Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Nature’s Sunshine’s Financial Results for the First Quarter Ended March 31, 2022. Joining us today are Nature’s Sunshine’s CEO, Terrence Moorehead; CFO, Joseph Baty; and Executive Vice President and General Counsel, Nathan Brower. Following the remarks, we’ll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the company’s Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautious regarding forward-looking statements. Nathan, please go ahead.

Yes. Thank you. Good afternoon, and thanks for everyone joining our conference call today to discuss our first quarter 2022 financial results. I’d like to remind everyone that this call is available for replay by telephonic dialing through May 19 and through a live webcast that will be posted in our Investor Relations portion of our website at ir.naturessunshine.com. The information on this call, may contains 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 in this call 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 here in. Now, I’d like to turn the call over to the CEO of Nature’s Sunshine, Terrence Moorehead. Terrence?

Thank you, Nate, and good afternoon, everyone. We appreciate you being here with us as we discuss our first quarter 2022 results. The operating environment we faced to start the year was certainly more challenging than any other quarter in our past. The lingering effects of COVID-19 and the Shanghai shutdown, the devastating war in Ukraine, an intensifying supply chain crisis and rampant inflations were a unique combination of headwinds we had to navigate in the first quarter. Despite these unprecedented challenges, first quarter sales growth was strong up 10.3% in local currency versus prior year, reflecting the strength of our brand and the steps we’ve taken to build momentum in the business. We’re very pleased with our top line performance, especially given the heightened uncertainty and challenges to the market. Our mission to share the healing power of nature with more people across the globe is undeterred, and it continued to show in our top line results. The first quarter was our seventh consecutive quarter of year-over-year net sales growth. First quarter adjusted EBITDA was $8.2 million negatively impacted by the confluence of headwinds, I discussed earlier. Cost of goods was impacted by unplanned inventory reserves that were a direct result of the unique external factors impacting the business. SG&A also increase as we continue to invest in the business funding our Digital First initiatives and Field Energy programs designed to reengage distributor facing activities. All of our investments support our commitment to deliver long-term sustainable growth. Backing off now would impede our ability to keep the business moving forward. Given the current headwinds, we are currently pleased to be discussing double digit year-over-year sales growth. That said, as the tail of the first quarter – as the tail end of the first quarter and April played out, we…

Thank you, Terrence, and good afternoon, everyone. Before getting into specific financial details for the first quarter, I also want to share some overall thoughts regarding our expectations for 2022. For starters, over the course of 2021, we were increasingly more excited about the prospects for Nature’s Sunshine, for 2022 and more importantly, for the long term. The fourth quarter of 2021 represented the sixth consecutive quarter of sales growth and for full year 2021, all four business units generated top-line growth. As reported, sales were 444 million, reflecting an increase of 15% versus 2020. We entered 2022 with targeted expectations of continued solid growth supported by our recent success, organic growth initiatives and overall market expectations for our health and wellness focused categories, among other factors. We were also very pleased with the as reported growth and adjusted EBITDA, amounting to $49 million for 2021. The increase reflected continuing operating and EBITDA margin improvement versus prior years and a very healthy level of liquidity. We entered 2022 with expectations of continued EBITDA growth, primarily driven by top line growth expectations. We believed operating and EBITDA margins would improve modestly, primarily as a result of leveraging SG&A and reduced volume incentive expenses, partially offset by continued investment in long-term growth initiatives, including DTC marketing, distributor advance and market and initiative related personnel costs, among other considerations. Beginning in the first half of 2021, we recognized a certain level of inflationary and supply chain pressures on our business. Accordingly, coupled with our sales growth expectations, we consciously invested in and committed to higher levels of raw materials and finished goods inventories. We were not successful in turning desired access to all key raw materials at year end 2021. But we were confident our continued pursuit of such in 2022 and beyond,…

Thank you. We have a question from Linda Bolton-Weiser with D.A. Davidson. Please go ahead. Your line is open.

Yes. Hi. How are you doing?

Hey, Linda. How you doing?

Hey, Linda.

Good, good. Hi. So a lot of moving parts going on in your business right now, but thank you for the directionality on some of the numbers and stuff. That’s very helpful. I guess, first of all, can you just explain a little bit about the ingredient shortage situation? And is it possible like – can you give some idea of like what percentage of your SKUs are affected or just something like that? And also, can you explain like are product substitutions possible or is it certain SKUs are just like totally unavailable and there’s no substitution? Like, why is it that this like would make such a big impact on sales growth?

Yes. I think I’ll start with product substitutes. In some instances, there are substitutes and so someone might pick up something, but it really does depend, every product doesn’t have a direct substitute. Okay. So let me just put it that way. And the products that were particularly impacted in the U.S. in the first quarter were top-selling products. So I’m not sure if I could tell you what percentage of the products are impacted here, but specifically, no, it was actually a relatively small number of ingredients. And as I mentioned, it was that affected 40 to 50 products. And so if you’re missing – sometimes if we’re missing two ingredients that may impact quite a few products. And those products may have multiple ingredients in them. So if they’re missing one ingredient out of ten, we can’t produce it. So as I mentioned, this is not something that is regularly happens to us. But I think the situation is, as you know, intensified in the marketplace, just with respect to some ingredients not being available. I think we’ve addressed the specific issues that I highlighted in my commentary right now. But that does not mean that there won’t be other ingredients that don’t become available going forward. Is that helpful?

Yes. Yes, I think so. Yes. So let me just switch gears a little bit then to the sales growth. I mean, you talked about all the different regions and all the different moving parts. I mean, Asia was terribly strong. It was really good in the quarter. And then you mentioned the reopening of South Korea with the restrictions lifting. So that’s seems like that’s going to be a huge positive.

That should be good news.

Yes. So I’m just trying to figure out like with all those moving pieces, I mean, do you think Asia Pacific as a region can grow in the year – in the full year? And is there any way to gauge like to tell us like second quarter? Like what are the trends you’re seeing now, I guess, is what I’m asking in China, like in April? I mean, is it like down like 50% or like just what are the trends right now in China?

No. I mean, China is probably the most challenging market that we see right now, because of the shutdown. And I’ll let Joe kind of add some color commentary to that. But going back to your original question, yes, we do believe that Asia is a strong growth market in 2022. We have very kind of high expectations and for the performance to continue. And I would say that China is that one large uncertainty because the Chinese government hasn’t given any direction or guidance in terms of when the shutdowns might cease or be eased for that matter. Joe, do you have some additional commentary about that?

Yes. What I would add, Linda, and please weigh in if we’re not fully addressing your question, but just specific to China and the trends. Okay. We saw even though the Asia business, including China in the first quarter, clearly reflected a healthy increase, we started to experience some pressures on our China business in the month of March, because of the COVID shutdown. So moving into Q2, trend wise, at least for that market, you probably think more in terms of, well, China quarter-over-quarter maybe in and of itself. Best case may be closer to flat. But it’s all subject to the uncertainty surrounding just the extent of this COVID shutdown and whether, and that includes whether it expands or they find relief or whatever. The other thing I’d point out, just in relation to Asia, I mean, we’re pretty excited that there’s going to be some relief provided on the pandemic front in South Korea. I would think more in terms of the upside from that will take a little bit to kick in. So it’s more of a potential upside on the back half of the year versus the first half. But we’re certainly happy about that situation. And as Terrence mentioned, overall, yes, Asia in and of itself, subject to especially this – what we call the Shanghai China shutdown, we do believe represents growth in 2022 or 2021.

Okay. Thank you. That’s very helpful. Just let me ask, though, what you just said about China best case flat. Do you mean flat versus the first quarter or year-over-year? Just elaborate what you meant by that.

Well, that’s a good question. I was talking more specific to second quarter over second quarter, year-over-year. Yes. You asked about the trends and so both measure the trend based on what we saw in March. Clearly saw some softening as you would expect, because they’re in full shutdown mode in Shanghai.

Okay. But to be honest with you, flat is, quite frankly, much better than I would think. So it sounds like they’re continuing to somehow sell products and operate even while in shutdown…

Yes, they are.

Is that the case?

Yes. Well, again, the – our manufacturing facilities are outside of Shanghai and we do business all throughout the country. So there’s still opportunities there.

Okay. Thank you. That’s very helpful. And then I started jump around. But this is a bigger picture question about North America. And I mean, you really spoke very positively about DTC and you said now it’s like 15% of revenue in the U.S. So that’s coming along. But I wonder, are you absolutely sure that there’s no channel conflict developing, because you’re pointing to a weakness, I guess, in certain areas here. I know the shortage of the products situation, but are you absolutely sure that there’s no channel conflict developing as you develop the DTC in North America?

I think what we’re seeing, Linda, is, well, two things. The first is that our DTC efforts, as I mentioned, are reactivating lapsed customers. And so new customers – they are activating new customers and lapsed customers. Those lapsed customers are largely customers of distributors, and they get paid for that, okay. So that benefits them. And then as far as the core business, we’re not seeing an exodus of distributors kind of leaving the business, they continue to order. So order growth continues to be strong. So that’s why I emphasize that fact of the core numbers and the core distributors continue to move forward with our business. They’ve got all those same tools and they have other additional opportunities to drive their businesses as well.

Okay. Thanks. And just one last one for me. Just when you mentioned about the investing in the various areas of manufacturing, I see the importance of that, but that sounds like a capital intensive kind of thing. Is your CapEx going to pick up here in the next few years? I guess for this year, I’m expecting not $10 million to $11 million. Can you just give some color on that?

Joe, you want to take that?

Yes, well, it turns for reference to our new EVP of supply chain, and we’re obviously excited to see Martin come aboard here in the next couple of weeks. So we’ll be better prepared to speak to our future plans once he’s had a chance to assess the situation and spend some time getting directly involved. As far as for 2022, it’s our current plans are somewhere in that $6 million, $8 million, $10 million, I mean, there are certain things that we’re straight, we’re striving to acquire and purchase. But along with the materials, there’s certain equipment that’s on backorder as well. So some of that may spill into 2023, to be honest. But you’re not – you’re reasonably close with your plus or minus $10 million figure. And as far as that goes, okay? But there’s a second part of the question that I missed, we covered it.

No, I think, no, you got it. You covered it. Thank you. I’ll take the rest offline. Thank you very much.

Thank you, Linda.

Thanks a lot. Thanks for the questions.

We do have a question from Steven Martin with Slater. Please go ahead. Your line is open.

Yes. Hi, guys.

Hey, Steve.

Hey, Steve.

I guess all good parties have to come to an end at some point. Let me ask a couple of questions. Following up on windows. If China is flat in the second quarter and Taiwan and Japan continue to be positive and South Korea finally returns to positive, that would imply that Asia could have another good quarter, albeit not as good as it was should – it would have had.

Yes. I mean, it’s one way of looking at it. I mean, again, we’re trying to be a little cautious on the second quarter, Steve, because of all the previous pressures noted and so forth. I mean, you had a lot of moving pieces there and let’s specifically China, again, we’re sort of taking that one week at a time with this situation. We don’t want to be overly optimistic because we’re still not sure that should shut down or expand into other markets. So and then as I tried to address Linda has been quite robust, her comment about South Korea, I would think more in terms of the upside for us in 2022 versus 2021 for South Korea and getting past some of the pandemic limitations and restrictions is more of a second half kind of opportunity, say versus first half, right. But the business in Taiwan, Japan continues to do well. But as we sit here today, we are in a bit cautious on Asia overall for Q2. We don’t – as we sit here right now, we don’t expect the same level of growth as for Q1 over Q1. But we do expect growth for the year over the year.

Okay. But on North America and you saw – you implied or you said that you saw some of the stock out issues. Are you still out of stock on some products or magnitude?

We believe we’re slowly but surely getting on top of that situation, Steve. But honestly, when you literally, as I put it out in my comments, buying hundreds of ingredients, while I can sit here today and say, okay, we’re in great shape on the vast majority of them, and there’s just these 25 or 30 that we’re short on. I mean the way the situation is playing out and eight supply chain challenges and so forth and so on, it’s not to say that a new 10 or 15, we could have problems with all the altogether new 10 or 15 or 20, over the next two or three months. But obviously, we’re actively trying to stay on top of that. We like to believe that in large part we’ve got a healthy amount of stock on hand. But there are – there continue to be challenges. But we believe slowly but surely the impact of those out of stocks is declining, okay.

All right. SG&A for a second, recognizing what’s going on in the world and what’s going on with your business? I don’t want you – I would never suggest that you cut your sort of growth expenses. But what can you guys do to mitigate? You’ve always been such great expense managers in the past. What do you do? What can you guys do to try to soften the blow versus Q1 for the rest of the year?

Yes. I’d just open up. There are always things that we’re looking at and that we work on. We try and be very tight with our expense controls. But kind of structural changes, don’t happen quite as quickly as you’d like from one quarter to the next. So I’m going to leave it at that. But Joe, you have the additional commentary.

Yes, I mean, I think Terrence captured it, Steve. I mean you’re right. It’s difficult for you to see and static you don’t have the full breadth of our financials, but we’ve obviously given our updated thoughts on 2022 sales. They’ve already taken a pretty in-depth look at our SG&A build span, the detail, the level of discretion that comes into play on a lot of that. And we’ve already made certain moves related to expected travel and so forth and so on to rein that in somewhat. But what we’re not doing at this point is making or looking at major changes to our overhead structure or personnel structure because we clearly believe in the long-term potential for the business. And at the end of the day, we don’t want to make a bad near-term decision that clearly cost us in the long-term. So we continue to evaluate going forward like we can assure you that we’re taking a hard look at SG&A spend especially some of that discretionary structure aspect of it. But we believe in the long-term health of the business. So as we sit here today, yes, we could see a bit of an increase in SG&A as a percent of sales, but it’s because of our belief in the long-term potential for the business.

And one of the things I don’t wanted to Steve, I don’t want to do anything in 2022 that’s going to put us out of the game in 2023 and 2024, if you know what I mean.

And that’s why I said right up front, I wouldn’t expect you to do that. Okay.

Yes.

Let me change subjects to a mathematics and mathematical on the share buyback, I was really pleased to see that you bought back 450,000 shares. But I guess my question is, if I look at your balance sheet, the shares outstanding only declined to 50. Did you issue 200,000 shares for a stock-based compensation?

Well, we didn’t necessarily issue 250,000 shares in the quarter, but we very well may have had 250,000 shares invested during the quarter, either because they had met their time restriction, right, had passed. And maybe two, three years ago, there was a grant made that had a two or three-year vesting period and it got to cleared the vesting hurdle in the first quarter. So those become – those shares become issued now standing. And the other, we have a number of RSUs or price-based stock units. And if you hit certain price levels, those will vest, as well and become shares outstanding. So I think it’s more of the latter, what I just said.

Okay.

But no, I didn’t just flat out issue a quarter million shares during the quarter. What have been the stock grants? The stock grants from prior periods at best at during the quarter.

All right. Well, given that you’ve still got $29 million of the $30 million outstanding, I would hope you’re giving where the stock is. And given where it may trade in the near-term, I would hope that you guys continue to be aggressive and we see an actual a real decline in the share count.

Well, thank you. I noted in my comments plan is alive and active.

All right. Thank you very much. I’ll leave it to someone else.

Thanks, Steve.

And this concludes our Q&A session. I would now like to turn the call back to Mr. Moorehead for closing remarks.

Okay. Thank you. Well, I’d like to thank everyone for listening to today’s call. And we look forward to speaking with you when we report our second quarter 2022 results in August. Again, thanks for joining us. Take care.

Thank you.

That concludes today’s teleconference. You may disconnect your lines. Thank you for your participation.