it's really down to mix. So we're seeing strong growth in those -- in North Asia and emerging growth in Europe. And that's what affects that disparity.

Our next question comes from the line of Gregg Hillman from first Wilshire.

Could you talk about the rebranding of the Silver Shield? And what kind of additional promotional marketing efforts do you have behind the product now?

Yes. So Silver is our largest SKU in the U.S. market. It's positioned as in immune product and has been a staple of our distributors businesses for a number of years. In September -- and the product -- there were 2 SKUs available. There's a 4-ounce liquid and a single SKU of a gel. So in the third quarter, what we did was we revamped the product. First of all, we improved the formulation from 18 parts per million to 20 parts per million to improve the strength of the formulation and the efficacy. And then we also introduced 2 new sizes. We introduced the 6-ounce bottle at a promotional price and then a 16-ounce bottle at a normal price per serving. So those are 2 things. We introduced 2 new SKUs, one with a promotional quantity in it. Then finally, what we did was reformulation, resizing and then we relabeled the product and upgraded the labeling on the products to communicate the improved efficacy. And those things were -- those 3 things combined were launched for the liquid products in the middle of September and had a positive impact on sales in the latter part of September. And then we have 2 new SKUs, a reformulated gel product and a new gel product scheduled for launch in later November.

Okay. Can you just talk about the progress you're making in trying to grow the distributor base for Synergy and NSP in North America, whether you'll be able to really either through the products or other areas really to get the base growing again?

So I think the -- let's talk about the NSP business first because that's our largest business unit and it's the one we've talked about the new initiatives. So in NSP, there's one key initiative that we'd see as having a significant impact on reenergizing the business, and there's been a significant contributor to our returning to growth in the third quarter -- in the -- yes, in the third quarter, and that is our IN.FORM program. So our IN.FORM program is a business method that is a 13-week program that the distributors can run group sessions, typically of 10 to 15 people, where the entry point of the program is weight management. But it also includes all our other products as well. So it's a build for people that attend program to educate them on how to embark on and sustain a daily habit of health. That program was developed in 2013. It was soft launched in late 2013, fully launched in our convention in March of 2014 in the U.S. and has continued to gain traction ever since. In addition to that, we have been seeing good success with the launch of our retail -- with the use of our retail productivity tools that enabled distributors that have retail stores to improve foothold [ph] and improve sales values. So I think -- and then the third element of the U.S. return -- the NSP U.S. return to growth has been the fact that we have adopted a product strategy which is kind of 2-pronged, which is -- the first is in the categories where we have great strength to really leverage our newly created science and research capability to really strive for innovative products in that space in those categories where we have strength. And good examples of those are our AnxiousLess and Equolibrium launches earlier this year. In addition to that, the second prong of the strategy is to refresh and rebrand and extend our existing strong lines. And the Silver product line that I just referred to a few minutes ago is an example of that. So I think it's really 3-pronged. And then the additional piece is reengaged sales leadership, the corporate leadership, working with the distributors to support their growth. And frankly, it's a business that's had a long legacy of underperforming, as you probably know, and has taken us some time to develop these programs and implement them in the field. But we are cautiously optimistic that we're now starting to see the early signs of a return to growth.

And then, Wynne, finally, for Synergy Americas, you have to grow that again. Do you think that's going to happen? Or what's happening there to grow that, Synergy Americas?

So with Synergy, our primary focus, frankly, is in Asia and Europe. We clearly have -- there are a number of things you need in a network marketing business to be able to succeed. And I think the Asian market, the direct selling in general, is more vibrant than the North American market. And so we're leveraging that, and we're seeing the good returns on that in Asia. In Europe, likewise, the same. We invested last year, and we starting to see those returns. We're seeing a slower turn in the U.S. The U.S. is actually the smallest part of the Synergy business. And we are continuing to pursue the SLMsmart weight management programs along with our ProArgi-9 programs, and we have a couple of programs in the works to reengage the distributor leadership in the North American market. But I think it's a little too early to talk about those at this stage. So we expect for the next little while our growth to come from Asia and Europe while we continue to work to rebuild the U.S.

Okay. I guess there's more competition for ProArgi-9 in the U.S. for other things like they're advertised on late-night TV and over the Internet and stuff like that, I think.

I think that's part of it. But as you know, it's not only the product. It's also the engagement of our distributor leaders across the region. It has to be very engaging, and several of our leaders in the U.S. have very robust businesses overseas. And frankly, they'd be more focused on growing those businesses than they have in reigniting the North American market in the short term. So it's a combination effect.

There are no further questions in the queue. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.