Greetings and welcome to the Nature's Sunshine Products' Second Quarter 2018 Earnings Conference Call. All participants are in a listen-only mode. And this conference is being recorded. I would now like to turn the conference over to your host, Mr. Nate Brower, General Counsel of Nature's Sunshine Products. Thank you, Mr. Brower. You now have the floor.

Good afternoon and thanks to all of you for joining our conference call to discuss our second quarter 2018 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 information on this call may contain certain forward-looking statements. 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 may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied 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 information on this call speaks only as of today's date and the company disclaims any duty to update the information provided herein. I now turn the call over to Greg Probert, Chairman and CEO of Nature's Sunshine Products.

Thanks Nate. Good afternoon everyone and thank you for your participation in today's call. Also joining me today is our Chief Financial Officer, Joe Baty. We are pleased to report our highest revenue quarter in almost four years and the highest topline growth rate we have generated in over a decade. Second quarter net sales were up 12% year-over-year and adjusted EBITDA was up almost 65% over prior year. These strong results were driven by Synergy Asia-Pacific, NSP Russia, Central and Eastern Europe, and China. Additionally, the year-over-year declines in NSP Americas moderated as sales have stabilized over the last several quarters and we are now lapping last year's business disruption. We continue to feel good about how our business is performing overall. We have reported positive growth in eight of the last nine quarters and are seeing accelerated rates of growth in several key markets. Let me begin with a review of NSP Americas. Net sales were down about 3% in local currency, including a 1% decline in NSP North America. During the quarter, we instituted a price increase in the U.S. and Canada and continue to see our customer service metrics improve. We are excited to launch Purify 2.0 on our U.S. Convention next month. This clinically tested, patent-pending, heavy-metal detoxification program was designed to be taken before our IN. FORM program to detoxify the body and ready the gut microbiome for the IN. FORM metabolic transformation program. These two programs together are a key strategic focus and driver of the North America business. Purify 2.0 will also be launched in China and Synergy Asia-Pacific next year. In NSP Russia, Central and Eastern Europe, we generated 30% local currency growth over prior year, an acceleration from recent quarters, driven by strong gains in Russia and Poland during the…

Thank you, Greg and good afternoon everyone. Net sales in the second quarter of 2018 were $91.3 million compared to $81.3 million in the same quarter last year. On a local currency basis, net sales increased 9.6% year-over-year or 12.2% as reported. As Greg noted, the increase was driven primarily by growth in Synergy Asia-Pacific, NSP Russia, Central and Eastern Europe, and NSP China, offset by a $1 million year-over-year decline in NSP Americas net sales, which reflects an improved rate of decline when compared to the last few quarters. NSP North America sales declined 0.8% year-over-year to $32.9 million during the second quarter or a 1.2% decline in local currencies. Sales in NSP Latin America declined 12.3% year-over-year to $5.5 million for an 11.4% decline in local currencies. Synergy WorldWide net sales in the second quarter grew 20.9% year-over-year to $36.7 million or a 15.9% increase on a local currency basis. Net sales in Synergy Asia-Pacific increased 30.8% year-over-year on a local currency basis, while sales in Europe declined 22.7% year-over-year and sales in North Americas declined 11.7%, both on a local currency basis over the second quarter of last year. In NSP Russia, Central, and Eastern Europe, net sales rose 31.4% year-over-year to $9.4 million or 30.2% on a local currency basis. China net sales increased 53.5% year-over-year to $6.8 million or a 43.6% increase on a local currency basis. As Greg mentioned, we also saw strong growth on a sequential basis. Recall that the company received its direct selling license late in the second quarter of last year. As such, we are facing more difficult year-over-year growth comparisons in China for the back half of 2018. Gross margin decreased 50 basis points to 73.4% compared to the year ago period. The gross margin decrease reflected changes in…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Steven Martin with Slater. Please proceed with your question.

Thanks a lot and good quarter.

Thank you.

Can you talk about trends in gross margin? It was a good quarter. And how do you see gross margin playing out for the rest of the year? And secondarily, you talked about SG&A, you had some transition costs. If I -- if you exclude those, can you give us some idea of what SG&A would have looked like and will look like going forward?

Yes, thank you for the questions. And to the extent, as you know, we don't provide formal guidance, but what I would say is this. First off, in regards to the gross margin trend, while there was a bit of a downtick, I wouldn't look at that as indicative of any negative trend long-term. And in the long-term scheme of things, we actually believe through certain efficiencies and so forth that our gross margin will improve. So, I wouldn't look at anything near-term or in this given quarter as indicative of some unfavorable trend. In regards to your question regarding SG&A, yes, the SG&A figure for the quarter includes two, arguably three unusual items. Let me speak to the first two. First of which is the $33.3 million in the quarter does reflect the benefit of a $2.3 million gain on the sale of a building in Mexico, but it also includes $1.5 million in costs associated with the previously announced CEO transition. Just at that point, you'd see the number gets a little bit worse than what it was, but on a percentage basis is still clearly favorable from the prior year percentage. I would go on to say that on a quarter-over-quarter basis, there are certain employee-related benefit costs that we accrued in the second quarter of 2018, which did not materialize anywhere near to the same level in the second quarter of 2017. So, 2018 over 2017 clearly reflects a meaningful increase in employee-related costs, which is, in short, as we sit here today as we expect the overall results -- what I will say, without giving formal guidance, we do expect the overall financial results for 2018 to reflect a meaningful improvement versus 2017. And as such, there will be certain employee-related benefit costs that will materialize to a larger degree in 2018 versus 2017.

Okay. Thanks very much. And on the balance sheet improvement, how do you feel about the cash? And is your goal to pay down balance of the debt and then consider what alternatives there are?

Well, I would say that as the CFO of this organization, I'm not a big fan of long-term debt. So, that's always an objective to minimize that and to minimize any costs associated with that debt. So, that's clearly an objective, continue to be an objective as this year plays forward and into 2019. As you may -- just so we're clear in regards to the cash balance, obviously, there's only one credit facility the company has and that's here in the U.S. And so the various foreign markets still require cash on hand, so a very sizable portion of whatever cash we're sitting on does meet the operating needs of the various markets that we operate in. But we're still pleased with the improvement on our net cash position. There's clearly an objective for that to continue to improve. And as the future plays forward, we'll appreciate being in a situation where we can evaluate what are the uses of that cash make the most sense for our shareholders.

All right. Thank you very much.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I'd like to turn the call back to Greg Probert for closing remarks.

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

Thank you. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.