Greetings, and welcome to the Nature's Sunshine First Quarter 2019 Conference Call. And this call 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 first quarter 2019 financial results. This call is available for replay and a live webcast that will be 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 not guarantees of future performance, and the actual results may be materially different from the results implied by forward-looking statements.

Thank you, Nate. Hi, everybody, and thank you for joining us for today's call. I am pleased to be here with you today to discuss our first quarter results and share some of the initiatives that we'll be implementing in the upcoming months. With me today is our Chief Financial Officer, Joe Baty, who will walk you through our financials in greater detail. But I'm going to kick things off with a brief summary of our business. To begin, we had another very strong quarter, delivering 7% revenue growth on a local currency basis, while generating a fivefold increase in adjusted net income. Clearly, we're starting to see the compounded impact of our cost reduction initiatives, and we're committed to improving efficiency and productivity across the business. Our restructuring initiatives during the first quarter are a good example and are expected to deliver more than $4 million in annualized savings. Based on our analysis, we continue to believe that there are still significant opportunities to strengthen revenue growth and improve profitability. As we discussed last quarter, our vision is to become more consumer focused with the objective of becoming more modern, more flexible and more profitable in everything that we do. To bring our vision to life, we've spent the last 6 months reviewing internal capabilities, conducting consumer research and assessing external market dynamics in an effort to build a strategic road map that will take us into the future. The resulting multiyear strategy is designed to unleash the potential of our business, reimagine our brands and redefine herbal traditions to make the healing power of nature accessible to everyone. Our plan focuses on five global strategies that will drive our focus in investment priorities as we move forward. I'd like to spend a few minutes to briefly walk you through each strategy in turn. Our first strategy is something that we call brand power, which focuses on capturing the imagination of our consumers with an updated branding proposition. Capturing the hearts and minds of today's savvy consumers requires a new level of branding. And our goal is to create a more relevant, aspirational and empowering brand that excites, inspires and transforms the way people think and feel about our company.

Thank you, Terrence, and good afternoon, everyone. Net sales in the first quarter of 2019 were $91.3 million compared to $87.3 million in the same quarter last year. On a local currency basis, net sales increased 7.1% year-over-year or 4.5% as reported. The increase in net sales was driven primarily by a $3.6 million increase in Synergy Asia Pacific; the $2.2 million increase in NSP China; a $1.8 million increase in NSP Russia, Central and Eastern Europe; and a $0.5 million increase in Synergy North America, which was partially offset by a $3.2 million decline in NSP Americas and a $0.9 million decline in Synergy Europe. Net sales were also negatively impacted by a $2.3 million unfavorable foreign currency exchange rate. NSP North America sales declined 5.6% year-over-year to $33.6 million during the first quarter or a 5.3% decline in local currencies. Sales in NSP Latin America declined 19.1% year-over-year to $5.1 million or a 17.1% decline in local currencies. We continue to see lower recruiting rates that are not offsetting attrition in NSP Americas, and this trend may continue in the near term until our new strategies and initiatives gain traction. Synergy WorldWide net sales in the first quarter grew 10% year-over-year to $35 million or a 14.7% increase on a local currency basis. Net sales in Synergy Asia Pacific increased 20% year-over-year on a local currency basis, driven by continued strong sales momentum in South Korea, as Terrence mentioned. Sales in Europe declined 9.7% year-over-year, while sales in North America grew 19.3%, both on a local currency basis over the first quarter of last year. NSP China net sales increased 52.4% year-over-year to $6.3 million or a 61.4% increase on a local currency basis. In NSP Russia, Central and Eastern Europe, net sales rose 18.9% year-over-year to $11.4 million or 20.8% on a local currency basis. Gross margin increased more than 30 basis points to 74.3% compared to the year-ago period. The gross margin increase primarily reflects changes in market mix, reserves for obsolete inventory recorded in the prior year and favorable raw material pricing. Volume incentives as a percentage of net sales decreased to 34% in the first quarter compared to 35.9% of net sales in the same period last year. The decrease in volume incentives as a percentage of net sales was driven by changes in market mix, including growth in markets where volume incentives as a percentage of net sales are lower than the consolidated average. And the growth in NSP China where service fees are accounted for in selling, general and administrative expenses rather than reflected as volume incentives.

We will take our first question from .

The discrepancy on the adjusted earnings on the Dow Jones news service. Your press release appears to be $0.14. Is that correct?

Yes.

Right, because the Dow Jones service, they posted was $0.09 and then they followed it up without making it a correction of $0.14, so want to make sure that, that was, I think, the correct indication of what you did. The other question is, is there any seasonality in terms of your business because this quarter seems to be lower than previous quarters in terms of sales, and so I don't know what to say anything that goes on in the other quarters versus this quarter?

Well, I mean, in the broad sense, is there seasonality? Yes, there can be. Obviously, the fourth quarter of 2018, we are very pleased with that. Terrence referenced it, in our minds, the first quarter of 2019 is a follow-up strong quarter to the fourth quarter of '18. Seasonality can come about from certain things. For example, the timing of events that we may have in given markets over the course of the year. Those can impact sales in one quarter versus a quarter that we don't have in advance, whether that's in China or Europe or the U.S. and so forth. I mean above and beyond, the products that we sell may also impact seasonality, right, because there may be some that are geared more to certain seasons of the year versus others. Obviously, when you think in terms more specifically of the China NSP business, I mean, what we've seen historically even though we're very pleased on a quarter-over-quarter basis, if you look at sequentially at Q1 of 2019 versus Q4 of '18 for the China business, I mean, it's clearly is impacted by the Chinese New Year. In fact, the business is just down there for a period of time.

All right. Something also I was trying to make out, but I guess, the question would be the earnings that you've accomplished this quarter very good. And is there an expectation for this trend to continue? Or is this an anomaly?

No, obviously, we don't give formal guidance, but we don't consider this to be an anomaly. We're pleased, as Terrence mentioned in his comments, we're seeing some of the benefits from some of the cost initiatives, cost control initiatives that we've been implementing now. And while we have a lot of work to do and a lot of wood to chop, we clearly believe that the future holds incremental growth and profitability.

It is the negotiations with China, is there any effect potentially on your business there?

Let me take that. What I would say is, we have a very good reputation in the marketplace. We have a very strong team there on the ground. We feel very confident in our business there and the plans that we have in place. So I don't want to speculate on kind of the market environment there, but it is a growing market still. We continue to see very strong year-over-year growth and penetration of the market and, again, that's driven by strong fundamentals and an underlying strong current within our business. And so that would be my thinking and our perspective on China at this point in time. But we've had a very good relationship there within the marketplace and a good reputation.

Just another question. Looking at your share price, do you feel that you're neutrally valued, overvalued, undervalued? And is there any potential to any stock buybacks based on that?

Joe, handle that one.

Yes, your question is twofold. We're not going to speculate as far as perceptions of the stock price. I would say, long-term scheme of things, we believe, if we can truly drive growth, profitability, that stock price improvement will speak for itself. In regards to the second part of your question, while we don't anticipate a stock buyback here in the near term and obviously, those types of decisions are at the discretion of the Board of Directors.

And we'll take our next question from Steve Martin with Slater.

And I know you don't give guidance, but how about talking in generalities or qualitatively about sort of the segments of the business and how you expect them directionally to trend over the balance of the year?

Yes. Once you start off Joe and then maybe I'll comment on just, in general. Let me start by saying, and I commented on it during our last call and I alluded to it during this call, we're operating in a growing market, and every single market that we're operating in is growing. And our goal is to get our fair share of that growth. And so that means, we're going to be aggressively working to strengthen our position in all of the key markets where we operate, but in particular, there are several markets and you know which ones they are, where we're already driving growth, and then we've got our one big market in North America where we've got a lot of work to do to turn that one around. But again, even in North America, that's a growth market. So again, our expectation is, in a growing marketplace, we want to be able to participate in that and get our fair share of that. So let me turn it over to Joe for maybe some other comments.

Yes, I concur with what Terrence just said. Obviously, looking at the 4 business units we announced this quarter and if you're to go back fourth quarter of 2018, you can see that we haven't seen growth in 3 of the 4 business units and, again, where we don't messily provide formal guidance. I mean we like what we're seeing in those 3 business units. And frankly, we see the long-term scheme of things in a substantial – just getting our fair share on the NSP Americas business unit, we see the potential for that as well. In the near term, regarding that business unit, as I noted in my comments, we could still see, over the course of this year, some incremental decline, but we've got a lot of actions and initiatives that we're implementing. And we're confident long term that we'll start to see some growth in that business unit as well.

And with respect to that business unit, if you could just arrest the declines, then at least the growth in the rest of the business units would sort of shine through a little strong?

That is correct. Yes.

No. This depends on that one.

Yes, perhaps. And that's why we've made some aggressive changes to the organization, and also our strategies are designed to help better position us, not only in the U.S. market, but around the world, but particularly in North America.

Okay. With respect to expenses and EBITDA, and again, I recognize you guys don't give guidance. It was a very good EBITDA quarter, from a dollars and a percentage. Was there something unusual? Or is this sort of where we – when you look out over the balance of the year, are things in place? And I am using adjusted EBITDA now. Should we expect that these kind of trend and profitability will continue?

Well, as we noted in our respective comments, we're pleased with what we're starting to see from some of our cost efficiency initiatives and some of the work we've announced in prior calls that we needed to take our look at the way we – this process so that process works and take a look at the overall structure organization of the business. And we're seeing some benefits on that front. Playing it forward, as I noted earlier, we feel pretty confident that first quarter knows not an anomaly, there's always going to be certain things that come into play that may cause – that impact one quarter versus another quarter vis-à-vis going back to my reference to the timing of an event in one quarter versus a different quarter. And obviously, there is cost and expenses associated with things like that. But from a longer-term go-forward standpoint, we're pleased with where we are, what we've seen in this first quarter, and we feel pretty confident that trends are going to continue.

But just to build on the Joe's comments, Steve, our strategy that we call the right stuff is – really does focus on having the right organization, right organizational structure. So part of the strategy and what you're seeing is a conservative effort to manage our SG&A up more aggressively, and so the changes you're seeing are sustainable. They're built into our plans. And – so we're taking a very hard look at overhead and our cost structure in order to, again, become more profitable overall as an organization on a sustainable basis.

Was there anything with respect to events, you've mentioned it a couple of times? Were – on an apples-to-apples basis, were you comparable for events in the first quarter? I mean the extra EBITDA wasn't because you were one event less, two events less, was it?

No. I mean, look, the first part of that question, was there a difference in events, the answer is no. So the incremental EBITDA didn't have much to do with the timing of an event. There are situations where you just have other costs or spending that may impact one quarter versus the next. But again going back to – about what both Terrence mentioned and my earlier comments, we like what we are seeing. It's one quarter, but we very much like what we're seeing, and we believe that we're going to see incremental top line and bottom line growth.

Let me – again you don't give guidance, so I'm going to ask as many questions as I can, so I can do it myself. With respect to the restructuring expenses, are you done or are there – are we going to keep seeing those?

That's a good question, and again, in reference to Terrence's comments, we continue to look at the organization, and I think the right stuff initiative and so forth will lend itself to see whether we need to think differently or organize business units a little bit differently or the way we approach certain markets a little bit differently and associated with that. Is it possible that we could have incremental restructuring or other unusual costs? The short answer is yes, we could.

I mean, right now, we're going to the process of looking at every single process and kind of leaving no stone uncovered. And so we're not going to commit to any savings objectives, right now, at this point, because we're still going through the, I'd say, the analytical process, but we are certainly aggressively trying to look at the organization, look at our cost and our overhead and how we spend money to do things differently to drive – to take profitability to another place.

Okay. And with respect to the balance sheet, you said that a lot of the cash used was for accrued expenses. Was that a timing issue because accrued liabilities were down like $6 million? Was that something that an anomaly last year in the balance, or I mean, as of December 31?

It's primary timing, right? I mean there were certain expenses that we added in calendar 2019 that were accrued as of December. We didn't necessarily have in the fourth quarter of 2017, so it's primarily timing as far as paying of certain accounts payable, accrued liabilities, the receiving collection of accounts receivable, a little bit of a timing difference on that. But, again, overall, we're very pleased with the improvement we're seeing on the balance sheet and overall liquidity, quick ratio, everyone measure it.

Can I ask one other question? What is investment and I should have asked this before, but what is investment securities trading?

We have some securities in regards to compensation plan we have for deferred compensation plan. And obviously, the funds that people put aside for that are invested in supply investment securities.

Okay, all right, thank you very much.

Thank you Steve.

And that does conclude our question-and-answer session. At this time, I'd like to turn the call back to you, Mr. Moorehead, for additional and closing remarks.

Okay. Thank you, and I want to thank everybody, again, for joining us today and for your ongoing support and belief in our company. We always appreciate your interest in Nature's Sunshine and your support. And again, thank you very much, and have a great day.

Thank you.

And again, that does conclude today's conference. We do thank everyone for your participation. You may disconnect at this time.