Richard Strulson - General Counsel and Chief Compliance Officer Greg Probert - Chairman and CEO Joe Baty - EVP and CFO

Greetings, and welcome to the Nature's Sunshine Products First Quarter 2017 Earnings Conference Call. All participants are in a listen-only mode and this conference is being recorded. I'd now like to turn the conference over to your host, Mr. Richard Strulson, General Counsel and Chief Compliance Officer of Nature's Sunshine Products. Thank you. Mr. Strulson, you now have the floor.

Thanks a lot. Good afternoon, everyone, and thanks for joining our conference call to discuss our first quarter 2017 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. The press release which was issued this afternoon at approximately 4:05 Eastern Time and the information on this call may 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 within the company's control. These statements are often characterized by terminologies 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.

Thanks, Rich. Good afternoon, everyone, and thank you for your participation in today's call. Also joining me today is our Chief Financial Officer, Joe Baty. First quarter net sales of $83.1 million were up 0.8% year-over-year, led by 19.8% growth in NSP Russia, Central and Eastern Europe and $2.7 million of incremental e-commerce revenue from Hong Kong that helped to offset softer sales in Synergy Asia driven by geopolitical and economic challenges in South Korea that affected many of our peers as well and a modest decline in NSP Americas. As we have discussed over the last several quarters, we are in the midst of a significant investment period as we have built a capital and expense infrastructure in China in anticipation of a direct selling opportunity in this promising market. As of today, we have not yet received a direct selling license. Additionally, we began the initial implementation of Oracle in April which is likely to have a somewhat disruptive impact on revenue and expense levels as we progress through the implementation process. Specifically, we expect the disruption to operations during the second quarter for our NSP Americas division. We are working to manage expense levels during this investment period including delaying incremental expenditures in China. However, we are making decisions focused on our long term strategic growth objectives. Through this end, the board of directors has decided to suspend the quarterly dividend. The dividend suspension will support the company's objective to continue our strategic investment in China. The board will periodically evaluate our capital allocation and uses of cash in the future. We reported earnings $0.11 per share during the first quarter which included $0.08 per share of expenses directly related to our investments in China. Let me now discuss our sales performance in further detail. NSP Americas…

Thank you, Greg, and good afternoon everyone. Net sales in the first quarter of 2017 were $83.1 million, up 0.8% from $82.4 million in the same quarter last year. On a local currency basis, net sales grew by 0.4% year-over-year. As Greg noted, the growth was primarily driven by NSP Russia, Central and Eastern Europe and the product sales related to preopening product sales through Hong Kong, offset by a decline in net sales in the Synergy Worldwide segment while NSP Americas was down modestly. Gross margin increased to 73.9% from 73.3% in the year ago period. The gross margin increase was primarily driven by market mix and the weakening of the US dollar when compared to several international currencies. Volume incentives accounted for 34.9% of net sales in the first quarter compared to 36.3% of net sales in the same period last year. The decline in volume incentives as a percentage of sales was driven by changes in segment market mix, including the preopening product sales into China through Hong Kong for which no volume incentives are paid. Recall that, in China, the company pays independent service fees which are included in selling, general and administrative expenses. Selling, general and administrative expenses were $30.3 million up almost $2.0 million compared to $28.4 million in the same period a year ago. As a percentage of net sales, selling, general and administrative expenses were 36.5% in the first quarter compared to 34.4% in the prior year. The increase in SG&A was primarily due to incremental independent service fees related to preopening product sales through Hong Kong, expenses associated with increased infrastructure investment in China and expenses related to increased infrastructure and head count in Synergy Europe and Asia Pacific. We reported operating income of $2.1 million or 2.5% of net sales…

Thanks, Joe. Thank you again for your support and for participating in today's call. Have a great day.